1

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF FLORIDA

PANAMA CITY DIVISION

ROBERT MEYER, Individually

and On Behalf of All Others 

Similarly Situated,

Plaintiff,

vs. CASE NO. 5:11-cv-27/RS-EMT

THE ST. JOE COMPANY, 

et al., 

Defendants.

_________________________________________/

ORDER

Before me are Defendants‟ Motion to Dismiss (Doc. 72) and Memorandum in 

Support (Doc. 73), Plaintiff‟s Response in Opposition (Doc. 79), and Defendants‟ Reply 

(Doc. 81). 

Background

This is a purported class action securities fraud case against the St. Joe Company 

(“St. Joe”), its former chief executive officer and president William Greene (“Mr. 

Greene”), its former chief financial officer and executive vice president William 

McCalmont (“Mr. McCalmont”), its former chairman of the board and chief executive 

officer Peter Rummel (“Mr. Rummell”), and its present chief financial officer and senior 

vice president (and former chief accounting officer) Janna Connolly (“Ms. Connolly”). 

Plaintiff alleges Defendants intentionally deceived investors about the value of certain 

properties located throughout the Florida panhandle in violation of sections 10(b) and 

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20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78j(b), 

78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiff seeks to hold St. Joe, Mr. 

McCalmont, Mr. Rummell, and Ms. Connolly liable under section 10(b) of the Exchange 

Act and Rule 10b-5 (Count I), and to impose joint and several liability against them under 

section 20(a) of the Exchange Act as persons controlling another liable under the Act 

(Count II). Defendants move to dismiss the Consolidated Class Action Complaint (Doc. 

52) for failure to state a claim.1

St. Joe began as a timber and paper company in the 1930s and is now one of the 

largest real estate development companies in Florida. With approximately 577,000 acres 

of land, the publically traded company operates its business in four segments: (1) 

residential real estate; (2) commercial real estate; (3) rural land sales; and (4) forestry 

(Doc. 52, p. 8-11). By the mid-2000s, the real estate market in Florida was booming, and 

St. Joe‟s stock was regularly trading at more than $80 per share in 2005. Id. at 11. 

During this period, and continuing through the end of the decade, St. Joe began to 

develop a number of properties which are the subject of this valuation dispute: 

RiverTown, a residential real estate project in Saint Johns County; WaterColor and 

WaterSound, residential real estate projects in Walton County; SummerCamp Beach, a 

residential real estate project in Franklin County; WindMark Beach, a resort community 

in Gulf County; and the Northwest Florida Beaches International Airport in Bay County. 

Id at 5, 18-28. 

 

1

Plaintiff‟s claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (Counts III, IV, and V) have 

been dismissed. (See Docs. 70 & 71). 

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Just prior to and during the Class Period -- February 19, 2008, through October 12, 

2010 -- the real estate market nationwide and in Florida crashed. During this same 

period, many of St. Joe‟s development projects were performing poorly, causing St. Joe 

to “effectively cease its development activit[ies].” Id. at 16-17. The sales prices for its 

developments decreased significantly. Id. at 29-34. Plaintiff alleges that despite these 

signs, Defendants failed to take appropriate impairment charges2reflecting the known 

true value of the development projects, thereby “. . . materially oversta[ting] its asset 

values and its earnings during the Class Period.” Id. at 2. Plaintiff alleges that 

Defendants‟ actions did not comply with SEC regulations and Generally Accepted 

Accounting Principles (“GAAP”). Id. at 79-92. 

On October 13, 2010, these general allegations came to light not in a courtroom 

but at an investor conference presentation by David Einhorn (“Mr. Einhorn”), an investor 

with a short position in St. Joe stock. Id. at 76-77. Mr. Einhorn‟s research led him to 

conclude that “St. Joe had impermissibly failed to take the necessary and required 

impairment charges to its residential real estate projects in development, because it was 

not possible for the value of the properties to meet or exceed their carrying value.” Id. at 

77. St. Joe‟s stock price declined approximately twenty per cent in the two days 

following this disclosure. Id. at 78. Lead Plaintiff City of Southfield Fire & Police 

Retirement System seeks to represent a class of all persons who purchased St. Joe 

publically traded stock during the class period. 

 

2 This issue over impairment charges serves as the basis of Plaintiff‟s assertion that St. Joe‟s financial statements 

were materially false and misleading (See Doc. 52, p. 89). “Impairment charges are special, non-recurring charges 

on an asset with an overstated carrying value. Thus, taking an impairment charge decreases the previously reported 

value of an asset and reduces earnings.” Id. at 7. 

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Discussion

Plaintiff sues Defendants for securities fraud under sections 10(b)3and 20(a)4of 

the Exchange Act and Rule 10b-5

5

promulgated thereunder. Plaintiff must establish the 

following elements: (1) a material misrepresentation or omission by the Defendant; (2) 

scienter; (3) a connection between the misrepresentation or omission and the purchase or 

sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; 

and (6) loss causation. Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340, 

1352 (11th Cir. 2008) (citing Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 

552 U.S. 148, 157 (2008)). 

Defendants move to dismiss the Consolidated Class Action Complaint for failure 

to state a claim under Fed. R. Civ. P. 12(b)(6). Defendants contend that the Consolidated 

Class Action Complaint (Doc. 52) fails to adequately plead loss causation, actionable 

misrepresentation, and scienter. (Doc. 73, p. 3). 

Standard of Review

To survive a motion to dismiss, a complaint must contain sufficient facts, which 

accepted as true, state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 129 

S. Ct. 1937, 1949 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 569, 127 S. Ct. 

 

3

Section 10(b) of the Exchange Act forbids the use or employ, in connection with the purchase or sale of securities, 

of any manipulative or deceptive device or contrivance in contravention of the rule and regulations the Securities 

and Exchange Commission may prescribe as necessary or appropriate in the public interest or for investors‟ 

protection. 15 U.S.C. §78j(b).

4

Section 20(a) of the Exchange Act imposes joint and several liability on any person who controls another person 

liable under the Exchange Act. 15 U.S.C. § 78t(a).

5 Rule 10b-5(b) forbids a person from making any untrue statement of material fact or omitting to state a material 

fact necessary to make the statements made, in light of the circumstances under which they were made, not 

misleading. 17 C.F.R. § 240. 10b-5(b). 

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1955, 1974 (2007). Granting a motion to dismiss is appropriate if it is clear that no relief 

could be granted under any set of facts that could be proven consistent with the 

allegations of the complaint. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 

2229, 2232 (1984). In making this determination, the court must accept all factual 

allegations in the complaint as true and in the light most favorable to Plaintiff. 

Christopher v. Harbury, 536 U.S. 403, 406, 122 S. Ct. 2179, 2182 (2003).

Allegations of fraud such as Plaintiff‟s security fraud claim are subject to the 

heightened pleading standards set forth in Federal Rule of Civil Procedure 9(b). 

Instituto de Prevision Militar, 546 F.3d at 1352. Plaintiff must “state with particularity 

the circumstances constituting the fraud.” Fed. R. Civ. P. 9(b). In addition, the Private 

Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b), further 

raises the pleading standard for securities fraud claims. Plaintiff must specify each 

statement alleged to have been misleading and the reasons why the statement is 

misleading. 15 U.S.C. § 78u-4(b)(1)(B). With respect to each statement or omission, 

Plaintiff must state with particularity facts giving rise to a strong inference that 

Defendants acted with the required scienter. Id. § 78u-4(b)(2). 

Loss Causation

Plaintiff has the burden of proving that the act or omission of the Defendants 

“caused the loss for which [P]lainitff seeks to recover damages.” Id. § 78u-4(b)(4). Loss 

causation is not subject to heightened pleading standards but must be supported by a 

“short and plain statement of the claim showing that the pleader is entitled to relief.” See 

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Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005) (citing Fed. R. Civ. P. 8(a)(2)) 

(assuming without deciding that loss causation subject to normal pleading standards). 

Loss causation may not be established by simply alleging that corporate stock was 

purchased at an artificially inflated price. Dura Pharms., Inc. 544 U.S. at 342. Rather, to 

sufficiently plead loss causation, Plaintiff must “allege that the subject of the fraudulent 

statement or omission was the cause of the actual loss suffered, i.e., that the misstatement 

or omission concealed something from the market that, when disclosed, negatively

affected the value of the security.” Durham v. Whitney Info. Network, Inc., 2009 U.S. 

Dist. LEXIS 113757, *26-27 (M.D. Fla. 2009) (citing Edward J. Goodman Life Income 

Trust v. Jabil Circuit, Inc., 595 F. Supp. 2d 1253, 1278-79 (M.D. Fla. 2009) (quoting 

Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005)). Otherwise, a plaintiff 

could not distinguish between a decrease in stock value associated with the revelation of 

the truth from a lower value which may “reflect not the earlier misrepresentation, but 

changed economic circumstances, changed investor expectations, new industry-specific 

or firm-specific facts, conditions, or other events, which taken separately or together 

account for some or all of that lower price.” Dura Pharms., 544 U.S. at 342-343 

(punctuation altered). 

The revelation of truth, the moment when the alleged misstatements or omissions 

become public, is sometimes called a “corrective disclosure.” See e.g., In re DVI, Inc. 

Secs. Litig., 2011 U.S. App. LEXIS 6302, n.17 (3d Cir. 2011). Here, Defendants do not 

dispute that St. Joe stock decreased in value immediately following Mr. Einhorn‟s 

presentation. Rather, Defendants dispute whether Mr. Einhorn‟s presentation is a 

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corrective disclosure at all. First, they assert that Mr. Einhorn‟s presentation was merely 

a repackaging of publically available sources and previously disclosed facts and, thus, 

could not be a new disclosure. Second, Defendants contend that the presentation fails to 

qualify as a corrective disclosure because it did not address the alleged misstatements in 

St. Joe‟s prior financial statements but rather “opined on the possibility of future

occurrence[s]” (Doc. 73, p.19) (emphasis added). These contentions overlap and will be 

considered together. 

Mr. Einhorn‟s presentation “Field of Schemes: If You Build It, They Won‟t 

Come” (Doc. 74, Exhibit E), begins with a clear disclaimer. It states that the information 

contained in the presentation “has been obtained from publically available sources.” Id. 

at 2. These sources include, among other things, St. Joe‟s SEC filings, press releases, and 

earnings call transcripts, Freedom of Information Act requests, meeting minutes of the 

airport board, and county property appraiser‟s sales lists. E.g., id. at 15, 23, 25, 26, 29. 

Defendants contend that the fraud on the market doctrine cuts both ways when it 

comes to the effect of public information. That doctrine entitles a plaintiff to a 

presumption of reliance where the information in question is material, the market is 

sufficiently active to be deemed efficient, and the misinformation has been disseminated 

publically. THOMAS HAZEN, THE LAW OF SECURITIES REGULATION § 12.10 (6th ed. 

2009). The fraud on the market doctrine is “based on the hypothesis that, in an open and 

developed securities market, the price of a company‟s stock is determined by the 

available material information regarding the company and its business.” Ross v. Bank 

South, N.A., 885 F.2d 723, 749 n.5 (11th Cir. 1989) (quoting Basic, Inc. v. Levinson, 485 

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U.S. 224, 241-42 (1988)). In other words, the theory “posits that all publically available 

information about a security is reflected in the market price of the security.” Thompson 

v. RelationServe Media, Inc., 610 F.3d 628, 690 (11th Cir. 2010) (Tjoflat, J., concurring 

in part and dissenting in part). Here, Plaintiff asserts that a presumption of reliance is 

proper because the fraud on the market doctrine is applicable (Doc. 52, p. 109-10). 

Defendants turn this argument around and assert that because of the doctrine and the fact 

that all of the information contained in Mr. Einhorn‟s October 2010 presentation was 

publically available, it could not be a corrective disclosure because “„the market had 

already known and digested all the information supposedly‟ disclosed therein.” (Doc. 73, 

p.11) (quoting Thompson, 610 F.3d at 690). Plaintiff counters that Mr. Einhorn‟s 

presentation constituted new information generated by analyzing separate publically 

available “data points . . . [and] connecting the dots regarding their aggregate meaning.” 

(Doc. 79, p.30). 

Neither party has cited an Eleventh Circuit case directly on point. Defendants cite 

a string of cases standing for the proposition that “a negative . . . characterization of 

previously disclosed facts does not constitute a corrective disclosure of anything but the 

[author‟s] opinions.” In re Omnicom Group, Inc. Sec. Litig., 597 F.3d 501, 512 (2d Cir. 

2010). See also Teachers' Ret. Sys. v. Hunter, 477 F.3d 162, 187 (4th Cir. 2007) (“The 

problem with plaintiffs‟ theory . . . is that these facts had already been disclosed in public 

filings, so their [subsequent] revelation . . . could not have caused [the company‟s] stock 

price to decline.”); In re Retek Inc. Sec. Litig., 621 F. Supp. 2d 690, 705 (D. Minn. 2009) 

(“Generally, a re-characterization of previously disclosed news cannot be a corrective 

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disclosure for loss causation purposes.); In re Merrill Lynch & Co. Research Reports Sec. 

Litig., 568 F. Supp. 2d 349, 363 (S.D.N.Y. 2008) (“The mere negative characterization of 

existing facts that were never hidden from investors does not permit [plaintiff] to plead 

loss causation.); In re Teco Energy Sec. Litig., 2006 U.S. Dist. LEXIS 18101, *19-20 

(M.D. Fla. 2006) (“The opinions, predictions, and generalized statements offered by 

Plaintiffs as „revelations‟ of the „truth‟ regarding [company‟s] financial status, without 

more, are not sufficient to establish loss causation.” Specifically, an analyst‟s 

“revelations” which do “not identify, reveal or correct any prior misstatement, omission, 

or improper accounting practice by Defendants” is not actionable.). 

Plaintiff counters with two cases. In the first, In re Motorola Sec. Litig., 505 F. 

Supp. 2d 501 (N.D. Ill. 2007), Motorola had disclosed in a proxy that it was owed $1.7 

billion by a Turkish company. A week later, Bloomberg published an article which 

“unearthed” the information “buried” in the proxy. Id. at 548. The district court in 

Illinois found that loss causation was supported by both the article and the proxy. Id. at 

557. Plaintiff contends that the rationale for allowing the article to support loss causation 

was, in part, that “a reasonable investor would not have undertaken such a detailed 

investigation of publically available information as that done by a journalist.” (Doc. 79, 

p. 24). 

This case is not persuasive. First, the argument that professionals are the 

gatekeepers to understanding financial records and unearthing fraud is in conflict with 

traditional concept of constructive notice. See Dura Pharms., Inc., 544 U.S. at 341 

(noting that action for private damages under the Exchange Act “resembles, but is not 

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identical to, common-law tort actions for deceit and misrepresentation). It also is in 

conflict with the efficient market theory which presumes that all publically available 

information is incorporated into a stock‟s price. As the district court in Motorola noted, 

there may be a lag between when new information is released and when it is incorporated 

into the efficient market. In re Motorola Sec. Litig., 505 F. Supp. 2d at 553-54. Here, 

the events which are the subject of the dispute took place over a long duration--as the real 

estate market declined, St. Joe allegedly failed to take proper impairment charges. This 

lengthy duration was adequate time for the information disclosed by St. Joe to have been 

scoured by investors to reveal the methodology St. Joe used to arrive at its real estate 

valuations. 

Plaintiff‟s reliance on Motorola is also misplaced because that case is 

distinguishable. In Motorola, the plaintiff asserted that the disclosure at issue concerned 

Motorola‟s vendor financing of the Turkish company. This information was “buried” in 

SEC filings. Id. at 555-56. In addition, knowledge of the interrelationship of two 

Turkish businesses and knowledge of the poor public reputation of a Turkish family that 

controlled one of the businesses was required to discern the information. Id. Quite 

simply, the alleged misrepresentations of St. Joe are much different. The value of Florida 

real estate is at the heart of St. Joe‟s business operation, unlike the foreign operations of 

Motorola. Plaintiff concedes St. Joe disclosed how it accounted for impairment of asset 

carrying values (E.g., Doc. 52, ¶ 91), and reasonable investors should have focused on 

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those valuations and methodologies.6 There were no significant impediments to

investors‟ analysis St. Joe‟s prior disclosures. 

Plaintiff cites a second case which states that “in addition to formal disclosure by a 

defendant, „the market may learn of possible fraud [from] a number of sources: e.g., from 

whistleblowers, analysts‟ questioning financial results, resignation of CFOs or auditors, 

announcements by the company of changes in accounting treatment going forward, 

newspapers and journals, etc.‟” In re Winstar Communs., 2006 U.S. Dist. LEXIS 7618, 

*46 (S.D.N.Y. 2006) (citing In re Enron Corp. Sec. Derivative & "ERISA" Litig., 2005 

U.S. Dist. LEXIS 41240 (S.D. Tex. 2005)). In that case, the district court in New York 

found that a short-seller‟s report which was based on public information and contained 

conclusions which were derived from an analysis of the company‟s financials was 

 

6

For Example, Plaintiff notes St Joe‟s 2007 Annual Report which stated: 

During 2007, we recorded total asset impairment costs of $23.2 million, $13.0 million of which related to the write

down of capitalized costs at certain projects due to changes in development plans and the impairment of completed

homes in several of our communities due to current market conditions. If market conditions were to continue to

deteriorate, and the market values for our home sites, remaining homes held in inventory and other project land

were to fall below the book value of these assets, we would need to take additional write-downs of the book value of

these assets. Any such write-downs would decrease the value of these assets on our balance sheet and would reduce

our net income. 

* * *

Impairment Losses. We review our long-lived assets for impairment whenever events or changes in circumstances

indicate that the carrying amount of an asset may not be recoverable. Homes and home-sites substantially completed 

and ready for sale are measured at the lower of carrying value or fair value less costs to sell. For projects

under development, an estimate of future cash flows on an undiscounted basis is performed using estimated future

expenditures necessary to maintain the existing service potential of the project and using management.‟s best

estimates about future sales prices and holding periods. The decline in demand and market prices for residential

real estate caused us to conclude that carrying amounts within our residential real estate segment may not be

recoverable, and we performed an impairment analysis. As a result of our impairment analyses, we recorded an

impairment charge of $13.6 million in the residential real estate segment.

* * *

In 2007 we recorded impairments totaling $13.6 million primarily due to current adverse market conditions for

residential real estate. Approximately $5.2 million of the impairments related to capitalized costs at certain projects

due to changes in development plans, approximately $7.8 million related primarily to completed spec homes in

several communities and approximately $0.6 million related to the modified terms of certain promissory notes.

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sufficient to support loss causation. Id. at *47-48. The short-seller‟s report disclosed the 

company‟s cash-flow shortage and likely default and “revealed [the company‟s] 

questionable accounting practices, of which the public had not previously been aware.” 

The report was “contrary to the false statements allegedly made by defendants” which 

were “repeatedly denied and actively concealed.” Id. at *17-18, 47-48. 

Neither Winstar, nor any of the other sources establish a per se rule always 

allowing or always prohibiting disclosures based on already released information. 

Likewise, none of the cases establish a bright-line test of when a report based on 

publically released data becomes a corrective disclosure. The touchstone is whether the 

report contains genuinely new information beyond a mere re-characterization of 

previously disclosed facts. The author must add significant original insight that 

identifies, reveals, or corrects prior misstatements, omissions, or improper accounting 

practices. The case that best shows this distinction is In re Teco Energy Sec. Litig., 2006 

U.S. Dist. LEXIS at *19-20 which stated that “the opinions, predictions, and generalized 

statements offered by Plaintiffs as “revelations” of the “truth” regarding [company‟s]

financial status, without more, are not sufficient to establish loss causation.” Rather, an 

analyst‟s “revelations” must “identify, reveal or correct any prior misstatement, omission, 

or improper accounting practice by Defendants.” Id. 

Turning to the content of Mr. Einhorn‟s presentation, Plaintiff contends the 

presentation “concluded that St. Joe had impermissibly failed to take the necessary and 

required impairment charges to its residential real estate projects in development.” (Doc. 

52, p. 81) (emphasis added). If true, this contention would indicate some prior improper 

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practice--the word “had” meaning in the past, and the word “impermissibly” meaning 

improper. However, Plaintiff overstates what Mr. Einhorn‟s presentation actually

stands for. To start, the words “impermissible,” “necessary” and “required” appear 

nowhere in the presentation. They are characterizations of the presentation added by 

Plaintiff. 

The 139-slide presentation makes mention of “impairments” in several contexts. 

First, Mr. Einhorn notes that “despite making huge investments ahead of the bust, [St. 

Joe] has taken only modest write-downs.” (Doc. 74, Exhibit E, p. 40). As a result, the 

presentation states that a number of the residential developments “should be impaired.” 

Id. at 63, 98, 115. At this point, the language of the presentation indicates future action 

that St. Joe needed to take and does not indicate an impermissible practice. 

The presentation poses, but does not answer the question “why haven‟t these 

[residential developments] been written down?” Id. at 122. Plaintiff would like to assert 

that the answer was impermissible practices by St. Joe. However, the presentation 

certainly does not, by its own terms, reach that conclusion. 

Finally, in the conclusion section of the presentation, Mr. Einhorn states that “[St. 

Joe] needs to take substantial impairment.” Id. at 124. Again, this language indicates a 

future action. Mr. Einhorn then equivocates and in summary the presentation 

contemplates both a situation “if no impairment is needed” and another one “if [St. Joe] 

needs to take an impairment.” Id. at 133. These also are potential future actions. 

Plaintiff correctly points out that media further disseminated the conclusions of 

Mr. Einhorn‟s presentation which increased downward pressure on St. Joe stock (See

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Doc. 79, p.11). However, in multiple articles about the presentation, reporters interpreted 

Mr. Einhorn‟s predictions as being that St. Joe would need to take some future action of 

impairment. See, e.g., Nikolaj Gammeltoft and John Gittelsohn, Einhorn Says St. Joe 

Needs ‘Substantial’ Writedowns, October 13, 2010, http://www.businessweek.com/news

/2010-10-13/einhorn-says-st-joe-needs-substantial-writedowns.html. 

When viewed as a whole and in the light most favorable to Plaintiff, Mr. Einhorn‟s 

presentation offers opinion about the need for future impairments. It is entirely based on 

previously disclosed facts and offers nothing new concerning prior improper practices. 

The decline in St. Joe‟s stock value in the days following the presentation can be just as 

easily attributed to Mr. Einhorn‟s predictions about future impairments, as they could be 

to what Plaintiff contends are improper past impairments. Taken together, these facts 

establish that Mr. Einhorn‟s presentation is not a corrective disclosure and, thus, fails to 

meet the threshold requirement of a short and plain statement showing that Plaintiff is 

entitled to relief. 

Actionable Misrepresentation

To sustain a claim under Section 10(b), Plaintiff must allege that Defendants 

“made a false statement or omission of material fact.” Bruschi v. Brown, 876 F.2d 1526, 

1528 (11th Cir.1989). To fulfill the materiality requirement, “there must be a substantial 

likelihood that the disclosure of the omitted fact would have been viewed by the 

reasonable investor as having significantly altered the „total mix‟ of information made 

available.” Oxford Asset Mgmt. v. Jaharis, 297 F.3d 1182, 1189 (11th Cir. 2002) (citing 

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Basic Incorporated v. Levinson, 485 U.S. 224, 23132 (1988)). The heightened pleading 

standards of PSLRA apply to the materiality requirement. PSLRA requires the complaint 

to “specify each statement alleged to have been misleading, the reason or reasons why the 

statement is misleading, and, if an allegation regarding the statement or omission is made 

on information and belief, the complaint shall state with particularity all facts on which 

that belief is formed.” 15 U.S.C. § 78u-4(b)(1). 

Here, the heart of Plaintiff‟s contention is that “Defendants repeatedly touted the 

Company‟s net income and value of the Company‟s real estate assets, while at the same 

time reporting minimal impairments, thus portraying a misleadingly positive financial 

picture.” (Doc. 79, p. 8). Plaintiff contends that by reporting minimal impairments, 

Defendants misrepresented that St. Joe‟s financial statements conformed to GAAP. Id.; 

(Doc. 52, ¶156). 

 GAAP are a series of general principles followed by accountants. More 

specifically, GAAP are the official standards adopted by the American Institute of 

Certified Public Accountants (“AICPA”), a private professional association, through 

three successor groups it established: the Committee on Accounting Procedure, the 

Accounting Principles Board, and the Financial Accounting Standards Board. Ganino v. 

Citizens Utils. Co., 228 F.3d 154, 160, n.4 (2d Cir. 2000).

“GAAP is not [a] lucid or encyclopedic set of pre-existing rules.” Shalala v. 

Guernsey Mem'l Hosp., 514 U.S. 87, 101 (1995). “Far from a single-source accounting 

rulebook, GAAP „encompasses the conventions, rules, and procedures that define 

accepted accounting practice at a particular point in time.‟” Id. (citing Kay & Searfoss, 

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ch. 5, at 7 (1994 Update)). “The determination that a particular accounting principle is 

generally accepted may be difficult because no single source exists for all principles. 

There are 19 different GAAP sources, any number of which might present conflicting 

treatments of a particular accounting question.” Id. (punctuation altered). When conflict 

arises between the sources, the accountant must consult “an elaborate hierarchy of GAAP 

sources to determine which treatment to follow.” Id.7 

Violations of the GAAP may constitute false or misleading statements of material 

fact. In re Sci. Atlanta, 239 F. Supp. 2d 1351, 1363 (N.D. Ga. 2002); Amalgamated Bank 

v. Coca-Cola Co., 2006 U.S. Dist. LEXIS 73909, *37 (N.D. Ga. 2006). GAAP violations 

must be pled with particularity. “Plaintiffs must point to particular transactions and 

explain why those transactions violated GAAP standards. In re Coca-Cola Enters. Inc. 

Secs. Litig., 510 F. Supp. 2d 1187, 1200 (N.D. Ga. 2007) (citing Lovelace v. Software 

Spectrum Inc., 78 F.3d 1015, 1021 (5th Cir. 1996)). When it comes to impairment 

violations of GAAP, “the Complaint must go further than merely alleging with the 

benefit of hindsight that an impairment should have been taken to reflect a decline in fair 

market value. Rather, the Complaint must provide detail as to why an impairment was 

required under then-existing accounting rules.” In re Mirant Corp. Secs. Litig., 2009 

U.S. Dist. LEXIS 789, *80 (N.D. Ga. 2009) (citations omitted). Thus, in order to plead 

 

7 Midway through the class period, on July 1, 2009, the Financial Accounting Standards Board launched the FASB 

Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted 

accounting principles. The Codification became effective for interim and annual periods ending after September 15, 

2009. As a result of the Codification all existing standards documents are superseded as described in

SFAS No. 168, .“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted 

Accounting Principles..” Instead of issuing new FASB standards, the FASB now issues FASB Accounting 

Standards Updates (.“ASU.”). The Codification did not change existing GAAP, it only introduced a newly organized 

structure. (Doc. 52, ¶148). 

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an adequately particularized claim, the Complaint must, for example, detail how the 

results of an impairment test were reported fraudulently in the company's financial 

disclosures, or how impairment testing should have been conducted and how that testing 

would have necessarily required a recognition of an impairment. Id.

Plaintiff asserts that there is a three step process which governs recording an 

impairment loss for assets, such as St. Joe‟s, that are held and used. (Doc. 52, ¶157). 

The first step instructs accountants to test for recoverability whenever events or changes 

in circumstances indicate that its carrying value may not be recoverable. Id. at ¶158 

(citing ASU 360-10-35-21). Examples of changes in events include decreases in market 

price and adverse changes in the manner in which the asset will be used. Id. The next 

two steps “are to perform a recoverability test to determine if there is any impairment.” 

Id. at ¶159. Plaintiff describes the process as follows: 

An impairment loss shall be recognized only if the carrying of 

a long-lived asset (asset group) is not recoverable and exceeds 

its fair value. [Step two;] The carrying amount of

a long-lived asset (asset group) is not recoverable if it exceeds 

the sum of the undiscounted cash flows expected to result 

from the use and eventual disposition of the asset (asset 

group). That assessment shall be based on the carrying 

amount of the asset (asset group) at the date it is tested for 

recoverability, whether in use....or under development

.....[Step three;] An impairment loss shall be measured as the 

amount by which the carrying amount of a long-lived asset 

(asset group) exceeds its fair value. 

Id. (citing ASU360-10-35-17). 

GAAP requires the recoverability test to be reasonable. GAAP also requires the 

test to incorporate the “entity‟s own assumptions about the use of the asset (asset group)” 

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and to consider “all available evidence.” Id. at ¶161 (citing ASU 360-10). Plaintiff 

asserts that eight factors should have been considered by Defendants, which would have 

demonstrated the need for further impairments. (Doc. 79, p. 15). Plaintiff claims that 

these factors were “so apparent” that Defendants failure to do so was fraudulent. See 

Carpenters Health & Welfare Fund v. Coca-Cola Co., 2002 U.S. Dist. LEXIS 28072, 

*57-58 (N.D. Ga. 2002) (where the need to write-down is “so apparent” that the failure to 

do so amounts to fraud.). These factors are (1) the impact of market supply and demand; 

(2) the rate of sales and inventory on the market; (3) selling prices including sales 

incentives; (4) current sales; (5) anticipated land development and future development 

costs to be incurred including interest and overhead costs; (6) price erosion; (7) the time 

to complete the project and sell its units; and (8) risks specific to each land parcel or 

community. (Doc. 53, ¶170).

Plaintiff‟s allegations are insufficient to show that Defendants made material 

misrepresentations that St. Joe‟s financial statements were GAAP compliant. First, while 

Plaintiff claims that Defendants failed to consider the eight purported essential factors, 

Plaintiff does not offer any concrete evidence in support. For example, Plaintiff lists 

“selling prices” and “current sales” as two of the essential factors. St. Joe‟s 2008 Annual 

Report, however, specifically details the number of units sold and the revenues from 

those units. See The St. Joe Company, Annual Report (Form 10-K), at 35 (February 24, 

2009). Taken directly from St. Joe‟s SEC filing, the following contradicts Plaintiff‟s 

assertion that Defendants did not consider at least some of the eight relevant factors in 

their impairment analysis. 

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The chart also undermines Plaintiff‟s assertion that Defendants misrepresented

anything at all. Defendants properly listed the relevant information—sales data, 

revenues, and profits. Defendants also disclosed how the impairment charge was 

calculated. See, e.g., The St. Joe Company, Annual Report (Form 10-K), at 26 (February 

24, 2009) (detailing the step-by-step method used for taking impairment). Any investor 

could look at the data to make up their own mind whether St. Joe had adequately taken 

write-downs or would need further impairments in the future. Plaintiff would have a case 

for misrepresentation if, for example, St. Joe had not accurately disclosed the number of

homes which were sold. That is not what happened here. 

Year Ended December 31, 2008 Year Ended December 31, 2007

Closed Cost of Gross Closed Cost of Gross

Units Revenues Sales Profit Units Revenues Sales Profit

(Dollars in millions)

Northwest Florida:

Resort

Single-family homes 8 $ 8.6 $ 8.3 $ 0.3 20 $ 23.1 $ 19.3 $ 3.8

Multi-family homes — — — — 1 0.9 0.6 0.3

Homesites 21 6.7 3.5 3.2 47 36.6 12.9 23.7

Primary

Single-family homes 1 0.3 0.3 0.0 15 4.4 3.5 0.9

Townhomes — — — — 5 1.1 0.9 0.2

Homesites 23 1.3 1.0 0.3 178 14.2 9.4 4.8

Northeast Florida:

Primary

Single-family homes 2 0.9 1.0 (0.1) 9 4.3 4.0 0.3

Homesites 3 0.2 0.1 0.1 29 2.0 1.1 0.9

Central Florida:

Primary

Single-family homes 10 4.5 4.4 0.1 20 11.8 9.2 2.6

Multi-family homes 9 3.1 2.9 0.2 39 5.7 4.0 1.7

Townhomes 3 0.5 0.5 0.0 15 7.1 5.9 1.2

Homesites 42 1.9 2.0 (0.1) 100 4.8 6.1 (1.3)

Total 122 $ 28.0 $ 24.0 $ 4.0 478 $ 116.0 $ 76.9 $ 39.1

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The second reason why Plaintiff has not shown actionable misrepresentation is 

because Plaintiff does not allege that adverse facts were hidden or misrepresented, but 

rather that Defendants‟ opinions based on those facts were wrong. For example, Plaintiff 

states that Defendants were misleading because the Florida real estate market had 

crashed, many of St. Joe‟s developments remained largely undeveloped, and sales prices 

and volumes had declined. (See Doc. 79, p. 8). Plaintiff does not allege, and the record 

does not indicate, that these facts themselves were hidden by Defendant. Specifically, St. 

Joe reported that the Florida real estate market was weak and could lead to future 

impairments. The 2008 Annual Report states, “If market conditions were to continue to 

deteriorate, and the market values for our homesites, remaining homes held in inventory 

and other project land were to fall below the book value of these assets, we could be 

required to take additional write-downs of the book value of those assets.” The St. Joe 

Company, Annual Report (Form 10-K), at 12 (February 24, 2009). The 2008 and 2009

reports note that a “continued downturn in the demand for real estate, combined with the 

increase in the supply of real estate available for sale and declining prices, will continue 

to adversely impact our business.” The St. Joe Company, Annual Report (Form 10-K), at 

8 (February 23, 2010); Id. at 30. 

Rather than hiding these market conditions, St. Joe made note of them in their 

SEC filings. The heart of Plaintiff‟s assertion, then, is not that these facts were hidden, 

but that St. Joe looked at the facts and fraudulently ignored their impairment 

ramifications. Plaintiff does not offer an alternative calculation of what it believes the 

proper impairment charges should have been. While an alternative calculation may or 

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may not be required, its absence in this case suggests that the correct impairments were 

not “so apparent.” Reasonable professionals could differ about the effect of these market 

forces on St. Joe‟s impairment analysis, especially without the aid of hindsight. In the 

midst of the financial meltdown, Defendants cannot be held to a prescient standard to 

know how the market would behave to affect the future value of their holdings. Rather, 

they were required to conduct a reasonable recoverability test, not a perfect one. 

Defendants made a reasoned business judgment that the market in Florida would improve 

before they could sell assets. While this judgment may have proven wrong, it does not 

mean that there was actionable misrepresentation. Plaintiff has not brought forth any 

evidence beyond mere speculation that Defendants‟ actions amounted to false statements 

of fact. 

Scienter

Plaintiff must “state with particularity facts giving rise to a strong inference that 

the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). The 

required state of mind is “an intent to deceive, manipulate, or defraud, or severe 

recklessness.” Thompson, 610 F.3d at 634 (punctuation altered). Severe recklessness is 

limited to those “highly unreasonable omissions or misrepresentations that involve not 

merely simple or even inexcusable negligence, but an extreme departure from the 

standards of ordinary care.” Id. 

The inference that the defendant acted with scienter “need not be irrefutable” or 

even the “most plausible of competing inferences.” Tellabs, Inc. v. Makor Issues & 

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Rights, Ltd., 551 U.S. 308, 324 (2007) (citation omitted). Rather, “the inference of 

scienter must be more than merely „reasonable‟ or „permissible‟--it must be cogent and 

compelling, thus strong in light of other explanations. Id. A complaint will survive only 

if a reasonable person would deem the inference of scienter cogent and at least as 

compelling as any opposing inference one could draw from the facts alleged. Id.

“The mere publication of inaccurate accounting figures, or a failure to follow 

GAAP, without more, does not establish scienter.” Ziemba v. Cascade Int'l, Inc., 256 

F.3d 1194, 1209 (11th Cir. 2001) (citing In re Software Toolworks Inc., 50 F.3d 615, 627 

(9th Cir. 1994)). Inaccurate figures may be caused by “accountants . . . reasonably 

reach[ing] different conclusions” in conducting impairment analysis. Cutsforth v. 

Renschler, 235 F. Supp. 2d 1216, 1260 (M.D. Fla. 2002) (in the FAS 121 context). 

Likewise, inaccuracies “can easily arise from negligence, oversight or simple 

mismanagement, none of which rise to the standard necessary to support a securities 

fraud action.” Abrams v. Baker Hughes, Inc., 292 F.3d 424, 433 (5th Cir. 2002)

Here, Plaintiff alleges that seven factors establish Defendants‟ scienter: (1) that the 

Individual Defendants possessed substantial internal information contradicting their 

public statements; (2) that the Individual Defendants were intimately aware of the value 

of St. Joe‟s real estate portfolio; (3) that Defendants‟ misstatements related to St. Joe‟s 

core operations; (4) that the nature of the GAAP violations evidences knowledge; (5) that 

Defendants held the highest positions in St. Joe; (6) that Defendants were severly reckless 

in certifying the accuracy of Sarbanes-Oxley certifications; and (7) that Individual 

Defendants had motive and opportunity to underreport the necessary impairments. (Doc. 

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79, p. 18). Assuming that these seven inferences are true, and that St. Joe did, in fact, 

improperly perform its impairment analysis, Plaintiff has not brought forth sufficient 

evidence to suggest that Defendants acted with anything more than mere negligence. 

Plaintiff‟s seven allegations amount to a simple inference that during the class 

period the Defendants knew the value of St. Joe‟s real estate portfolio had declined in 

value. The fact that current sales prices were below carrying values says nothing about 

Defendants‟ beliefs regarding how the real estate market would value St. Joe‟s

developments in the future. This time distinction -- what Defendants knew about current 

valuations and what they believed would happen in the future -- is critical. 

Under GAAP, impairment analysis is performed by the “undiscounted cash flow 

analysis” to determine the “recoverable value for each project - the value of the project to 

St. Joe of its useful life.” (Doc. 52, ¶8)(quotation omitted). For long-lived assets, the 

appropriate technique to calculate the carrying value is the “expected present value 

technique.” Id. at ¶ 169. Present value is the sum of money that would amount to a 

specified sum at a specified future date; i.e., future value discounted to its value today. 

BLACK‟S LAW DICTIONARY 993 (Abridged 8th ed. 2005). Because the essence of 

impairment analysis is to predict what a future value will be, the most compelling 

inference is that St. Joe expected market conditions to improve before it sold its assets. A 

sharp decline in the Florida real estate market portended a long-term structural decline in 

valuation. However, that conclusion results from the benefit of hindsight. Defendants 

made their impairment decisions in real time, and it just as easily could have turned out 

that a sharp downturn would be followed by a sharp upturn. 

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To buttress its argument that Defendants were severely reckless, Plaintiff relies 

upon information provided by a confidential witness (“CW4”) who was a “Senior Vice 

President and Regional General Manger.” (Doc. 52, ¶66). CW4 stated that the 

Individual Defendants knew “detailed information about the projects including, revenues 

and revenue projections, absorption rates, sales information, development plans and 

budget requests.” Id. CW4 prepared a memorandum and spreadsheet for some of the 

Individual Defendants which “summarize[ed] the status of the troubling asset valuations

he had uncovered at several of the Company‟s projects” and “revealed materially lower 

values than those reported in the Company‟s SEC filings” (Doc. 79, p.20). 

The complaint does not detail the process CW4 used to calculate the carrying 

values. The complaint also does not state that CW4 was an accountant who was trained 

to perform GAAP compliant impairment analysis. Rather, it appears that CW4 used his 

personal judgment, based on professional experience, to conclude that the developments 

were overvalued. For example, CW4 believed that St. Joe‟s SouthWood project 2007 

carrying value of $48,201,000 was overstated. (Doc. 52, ¶175). CW4 calculated that $48 

million divided by the 50-75 lots under development at any given time suggested that St. 

Joe would be able to recover between $960,000 to $640,000 per lot. CW4 claims that the 

2000 entitlements at SouthWood were of “little value, because of the difficulty in 

obtaining permits” and they were not included in his rough valuation calculation. 

Plaintiff claims CW4‟s calculations show that St. Joe was using “highly unrealistic” 

figures “given market conditions and recent sales history.” Id. 

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While CW4‟s analysis and representations to Defendants shed some light on what 

Defendants knew, CW4 is not persuasive when it comes to scienter. CW4 offered 

opinions, not facts. Defendants were entitled to discount CW4‟s opinions, especially 

because he was not an accountant. Defendants‟ actions may have been unreasonable, but 

CW4 does not show that Defendants were severely reckless constituting an “extreme 

departure from standards of ordinary care.” Thompson, 610 F.3d. at 634. 

 

Conclusion

Plaintiff‟s claims of misrepresentation are insufficient to meet the standard of 

pleading fraud with particularity because they fail to allege that Defendants acted with 

the requisite scienter and made statements that they knew were materially false at the

time. Additionally, Plaintiff has failed to establish loss causation. 

IT IS ORDERED: 

1. The Motion to Dismiss (Doc. 72) is GRANTED. 

2. The Case is DISMISSED without prejudice. 

3. Plaintiff shall have twenty days, until September 14, 2011, in which to serve an 

Amended Consolidated Complaint. Failure to file an amended complaint shall 

result in dismissal with prejudice and the case being closed. 

ORDERED on August 24, 2011.

/S/ Richard Smoak

RICHARD SMOAK

UNITED STATES DISTRICT JUDGE

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