COMPLAINT See attached EXHIBIT A. - Class...

Case 3:09-cv-30121 -MAP Document 1 Filed 07/23/2009 of 17

UNITED STATES DISTRICT COURTMASSACHUSETTS

EDWARD J. LAVALLEE,

Plaintiff, NO.

V.VERIFIED COMPLAINT

CROCS, INC., RONALD R. SNYDER, RUSS AND JURY DEMANDHAMMER, JOHN P. MCCARVEL, SCOTTCRUTCHFIELD, PETER S. CASE,RAYMOND CROGHAN, MICHAELMARGOLIS, MICHAEL MARKS, RICHARDSHARP, THOMAS SMACH, and DELOITTE& TOUCHE LLP,

Defendants.

COMPLAINT

I. INTRODUCTION

1. From July 18, 2007 through December 12, 2007, Edward J. Lavallee ("Plaintiff')

purchased and sold stock in Crocs, Inc., ("Crocs"). See attached "EXHIBIT A."

2. Plaintiff traded stock in Crocs based on information made available to the public

by Crocs through regulatory filings, Crocs press releases, statements, reports, as well as

statements issued by its officers, directors, and agents, or those acting on its behalf including, but

not limited to the following: Ronald R. Snyder ("Snyder"), Russ Hammer ("Hammer"), John

McCarvel ("McCarvel"), Scott Crutchfield ("Crutchfield"), Peter Case ("Case"), Raymond

Croghan ("CroghaW% Michael Margolis ("Margolis"), Michael Marks ("Marks"), Richard Sharp

("Sharp"), Thomas Smach ("Smach"), and its auditors and accounting firm, Deloitte & Touche

LLP ("Deloitte"), (hereinafter collectively "Defendants").

3. As the result of Defendants' violations of the Securities Exchange Act of 1934,

and rules and regulations promulgated thereunder, as described in "Neel Dhingra v. Crocs,

Case 3:09-cv-30121-MAP Document 1 Filed 07/23/2009 of 17

Snyder, and Case, Plaintiff's Class Action Complaint For Violations of Federal Securities Law"

filed by Neel Dhingra, "Individually and On Behalf of All Others Similarly Situated" ("the Class

Action Complaint"), as well as the "Corrected Consolidated Amended Class Action Complaint,"

("the Amended Complaint") filed in the "TN RE CROCS, INC. SECURITIES LITIGATION" Civil

Action No. 07-cv-02351-REB-KLM (D. Colo. 2007)) (Consolidated with 07-cv-02412; 07-cv-

02454; 07-cv-02465; and 07-cv-2469) (D. Colo. 2007)) (hereinafter collectively "the Crocs Class

Action"), and as further described herein, Plaintiff suffered $270,000 in damages.l

4. Plaintiff does not join the Crocs Class Action, but includes it by reference in his

Complaint and by this reference as though restated and alleged herein verbatim.

5. Plaintiff intends to opt out of the Crocs Class Action if and when appropriate.

6. Allegations in the Crocs Class Action, except of course for the confidential

evidence referenced therein to which Plaintiff is not privy, are used to support Plaintiff's

allegations.

7. In addition to the federal claims contained in the Crocs Class Action, Plaintiff

alleges Massachusetts state law claims.

8. Plaintiff files at this time in order to preserve all rights and privileges.

TI. PAR'T'IES,

9. Plaintiff is a resident of South Hadley, Massachusetts during all times relevant.

10. Defendants in this case are essentially the same Defendants named and identified

in the Crocs Class Action.

1 Upon information and belief, each Defendant named in the Dhingra class action and the "Corrected ConsolidatedAmended Class Action Complaint" has also been named as a Defendant in the instant complaint and thereforealready possesses a copy of the Crocs Class Action filings. Accordingly, in order to present a "short and plainstatement" Plaintiff merely references the Dhingra Class Action Complaint and the Amended Complaint as "theClass Action" without attaching the two complaints and exhibits which in total number over 750 pages.

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11. Defendant Crocs is a corporation organized and existing under the laws of the

State of Delaware.

12. During all relevant times, Crocs common stock traded on the National

Association of Securities Dealers Automated Quotation system ("NASDAQ").

13. During all times relevant, Defendant Snyder served as an officer and director of

Crocs, including its CEO and President from January 2005 through June 2009.

14. Defendant Case served as Senior Vice President, Retail Division since January

2008, previously serving as CFO and Treasurer from April 2006 to January 2008, and from

February 2006 Senior Vice-President for Finance.

15. Defendant Hammer served as Crocs CFO replacing Case in January 2008.

16. Defendant McCarvel served as Crocs COO and executive vice president since

February 2007 before which he served as Senior Vice-President for Global Operations from

October 2005.

17. Defendant Crutchfield served as Crocs Vice-President for Operations in 2006 and

2007, reporting directly to CEO Snyder.

18. Defendant Marks served on Crocs's Board of Directors since August 2004.

19. Defendant Croghan served as a director of Crocs since 2006.

20. Defendant Margolis served as Crocs Vice President of Sales & Marketing since

January 2005 and also led a Crocs sales group as an independent consultant from October 2003

to December 2004.

21. Defendant Sharp served as Crocs Chairman of the Board since April 2005.

22. Defendant Smach served as a Crocs board member since April 2005, and member

of the Board's Audit Committee during the relevant time period.

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23. Defendant Deloitte is the well-known accounting firm that provided Crocs

accounting services, auditors, and audits during the relevant time period.

III. JURISDICTION AND VENUE

24. This Court has jurisdiction over Defendants under the Securities Exchange Act of

1934 (the "Exchange Act") for violations of Sections 10(b) and Section 20 of the Exchange Act

as well as SEC Rule 10b-5, codified at 17 C.F.R. § 240.10b-5.

25. This Court also has subject-matter jurisdiction pursuant to 15 U.S.C. § 78aa, and

28 U.S.C. §§ 1331 and 1337 as well as supplemental jurisdiction over the state law claims

asserted herein pursuant to 28 U.S.C. § 1367.

26. Venue is proper in this District pursuant to 15 U.S.C. § 78aa, 28 U.S.C. § 1391(b)

and § 1367 because Plaintiff resides in this district and because Defendants' conduct was

directed to this district either through the conduct of its business or through acts and practices

complained of herein including the dissemination of information upon which Plaintiff relied.

27. In connection with the acts alleged in this Complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, the mail, and

national securities markets, as well as media to make public announcements in this district.

IV. FACTS

28. In addition to the facts incorporated by reference, Plaintiff also states that he acted

at all times in reliance on facts made publicly available by Defendants.

29. Plaintiff acted in the belief that the representations made by or on behalf of

Defendants were true and accurate, and that he relied on these facts justifiably and reasonably

during the relevant time period July 18, 2007 through December 12, 2007. See attached

"EXIHBIT A."

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30. Plaintiff actively reviewed public statements and announcements made by

Defendants as well as financial information created for Defendants and released to the public

pertaining to Crocs.

31. As stated in the Crocs Class Action, the information provided was inaccurate or

deliberately false causing an inflated stock price in contradiction to the true price of the stock had

accurate information been stated.

32. The market price for the stock Plaintiff purchased was set by a market unaware of

idamaging information which Defendants knew to be omitted or mischaracterized.

33. Defendants however, were in possession of non-public material infounation that ji

accurately represented the true market price and financial condition of Crocs.

34. With that non-public material infouuation, Defendants sold substantial holding in

Crocs before the information was known by the public, which included Plaintiff.

35. As a result, from July 18, 2007 through December 12, 2007, Plaintiff traded Crocs

stock based on inaccurate or deliberately false information that inflated its price to the benefit of

Defendants.

36. Individually and collectively, Defendants knew or should have known that the

publicly available information relied upon by Plaintiff to conduct his transactions in the purchase

of Crocs stock was inaccurate or deliberately false information.

37. Had Plaintiff been permitted to know accurate, truthful infoiniation at or about the

same time that accurate and truthful information was available or known to Defendants, and in

time to act along with Defendants, Plaintiff would not have been damaged at all.

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38. Instead, Plaintiff lost $270,000 because Defendants were in possession of accurate

"non-public" information that they knew or should have known was different from information

available to Plaintiff.

39. While Defendants could and did act on this "non-public" infonnation by selling

substantial holdings in Crocs stock which caused the collapse of Crocs stock price, Plaintiff had

no non-public information, and was thereby triply damaged as follows:

40. First, Plaintiff was damaged by buying stock inflated by false, inaccurate or

deliberately misleading or omitted information presented by Defendants.

41. Second, Plaintiff was damaged by Defendants' selling of substantial holdings of

Crocs stock based on "non-public" information known by these Defendants but unknown to

Plaintiff.

42. Third, the information was not released to the public until Defendants capitalized

on its "non-disclosure" to the detriment of Plaintiff.

43. Acting on infoiuiation different from information made available to Plaintiff, and

in advance of its released to the public and Plaintiff, the following Defendants conducted the

following sales of Crocs stock:

44. Defendant Snyder sold personal holdings of Crocs stock valued at $88,566,587.

45. Defendant Case sold $3,175,701 of stock.

46. Defendant Marks sold $56,346,602 of stock.

47. Defendant Croghan sold $14,050,120 of stock.

48. Defendant Margolis sold $4,649,742 of stock.

49. Defendant Sharp sold $18,390,695 of stock.

50. Defendant Smach sold $3,954,237.00 of stock.

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51. Upon information and belief, Defendants disposed of their stock armed with

"non-public" insider information unavailable to Plaintiff.

52. No other coincidence could explain Defendants' sales of Crocs stock for the price

Defendants collected followed so closely by the collapse of Crocs stock prices, market position,

and financial position.

53. Indeed, Defendant Deloitte was required to audit Crocs's financial statements in

accordance with Generally Accepted Auditing Standards ("GAAS"), and to report audit results

to the Board of Directors, the Audit Committee of the Board of Director, and the members of the

investing public including Plaintiff.

54. Deloitte knew or should have known and was reckless in not knowing, if in fact it

did not know, that Crocs financial information was inaccurate and inaccurately reported to the

public.

55. Under rules adopted by the American Institute of Certified Public Accountants

("AICPA"), the audits were required to comply with GAAS but failed to do so as the audits did

not comport with facts known to the Defendants or statements properly reflecting information

available to the auditors.

56. Thus, material facts that should have been disclosed to the public by Defendants

and its accounting firm, were instead deliberately, recklessly, or negligently misrepresented or

hidden from Plaintiff or deliberately or recklessly or negligently omitted or withheld in order to

advantage Defendants to the detriment of Plaintiff.

57. Because of Defendants' individual and collective conduct in violation of federal

laws, as well as Massachusetts statutes and common law, and alleged in the following counts,

Plaintiff has suffered $270,000 for which he prays relief be granted by this Honorable Court.

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Case 3:09-cv-30121 -MAP Document 1 Filed 07/23/2009 of 17

V. COUNT I - VIOLATION OF SECTION 10 OF THE EXCHANGE ACT —MANIPULATIVE AND DECEPTIVE DEVICES, AND SEC RULE 1OB-5 BYALL DEFENDANTS

58. Plaintiff incorporates by reference all paragraphs above as though restated and

realleged herein verbatim.

59. Throughout the time period July 18, 2007 through December 12, 2007,

Defendants used or employed, in connection with the purchase or sale of securities registered on

a national securities exchange, manipulative and/or deceptive devices or contrivances in

contravention of Section l0b of the Securities Exchange Act of 1934.

60. Due to Defendants' conduct, Plaintiff was damaged by paying artificially inflated

prices which Defendants knew or should have known did not reasonably reflect the fair market

value of Crocs stock had material information known to Defendants and which Defendants acted

upon, been revealed to Plaintiff.

61. Without Defendants' deliberate or reckless use or employment of manipulative or

deceptive device or contrivances, Plaintiff would not have been damaged or damaged to the

degree he suffered.

VI. COUNT 11 — VIOLATION OF SECTION 20 OF THE EXCHANGE ACT -LIABILITIES OF CONTROLLING PERSONS AND PERSONS WHO AID AND ABET VIOLATIONS AGAINST ALL DEFENDANTS



63. Section 20 allows a private right of action where "[a]ny person who violates any

provision of this title or the rules or regulations thereunder by purchasing or selling a security

while in possession of material, nonpublic information."

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64. In addition, any person who violates any provision of the title or the rules or

regulations thereunder by communicating material, nonpublic information shall be jointly andI

severally liable under subsection (a) of this section with, and to the same extent as, any person or

persons liable under subsection (a) of this section to whom the communication was directed.

65. As stated in this complaint and references contained herein, Defendantsi

conducted transactions in Crocs stock while in possession of material, nonpublic information.

66. By so doing, Plaintiff was damaged because unlike Defendants, the market did

not have the benefit of infounation that Defendants possessed in order to accurately reflect the

fair market value of Crocs stock.

VII. COUNT III — VIOLATION OF MASSACHUSETTS UNIFORM SECURITIESACT



68. Chapter 110A: Section 101 (" Sales and Purchases") makes it unlawful in the

State of Massachusetts "for any person, in connection with the offer, sale, or purchase of any

security, directly or indirectly [ ] to employ any device, scheme, or artifice to defraud, [ ] to makei

any untrue statement of a material fact or to omit to state a material fact necessary in order to

make the statements made, in the light of the circumstances under which they are made, not

misleading, or [ ] engage in any act, practice, or course of business which operates or would j

operate as a fraud or deceit upon any person."

69. To prevail on a Massachusetts securities law claim, Plaintiffs must demonstrate

that a sale of a security was affected through a material misstatement or omission and that the j

i

IDefendant was, at least, negligent with respect to the misstatement or omission.

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70. As stated in this complaint and references contained herein, Plaintiff was affected

by the material misstatement or omission of fact in order for the market to reflect the fair price of

the stock and that the Defendant was, at least, negligent with respect to the misstatement or

omissions to which Plaintiff was not privy.

71. Plaintiff did not know, and in the exercise of reasonable care could not have

known of Defendants' untruthful conduct or their omission of material information.

VIII. COUNT IV - VIOLATION OF MASSACHUSETTS G.L.C. 93A, $ 9 - CONSUMERPROTECTION LAWS



73. The Massachusetts consumer protection statute states, in relevant part, "Any

person, ... who has been injured by another person's use or employment of any method, act or

practice declared to be unlawful by ["any unfair method of competition or unfair or deceptive

acts or practices in the conduct of trade or commerce ... or"] any rule or regulation issued

thereunder ... may bring an action ... by way of original complaint, counterclaim, cross-claim

or third party action, for damages under M.G.L.c. 93A.

74. These acts or practices can include violations of the Securities Act.

75. Plaintiff has been damaged by Defendants' individual and/or collective conduct in

contravention of 93A in a "trade or commerce directly or indirectly affecting the people of this

Commonwealth."

76. Plaintiff therefore seeks damages under the act including treble damages.

IX. COUNT V - BREACH OF FIDUCIARY DUTY



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78. In their individual and collective capacity as either the corporate entity itself, or as

an officer, director, and/or board members of a publicly traded company, the entity and

individuals owed a fiduciary duty to Plaintiff.

79. As the auditor and certified public accountant for a publicly traded company

Deloitte owed a fiduciary duty to Plaintiff, knowing Plaintiff would conduct transactions in

Crocs stock based on information reported by Deloitte.ii

80. Under Massachusetts law a fiduciary duty exists where "confidence is reposed

and accepted, the person [or entity] trusted is liable for expressing dishonest opinions upon

which the other party relies and acts to his detriment, and she is also liable for concealing facts

which by reason of the relationship she should disclose."

81. Fiduciaries have a duty to disclose material information, and conversely a duty

not to hide material information.

82. Massachusetts law imposes a duty on one party to a business transaction to

exercise reasonable care to disclose to the other, before the transaction is consummated, matters I

known to him that he knows necessary to prevent his partial or ambiguous statement of facts

from being misleading; and facts basic to the transaction, if he knows that the other is about to

enter into it under a mistake as to them, and because of the relationship between them, would

reasonably expect a disclosure of those facts.

83. Defendants individually or collectively, accepted the confidence reposed in them

by Plaintiff and are therefore "liable for expressing dishonest opinions upon which the other

party relies and acts to his detriment, and liable for concealing facts which by reason of the

relationship she should disclose."

I

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84. By directly breaching the fiduciary duty owed to Plaintiff, these individuals and

entities individually or collectively caused Plaintiff damages, which he would not have suffered,

had any one of them acted in compliance with their duty.

X. COUNT VI - ABETTING BREACH OF FIDUCIARY DUTY



I86. During all times relevant, Defendants knew or should have known that a fiduciary

relationship existed between Plaintiff and Defendants.

87. Knowing that a fiduciary relationship existed between Defendants and Plaintiff,

ithe awareness by any of these fiduciaries that another fiduciary breached that duty compelled

action by that alerted fiduciary.

88. The lack of action on the part of the alerted fiduciary aware of breach of anotheri

fiduciary's duty constitutes aiding and abetting breach of fiduciary duty, particularly when the

informed fiduciary profits directly or indirectly from the breach.i

89. Elements of aiding and abetting a breach of fiduciary duty require the existence of

a fiduciary duty, knowledge of the breach of fiduciary duty by the airier and abettor, and

substantial assistance or encouragement by the aider and abettor in effecting that breach.

i90. Defendants individually and collectively knew or should have known that there

was a fiduciary duty owed to Plaintiff by Defendants by virtue of Defendants' status as officers,

directors, board member, or auditors or accountants of a publicly traded corporation.

91. As contained in this complaint and references to the class action complaint and

amended complaint, Defendants were aware of material facts, which the fiduciary should have

disclosed to Plaintiff.

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92. Defendants nevertheless, acted individually or in collusion to breach the duty of

disclosure owed to Plaintiff, and profited from that breach.

93. By so doing, the elements of aiding and abetting a breach of fiduciary duty are

met.

94. As a direct and proximate result of Defendants' aiding and abetting the breach of

fiduciary duty, Plaintiff has sustained monetary damages in excess of $270,000 exclusive of

interest and costs.

XI. COUNT VII - NEGLIGENT NIISREPRESENTATION.



96. As described in this Complaint as well as references included therein, Defendants

individually and/or collectively, made false statements and misrepresentations in taking certain

action or failing to take certain action, namely failing to timely disclosure non-public

information, or by failing to disclose truthful information.

97. Just as any reasonable investor would, Plaintiff relied on the public information

provided to him by Defendants, expecting it to be truthful and accurate.

98. To the contrary, Defendants' public disclosures were deliberately, recklessly, or

negligently false, or deliberately, recklessly or negligently omitted altogether.

99. Plaintiff justifiably relied on this information, the only information available to

him expecting it to be true given its source.

XII. COUNT VIII — NEGLIGENCE



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101. Defendants individually and collectively owed a duty of care to Plaintiff to make

reasonably sure that information was truthful and accurate.

102. Defendants breached that duty by failing to meet the standard of care as officers,

directors, members of the board, agents, and accountants.

103. Plaintiff of course reasonably and justifiably relied upon Defendants to act in

compliance with the standard of care of a reasonable officer, director, members of the board,

agent, and accountants.

104. Because Defendants failed to act in accordance with that standard of care,

Plaintiff was actually and proximately damaged in the amount of $270,000 exclusive of

incidental and consequential damages as well as interest, attorney fees and costs.

105. Consequently, Defendants are jointly and severally liable for their failure to act in

accordance with the standard of care.

XIII. COUNT IX — RESPONDEAT SUPERIOR AND VICARIOUS LIABILITY



107. Defendants Snyder, Hammer, McCarvel, Crutchfield, Case, Croghan, Margolis,

Marks, Sharp, and Smach, acted with actual and apparent authority as officers, directors, board

members and/or agents of Crocs during all times relevant.

108. As officers, directors, board members and/or agents of Crocs and acting with

actual and apparent authority Crocs is vicariously liable, jointly and severally, under the theory

of Respondeat Superior for the individual and collective wrongful actions, and the damages

caused by these persons.

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109. As a direct and proximate result of the conduct for which Defendants are liable

under Respondeat Superior and vicarious liability, Plaintiff has sustained monetary damages in

the amount of $270,000.

XIV. COUNT X - RESCISSION



111. Plaintiff seeks rescission of all purchases and sales of Crocs stock from July 18,

2007 through December 12, 2007.

XV. PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for relief and judgment as follows:

a. Awarding money damages against all Defendants, jointly and severally, for all

losses and damages suffered as a result of the acts and transactions complained of herein,

together with pre judgment interest;

b. An award of punitive damages;

C. Attorney fees and costs;

d. Rescission;

e. The imposition of a constructive trust over Plaintiff's funds;

f. Such further relief as the Court deems just and equitable.

XV. . REQUEST FOR JURY TRIAL

112. Plaintiff Edward J. Lavallee hereby demands a trial by jury.

DATED this 23 rd day of July 2009.

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/s/James P. Langan James P. Langan BBO#66391484 Pine StreetBurlington, VT [email protected]

/s/ Richard J. GeraceRichard J. GeraceAttorney Id. No. 92176 (PA)2 Penn Center PlazaSuite 200 1500 JFK Blvd.Philadelphia, PA [email protected]


VERIFICATION

Pursuant to 28 U.S.0 § 1746, Edward J. Lavallee, hereby declares under penaltyof perjury that he has read the allegations set forth in the above complaint and that hebelieves them to be accurate and true.

Executed on this / day of 2009.

^r

Edward J. Lava F e

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