Order on Motion to Dismiss — In re Carvana Securities

Record facts

U.S. District Court for the District of Arizona · No. 2:22-cv-02126-MTL · Doc. 70 · 2024-02-29 · Docket on CourtListener

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WO 
 
 
 
 
IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF ARIZONA 
 
 
United Association National Pension Fund, et 
al., 
 
Plaintiffs, 
 
v.  
 
Carvana Company, et al., 
 
Defendants. 
No. CV-22-02126-PHX-MTL 
 
ORDER  
 
 
 
Two pension plans, United Association National Pension Fund (“UANPF”) and 
Saskatchewan Healthcare Employees’ Pension Plan (“SHEPP”), bring this putative class 
action in a 229-page Consolidated Complaint against Carvana Company, its founders, 
officers, board members, and underwriters. (Doc. 36.) Carvana is a pre-owned vehicle 
dealer that sought to differentiate itself from others with its disruptive e-commerce business 
model. 
Plaintiffs allege, in more than 477 paragraphs, Defendants manipulated Carvana’s 
stock price and sought to persuade investors that Carvana would continue to experience 
hyper-growth because its business model meant that “our business gets better as it gets 
bigger.” Plaintiffs allege that Defendants repeatedly explained that unlike traditional 
dealerships, Carvana would be a limitless growth machine because its disruptive model 
was full of competitive advantages, such as a scalable “capital-light” expansion model and 
a groundbreaking logistics network that could readily deliver or acquire cars nationwide. 
But Defendants’ business practices, as alleged by Plaintiffs, were unsustainable and no 
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more profitable than other pre-owned car dealerships.  
Pending before the Court are: (1) Defendants Carvana Company, Ernest Garcia III, 
Mark Jenkins, Ryan Keeton, Benjamin Huston, Stephen Palmer, Michael Maroone, Neha 
Parikh, Ira Platt, and Greg Sullivan’s Motion to Dismiss (Doc. 50), which Defendants’ 
Citigroup Global Markets Inc., and J.P. Morgan Securities LLC join (Doc. 52); and (2) 
Defendant Ernest Garcia II’s Motion to Dismiss (Doc. 54).  
For the reasons listed below, the Court dismisses the Consolidated Complaint 
without prejudice because it finds it is an impermissible puzzle pleading, and grants 
Plaintiffs leave to file an amended complaint.  
I. 
BACKGROUND  
 
A. 
The Parties  
 
 
1. 
Plaintiffs 
 
Plaintiff UANPF is a Virginia-based, multi-employer defined benefit pension plan. 
(Doc. 36 ¶ 18.) UANPF is one of the nation’s largest Taft-Hartley funds with 
approximately $6.5 billion in assets held for the benefit of approximately 150,000 
participants.  (Id.) UANPF alleges it purchased a significant number of shares of Carvana 
Class A common stock at artificially inflated prices from May 6, 2020 to November 3, 
2020 (the “Class Period”) and suffered damages from Defendants’ alleged misconduct. 
(Id.) On April 22, 2022, UANPF also purchased 1,455 shares of Class A common stock in 
the 2022 Public Offering (the “Offering”) from Citigroup Global Markets Inc. for $80.00 
per share. (Id.) 
 
Plaintiff SHEPP is the largest defined benefit plan in the Canadian province of 
Saskatchewan. (Id. ¶ 19.) It is a multi-employer defined benefit pension plan serving the 
healthcare sector, with over 60,000 members and more than $10 billion in assets under 
management. (Id.) SHEPP alleges it purchased a significant number of shares of Carvana 
Class A common stock at artificially inflated prices during the Class Period and suffered 
damages as a result of Defendants’ alleged misconduct. (Id.) On April 22, 2022, SHEPP 
purchased 3,838 shares of Class A common stock in the Offering from Citigroup Global 
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Markets Inc. for $80.00 per share. (Id.) 
 
 
2. 
Defendants   
Defendant Carvana Co. is a Delaware corporation with its principal executive 
offices located in Tempe, Arizona. (Doc. 36 ¶ 20.) Carvana’s Class A common stock trades 
on the New York Stock Exchange (“NYSE”) under the symbol “CVNA.” (Id.)  
Defendant Ernest Garcia III (“Garcia Junior”) is a co-founder of Carvana and has 
served as its Chief Executive Officer, President, and Chairman since 2012. (Id. ¶ 21.) His 
father is Defendant Ernest Garcia II (“Garcia Senior”), who is also a founder of Carvana. 
(Id. ¶¶ 21, 23.)  
Garcia Senior is Carvana’s controlling shareholder. (Id. ¶ 23.) Plaintiffs allege that 
Garcia Senior was the largest single seller of Carvana stock throughout the Class Period 
and sold over $3.6 billion in Class A common stock at artificially inflated prices. (Id.)  
Plaintiffs also allege that Garcia Senior and Garcia Junior were next-door neighbors 
during the Class Period. (Id.) 
Defendant Mark Jenkins is Carvana’s Chief Financial Officer. (Id. ¶ 22.) Plaintiffs 
allege that during the Class Period, Defendant Jenkins sold 336,929 shares, nearly 34% of 
his holdings, at artificially inflated prices for proceeds of $79,246,195. (Id.) 
Defendant Ryan Keeton is a co-founder of Carvana and serves as its Chief Brand 
Officer. (Id. ¶ 24.) During the Class Period, Plaintiffs allege Keeton sold 180,007 shares of 
Carvana stock, or nearly 63% of his stock, at artificially inflated prices for proceeds of 
more than $42.3 million. (Id.) 
Defendant Benjamin Huston is a co-founder of Carvana and serves as its Chief 
Operating Officer. (Id. ¶ 25.)  During the Class Period, Huston sold 336,937 shares of 
Carvana stock, or more than 34% of his stock at, allegedly, artificially inflated prices, for 
proceeds of nearly $79.3 million. (Id.) Huston was responsible for Carvana operations, 
including inventory management and wholesale, inspection and reconditioning, logistics 
and fulfillment, customer service operations, real estate, and market expansion. (Id.) 
Plaintiffs allege that these Defendants—Carvana, Garcia Junior, Jenkins, Garcia 
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Senior, Keeton, and Huston (collectively, the “Exchange Act Defendants”)—violated 
Section 10(b), Rule 10b-5, Section 20(a), and Section 20A of the Securities Exchange Act. 
Defendant Stephen Palmer served as Carvana’s Vice President of Accounting and 
Finance and signed the Registration Statement issued in connection with the 2022 Public 
Offering. (Id. ¶ 414.)  Defendants Michael Maroone, Neha Parikh, Ira Platt, and Greg 
Sullivan each served as members of Carvana’s Board of Directors and signed the 
Registration Statement issued in connection with the Offering. (Id. ¶ 415.) Plaintiffs allege 
that these Defendants—Palmer, Maroone, Parikh, Platt, and Sullivan—together with 
Carvana, Garcia Junior, and Jenkins (collectively the “Individual Securities Act 
Defendants”) violated Section 11, Section 12(a)(2), and Section 15 of the Securities Act.  
 
 
3. 
Underwriter Defendants  
Plaintiffs allege Defendants Citigroup Global Markets Inc. and J.P. Morgan 
Securities LLC acted as underwriters and/or underwriter representatives of, and as sellers 
in, Carvana’s 2022 Public Offering (collectively, the “Underwriter Defendants”). 
(Id. ¶ 416.)  
Plaintiffs allege that in connection with the 2022 Public Offering, the Underwriter 
Defendants marketed Carvana common stock to potential investors using materially false 
or misleading information about the Company, or omitted material information required to 
be disclosed in the Registration Statement. (Id. ¶ 417.) Plaintiffs also allege that the 
Underwriter Defendants caused the Registration Statement to be filed with the SEC and to 
be declared effective in connection with the 2022 Public Offering. (Id.) Plaintiffs claim this 
conduct deems them liable under the Securities Act. (Id.) 
 
B. 
Carvana’s Founding & Business Model  
 
Plaintiffs allege that Garcia Senior and his son, Garcia Junior—along with Keeton 
and Huston—founded Carvana as a wholly owned subsidiary of DriveTime Automotive 
(“DriveTime”), which was Garcia Senior’s used car business. (Id. ¶¶ 4, 39, 41.) Carvana 
described itself as an “e-commerce company dealing in used cars” and “the Amazon of the 
used car industry.” (Id. ¶ 2.) In 2017, the Garcias took Carvana public on the NYSE and 
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pitched it as “a disrupter and innovator in the used car market.” (Id. ¶ 41.) The Consolidated 
Complaint alleges Carvana marketed itself as a “seemingly limitless growth machine 
because the Company’s disruptive model was full of competitive advantages, such as a 
‘capital-light’ expansion model, a scalable business model, and a groundbreaking logistics 
network that could readily deliver or pick-up cars nationwide.” (Id. ¶ 2.) The Exchange Act 
Defendants marketed to investors that Carvana’s “business gets better as it gets bigger.” 
(Id.)  Garcia Junior advertised that “a unique attribute of our business model relative to 
automotive retail and then not unique relative to e-commerce is that all of our cars are 
available to customers everywhere” and “you’re increasing conversion across all of your 
markets . . . we feel really, really good about that model.” (Id. ¶ 55.) 
 
Carvana held its “first and only Analyst Day” on November 29, 2018. (Id. ¶ 53.) 
There, Garcia Junior broadcasted that Carvana’s “long-term goal was to sell two million-
plus units a year to become the largest automotive retailer.” (Id.) Plaintiffs further allege 
the Exchange Act Defendants touted to analysts and investors that Carvana sought to 
become the largest and most profitable automotive retailer. (Id.) Jenkins then explained 
that Carvana’s goal—to be the largest and most profitable automotive retailer—was 
attainable. (Id.) Jenkins explained that “the scalability of the online sales model, we 
believe, will lead to being a larger industry player than we’ve historically seen in 
automotive retail and more profitable player than we’ve historically seen due to a long-
term lower cost structure.” (Id. (cleaned up).) The Consolidated Complaint further alleges 
that the Exchange Act Defendants touted to investors that Carvana could achieve its “lofty 
goals” due to its innovative business model. (Id. ¶ 54.) Specifically, the Exchange Act 
Defendants explained that “unlike traditional dealerships, Carvana’s e-commerce model 
offered structural cost advantages that enabled the Company to become more profitable as 
it grew in scale.” (Id.)  
 
C. 
Carvana’s Stock Price Decline  
Leading up to the Class Period, Carvana’s growth slowed and its stock price 
declined. (Id. ¶¶ 6, 134.) The Consolidated Complaint alleges that analysts expressed 
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alarm. (Id. ¶ 134.) On February 27, 2020, for example, Morgan Stanley reported that: “If 
the growth starts to slow significantly, and the company is still not profitable, there will be 
a transition away from growth investors, and we believe that how investors think about the 
valuation of the stock will change.” (Id.) That same day, the Center for Financial Research 
and Analysis told its readers that “[w]hile we remain positive on e-commerce growth in 
the auto retail space, we think investors will be less willing to look past CVNA’s slowing 
top line growth and persistent lack of profitability than they were in 2019.” (Id.) The 
COVID-19 pandemic also slowed Carvana’s growth. (Id.)  
D. 
Garcia Senior’s Role in Carvana  
 
Plaintiffs allege that although Garcia Senior is a Carvana founder, “[b]ecause of his 
conviction and ban from the NYSE, Garcia Senior is not identified in Carvana’s SEC 
filings as a Carvana employee, officer, or director,” but “there can be no doubt that Garcia 
Senior controls Carvana.” (Id. ¶ 43.)1 This control—Plaintiffs allege—was through his 
status as Carvana’s largest shareholder at 84% of voting power, which allowed him to 
“install” Garcia Junior as CEO of Carvana as well as “his former DriveTime employees 
and Lincoln Savings & Loan cronies to Carvana’s Board of Directors.” (Id.) Plaintiffs 
allege that Garcia Senior exercised that control throughout the Class Period, encouraging 
Carvana to enter transactions with his other companies, which were designed to financially 
benefit him. (Id. ¶¶ 44–46.) 
Plaintiffs also allege as Carvana’s stock price was declining, on March 30, 2020, 
the Exchange Act Defendants “orchestrated” a direct stock offering so that Garcia Senior, 
as Carvana’s controlling shareholder, “could purchase $25 million of Class A common 
stock at [an] unreasonably low price to make billions once Carvana’s stock price 
increased.” (Id. ¶ 135.) Plaintiffs further allege that once Garcia Senior substantially 
increased his Carvana stock holdings at a depressed price, the Exchange Act Defendants 
implemented their scheme to artificially inflate Carvana’s shares so they could make 
 
1 The Consolidated Complaint explains Garcia Senior pled guilty to fraudulently obtaining 
lines of credit that assisted Lincoln Savings & Loan to conceal its ownership from 
regulators. (Id. ¶¶ 35–36.) After his conviction, he was “banned for life from serving as an 
employer, officer, or director with a company on the NYSE.” (Id.)  
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billions of dollars. (Id. ¶¶ 8, 11–12.)  
 
E. 
The Purported Scheme  
The purported scheme was not easily discernable from the Consolidated Complaint. 
But with the assistance of Defendants’ Motions to Dismiss and Plaintiffs’ Omnibus 
Opposition, the Court attempts to detail the scheme alleged by Plaintiffs. 
 
1. 
Carvana Lowered Its Standards  
Plaintiffs allege that the Exchange Act Defendants lowered Carvana’s purchasing 
and verification standards to buy “as [many cars] as was humanly possible.” (Id. ¶¶ 9, 65, 
139, 322.) By lowering these standards, Defendants were able to encourage trade-ins and 
display broader inventory on Carvana’s website—all of which increased sales. (Id. ¶¶139–
142.) Confidential Witness (“CW”) 3, a Dealer Success Advocate at Carvana, explains that 
before the start of the Class Period, Carvana “refused to complete purchases when it was 
discovered that sellers misrepresented information they provided to Carvana regarding 
vehicle history and condition.” (Id. ¶ 79.) Just before, and during the Class Period, 
however, CW-3 describes Carvana relaxed its standards to accept “all vehicles” and 
stopped genuinely inspecting vehicles before purchasing them. (Id. ¶ 140.) CW-3 observed 
Carvana purchasing many “trash vehicles” after lowering its standards. (Id.) Another 
confidential witness, CW-5, who was a Market Operations Manager, heard “from his/her 
predecessor at the hub that the issues with the quality of the vehicles had gotten worse ‘all 
of the sudden.’” (Id. ¶¶ 94, 140.) CW-1, who held a supervisory role on the wholesale team, 
also explains Carvana lowered its purchasing standards from those who were also 
purchasing a vehicle from Carvana. (Id. ¶¶ 64, 140.) Another confidential witness, CW-4, 
an area manager, explains that in a Zoom-meeting with other wholesale managers, 
directors, and associate directors, they were told that “Carvana was ‘looking to buy what 
cars they could.’” (Id. ¶ 83.)  
According to the Consolidated Complaint, “CWs-1, 3, 4, 5, 8, 10, and 11 all report 
that during the Class Period it was Carvana’s general practice to purchase cars sight unseen 
and do little to nothing to verify the accuracy of sellers’ representations of their vehicles.” 
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(Id. ¶ 141.) Furthermore, and according to CWs-1, 3, 4, 5, 7, 8, and 11, “Carvana routinely 
paid customers ‘outrageous’ prices, sometimes thousands of dollars over asking price, for 
vehicles in terrible condition.” (Id. ¶ 142.) As a result, Plaintiffs allege that Carvana was 
inundated with “trash cars,” which were unfit to sell at retail and “had to be sold 
wholesale.” (Id. ¶ 166.) “Unbeknownst to investors, this sudden and overwhelming 
increase in wholesale volume created a costly, logistical nightmare as ‘wholesale units 
acquired from customers have typically been transported to the nearest Carvana [inspection 
and reconditioning centers (“IRCs”)], generating additional vehicle moves and increased 
complexity in our multi-car logistics network.” (Id. ¶¶ 166, 231(c), 263(c), 282(b).) 
Plaintiffs also allege, and take issue with, wholesale sales not capturing additional revenue 
streams that were associated only with retail sales. (Id. ¶¶ 49, 231(d), 263(d), 282(c).) 
 
 
2. 
Carvana’s Footprint  
 
Plaintiffs next take issue with Carvana’s expansion without “any regard to 
profitability.” (Id. ¶¶ 232(a), 264(a), 283(a).) The Consolidated Complaint alleges that the 
Exchange Act Defendants “embarked on a rapid and unsustainable nationwide expansion 
plan to enter over 150 new markets, more than doubling Carvana’s footprint in just six 
quarters.” (Id.  ¶ 144.) Plaintiffs take issue that the Exchange Act Defendants “did so even 
though they knew or recklessly disregarded that many of these markets were less profitable 
due to their distance from Carvana’s existing IRCs and that they strained Carvana’s 
underbuilt logistics network.” (Id.) Plaintiffs say that in Q2 2020—the beginning of the 
Class Period—the Exchange Act Defendants “added 100 new markets without adding a 
single IRC.” (Id. ¶¶ 145, 232(b), 232(f).) The Exchange Act Defendants knew, but 
concealed, that this would dramatically increase costs, admitting: “SHORTER DISTANCE 
= SAVINGS . . . Lower inbound transport & logistics costs; Lower shipping costs to 
customers.” (Id. ¶¶ 146, 168.) As a result, and during the Class Period, “Carvana’s logistics 
expenses spiked by 300% and its market occupancy costs (i.e., facilities expenses) 
increased by nearly 250% between the start of the Class Period and Q1 2022.” (Id. ¶ 162.) 
Plaintiffs allege that the Exchange Act Defendants also concealed that Carvana’s retail 
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growth was predicated on “unprofitable” and “less profitable” sales—rather than logistics 
expenses. (Id. ¶¶ 168, 229(b), 261(b), 281(b).) It wasn’t until the end of Class Period, where 
the Exchange Act Defendants admitted that Carvana’s retail growth was composed of “less 
profitable sales . . . in markets with lower profitability due to long distance from inventory.” 
(Id. ¶ 168.)  
Plaintiffs allege the Exchange Act Defendants masked these “unprofitable” and 
“less profitable” sales during the Class Period by manipulating Carvana’s total gross profit 
per unit metric by excluding certain selling costs like outbound logistics expenses and title 
and registration expenses. (Id. ¶¶ 51, 169–172, 230, 262.) Such excluded costs, Plaintiffs 
allege, were material. (Id. ¶¶ 170–172.) For example, on sales to customers in markets 
greater than 200 miles from an IRC, outbound logistics contributed an additional $750 per 
unit of expenses incurred by Carvana. (Id. ¶¶ 146, 171, 230(a), 232(a), 262(a), 264(a), 
283(a).) Title, registration, and related expenses totaled $410 per unit in FY 2021. (Id. ¶¶ 
172, 230(b), 262(b).) The Consolidated Complaint alleges that “on average Carvana lost 
money on each wholesale vehicle sold when accounting for [selling general and 
administrative] [(“]SG&A[”)] expenses, such as logistics and title and registration 
expenses (both of which Carvana’s biggest competitor, CarMax, considered).” (Id. ¶ 173.)  
These logistical constraints and increased expenses, Plaintiffs allege, eventually 
required the Exchange Act Defendants to spend billions of dollars to purchase and integrate 
ADESA, a nationwide auction house, in order to fix the problem. (Id. ¶ 164.) CWs 4 and 7 
confirmed that Carvana’s acquisition of ADESA was a consequence of its efforts to expand 
into new markets far from existing IRCs. (Id. ¶¶ 88–89, 108.) Towards the end of the Class 
Period, Carvana’s rapid “location growth” created “more vehicle moves,” “more miles 
traveled,” a “higher number of constrained routes,” and a “higher degree of backlog on 
constrained routes.” (Id. ¶¶ 160, 166, 231(c), 263(c), 282(b).)  
3. 
Carvana & DriveTime’s Relationship 
 
Plaintiffs further allege, to inflate reported unit sales, the Exchange Act Defendants 
concealed certain revenue pass-through transactions with Garcia Senior’s company, 
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DriveTime. (Id. ¶ 153.) Such arrangements involved Carvana purchasing thousands of fully 
reconditioned vehicles from DriveTime, which were then resold on the Carvana website. 
(Id.) Plaintiffs allege that in certain instances, those transactions “lacked any economic 
substance for Carvana, and served only to inflate Carvana’s reported retail sales volume.” 
(Id.) To support that assertion, Plaintiff explain that “on certain sales of cars acquired from 
DriveTime, Carvana would pass the entire proceeds from the sale back to DriveTime.” 
(Id.) Plaintiffs allege that Carvana acted as DriveTime’s middle man, but would record the 
revenue and retail unit sales in its books. (Id.) Plaintiffs take issue with Carvana concealing 
the full extent of these arrangements with DriveTime from investors, and only offering 
piecemeal and inconsistent disclosures concerning the pass-through revenue 
arrangements. (Id. ¶ 154.)  
4. 
Carvana’s Attempt to Accelerate Growth  
 
The Consolidated Complaint further alleges that because complying with state title 
and registration laws slowed sales, the Exchange Act Defendants violated these laws to 
accelerate growth. (Id. ¶¶ 185–199, 229(f), 233, 261(g), 265, 284.) According to numerous 
Carvana employees and regulators from across the country, this practice was systematic 
and nationwide. For example, CW-3 in Phoenix, Arizona, witnessed that Carvana had just 
half of the titles for the vehicles it sold wholesale at the time of sale. (Id. ¶¶ 76, 149). In 
Arizona, where Carvana is headquartered, CW-8, observed that Carvana’s practice was to 
assume that titles for vehicles could be acquired later if they were not available at the time 
of purchase. (Id. ¶ 112.) CW-9 noticed an increase in calls from customers experiencing 
title delays beginning in Q1 2022 and Carvana encouraged customers to continue driving 
despite lapsed paperwork. (Id. ¶¶ 116, 149.) CW-10 also explained that titles on vehicles 
Carvana sold could not be obtained for over a year, which meant the buyers were unable 
to drive their cars. (Id. ¶¶123, 149.) In other parts of the country—like the Midwest or 
Southeast—other CWs described seeing a drawer of documentation for vehicles sold by 
Carvana for which the titles were missing. (Id. ¶ 131.) Additionally, there were “a 
ridiculous amount of cars on” a Google spreadsheet that tracked vehicles without titles for 
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the entire IRC, and it was “a huge mess.” (Id. ¶¶ 85, 149.)  
 
Plaintiffs allege that they, and other investors, were unaware that the State of 
Michigan fined Carvana thousands of dollars and placed it on an 18-month probation in 
May 2021. (Id. ¶¶ 176, 187.) Plaintiffs allege that by not disclosing their decision to 
“sidestep” the title and registration laws and regulations, the Exchange Act Defendants 
exposed Carvana to “devastating financial, regulatory, legal, and reputational loss.” 
(Id. ¶¶ 149, 176.) 
 
 
5. 
Sustainability  
Finally, Plaintiffs allege that the Exchange Act Defendants made materially false 
and misleading statements regarding their business to convince investors that Carvana’s 
growth was sustainable. (Id. ¶ 10.) They misled investors by stating incorrectly that 
Carvana “assess[ed] vehicles on the basis of quality,” was a “very high-quality buyer,” and 
would “open many smaller markets that can be served by our existing logistics and delivery 
infrastructure.” (Id. ¶¶ 200, 202, 222, 227.) Plaintiffs take issue that the Exchange Act 
Defendants claimed that Carvana’s “logistics capabilities allow us to offer every car in our 
inventory to customers across all of our markets.” (Id. ¶ 226.) The Exchange Act 
Defendants also falsely told investors that Carvana experienced “a massive, massive 
increase” in “profitability of buying cars from customers.” (Id. ¶ 245.) Plaintiffs also take 
issue with the Exchange Act Defendants downplaying their various title and registration 
violations, calling them “pretty small in scope,” impacting “quite a small fraction of 
customers,” and “technical, paperwork violations.” (Id. ¶¶ 248, 280, 349, 364.) And that 
Garcia Junior explained, “there are no states where we’re not able to sell vehicles today 
and no issues with the clean title issue as well.” (Id. ¶ 278.) 
F. 
The 2022 Offering 
On April 20, 2022, Carvana sold 15,625,000 shares of common stock at $80 per 
share. (Id. ¶ 419.) The Offering documents include the April 20, 2022 Registration 
Statement, the April 25, 2022 Prospectus Supplement, and other documents incorporated 
within them, including Carvana’s 2021 10-K (collectively, the “Offering Documents”). (Id. 
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¶¶ 419–420.) Plaintiffs allege the Registration Statement contained materially false and 
misleading statements, and failed to disclose material information about the mounting costs 
and complexities of Carvana’s operations. (Id. ¶¶ 426–438.) Plaintiffs allege that with the 
assistance of the Underwriter Defendants, Carvana completed the Offering on April 26, 
2022, raising more than $1.2 billion in proceeds. (Id. ¶¶ 421, 447–456.)  
 
G. 
Procedural Posture   
Plaintiffs originally filed this action in the United States District Court for the 
District of New Jersey. A similar action was also originally filed in the United States 
District Court for the District of New Jersey, styled Rodeo Collection Ltd v. Carvana Co. 
et al, 2:22-cv-02190-MTL. These actions were consolidated and then transferred to this 
Court. (Docs. 20, 24.) The Court held a status conference, granted Plaintiffs the opportunity 
to file the Consolidated Complaint, and set a new briefing schedule. (Doc. 32.) All 
Defendants move to dismiss the Consolidated Complaint. (Docs. 50, 52, 54.) Plaintiffs 
filed their Omnibus Opposition to the motions and the Court heard Oral Argument on all 
motions. (Docs. 56, 65.) 
II. 
LEGAL STANDARD 
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a defendant may move to 
dismiss an action for failure to state a claim upon which relief may be granted. Because 
Plaintiffs have brought claims as a federal securities fraud action, Plaintiffs must “meet the 
higher, [more] exacting pleading standards of Federal Rule of Civil Procedure 9(b) and the 
Private Securities Litigation Reform Act (“PSLRA”).” Or. Pub. Emp. Ret. Fund v. Apollo 
Grp. Inc., 774 F.3d 598, 603–04 (9th Cir. 2014).  
Under Federal Rule of Civil Procedure 9(b), “[i]n alleging fraud or mistake, a party 
must state with particularity the circumstances constituting fraud or mistake.” Plaintiffs 
must include “an account of the time, place, and specific content of the false 
representations” at issue. Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (cleaned 
up). Rule 9(b)’s particularity requirement “applies to all elements of a securities fraud 
action.” Apollo Grp., 774 F.3d at 605.  
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PSLRA “imposes additional specific pleading requirements, including requiring 
plaintiffs to state with particularity both the facts constituting the alleged violation and the 
facts evidencing scienter.” In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 
2012). In order to properly allege falsity, “a securities fraud complaint must . . . specify 
each statement alleged to have been misleading, [and] the reason or reasons why the 
statement is misleading.” Id. at 877 (cleaned up). In addition, in order to “adequately plead 
scienter under the PSLRA, the complaint must state with particularity facts giving rise to a 
strong inference that the defendant acted with the required state of mind.” Id. (cleaned up). 
Because the PSLRA requires a plaintiff to “specify each statement alleged to have 
been misleading, [and] the reason or reasons why the statement is misleading,” courts in 
this Circuit have held that unwieldy complaints that do not easily provide a one-to-one 
connection between misleading statements and the reasons why the statements are 
misleading violates Federal Rule of Civil Procedure 8(a) by not setting forth a “short and 
plain” statement of the claims and the PSRLA. See, e.g., In re Splash Tech. Holdings, Inc. 
Sec. Litig, 160 F. Supp. 2d 1059, 1075 (N.D. Cal. 2001); Primo v. Pac. Biosciences of Cal., 
940 F. Supp. 2d 1105, 1112 (N.D. Cal. 2013); Patel v. Parnes, 253 F.R.D. 531, 551–54 
(C.D. Cal. 2008). These kinds of complaints are commonly referred to as puzzle pleadings 
because, like loose pieces of a jigsaw puzzle, the reader must actively put together random 
allegations of misleading statements and other elements to form the basis of a securities 
fraud claim.  
III. 
DISCUSSION 
Defendants argue that the Consolidated Complaint is a textbook puzzle pleading. 
(Doc. 50 at 20.) They say that Plaintiffs fail to craft a clear and concise complaint 
explaining why statements were false and misleading, what information Defendants 
allegedly knew at the time of the statement and deliberately concealed, and how the “truth” 
was revealed, causing investors’ losses. (Id.) Plaintiffs argue that the Consolidated 
Complaint is appropriately organized and clear because they have “bolded and italicized 
relevant portions of lengthy statements; identified the source, speaker, and date of each 
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statement; organized the misstatements chronologically; and matched statements to 
specific factual reasons why each was misleading when made.” (Doc. 56 at 32.)  
“Courts may dismiss cases for puzzle pleading, where the complaint recites lengthy 
statements attributed to the defendants, followed by a generalized list of reasons that the 
statements may have been false or misleading or a generalized list of omissions that were 
required to make the statements not misleading.” Xiaojiao Lu v. Align Tech., Inc., 417 F. 
Supp. 3d 1266, 1274 (N.D. Cal. 2019) (cleaned up). “In the securities fraud context, the 
term puzzle pleading refers to a pleading that requires the defendant(s) and the court to 
match up the allegedly false and misleading statements that form the basis of the plaintiff’s 
claims with the reasons those statements are misleading.” In re Aqua Metals, Inc. Sec. 
Litig., No. 17-CV-07142-HSG, 2019 WL 3817849, at *7 (N.D. Cal. Aug. 14, 2019). 
After reviewing the 229-page Consolidated Complaint, the Court finds that 
Plaintiffs have failed to set forth a “short and plain statement” of their claims in violation 
of Rule 8(a), to make their allegations “simple, concise, and direct” in violation of Rule 
8(d), or to fulfill the requirements of the PSLRA for their securities claims. 
A. 
The Securities Exchange Act Claims  
1. 
Section 10(b) of the Exchange Act and Rule 10b-5 Claim 
Plaintiffs’ first claim alleges that the Exchange Act Defendants engaged in a 
fraudulent scheme, made false and misleading statements to the public, and employed a 
scheme to defraud in connection with the purchase and sale of Carvana Class A common 
stock in violation of Section 10(b) and Rule 10b-5 of the Exchange Act.  
Rule 10b-5 contains three different subsections regarding different fraudulent 
conduct. The Supreme Court has explained that: 
 [S]ubsection (a) of the Rule makes it unlawful to “employ any 
device, scheme, or artifice to defraud.” Subsection (b) makes it 
unlawful to “make any untrue statement of a material fact.” 
And subsection (c) makes it unlawful to “engage in any act, 
practice, or course of business” that “operates . . . as a fraud or 
deceit.” 
Lorenzo v. SEC, 587 U.S. —, 139 S. Ct. 1094, 1100 (2019) (citing 17 C.F.R. § 240.10b-5). 
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Under Rule 10b-5(b), it is unlawful for any person to “make any untrue statement 
of a material fact” in connection with the purchase or sale of securities. 17 
C.F.R. § 240.10b-5(b). The Supreme Court has drawn a “clean line” between those who 
“make” a statement within the meaning of the rule and those who do not—the “maker is 
the person or entity with ultimate authority over a statement and others are not.” Janus 
Capital Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 143 n.6 (2011). In delivering 
the opinion for the Court, Justice Thomas explained that even someone who is 
“significantly involved in preparing” a statement cannot be held liable under Rule 10b-5(b) 
if the statement was “made” by someone else. Id. at 148. This standard “might best be 
exemplified by the relationship between a speechwriter and a speaker. Even when a 
speechwriter drafts a speech, the content is entirely within the control of the person who 
delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.” 
Id. at 143. 
Under Rules 10b-5(a) and (c), it is unlawful to “employ any device, scheme, or 
artifice to defraud” or “engage in any act, practice, or course of business” that 
“operates . . . as a fraud or deceit.” 17 C.F.R. § 240.10b-5(a), (c). The Supreme Court has 
rejected the argument that these provisions are “violated only when conduct other than 
misstatements is involved.” Lorenzo, 587 U.S. at —, 139 S. Ct. at 1101–02 (2019); In re 
Alphabet, Inc. Sec. Litig., 1 F.4th 687, 709 (9th Cir. 2021). Rather, there is “considerable 
overlap” between the subsections of Rule 10b-5, and scheme liability under (a) and (c) can 
be based on a scheme to take advantage of misleading statements—even while subsection 
(b) speaks to the actual making of such statements. See Lorenzo, 587 U.S. at —, 139 S. Ct. 
at 1102; see also SEC v. Familant, 910 F. Supp. 2d 83, 95 (D.D.C. 2012). In Lorenzo, the 
Supreme Court held that the “dissemination of false or misleading statements with intent 
to defraud can fall within the scope” of subsection (a) and (c). 587 U.S. at —, 139 S. Ct. at 
1100. 
The crux of Plaintiffs Section 10(b) and Rule 10b-5 claims are Defendants’ alleged 
false statements about Carvana’s retail unit sales, title and registration concerns, expansion 
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efforts, purchasing strategy, cost advantages, profitability and macro-economic factors.2  
To assert a claim under the PSLRA for false and misleading statements, Plaintiffs must 
identify “each statement alleged to have been misleading” and “the reason or reasons why 
the statement is misleading.” 15 U.S.C. § 78u–4(b)(1); see Ronconi v. Larkin, 253 F.3d 
423, 429 (9th Cir. 2001). Allegations of misleading statements based on omissions must 
meet the materiality requirement—that is, Plaintiffs must show that there is “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 available.” Matrixx 
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (quoting Basic v. Levinson, 485 U.S. 
224, 231–32 (1988)). 
The Consolidated Complaint references over 29 public disclosures and other 
publicly available sources, which are summarized and quoted over a span of 200 
paragraphs, without alleging in detail which statement is misleading and why the alleged 
misstatement is misleading or false. Instead, the Consolidated Complaint generally groups 
the alleged statements by fiscal year and then follows each group of allegedly false or 
misleading statements with broad, general explanations that fail to identify the specific 
statements to which they apply. (See, e.g., Doc. 36 ¶¶ 229–233, 261–267, 281–285.) 
For example, with respect to statements in paragraphs 204 through 226 of the 
Consolidated Complaint, Plaintiffs attempt to explain why the statements related to 
Carvana’s nationwide market expansion are misleading with a generalized list of 
allegations. (Id. ¶ 232.) It is not obvious to the Court what subset of the dozens of allegedly 
false and misleading statements listed throughout paragraphs 204 through 226 were made 
with the understating “that it was unprofitable to pick-up and deliver cars over significant 
distances” or that “Carvana’s expansion model” could not achieve “economies of scale.” 
(Id. ¶ 232 (d), (e).) Any or all of the statements listed in the preceding paragraphs arguably 
could be so characterized. See McCasland v. FormFactor Inc., No. C 07-5545 SI, 2008 
 
2 The Court notes again that these different groups of misstatements and omissions were 
not easily discernable from the Consolidated Complaint—it was only with the benefit of 
the parties’ briefing that these groups of alleged misstatements and omissions became more 
apparent.  
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WL 2951275, at *7 (N.D. Cal. July 25, 2008) (“[T]he complaint here contravenes 
applicable pleading standards by juxtaposing the same series of generic conclusions against 
each set of block quotes, without differentiation or specificity.”) Plaintiffs repeat this 
pattern throughout the Consolidated Complaint with other alleged statements.  
While the length and scope of the Consolidated Complaint do not, by themselves, 
result in a puzzle pleading warranting dismissal, Plaintiffs ask the Court to match nearly 
100 individual statements with corresponding allegations of falsity presented in a web of 
inter-referenced paragraphs strewn throughout. For example, in paragraph 229, Plaintiffs 
generally allege that “[t]he statements detailed in ¶¶200-201, 206-207, 213, 218, 220, 
supra, regarding retail unit sales were materially false and/or misleading or omitted 
material information necessary to make them not misleading based on the following facts, 
which were known to or recklessly disregarded by Defendants” followed by seven different 
sub-paragraphs to allege why those preceding statements were false. They do not explain 
why each one of those statements were either a misstatement or an omission and do not 
explain why each statement on its face was false given the information known at the time. 
Elsewhere, Plaintiffs allege “[t]he 2021 10-K contained similar disclosures as the 2020 10-
K with regard to Carvana’s numerous purported competitive advantages, including its 
vehicle acquisitioning, logistics network, cost-structure, and national footprint, as 
described at ¶¶224-227 above” followed by “[i]n addition, the 2021 10-K contained similar 
disclosures as the 2020 10-K regarding the disadvantages of traditional used car retailers 
as compared to Carvana’s disruptive business model, as described at ¶223 above.” (Doc. ¶ 
259.) The Consolidated Complaint is replete with allegations such as these and places “the 
burden on the reader to sort out the statements and match them with the corresponding 
adverse facts to solve the ‘puzzle’ of interpreting Plaintiffs’ claims.” Wenger v. Lumisys, 
Inc., 2 F. Supp. 2d 1231, 1244 (N.D. Cal. 1998) (cleaned up). 
Separately, and with respect to the alleged statements themselves, merely bolding 
and italicizing swaths of text does not assist the Court in determining which statements are 
allegedly misleading or why. As the Court in In re ECOtality, Inc. Sec. Litig., No. 13-
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03791-SC, 2014 WL 4634280 (N.D. Cal. Sept. 16, 2014), explained: 
Plaintiff’s complaint highlights certain portions of those 
documents with bold and italic type. The quotations are 
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known to defendants at the time. The Court will not attempt to 
divine Plaintiffs’ intentions by trying to match potentially 
misleading statements with the alleged problems facing 
[Defendant]. 
Id. at *3.  
Because Plaintiffs’ Consolidated Complaint contains many purported false 
statements with no explanation as to which specific statement in the long blocks of text is 
alleged to be false or misleading, Plaintiffs also fail to meet the exacting pleading 
requirements of the PSLRA. Plaintiffs also fail to meet their pleading requirements of 
clearly and concisely alleging Exchange Act Defendants either engaged in or employed the 
alleged fraudulent scheme. “Neither courts nor defendants should have to wade through 
the morass of ‘puzzle pleadings’ as this wastes judicial resources and undermines the 
requisite notice for a defendant to respond.” In re New Century, 588 F. Supp. 2d at 1218–
19. Plaintiffs fail to meet their various pleading standards required for their Section 10(b) 
and Rule 10b-5 claim. 
Therefore, the Court grants Defendants’ motion to dismiss Plaintiffs’ Section 10(b) 
and Rule 10b-5 claim with leave to amend. If Plaintiffs choose to file an amended 
complaint, Plaintiffs must identify and specify each allegedly false or misleading 
statement, whether such statement is alleged to be an affirmative misrepresentation or false 
or misleading by omission, and describe why the specific statement was materially false or 
misleading when made. For any statements that are alleged to be false or misleading by 
omission, Plaintiffs must clearly specify what the omission is and why the omission is 
material. This must be done on a statement-by-statement basis. Plaintiffs should also, in a 
clear and concise manner, explain which Exchange Act Defendant, if he did not make the 
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statement, disseminated the false or misleading statements or how a Defendant either 
engaged in or employed the alleged fraudulent scheme. 
2. 
Section 20(a) Claim 
Congress has established liability in § 20(a) for “[e]very person who, directly or 
indirectly, controls any person liable” for violations of the securities laws. 15 
U.S.C. § 78t(a). “[T]o prove a prima facie case under § 20(a), a plaintiff must prove: (1) a 
primary violation of federal securities law;” and (2) “that the defendant exercised actual 
power or control over the primary violator.” Howard v. Everex Sys., Inc., 228 F.3d 1057, 
1065 (9th Cir. 2000). Because Plaintiffs have failed to plead a primary securities law 
violation, Plaintiffs have also failed to plead a violation of section 20(a). See In re Cutera 
Sec. Litig., 610 F.3d 1103, 1113 n.6 (9th Cir. 2010). Accordingly, Defendants’ Motion to 
Dismiss Plaintiffs’ Section 20(a) claim is also granted. 
3. 
Section 20A Claim 
“Section 20A of the Exchange Act creates a private cause of action for 
‘contemporaneous’ insider trading. To satisfy § 20A, a plaintiff must plead (i) a predicate 
violation of the securities laws; and (2) facts showing that the trading activity of plaintiffs 
and defendants occur ‘contemporaneously.’” Xiaojiao Lu, 417 F. Supp. 3d at 1282 (quoting 
Hefler v. Wells Fargo & Co., No. 16-cv-05479-JST, 2018 WL 1070116 (N.D. Cal. Feb. 
27, 2018)). 
As explained above, the Court finds that Plaintiffs failed to plead with particularity 
an independent violation of section 10(b) and Rule 10b-5. Thus, because the Consolidated 
Complaint does not allege a predicate violation, the Court also dismisses Plaintiffs’ Section 
20A claim. 
 
4. 
Garcia Senior  
Although Garcia Senior did not move to dismiss the allegations against him on the 
ground that the Consolidated Complaint is an impermissible puzzle pleading, a “District 
Court may properly on its own motion dismiss an action as to defendants who have not 
moved to dismiss where such defendants are in a position similar to that of moving 
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defendants or where claims against such defendants are integrally related.” Silverton v. 
Dep’t of Treasury of U. S. of Am., 644 F.2d 1341, 1345 (9th Cir. 1981). 
The issues with the Consolidated Complaint apply with equal force against 
Defendant Garcia Senior. Plaintiffs have failed to set forth a “short and plain statement” of 
their claims against Garcia Senior in violation of Rule 8(a) or to fulfill the requirements of 
the PSLRA for their securities claims against him. For example, like the Section 10b and 
Rule 10b-5 claim, Plaintiffs cross-reference throughout the Consolidated Complaint rather 
than detail which misstatements or omissions Garcia Senior made or what the precise 
deceptive or manipulative act he engaged in regarding Carvana. (See e.g. Doc. 36 ¶ 23.) 
The Consolidated Complaint heavily focuses on Garcia Senior’s previous misconduct with 
his other businesses rather than detail his culpable conduct with respect to Carvana. 
(Id. ¶¶ 4, 5, 23, 35–38.) The Court will dismiss the claims against Garcia Senior for this 
reason. See Abigninin v. AMVAC Chem. Corp., 545 F.3d 733, 743 (9th Cir. 2008) (holding 
the district court did not err when it dismissed the case as to all defendants, even those who 
had not appeared or made the same challenges to the pleadings). 
B. 
The Securities Act Claims  
1. 
Section 11 Claim 
Under Section 11 of the Securities Act, issuers, underwriters, and other participants 
in a public securities offering are liable for material misstatements of fact or material 
omissions in a registration statement. See 15 U.S.C. § 77k. Plaintiffs allege that the 
Offering Documents in connection with the April 20, 2022 Public Offering were false and 
misleading. (Doc. 36 ¶¶ 419–420, 427–437.) Plaintiffs allege Carvana completed the 
Offering on April 26, 2022, with the assistance of the Underwriter Defendants. (Id. ¶¶ 421, 
447–456.) For the same reasons as discussed in the Court’s analysis of Plaintiffs’ Section 
10(b) and Rule 10b-5 claim, the Court finds that Plaintiffs’ puzzle pleading complaint fails 
to fulfill the exacting pleading requirements of the PSLRA and grants the Motion to 
Dismiss as to the Section 11 claim. See Section III(A)(1), supra. 
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2. 
Section 12(a)(2) Claim 
In many cases—including this one—two issues are central to claims under sections 
11 and 12(a)(2): (1) the existence of either a misstatement or an unlawful omission; and 
(2) materiality. See In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 360 (2d Cir. 
2010). “The definition of materiality is the same for these provisions as it is under section 
10(b) of the Exchange Act: Whether the defendants’ representations, taken together and in 
context, would have misled a reasonable investor.” Id. (cleaned up.) To support their 
Section 12(a)(2) claim, Plaintiffs generally allege that the “Offering Documents contained 
untrue statements of material fact, and/or concealed or failed to disclose material facts, as 
detailed above.” (Doc. 36 ¶ 470.) Like their other claims, Plaintiffs fail to specifically 
allege the misstatement or unlawful omission at issue for this claim, or why it was material, 
and instead asks the Court to cross-reference its puzzle pleading. The Court grants the 
Motion to Dismiss as to the Section 12(a)(2) claim. 
 
 
3. 
Section 15 Claim 
Plaintiffs’ claim under Section 15 of the Securities Act is expressly premised on the 
Section 11 violation. (Doc. 36 ¶¶ 472–77.) Because Plaintiffs fail to allege a Section 11 
claim against the Individual Securities Act Defendants, the Section 15 claim will also be 
dismissed. See Plichta v. SunPower Corp., 790 F. Supp. 2d 1012, 1023 (N.D. Cal. 2011); 
see also In re Aqua Metals, Inc. Sec. Litig., 2019 WL 3817849, at *11.  
IV. 
LEAVE TO AMEND  
Under Federal Rule of Civil Procedure 15(a), when a court grants dismissal, leave 
to amend “shall be freely granted when justice so requires,” bearing in mind “the 
underlying purpose of Rule 15 [is] to facilitate decision on the merits, rather than on the 
pleadings or technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) 
(cleaned up). Generally, leave to amend shall be denied only if allowing amendment would 
unduly prejudice the opposing party, cause undue delay, be futile, or if the party moving 
for leave to amend has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 
522, 532 (9th Cir. 2008). Finding none of these exceptions present here, the Court grants 
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Plaintiffs leave to amend. Plaintiffs are directed to comply with the standards stated above. 
V.
CONCLUSION
Accordingly,
IT IS ORDERED granting Defendants’ Motion to Dismiss (Doc. 50) and
Underwriters’ Joinder (Doc. 52).  For the reasons stated above, all Defendants, including 
Garcia Senior, are dismissed, without prejudice. 
IT IS FURTHER ORDERED denying Garcia Senior’s Motion to Dismiss (Doc. 
54) without prejudice.
IT IS FURTHER ORDERED that Plaintiffs may file an amended complaint no 
later than 30 days from the date of this Order.  
IT IS FURTHER ORDERED that if no amended complaint is filed within 30 days 
from the date of this Order, the Clerk of Court shall enter judgment of dismissal and close 
the action. 
Dated this 29th day of February, 2024. 
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