1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT NOONAN LANCE BOYER & BANACH LLP David J. Noonan (Bar No. 55966) Ethan T. Boyer (Bar No. 173959) 701 Island Avenue, Suite 400 San Diego, CA 92101 Tel: (619) 780-0880 [email protected][email protected]Liaison Counsel for the Class [Additional counsel listed on signature page.] UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA LOU BAKER, individually and on behalf of all others similarly situated, Plaintiff, vs. SEAWORLD ENTERTAINMENT, INC., et al., Defendants. Case No. 3:14-cv-2129-MMA-AGS CLASS ACTION PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Filed Date: September 9, 2014 Trial Date: September 10, 2019 [FILED UNDER SEAL] Hearing Date: August 12, 2019 Time: 2:30 p.m. PDT Courtroom: 3D Judge: Hon. Michael M. Anello [Submitted concurrently herewith: Declaration of Cody L. Hill with Exhibits and Counterstatement of Facts] Case 3:14-cv-02129-MMA-AGS Document 437 Filed 09/13/19 PageID.36805 Page 1 of 53
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Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
NOONAN LANCE BOYER & BANACH LLP David J. Noonan (Bar No. 55966) Ethan T. Boyer (Bar No. 173959) 701 Island Avenue, Suite 400 San Diego, CA 92101 Tel: (619) 780-0880 [email protected][email protected] Liaison Counsel for the Class [Additional counsel listed on signature page.]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
LOU BAKER, individually and on behalf of all others similarly situated, Plaintiff, vs. SEAWORLD ENTERTAINMENT, INC., et al., Defendants.
Case No. 3:14-cv-2129-MMA-AGS CLASS ACTION PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Filed Date: September 9, 2014 Trial Date: September 10, 2019 [FILED UNDER SEAL] Hearing Date: August 12, 2019 Time: 2:30 p.m. PDT Courtroom: 3D Judge: Hon. Michael M. Anello [Submitted concurrently herewith: Declaration of Cody L. Hill with Exhibits and Counterstatement of Facts]
Case 3:14-cv-02129-MMA-AGS Document 437 Filed 09/13/19 PageID.36805 Page 1 of 53
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i Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
STATEMENT OF FACTS .................................................................................................. 4
I. Blackfish Premieres and Triggers Negative Publicity and Backlash .............. 4
II. As Orca Park Performance Falters, Defendants Resolve to Deny Blackfish Has Impacted the Company ............................................................ 5
III. Jacobs Knowingly Lies to the Market and Denies Any Blackfish Impact .............................................................................................................. 5
IV. Defendants Continue to Mislead Investors about Blackfish’s Impact on SeaWorld’s Business and the Causes of Its Attendance Declines ............. 7
V. Defendants Could No Longer Conceal Blackfish’s Impact .......................... 11
LEGAL STANDARD ........................................................................................................ 11
I. THERE ARE TRIABLE ISSUES ON THE ELEMENT OF FALSITY ...... 12
II. THERE ARE TRIABLE ISSUES ON THE ELEMENT OF MATERIALITY ............................................................................................ 17
III. THERE ARE TRIABLE ISSUES ON THE ELEMENT OF SCIENTER .................................................................................................... 20
IV. THERE ARE TRIABLE ISSUES ON LOSS CAUSATION AND DAMAGES ................................................................................................... 25
A. There Are Genuine Issues of Material Fact Regarding Loss Causation ............................................................................................. 25
B. There Are Genuine Issues of Material Fact Regarding Disaggregation .................................................................................... 34
C. There Are Genuine Issues of Material Fact Regarding Damages ...... 37
V. THERE ARE TRIABLE ISSUES ON PLAINTIFFS’ 20(a) CLAIMS ....... 39
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
TABLE OF CONTENTS
Page(s)
Cases
Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., 888 F. Supp. 2d 431 (S.D.N.Y. 2012) .......................................................................... 28
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ................................................................................................ 33, 39
Basic Inc. v. Levinson, 485 U.S. 224 (1988) ...................................................................................................... 17
City of Ann Arbor Emples. Ret. Sys. v. Sonoco Prods. Co., 827 F. Supp. 2d 559 (D.S.C. 2011) .............................................................................. 18
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605 (9th Cir. 2017) .......................................................................... 16, 21
City of Miami Gen. Employees’ & Sanitation Employees’ Ret. Tr. v. RH, Inc., 302 F. Supp. 3d 1028 (N.D. Cal. 2018) .................................................................. 28, 29
Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) ...................................................................................................... 25
In re Allstate Life Ins. Co. Litig., 2013 WL 789106 (D. Ariz. Mar. 1, 2013) .................................................................... 40
In re Apollo Group, Inc. Sec. Litig., 509 F. Supp. 2d 837 (D. Ariz. 2007) ..................................................................... passim
In re BofI Holding, Inc. Sec. Litig., 302 F. Supp. 3d 1128 (S.D. Cal. 2018)......................................................................... 32
In re Celestica Inc. Sec. Litig., 2014 WL 4160216 (S.D.N.Y. Aug. 20, 2014) ........................................................ 34, 39
In re Cigna Sec. Litig., 459 F. Supp. 2d 338 (E.D. Pa. 2006) ............................................................................ 39
In re Daou Systems, Inc., 411 F.3d 1006 (9th Cir. 2005) ...................................................................................... 25
In re Gilead Sciences Sec. Litig., 536 F.3d 1049 (9th Cir. 2008) ...................................................................................... 25
In re Homestore.com, Inc. Sec. Litig., 347 F. Supp. 2d 769 (C.D. Cal. 2004) .................................................................... 21, 24
In re Immune Response Sec. Litig., 375 F. Supp. 2d 983 (S.D. Cal. 2005)........................................................................... 21
In re Imperial Credit Indus, Inc. Sec. Litig., 252 F. Supp. 2d 1005 (C.D. Cal. 2003) ........................................................................ 35
In re Initial Pub. Offering Sec. Litig., 399 F. Supp. 2d 261 (S.D.N.Y. 2005) .......................................................................... 29
In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir. 2010) ........................................................................................ 16
In re NII Holdings, Inc. Sec. Litig., 311 F.R.D. 401 (E.D. Va. 2015) ................................................................................... 37
In re Novatel Wireless Sec. Litig., 2013 WL 12144150 (S.D. Cal. Oct. 25, 2013) ................................................. 27, 36, 37
In re Novatel Wireless Sec. Litig., 2013 WL 12247558 (S.D. Cal. Nov. 19, 2013) ...................................................... 37, 39
In re Novatel Wireless Sec. Litig., 830 F. Supp. 2d 996 (S.D. Cal. 2011).................................................................... passim
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014) ...................................................................................... 21
In re Oracle Corp. Sec. Litig., 627 F.3d 376 (9th Cir. 2010) .................................................................................. 31, 32
In re REMEC, Inc. Sec. Litig., 702 F. Supp. 2d 1202 (S.D. Cal. 2010)................................................................... 23, 35
In re Rent-Way Sec. Litig., 218 F.R.D. 101 (W.D. Pa. 2003) .................................................................................. 38
In re Sadia, S.A. Sec. Litig., 269 F.R.D. 298 (S.D.N.Y. 2010) .................................................................................. 38
In re Silver Wheaton Corp. Sec. Litig., 2017 WL 2039171 (C.D. Cal. May 11, 2017) .............................................................. 37
In re St. Jude Med. Sec. Litig., 2014 WL 6908434 (D. Minn. Dec. 8, 2014) ................................................................ 39
In re Washington Mut. Mortg. Backed Sec. Litig., 2012 WL 2995046 (W.D. Wash. July 23, 2012) .......................................................... 34
In re Williams Sec. Litig., 558 F.3d 1130 (10th Cir. 2009) .................................................................................... 35
In re WorldCom, Inc. Sec. Litig., 346 F. Supp. 2d 628 (S.D.N.Y. 2004) .......................................................................... 12
In re Xerox Corp. Sec. Litig., 746 F. Supp. 2d 402 (D. Conn. 2010) ........................................................................... 36
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) ........................................................................................................ 21
Matthews v. Centex Telemanagement, Inc., 1994 WL 269734 (N.D. Cal. June 8, 1994) .................................................................. 16
Miller v. Glenn Miller Productions, Inc., 454 F.3d 975 (9th Cir. 2006) ........................................................................................ 11
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Miller v. Thane Int’l, Inc., 519 F.3d 879 (9th Cir. 2008) ........................................................................................ 18
Mineworkers’ Pension Scheme v. First Solar, Inc., 881 F.3d 750 (9th Cir. 2018) ...................................................................... 25, 29, 30, 31
Nathanson v. Polycom, Inc., 87 F. Supp. 3d 966 (N.D. Cal. 2015) ............................................................................ 29
Nguyen v. Radient Pharms. Corp., 946 F. Supp. 2d 1025 (C.D. Cal 2013) ....................................................... 18, 20, 27, 28
No. 84 Employer-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920 (9th Cir. 2003) ............................................................... 24
Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424 (9th Cir. 1995) ........................................................................................ 25
Nuveen Mun. High Income Opportunity Fund v. City of Alameda, Cal., 730 F.3d 1111 (9th Cir. 2013) ................................................................................ 32, 35
Nwandu v. Bach, 2010 WL 2487194 (S.D. Cal. June 15, 2010) .................................................. 11, 13, 20
Paracor Fin., Inc. v. GE Capital Corp., 96 F.3d 1151 (9th Cir. 1996) ........................................................................................ 39
Silverman v. Motorola, Inc., 798 F. Supp. 2d 954 (N.D. Ill. 2011) ................................................................ 26, 29, 36
Smilovits v. First Solar Inc., 119 F. Supp. 3d 978 (D. Ariz. 2015) ................................................................ 30, 31, 36
Sys. Dev. Integration, LLC v. Computer Scis. Corp., 886 F. Supp. 2d 873 (N.D. Ill. 2012) ............................................................................ 38
Terra Sec. Asa Konkursbo v. Citigroup, Inc., 740 F. Supp. 2d 441 (S.D.N.Y. 2010) .......................................................................... 21
United States v. Jenkins, 633 F.3d 788 (9th Cir. 2011) ........................................................................................ 17
Waterford Twp. Police & Fire Ret. Sys. v. Mattel, Inc., 321 F. Supp. 3d 1133 (C.D. Cal. 2018) ........................................................................ 29
9th Cir. Model Civ. Jury Intr. 18.1 (2019) ......................................................................... 12
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Rules
Fed. R. Civ. P. 56(a)........................................................................................................... 11
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1 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
PRELIMINARY STATEMENT
Plaintiffs allege that Defendants misled investors throughout the Class Period
(August 29, 2013 to August 12, 2014) by repeatedly denying that the documentary Blackfish
was having any impact on SeaWorld’s business. After deceiving investors for almost a full
year on this crucially important question, on August 13, 2014, Defendants reversed course,
belatedly acknowledging that Blackfish had negatively impacted the Company and would
continue to hurt it moving forward. In response, SeaWorld’s market capitalization lost
nearly one-third of its value in a single day, harming Plaintiffs and the Class.
Discovery has confirmed Plaintiffs’ claims. Indeed, the factual record in securities
fraud cases rarely contains the types of explosive and compelling evidence that Plaintiffs
have developed here. This includes startling admissions and testimony from Fred Jacobs,
SeaWorld’s former Vice President of Communications, who authored several of the
Company’s false denials concerning Blackfish. In a nutshell, Jacobs’ testimony lays bare
Defendants’ fraud from the first day of the Class Period.
For example, Jacobs confessed that he lied on behalf of SeaWorld on or about
August 29, 2013 when he told the market, SeaWorld “can attribute no attendance impact at
all to the movie.” Likewise, Jacobs admitted that he misled investors when he told the
market that “Blackfish has had no attendance impact.” Jacobs knew his statements were not
true, but made them anyway at the direction of Defendant Atchison, SeaWorld’s CEO.
According to Jacobs, Defendants lied every time they denied that Blackfish was having an
impact because, “[t]here was a cost impact, there was a staff resources impact, there is a
reputation impact and very likely an attendance impact. There was a partnership impact.
There were impacts across the business. So to say that there was no impact is not correct.”
Jacobs’ bald admissions concerning Blackfish are corroborated by the factual record.
Plaintiffs have uncovered reams of evidence demonstrating that Blackfish was impacting
SeaWorld’s reputation, attendance, performance, and financial health throughout the Class
Period. Despite this, Defendants repeatedly assured investors that Blackfish was a non-
event, and that disappointing results were fully explained by other transient, less serious
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causes. All the while, Defendants’ assurances to the market were baseless—they refused to
take any affirmative step, let alone do anything “statistically credible,” to actually test for
Blackfish impact.
Notwithstanding clear and compelling evidence supporting their violations of Section
10(b), including Jacobs’ express admissions, Defendants now contend they are entitled to
summary judgment on the issues of falsity, materiality, scienter, loss causation, and
damages. As set forth herein, Defendants’ Motion should be denied, as they: (i) ignore and
mischaracterize the factual record; (ii) misstate the law; and (iii) presume mistakenly that
Plaintiffs’ expert testimony on loss causation and damages will be excluded by the Court
as unreliable.
First, standing on its own, Jacobs’ testimony that all of Defendants’ Class Period
denials were false easily refutes Defendants’ contention that there is no genuine factual
dispute as to the falsity of their statements. Even aside from Jacobs’ admissions, the record
contains compelling evidence that would permit the jury to conclude that Defendants misled
the market, including internal documents and testimony indicating that Blackfish was
harming SeaWorld’s business throughout the Class Period. As just one example, a third-
party analyst retained by SeaWorld concluded in mid-2014 that Blackfish was negatively
impacting attendance by 5% by August 19, 2013, ten days before the Class Period began.
Second, Plaintiffs have procured evidence that would readily permit the trier of fact
to determine that Defendants’ misstatements and omissions were material. Defendants have
not moved to exclude Plaintiffs’ expert testimony supporting materiality, which by itself
precludes summary judgment. Moreover, the record contains ample evidence of materiality:
conference call transcripts, analyst reports, and news coverage demonstrate that investors
were laser-focused on SeaWorld’s disclosures about whether Blackfish was harming
SeaWorld; internal documents show SeaWorld executives recognized by July 2013 that any
Blackfish impact would be fundamentally important to investors; and, eliminating any
possible doubt, SeaWorld’s stock dropped by over 30% when Defendants finally disclosed
Blackfish impact.
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Third, Defendants’ argument that summary judgment on the element of scienter is
proper because there is no evidence that they knew their statements were misleading fails
on its own terms. In this Circuit, evidence of recklessness can be used to prove scienter, and
as demonstrated herein, there is a mountain of evidence that Defendants’ statements were
made with “reckless” disregard for the truth. Defendants hardly contest this point.
Moreover, the record includes ample evidence to support a finding of “actual knowledge.”
For one thing, Jacobs admitted that he knew at the time he made them that each of his
alleged misstatements on SeaWorld’s behalf was false. This alone ends the inquiry.
Evidence further establishes that prior to their denials of Blackfish impact, Defendants
received communications and internal reports, attended meetings, participated in
discussions, and had access to information indicating the opposite: performance was
suffering, consumers, corporate partners and sponsors were fleeing, and immense resources
were being expended to combat the relentless Blackfish crisis.
Fourth, Defendants rest their entire argument for summary judgment on the elements
of loss causation and damages on their hope that the Court will reject the testimony of
Plaintiffs’ expert, Chad Coffman, as unreliable under Daubert. As set forth in full in
Plaintiffs’ opposition to Defendants’ motion to exclude his testimony (filed separately),
Coffman’s opinions are reliable because they are grounded in his sound event study
methodology.1 Critically, neither Defendants nor their experts challenge Coffman’s event
study or its results. They merely disagree with his assumptions, choices of factual support,
and conclusions. But none of these quibbles establishes proper grounds for exclusion and
summary judgment. Notably, at class certification the Court considered Coffman’s event
study and accepted it as evidence of market efficiency.
In sum, Defendants’ Motion should be denied in its entirety.
1 Plaintiffs incorporate by reference their Coffman Opp., Feinstein Opp., and Gibson Opp., filed concurrently herewith. Unless otherwise stated, in this brief, all emphasis is added and internal quotations and citations are omitted.
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
STATEMENT OF FACTS
I. Blackfish Premieres and Triggers Negative Publicity and Backlash
Blackfish premiered at Sundance in January 2013. The film is a
: “the death of somebody was
inevitable because SeaWorld shouldn’t have been in the killer whale business to begin
with,” and SeaWorld’s “killer whale display was intrinsically immoral.” PF299, 159.
At all relevant times, SeaWorld touted its reputation and brand as “among our most
important assets.” PF142, 144. But when Jacobs was sent to view the film at Sundance, he
immediately grasped that it was a “very serious problem” that “could only do one thing,
and that was damage SeaWorld’s reputation. The question wasn’t whether it would or not,
but whether—how much it would.” PF163, 165. Even before the film premiered,
SeaWorld’s Chairman, David D’Alessandro, warned Atchison, “this is a real Achilles heel
for the company and u. Our only addressing it in crisis and then letting it pass is Russian
Roulette as a public company.” PF169.
Defendants knew the “film wa[s] not going to disappear” after Sundance. PF174. In
January 2013, CNN Films and Magnolia Pictures purchased rights to Blackfish,
guaranteeing broad distribution. Id. Atchison recognized this news “[wa]sn’t good at all.”
PF175. In the following months, Blackfish was featured at film festivals and widely covered
by mainstream media, including the Los Angeles Times, New York Times, and ABC News.
PF254-57, 259, 178, 285, 263-66, 268, 282, 286.
After a theatrical run in at least
99 domestic locations and release on British Netflix in July, Blackfish was broadcast
nationally on CNN in October 2013 and released on Netflix and iTunes in late 2013. PF7-
8, 10, 291-94, 712, 788. In 2013 and throughout the Class Period, social media reaction to
Blackfish remained elevated; SeaWorld monitored it
executives internally bemoaned that the backlash was unlike any SeaWorld had ever faced.
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PF427, 529, 534-35, 576-82, 713, 175-78. Blackfish and the outcry against animal captivity
became, and remained, “almost synonymous.” PF180.
II. As Orca Park Performance Falters, Defendants Resolve to Deny Blackfish Has Impacted the Company
By the close of 2Q13, 2
Discussing the shortfall, D’Alessandro stated: “we budgeted for a year with much higher
attendance knowing we had price increases and we are dramatically under that number,
necessitating our large expense reductions in mid-year.” PF911.
With performance waning and negative publicity from Blackfish rampant, in July
2013, outside investment analysts informed SeaWorld executives that “Blackfish is the
biggest uncertainty” about the Company’s business, and “will become a fundamental issue
for all investors if it starts to impact results.” PF315. Without analysis, SeaWorld’s Chief
Legal Officer, Tony Taylor, immediately proposed a response to Atchison, Heaney,
Swanson, Jacobs and others: “[W]ait for the inevitable question and then knock it ou[t]
summarily with a prepared answer by saying that we are aware of the film, it is the same
cast of characters, the film is misleading and we have not seen any impact in the business
because of the film.” PF317. Defendants ran with Taylor’s plan.
III. Jacobs Knowingly Lies to the Market and Denies Any Blackfish Impact
In August 2013, in response to direct questions about whether Blackfish had harmed
SeaWorld, Jacobs—speaking on SeaWorld’s behalf—told Bloomberg and the Los Angeles
2 SeaWorld’s executives stressed the importance of analyzing performance against budget: “there is an expectation that [budget goals] will be met because they were allegedly set with some logic and agreement. And the business to a great extent is managed to the plan for much of the year.” PF155.
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Times “[w]e can attribute no attendance impact at all to the movie” and “‘Blackfish’ has had
no attendance impact.” PF325, 326-334. Jacobs testified that in so doing, he lied. Id.
(Q. Was that a true statement when you made it? A. No.) In each case, Jacobs was
“instructed to answer the question by Jim Atchison.” Id.3
By then, Blackfish was plainly impacting SeaWorld’s business in myriad ways.4
SeaWorld Orlando Park President, Terry Prather, testified it was a “common fact known”
in 2013 “that it was affecting our reputation.” PF406, 409, 444-46, 664.
PF302-14.
PF311-13.5
Consistent with that data, Heaney admitted in July 2014 Board presentation notes
that “[o]ur current PR and demand issue began with Blackfish in early 2013” and had
seen “no meaningful recovery” since. PF427. SeaWorld Orlando personnel identified the
“Blackfish Documentary” as one of two “Key Attendance Drivers” at the park for all of
2013. PF412. Likewise,
PF597.
Before and throughout the Class Period, consumers inundated SeaWorld with letters
and emails vowing never to visit its parks because of Blackfish. See, e.g., PF869 (Sept.
2013: “Due to your quote ‘we can attribute no attendance impact at all to the movie,’ I am
3 Jacobs also admitted similar statements he made in January 2014 were false when made and that Atchison directed him to issue these statements. PF358-60. 4 Plaintiffs’ accompanying Counterstatement contains evidence of a panoply of impacts from Blackfish that SeaWorld observed in multiple facets of its business during the Class Period. See, e.g., PF403-616 A small sampling of the observed impacts is set forth herein. 5 Over the next two months, the Blackfish trailer would be viewed at least ~1.25 million times on YouTube alone. PF675, 693.
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DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
writing to let you know I will never attend SeaWorld due to my seeing the Blackfish
movie.”); PF851-85. A consultant SeaWorld hired determined that by August 19, 2013, the
film was hurting attendance levels at SeaWorld Parks by over 5%. PF835.6 And Blackfish-
related publicity had already led partners and sponsors to quietly end or sideline
partnerships and promotions with SeaWorld, including . PF439, 433-58.
Significantly, Defendants knew they did not have data to support their “no impact”
statements, yet did not “do something statistically credible” to test for Blackfish impact.
PF394. As D’Alessandro stated in July 2013: “The problem is they [management] really
don’t have the analytics to understand what is really going on with any reasonable precision.
They are trying to jury rig some analytics, but there will be a fair amount of guesswork.”
PF393.
PF396, 401-02. Yet,
Defendants refused to address these acknowledged issues:
And SeaWorld did
not perform any analysis to test for Blackfish impact. Id.
IV. Defendants Continue to Mislead Investors about Blackfish’s Impact on SeaWorld’s Business and the Causes of Its Attendance Declines
In November and December 2013, Defendants doubled-down on Jacobs’ lies,
assuring investors Blackfish was having “no notable impact,” they could not connect the
film to “any effect on our business” and “our attendance has improved since the movie came
out.” See Section I, infra. The record demonstrates these statements, too, were false and
misleading.
By October 2013, the film continued to have “a significant impact on the company’s
reputation,” prompting a gathering of Company executives, outside “Blackfish consultants”
6 As a SeaWorld Orlando financial and business analyst concluded: “[I]t would be stupid to think that Blackfish did not impact attendance.” PF984.
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was “Blackfish continues to impact perception.” PF413-14. Also in February, SeaWorld
Orlando had “moms and girl scout troops cancelling on us because of Blackfish” and
SeaWorld employees “all talked about a generation of kids . . . turned off to SeaWorld
because” of Blackfish. PF578-82. Meanwhile, and privately reported to
Defendants ticket cancellations and depressed sales due to the negative publicity. PF487,
447, 495-98. By March 2014, internal records showed: (i)
PF236; (ii) SeaWorld personnel had
identified at least in lost forecasted revenue and in lost
promotional value due to Blackfish at Orlando alone, PF522; (iii) BBBQ event attendance
had declined with admission revenue down over , PF526; (iv) other 1Q14
events meant to drive attendance were also hurt by Blackfish, including “Just for Kids”
which was down PF551-54; and (v) numerous companies had
canceled or suspended events with SeaWorld, resulting in lost attendance, revenues, and
impressions, PF555-62. SeaWorld’s 50th Anniversary Tour and Celebration, which the
Company had touted as a driver of attendance, was ruined by Blackfish impacts in 2013-14.
PF886-906. Recognizing a full blown crisis, SeaWorld had entire teams dedicated to
monitoring, reporting on, and responding to Blackfish. PF613, 745-46, 755-59, 768, 782;
see also PF611 (SeaWorld directors discussed concerns Atchison was spending the bulk of
his time addressing Blackfish issues).
Regardless, Defendants denied again in March 2014 that Blackfish had any
“noticeable impact on our business,” and attributed the entirety of SeaWorld’s 4Q13 and
full-year 2013 attendance decline to other factors. Section I, infra. Dissembling, Defendants
heralded the Company’s increase in total revenues from 2012.
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SeaWorld’s 2H13 performance would have been even worse had Defendants not
taken dramatic, unsustainable steps to try to mitigate declining attendance.
This band-aid did not stop the bleeding. Through April 2014, Atchison and Heaney
were informed that Blackfish was hurting SeaWorld, culminating with reports they received
in late April that stated: “negative publicity ha[s] impacted the SeaWorld parks
Defendants “characterize this lawsuit as a nondisclosure case and contend that, as a
matter of law, they had no duty to disclose” adverse facts. In re Apollo Group, Inc. Sec.
Litig., 509 F. Supp. 2d 837, 840 (D. Ariz. 2007). Defendants’ duty to disclose is clear: when
they made affirmative statements denying Blackfish impact, they were “bound to do so in a
manner that wouldn’t mislead investors, including disclosing adverse information that cuts
against the positive.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1009 (9th Cir.
2018). They violated that duty.
August 29, 2013. Jacobs has admitted under oath that he knew it was a lie when he
made the alleged false statements published on this day:9 “[w]e [SeaWorld] can attribute
no attendance impact at all to the movie [Blackfish],” and “‘Blackfish’ has had no
attendance impact.” PF325-34. Defendants admit Jacobs was “authorized to speak to the
press on matters related to SeaWorld’s attendance.” PF324. Given these admissions,
Defendants’ claim that “[t]here is no evidence that these statements were materially false at
the time they were made” (DB at 33) is incomprehensible. See, e.g., In re WorldCom, Inc.
Sec. Litig., 346 F. Supp. 2d 628, 661 (S.D.N.Y. 2004) (granting plaintiff partial summary
judgment where defendant admitted falsity).
9 Defendants’ unsupported claim that Jacobs’ statement is not actionable because it was first made prior to August 29, 2013 (DB at 33 n.10) is irreconcilable with Plaintiffs’ price maintenance theory, which this Court has already endorsed. ECF No. 258 at 22-24.
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Moreover, the record contains further evidence to support a verdict that SeaWorld’s
August 29, 2013 statements were false. For example, SeaWorld’s own consultant
determined that by August 19, 2013, Blackfish was hurting attendance levels at SeaWorld
Parks by over 5% and the Company’s internal records specifically identified Blackfish as a
“Key Attendance Driver” at the flagship SeaWorld Orlando park for all of 2013, and a cause
of declining ticket and pass sales. See pp. 6-7, supra. While SeaWorld affirmatively denied
Blackfish impact, Defendants refused to perform empirical research to investigate the issue.
PF378-96. Nevertheless, Defendants “chose to make statements directly inconsistent with
the information [they] did have. Consequently, at the very least, there’s a triable issue of
fact” on falsity. Hsingching, 2018 WL 4945703, at *8.
Defendants ignore most of the relevant evidence and instead urge the Court to draw
inferences in their favor from the limited evidence they cite. DB at 33-34. But drawing
inferences and interpreting facts are “jury functions, not those of a judge,” and all inferences
must be drawn in Plaintiffs’ favor. Nwandu, 2010 WL 2487194, at *1. Defendants’ related
argument that Plaintiffs must prove the false statements were “materially false” (DB at
25)—an undefined threshold for how big a lie must be for liability to attach—itself raises
triable issues. See Hsingching, 2018 WL 4945703, at *6 (finding triable issues existed when
defendants “contend[ed] none of the statements [p]laintiffs rel[ied] on was sufficiently
misleading to warrant securities fraud liability”).
Finally, Defendants contend “there is no evidence that SeaWorld’s parks were
experiencing unusual or unexplained attendance or revenue declines” at this time. DB at 33.
Attendance trends were not “improving,” but rather were propped up by unprecedented
and boosted by an entirely new park. PF917, 201-03, 907-09.
November 13 and 14, 2013, and December 20, 2013. On these days, respectively:
(i) Defendants misleadingly represented that all of SeaWorld’s 3Q13 attendance decline
resulted from weather and pricing strategies; (ii) Atchison falsely stated: “I scratch my head
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if there’s any notable impact from this film at all, and I can’t attribute one to it. . . . Ironically,
our attendance has improved since the movie came out;” and (iii) Atchison falsely stated:
“As much data as we have and as much as we look, I can’t connect anything really between
the attention that the film has gotten and any effect on our business.” PF341-44, 350-52.
Defendants contend “[t]here is no evidence that these statements were false or misleading.”
DB at 35.
The record evidence belies their contention. See pp. 6-8, supra. Defendants “could
have remained silent,” but they “could not represent that there was no controversy here
because all the data was favorable.” Schueneman v. Arena Pharm., Inc., 840 F.3d 698, 709
(9th Cir. 2016). As Jacobs testified, Atchison’s statements were “simply untrue” because:
[h]e says ‘No impact’ . . . ‘No impact on our business.’ That is simply untrue. There was a cost impact, there was a staff resources impact, there is a reputation impact and very likely an attendance impact. There was a partnership impact. There were impacts across the business. So to say that there was no impact is not correct.
PF352.10
Defendants’ arguments that SeaWorld’s 4Q13 performance versus prior periods:
(i) shows that their statements were not misleading because “attendance was improving,”
and (ii) justified conducting no actual analysis of Blackfish impacts (DB at 36), merely raise
fact issues. First, the premise is misleading and faulty:
Comparison to prior periods could thus reveal little about whether Blackfish
was hurting the business. See Apollo, 509 F. Supp. 2d at 842 (summary judgment improper
unless “no reasonable jury could agree with” non-movant’s interpretation of falsity facts).11
PF378-88.
10 Except certain band cancellations, these facts were not “known to the market.” DB at 35. 11 This evidence also supports the falsity of Defendants’ March and May 2014 statements.
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and fewer operating days. PF372. Defendants contend there is “no evidence” SeaWorld
“had identified and failed to disclose a Blackfish impact,” but, critically, never address any
evidence relevant to this statement, including the many facts identified above. DB at 38.
For instance, in 1Q14, Internal
reports concluded the “combination of shifts in Easter/Spring break schedules, unfavorable
weather and negative publicity have impacted the SeaWorld parks performance (through
4/29)”
PF424, 1034-35. These facts
are irreconcilable with Defendants’ misrepresentations. See Schueneman, 840 F.3d at 709;
Hsingching, 2018 WL 4945703, at *8. Issues of fact regarding falsity abound.
II. THERE ARE TRIABLE ISSUES ON THE ELEMENT OF MATERIALITY
“[M]ateriality depends on the significance the reasonable investor would place on the
withheld or misrepresented information.” Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988).
Information is material if “a reasonable investor would have considered it useful or
significant.” United States v. Jenkins, 633 F.3d 788, 802 (9th Cir. 2011). Determining
materiality requires “delicate assessments of the inferences a ‘reasonable shareholder’
would draw from a given set of facts and the significance of those inferences to him, and
these assessments are peculiarly ones for the trier of fact.” S.E.C. v. Phan, 500 F.3d 895,
908-09 (9th Cir. 2007). Only when the information at issue is “so obviously [un]important
to an investor, that reasonable minds cannot differ on the question of materiality is the
ultimate issue of materiality appropriately resolved ‘as a matter of law’ by summary
judgment.” S.E.C. v. Reyes, 491 F. Supp. 2d 906, 909 (N.D. Cal. 2007) (alteration in
original). Accordingly, materiality “typically cannot be determined as a matter of summary
judgment.” In re Novatel Wireless Sec. Litig., 830 F. Supp. 2d 996, 1012 (S.D. Cal. 2011)
(quoting Phan, 500 F.3d at 908). This case is no different. Defendants’ strained materiality
arguments apply the wrong legal standard, ignore the evidence, and must be rejected.
As an initial matter, Coffman opined that Defendants’ misstatements and omissions
were material from an economic perspective. PX58 at pp. 16-34. Defendants fail to
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Defendants argue weakly that just because Blackfish was “of interest to the market
does not mean that all information concerning that topic is necessarily material.” DB at 34.
As the evidence above demonstrates, however, information about whether Blackfish was
negatively impacting SeaWorld—the topic of the alleged misstatements—was plainly
important to investors. Answering the wrong legal question, Defendants argue not that their
misstatements were immaterial to investors, but that Defendants themselves allegedly did
not think Blackfish impacts on SeaWorld’s business were “material” enough to warrant
disclosure. That excuse is irrelevant: “[I]f such a self-serving assertion could be viewed as
controlling, there would never be a successful prosecution or claim for fraud.” S.E.C. v.
Platforms Wireless Int’l Corp., 617 F.3d 1072, 1095 (9th Cir. 2010); see S.E.C. v. Talbot,
530 F.3d 1085, 1097-98 (9th Cir. 2008) (at summary judgment, test for materiality is what
a reasonable investor would have found important). Defendants made numerous affirmative
statements, and were bound to speak completely and accurately when they did so. See
Apollo, 509 F. Supp. 2d at 840.
Defendants’ characterizations of Blackfish impacts as “minimal” or “de minimis”
(DB at 35) fail as a matter of law. “[T]he concept of ‘materiality’ is not limited to a
percentage of a company’s total profits, but rather requires assessment of qualitative and
quantitative factors so that even quantitatively small amounts can still present a materially
misleading picture of a company’s health.” S.E.C. v. Yuen, 2006 WL 1390828, at *37 (C.D.
Cal. Mar. 16, 2006); see S.E.C. v. Fuhlendorf, 2011 WL 999221, at *8 (W.D. Wash. Mar.
17, 2011) (“there is no bright-line rule regarding materiality.”).19 Here, as Coffman opines,
Blackfish impact indicated a structural change in demand that would impact SeaWorld
moving forward and was clearly material to investors. PX58 ¶¶45, 56-58. Defendants’
veiled truth-on-the-market argument that “business impacts related to Blackfish” “were []
19 Defendants’ arguments about the size of isolated Blackfish impacts say nothing about cumulative impact, and merely raise fact issues for the jury. See, e.g., DB at n.13; Reyes, 491 F. Supp. 2d at 910 (“[t]hat an expense is less significant does not mean it is immaterial”).
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known to the market” (DB at 35) is accompanied by no evidentiary support, belied by the
record, and is “a matter for trial.” ECF No. 258 at 22.
III. THERE ARE TRIABLE ISSUES ON THE ELEMENT OF SCIENTER
Plaintiffs may prove scienter with evidence of “either actual knowledge or
inference of scienter is sufficient to support a jury’s verdict.” Novatel, 830 F. Supp. 2d at
1017-18 (standard at summary judgment “less stringent” than the “strong inference of
scienter” required at pleading stage). “Generally, scienter should not be resolved by
summary judgment.” Provenz v. Miller, 102 F.3d 1478, 1489 (9th Cir. 1996). Only when
“there is no rational basis in the record for concluding that any of the challenged statements
was made with requisite scienter” is summary judgment appropriate. Id. at 1490. It is not
appropriate here.
Defendants do not address any evidence under the recklessness standard,20 and thus
do not carry their heavy burden to show “no reasonable inference supports” Plaintiffs’
claim. Nguyen, 946 F. Supp. 2d at 1038; see Gebhart, 595 F.3d at 1040. Their failure to
challenge scienter under the applicable standard precludes summary judgment. Instead,
Defendants’ primary argument is that there is “no evidence” that Defendants had “actual
knowledge of any material Blackfish-related attendance impact.” DB at 26, 28. Defendants’
scienter challenges fail for at least the following reasons.
First, Jacobs has admitted his August 2013 (and January 2014) “no impact”
statements on behalf of SeaWorld were knowingly false when made. See p. 12, supra.
Contemporaneous evidence confirms this and reflects Jacobs’ knowledge of facts contrary
to his statements. Id. Defendants’ attempts to defuse these damning facts (DB at 34-35)
highlight genuine factual disputes at a minimum. See Nwandu, 2010 WL 2487194, at *1.
20 The sole exception is Defendants’ baseless attacks on Dr. Gibson’s opinions, which fail for the reasons set forth in the Gibson Opp., and, themselves, raise genuine disputes, including as to the reasonableness of Defendants’ reliance on SeaWorld’s market research or Powers’ attendance analyses. DB at 30-31.
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Second, “[D]efendants published statements when they knew facts suggesting the
statements were inaccurate or misleadingly incomplete,” which “is classic evidence of
scienter.” In re Immune Response Sec. Litig., 375 F. Supp. 2d 983, 1022 (S.D. Cal. 2005).
At all relevant times, Defendants received communications and internal reports, attended
meetings, participated in discussions, and had access to information that Blackfish was
special events, staffing and resources, unplanned expenses, and reputation.21 See pp. 6-10,
supra; PF403-616; Fuhlendorf, 2011 WL 999221, at *6-7 (factual dispute where defendants
participated in discussions about information contrary to statements); In re Homestore.com,
Inc. Sec. Litig., 347 F. Supp. 2d 769, 787 (C.D. Cal. 2004) (same); City of Dearborn, 856
F.3d at 620 (same).22
In fact, each time Defendants denied that Blackfish was impacting SeaWorld’s
business, they knew facts indicating the opposite was true. See Hsingching, 2018 WL
4945703, at *8 (statements were “directly inconsistent with the [] data” defendant received).
Jacobs has admitted as much. Prior to his November and December misstatements,
21 Defendants’ argument that SeaWorld’s market research constitutes only “red flags,” not evidence of impact (DB at 27), is wrong on the facts, PX56 ¶121, and raises fact questions as to whether Defendants’ disregard of that data was reckless. See S.E.C. v. Loomis, 969 F. Supp. 2d 1226, 1234 (E.D. Cal. 2013) (“[w]hen the defendant is aware of the facts that made the statement misleading, he cannot ignore the facts and plead ignorance of the risk”). Because SeaWorld’s market research was not “public and readily available,” Terra Sec. Asa Konkursbo v. Citigroup, Inc., 740 F. Supp. 2d 441, 451 (S.D.N.Y. 2010), is inapposite. 22 Defendants’ reliance on In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014) (DB at 27-28) is misplaced. There, the court analyzed defendants’ duty to disclose in a pure omissions case and found reasonable their failure to disclose until the completion of their investigation into the alleged undisclosed issue. Id. at 1065 (explaining there was no “allegation that NVIDIA knowingly issued a false press release, attempting to discount any public discussion regarding [the alleged nondisclosed information]”). Here, Defendants’ duty to disclose is beyond dispute, as is the fact they never investigated the Blackfish issue. PF378-88. Thus, this case is like Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), where the defendant issued a press release suggesting certain studies had confirmed information when, in fact, no such studies existed. NVIDIA, 768 F.3d at 1065 (analyzing Matrixx).
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PF216-21, 407-08, 435-90,
543-44, 700-04, 911, 924. Prior to the Company’s March statements, Defendants identified
revenue impacts from Blackfish, while partners, sponsors and ticket resellers reported still
more. See pp. 8-10, supra. Likewise, prior to SeaWorld’s May 2014 statement blaming
Easter and weather for all of SeaWorld’s 13% attendance decline, Heaney and Atchison
were told that a “combination of shifts in Easter/Spring break schedules, unfavorable
weather and negative publicity have impacted the SeaWorld parks performance” (through
4/29). See pp. 9-11, supra. This evidence is a mere sampling. It identifies actual impacts on
SeaWorld’s business—not just that “personnel were concerned about the potential risk
Blackfish posed to the Company” (DB at 27-28)—and, at a minimum, raises clear factual
disputes. Hsingching, 2018 WL 4945703, at *8.23
Third, Defendants’ misrepresentations concealing a Blackfish impact purported to
rely on “data” they knew did not exist. Id. (defendant “knew the information he was
conveying wasn’t consistent with the [] data. That’s enough to show scienter.”).
See Howard, 228 F.3d at 1064-65
(recklessness shown where defendant had “grounds to believe material facts existed that
were misstated or omitted, but nonetheless failed to obtain and disclose such facts”). Indeed,
while Atchison falsely stated the data he had seen indicated no change in consumer
perception of SeaWorld, he could not identify any factual support for his false statements
under oath, nor could he affirm his March 2014 statement was “a completely true
statement.” PF370.24
23 The evidence at pp. 6-10, supra, belies Defendants’ bald claims that no “internal documents show[] that SeaWorld had actually identified a Blackfish-related impact on attendance” or that impacts on SeaWorld’s business were “minimal.” DB at 26, 30-31, 38. 24 The Individual Defendants’ sudden recall in self-serving declarations about sources of information they purportedly relied on creates material fact disputes. See Fuhlendorf, 2011 WL 999221, at *6 (“discrepancy between . . . memories sufficient” to raise fact issue); S.E.C. v. Life Wealth Mgmt., Inc., 2012 WL 12919299, at *3-4 (C.D. Cal. Nov. 9, 2012) (“self-serving” declaration from defendant “stating that he did not ‘intend to deceive or mislead [investors] in any way’” “does not demonstrate that there is ‘no rational basis’ for
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“insider trading” available when “before becoming aware of the information, the
person…entered into a binding contract to purchase or sell the security”).
The Individual Defendants’ scienter and that of members of senior management
identified above confers scienter on SeaWorld. Nordstrom, Inc. v. Chubb & Son, Inc., 54
F.3d 1424, 1435 (9th Cir. 1995).
IV. THERE ARE TRIABLE ISSUES ON LOSS CAUSATION AND DAMAGES
A. There Are Genuine Issues of Material Fact Regarding Loss Causation
To prove loss causation at trial, a plaintiff must show that a “relevant truth” that was
previously concealed became “generally known” and caused the company’s stock price to
drop. Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 342, 344 (2005). “This inquiry requires
no more than the familiar test for proximate cause.” Mineworkers’ Pension Scheme v. First
Solar, Inc., 881 F.3d 750, 753 (9th Cir. 2018). “To be corrective, the disclosure need not
precisely mirror the earlier misrepresentation, but it must at least relate back to the
misrepresentation and not to some other negative information about the company.” Lloyd
v. CVB Fin. Corp., 811 F.3d 1200, 1210 (9th Cir. 2016). A disclosure need not directly
reveal that Defendants’ statements were false: “[d]isclosure of the fraud is not a sine qua
non of loss causation, which may be shown even where the alleged fraud is not necessarily
revealed prior to the economic loss.” First Solar, 881 F.3d at 753. Moreover, a
misrepresentation “need not be the sole reason for the decline in value of the securities, but
it must be a ‘substantial cause.’” In re Gilead Sciences Sec. Litig., 536 F.3d 1049, 1055 (9th
Cir. 2008) (quoting In re Daou Systems, Inc., 411 F.3d 1006, 1025 (9th Cir. 2005)). “[L]oss
causation is a context-dependent inquiry as there are an infinite variety of ways for a tort to
cause a loss.” First Solar, 881 F.3d at 753.
To meet their burden at summary judgment, Defendants must “establish that, as a
matter of undisputed fact, the depreciation in the value of [SeaWorld’s stock] could not
have resulted from the alleged false statement or omission of the defendant.” Novatel, 830
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F. Supp. 2d at 1019; see Provenz, 102 F.3d at 1492 (“defendants must prove, as a matter of
law, that the [stock movement] [] resulted from factors other than the [misstatements]”).
This is a “heavy burden,” Provenz, 102 F.3d at 1492, which Defendants have failed to meet.
“It is only upon such a showing that Plaintiffs must introduce evidence of loss causation
sufficient to establish a genuine dispute as to the same.” Silverman v. Motorola, Inc., 798
F. Supp. 2d 954, 979 (N.D. Ill. 2011).
Here, Defendants misrepresented that Blackfish was having “no impact” on
SeaWorld’s business, instead attributing declines to one-time factors, like the weather. In
so doing, Defendants concealed that Blackfish was a structural issue that was negatively
impacting the Company and would continue to do so. That relevant truth was revealed on
August 13, 2014—when SeaWorld effectively disclosed that Blackfish had negatively
impacted the Company and would continue to negatively impact it moving forward.
On August 13, 2014, the Company issued a press release disclosing 2Q14 and 1H14
results well below consensus expectations. PF1082-85. The release blamed the
disappointing 2Q14 and 1H14 results on negative publicity related to Blackfish: “the
Company believes attendance in the quarter was impacted by demand pressures related to
recent media attention surrounding proposed legislation in the state of California.”29
PF1082-83 (attributing 1H14 declines to the same issues “discussed in the preceding
section”). SeaWorld also lowered guidance for 2014, disclosing that these same negative
trends would continue: “the Company now expects full year 2014 revenue and Adjusted
EBITDA to be down in the range of 6-7% and 14-16%, respectively, compared to the prior
29 Although Defendants literally attributed declines to negative “media attention surrounding proposed legislation,” the market immediately understood that SeaWorld’s results were caused by Blackfish. PF1086-91, 1093-1106, 1109-15, 1117-20; PX58 ¶¶27, 80; PX60 ¶110. Defendants’ expert at class certification admitted the same. PX576 at 112:14-17 (“what was related to Blackfish was the statement pertaining to proposed litigation in the State of California.”). Sea World executives and others also repeatedly acknowledged that Blackfish and the legislation were intertwined. PF1080-82, 1085-86, 1191, 1194-96, 1198-99, 1201.
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year. This guidance assumes full year revenue trends similar to the first half of the year.”
PF1084. On this news, SeaWorld’s stock shed one-third of its value. PF103.
Defendants make no attempt to prove that the August 13 stock decline was unrelated
to their misstatements. Their motion cites no expert analysis, nor could it. Defendants’
expert declined to perform the one fundamental analysis courts require to properly assess
loss causation: an event study. PX575 at 18:17-21:24.30 Nor did he determine whether non-
fraud related information had any price effect at all, or if it did, how much. PX575 at 197:13-
198:2, 202:22-203:24. Defendants’ failure to establish that the entire stock decline was due
to non-fraud-related factors means the Court need go no further. See Nguyen, 946 F. Supp.
2d at 1040 (denying summary judgment when defendants did not show stock drop was
“result of factors other than” misstatements).
But even had Defendants shifted the burden to Plaintiffs to identify a material fact
dispute, their motion would fare no better. Plaintiffs’ expert, Coffman, conducted a full
event study regression analysis to determine the cause of the August 13 price decline. PX58
¶¶4, 9-10, 59-65, 70-72, 79 & Ex. 1.31 He determined that, after explicitly disaggregating
“market and industry movements, the market price of SeaWorld Common Stock fell by
33.30% ($9.37 per share) in reaction to the [August 13] disclosure.” Id. ¶¶10, 79 & Ex. 1.
Defendants’ expert does not contest the results of Coffman’s event study. See, e.g., PX575
at 142:17-21, 156:16-157:12, 182:8-185:25. Coffman also explicitly disaggregated the
stock price impact of Company-specific confounding information, and concluded that a
substantial amount ($7.52) of the August 13 decline resulted from Defendants’ disclosure
of Blackfish impact. PX58 ¶¶11, 101-29 & Exs. 2-4.
30 In re Novatel Wireless Sec. Litig., 2013 WL 12144150, at *5 (S.D. Cal. Oct. 25, 2013) (“Event studies are crucial to demonstrate loss causation, and indeed some courts describe them as almost obligatory.”); Mauss v. NuVasive, Inc., 2018 WL 656036, at *5–6 (S.D. Cal. Feb. 1, 2018) (“The use of an event study is often necessary to provide an evidentiary basis for a reasonable jury to determine the existence of loss causation and damages.”). 31 Coffman’s opinions on loss causation, damages, and materiality as discussed herein are further explicated and reinforced in Coffman’s rebuttal report. See generally PX59.
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Coffman’s conclusion is consistent with market commentary that attributed the
August 13 stock decline to Blackfish, and treated the Blackfish disclosure as headline news: • The Guardian, SeaWorld Shares Tumble 33% Following Blackfish
Documentary: “SeaWorld [shares] fell 33% after a 6-7% decline in the company’s revenues was forecast – with falling attendances driven in part by the negative publicity surrounding the documentary film Blackfish. . . .” PF1099;
• San Diego Union Tribune, SeaWorld Stock Plunges, ‘Blackfish’ Blamed: “[SeaWorld] shares dropped to a record low Wednesday after the company reported earnings that missed analysts’ estimates and said controversy over the treatment of captive whales in its theme-park shows hurt attendance.” PF1089;
• Times of San Diego, SeaWorld Stock Takes Dive as Park Admits ‘Blackfish’ Protests Hit the Mark: “SeaWorld’s stock … took a serious hit Wednesday as the company admitted the PETA/Blackfish protests have taken a toll on the amusement parks’ bottom line.” PF1088;
• IndieWire.com: “in the case of ‘Blackfish,’ [the] documentary about the danger of keeping whales in captivity, the effect is clear: SeaWorld reported today that its stock has dropped, largely due to the film.” PF1100;
• New York Times: “The drop in stock price is the latest indication of the damage inflicted by the adverse coverage in the news media. SeaWorld came under scrutiny last year after the release of “Blackfish,” a documentary that presents a harsh look at killer whales in captivity.” PF1090; and
• International Business Times, “Blackfish” Effect: SeaWorld Stock Plunges After Controversial Film Sparks Ethical Debate: “shares dipped more than 30 percent Wednesday,” “an indication that investors are aware of the controversy surrounding the company and the 2013 documentary ‘Blackfish.’” PF1095.
See also PF1086-87, 1091, 1093-94, 1096, 1098, 1101-02, 1104, 1110-11, 1115, 1117. As
Coffman found, clearly “the market saw the disclosure as the Company acknowledging a
Blackfish impact when SeaWorld had explicitly denied any such impact in the past (falsely,
Plaintiffs claim).” PX59 ¶88(c); see PX58 ¶¶7-8, 71; City of Miami Gen. Employees’ &
Sanitation Employees’ Ret. Tr. v. RH, Inc., 302 F. Supp. 3d 1028, 1046 (N.D. Cal. 2018)
(corrective disclosure “must simply relate to the same subject matter” as alleged
misstatement). Defendants come nowhere close to establishing—as they must—that no
reasonable jury could find the August 13 disclosure related to the same subject matter as
their misstatements. See Radient, 946 F. Supp. 2d at 1040–41 (summary judgment denied
where “misrepresentations match the gist of” corrective disclosure); Abu Dhabi
Commercial Bank v. Morgan Stanley & Co. Inc., 888 F. Supp. 2d 431, 472 (S.D.N.Y. 2012)
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(“[D]efendants must demonstrate that a jury could not reasonably infer from the available
evidence that some portion of plaintiffs’ losses were caused by defendants’ fraud.”).32
Nevertheless, Defendants argue that because they purportedly limited the August 13,
2014 disclosure of Blackfish impact to 2Q14, it did not reveal the falsity of their earlier
statements that Blackfish was having no impact. DB at 15-22. But “[a] corrective disclosure
need not be a ‘mirror image’ disclosure—a direct admission that a previous statement is
untrue.” City of Miami, 302 F. Supp. 3d at 1046; Motorola, 798 F. Supp. 2d at 981 (“a
disclosure sufficient to satisfy loss causation can occur in ways other than an announcement
that points directly to a previous representation and proclaims its falsity”).
Indeed, to require defendants to concede that previous statements were false would
be to require an admission of fraud—a standard the Ninth Circuit has repeatedly rejected.
See, e.g., NuVasive, 2018 WL 656036, at *5 (“the Ninth Circuit does not require that fraud
be affirmatively revealed to the market to prove loss causation”); Waterford Twp. Police &
Fire Ret. Sys. v. Mattel, Inc., 321 F. Supp. 3d 1133, 1156-57 (C.D. Cal. 2018) (plaintiff
“need not plead loss causation based on a revelation of fraud to the marketplace”);
Nathanson v. Polycom, Inc., 87 F. Supp. 3d 966, 985 (N.D. Cal. 2015) (“because a
corrective disclosure does not admit securities fraud does not mean that such a disclosure
cannot form the basis of loss causation”).33
The Ninth Circuit’s opinion in First Solar underscores this conclusion. Indeed, the
panel rejected the defendants’ argument that a disclosure must reveal the “falsity of a prior
misrepresentation”—a standard they dubbed the “revelation-of-falsity test.” See PX577.
32 By contrast, in In re Initial Pub. Offering Sec. Litig., 399 F. Supp. 2d 261, 266 (S.D.N.Y. 2005), and Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Sec. (USA) LLC, 752 F.3d 82, 95-96 (1st Cir. 2014), there was no evidence that the market understood earnings misses to relate to the same subject matter as Defendants’ misrepresentations (misleadingly low earnings estimates and a merger, respectively). DB at 21 & n.6. 33 Defendants claim that Plaintiffs must prove that the corrective disclosure revealed their fraud because they purportedly pled “a causation theory based on market revelation of the fraud.” DB at 14 (citing SAC ¶252). But the sole paragraph they cite pleads only that the “true facts” (i.e. Blackfish’s impact on SeaWorld) became known through a “corrective disclosure on August 13, 2014”—not, as the example cited in First Solar, that “[defendant’s] fraud was revealed to the market.” 881 F.3d at 754.
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There, years after the first misstatement (involving problems with the company’s products),
the company issued a series of corrective disclosures, which included earnings releases
lowering guidance. Smilovits v. First Solar Inc., 119 F. Supp. 3d 978, 996-98 (D. Ariz.
2015). These releases did not mention the product problems nor provide a reason for the
lowered guidance, and no market commentator connected the lower guidance to product
problems. Id. Plaintiffs, however, presented internal company evidence indicating that the
lowered guidance resulted from the product problems at issue. Id. The district court denied
summary judgment as to loss causation, finding “[a] reasonable jury could determine that
the very facts omitted and misrepresented by Defendants—the effect of the [product
problems]—were substantial factors in causing the stock to decline and Plaintiffs’ loss.” Id.
The court reasoned that “[i]f . . . the company’s revenues fail to meet projections because
of . . . the very fact misrepresented—and the stock loses value as a result, the misrepresented
fact has led to the plaintiff’s loss.” Id. at 991. “This is true even if the market does not
learn that the company lied.” Id.
On appeal, defendants argued that the earnings releases were not corrective because
they did not reveal that the company’s earlier statements were false: “revisions to earnings
projections in the current period do not show that earlier projections were misstated.”
PX577 at 36-37; id. at 6 (“The market has never been told that any financial statement, SEC
filing, or earnings release issued by First Solar during the class period contained any
material inaccuracies.”). The Ninth Circuit affirmed, explaining: “A plaintiff may [] prove
loss causation by showing that the stock price fell upon the revelation of an earnings miss,
even if the market was unaware at the time that fraud had concealed the miss.” First Solar,
881 F.3d at 753-54. First Solar did not turn, as Defendants suggest, on the fact that the
company revealed the falsity of class period statements. DB at 17. Quite the contrary.34 And
34 Defendants suggest that the First Solar court only found loss causation for a separate disclosure because it supposedly revealed the fraudulent class period practices at issue. DB at 17. But the district court did not find that: “Plaintiffs have not presented evidence from which a reasonable jury could find that Defendants’ alleged fraudulent practices became known to the market during the class period.” Smilovits, 119 F. Supp. 3d at 992. Nevertheless, the court reasoned that the “very facts alleged omitted by Defendants—the
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the causal connection here is even stronger than in First Solar, given that the market
immediately attributed SeaWorld’s negative results and guidance to impact from
Blackfish—the same subject matter as Defendants’ misrepresentations.35
Nor do Defendants’ other authorities hold that a corrective disclosure must explicitly
reveal the falsity of their prior representations. In Las Vegas Sands (DB at 17-18), the court
found that the relevant truth had already been disclosed before the purported corrective
disclosures.36 Moreover, the alleged disclosure did not relate to the same subject matter as
the misrepresentations. See Pompano Beach Police & Firefighters’ Ret. Sys. v. Las Vegas
but “the disclosure [did] not mention EBITDAR”). Finally, the court determined that an
intervening event had actually caused the stock drop, not the revelation of any truth
concealed by defendants. See id. at 546. Here, Defendants have pointed to no intervening
events or earlier disclosures that Blackfish was impacting the Company, and the August 13,
2014 disclosure undeniably concerned the same subject matter as the misrepresentations.
In re Oracle Corp. Sec. Litig., 627 F.3d 376, 393-94 (9th Cir. 2010), is likewise
distinguishable. There, plaintiffs alleged that Oracle fraudulently concealed product
problems and accounting manipulations. But, the corrective disclosure was an earnings miss
that market commentators unanimously attributed to a downturn in the economy: “The
existence of the [product problems]”—caused an earnings drop which then “ultimately led to a drop in stock price that caused Plaintiffs’ loss” and “[a] reasonable jury could find from this evidence that Plaintiffs’ have proved loss causation under Daou.” Id. at 995. 35 Defendants argue that their disclosure of lowered guidance cannot be corrective because Plaintiffs did not allege their guidance was false. DB at 16, 21. The First Solar defendants made (and lost) the same argument. PX577 at 8 (“The two remaining alleged corrective disclosures are press releases announcing changes to First Solar’s guidance. . . . Significantly, plaintiffs do not claim that any of First Solar’s guidance was false.”); see First Solar, 881 F.3d at 753-54; Smilovits, 119 F. Supp. 3d at 996-98. 36 See, e.g., Fosbre v. Las Vegas Sands Corp., 2017 WL 55878, at *18 (D. Nev. Jan. 3, 2017) (“In June and July 2008, the market learned of and reacted to rumors that LVS was not able to get $7 billion in Macao financing” but plaintiffs’ “first disclosure event does not occur until August 2008.”); id. at *14 (“LVS disclosed actual EBITDAR results three times before” first disclosure event plaintiffs identified); id. at *8 (“LVS revealed rising anticipated total costs for the Singapore development in February and May 2008”—long before the alleged August 2008 corrective disclosure).
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overwhelming evidence produced during discovery indicates the market understood
Oracle’s earnings miss to be a result of several deals lost in the final weeks of the quarter
due to customer concern over the declining economy.” Id. at 393. Thus, defendants in
Oracle established as a matter of law that the stock price dropped because of an economic
downturn, not any revelation related to product problems or accounting manipulations. By
contrast, evidence here establishes that the August 13 stock drop resulted from the
revelation of negative impact from Blackfish—the very same facts that Defendants
concealed—and Defendants have offered no evidence to the contrary.37
Even if there were some requirement that the market understand the corrective
disclosure as a revelation of the falsity of prior statements, evidence here shows that it did.
PX58 ¶7; PX60 ¶112. For example: • Adweek.com, SeaWorld Finally Confirms a Blackfish Backlash to Investors:
“SeaWorld has been very insistent in its messaging since CNN’s Blackfish expose surfaced with variations on ‘The documentary is skewed and it will not affect our business in any way’. . . . Today, however, the company officially changed its tune in a telling press release. . . . this release effectively serves as an admission that, despite claims to the contrary, the movie has indeed had an adverse effect on the business.” PF1113;
• New York Magazine, SeaWorld: Remember When We Said That Blackfish Movie Didn’t Hurt Us? Well Never Mind: “SeaWorld changed course, and admitted, finally, that the backlash is taking a toll after all.” PF1112;
• Cinemablend.com, SeaWorld Finally Admits That The Documentary Blackfish Is Hurting Attendance: “While SeaWorld didn’t specify Blackfish’s impact by name, the quote you read above is actually a huge step when compared to the
37 By contrast, the Nuveen plaintiffs failed to offer any evidence that the lower sale price for the securities was related to the subject matter of the alleged misrepresentations. See Nuveen Mun. High Income Opportunity Fund v. City of Alameda, Cal., 730 F.3d 1111, 1113 (9th Cir. 2013) (“Had Nuveen shown that access to apartment buildings, success of competitors, programming expenses, and inflated subscriber projections—the very facts the City allegedly misrepresented or omitted—were a substantial factor in causing its loss, it may have established a triable issue on loss causation. But Nuveen has presented no evidence on that score, and we decline its invitation to infer a connection.”). DB at 17-18. Moreover, in that case there was no public market for the securities at issue, and thus no market price movement against which the impact of a corrective disclosure could be assessed. Id. at 1113. Unlike here, in In re BofI Holding, Inc. Sec. Litig., 302 F. Supp. 3d 1128, 1135 (S.D. Cal. 2018), and Bonanno v. Cellular Biomedicine Grp., Inc., 2016 WL 2937483, at *4-5 (N.D. Cal. May 20, 2016), the alleged corrective disclosures were short seller reports that did not reveal any new information to market, but instead regurgitated facts that had previously been fully disclosed. DB at 16-17.
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amount of denial that was coming out of the company about the documentary.” PF1106;
• Wall Street Journal: “The comments represent an about face for SeaWorld, which late last year was singing a much different tune. In December, SeaWorld CEO Jim Atchison told MoneyBeat that attendance at SeaWorld’s three parks was ‘markedly better’ since ‘Blackfish’ hit theaters in July. ‘It’s had no impact on our business,’ he said at the time.” PF1110;
• L.A. Times: SeaWorld “had previously attributed lower attendance numbers to bad weather, higher ticket prices and a shift in the timing of Easter this year. But SeaWorld conceded in its earnings report Wednesday that negative publicity over charges that it mistreats its killer whales has hurt attendance.” PF1097; and
• Entertainment Weekly: “For months after the release of Blackfish, a documentary about the negligent treatment of orca whales in captivity, SeaWorld denied allegations that negative press was affecting earnings or attendance. . . . SeaWorld’s recognition that Blackfish has affected its business is a significant change in the company’s PR.” PF1118.
See also PF1091, 1095, 1102, 1104, 1107, 1111, 1114, 1119-20. Thus, market
commentators perceived that the August 13 corrective disclosure did not “simply report[]
and explain[] disappointing earnings for a particular quarter” (DB at 2), it recalled and
revised Defendants’ public “no impact” statements in 2013 and 2014. Further belying
Defendants’ argument, the August 13, 2014 disclosure on its face discussed not just 2Q14,
but also poor results for 1H14 and lower guidance for all of 2014, both of which it blamed
on the same trends (including Blackfish) that drove 2Q results. See p. 28, supra. Again (and
consonant with the reports above), market commentators immediately grasped as much.38
Unable to dispute this plethora of reports, Defendants instead cherry-pick language
from a handful of these sources and offer their own interpretation. DB at 20-21. At most,
these arguments raise fact questions for the jury. See Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 255 (1986) (“drawing of legitimate inferences from the facts are jury functions,
not those of a judge”); Apollo, 509 F. Supp. 2d at 846 (“If there is sufficient evidence in the
38 See, e.g., PF1108, 1116 (discussing 1H 2014 and full year 2014 guidance impact); PF1086, 1117 (discussing full year 2014 guidance impact). Coffman did not “concede[]” that the corrective information was limited to 2Q 2014. DB at 19. Rather, he testified that while a specific section of the August 13, 2014 press release referenced 2Q, the corrective information “goes beyond that” and included all of the information described in paragraphs 73-78 of his report. PX578 at 77:18-86:23 (“I’m really looking at the entire document.”).
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record to support an inference of causation, the ultimate conclusion as to what the evidence
proves is for the jury.”).
Finally, citing the first motion to dismiss order, Defendants claim that the Court has
already suggested the August 13, 2014 disclosure was not causally connected to the fraud.
DB at 19. However, the Court rejected the same argument at class certification, explaining
that “the Court expressly declined to consider loss causation” in the first dismissal order.
ECF No. 258 at 27, n.6. The Court also noted that in denying Defendants’ second motion
to dismiss, it had ruled that “Plaintiffs sufficiently allege loss causation.” Id. In fact, in
upholding the SAC, the Court rejected the exact arguments Defendants make here. See ECF
No. 128 at 37 (arguing no loss causation because the August 13 disclosure “only refers to
attendance during the second quarter of 2014, not the entire Class Period”). Since that time,
the record has only strengthened for Plaintiffs, who have added expert analysis and
additional support for a finding of loss causation. Defendants have provided no additional
evidence, expert or otherwise, that would justify summary judgment on this issue. In sum,
“Defendants have not met their heavy burden of proof.” In re Washington Mut. Mortg.
Backed Sec. Litig., 2012 WL 2995046, at *12-13 (W.D. Wash. July 23, 2012) (“To say that
there was nothing in the marketplace about WaMu’s questionable underwriting would be
to ignore Plaintiffs’ factual assertions in contravention of [] summary judgment standard.”).
B. There Are Genuine Issues of Material Fact Regarding Disaggregation
Defendants’ argument that Coffman has failed to properly disaggregate confounding
factors fares no better. DB at 22-23. Given that Defendants’ expert has performed no event
study and has formed no opinion on the cause of the August 13, 2014 stock decline, they
cannot possibly meet their burden to prove that non-fraud factors caused the entire decline.
PX575 at 197:13-198:2, 202:22-203:24; see Hsingching, 2018 WL 4945703, at *9 (denying
summary judgment because “[d]efendants have failed to show that factors other than the []
corrective disclosures caused the stock’s decline.”); In re Celestica Inc. Sec. Litig., 2014
WL 4160216, at *13, n.16 (S.D.N.Y. Aug. 20, 2014) (Defendants’ “competing expert
opinion is insufficient to demonstrate that there is no triable issue of fact as to loss causation.
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Notably, [she] did not perform her own event study, but only offered a critique of Coffman’s
study.”). Regardless, Coffman performed a robust disaggregation analysis to isolate the
portion of the August 13 stock drop attributable to the disclosure of Blackfish impact:
“explicitly considering and disaggregating confounding information, I find that $7.52 per
share of the $9.37 per share abnormal decline in market price reasonably reflects the
response of the market learning for the first time that Blackfish and its related public
reaction was adversely impacting SeaWorld’s business.” PX58 at ¶11.
First, Coffman performed an event study regression analysis that disaggregated
market and industry effects that might have impacted SeaWorld’s stock on August 13. PX58
¶¶10, 59-64, 79 & Ex. 1.39 This event study methodology is widely accepted to prove loss
causation and quantify price inflation. See, e.g., NuVasive, 2018 WL 656036, at *5-6
(“standard event study via regression analysis,” “isolate[d] [] stock price response to
Company-specific news”).40 Coffman’s event study demonstrated that $9.37 of the August
13 stock drop could be isolated to company-specific factors. PX58 ¶¶10, 79. Neither
Defendants nor their expert has challenged Coffman’s event study or its results. PX575 at
22:1-16, 142:17-21, 156:12-157:12, 182:8-185:25.
Next, to address any confounding company-specific information that might require
disaggregation, Coffman “reviewed and analyzed all of the non-Blackfish-related
information disclosed by SeaWorld on August 13, 2014.” PX58 at ¶¶101, 104 & Ex. 2.
Coffman first disaggregated the impact of one-time factors (which would have no impact 39 This case is thus unlike REMEC, 702 F. Supp. 2d at 1269, where this Court excluded plaintiffs’ loss causation expert in large part because his event study was fatally flawed. DB at 19. In In re Williams Sec. Litig., 558 F.3d 1130, 1137 (10th Cir. 2009), the plaintiffs’ expert did not conduct any event study, and so could not disaggregate. Moreover, the stock fell $26 before any corrective disclosure was made, but plaintiffs still attributed the entire decline to fraud. Id. at 1138-39. Likewise, in Nuveen, 730 F.3d at 1123, plaintiffs’ expert did not disaggregate market factors and instead “assumed that almost the entire decline in price” resulted from fraud despite “the overall [industry] decline.” DB at 22-23. 40 See Apollo, 509 F. Supp. 2d at 844 (“The tool most often used by experts to isolate the economic losses caused by the alleged fraud is the event study.”); In re Imperial Credit Indus, Inc. Sec. Litig., 252 F. Supp. 2d 1005, 1014-15 (C.D. Cal. 2003), aff’d sub nom, Mortensen v. Snavely, 145 Fed. Appx. 218 (9th Cir. 2005) (noting the “importance and centrality of the event study methodology in determining damages in securities cases”).
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moving forward) and found the most they could reasonably contribute to the August 13,
2014 stock drop was $0.25 (the full EBITDA miss for the quarter). Id. ¶¶102-107.
Defendants do not dispute this conclusion. Then, Coffman disaggregated the impact from
the two structural issues that were disclosed: (i) Blackfish impact; and (ii) “competitive
issues” affecting the Orlando park.41 Id. ¶¶108-29 & Exs. 3-4. After disaggregating all
confounding information, Coffman attributed $7.52 per share to Blackfish impact. Id.42
Coffman’s only partly-contested approach to disaggregation is eminently
reasonable, and Defendants tellingly suggest no superior approach. Motorola, 798 F. Supp.
2d at 984 (denying summary judgment where plaintiffs’ expert, “in addition to undertaking
an event-study analysis, articulated a reasonable basis for his [disaggregation] opinion”);
see also Coffman Opp. at 9-11, 14-20. Indeed, a plaintiff’s expert need only “ascribe some
rough proportion of the whole loss” to defendants’ fraud. Xerox, 746 F. Supp. 2d at 412.
It is unnecessary to “perfectly exclude non-fraud factors,” given that it would be “very
difficult, if not impossible, for any statistical model to do [so].” Glickenhaus & Co. v.
raise fact questions for the jury. Novatel, 2013 WL 12144150, at *10-11 (disaggregation
arguments “go towards the probative value of the testimony to be addressed at trial for the
jury to consider”); Apollo, 509 F. Supp. 2d at 846-47 (“summary judgment is inappropriate
where an expert’s testimony supports the nonmoving party’s case”).
41 Structural issues have a much larger negative impact on stock price than one-time issues. PX60 ¶¶65-69; PX58 ¶¶50-58. Market commentators viewed Blackfish impact as a structural problem. See, e.g., PF1116-17, 1124-30. 42 Defendants fault Coffman for using internal SeaWorld documents to conduct his disaggregation analysis. DB at 23. But in First Solar, the Ninth Circuit affirmed the denial of summary judgment where plaintiffs’ experts’ loss causation analysis for several disclosures was based on internal company documents. 881 F.3d at 753-54; Smilovits, 119 F. Supp. 3d at 996-98; see also In re Xerox Corp. Sec. Litig., 746 F. Supp. 2d 402, 412-13 (D. Conn. 2010) (disaggregation analysis based on public statements and internal documents); Motorola, 798 F. Supp. 2d at 982 (loss causation established based on public disclosures, analyst commentary, and internal Motorola documents); PX58 at 115:15-20. 43 Defendants’ argument that Coffman’s analysis is “only valid on its own terms in 2014” rests on a misunderstanding of the purpose of disaggregation. DB at 23. That was to isolate the portion of the August 13 stock decline—which occurred in 2014—attributable to fraud.
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37 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
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C. There Are Genuine Issues of Material Fact Regarding Damages
Defendants argue that Plaintiffs have no evidence of damages. DB at 23. To the
contrary, Plaintiffs’ expert has proffered an out-of-pocket methodology, which “is widely
accepted as the traditional measure of damages for Rule 10b-5 actions.” In re NII Holdings,
Inc. Sec. Litig., 311 F.R.D. 401, 413-14 (E.D. Va. 2015); PX58 ¶¶139-41; Randall v.
Loftsgaarden, 478 U.S. 647, 661-62 (1986) (“[O]rdinarily, the correct measure of damages
. . . in § 10(b) cases” is the “‘out-of-pocket’ measure of damages.”); Blackie v. Barrack,
524 F.2d 891, 908-11 (9th Cir. 1975) (same). “[T]he out-of-pocket measure is the difference
between the price paid and the value of the stock absent misrepresentation.” Novatel, 2013
WL 12144150, at *10.
To determine the true value of SeaWorld’s stock, Coffman applied the commonly-
accepted backcasting method, which measures the value of the information Defendants
withheld by the value that left the stock when it was ultimately disclosed. PX58 ¶¶130-38.
As the Seventh Circuit explained, “[t]he best way to determine the impact of a false
statement is to observe what happens when the truth is finally disclosed and use that to work
backward, on the assumption that the lie’s positive effect on the share price is equal to the
additive inverse of the truth’s negative effect (put more simply, what comes up, must come
down).” Household, 787 F.3d at 415; see also In re Silver Wheaton Corp. Sec. Litig., 2017
WL 2039171, at *15 (C.D. Cal. May 11, 2017) (backcasting “is an accepted method for the
evaluation of [] damages”); Novatel, 2013 WL 12144150, at *11 (“Steinholt’s backcasting
method appears reasonable and logical.”).
Defendants do not contend that Coffman’s out-of-pocket damages methodology is
improper, or that backcasting is inappropriate. Instead, they focus on his choice of constant
dollar inflation (“CDI”), arguing it is incompatible with their version of the facts. DB at 24-
25. But CDI is “a standard measurement of damages in securities fraud cases.” In re Novatel
Wireless Sec. Litig., 2013 WL 12247558, at *2-3 (S.D. Cal. Nov. 19, 2013).44 Moreover,
44 Coffman testified that CDI is a well-accepted methodology in securities cases that he has used in the past. See PX578 at 156:19-158:25; PX58 ¶130. Defendants’ expert, on the other
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38 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
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Coffman explains in detail why he determined that CDI was the most reasonable choice
here, citing evidence and economic principles to support his conclusion. PX58 ¶¶12, 130-
38; see also Coffman Opp. at 20-24. For example, Coffman explained that, accepting
Plaintiffs’ allegations as true, the general substance of the information that could have been
disclosed did not change or become more significant at any time during the Class Period.
Id.; Sys. Dev. Integration, LLC v. Computer Scis. Corp., 886 F. Supp. 2d 873, 882 (N.D. Ill.
2012) (“It is entirely appropriate for a damages expert to assume liability for the purposes
of his or her opinion. To hold otherwise would be illogical.”). For these, among other
reasons, Coffman concluded that August 13 price decline from the revelation of Blackfish
impact provides the most reasonable basis for estimating the value of that information
during the Class Period. PX58 ¶¶12, 130-38.45 Plaintiffs’ other expert found the same. PX60
¶¶106-07 (“The market response to the [August 13 disclosure] provides a reasonable
estimate of what analysts and investors would have estimated during the Class Period had
there earlier been timely disclosure”).46
Defendants counter not with any alternative calculation, but with their own factual
narrative, arguing that reaction to a disclosure of Blackfish impact may have been smaller
earlier in the Class Period. DB at 23-25. But even before the Class Period, it was clear that
disclosure of any Blackfish impact would have severe consequences: “[Blackfish] will
hand, testified that he had never heard of CDI, has never worked with it, and does not know if courts have accepted it in securities cases. PX575 at 190:22-191:8, 193:14-23. 45 In In re Sadia, S.A. Sec. Litig., 269 F.R.D. 298, 318 (S.D.N.Y. 2010), defendants concealed hedging bets that would have been good news for investors (profits) during some parts of the class period and bad news (losses) at others. Thus, even plaintiff’s expert conceded that “the artificial inflation caused by the financial impact varied over the course of the Class Period.” DB at 24. In re Rent-Way Sec. Litig., 218 F.R.D. 101, 119 (W.D. Pa. 2003), concerned arguments regarding in-and-out traders at the class certification stage, not the propriety of any model for proving damages. Further, the court’s discussion focused on the “prolonged nature” of the two-and-a-half year Class Period and the multitude of different statements, neither of which is at issue here. Id. 46 Contrary to Defendants’ argument (DB at 24), Coffman did not opine that an earlier corrective disclosure would have caused the same price impact regardless of what other information was contemporaneously disclosed; rather, he concluded that artificial inflation remained constant. Had Defendants made an earlier disclosure along with confounding information, the impact of that information would have been disaggregated (as it was here).
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39 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
become a fundamental issue for all investors if it starts to impact results.” PF1143.47
Indeed, Defendants contemporaneously recognized as much:
Anderson, 477 U.S. at 250 (“If reasonable minds could differ as to the
import of the evidence, summary judgment must be denied.”).
Defendants’ disagreement with Coffman’s conclusions is not a basis for summary
judgment. See Celestica, 2014 WL 4160216, at *13, n.16 (“courts should not grant
summary judgment when the parties produce competing expert analyses”); Novatel, 2013
WL 12247558, at *2-3 (whether the constant dollar method is appropriate is a question for
the jury); In re St. Jude Med. Sec. Litig., 2014 WL 6908434, at *9 (D. Minn. Dec. 8, 2014)
(“Defendants may challenge Dr. Sarin’s [constant dollar] methodology through cross-
examination at trial”). Ultimately, “the task of determining the precise measure of
economic loss and damages here is best assigned to the factfinder at trial.” In re Cigna Sec.
Litig., 459 F. Supp. 2d 338, 356-57 (E.D. Pa. 2006).
V. THERE ARE TRIABLE ISSUES ON PLAINTIFFS’ 20(a) CLAIMS
Section 20(a) requires a primary violation and a defendant’s control of the primary
violator. Chiteishvili v. Vertifx LLC, 2018 WL 6219983, at *8 (C.D. Cal. Oct. 9, 2018).
Control can be “direct or indirect,” 17 § C.F.R. 230.405, and the inquiry is “intensely
factual.” Paracor Fin., Inc. v. GE Capital Corp., 96 F.3d 1151, 1161 (9th Cir. 1996). The
Individual Defendants concede their “control” throughout the Class Period. DB at 39-40.48
Defendants concede BX’s “control” through December 17, 2013. DB at 39-40. Genuine
disputes exist regarding BX’s control for the rest of the Class Period.
47 Coffman did not “fail to account” for changes in public awareness of Blackfish. DB at 24-25. To the contrary, specifically acknowledging that viewership of the film increased in predicted ways throughout the Class Period, Coffman explained that investors may have reacted with even greater concern for SeaWorld’s valuation going forward if the Company admitted an impact earlier in the Class Period, at a time when the circulation of the movie was smaller. PX58 ¶137. Coffman observed that his use of constant dollar inflation, if anything, underestimates damages. Id. 48 Thus, the Individual Defendants’ argument that each cannot be held liable under the securities laws for statements made by another is misguided and incorrect. DB at 40.
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40 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
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BX’s ownership of between 42.8% and 22.6% of all SeaWorld shares, and three
Board seats, during the disputed period alone raise triable issues. PF1159-62;49 Shepherd v.
judgment based on one third ownership); In re Allstate Life Ins. Co. Litig., 2013 WL
789106, at *4 (D. Ariz. Mar. 1, 2013) (9% ownership indicated control, and “director status
is a red light suggesting the defendant’s control”).
These facts also raise genuine disputes
as to control. See Howard, 228 F.3d at 1066 (overturning JMOL on 20(a) claim where
defendant “was authorized to participate in the release of the financial statements and signed
off on the statements as correct”); S.E.C. v. Todd, 642 F.3d 1207, 1223 (9th Cir. 2011)
(“[a]ctual authority over the preparation and presentation to the public of financial
statements” establishes control.).
CONCLUSION
For the foregoing reasons, the Court should deny the Motion in its entirety.
Dated: May 24, 2019 Respectfully submitted,
KESSLER TOPAZ MELTZER & CHECK, LLP By: /s/ Gregory M. Castaldo Gregory M. Castaldo Joshua E. D’Ancona Joshua A. Materese
49 SeaWorld effectively conceded BX’s “effective” control: “even if [its combined voting power] is less than 50 percent, Blackstone will continue to be able to strongly influence or effectively control our decisions.” PF1158.
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41 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
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280 King of Prussia Road Radnor, PA 19087 Tel: (610) 667-7706 Fax: (610) 667-7056 [email protected][email protected][email protected] -and- Stacey M. Kaplan (241989) One Sansome Street, Suite 1850 San Francisco, CA 94104 Tel: (415) 400-3000 Fax: (415) 400-3001 [email protected]
NIX PATTERSON, LLP Jeffrey J. Angelovich Bradley E. Beckworth Cody L. Hill 3600 N. Capital of Texas Hwy., Suite B350 Austin, TX 78746 Tel: (512) 328-5333 Fax: (512) 328-5332 [email protected][email protected][email protected] -and- Susan Whatley 205 Linda Drive Daingerfield, TX 75638 Tel: (903) 645-7333 Fax: (903) 645-4415 [email protected] Co-Class Counsel for Plaintiffs and the Class
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42 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
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NOONAN LANCE BOYER & BANACH LLP David J. Noonan (Bar No. 55966) Ethan T. Boyer (Bar No. 173959) 701 Island Avenue, Suite 400 San Diego, California 92101 Tel: (619) 780-0880 [email protected][email protected] Liaison Counsel for the Class KEIL & GOODSON P.A. John C. Goodson 406 Walnut Street Texarkana, AR 71954 Telephone: (870) 772-4113 [email protected] Additional Counsel for Plaintiffs
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43 Case No. 3:14-cv-2129-MMA-AGS PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
CERTIFICATE OF SERVICE
I hereby certify that on May 24, 2019, I authorized the electronic filing of the
foregoing with the Clerk of the Court using the CM/ECF system. Based upon the records
currently on file, the Clerk of the Court will transmit a Notice of Electronic Filing to all
counsel of record.
I certify under penalty of perjury under the laws of the United States of America that
the foregoing is true and correct.
/s/ Gregory M. Castaldo
Gregory M. Castaldo
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