City of Warren Police & Fire Ret. Sys. v. World Wrestling Entm't Inc.

477 F.Supp.3d 123

CITY OF WARREN POLICE & FIRE RETIREMENT SYSTEM, individually and on behalf of all others similarly situated, Plaintiff,

v.WORLD WRESTLING ENTERTAINMENT INC. et al., Defendants.

20-cv-2031 (JSR)

United States District Court, S.D. New York.

Signed August 6, 2020

David Avi Rosenfeld, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP, Melville, NY, for Plaintiff City of Warren Police and Fire Retirement System.

Jeremy Alan Lieberman, Pomerantz LLP, New York, NY, for Plaintiff Paul Szaniawski.

Daniel Jonathan Kramer, Theodore Von Wells, Jr., Paul Weiss, Richard Craig Tarlowe, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, Jerry Scott McDevitt, K&L Gates LLP, Pittsburgh, PA, Justin Anderson, Melissa Brooke Felder Zappala, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Stephen Gregory Topetzes, K&L Gates, Washington, DC, for Defendants.

ORDER

JED S. RAKOFF, U.S.D.J.

Lead Plaintiff Firefighters’ Pension System of the City of Kansas City, Missouri Trust brings a putative class action against defendants World Wrestling Entertainment, Inc. ("WWE"), its CEO Vincent K. McMahon, and its former Co-Presidents George A. Barrios and Michelle D. Wilson for alleged securities fraud based on defendants’ purported misrepresentations about its media contracts in the Middle East and North Africa. Defendants have now moved to dismiss plaintiff's consolidated amended complaint ("CAC" or "the complaint") for failure to state a claim under Rule 12(b) (6). Ultimately, however, none of defendants’ numerous arguments succeeds. Basically, this is because the complaint, while not a model of clarity, adequately alleges an overall claim of securities fraud that is not only plausible, but also complies with the relevant heightened pleading requirements applicable to this kind of action.

I. The Complaint's Allegations

WWE is an international sports entertainment and media organization, CAC ¶¶ 41-45, the growth of which has been partly fueled in recent years by expansion into international markets, id. ¶¶ 67-69. The complaint's allegations surround WWE's recent expansion into the region comprising the Middle East and North Africa ("MENA"), id. ¶¶ 70-85, and, particularly, its representations surrounding the status of its media rights agreements in the MENA region during the class period of February 7, 2019 to February 5, 2020. The complaint alleges that prior to the class period, in 2014, WWE signed a five-year media rights contract (the "OSN Agreement") with the Orbit Showcase Network ("OSN"), a TV provider operating in the MENA region. Id. ¶ 72. In March 2018, WWE announced that it had separately signed a 10-year partnership with the Saudi General Sports Authority to hold large wrestling events in the Kingdom of Saudi Arabia ("Saudi Arabia") that it intended to broadcast. Id. ¶ 73-75. Plaintiff alleges that although this latter partnership was somewhat controversial, id. ¶¶ 91-99, 106-17, it proved highly lucrative for WWE, id. ¶ 101-05, 118-20, and was emblematic of WWE's increasing dependence on its international media rights agreements as a source of growth. Id. ¶¶ 139-43.

As a consequence, the complaint alleges, investor attention in early 2019 was focused on a number of international media rights agreements that were nearing expiration, id. ¶ 9, and that WWE assured investors would be renewed on favorable terms, id. ¶¶ 149-50. One such agreement was the OSN Agreement, which was originally set to expire at the end of 2019. Id. ¶ 151. Unbeknownst to investors, however, OSN informed WWE in November 2018 that it would not renew the agreement, and WWE and OSN entered into a termination agreement on December 18, 2018, formally ending the contract nine months early, effective March 31, 2019. Id. ¶¶ 154-56. Plaintiff alleges that the defendants not only did not inform the market of these developments until late July of 2019, but, instead, falsely told investors that WWE was working on "renewing" its MENA region media rights agreement. Id. ¶ 158.

Furthermore, according to the complaint, when WWE finally disclosed on July 25, 2019, the previously undisclosed early termination of the OSN Agreement, WWE sought to blunt the impact of this news by simultaneously announcing that it had reached an agreement "in principle" with the Saudi government for a media rights agreement for the MENA region that would be finalized "very soon." Id. ¶¶ 165-68. Plaintiff alleges that this announcement was likewise false, and that strong circumstantial evidence shows that the parties were at the time actually far apart in their negotiations and had failed to agree to key terms. Id. ¶¶ 188-95.

The complaint further alleges that WWE's difficulties securing a media rights agreement in the MENA region led not only to disappointing earnings figures in October 2019, but also the abrupt departure of defendants Barrios and Wilson from the leadership of WWE in January 2020. It was not until February 6, 2020, however, that WWE announced that its disappointing performance in 2019 resulted from its failure to complete a media agreement with Saudi Arabia. Id. ¶ 182. WWE then also revealed its anticipation that it would not complete such an agreement in 2020 either. Id.

Finally, the complaint alleges that the defendants’ misrepresentations and omissions relating to its MENA agreements during the class period amounted to a violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder. Moreover, plaintiff alleges that the involvement of the three individual defendants (described in more detail below) amounted to a violation of Section 20(a) of the Exchange Act.

Defendants now move to dismiss the amended complaint in its entirety for failure to state a claim under Rule 12(b)(6).

II. Legal Standard

In general, for a claim to survive a motion to dismiss under Rule 12(b)(6), the "complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). After discarding allegations that amount to nothing more than legal conclusions, see Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the court should "accept as true" what remains and "draw all reasonable inferences in plaintiff's favor." Beazley Ins. Co., Inc. v. Ace American Ins. Co., 150 F. Supp. 3d 345, 354 (S.D.N.Y. 2015) (citing In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam)). The net result must be "enough to raise a right to relief above the speculative level" for the claim to survive. Twombly, 550 U.S. at 555, 127 S.Ct. 1955.

In addition, a complaint alleging securities fraud must satisfy the heightened pleading requirements of both Fed. R. Civ. P. 9(b) and the Private Securities Litigation Reform Act ("PSLRA"). The former requires the complaint to state "with particularity the circumstances constituting fraud," Emps.’ Ret. Sys. of Gov't of the V.I. v. Blanford, 794 F.3d 297, 304 (2d Cir. 2015) (citation omitted), while the latter extends the heightened pleading requirement to the requirement of pleading allegations that strongly imply fraudulent intent.

III. Alleged Violation of Rule 10b-5

SEC Rule 10b-5 renders it unlawful to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading ... in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5. Thus, to avoid dismissal under Rule 10b-5 a complaint must allege: "(1) a material misrepresentation or [actionable] omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). Defendants move to dismiss plaintiff's Rule 10b-5 claim on the ground that the CAC (A) does not adequately plead any actionable misrepresentations or omissions, (B) does not plead Defendants’ scienter sufficiently to meet the heightened pleading standards applicable to the claims, and (C) does not demonstrate loss causation. The Court considers each in turn.

A. Misrepresentations and Omissions

Defendants first move to dismiss plaintiff's Rule 10b-5 claim on the ground that the CAC fails to allege any actionable misrepresentations or omissions. As mentioned, Rule 10b-5 makes it unlawful both to "make any untrue statement of a material fact," and to "omit to state a material fact necessary in order to make the statements made ... not misleading." 17 C.F.R. § 240.10b-5(b). Thus, the CAC may state a claim either by alleging a false statement or by alleging a "half-truth," that is, a "literally true statement[ ] that create[s] a materially misleading impression" by omitting certain information. In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 240 (2d Cir. 2016). Although the CAC alleges numerous purported misrepresentations, they can be grouped into two broad categories: misrepresentations related to the status of the OSN Agreement; and misrepresentations related to the status of a replacement media rights agreement with Saudi Arabia. While each group might support a separate 10b-5 claim, the CAC alleges that they are connected in that they both served to disguise the material difficulties WWE was experiencing in providing media outlets for its MENA events and prospective MENA audience.

1. Particularity of the Allegations

Defendants first argue that the CAC does not plead any misrepresentation whatsoever with the particularity required by Rule 9(b) and the PSLRA, because it does not state with particularity "the reason or reasons why the statement is misleading," 15 U.S.C. § 78u-4(b)(1), in...