Haw. Structural Ironworkers Pension Trust Fund v. AMC Entm't Holdings, Inc.

422 F.Supp.3d 821

HAWAII STRUCTURAL IRONWORKERS PENSION TRUST FUND et al., Plaintiff,

v.AMC ENTERTAINMENT HOLDINGS, INC. et al., Defendant.

18-cv-00299 (AJN)

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

Signed September 20, 2019

Filed September 23, 2019

Christopher Thomas Gilroy, David Avi Rosenfeld, Lindsay La Marca, Samuel Howard Rudman, Robbins Geller Rudman & Dowd, LLP, Melville, NY, Jeremy Alan Lieberman, Joseph Alexander Hood, II, Pomerantz LLP, New York, NY, for Plaintiff.

John A. Neuwirth, Joshua Sanders Amsel, Weil, Gotshal & Manges LLP, Adam Selim Hakki, Agnes Dunogue, Shearman & Sterling LLP, New York, NY, for Defendant.

OPINION & ORDER

ALISON J. NATHAN, District Judge:

Two pension funds bring this federal securities class action on behalf of themselves and a putative class of all other persons who purchased or acquired stock in Defendant AMC Entertainment Holdings, Inc. ("AMC") pursuant to a secondary public offering ("SPO") from December 20, 2016 to August 1, 2017. Plaintiffs also bring suit against a number of AMC officers and board members, as well as several financial institutions that underwrote the SPO. Defendants have now moved to dismiss all of Plaintiffs' claims. For the reasons given below, Defendants' motion is GRANTED in part and DENIED in part.

I. BACKGROUND

The following facts are drawn from the allegations in Plaintiffs' Second Amended Class Action Complaint (the "Complaint"), Dkt. No. 116, which are taken as true at this stage of the litigation. See DiFolco v. MSNBC Cable L.L.C. , 622 F.3d 104, 110-11 (2d Cir. 2010). The Court also considers "(1) documents attached to or incorporated by reference in the complaint, (2) documents integral to and relied upon in the complaint, even if not attached or incorporated by reference, (3) public disclosure documents required by law to be, and that have been, filed with the SEC, and (4) facts of which judicial notice properly may be taken." Bd. of Trs. of Ft. Lauderdale Gen. Emps.' Ret. Sys. v. Mechel OAO , 811 F. Supp. 2d 853, 865 (S.D.N.Y. 2011), aff'd sub nom. Frederick v. Mechel OAO , 475 F. App'x 353 (2d Cir. 2012). For the purposes of this motion, the parties do not dispute that this includes the following documents on which the Court may rely: AMC's February 9, 2017 Prospectus Statement, Dkt. No. 126, Ex. A; Carmike's November 9, 2016 Form 10-Q, Dkt. 126. Ex. B; AMC's March 2017 Form 10-K, Dkt. 126, Ex. D; Carmike's February 29, 2016 Form 10-K, Dkt. 126. Ex. F; the transcript of an August 4, 2017 conference call, Dkt. No. 126, Ex. G; AMC's October 11, 2016, Form 424B3, Dkt. No. 126, Ex. I.

A. The Parties

The International Union of Operating Engineers Pension Fund of Eastern Pennsylvania and Delaware ("Engineers Fund") is the Lead Plaintiff in this putative class action. The Engineers Fund is joined by the Hawaii Iron Workers Pension Trust Fund ("Iron Worker's Fund"). The Engineers Fund is a Taft-Hartley fund, providing healthcare and retirement benefits to around 5,000 participants. Compl. ¶ 31. On May 30, 2018, this Court appointed the Engineers Fund as Lead Plaintiff in this case. Dkt. No. 88.

Defendant AMC is a Delaware corporation that owns, operates, or has interests in movie theaters in both the United States and Europe. Id. ¶ 33. Plaintiffs also bring claims against a number of individuals, referred to collectively as the "Individual Defendants." During the relevant times, these individuals held a variety of positions in AMC. Adam M. Aron was President and CEO of AMC, as well as a member of its Board of Directors. Id. ¶ 34. Craig R. Ramsey was Executive Vice President and Chief Financial Officer of AMC. Id. ¶ 35. Chris A. Cox was Senior Vice President and Chief Accounting Officer of AMC. Id. ¶ 36. Defendants Lin Zhang, Jack Q. Gao, Maojun Zeng, Anthony J. Saich, Lloyd Hill, Gary F. Locke, Howard W. Koch, Jr. and Kathleen M. Pawlus were each members of the AMC Board at the time of the secondary public offering at issue in this case. Id. ¶ 38.

Finally, Plaintiffs also sue a group of financial institutions that are referred to collectively as the "Underwriter Defendants." These Defendants, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., Barclays Capital Inc., and Credit Suisse Securities (USA) LLC, "served as joint book-running underwriters" for the SPO at issue here. Compl. ¶ 39.

B. AMC Upgrades its Theaters and Acquires Carmike and Odeon

In 2011, AMC began an initiative to replace existing seating in many of its theaters with more luxurious electric recliners. Id. ¶ 51. This initiative also involved upgrading the food and beverage offerings at theaters, including dining-in options and alcoholic beverages. Id. ¶ 52. These initiatives were quite successful at increasing revenue. Id. ¶ 53.

In 2016, after Defendant Aron began as the CEO of AMC, the company undertook an ambitious project of expansion. Id. ¶¶ 58-59. On March 3, 2016, AMC announced its intention to acquire Carmike Cinemas. Id. ¶ 61. Unlike AMC's theaters, which are primarily in affluent, metropolitan areas, Carmike served primarily mid-size, non-urban markets. Id. ¶¶ 10-11, 67. Part of AMC's plan for Carmike was to outfit a percentage of its theaters with recliner seats and other luxury amenities. Id. ¶¶ 67-68. AMC's acquisition of Carmike was subject to approval by the Department of Justice and the Security and Exchange Commission's "declaring effective a Form S-4 registration statement with respect to additional AMC common stock to be issued in connection with the proposed merger." Id. ¶ 70. On October 11, 2016, the SEC declared that the relevant Form S-4 was effective. Id. ¶ 73. On December 20, 2016, which marks the beginning of the Class Period, AMC announced that the DOJ antitrust review was complete, and the next day AMC completed the acquisition of Carmike. Id. ¶¶ 74-75.

AMC also undertook international expansion during this period. On July 12, 2016, AMC announced that it would acquire the outstanding equity in Odeon and UCI Cinemas Holdings Limited, the largest theater company in Europe. Id. ¶ 77. On November 30, 2016, AMC announced that the acquisition of Odeon was complete. Id. ¶ 78. On January 23, 2017, AMC announced an agreement to acquire Nordic Cinema Group Holding AB, a large theater company in Scandinavia and the Nordic and Baltic regions. Compl. ¶ 80. The acquisition of Nordic was completed in March 28, 2017. Compl. ¶ 82.

C. AMC's Secondary Public Offering

In an effort to deleverage AMC of the debt it had acquired during this expansion, the company undertook a secondary public offering. Id. ¶¶ 93-94. On December 21, 2016, AMC filed its Form S-3 Registration Statement and prospectus for the SPO. Id. ¶ 98. AMC subsequently filed SEC prospectus supplements for the SPO on February 7, 2017 and February 9, 2017. Id. These documents incorporated by reference a number of previous SEC filings by both AMC and Carmike. Id. Plaintiff refers to all of these documents collectively as the "Registration Statement." Id. On or about February 8, 2017, AMC offered 21,904,761 shares of common stock at a price of about $31.50 per share. Id. ¶ 97. Plaintiffs purchased common shares pursuant to the SPO. Id. ¶ 2. In total, the SPO raised approximately $618 million. Id. ¶ 94.

D. AMC's Disappointing 2017 Q2, Fall in Share Price, and August Conference Call

On August 1, 2017, AMC announced its preliminary financial results for the second quarter of 2017. Id. ¶ 249. AMC reported a net loss for the quarter of between approximately $174 and $179 million and that its expected net loss for the year would be between $125 and $150 million. Id. These results were much worse than expected. Id. ¶ 250. In response, the price of AMC common stock fell 27% on August 2, 2017, which was down 57% from its high point during the Class Period. Id.

On August 4, 2017, AMC held a conference call (the "August 2017 Call"), on which Aron explained that the second quarter was "simply a bust" and offered several reasons for AMC's poor performance. Id. ¶ 109. One of these reasons was the poor performance of Carmike theaters, which had experienced a revenue decline of 11.3% during Q2 of 2017. Id. ¶ 110. As is relevant here, Aron identified three reasons for Carmike's poor performance: (1) that Carmike "didn't do very much" to "modernize its circuit after it put itself under contract to be sold .... And so the circuit essentially went on dead stop around April-ish of '16," id. ¶ 112; (2) that Carmike's market share had declined "in 8 of the 12 months in '16," ¶ 113; and (3) that "[w]hen Carmike was handed over to [AMC] on December 21, only 200,000 individuals from their loyalty program joined our loyalty program ... so we've had to start the loyalty program essentially over from scratch," id. ¶ 114.

Additionally, while discussing the weakness of the domestic box office generally in Q2 of 2017, Aron said that "we're pleased that our European box office was roaring ... in Q2 up a double-digit percentage," but explained that this did not do much to offset poor revenue in the domestic market since while this "was a big percentage" it was "smaller dollars, because Q2 is seasonally—is often the smallest quarter of the year in Europe." Id. at 3.

E. Plaintiffs' Securities Act Claims

The Iron Workers' Fund, on behalf of the Class, bring claims against all Defendants under Sections 11, 12, and 15 of the Securities Act of 1933. See 15 U.S.C. § 77k, § 77l(a)(2), § 77o. Compl. ¶¶ 135-61. These claims focus on the Registration Statement for the February 8, 2017 SPO. Plaintiffs allege that the Registration Statement was "negligently prepared and contained inaccurate statements of material fact and omitted material information required to be disclosed therein." Compl. ¶ 99. Specifically, Plaintiffs allege that the Registration Statement negligently failed to disclose that: (1) Carmike had underinvested in its theaters such that they were in "a state of significant disrepair"; (2) Carmike had lost significant market...