In re Under Armour Sec. Litig.

In re UNDER ARMOUR SECURITIES LITIGATION

Civil Action No.: RDB-17-0388

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

January 22, 2020

MEMORANDUM OPINION

The central allegation in this putative class action lawsuit is that Defendants Under Armour, Inc. ("Under Armour" or "the Company") and its representatives, including its former CEO Kevin Plank ("Plank"), misrepresented the level of demand for Under Armour products. In two previous opinions, this Court dismissed Plaintiffs' claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 ("Exchange Act"), 14 U.S.C. §§ 78j(b), 78(t)(a), 78t-1, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, as well as Sections 11 and 15 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77k, 77o. (ECF Nos. 74, 98.) On September 9, 2019, this Court entered Judgment in favor of all Defendants. (ECF No. 101.) On September 17, 2019, Plaintiffs, led by the Aberdeen City Council as Administrating Authority for the North East Scotland Pension Fund ("Lead Plaintiff"), filed a timely Notice of Appeal to the United States Court of Appeals for the Fourth Circuit. (ECF No. 102.)

On November 3 and 14, 2019, The Wall Street Journal published two articles reporting that Under Armour has been the subject of investigations by the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ") since at least July 2017 and that Under Armour shifted sales from quarter to quarter to appear healthier. Based on this new evidence, Plaintiffs have filed a Motion for Indicative Ruling Under Federal Rule of Civil Procedure 62.1 (ECF No. 105) and Motion for Relief from the Court's September 9, 2019 Judgment (ECF No. 106). Moving separately, Lead Plaintiff has filed a Motion to Consolidate and Vacate Notice and Lead Plaintiff Deadline (ECF No. 107) and a Motion for Consolidation of Related Actions, Appointment of a Lead Plaintiff, and Approval of Selection of Counsel (ECF No. 131).

On Tuesday, January 14, 2020, this Court conducted a Motions Hearing concerning the Motion for Indicative Ruling Under Federal Rule of Civil Procedure 62.1 (ECF No. 105) and Motion for Relief from the Court's September 9, 2019 Judgment (ECF No. 106). For the reasons set forth on the record, and more fully stated herein, the Motion for Indicative Ruling Under Federal Rule of Civil Procedure 62.1 (ECF No. 105) is GRANTED. Pursuant to Rule 62.1 of the Federal Rules of Civil Procedure, this Court concludes that it would GRANT the Motion for Relief from the Court's September 9, 2019 Judgment (ECF No. 106) if the United States Court of Appeals for the Fourth Circuit remands for that purpose. Upon remand, this Court would consolidate this matter with Patel v. Under Armour, Inc. (RDB-19-3209) and Waronker v. Under Armour, Inc. (RDB-19-3581) and appoint the Lead Plaintiff of this action as Lead Plaintiff over the consolidated cases. Finally, this Court would permit Plaintiffs to file a Third Amended Complaint bringing only Exchange Act Claims against only Defendants Under Armour and Kevin Plank.¹

BACKGROUND

In brief,² Under Armour is a Maryland-based sports apparel company that sells branded athletic apparel, footwear and accessories worldwide. (ECF No. 78 at ¶ 4.) Since its formation in 1996, the Company has grown to become a leading premium sportswear brand, achieving the position of number two sportswear brand by revenue in the United States by 2014. (Id. at ¶¶ 5-6.) By capitalizing on its premium brand image and reputation for state-of-the-art fabrics, Under Armour reported 26 consecutive quarters of 20% or more compounded annual growth between 2010 and 2016. (Id. at ¶ 6.) Kevin Plank is the Company's founder, former Chief Executive Officer, and largest shareholder. (Id. at ¶ 24.) On October 22, 2019, the Company announced that Plank would become the Executive Chairman and Brand Chief of the Company. (ECF No. 106-3.)

Plaintiffs allege generally that beginning in September 2015, Defendants' public statements concealed that they knew consumer demand for Under Armour's products was declining, so the Company abandoned its "brand strength over price" sales philosophy and resorted to discounting, which led to Under Armour's stock prices being artificially inflated by lower-margin sales and international expansion. (ECF No. 78 at ¶¶ 9-12.) Additionally, Plaintiffs allege that Under Armour inflated its sales numbers by pressuring Dick's Sporting Goods to order more inventory than it required, with the promise that it could return the items later. (Id. at ¶¶ 77, 111.) Similarly, Under Armour is alleged to have continued making sales to The Sports Authority even after learning that the retailer was headed towardsbankruptcy. (Id. at ¶ 78.) In January 2016, Morgan Stanley & Co. LLC ("Morgan Stanley")³ published a report relying on industry sales data that revealed Under Armour's average-sales-price and market-share decline, which started a corresponding decline in the Company's stock prices. (Id at ¶ 13.) Plaintiffs also allege that Plank "personally cashed in on" the stock's artificial inflation by selling a substantial amount of his stock in the Company during the Class Period. (Id. at ¶ 12.)

In their Consolidated First Amended Complaint (ECF No. 30), Plaintiffs Aberdeen City Council as Administrating Authority for the North East Scotland Pension Fund ("Lead Plaintiff") and Bucks County Employees Retirement Fund brought a putative class action against Under Armour, Plank, Lawrence P. (Chip) Molloy ("Molloy"), Brad Dickerson ("Dickerson"), named directors⁴ ("Director Defendants"), and named underwriters⁵ ("Underwriter Defendants") alleging violations of federal securities laws. Under Counts I and II, Bucks County Employees Retirement Fund brought Securities Act⁶ claims against Under Armour, Plank, Molloy, the Director Defendants, and the Underwriter Defendants. UnderCounts III and IV, Plaintiffs brought Exchange Act⁷ claims against Under Armour, Plank, Molloy, and Dickerson.

Plaintiffs' Securities Act and Exchange Act claims have several key legal distinctions. Section 11 of the Securities Act provides a right of action based only on misstatements or omissions made in a registration statement issued in connection with a public offering of securities. Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 135 S. Ct. 1318 (2015). Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder, prohibit a broader range of misconduct, including making material misstatements or omissions which "touch" or "coincide" with a purchase or sale of a security. Chadbourne & Parke LLP v. Troice, 571 U.S. 377, 392, 134 S. Ct. 1058 (2014) (citations omitted). Most importantly for present purposes, Plaintiffs' Exchange Act claims require them to adequately allege "scienter"—that is, an intent "to deceive, manipulate, or defraud." Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 637, 130 S. Ct. 1764 (2010) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12, 96 S. Ct. 1375 (1976)).

On September 19, 2018, this Court granted Defendants' dismissal motions, dismissing the Securities Act claims (Counts I and II) with prejudice. Specifically, this Court held that Plaintiffs had failed to bring their Securities Act claims within the applicable statute of limitations period and, alternatively, that Plaintiffs had failed to adequately plead any material misstatement or omission appearing in Under Armour's registration statement. In re Under Armour Sec. Litig. (Under Armour I), 342 F. Supp. 3d 658, 670-78 (D. Md. 2018). Plaintiffs'Exchange Act claims (Counts III and IV), however, were dismissed without prejudice. Id. at 694. As to those claims, this Court found that Plaintiffs had adequately alleged that Under Armour made false or misleading statements in 2016, but had failed to establish a "cogent and compelling" inference of scienter. Id. at 682-94.

On November 16, 2018, Lead Plaintiff and Monroe County Employees' Retirement System, on behalf of all persons or entities that purchased or acquired common stock of Under Armour between September 16, 2015 and January 30, 2017, inclusive ("Class Period") and who were damaged thereby, filed a Consolidated Second Amended Complaint (ECF No. 78). The Second Amended Complaint asserted only Exchange Act claims against only Under Armour and Plank. On August 19, 2019, this Court dismissed all three Counts of the Second Amended Complaint, once again finding that Plaintiffs had failed to allege scienter. See In re Under Armour Sec. Litig. (Under Armour II), 409 F. Supp. 3d 446 (D. Md. 2019). As to Plank's scienter, this Court concluded that "the most reasonable likely inference to be drawn is that Plank interpreted the data that was available to him through, the lens of the Company's consistent success to date, attributed any non-conforming data to typical retail market challenges, and assumed the Company would continue to rise above such challenges as it had always done in the past." Id. at 462.

On September 9, 2019, this Court entered Judgment in favor of all Defendants. (ECF No. 101.) Subsequently, on September 17, 2019, Plaintiffs noticed an appeal of both this Court's September 19, 2018 ruling dismissing the Securities Act Claims with prejudice and its August 19, 2019 ruling, ultimately dismissing the Exchange Act Claims with prejudice. (ECF No. 102.) In November 2019, The Wall Street Journal reported that Under Armour's accountingpractices had been the subject of investigations by the SEC and DOJ since at least July 2017. On November 18, 2019, Plaintiffs filed a Motion for Indicative Ruling Under Federal Rule of Civil Procedure 62.1 (ECF No. 105) and Motion for Relief from the Court's September 9, 2019 Judgment (ECF No. 106). Moving separately, Lead Plaintiff has filed a Motion to Consolidate and Vacate Notice and Lead Plaintiff Deadline (ECF No. 107) and a Motion for Consolidation of Related Actions,...