In re Under Armour Sec. Litig.

409 F.Supp.3d 446

IN RE UNDER ARMOUR SECURITIES LITIGATION

Civil Action No.: RDB-17-0388

United States District Court, D. Maryland.

Signed August 19, 2019

MEMORANDUM OPINION

Richard D. Bennett, United States District Judge

Plaintiffs Aberdeen City Council as Administrating Authority for the North East Scotland Pension Fund ("Aberdeen" or "Lead Plaintiff") and Monroe County Employees' Retirement System ("Monroe") (collectively, "Plaintiffs") bring this putative class action against Under Armour, Inc. ("Under Armour" or "the Company") and Kevin A. Plank ("Plank") (collectively, "Defendants") alleging violations of federal securities laws. (Consol. Second Am. Compl., ECF No. 78.)¹ Plaintiffs bring this federal class action under the Securities Exchange Act of 1934 ("Exchange Act") §§ 10(b), 20(a), and 20A, 15 U.S.C. §§ 78j(b), 78(t)(a), 78t-1, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs purport to represent a class of all persons or entities that purchased or acquired common stock of Under Armour between September 16, 2015 to January 30, 2017, inclusive ("Class Period"), and who were damaged thereby. (ECF No. 78 at ¶ 2).

Currently pending before this Court are three motions: (1) Defendants' Motion to Dismiss Plaintiffs' Consolidated Second Amended Complaint (ECF No. 80); (2) Defendants' Motion to Strike the Declarations of Mark A. Cohen and Professor M. Todd Henderson (ECF No. 79); and (3) Plaintiffs' Motion to Strike Exhibits 21, 23, and 24 Attached to Defendants' Motion to Dismiss Plaintiffs' Consolidated Second Amended Complaint (ECF No. 88). The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2018).

For the reasons that follow, this Court shall GRANT Defendants' dismissal motion, and shall also GRANT both parties' motions to strike. Specifically, this Court concludes that Plaintiffs have failed to meet the burden imposed upon them by the heightened pleading standards to which the Exchange Act claims of Count I are subject. Therefore, Count I shall be dismissed with prejudice. Since Count I must be dismissed, Counts II and III also fail because they are each dependent upon a predicate violation of the Exchange Act.

BACKGROUND

In ruling on a motion to dismiss, this Court "accept[s] as true all well-pleaded facts in a complaint and construe[s] them in the light most favorable to the plaintiff." Wikimedia Found. v. Nat'l Sec. Agency , 857 F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black & Decker (U.S.) Inc. , 801 F.3d 412, 422 (4th Cir. 2015) ). The Court may consider only such sources outside the complaint that are, in effect, deemed to be part of the complaint, for example, documents incorporated into the complaint by reference and matters of which a court may take judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ; see also Khoja v. Orexigen Therapeutics, Inc. , 899 F.3d 988 (9th Cir. 2018) (clarifying the proper use of judicial notice and incorporation-by-reference in securities litigation).²

In brief,³ 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 grew 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.) Plank is the Company's founder, Chief Executive Officer, Chairman of the Board, and largest shareholder. (Id. at ¶ 24.)

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. (Id. at ¶¶ 9-12.) In January 2016, Morgan Stanley & Co. LLC ("Morgan Stanley")⁴ 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.)

The initial Complaints alleging violations of federal securities law were filed in February and March 2017 and were consolidated on March 23, 2017.⁵ A Consolidated Amended Complaint was filed on August 9, 2017, claiming four causes of action: Counts I and II for violations of the Securities Act⁶ and Counts III and IV for violations of the Exchange Act⁷ . (ECF No. 30.) On September 18, 2018, this Court granted Defendants' dismissal motions, dismissing the Securities Act claims (Counts I and II) with prejudice, and dismissing the Exchange Act claims (Counts III and IV) without prejudice. In re Under Armour Sec. Litig. , 342 F. Supp. 3d 658 (D. Md. 2018). By their Consolidated Second Amended Complaint (ECF No. 78), filed on November 16, 2018, Plaintiffs have dropped all defendants except for Plank and Under Armour, contending that the prior pleading deficiencies have been remedied and that all necessary elements have been adequately alleged to establish that Plank and Under Armour violated §§ 10(b), 20(a) and 20A of the Securities Exchange Act of 1934. (Pls.' Resp. 1, ECF No. 86.) By the Defendants' Motion to Dismiss Plaintiffs' Consolidated Second Amended Complaint, the Defendants seek the dismissal with prejudice of Plaintiffs' claims. (Defs.' Mot., ECF No. 80.) Defendants assert that Plaintiffs have added no new factual allegations and still fail to plead scienter as to either Plank or the Company, the only two remaining defendants. (Mot. Mem. 1, ECF No. 80-2.)

Defendants further contend that Plaintiffs have attempted to address the deficiencies in their pleadings by adding declarations from "expert" witnesses to support their conclusions. (Id. at 2.) By the Defendants' Motion to Strike the Declarations of Mark A. Cohen and Professor M. Todd Henderson, the Defendants move this Court to strike the declarations and disregard the opinions expressed in them. (ECF No. 79.) Defendants assert that an expert report attached to a complaint is not a "written instrument" under Rule 10(c) of the Federal Rules of Civil Procedure and that opinions cannot act as substitutes for facts under the heightened pleading standard of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. §§ 78u-4, et seq.

Finally, Plaintiffs seek to have this Court strike certain exhibits attached to Defendants' Motion to Dismiss. (ECF No. 88.) Specifically, Plaintiffs move, pursuant to the PSLRA and Rule 12(f) of the Federal Rules of Civil Procedure, to strike Exhibits 21, 23, and 24 attached to Defendants' Motion to Dismiss and to strike all references to, and assertions based upon, those materials. (Id. ) Defendants contend that the three documents are not incorporated by reference nor or they the proper subjects of judicial notice and are attached for the improper purpose of rebutting Plaintiffs' allegations of scienter. (Pls.' Mot. Mem. 4, ECF No. 88-1.)

This Court shall address first the motions to strike and then the substantive motion to dismiss. For the reasons that follow, this Court shall GRANT all three motions. Specifically, this Court concludes that Plaintiffs have failed to meet the burden imposed upon them by the heightened pleading standards to which the Exchange Act claims of Count I are subject. Therefore, Count I shall be dismissed with prejudice. Since Count I must be dismissed, Counts II and III also fail because they are each dependent upon a predicate violation of the Exchange Act.

STANDARD OF REVIEW

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 12(b)(6) authorizes the dismissal of a complaint if it fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The United States Supreme Court's opinions in Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), require that complaints in civil actions be alleged with greater specificity than previously was required. While a court must accept as true all factual allegations contained in the complaint, legal conclusions drawn from those facts are not afforded such deference. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. A complaint must set forth "enough factual matter (taken as true) to suggest" a cognizable cause of action, "even if ... [the] actual proof of those facts is improbable and ... recovery is very remote and unlikely." Twombly , 550 U.S. at 556, 127 S.Ct. 1955 (internal quotations omitted).

Most importantly, this Court has noted that a claim for securities fraud must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b). In re Constellation Energy Grp., Inc. Sec. Litig. , 738 F. Supp. 2d 614, 634 (D. Md. 2010). Rule 9(b) of the Federal Rules of Civil Procedure requires that "the circumstances constituting fraud be stated with particularity." Fed. R. Civ. P. 9(b). The rule "does not require the elucidation of every detail of the alleged fraud, but does require more than a bare assertion that such a cause of action exists." Mylan Labs., Inc. v. Akzo, N.V. , 770 F. Supp. 1053, 1074 (...