In re Under Armour Sec. Litig.

540 F.Supp.3d 513

IN RE UNDER ARMOUR SECURITIES LITIGATION

Civil Action No. RDB-17-388

United States District Court, D. Maryland.

Signed May 18, 2021

MEMORANDUM OPINION

Richard D. Bennett, United States District Judge

As this Court noted in its Memorandum Opinion of January 22, 2020 (ECF No. 139), the basic allegation in this punitive class action is that the Defendants Under Armour, Inc. ("Under Armour") and its former Chief Executive Officer Kevin Plank ("Plank") (collectively "Defendants") misrepresented the level of demand for Under Armour products. Previously, this Court has dismissed Plaintiffs’ claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 ("Exchange Act"), as well as Sections 11 and 15 of the Securities Act of 1933 ("Securities Act"). Nevertheless, during the pendency of an appeal to the United States Court of Appeals for the Fourth Circuit (ECF No. 102), the Wall Street Journal published two articles reporting that Under Armour was the subject of investigations by the Securities and Exchange Commission ("SEC"). Based on this new evidence, this Court conducted a hearing and ultimately granted a Motion for Relief from its earlier rulings upon a remand from the United States Court of Appeals for the Fourth Circuit. (ECF No. 140.) The Fourth Circuit accordingly remanded this case. (ECF No. 145.) After having reviewed the submissions of the parties and heard argument of counsel during a telephonic hearing on September 14, 2020, this Court granted motions for consolidation and allowed the filing of a Third Amended Complaint. (ECF No. 150.)

Accordingly, on October 14, 2020, Lead Plaintiff Aberdeen City Council as Administrating Authority for the North East Scotland Pension Fund ("Aberdeen" or "Lead Plaintiff") and Plaintiffs Monroe County Employees’ Retirement System and KBC Asset Management (collectively, "Plaintiffs") filed the Consolidated Third Amended Complaint for violations of the federal securities laws ("TAC") against Defendants Under Armour and Plank. (ECF No. 153.) On December 4, 2020, the Defendants filed a Motion to Dismiss (ECF No. 159), to which the Plaintiffs filed a response in opposition (ECF No. 160). On May 3, 2021, while that motion remained pending, the SEC entered an Order instituting cease-and-desist proceedings against Under Armour for violations of various federal securities laws and ordering Under Armour to pay a $9,000,000 civil penalty. (See ECF Nos. 171, 172.) The Plaintiffs have aptly noted authority of this Court to take judicial notice of the SEC Order in its consideration of the pending Motion to Dismiss (ECF No. 159). (See ECF No. 172.)

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 is satisfied that taking judicial notice of the SEC's Order in this case is appropriate. The Plaintiffs’ allegations in the TAC, read in light of and in combination with the allegations set forth in the SEC's Order, adequately allege violations of federal securities laws. Accordingly, the Defendants’ Motion to Dismiss (ECF No. 159) is DENIED.

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) ). Plaintiff Brian Breece filed a class action Complaint against Under Armour, Plank, and another executive of the company, Lawrence Molloy on February 10, 2017. (ECF No. 1.) After consolidation with other suits filed against Under Armour, Plank, and numerous other defendants, this Court dismissed the Plaintiffs’ Consolidated Amended Complaint. (ECF No. 75.) On November 16, 2018 the Lead Plaintiff filed a Consolidated Second Amended Complaint for violations of the federal securities laws (ECF No. 78), naming only Under Armour and Plank as Defendants. That Second Amended Complaint alleged that between September 16, 2015 and January 30, 2017, the Defendants issued a series of false and misleading statements about demand for Under Armour products and the company's financial condition. (ECF No. 78 ¶¶ 2, 14.)

On August 19, 2019, this Court dismissed the Second Amended Complaint with prejudice. (ECF No. 98 at 26.) Judgment was entered on September 9, 2019 (ECF No. 101), and on September 17, 2019, the Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Fourth Circuit (ECF No. 102). Based on the reports of the Wall Street Journal that Under Armour was the subject of SEC investigations, Lead Plaintiff moved on November 18, 2019 for an indicative ruling (ECF No. 105), requesting that this Court grant the Plaintiffs’ Motion for Relief from the Court's September 9, 2019 Judgment pursuant to Federal Rule of Civil Procedure 60(b), if the Fourth Circuit remanded for that purpose. (ECF No. 106.) On January 22, 2020, this Court granted such request. (ECF No. 139.) Accordingly, this Court held that it would permit Lead Plaintiff to file a third amended complaint bringing claims against the Defendants for violations of the Securities Exchange Act of 1934 (the "Exchange Act"). (Id. )

On October 14, 2020, the Lead Plaintiff filed the Plaintiffs’ Consolidated Third Amended Complaint for violations of the federal securities laws ("TAC") (ECF No. 153) alleging that Defendants Under Armour and Plank misled investors during the Class Period by falsely claiming that consumer demand for the company's products was strong between the third quarter of 2015 and the fourth quarter of 2016. Plaintiffs allege that the Defendants led investors to believe that Under Armour's 26-consecutive quarter 20% year-over-year revenue growth streak was "safely intact," when in reality demand for the company's products was in decline. (ECF No. 153 ¶¶ 148-168.) They claim that Defendants manipulated the company's financial results by pulling sales forward from future quarters and engaged in other allegedly suspect sales practices. (Id. ) The Plaintiffs assert violations of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b–5 promulgated thereunder against Defendants Under Armour and Plank (Count I); violations of Section 20(a) of the Exchange Act, again against both Under Armour and Plank (Count II); and violation of Section 20A of the Exchange Act against solely Defendant Plank (Count III). (Id. ¶¶ 412-436.)

On December 4, 2020, the Defendants filed a Motion to Dismiss (ECF No. 159) in which they seek the dismissal of the TAC in its entirety. Their Motion asserts that the TAC generally fails to plead adequate factual details to support the Plaintiffs’ claims. (Id. ) On May 3, 2021, the SEC entered an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("SEC Order"). (See Exh. A, ECF No. 171.) The SEC Order states that it determined that instituting cease-and-desist proceedings in this matter was appropriate and that in anticipation of those proceedings, Under Armour submitted an Offer of Settlement, which the SEC accepted. (Id. at I, II.) Under Armour therefore consented to entry of the Order, but did so without admitting or denying the findings of the SEC. (Id. at II.) The cease-and-desist order was imposed for violation of Sections 17(a)(2) and (3) of the Securities Act of 1933 (the "Securities Act") and Section 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rules 13a-1, 13a-11, 13a-13, 12b-20 thereunder, including failing to comply with Item 303(a)(3)(ii) of Regulation S-K. (Id. at III ¶¶ 5, 45-48.) The SEC Order also included a civil penalty of $9,000,000 subject to Exchange Act Section 21F(g)(3). (Id. at IV ¶ B.)

The SEC Order is based upon the consent of the Defendants without the admission or denial of any findings. Furthermore, the Order is not dispositive of the issues in this case. Nevertheless, the practice of accelerating sales information is central to the allegations in these consolidated cases. Accordingly, this "pull forward" practice and its effect on revenue estimates will await further discovery in this case.

STANDARD OF REVIEW

Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P 8(a)(2). The purpose of Rule 12(b)(6) is "to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City Of Charlottesville , 464 F.3d 480, 483 (4th Cir. 2006). To survive a motion under Rule 12(b)(6), a complaint must contain facts sufficient to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 684, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl., Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Under the plausibility standard, a complaint must contain "more than labels and conclusions" or a "formulaic recitation of the elements of a cause of action." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ; see Painter's Mill Grille, LLC v. Brown , 716 F.3d 342, 350 (4th Cir. 2013). A complaint need not include "detailed factual allegations." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). A complaint must, however, 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). "Threadbare recitals of the elements of a cause of action, supported by...