Livingston ex rel. Situated v. Cablevision Sys. Corp.

966 F.Supp.2d 208

Gary LIVINGSTON, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,

v.CABLEVISION SYSTEMS CORPORATION, et al., Defendants.

No. 12–CV–377 (KAM)(SMG).

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

Sept. 5, 2013.

Jeffrey A. Berens, Dyer & Berens LLP, Denver, CO, Mario Alba, Jr., Samuel H. Rudman, David A. Rosenfeld, Robbins Geller Rudman & Dowd, LLP, Melville, NY, Michael I. Fistel, Holzer Holzer & Fistel, LLC, Atlanta, GA, for Plaintiffs.

Katherine Marie Romano, Matthew A. Schwartz, Robert J. Giuffra, Jr., William Rudolph Arthur Kleysteuber IV, Sullivan and Cromwell LLP, New York, NY, for Defendants.

MEMORANDUM AND ORDER

MATSUMOTO, District Judge:

Defendants Cablevision Systems Corporation (“Cablevision” or “the company”), James L. Dolan (“Dolan”), Gregg G. Seibert (“Seibert”), Michael Huseby (“Huseby”), and Thomas M. Rutledge (“Rutledge”), (the “Individual Defendants,” and, collectively with Cablevision, “Defendants”), move to dismiss the Amended Complaint of lead plaintiffs Iron Workers Local No. 25 Pension Fund and Alaska Electrical Pension Fund (collectively, “Plaintiffs”). ( See ECF No. 29, Mot. to Dismiss.) Plaintiffs' Amended Complaint seeks remedies from Defendants pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). ( See generally ECF No. 21, Am. Compl.) Defendants move to dismiss the Amended Complaint with prejudice pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). For the reasons discussed below, Defendants' motion to dismiss is granted in its entirety.

BACKGROUND

The following facts, taken from Plaintiffs' Amended Complaint, documents incorporated by reference into the Amended Complaint, and documents within the purview of judicial notice, are assumed to be true for the purposes of Defendants' motions to dismiss. ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007) (noting that courts may consider “any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the Securities Exchange Commission (“SEC”), and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit”); see also Garber v. Legg Mason Inc., 347 Fed.Appx. 665, 669 (2d Cir.2009) (noting that courts may consider press coverage for the purpose of establishing whether corporate information was publicly available).

I. The Parties

Plaintiffs each purchased Cablevision common stock during a class period between February 16, 2011, and October 28, 2011, and allege to have thereby been damaged. ( See id. ¶¶ 1, 12–13.)

Cablevision, through its subsidiaries, operates as a telecommunications, media, and entertainment company that provides telecommunications services, high-speed internet, and voice over internet protocol services, including iO TV digital television, Optimum Voice digital voice, Optimum Online high-speed internet, and Optimum WiFi wireless internet. (Am. Compl. ¶ 14.) According to Cablevision's SEC Form 10–Q for the quarter ending March 31, 2011, Cablevision's video television services accounted for 47% of the company's consolidated revenues during that time period. ( Id. ¶ 43.)

Dolan was, at all relevant times, Chief Executive Officer and President of Cablevision. ( Id. ¶ 15.) Seibert has been Chief Financial Officer and Executive Vice President of Cablevision since June 2011. ( Id. ¶ 16.) Huseby was Chief Financial Officer and Executive Vice President of Cablevision until his resignation in June 2011. ( Id. ¶ 17.) Rutledge was, at all relevant times, Chief Operating Officer of Cablevision, in which capacity he oversaw the day-to-day operations of Cablevision under the supervision of Dolan. ( Id. ¶ 18.) During the class period, the Individual Defendants were privy to confidential and proprietary information concerning Cablevision's operations, finances, financial condition, and present and future business prospects, including customer subscription information that is the subject of the instant suit. ( See id. ¶ 20.)

II. Procedural History

On January 26, 2012, individual plaintiff Gary Livingston filed an initial putative class action complaint against Defendants. (ECF No. 1, Compl.) On April 30, 2012, the court appointed Plaintiffs as lead plaintiffs of the instant class action. (ECF No. 17, Order.) At the same time, the law firm of Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) was appointed lead counsel for the putative class. ( Id.) On June 29, 2012, Plaintiffs filed the Amended Complaint, which was filed pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) as a class action on behalf of all persons or entities who purchased Cablevision common stock during the class period. (Am. Compl. ¶ 25.)

On October 11, 2012, the court held a telephone pre-motion conference regarding Defendants' prospective motion to dismiss, during which the court offered Plaintiffs the opportunity to file a second amended complaint addressing Defendants' anticipated motion. (Minute Entry dated Oct. 11, 2012.) Plaintiffs declined to file a second amended complaint, and Defendants' fully briefed motion to dismiss was filed on February 1, 2013. On August 13, 2013, the court heard oral argument on Defendants' motion to dismiss and reserved decision.

III. The Amended ComplaintA. Factual Allegations

Plaintiffs' allegations are based upon investigation of, inter alia, SEC filings, other regulatory filings and reports, publicly available annual reports, press releases, published interviews, news articles and other media reports, and reports of securities analysts and investor advisory services from during the class period. ( Id. ¶ 31.) Plaintiffs' allegations are also premised upon the first-hand knowledge of six confidential witnesses (“CWs”) who were formerly employed by Cablevision. ( Id. ¶ 32.) These CWs include a former Director of Database Marketing, two Account Managers, a Director of Customer Retention, a Telemarketing Retention Manager, and an Inbound Sales Manager, each of whom was employed by Cablevision during the class period. ( Id. ¶¶ 33–38.)

Prior to enactment of the Telecommunications Act of 1996, telephone and cable television companies were prohibited from competing against one another. ( Id. ¶ 44.) Following passage of the telecommunications act, national telecommunications companies, such as Verizon Communications, Inc. (“Verizon”), were permitted to offer video television services and directly compete with regional television cable operators nationwide.

Prior to 2006, however, Cablevision continued to enjoy a virtual monopoly of telecommunications services in the greater New York City metropolitan area, at which time Verizon began to compete directly with Cablevision. ( See id. ¶¶ 45–49.) By March of 2011, Verizon's FiOS internet, telephone, and video television service was available to approximately 40% of the households that Cablevision serviced. ( Id. ¶ 51.)

On October 15, 2010, Cablevision's contract with News Corporation (“News Corp.”) to retransmit FOX programming expired (the “retrans dispute”). ( Id. ¶ 58.) The two companies were unable to agree upon a new contract; therefore, on October 16, 2010, News Corp. blocked Cablevision's video subscribers from viewing all FOX content. ( Id.) The companies reached an agreement two weeks later on October 20, 2010, but not before Cablevision customers missed access to several Major League Baseball World Series and National Football League games. ( See id. ¶¶ 59, 96.)

Between the fourth quarter of 2010 and the third quarter of 2011, Cablevision lost several thousand video subscribers per quarter, including the largest loss of 35,000 subscribers in the fourth quarter of 2010. ( See id. ¶ 64.) Cablevision tracked and monitored its video subscriber losses on a weekly basis. ( See id. ¶¶ 75–83.) Cablevision also specifically tracked the number of its subscribers who left Cablevision for Verizon, the company's primary competitor. ( Id. ¶ 78.) In an effort to mitigate its loss of video subscribers during the class period, Cablevision began extending expiring promotions and offering new promotions to former and existing subscribers. ( See id. ¶¶ 84–92.)

On February 16, 2011, the beginning of the class period, Cablevision publicly disclosed its annual SEC Form 10–K financial report for 2010. ( Id. ¶ 93.) During a conference call with analysts and investors later that same day, Rutledge said the following:

Basic subscribers declined by 1%, almost all of which is attributable to our decision to contest a retransmission consent demand.... In the fourth quarter [of 2010], we think that almost all of the either decreased sales or [increased] disconnects ... result from the retrans fight. And as we look at our data after that, the activity of the business is trackinglike it was prior to that issue.... I think it is an anomaly directly related to that .... [a]nd so I do think in that sense, it is kind of a one-time event.

( Id. ¶ 94.) Thereafter, during a March 1, 2011, industry conference, Rutledge stated:

Well, yes, I do think [Cablevision's video subscription losses in the fourth quarter of 2010] was an anomaly.... [The retrans dispute] was a difficult thing to take on in that not only did we irritate customers by doing it and having some people disconnect, but we also had to spend a lot of marketing dollars and energy talking about things other than sales. So we didn't take as many sales either during that period.

( Id. ¶ 97.)

Later on, during a May 5, 2011, conference call with analysts and investors to discuss Cablevision's first quarter 2011 SEC Form 10–Q financial report, Rutledge stated:

Cablevision['s] core system, the traditional cable system, lost about 8400 video customers. Some of that was attributable, I think, to how we came into...