IN RE AT&T/DIRECTTV NOW SECURITIES LITIGATION
480 F.Supp.3d 507
S.D.N.Y.
2020

Background

  • AT&T launched an over‑the‑top streaming service, DirecTV Now (DTVN), on Nov. 30, 2016 and publicly reported quarterly "net additions" of subscribers through Jan. 30, 2019.
  • AT&T promoted DTVN with heavy incentives (free trials/devices, data exemptions, low promotional pricing) and publicly touted growth, margin prospects, and its ability to offset declines in satellite (DirecTV) customers.
  • Plaintiffs allege early technical launch problems, that many subscribers were low‑engaged/promotional (high churn), that some retail employees used fraudulent sales tactics to create unauthorized accounts, and that DTVN was unprofitable.
  • Plaintiffs sued under the Exchange Act (§10(b)/Rule 10b‑5 and control/scheme claims) and the Securities Act (Sections 11, 12) alleging misstatements/omissions in public statements, the registration statement and the prospectus for the Time Warner acquisition.
  • The court found most public statements to be non‑actionable puffery or adequately contextualized, held Plaintiffs failed to plead material falsity or a widespread fraud sufficient to make omissions material, and found Plaintiffs failed to plead a strong inference of scienter.
  • All claims were dismissed with leave to move to amend limited to adding particularized facts about DTVN unprofitability or the scope/recipients of AT&T’s internal investigation into fraudulent sales practices.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether public statements about DTVN (growth, margins, resilience, bundling) were materially false or misleading under Rule 10b‑5(b) Statements implied positive margins, genuine subscribers, low churn and ability to offset DirecTV losses; omissions of promotions/technical problems/fraud made statements misleading Statements were generic puffery or truthful in context; promotions and technical issues were public; alleged fraud was isolated and immaterial Dismissed — plaintiffs largely pleaded non‑actionable puffery and failed to plead material falsity with particularity
Whether plaintiffs alleged a deceptive scheme under Rule 10b‑5(a)/(c) (scheme liability) AT&T set aggressive sales targets and encouraged practices that produced fake subscriptions; scheme separate from public statements Aggressive quotas are not inherently deceptive; plaintiffs did not plead particularized wrongful acts by senior management or reliance causation Dismissed — no deceptive act pleaded separate from misstatements and no scienter shown
Whether plaintiffs pleaded scienter for Exchange Act claims Executives had motive (protect Time Warner deal/reputations), access to churn/profitability data, knew of internal investigation into fraud — strong inference of recklessness/intent Motive allegations were generalized; access to data and an internal probe do not, without particularized facts, establish that executives knew statements were false Dismissed — plaintiffs failed to plead strong, cogent inference of scienter
Whether registration statement/prospectus violated Sections 11/12 (Securities Act) by omitting unprofitability, promotions/sales fraud, and technical problems Registration statement and prospectus omitted material facts that would have made DTVN look unsustainable and tainted the disclosed 200,000 net adds The registration/prospectus did not affirmatively misstate profit; promotions were public; alleged fraud was not shown to have affected reported figures as of the effective/incorporation dates Dismissed — plaintiffs failed to plead material misstatements or omissions at the relevant times

Key Cases Cited

  • Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires factual plausibility)
  • Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (court must weigh inferences when assessing scienter)
  • Employees’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297 (2d Cir. 2015) (PSLRA particularity for confidential witnesses)
  • ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (materiality and puffery principles)
  • Abramson v. Newlink Genetics Corp., 965 F.3d 165 (2d Cir. 2020) (opinions/puffery and embedded factual assertions)
  • Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (corporate optimism/puffery not actionable)
  • Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (requirements for confidential witness allegations)
  • Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, 552 U.S. 148 (2008) (limits on scheme‑liability and pleading reliance/causation)
  • Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479 (2d Cir. 2011) (Securities Act §11/§12 materiality standard)
  • Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (economic plausibility in inferring fraudulent intent)
  • Meyer v. JinkoSolar Holdings Co., 761 F.3d 245 (2d Cir. 2014) (Sections 11/12 and Section 10(b) materiality standard)
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