342 F. Supp. 3d 658
D. Md.2018Background
- Under Armour, its CEO Kevin Plank, CFOs Molloy and Dickerson, directors, and underwriters were sued in a consolidated securities class action alleging (1) Securities Act §11/§15 claims relating to a June 2016 bond registration statement and (2) Exchange Act §10(b)/§20(a) fraud claims for statements from Sept. 2015–Jan. 2017.
- Plaintiffs allege defendants concealed weakening apparel demand, rising inventory, ASP declines, margin compression, and that Plank sold stock while securities were allegedly inflated. Morgan Stanley retail/point-of-sale reports (Jan. 2016 and July 2016) figure prominently in plaintiffs’ theory.
- Underwriter defendants moved to dismiss §11 claims as time-barred by the Securities Act one‑year rule; Under Armour defendants moved to dismiss all claims under Rule 12(b)(6), the PSLRA, and Rule 9(b).
- The court found publicly available disclosures and market events before Aug. 4, 2016 (e.g., Morgan Stanley report, executive departures, June 1 Sports Authority impact, July 26, 2016 results) should have put a reasonably diligent plaintiff on notice, so §11 claims against underwriters were time‑barred.
- The court also held the §11 and §15 claims failed on the merits (insufficient particularity/materiality; opinions/puffery and inadequate Item 503 allegations) and dismissed them with prejudice as to underwriters and with prejudice as to all Securities Act defendants.
- Exchange Act §10(b) and §20(a) claims survived on the pleading-of‑misstatements element but failed for lack of a strong, cogent inference of scienter; those counts were dismissed without prejudice with leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of §11 claims | Bond purchaser (Bucks) argued limitations began with later disclosure/rating downgrade (Feb. 2017) | Underwriters: one‑year accrual triggered earlier by public warnings (Morgan Stanley, Qs/press releases, June 1 Sports Authority news, July 26, 2016 results) | §11 claims against underwriters time‑barred; Counts I–II dismissed with prejudice |
| Sufficiency of §11/§15 pleadings (material misstatement/omission; Item 503) | Statements in the registration materials were misleading and omitted severe apparel‑segment risk | Defendants: statements were puffery, opinions, supported by contemporaneous data, and Item 503 omission not plausibly alleged | Even aside from timeliness, §11 claim inadequately pleaded; would be dismissed without prejudice on merits; §15 derivative and dismissed |
| §10(b)/Rule 10b‑5 misstatements/omissions | Plaintiffs identified numerous specific investor‑day, earnings‑release, and conference‑call statements allegedly inconsistent with internal data and third‑party reports | Defendants: many statements were puffery or protected forward‑looking statements; plaintiffs rely on hindsight and third‑party reports and group pleading | Court found some pleaded statements sufficiently particular to allege falsity/omission, so element survived motion to dismiss |
| Scienter for §10(b) and control liability §20(a) | Alleged internal data access, suspicious executive departures, corrective disclosures, and Plank stock sales created motive and conscious recklessness | Defendants: alternative innocent inferences (market/industry shifts, normal stock plans), stock sales routine and pre‑scheduled, group pleading insufficient | Plaintiffs failed to plead a strong, cogent inference of scienter; §10(b) and §20(a) dismissed without prejudice |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (contemplates "strong inference" scienter analysis)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading must state plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not accepted on a motion to dismiss)
- Merck & Co. v. Reynolds, 559 U.S. 633 (discovery rule and inquiry‑notice discussion for securities limitations)
- Herman & MacLean v. Huddleston, 459 U.S. 375 (§11 exposes issuers to near‑strict liability)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (when opinion statements are misleading)
- Stoneridge Inv. Partners v. Scientific‑Atlanta, 552 U.S. 148 (limits on securities liability for secondary conduct)
- Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874 (4th Cir. standards on Exchange Act elements and pleading)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (inference‑weighing in scienter analysis)