640 F. App'x 45
2d Cir.2016Background
- Plaintiffs (Medina and Furman) brought a securities class action under Sections 11 and 15 of the Securities Act alleging Tremor Video and its underwriters omitted material "known trends or uncertainties" in a June 27, 2013 registration statement and prospectus.
- The alleged nondisclosures concerned (1) delays in television "upfront" network scheduling, (2) a shift toward demographic pricing, and (3) increased programmatic ad buying.
- The Southern District of New York dismissed the complaint under Rule 12(b)(6), finding plaintiffs failed to plead facts giving rise to a plausible inference that defendants actually knew of the alleged trends, and that cautionary language in the registration statement was sufficient.
- The district court denied leave to amend as futile and denied post-judgment relief under Rules 59(e) and 60(b); plaintiffs appealed.
- The Second Circuit reviewed both the dismissal and the denial of leave to amend de novo and affirmed, concluding plaintiffs’ proposed amendment still failed to plausibly allege defendants’ actual knowledge of the trends at the time of issuance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Item 303 disclosure claim was adequately pleaded | Plaintiffs argued Tremor omitted material known trends/uncertainties (upfront delays, demographic pricing, programmatic buying) from the registration statement | Defendants argued plaintiffs failed to allege specific facts showing defendants actually knew of those trends or their potential material impact at the time of the registration statement | Held: Dismissal affirmed — plaintiffs did not plead facts permitting a plausible inference of defendants' actual knowledge |
| Whether proposed amendment should be allowed | Plaintiffs sought leave to amend to add factual allegations supporting knowledge | Defendants argued amendment would be futile because added allegations were conclusory or based on hindsight/public info | Held: Leave to amend denied as futile; court applied Rule 15 standard and found proposed allegations insufficient |
| Whether district court procedure violated Loreley | Plaintiffs argued the district court’s handling mirrored the Loreley error forcing a forfeiture of repleading rights | Defendants argued Loreley did not apply because district court actually considered the proposed amendments and denied them on futility grounds | Held: Loreley inapplicable; even if procedural error alleged, Second Circuit reviewed de novo and affirmed on the merits |
| Whether public availability of information defeats Item 303 claim | Plaintiffs implied public evidence sufficed to show the trend existed and should have been disclosed | Defendants argued public information alone does not show the company knew of the trend's potential future impact | Held: Public availability not dispositive; plaintiffs still must allege facts showing company knew of trend and its likely material future impact |
Key Cases Cited
- Meyer v. Jinkosolar Holdings Co., 761 F.3d 245 (2d Cir.) (standard of review for Rule 12(b)(6) dismissal and denial of leave to amend on futility)
- Starr v. Sony BMG Music Entm’t, 592 F.3d 314 (2d Cir.) (de novo review principles for denials of leave to amend based on futility)
- Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir.) (abuse-of-discretion when court forces plaintiff to choose between curing deficiencies prematurely or forfeiting repleading rights)
- Panther Partners Inc. v. Ikanos Commc’ns, Inc., 681 F.3d 114 (2d Cir.) (Item 303 requires allegations showing company knew of trend/uncertainty at the relevant time)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (plausibility standard for pleadings)
- Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir.) (amendment may be denied as futile)
- Litwin v. Blackstone Grp., L.P., 634 F.3d 706 (2d Cir.) (publicly known trends may trigger Item 303 disclosure when company knows of potential future impact)