Samit v. CBS Corporation, 1:18-cv-07796

Background

Securities class action against CBS and officers (including Leslie Moonves) alleging Section 10(b) and 20(a) claims for failing to disclose risks that Moonves’s history of sexual misconduct would be exposed during the #MeToo era, causing his ouster and stock declines. Plaintiffs cover purchases from Sept. 26, 2016 to Dec. 4, 2018.
Core factual allegations: Moonves was characterized as indispensable to CBS; reports and internal rumors of his misconduct emerged (LAPD complaint, potential accusers), CBS retained counsel, and the New Yorker (July 27, 2018) and NYT (Dec. 4, 2018) published damaging reports including a leaked internal draft investigation.
Plaintiffs identify numerous public statements (codes of conduct, proxy risk disclosures, management statements, and Moonves’s November 29, 2017 Variety remark) as false or misleading by omission.
Court evaluated materiality, duty to disclose (including Item 303/MD&A), scienter, loss causation, and whether statements constituted actionable half-truths or puffery.
Ruling: Almost all claims dismissed except Section 10(b) and 20(a) claims against Moonves and imputed to CBS based on Moonves’s November 29, 2017 Variety statement (court found that statement—barely—could be materially misleading and adequately pled scienter and loss causation). Leave to amend denied as futile but plaintiffs may renew.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether corporate codes of conduct and proxy statements were materially false/misleading	These statements reassured investors that CBS enforced anti-harassment policies and hid risk of losing Moonves	Statements were generic/puffery and not assurances that no senior executive misconduct existed	Dismissed — BCS/Ethics Code and related proxy statements treated as inactionable puffery or not plausibly false
Whether key-person/risk disclosures and other management statements were misleading by omission	Omitting the specific risk that Moonves would be ousted due to misconduct rendered risk disclosures and statements misleading	Risk disclosures merely warned of possible loss of key personnel; no duty to forecast events that had not materialized or were not known to make a material impact	Dismissed — Risk disclosures not misleading because risk had not yet materialized or become a known likelihood
Whether Moonves’s November 29, 2017 Variety remark was a materially misleading statement and pled with scienter	The remark implied he and CBS were newly confronting harassment problems (i.e., he had no personal exposure), concealing his knowledge and risk of ouster; Moonves lied/obstructed later investigation	Defendants argued remark was general, non-actionable, and scienter not adequately pled	Denied as to Moonves (and imputed to CBS) — Court held plaintiffs barely pleaded materiality, scienter as to Moonves, and loss causation tied to later disclosures
Whether Item 303 (MD&A) and SEC rules imposed an affirmative duty to disclose executives’ misconduct and related risks	Plaintiffs: Item 303 required disclosure of known trends/uncertainties (hostile culture/Moonves risk) that could materially affect revenues	Defendants: Item 303 applies to known trends reasonably likely to affect financials; plaintiffs failed to plead such a known likelihood or contemporaneous knowledge	Dismissed — Item 303 did not impose disclosure duty because plaintiffs did not allege a known, reasonably likely material effect on financials at filing times

Key Cases Cited

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading requires plausibility)
Ashcroft v. Iqbal, 556 U.S. 662 (court not bound to accept legal conclusions as factual)
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (PSLRA scienter inference standard)
Basic Inc. v. Levinson, 485 U.S. 224 (materiality standard — total mix)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (when omissions create duty to disclose)
Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (Item 303 duty principles and disclosure of known trends)
Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (loss causation requirement)
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (PSLRA particularity for securities fraud pleadings)
Singh v. Cigna Corp., 918 F.3d 57 (puffery and materiality analysis)