(May 10, 2012, Weil News)
In another victory for CBS and certain current and former executives, Weil obtained a significant decision from the US Court of Appeals for the Second Circuit that affirmed the 2011 dismissal of a federal securities fraud class action against our clients. In its May 10, 2012 opinion, the Second Circuit affirmed “for substantially the reasons stated in the district court’s thoughtful and thorough opinions [dismissing the second amended complaint],” and expanded the application of its 2011 decision in Fait v. Regions Fin. Corp.
to encompass claims concerning goodwill brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (1934 Act).
The Second Circuit’s decision marks the third ruling in favor of CBS, CEO Leslie Moonves, Chairman Sumner Redstone and two former CBS officers in this matter, which alleged that CBS delayed taking a $14 billion impairment charge, following interim testing of goodwill, in order to keep its stock price artificially inflated so as to not trigger certain alleged undisclosed loan covenants. In March 2010, the district court dismissed plaintiffs’ claims, holding that they failed to plead scienter
with sufficient particularity as required by the Private Securities Litigation Reform Act (PSLRA), and that plaintiffs also failed to allege anything that would have required CBS to take an impairment earlier than it did under the relevant accounting rules. In May 2011, after granting plaintiffs leave to amend their complaint, the district court again granted defendants’ motion to dismiss
, finding that plaintiffs “failed to cite a point, factually or temporally, when the defendants’ actions added up to something more than an exercise of real-time accounting judgment.”
In affirming the dismissal of plaintiffs’ second amended complaint, the Second Circuit held that “the asserted basis for plaintiffs’ securities fraud claims is quite limited” and “fails plausibly to allege any false or misleading statements or omissions by defendants.” The court noted that, because it contained even less factual allegations, the amended complaint “was also properly dismissed.”
Reinforcing its conclusions, the Second Circuit held that its ruling in Fait v. Regions Fin. Corp.
– which held that claims concerning goodwill brought under Sections 11 and 12 of the Securities Act of 1933 must “plausibly allege that defendants did not believe their statements regarding goodwill at the time they made them,” and which had not yet been decided at the time of the district court's decision – should also apply to plaintiffs' claims under Sections 10(b) and 20(a) of the 1934 Act because “these claims all share a material misstatement or omission element.” The court held that plaintiffs’ allegations about CBS’s decreasing market capitalization, declining ad revenues, and analyst expectations, among others, offered only “conclusory statements, not factual allegations” that defendants knew or should have known that interim impairment testing would reveal overvaluation of goodwill, and that even if they could plausibly plead such a scenario, plaintiffs did not properly allege that defendants did not believe their statements of opinion regarding goodwill.
Finally, the court held that plaintiffs failed to sufficiently allege reliance upon a fraudulently inflated stock price, because all of the information that plaintiffs cited as evidence of a need for interim impairment testing was publicly available, and therefore already reflected in CBS’s stock price at all pertinent times.
Follow these links to read the district court’s 2011 decision
and Second Circuit’s 2012 opinion
The Weil litigation team is based in New York and includes partners James Quinn, Greg Danilow and Yehudah Buchweitz, counsel Gregory Silbert, and associate Kimberly Rosensteel.