Bass, Berry & Sims attorney Chris Lazarini analyzed the decision in Medina vs. Tremor Video, Inc., in which the court dismissed a complaint for failing to allege enough facts to state a claim for relief that was plausible on its face. Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Medina vs. Tremor Video, Inc., No. 13-cv-8364 (S.D.N.Y. 3/5/15)
A complaint that fails to allege enough facts to state a claim for relief that is plausible on its face is subject to dismissal under Rule 12(b)(6).
Plaintiffs purchased common stock traceable to Defendants' June 2013 Form S-1 Registration Statement and IPO. In a November 2013 press release and conference call, Defendants reduced their revenue forecast and stock prices fell. Shortly thereafter, Plaintiffs brought this class action, alleging that Defendants' Registration Statement contained material errors and omissions in violation of Sections 11 and 15 of the Securities Act of 1933. Plaintiffs theorized that the negative facts disclosed by Defendants in November 2013 were material "trends or uncertainties" that they knew early enough to disclose in the June 2013 Registration Statement. Granting Defendants' Rule 12(b)(6) motion to dismiss, the Court examines each of Plaintiff's core allegations in turn.
Plaintiffs' first allegation is that Defendants should have disclosed that two of the five major television networks delayed making their upfront advertising purchases by two weeks. The Court finds that, even if Defendants knew of the delay, Plaintiffs failed to allege sufficient facts to plausibly infer that the delay was a "trend or uncertainty" that should have been disclosed. The allegation is undercut by the annual variations in the timing of the major networks' upfront advertising purchases. Plaintiffs also fail to plead facts demonstrating that the two-week delay was material; they merely speculate that potential stock purchasers might have delayed their purchases if they knew of the delay. But such speculation, without facts indicating that, prior to the release of the Registration Statement, Defendants knew that the delay would adversely affect their business, is insufficient to plausibly infer that a reasonable investor would have considered the two-week delay significant.
Plaintiffs' second allegation is that Defendants should have disclosed that their customers were increasingly resistant to performance-level pricing, instead trending toward lower margin demographic-based pricing. Plaintiffs claim the failure to disclose this trend was a material omission because it could lead to lower profit margins for Defendants. The Court finds the complaint to be devoid of any facts supporting the inference that Defendants were aware of this alleged "trend or uncertainty" and, therefore, determines that the claim is, once again, too speculative.
Plaintiffs' third allegation is that Defendants should have disclosed that they lacked programmatic video offerings and were losing sales to competitors. The Court deems this two-sentence allegation plainly insufficient to give rise to any inferences that the lack of programmatic video offerings was a known trend or uncertainty that should have been disclosed.
The Court adds that, even accepting the materiality of the "trends and uncertainties" cited by Plaintiffs, the complaint must be dismissed because the allegedly untrue or misleading statements were either forward-looking statements accompanied by both general and specific cautionary statements which, when read in their entirety, bespoke caution, or were non-actionable statements of historical fact. Finally, because Plaintiffs fail to allege facts to support their Section 11 claims, the Court has no trouble dismissing Plaintiffs' Section 15 control person claims as well.