Steamfitters Local 449 Pension Plan v. AT&T Inc. ( 2022 )

21-2698-cv
Steamfitters Local 449 Pension Plan et al. v. AT&T Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
13th day of December, two thousand twenty-two.
Present:
GERARD E. LYNCH,
WILLIAM J. NARDINI,
STEVEN J. MENASHI,
Circuit Judges.
_____________________________________
STEAMFITTERS LOCAL 449 PENSION PLAN,
IRON WORKERS LOCAL 40, 361 & 417 UNION
SECURITY FUNDS, IRON WORKERS LOCAL
580 JOINT FUNDS, LOCAL 295 IBT EMPLOYER
GROUP PENSION FUND, MELVIN GROSS,
Individually and on behalf of all others similarly
situated,
Plaintiffs-Appellants,
v. 21-2698-cv
AT&T INC., JOHN J. STEPHENS, SAMUEL A. DI
PIAZZA, JR., RICHARD W. FISHER, SCOTT T.
FORD, GLENN H. HUTCHINS, WILLAM E.
KENNARD, MICHAEL B. MCCALLISTER,
BETH E. MOONEY, JOYCE M. ROCHE,
MATTHEW K. ROSE, CYNTHIA TAYLOR,
GEOFFREY Y. YANG, LAURA D. TYSON,
BRAD BENTLEY, JOHN DONOVAN, JOHN T.
STANKEY, BRIAN J. SHAY, RANDALL L.
STEPHENSON,
Defendants-Appellees.
1
_____________________________________
For Plaintiffs-Appellants: JEREMY A. LIEBERMAN (Emma Gilmore, Villi A.
Shteyn on the brief), Pomerantz LLP, New York,
NY; Carol Villegas, Jake Bissell-Linsk, David
Saldamando, on the brief, Labaton Sucharow, New
York, NY.
For Defendants-Appellees: WILLIAM B. MONAHAN (Robert A. Sacks, Leonid
Traps, on the brief), Sullivan & Cromwell LLP, New
York, NY.
Appeal from a judgment of the United States District Court for the Southern District of
New York (Valerie Caproni, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the order of the district court is AFFIRMED.
Plaintiffs appeal from a judgment of the United States District Court for the Southern
District of New York (Valerie Caproni, Judge) entered on September 28, 2020, dismissing their
amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and an order entered on
September 27, 2021, denying leave to amend their complaint as futile. Plaintiffs, acquirers of
stock in AT&T during the relevant time period, alleged that AT&T and several of its executives
made a variety of misstatements regarding the subscriber growth and profitability of one of its
products, DirecTV Now (“DTVN”), a streaming service that it launched on November 30, 2016.
Specifically, they allege that statements regarding DTVN’s profitability were untrue because the
product was not priced at profitable levels throughout the relevant time period and that statements
regarding DTVN’s subscriber growth were untrue because those numbers were inflated by
fraudulent sales tactics used by AT&T’s retail sales staff. Under the Securities Exchange Act (the
“Exchange Act”), Plaintiffs asserted claims under Section 10b, 15 U.S.C. § 78j(b), Rule 10b-5, 17
2
C.F.R. § 240.10b-5 (Count I); Section 10b, Rules 10b-5(a) and (c) (Count II); and Section 20(a),
15 U.S.C. § 78t(a) (Count III). Under the Securities Act, Plaintiffs asserted claims under Section
11, 15 U.S.C. § 77k (Count IV); Section 12(a)(2), 15 U.S.C. § 77l(a)(2) (Count V); and Section 15,
15 U.S.C. § 77o (Count VI). 1
In its carefully reasoned Memorandum and Order dated September 27, 2021, the district
court denied leave to amend the Proposed Second Amended Complaint (“PSAC”) on the basis of
futility. Because Plaintiffs’ briefing focuses entirely on whether the PSAC stated a claim, we
construe their arguments on appeal as focusing exclusively on the district court’s conclusion that
amendment to the PSAC would be futile. When a district court denies leave to amend based on a
legal conclusion such as futility, we review that denial de novo. Panther Partners Inc. v. Ikanos
Commc’ns, Inc., 681 F.3d 114, 119 (2d Cir. 2012). We assume the parties’ familiarity with the
case.
I. Exchange Act claims
Plaintiffs argue that the district court erred because the PSAC adequately alleged material
misstatements and scienter. Plaintiffs make no argument that Counts II or III can otherwise
survive, and we limit our review to the issues raised. See Norton v. Sam’s Club, 145 F.3d 114,
117 (2d Cir. 1998) (“Issues not sufficiently argued in the briefs are considered waived and
normally will not be addressed on appeal.”).
Section 10(b) of the Exchange Act makes it unlawful “[t]o use or employ, in connection
with the purchase or sale of any security[,] . . . any manipulative or deceptive device or contrivance
in contravention of such rules and regulations as the Commission may prescribe as necessary or
1
Appellants appear to have misnumbered the counts in the Proposed Second Amended Complaint. We
number them consecutively here.
3
appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule
10b–5 implements this provision of the Exchange Act and explicitly prohibits “mak[ing] any
untrue statement of a material fact.” 17 C.F.R. § 240.10b–5(b). “To state a claim under Rule 10b–
5 for misrepresentations, a plaintiff must allege that the defendant (1) made misstatements or
omissions of material fact, (2) with scienter, (3) in connection with the purchase or sale of
securities, (4) upon which the plaintiff relied, and (5) that the plaintiff’s reliance was the proximate
cause of its injury.” Employees’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297,
305 (2d Cir. 2015) (internal quotation marks omitted).
“Any complaint alleging securities fraud must satisfy the heightened pleading requirements
of the [Private Securities Litigation Reform Act (‘PSLRA’)] and Fed. R. Civ. P. 9(b) by stating
with particularity the circumstances constituting fraud.” Id. at 304 (internal quotation marks
omitted). “To satisfy the pleading standard for a misleading statement or omission under Rule
9(b), a complaint must (1) specify the statements that the plaintiff contends were fraudulent,
(2) identify the speaker, (3) state where and when the statements were made, and (4) explain why
the statements were fraudulent.” Id. at 305 (internal quotation marks omitted). Under the PLSRA,
claims alleging violations of the Exchange Act “must specify ‘the reason or reasons why the
statement is misleading, and, if an allegation regarding the statement or omission is made on
information and belief, the complaint shall state with particularity all facts on which that belief is
formed.’” Id. (quoting 15 U.S.C. § 78u-4(b)(1)(B)).
Plaintiffs first argue that the PSAC alleged actionable misstatements. We disagree. The
PSAC alleged 27 material misstatements or omissions: four of these relate to AT&T employee
behavior, 17 relate to DTVN’s subscriber growth, and six relate to DTVN’s profitability. Ten of
the alleged misstatements are inactionable as puffery. A statement or omission is material if “there
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is a substantial likelihood that a reasonable shareholder would consider it important in deciding
how to [act].” ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553
F.3d 187, 197 (2d Cir. 2009) (alteration in original) (internal quotation marks omitted). “Generic,
indefinite statements of corporate optimism typically are not actionable” because reasonable
investors do not place “substantial reliance on generalizations regarding a company’s health or the
strength of a company’s product.” Abramson v. Newlink Genetics Corp., 965 F.3d 165, 173 (2d
Cir. 2020). This includes a variety of statements that courts describe as “puffery,” including
general promotional language about a product or company, statements of a company’s integrity,
and positive forward-looking statements. See, e.g., JP Morgan Chase Co., 553 F.3d at 206; see
also City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. DBS AG, 752 F.3d 173, 183 (2d Cir.
2014) (“It is well-established that general statements about reputation, integrity, and compliance
with ethical norms are inactionable puffery, meaning that they are too general to cause a reasonable
investor to rely upon them.” (internal quotation marks omitted)). Four of the alleged misstatements
are nothing more than general statements regarding the integrity of AT&T employees,
commitments to ethical behavior, and the company’s code of conduct. App’x 745–47, ¶¶ 228,
230, 232, 234. These statements are plainly too generic to have been consequential. See City of
Pontiac, 752 F.3d at 183.
All six alleged misstatements regarding DTVN’s profitability also are not actionable. Four
of these statements were made before, or within a few days, of the launch of DTVN. App’x 826–
28, ¶¶ 484, 486, 488, 490. These statements are simply general statements of corporate optimism
about a soon-to-launch, or just-launched, product; they are not assertions that DTVN was, or would
certainly be, profitable. See Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004) (“People in
charge of an enterprise are not required to take a gloomy, fearful or defeatist view of the future;
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subject to what current data indicates, they can be expected to be confident about their stewardship
and the prospects of the business that they manage.” (citations omitted)). The remaining two
alleged misstatements regarding DTVN’s profitability also fail. The statement made on November
8, 2017, was merely another optimistic, forward-looking statement regarding DTVN’s
profitability. App’x 829, ¶ 493 (“So we’d expect to get, whether they’ll be at traditional margin
levels, I’m not recommending—I’m not advising that, but very solid margin levels on a very low-
cost upfront product”). The final alleged misstatement concerning profitability does not relate to
DTVN at all, a fact apparent when the statement is read in its full context, and thus can be
disregarded. See App’x 829–830, ¶ 495; Supp. App’x 771–72.
The remaining seventeen alleged misstatements fare no better. Each of these statements
involve AT&T or its executives stating specific figures for DTVN net subscriber growth or total
subscribers. App’x 743–53, ¶¶ 218, 220, 222, 224, 226, 236, 238, 240, 242, 244, 246, 248, 250,
252, 254, 256, 258. Each of these statements is alleged to be false for the same general reason:
subscriber numbers were allegedly “artificially inflated by ghost accounts,” meaning they were
“added to customer accounts without their knowledge, without that customer intentionally
subscribing, or through the use of practices to deceive customers into not knowing that DTVN was
a paid subscription product.” App’x 743–53, ¶¶ 219, 221, 223, 225, 227, 237, 239, 241, 243, 245,
247, 249, 251, 253, 255, 257, 259. As the district court found, however, the PSAC fails to
adequately allege that these statements were either misleading or false. Accurately reported data
does not become an actionable misrepresentation merely because underlying misconduct may have
contributed to the reported numbers. See Plumber & Steamfitters Loc. 773 Pension Fund v.
Danske Bank A/S, 11 F.4th 90, 98–99 (2d Cir. 2021) (“As a corollary of [the] rule [from City of
Pontiac], accurately reported financial statements do not automatically become misleading by
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virtue of the company’s nondisclosure of suspected misconduct that may have contributed to the
financial results.”). That principle controls here: it was not misleading for AT&T to report its
DTVN subscriber growth numbers simply because some degree of retail-level fraud or impropriety
might be reflected in that data. Furthermore, the PSAC does not plead with sufficient particularity
that the reported subscriber numbers are false. Echoing the confidential witnesses it cites, the
PSAC alleges inconsistent and irreconcilable facts regarding the scale of alleged improper sales
practices by AT&T sales representatives. See, e.g., App’x 807, ¶ 422. It also leaves unspecified
how many “ghost” accounts were created through this activity, see App’x 807–23, ¶¶ 422–73, and
how many of those accounts were reflected in the publicly stated subscriber numbers. 2 See App’x
765, ¶ 294f. These vague allegations are insufficient to allege falsity, at least not to a level that
would render the alleged misstatements material.
In sum, the district court properly denied leave to amend the complaint as to the Exchange
Act claims because the PSAC does not adequately allege actionable misstatements. In light of this
conclusion, we need not reach the issue of scienter.
II. Securities Act claims
Plaintiffs also argue that the district court improperly found that the PSAC failed to state a
claim under the Securities Act. As to these claims, Plaintiffs argue only that the PSAC alleged
material misstatements or actionable omissions in the relevant filings.
2
Regarding the second issue, the PSAC indicates that at least one unethical practice involved AT&T sales
representatives creating a new DTVN subscriber and then immediately cancelling the account. App’x 765, ¶ 294f.
However, these accounts would not have shown up in net subscriber numbers (because each new fraudulent subscriber
would have a corresponding cancelation), and they would show up in subscriber totals only if that total was as of the
moment between account creation and cancelation. The frequency of this practice, relative to other improper sales
practices, is wholly unspecified in the PSAC.
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“Section 11 of the Securities Act of 1933 imposes liability on an issuer of a registration
statement in three circumstances: if (1) the statement contained an untrue statement of a material
fact, (2) the statement omitted to state a material fact required to be stated therein, or (3) the omitted
information was necessary to make the statements therein not misleading.” Stadnick v. Vivint
Solar, Inc., 861 F.3d 31, 36 (2d Cir. 2017) (internal quotation marks omitted). Section 12 similarly
applies to misstatements and omissions in prospectuses or oral communications, and Section 15
imposes liability on control persons or entities found to have violated Sections 11 or 12. See Fridus
v. Barclays Bank PLC, 734 F.3d 132, 135 n.1 (2d Cir. 2013). Securities Act claims “do not require
a showing of scienter, reliance, or loss causation.” Tongue v. Sanofi, 816 F.3d 199, 209 (2d Cir.
2016). Instead, claims under Sections 11 and 12 typically turn on two issues, “(1) the existence of
either a misstatement or an unlawful omission; and (2) materiality.” In re Morgan Stanley
Information Fund Securities Litigation, 592 F.3d 347, 360 (2d Cir. 2010). “The definition of
materiality is the same for these provisions as it is under section 10(b) of the Exchange Act:
whether the defendants’ representations, taken together and in context, would have misled a
reasonable investor.” Id. (cleaned up). 3
The parties agree that the Securities Act claims relate to statements in the January 5, 2017,
Registration Statement, the January 9, 2017, Prospectus, and the Form 8-Ks filed on January 20
and 25. Plaintiffs argue: (1) that failing to warn investors about DTVN’s risk violated SEC Item
503; and (2) that the above-listed documents contained materially misleading disclosures regarding
DTVN subscriber growth and profitability. Neither argument is persuasive.
3
“[T]he heightened pleading standard of Rule 9(b) applies to Section 11 and Section 12(a)(2) claims insofar
as the claims are premised on allegations of fraud.” Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004). The parties
disagree on whether Rule 9(b) applies to these claims, but for the reasons discussed below, even under a Rule 8
pleading standard the claims fail.
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First, Plaintiffs argue that the relevant disclosures violated Item 503 by failing to disclose
that DTVN would fail or that it would fail to live up to expectations. At the relevant time, Item
503 required “a discussion of the most significant facts that make the offering speculative or risky”
and instructed the issuer not to “present risks that could apply to any issuer or any offering.” 17
C.F.R. §229.503(c) (as of January 2017, amended on April 2, 2019). 4 Plaintiffs’ argument fails
on the face of this rule: there is no plausible argument that a two-month-old product launched in a
competitive field failing to live up to expectations is a risk unique to AT&T or that it was one of
the “most significant risks” facing investors during the relevant time period.
Next, Plaintiffs argue that the relevant filings contained false or misleading statements
regarding DTVN’s profitability and subscriber growth. These alleged statements, however, are
substantively identical to those that we rejected in the context of Plaintiffs’ Exchange Act claims.
App’x 877–82, ¶¶ 623–25, 636, 639, 641, 643. Accordingly, we find them neither false nor
misleading for the same reasons.
We have considered Plaintiffs’ remaining arguments and find them unpersuasive.
Accordingly, the judgment of the district court is AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of the Court
4
The SEC’s FAST Act Modernization and Simplification of Regulation S-K was announced on April 2,
2019, and effective as to Item 503 on May 2, 2019. See 84 FR 12674-01, 2019 WL 1437180 (F.R.). That regulatory
modification amended and relocated Item 503 to Item 105, id., but we cite to the version of the rule effective during
the relevant time period here.
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