Hoffman v. AT & T Inc.
| Decision Date | 06 May 2020 |
| Docket Number | 650797/2019 |
| Citation | 126 N.Y.S.3d 854 (Table),67 Misc.3d 1212 (A) |
| Parties | Robert HOFFMAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. AT & T INC., Randall L. Stephenson, John J. Stephens, Samuel A. Di Piazza Jr., Richard Fisher, Scott T. Ford, Glenn H. Hutchins, William E. Kennard, Michael B. Mccallister, Beth E. Mooney, Joyce M. Roché, Matthew K. Rose, Cynthia B. Taylor, Laura D'Andrea Tyson, and Geoffrey Y. Yang, Defendants. |
| Court | New York Supreme Court |
Plaintiffs were represented by Nicholas Alexander Devyatkin, Tully Rinckey PLLC, 777 Third Avenue, New York, NY 10017 (646) 201-9100 ndevyatkin@tullylegal.com and
Thomas Livezey Laughlin, 230 Park Avenue, New York, NY 10169 (212) 223-6444 tlaughlin@scott-scott.com
Defendants were represented by William B. Monahan, Sullivan & Cromwell, 125 Broad Street, New York, NY 10004 (212) 558-7375 monahanw@sullcrom.com.
This is a securities class action on behalf of the former shareholders of Time Warner Inc. ("Time Warner") alleging violations of the Securities Act of 1933 ("1933 Act") in connection with the June 2018 acquisition of Time Warner by AT & T, Inc. ("AT & T"). In January 2017, in order to acquire Time Warner, AT & T issued 1.185 billion shares of new AT & T stock pursuant to a Registration Statement that, plaintiff alleges, failed to disclose serious deterioration in AT & T's DirecTV and DirecTV Now business. Following antitrust litigation challenging the merger, the merger ultimately closed in June 2018. Between January 2017, when the Registration Statement became effective, and June 2018 when the merger closed, both AT & T and Time Warner stock were freely traded on the New York Stock Exchange. On February 7, 2019, New York resident Robert Hoffman initially filed this class action complaint. On April 10, 2019, the Court granted on consent a motion to designate Scott & Scott Attorneys at Law LLP and Hedin, Hall LLP as co-lead counsel for the proposed class. Subsequently, a First Amended Class Action Complaint ("FAC") was filed on May 7, 2019 together with discovery requests. Before the Court is motion 004 by all defendants to dismiss the FAC (NYSCEF Doc. No. 41).
The FAC alleges three causes of action: (1) violation of § 11 of the Securities Act; (2) violation of § 12(a)(2) of the Securities Act; and (3) violation of § 15 of the Securities Act. Defendants move to dismiss the FAC pursuant to CPLR 3211(a)(1), (7) and (8).
This action arises out of the June 2018 acquisition ("the Acquisition") of Time Warner by defendant AT & T. Plaintiff alleges that in communications leading up to the Acquisition, including the Registration Statement filed with the Securities and Exchange Commission ("SEC"), defendants made material misstatements with respect to the DirecTV Now portion of their business.
In November 2016, AT & T launched DirecTV Now ("DTVN"), an online video service that is one of three offerings in AT & T's Video Entertainment business.
On November 18, 2016, defendants filed on Form S-4 with the SEC a draft Registration Statement that would register the AT & T shares to be issued and exchanged in the Acquisition. On December 23, 2016, defendants filed an amendment to the Registration Statement. On January 5, 2017, defendants filed a final amendment to the Registration Statement. The SEC declared the Registration Statement effective on January 6, 2017.
On January 9, 2017, defendants filed a final prospectus on Form 424B3 for the AT & T shares issued and exchanged in the Acquisition (the "Prospectus"), (Registration Statement and Prospectus, collectively referred to as the "Offering Documents").
On February 15, 2017, Time Warner stockholders voted on the Acquisition. 99% of Time Warner voted shares and 78% of all outstanding Time Warner shares voted in favor of the Merger and to trade in their Time Warner shares for AT & T shares and cash upon the Merger's closing. See NYSCEF Doc. No. 82 Feb. 15, 2017 Press Release.
On June 14, 2018, over a year after the Registration Statement became effective, AT & T acquired Time Warner. In connection with the Acquisition, AT & T issued approximately 1.185 billion new shares of AT & T common stock directly to former shareholders of Time Warner common stock as follows: each former share of Time Warner common stock issued and outstanding immediately before the Acquisition was converted into the right to receive 1.43 shares of newly issued AT & T common stock plus $53.75 per share in cash. Each of these new shares of AT & T common stock was issued pursuant to the Registration Statement.
The FAC alleges that in the Registration Statement and related oral communications, defendants "touted false and misleading financial results, trends, and metrics and omitted material facts rendering those financial results, trends, and metrics materially misleading." ¶ 6. Specifically, the FAC alleges that defendants misrepresented the DirecTV Now business as an important source of strength that had added approximately 1.5 million subscribers (¶ 50) when in reality, plaintiff alleges, the DirecTV business had serious problems that directly undermined the positive representations made in the Offering Documents. In particular, the FAC alleges that AT & T's subscriber rates were reliant on aggressive internal promotions and sales commission programs that were uneconomical and that incentivized fraud, and as the defendants cracked down on the problematic promotions in the months leading up to the Acquisition, subscriptions were dropping precipitously. The FAC alleges that as these facts came to light, following the Acquisition, the value of AT & T stock decreased sharply, causing harm to shareholders. ¶ 15 — 16.
The FAC states that the alleged misstatements and omissions described constitute violations of § 11, 12 and 15 of the Securities Act, which prohibit companies from issuing stock to investors by means of prospectuses or registration statements containing misleading statements and omissions. The FAC also alleges that defendants violated Item 303 of SEC Regulations S-K, 17 C.F.R. § 229.303 ("Item 303"), which required disclosure of any known events or uncertainties that had caused or were reasonably likely to cause AT & T's disclosed financial information not to be indicative of future operating results, and Item 305 of SEC Regulations S-K, 17 C.F.R. § 229.503 ("Item 305"), which required a discussion of the most significant factors that make the offering risky or speculative in the "Risk Factor" section of the Registration Statement. ¶ 14. Further, the FAC contends that during the period between when the Registration Statement became effective, on January 6, 2017, and when the Acquisition occurred, on June 14, 2018, defendants had an obligation to update shareholders regarding the alleged change in subscriber trends.
The first issue the Court must address is whether plaintiff's claims are subject to the notice pleading standard under CPLR § 3013, as plaintiff argues, or the heightened pleading standard under CPLR § 3016(b), as defendants argue. CPLR § 3016(b) states: "[w]here a cause of action or defense is based upon misrepresentation , fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail" (emphasis added). Here, plaintiff alleges that the Offering Documents contain misrepresentations. See e.g. FAC ¶ 15 ¶ 64 ¶80 -81 ¶90 -91. Accordingly, CPLR § 3016(b) applies and plaintiffs must state the circumstances constituting the misrepresentations in detail.
This motion is brought pursuant to CPLR 3211 (a)(1), based on a defense founded on documentary evidence, (a)(7), for failure to state a cause of action, and (a)(8) for lack of jurisdiction over certain defendants.
On a motion to dismiss pursuant to CPLR 3211, the court must afford the pleadings a liberal construction, accept the well-pleaded allegations as true, and determine whether the allegations fit within any cognizable legal theory. See Leon v. Martinez , 84 NY2d 83, 87-88 (1994).
Defendants move to dismiss the FAC on the ground that plaintiff is essentially using the wrong timeframe. Defendants argue that Section 11 limits liability to the time the Registration Statement "became effective," and that plaintiff has not pled a material misstatement or omission as of the January 6, 2017 effective date. Likewise, defendants argue that Section 12(a)(2) limits liability to the time of the Stockholder Vote on the Acquisition, and that plaintiff has not pled a material misstatement or omission in the Prospectus as of the February 15, 2017 shareholder vote. While defendants contend that the merger's closing date is not the operative timeframe, defendants further argue that plaintiff has not pled a material misstatement or omission as of the Acquisition on June 14, 2018 either. Finally, defendants argue that the claims against the individual defendants, directors of AT & T, also fail for lack of jurisdiction.
Turning first to the threshold issue of personal jurisdiction, the Court finds that plaintiff has adequately alleged personal jurisdiction over the individual defendants. The FAC names thirteen individual defendants, all of whom are directors or officers of AT & T, and allegedly reviewed and signed the Registration Statement. ¶ 35.
Defendants argue that plaintiff must either show that each individual defendant is domiciled in New York or rely on long-arm jurisdiction under CPLR 302. Plaintiff alleges that some individual defendants reside in New York, but, as defendants note, does not specify which ones. However, plaintiff also alleges that the Registration Statement, which all individual defendants reviewed and signed, was prepared and reviewed, in part, in New York. ¶ 18. Further, plaintiff alleges that, as reflected in the Offering Documents, individual defendants directed all activities necessary to...
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