Highfields Capital I, LP v. Seaworld Entm't, Inc.

• Decision Date: 07 February 2019
• Docket Number: Case No.: 18cv1276-MMA (AGS)
• Citation: 365 F.Supp.3d 1050
• Court: U.S. District Court — Southern District of California
• Parties: HIGHFIELDS CAPITAL I, LP, et al., Plaintiffs, v. SEAWORLD ENTERTAINMENT, INC., et al., Defendants.

365 F.Supp.3d 1050

HIGHFIELDS CAPITAL I, LP, et al., Plaintiffs,

v.SEAWORLD ENTERTAINMENT, INC., et al., Defendants.

Case No.: 18cv1276-MMA (AGS)

United States District Court, S.D. California.

Signed February 7, 2019

Brandon M. Fierro, Pro Hac Vice, Lawrence Rolnick, Pro Hac Vice, Thomas Redburn, Jr, Pro Hac Vice, Lowenstein Sandler LLP, Roseland, NJ, Katie Rose Glynn, Lowenstein Sandler LLP, Palo Alto, CA, for Plaintiffs.

Chet A. Kronenberg, Simpson Thacher and Bartlett LLP, Los Angeles, CA, Dean Michael McGee, Pro Hac Vice, Janet Gochman, Pro Hac Vice, Jonathan K. Youngwood, Pro Hac Vice, Meredith Karp, Pro Hac Vice, Simpson Thacher & Bartlett LLP, New York, NY, Carrie Melissa Stickel, Pro Hac Vice, Gil M. Soffer, Michael Joseph Diver, Pro Hac Vice, Michael J. Lohnes, Pro Hac Vice, Katten Muchin Rosenman LLP, Elliott Morris Bacon, Pro Hac Vice, Chicago, IL, Richard H. Zelichov, Katten Muchin Rosenman LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION FOR PARTIAL DISMISSAL OF PLAINTIFFS' COMPLAINT

HON. MICHAEL M. ANELLO, United States District Judge

Plaintiffs Highfields Capital I LP, Highfields Capital II LP, Highfields Capital III LP, Highfields Capital IV LP, and Highfields Capital Ltd. (collectively, "Plaintiffs") bring this securities fraud action against Defendants SeaWorld Entertainment, Inc., James Atchison, James M. Heaney, and Marc Swanson (collectively, "Defendants") asserting claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 (Counts I and II), as well as a Florida common-law fraud claim (Count III). See Compl. On October 19, 2018, Defendants filed a motion for partial dismissal of Plaintiffs' Complaint. See Doc. No. 28. Plaintiffs filed an opposition, to which Defendants replied. See Doc. Nos. 35, 39. The Court found the matter suitable for determination on the papers and without oral argument pursuant to Civil Local Rule 7.1.d.1. See Doc. No. 40. For the reasons set forth below, the Court GRANTS Defendants' motion.

BACKGROUND

This case involves statements and omissions made by Defendants in the wake of the 2013 documentary Blackfish. Blackfish tells the story of Tilikum, a 12,000-pound bull orca implicated in the deaths of three people, and chronicles the cruelty of killer whale capture methods, the dangers trainers face performing alongside killer whales during SeaWorld Entertainment Inc.'s (hereinafter "SeaWorld") popular shows, and the physical and psychological strains killer whales experience in captivity. Through interviews with former trainers, spectators, employees of regulatory agencies, and scientists, Blackfish makes the case that keeping killer whales in captivity for human entertainment is cruel, dangerous, and immoral. Blackfish premiered at the Sundance Film Festival on January 19, 2013.

Plaintiffs are investment funds which purchased SeaWorld common stock between September 2013 and July 2014. SeaWorld is a theme park and entertainment company best known for its parks with shows featuring orca whales and its famous "Shamu" mascot. SeaWorld is headquartered in Orlando, Florida, and owns and operates eleven theme parks within the United States, including: three SeaWorld-branded theme parks in Florida, Texas, and California; two Busch Gardens theme parks in Florida and Virginia; two water parks in Florida and California; Discovery Cove, an attraction in Florida; Sesame Place, a seasonal theme park in Pennsylvania; Water Country USA in Virginia; and Adventure Island in Florida. SeaWorld's financial health is directly tied to its ability to attract and grow attendance at its parks.

Shortly after the premiere of Blackfish at the Sundance Film Festival, CNN Films and Magnolia Pictures acquired the rights to Blackfish , and announced their plans for a summer theatrical release. On July 19, 2013, Blackfish was released in select theaters across the United States, and played in theaters nationwide throughout July and August 2013. CNN aired Blackfish on October 24, 2013, where it had "the highest cable news viewership that evening with 1.36 million viewers." Compl. ¶ 59. Blackfish was also made available for viewing on Netflix on December 13, 2013, where it was viewed nearly 600,000 times in the first two weeks it was available.

SeaWorld reported the following declines in attendance as compared to 2012: a 6% decline in the first six months of 2013; a 4.7% decline in the third quarter of 2013; and a 4.1% decline in overall attendance for 2013. SeaWorld further reported a 13% decrease in attendance for the first quarter of 2014.

SeaWorld attributed the declines in attendance to adverse weather conditions, school and holiday schedules, and a new pricing strategy. However, other major theme parks, including Disney and Universal, experienced increased attendance in 2013 and 2014, even though both groups maintain parks in some of the same geographic locations SeaWorld does, and were therefore subject to some of the same adverse weather conditions. Disney and Universal were similarly subject to the same school and holiday schedules, as well as increased prices as some of their parks in 2013.

Plaintiffs claim that unlike Disney and Universal, SeaWorld was subject to significant negative publicity as a result of the Blackfish documentary. "Blackfish ignited national outrage almost immediately upon the film's theatrical release." Id. ¶ 61. For example, celebrities urged their followers on Twitter to watch Blackfish and boycott SeaWorld. A CNN poll taken in October 2013 revealed that "86% of respondents would no longer take their children to SeaWorld" in light of the allegations in Blackfish. Id. ¶ 63. Schools canceled field trips to SeaWorld parks. In November 2013, a number of artists slated to perform at a series of concerts at SeaWorld's "Bands, Brew & BBQ" event cancelled their performances, citing concerns relating to Blackfish as the reason for their withdrawal. Moreover, in July 2014, Southwest Airlines announced it would not renew its 26-year partnership with SeaWorld. Other corporate sponsors similarly ended their relationships with SeaWorld in late 2014 and early 2015.

In March 2014, reports surfaced that a California Assembly member had introduced a bill that would ban orca performances, breeding, and artificial insemination in California. On March 17, 2016, SeaWorld announced that it would end its orca breeding program and phase out its orca whale shows. The bill was colloquially referred to as the "Blackfish bill." The bill was signed into law on September 13, 2016.

On August 14, 2013, SeaWorld filed its quarterly report for the second quarter of 2013 with the SEC, indicating SeaWorld had experienced a 6% decline in attendance in the first six months of 2013, compared to the same period the prior year. SeaWorld attributed the decline to a new pricing strategy, adverse weather conditions, and the timing of school and holiday schedules. Two weeks later, SeaWorld Entertainment Vice President of Communications Fred Jacobs stated, " ‘Blackfish ’ has had no attendance impact." Id. ¶ 99. In SeaWorld's quarterly report for the third quarter of 2013, filed with the SEC on or about November 13, 2013, SeaWorld again attributed the 4.7% attendance decline to the new pricing strategy, adverse weather conditions, and the unfavorable timing of the Easter holiday, omitting any mention of Blackfish. In an article dated that same day, SeaWorld Entertainment Chief Executive Officer James Atchison stated, "I scratch my head if there's any notable impact from this film at all," and that "[i]ronically, our attendance has improved since the movie came out." Id. ¶ 103. In December 2013, Defendant Atchison also stated that, "[a]s much data as we have and as much as we look, I can't connect anything really between the attention that the film has gotten and any effect on our business." Id. ¶ 105. In a fourth quarter earnings call, Defendant Atchison indicated that SeaWorld did not perceive "any shift in sentiment about intent to visit our parks" and credited Blackfish with increasing interest in SeaWorld. Id. ¶ 108. Finally, in May 2014, SeaWorld attributed its 13% decrease in attendance for the first quarter of 2014 to adverse weather and "a shift in the timing of Easter[.]" Id. ¶ 109.

On August 13, 2014, SeaWorld admitted in its quarterly report for the second quarter of 2014 that attendance was "impacted by demand pressures we believe were related to recent media attention surrounding proposed legislation in the state of California." Id. ¶ 139. During the earnings call, Defendant Atchison acknowledged that SeaWorld was aware of the legislation in May, but that SeaWorld was " ‘still grappling with ... what impact there would be related to the news attention around that legislation.... So, in that regard, I think it was too early to call and tell what kind of impact we might have over the rest of the summer.’ " Id. at 140. That same day, SeaWorld's common stock price dropped nearly 33% (from $ 28.15 per share to $ 18.90 per share). News outlets subsequently reported that the statements made in the quarterly report for the second quarter of 2014 served as "an admission that, despite claims to the contrary, [Blackfish ] has indeed had an adverse effect on the business." Id. ¶ 145. Plaintiffs allege that "[a]s a result of this significant price drop [in SeaWorld common stock], Plaintiffs suffered millions of dollars of investment losses." Id. ¶ 16.

In September 2014, purchasers or acquirers of SeaWorld common stock between April 18, 2013, and August 12, 2014, filed a securities class action (hereinafter "the Class Action") against Defendants arising out of alleged misleading statements and omissions made by Defendants concerning the impact of Blackfish on attendance at SeaWorld. See 14-cv-2129-MMA (AGS). On November 29, 2017, the Court certified a class of all persons and entities who purchased SeaWorld common stock between August 29, 2013, and August 12,...