In re in Reunder Armour Sec. Litig.

Decision Date19 September 2018
Docket NumberCivil Action No.: RDB-17-0388
Citation342 F.Supp.3d 658
CourtU.S. District Court — District of Maryland

Richard D. Bennett, United States District Judge

Plaintiffs Aberdeen City Council as Administrating Authority for the North East Scotland Pension Fund ("Exchange Act Plaintiff" or "Lead Plaintiff") and Bucks County Employees Retirement Fund ("Securities Act Plaintiff") (collectively, "Plaintiffs") bring this putative class action against Under Armour, Inc. ("Under Armour" or "the Company"), Kevin A. Plank ("Plank"), Lawrence P. (Chip) Molloy ("Molloy"), Brad Dickerson ("Dickerson"), named directors1 ("Director Defendants"), and named underwriters2 ("Underwriter Defendants") (collectively, "Defendants") alleging violations of federal securities laws. (Consol. Am. Compl., ECF No. 30.) Plaintiffs bring this federal class action under the Securities Exchange Act of 1934 ("Exchange Act") §§ 10(b), 20(a), 15 U.S.C. §§ 78j(b), 78(t)(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, against Under Armour, Plank, Molloy, and Dickerson (collectively, "Exchange Act Defendants"). Separately, the Securities Act Plaintiff brings this federal class action under the Securities Act of 1933 ("Securities Act") §§ 11, 15, 15 U.S.C. §§ 77k, 77o, and the rules promulgated thereunder, against Under Armour, Plank, Molloy, the Director Defendants, and the Underwriter Defendants (collectively, "Securities Act Defendants").

Currently pending before this Court are two dismissal motions: (1) the Under Armour Defendants' Motion to Dismiss Plaintiffs' Consolidated Amended Complaint (ECF No. 51); and (2) Underwriter Defendants' Notice of Motion to Dismiss the Consolidated Amended Complaint (ECF No. 52). The parties' submissions have been reviewed, and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the reasons that follow, Defendants' motions shall be GRANTED. Specifically, the Underwriter Defendants' Motion to Dismiss (ECF No. 52) is GRANTED, and Counts I and II of [Corrected] Consolidated Amended Complaint (ECF No. 30) as to all Defendants shall be DISMISSED WITH PREJUDICE. The Under Armour Defendants' Motion to Dismiss (ECF No. 51) is GRANTED, and Counts III and IV of the [Corrected] Consolidated Amended Complaint (ECF No. 30) shall be DISMISSED WITHOUT PREJUDICE.


In ruling on a motion to dismiss, this Court "accept[s] as true all well-pleaded facts in a complaint and construe[s] them in the light most favorable to the plaintiff." Wikimedia Found. v. Nat'l Sec. Agency , 857 F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black & Decker (U.S.) Inc. , 801 F.3d 412, 422 (4th Cir. 2015) ). The Court may consider only such sources outside the complaint that are, in effect, deemed to be part of the complaint, for example, documents incorporated into the complaint by reference and matters of which a court may take judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).3

Under Armour, based in Maryland, is a large sports apparel company that sells branded athletic apparel, footwear, and accessories primarily in North America,4 although their products are available worldwide. (ECF No. 30 at ¶¶ 5, 24, 95.) Since its formation in 1996, Under Armour's market share has grown to compete with the leaders in the sector, Nike and Adidas. (Id. at ¶¶ 6, 93.) By 2014, Under Armour surpassed Adidas and became the number two sportswear brand by revenue in the United States. (Id. ) By capitalizing on its premium brand image and reputation for state-of-the-art fabrics, Under Armour reported 26 consecutive quarters of 20% or more compounded annual growth between 2010 and 2016. (Id. at ¶¶ 6, 97.)

Led by its founder, Plank, who also serves as Chief Executive Officer ("CEO") and Chairman of the Board, Under Armour had an aggressive growth strategy, declaring its intent to become the "No. 1" brand. (Id. at ¶¶ 25, 94-96.) During the Company's Investor Day on September 16, 2015, Plank boasted that "demand for our brand has never been stronger," and Under Armour's net revenue was projected to grow 25% in 2016. (Id. at ¶ 8.)

However, Plaintiffs allege that by the fall of 2015, customer demand for Under Armour's apparel products was declining, partly due to the Company's failure to compete early in the athletic leisure apparel trend. (Id. at ¶ 98.) Excess inventory in Under Armour's basic sports apparel, which had historically provided the majority of sales, led the Company to begin competing on price rather than brand strength as it had done in the past. (Id. at ¶¶ 99-103, 106.) At the same time, the trend away from consumer sports-apparel purchases at traditional sporting goods stores towards online shopping and large discount chains led to bankruptcies for some of Under Armour's traditional sporting goods customers, which put further pressure on sales and margins. (Id. at ¶¶ 104-112.) Under Armour expanded its footwear and international sales, but with lower margins and high promotional expenses, overall margins declined. (Id. at ¶¶ 113-115.)

On January 10, 2016, Morgan Stanley issued a detailed report with point-of-sale data from Under Armour's retail customers illustrating declines in the Company's growth, average sales price ("ASP"), and market share. (Id. at ¶ 117.) The next month, February 2016, Under Armour's Chief Financial Officer ("CFO") Dickerson left the Company. (Id. at ¶ 118.) However, the Company's first quarter 2016 financial results, announced in an April 21, 2016 press release, were positive: "For the past 24 consecutive quarters or six years, we have driven net revenue growth above 20% and we are incredibly proud of our start to 2016 with first quarter net revenue growth of 30%. The strong results posted this quarter truly demonstrate the balanced growth of our brand across product categories, channels and geographies." (Id. at ¶ 188 (quoting the April 21, 2016 press release announcing the Company's first quarter results for 2016).)

In May 2016, the Company's Chief Merchandising Officer, Henry Stafford ("Stafford"), and the Chief Digital Officer, Robin Thurston ("Thurston"), abruptly departed. (Id. ) As Under Armour's sales problems became publicly known, stock prices declined. (Id. at ¶¶ 116-117.) On June 1, 2016, the Company announced a reduced expectation of 2016 revenues related to the bankruptcy of one of its major sporting goods customers, the Sports Authority,5 which triggered further stock price declines. (Id. at ¶ 119.)

On June 6, 2016, Under Armour filed the Registration Statement with the Securities Exchange Commission ("SEC") in connection with its Bond offering ("Bond Offering" or "the Offering"). (Id. at ¶¶ 52, 210.) Under Armour offered the Bonds pursuant to the Offering materials, which incorporated Under Armour's 2015 Annual Report on Form 10-K and first quarter 2016 Quarterly Report on Form 10-Q. (Id. ¶¶ 52-54.) The Offering was completed on June 8, 2016 with the Company receiving $593.6 million in total net proceeds. (Id. at ¶¶ 52, 141.) Each of the Underwriter Defendants allegedly acted as an underwriter of the Offering. (Id. ¶¶ 39-49.)

On July 26, 2016, Under Armour reported growth below 20% for the first time in more than seven years and forecast the slowest quarterly growth in over six years. (Id. at ¶ 120.) On October 25, 2016, Under Armour revealed a further slowdown in growth in the third quarter. (Id. ) On January 31, 2017, Under Armour revealed that the 2016 slowdown was more severe than previously reported and also announced the sudden departure of Molloy, who served as CFO after Dickerson. (Id. at ¶¶ 57, 89, 120.)

The next day, on February 1, 2017, S&P Global Ratings ("S & P") downgraded the Company's Bonds to junk status, and Moody's Investors Service ("Moody's") changed Under Armour's rating outlook from stable to negative. (Id. at ¶ 57.) The Bond price fell in response and slid further in August 2017 when the Company revealed slow North American growth, reduced its 2017 guidance, and announced a massive restructuring.6 (Id. at ¶¶ 58-59.)

The initial Complaints alleging violations of federal securities law were filed in February and March 2017 and were consolidated on March 23, 2017.7 A Consolidated Amended Complaint was filed on August 9, 2017. (ECF No. 30.) Plaintiffs claim four causes of action:

Count I – For Violation of Section 11 of the Securities Act Against All of the Securities Act Defendants
Count II – For Violation of Section 15 of the Securities Act Against Plank, Molloy, and the Director Defendants
Count III – Violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder Against All of the Exchange Act Defendants
Count IV – For Violations of Section 20(a) of the Exchange Act Against the Individual Defendants.8

Consol. Am. Compl., ECF No. 30. The Exchange Act Plaintiffs purport to represent a class of all persons or entities that purchased or acquired publicly traded securities of Under Armour between September 16, 2015 to January 30, 2017, inclusive ("Class Period"), and who were damaged thereby. (Id. at ¶ 2). The Securities Act Plaintiff purports to represent all persons or entities that purchased or acquired 3.250% senior unsecured notes of Under Armour due June 15, 2026 pursuant or traceable to the Registration Statement filed with the SEC on June 6, 2016. (Id. at ¶ 3.)

Plaintiffs allege that Defendants concealed their sales and revenue problems during the Class Period, making false claims of explosive growth and strong customer demand while downplaying the ballooning inventory, liquidations, and gross margin compression. (Id. at ¶ 11.) They also allege that Plank personally cashed in on the artificial inflation by selling shares of his Company stock for total proceeds of $138.2 million during the Class Period. (Id. at ¶ 13.) Further, Plaintiffs allege that the Defendants raised nearly $600 million from the...

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