In re Livent, Inc. Securities Litigation
| Decision Date | 10 December 1999 |
| Docket Number | No. 98 Civ. 5686 (RWS).,98 Civ. 5686 (RWS). |
| Citation | 78 F.Supp.2d 194 |
| Parties | In re LIVENT, INC. SECURITIES LITIGATION. This Document Relates to All Actions. |
| Court | U.S. District Court — Southern District of New York |
Beatie and Osborn, New York City (Daniel A. Osborn, of counsel), Berger & Montague, Philadelphia, PA (Sherrie R. Savett, Jeanne A. Markey, Arthur Stock, of counsel), Shiffrin & Barroway, Bala Cynwyd, PA (Marc A. Topaz, of counsel), for Plaintiffs.
Gibson, Dunn & Crutcher, New York City (John T. Behrendt, Peter J. Beshar, Deborah Verdile, of counsel), for Defendant Deloitte Touche.
Wachtell, Lipton, Rosen & Katz, New York City (Eric M. Roth, Elaine Golin, of counsel), for Defendant A. Alfred Taubman.
Weil, Gotshal & Manges, New York City (Greg A. Danilow, Stephen A. Radin, of counsel), for Defendant H. Garfield Emerson.
O'Sullivan Graev & Karabell, New York City (Bradley J. Butwin, Jonathan Rosenberg, of counsel), for Defendant Martin Goldfarb.
Fried, Frank, Harris, Shriver & Jacobson, New York City (Harvey L. Pitt, Mark J. Stein, of counsel), for Defendant Garth H. Drabinsky.
Richards Spears Kibbe & Orbe, New York City (Lee S. Richards, Daniel C. Zinman, of counsel), for Defendant Myron Gottlieb.
Morvillo, Abramowitz, Grand, Iason & Silberberg, New York City (Barry A. Bohrer, James C. Dugan, of counsel), for Defendant Maria M. Messina.
Davis Weber & Edwards, New York City (Sidney Davis, Stacy Kellner Rosenberg, of counsel), for Defendant Robert Topol.
Defendants Garth A. Drabinsky ("Drabinsky"), Myron Gottlieb ("Gottlieb"), Robert Topol ("Topol"), Maria M. Messina ("Messina"), H. Garfield Emerson ("Emerson"), Martin Goldfarb ("Goldfarb"), A. Alfred Taubman ("Taubman"),1 and Deloitte & Touche Canada ("D & T"), have moved to dismiss this action, pursuant to Rule 9(b) of the Federal Rules of Civil Procedure, for failure to plead scienter and fraud with sufficient particularity. Additionally, Drabinsky, Gottlieb, Topol, Messina, and D & T move to dismiss on the grounds of forum non conveniens. Drabinsky and Gottlieb further move, pursuant to Rule 12(f), to strike certain allegations in Plaintiffs' complaint. For the reasons set forth below, the motions are granted in part and denied in part.
Plaintiffs are members of a class of persons (the "Class") who purchased or acquired the common stock of Livent, Inc. ("Livent" or the "Company") between March 5, 1996 and August 7, 1998 (the "Class Period"). The Class representatives include both U.S. and Canadian citizens.
Livent is a Canadian-based producer of live theatrical entertainment, including "Ragtime," "The Phantom of the Opera," "Showboat," "Sunset Boulevard," and "Fosse." The Company owns and/or operates theatres in Toronto, Vancouver, Chicago, and New York. Livent became a public company in Canada in May 1993 and registered its common stock in the United States in May 1995. The Company is named as a nominal defendant. It filed for bankruptcy protection in the United States on November 19, 1998, and all proceedings against it are stayed.
Drabinsky was a co-founder of Livent, and Chairman of its Board of Directors (the "Board") and Chief Executive Officer from December 1989 until June 15, 1998. From June 15 until August 10, 1998, he held the position of Vice Chairman and Chief Creative Director of the Company. He was suspended on August 10 and fired on November 18, 1998. Drabinsky is a Canadian citizen and resident. He owns an apartment in Manhattan.
Gottlieb was a co-founder of Livent, President and Chief Operating Officer from December 1989 until June 15, 1998, a member of the Board from 1993 to 1998, and Executive Vice-President of Canadian Administration from June 15, 1998 until August 10, 1998, at which point he was suspended. He was fired on November 18, 1998. Gottlieb is a Canadian citizen and resident.
Topol was Livent's Executive Vice President from 1989 until 1994, when he became Senior Executive Vice President. He was Chief Operating Officer from 1997 until his resignation on February 25, 1998. Topol is a Canadian citizen and resident.
Messina joined Livent in May 1996 as Vice President of Finance. Previously, she had been D & T's engagement partner for Livent's 1995 audit, and had worked on Livent's audits since 1993. In November 1996, she became the Company's Chief Financial Officer, and subsequently its Senior Vice President of Finance and Administration. Messina is a Canadian citizen and resident.
Emerson was a member of Livent's Board of Directors and served as Chairman of the Audit Committee during the Class Period. Defendants Goldfarb and Taubman were members of the Board and of the Audit Committee. Emerson and Goldfarb are Canadian residents. Taubman is a U.S. citizen and resident.
D & T is a Canadian entity affiliated with Deloitte & Touche, L.L.P., a United States limited liability partnership. D & T served as Livent's auditor and principal accounting firm prior to and continuing through the Class Period.
The first of the numerous actions arising from the events described below was filed with this Court on August 11, 1998. A December 3, 1998 order of this Court consolidated the pending actions and approved of the selection of lead plaintiffs and counsel.
On January 13, 1999, the Securities and Exchange Commission (the "SEC") filed a separate suit against Drabinsky, Gottlieb, Topol, Messina, and other former officers and employees of the Company, for alleged violations of the securities laws arising out of the same events as those giving rise to the instant action. See SEC v. Drabinsky et al., No. 99 Civ. 0239 (S.D.N.Y.).
On February 1, 1999, Plaintiffs in this action filed an amended class action complaint.
Defendants filed the instant motions on May 14, 1999. Memoranda of law in support and opposition, and declarations and affidavits, were received through September 8, 1999, at which point oral argument was heard and the motions were deemed fully submitted.
On a motion to dismiss under Rule 9(b) or Rule 12(b)(6), the facts alleged in the complaint are presumed to be true, and all factual inferences are drawn in the plaintiff's favor. See Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir.1993). Accordingly, the facts presented here are drawn from the allegations of Plaintiffs' amended class action complaint (the "Complaint") and do not constitute findings of fact by the Court.
The presumption on factual inferences does not apply to a forum non conveniens motion. A forum non conveniens inquiry goes to the court's subject matter jurisdiction over the action, and "[i]n resolving the jurisdictional dispute, the district court must review the pleadings and any evidence before it, such as affidavits." Cargill Intern. S.A. v. M/T PAVEL DYBENKO, 991 F.2d 1012, 1019 (2d Cir.1993).
Livent, formed in 1989, was a seemingly successful producer of live theatre. It became a publicly traded company on the Toronto Stock Exchange in May 1993, and subsequently registered its common stock in the United States in May 1995. Throughout the Class Period, Livent's common shares were actively traded in the United States on NASDAQ. Trading in the stock on NASDAQ exceeded trading on the Toronto Exchange by a ratio of 3 to 1. During this time, Livent filed with the SEC quarterly and annual reports for the fiscal years 1995, 1996, and 1997.
Throughout the Class Period, Livent obtained sizeable amounts of American capital to finance its business activities, in each instance filing a Registration Statement and Prospectus with the SEC. For example, on or about April 2, 1996, the Company completed a U.S. equity offering raising $29.5 million through the issuance of 3.75 million shares of common stock. In October 1997, Livent raised $120 million by issuing 9 3/8% unsecured notes offered to American and Canadian investors.
In 1998, Drabinsky approached Lynx Ventures, L.P. ("Lynx"), a company headed by Michael Ovitz ("Ovitz"), a prominent Hollywood entertainment executive. Lynx invested $20 million in Livent in return for 2.5 million shares, or 12% of the Company. As part of the deal, Drabinsky and Gottlieb relinquished voting control of their shares and stepped down from their management positions, assuming purely creative roles. Roy Furman ("Furman"), a Wall Street financier, was installed as Chief Executive Officer, David Maisel ("Maisel") became President, and Robert Webster ("Webster") became Executive Vice President.
A few months later, Webster discovered that the Company had entered into certain agreements, described in more detail below, that, while appearing to be revenue generating deals, were potentially worthless. Webster asked the staff whether there were any other unusual financial situations that had not been disclosed. On August 6, 1998, a handful of Livent personnel, led by Messina, admitted that they had information that would cast doubt on the veracity and accuracy of Livent's financial reports. Over the next two days, Webster and attorneys from the law firm of Stikeman Elliot began interviewing employees.
On the evening of Sunday, August 9, the company's directors gathered by conference call in Toronto. Ovitz, Furman, and Maisel were joined by several other directors; Gottlieb and Drabinsky were not invited. The directors concluded that Livent's financial statements for 1996 and 1997 and the first quarter of 1998 would need to be restated as soon as possible after KPMG Investigation and Security Inc. could review the Company's books for any more accounting irregularities. In the meantime, Gottlieb and Drabinsky would be suspended from their management positions.
The next day, the Company issued a press release announcing that it would restate its previously reported financial results for the fiscal years 1996 and 1997 and the first quarter 1998, because it had uncovered serious...
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