Katyle v. Penn Nat'l Gaming

Citation637 F.3d 462
Decision Date14 March 2011
Docket NumberNo. 09–2272.,09–2272.
PartiesRobert H. KATYLE; Joseph T. Small; Brent Stille, Individually and on behalf of all others similarly situated, Plaintiffs–Appellants,andHerman Martin Braude, Plaintiff,v.PENN NATIONAL GAMING, INCORPORATED; Peter M. Carlino; William J. Clifford, Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

OPINION TEXT STARTS HERE

ARGUED: Herman Martin Braude, Braude & Margulies, PC, Washington, D.C., for Appellants. Paul K. Rowe, Wachtell, Lipton, Rosen & Katz, New York, New York, for Appellees. ON BRIEF: Joseph C. Garland, Braude & Margulies, PC, Washington, D.C., for Appellants. Adam M. Gogolak, Wachtell, Lipton, Rosen & Katz, New York, New York; Kevin B. Collins, Danielle M. Estrada, Covington & Burling, LLP, Washington, D.C., for Appellees.Before KEENAN and WYNN, Circuit Judges, and BOBBY R. BALDOCK, Senior Circuit Judge of the United States Court of Appeals for the Tenth Circuit, sitting by designation.Affirmed by published opinion. Senior Judge BALDOCK wrote the opinion, in which Judge KEENAN joined. Judge WYNN wrote a separate opinion concurring in the judgment.

OPINION

BALDOCK, Senior Circuit Judge:

The Private Securities Litigation Reform Act of 1995 (PSLRA) states that a private plaintiff claiming an implied right of action for securities fraud under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), must prove, among other things, “loss causation,” i.e., that the defendant's material misrepresentation or omission “caused the loss for which the plaintiff seeks to recover damages.” 15 U.S.C. § 78u–4(b)(4). Of course in this Circuit, pleading practice requires that a plaintiff, as a precursor to proof, allege loss causation in the complaint “with sufficient specificity to enable the court to evaluate whether the necessary causal link exists.” Teachers' Ret. Sys. v. Hunter, 477 F.3d 162, 186 (4th Cir.2007). On appeal, Plaintiffs, representing a putative class of investors which purchased common shares of Defendant Penn National Gaming (Penn) in vain anticipation of an announced third-party buyout, do not challenge the district court's dismissal of their Second Amended Complaint (SAC) based on its failure to adequately allege loss causation. Rather, Plaintiffs challenge the district court's refusal to allow them to file their proposed Third Amended Complaint (TAC) because, according to the court, it too fails to adequately allege loss causation.

The sole issue presented here is whether Plaintiffs' TAC sufficiently alleges loss causation based upon a purported series of partially corrective disclosures of a recurring material omission, such that the district court abused its discretion in refusing to vacate its judgment of dismissal and grant Plaintiffs leave to amend.1 Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we hold that the district court properly declined to disturb its judgment and allow amendment because the series of partial disclosures identified in the TAC did not inform the market of Penn's alleged ongoing fraudulent omission. See U.S. Airline Pilots Ass'n v. AWAPPA, LLC, 615 F.3d 312, 320 (4th Cir.2010) (holding that the district court did not abuse its discretion in denying leave to amend where the proposed amendment “would have no impact on the outcome of the motion to dismiss). Accordingly, we affirm.

I.

In adjudicating the sufficiency of the TAC, we, like the district court, accept as true the TAC's well-pleaded factual allegations, but owe no allegiance to “unwarranted inferences, unreasonable conclusions, or arguments” drawn from those facts. Monroe v. City of Charlottesville, 579 F.3d 380, 385–86 (4th Cir.2009) (internal quotation marks omitted). We may consider as well other sources that courts ordinarily examine when ruling on a Rule 12(b)(6) motion to dismiss a securities fraud complaint, “in particular, 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). Facts recited herein that are not contained within the four corners of the TAC are either found in documents referred to in the TAC or “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned,” and thus properly subject to judicial notice under Fed.R.Evid. 201. See, e.g., Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 625 (4th Cir.2008) (considering stock analyst reports cited in the complaint in the context of a motion to dismiss); Greenhouse v. MCG Capital Corp., 392 F.3d 650, 655 n. 4 (4th Cir.2004) (taking judicial notice of published stock prices in the context of a motion to dismiss).

A.

Penn is a publicly-owned corporation traded on the NASDAQ. Penn operates numerous gaming and off-track betting facilities in several states. Plaintiffs represent a putative class of investors that purchased common shares of Penn between March 20, 2008 and June 15, 2008, inclusive. One year prior to the class period's end date, on June 15, 2007, Penn announced in a press release that it had entered into a leveraged buyout agreement (LBO) with private equity buyers:

Penn National Gaming ... entered into a definitive agreement to be acquired by certain funds managed by affiliates of Fortress Investment Group LLC ... and Centerbridge Partners LP in an all-cash transaction valued at approximately $8.9 billion, including the planned repayment of approximately $2.8 billion of Penn National's outstanding debt.

Under the terms of the agreement, Penn National shareholders will receive $67.00 in cash for each outstanding Penn National share. The purchase consideration represents a premium of approximately 31% over Penn National's closing share price on June 14, 2007 [of $51.14 per share]. Penn National Gaming has approximately 85.5 million shares outstanding.

Joint Appendix (JA) at A36. Deutsche Bank and Wachovia Securities committed to finance roughly $7 billion of the LBO. The LBO was set to close on or before June 15, 2008, subject to a 120–day extension in the event all state regulatory approvals had not been forthcoming. Under the terms of the LBO, the purchase price was to increase 1.49c for each day the closing was extended beyond June 15.

On the day of the LBO's announcement, Penn's common stock gained $11.98 to close at $62.12 per share, $4.88 below the agreed buyout price of $67 per share. On November 9, 2007, Penn filed with the Securities and Exchange Commission (SEC) a proxy statement which, among other things, detailed the terms of the LBO and the circumstances under which the LBO might be terminated. On December 12, 2007, Penn's shareholders voted to approve the LBO. At the end of 2007, Penn's shares were priced at $59.55, a $7.45 or approximately 11% discount off the buyout price. The price levels of Penn's stock throughout the latter half of 2007 reflected the market's initial view that the odds of the Penn buyout closing were favorable. But given the economic downturn of 2008 and, specifically, the turmoil in the credit markets, shareholder confidence that the buyout would close, as reflected in Penn's stock price, proved unsustainable. By March 20, 2008, the beginning date of Plaintiffs' class period, Penn's stock price had dropped to $40.58 per share, a $26.42 or nearly 40% discount off the buyout price.

According to a Lehman Brothers report dated April 1, 2008, just ten days after commencement of the class period, Penn's stock price following announcement of the LBO had fallen from a high of $63.68 on June 19, 2007 to a low of $38.76 on March, 10, 2008. Recognizing that the “target-friendly” terms of both the LBO and the lenders' debt commitment letter might lessen the buyers' and/or lenders' incentives to act aggressively against Penn in the event of disagreement or difficulty, Lehman Brothers nonetheless explained:

Much has changed since June 2007, which perhaps represented the peak of the leveraged buyout boom.... The credit environment has deteriorated from the very favorable conditions experienced during the first half of 2007 to extremely difficult.... Many private equity transactions have either been cancelled or face continuing difficulty as targets, private equity firms, and lenders disagree on the original terms of the mergers....

We cannot predict whether the Penn transaction will close, especially given recent headlines regarding other distressed or cancelled leveraged buyout transactions.

JA at A448 (emphasis added).2 Citing increased competition and earnings pressure in the gaming industry, Lehman Brothers observed that since Penn's announcement of the LBO in June 2007, the prices of comparables, such as Boyd Gaming and Pinnacle Entertainment, had dropped an average of 60%. Lehman Brothers opined that [t]he high price paid for Penn at the peak of the LBO boom and the significant decline in comps are negative factors for Penn in the sense that they could create incentives for both Fortress/Centerbridge to look for outs and for lenders to act aggressively against the sponsors.” JA at A454.

Lehman Brothers noted that over the first quarter of 2008, Penn's stock price had “fallen sharply despite the lack of negative news regarding the actual transaction.” JA at A448. Lehman's further noted that “on March 25, 2008, Fortress publicly reaffirmed its commitment to complete and fund the acquisition by Summer 2008.” JA at A448. Consistent therewith, the TAC alleges:

From March 20, 2008 through the middle of June 2008, through official press releases ..., [Penn] issued frequent updates and announcements related to the planned buyout—all of them relating to securing transaction approval by various state regulatory gaming agencies of the proposed buyout/merger agreement, calculated to influence the investing public and shareholders that the buyout/merger transaction, as contained in the original SEC...

To continue reading

Request your trial
842 cases
  • Just Puppies, Inc. v. Frosh
    • United States
    • U.S. District Court — District of Maryland
    • May 6, 2020
    ...if vacatur is warranted, the court "need not concern itself with either of those rules’ legal standards." Katyle v. Penn Nat'l Gaming, Inc. , 637 F.3d 462, 471 (4th Cir. 2011). Rather, the "court need only ask whether the amendment should be granted, just as it would on a prejudgment motion......
  • Staggers v. Becerra
    • United States
    • U.S. District Court — District of Maryland
    • December 17, 2021
    ... ... Makor Issues & ... Rights, Ltd. , 551 U.S. 308, 322 (2007); Katyle v ... Penn Nat'l Gaming, Inc., 637 F.3d 462, 466 (4th Cir ... ...
  • Just Puppies, Inc. v. Frosh
    • United States
    • U.S. District Court — District of Maryland
    • September 17, 2021
    ...Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) ; Katyle v. Penn Nat'l Gaming, Inc. , 637 F.3d 462, 466 (4th Cir. 2011), cert. denied , 565 U.S. 825, 132 S.Ct. 115, 181 L.Ed.2d 39 (2011) ; Philips v. Pitt Cty. Mem'l Hosp. , 572 F.3d 1......
  • Hill v. AQ Textiles LLC
    • United States
    • U.S. District Court — Middle District of North Carolina
    • January 27, 2022
    ...a post-judgment motion to amend a complaint "need not concern itself with [Rule 60(b) ’s] legal standards." Katyle v. Penn Nat. Gaming, Inc. , 637 F.3d 462, 471 (4th Cir. 2011). Instead, "[t]he court need only ask whether the amendment should be granted, just as it would on a prejudgment mo......
  • Request a trial to view additional results
4 books & journal articles
  • SECURITIES FRAUD
    • United States
    • American Criminal Law Review No. 58-3, July 2021
    • July 1, 2021
    ...judgment because the market was “overwhelmed” with the true information despite misrepresentation). 379. Kayle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 473 (4th Cir. 2011). 380. Id. (citing Schleicher v. Wendt, 618 F.3d 679, 681 (7th Cir. 2010)). 381. See Eckstein v. Balcor Film Invs., 58 F......
  • Securities Fraud
    • United States
    • American Criminal Law Review No. 60-3, July 2023
    • July 1, 2023
    ...Cal. 2017) (describing the burden of showing truth-on-the-market as “a heavy burden of proof”). 330. Kayle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 473 (4th Cir. 2011). 331. Id. (citing Schleicher v. Wendt, 618 F.3d 679, 681 (7th Cir. 2010)). 332. See, e.g. , Eckstein v. Balcor Film Invs., ......
  • Securities Fraud
    • United States
    • American Criminal Law Review No. 59-3, July 2022
    • July 1, 2022
    ...judgment because the market was “overwhelmed” with the true information despite misrepresentation). 371. Kayle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 473 (4th Cir. 2011). 372. Id. (citing Schleicher v. Wendt, 618 F.3d 679, 681 (7th Cir. 2010)). 373. See Eckstein v. Balcor Film Invs., 58 F......
  • Chapter 10
    • United States
    • Full Court Press A Securities Regulation, Litigation, and Enforcement Handbook
    • Invalid date
    ...534 (5th Cir. 1981), aff'd in part, Herman & MacLean v. Huddleston, 103 S. Ct. 683 (1983); but see Katyle v. Penn National Gaming, Inc., 637 F.3d 462 (4th Cir. 2011) (misrepresentation must be "one substantial cause" of the decline in value). Loss causation cannot be established by proof th......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT