Baker v. Seaworld Entertainment, Inc. et al

Filing 259

ORDER granting 213 Plaintiffs' Motion for Class Certification filed by Pensionskassen for Borne-Og UngdomspAedagoger, Arkansas Public Employees Retirement System. Signed by Judge Michael M. Anello on 11/29/2017.(All non-registered users served via U.S. Mail Service)(acc)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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LOU BAKER, individually and on behalf
of all others similarly situated, et al.,

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Case No.: 14cv2129-MMA (AGS)
REDACTED

Plaintiffs,

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ORDER GRANTING PLAINTIFFS’
MOTION FOR CLASS
CERTIFICATION

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

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[Doc. No. 213]

Defendants.

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Lead Plaintiffs Arkansas Public Employees Retirement System (“APERS”) and

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Pensionskassen for Børne-Og Ungdomspædagoger (“PBU”) (collectively, “Plaintiffs”)

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bring this putative securities fraud class action against Defendants SeaWorld

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Entertainment Inc. (“SeaWorld Entertainment”), The Blackstone Group L.P., James

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Atchison, James M. Heaney, and Marc Swanson (collectively, “Defendants”) asserting

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claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and

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Rule 10b-5 promulgated thereunder. See Doc. No. 123 (“SAC”). Plaintiffs bring this

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action on behalf of all individuals and entities who purchased or acquired common stock

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of SeaWorld Entertainment, Inc. (“SEAS Common Stock”) during the proposed class
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period of August 29, 2013 and August 12, 2014, inclusive.

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Plaintiffs now move for class certification pursuant to Federal Rule of Civil

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Procedure 23. See Doc. No. 213. Defendants filed an opposition to Plaintiffs’ motion, to

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which Plaintiffs replied. See Doc. Nos. 215, 243. Defendants also filed a sur-reply, to

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which Plaintiffs filed a sur-sur-reply. See Doc. Nos. 246, 247. After entertaining the oral

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arguments of counsel at the hearing on November 13, 2017, the Court took the motion

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under submission for further review and consideration. For the reasons set forth below,

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the Court affirms its tentative ruling and GRANTS Plaintiffs’ motion for class

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certification.

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BACKGROUND
This case involves statements and omissions made by Defendants in the wake of

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the 2013 documentary Blackfish. Blackfish tells the story of Tilikum, a 12,000-pound

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bull orca implicated in the deaths of three people, and chronicles the cruelty of killer

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whale capture methods, the dangers trainers face performing alongside killer whales

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during SeaWorld Entertainment’s popular shows, and the physical and psychological

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strains killer whales experience in captivity. Through interviews with former trainers,

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spectators, employees of regulatory agencies, and scientists, Blackfish makes the case that

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keeping killer whales in captivity for human entertainment is cruel, dangerous, and

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immoral. Blackfish premiered at the Sundance Film Festival on January 19, 2013.

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SeaWorld Entertainment is a theme park and entertainment company best known

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for its parks with shows featuring orca whales and its famous “Shamu” mascot.

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SeaWorld Entertainment is headquartered in Orlando, Florida, and owns and operates

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eleven theme parks within the United States, including: three SeaWorld-branded theme

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parks in Florida, Texas, and California; two Busch Gardens theme parks in Florida and

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Virginia; three water parks in Florida and Virginia; Discovery Cove, an attraction in

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Florida offering interactions with marine animals; and Sesame Place, a seasonal theme

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park in Pennsylvania. SeaWorld Entertainment’s financial health is directly tied to its

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ability to attract and grow attendance at its parks.
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SeaWorld Entertainment was a privately held company until it went public in April

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2013 with an initial public offering of its common stock at a price of $27 per share. SAC

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¶ 50.

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In July 2013, Blackfish was released in select theaters in the United States and

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Canada, and made available for viewing by Netflix customers in the United Kingdom. In

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September and October 2013, Blackfish premiered in a variety of different countries, and

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was broadcast on CNN in a highly promoted screening on October 24, 2013. Blackfish

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was released on DVD and Blu-ray in the United States in November 2013, and made

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available for streaming on iTunes and Netflix in December 2013. The BBC also aired the

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film in the United Kingdom in November 2013.
In December 2013, SeaWorld Entertainment finished a secondary public offering

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of common stock at a price of $30 per share. Id. ¶ 51. SeaWorld Entertainment

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completed another secondary public offering in April 2014 at a price of $30 per share of

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common stock. Id. ¶ 52.

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During the class period, which extends from August 29, 2013 to August 12, 2014,

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overall attendance declined at the eleven SeaWorld Entertainment parks. Specifically,

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Defendants reported the following declines in attendance as compared to 2012: a 9%

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decline in attendance in the second quarter of 2013; a 3.6% decline in attendance in the

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third quarter of 2013; and a 1.4% decline in attendance in the fourth quarter of 2013.

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This resulted in a 4.1% decline in overall attendance for 2013. Defendants reported a

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13% decline in attendance for the first quarter of 2014.

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SeaWorld Entertainment attributed the declines in attendance to adverse weather

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conditions, school and holiday schedules, and a new pricing strategy. However, other

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major theme park groups located in the United States, including Disney and Universal,

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realized increases in attendance during 2013, even though they both maintain parks in

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some of the same locations SeaWorld Entertainment does, and were therefore subject to

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some of the same adverse weather conditions. Disney and Universal parks were also

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subject to the same school and holiday schedules, and also increased prices at some of
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their parks in 2013.
Unlike Disney and Universal, SeaWorld Entertainment parks were subjected to

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significant negative publicity as a result of the Blackfish documentary. The negative

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publicity included statements by celebrities on Twitter urging millions of their followers

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to watch Blackfish and avoid “SeaWorld.” An online poll on CNN on October 23, 2015

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reported that 86% of the 3,000 respondents would not take their kids to “SeaWorld” in

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light of the allegations in Blackfish. Id. ¶ 141. Some schools also canceled their annual

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field trips to SeaWorld Entertainment parks. Later in 2013, a number of artists slated to

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perform at a series of summer concerts at the SeaWorld-branded park in Florida and

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Busch Gardens in Florida cancelled their performances after receiving online petitions

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urging them to do so. Id. ¶¶ 145-147. Most of the artists cited the controversy

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surrounding Blackfish as the reason for their withdrawal, and a variety of international

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news sources reported on the cancellations. In December 2013, SeaWorld Entertainment

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published an open letter featured in major newspapers and on social media in order to

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refute “misconceptions” regarding the artist cancellations. Id. ¶ 149.

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In late 2013 and early 2014, activists initiated a series of online petitions urging

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sponsors to end their relationships with SeaWorld Entertainment. A variety of media

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outlets reported on the petitions, amplifying their impact. In July 2014, Southwest

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Airlines announced it would not renew its 26-year partnership with SeaWorld

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Entertainment. Id. ¶ 156. Other corporate sponsors also ended their relationships with

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SeaWorld Entertainment in late 2014 and early 2015.

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In March 2014, national media outlets reported that a California Assembly member

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had introduced legislation that would ban orca performances, breeding, and artificial

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insemination in California. Id. ¶ 159. The bill was colloquially referred to as “the

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Blackfish bill.” Governor Brown signed the bill on September 13, 2016, officially

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banning orca breeding and captivity programs in California.

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In August 2013, SeaWorld Entertainment Vice President of Communications Fred
Jacobs stated “Blackfish has had no attendance impact,” and that SeaWorld Entertainment
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“can attribute no attendance impact at all to the movie.” Id. ¶ 208. In November 2013,

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SeaWorld Entertainment Chief Executive Officer James Atchison (“Defendant

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Atchison”) stated “I scratch my head if there’s any notable impact from this film at all,

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and I can’t attribute one to it,” and that “[i]ronically, our attendance has improved since

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the movie came out.” Id. ¶ 217. In December 2013 Defendant Atchison also stated that

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“[a]s much data as we have and as much as we look, I can’t connect anything really

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between the attention that the film has gotten and any effect on our business.” Id. ¶ 219.

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In a fourth quarter earnings call in March 2014, Defendant Atchison reiterated that he had

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“seen no impact on the business,” and that surveys conducted by SeaWorld

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Entertainment did not “reflect any shift in sentiment about intent to visit our parks.” Id. ¶

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229. Lastly, in May 2014, SeaWorld reported a 13% decrease in attendance for the first

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quarter of 2014 and attributed the decline to the Spring Break holiday and adverse

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weather conditions. Id. ¶ 232.

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On August 13, 2014, SeaWorld Entertainment made the following statement

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regarding the decline in attendance in the second quarter of 2014: “the Company believes

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attendance in the quarter was impacted by demand pressures related to recent media

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attention surrounding proposed legislation in the state of California.” Id. ¶ 163. When

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asked why proposed legislation tabled in April 2014 would now have an effect on

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attendance at SeaWorld Entertainment parks in August 2014, Defendant Atchison

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responded that at the time, SeaWorld Entertainment was “still grappling with what

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impact there would be related to the news attention around the legislation.” Id. ¶ 234.

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The same day, SeaWorld Entertainment’s common stock price dropped nearly 33%

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($9.25 per share). Id. ¶ 164.

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SeaWorld Entertainment continued to receive negative publicity after the end of

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the class period. In November 2014, Defendant Atchison stated that negative attendance

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trends were the result of “a combination of factors, including negative media attention in

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California.” Id. ¶ 185. Defendant Atchison also participated in a Bloomberg Business

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article entitled, “Saving SeaWorld,” in which he acknowledged that SeaWorld
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Entertainment had struggled to find an effective approach in responding to widespread

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criticism and activism generated by Blackfish. Defendant Atchison resigned from his

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position as CEO of SeaWorld Entertainment in December 2014. News outlets

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subsequently reported that Blackfish is “widely considered to be at least partly

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responsible for SeaWorld’s attendance drop.” Id. ¶ 191.

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PROCEDURAL HISTORY

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Plaintiffs filed their previous Consolidated Amended Class Action Complaint

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(“CAC”) on February 27, 2015. Doc. No. 42. The CAC named twenty-seven

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Defendants, including all of the banking institutions that underwrote SeaWorld

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Entertainment’s public offerings. The CAC also included five counts, including three

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claims under Sections 11, 12, and 15 of the Securities Act of 1933, and two claims under

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Sections 10(b) and 20 of the Securities Exchange Act of 1934.

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The Court granted Defendants’ motion to dismiss on March 31, 2016 and allowed

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Plaintiffs 60 days to amend. Doc. No. 102. Plaintiffs filed their Second Amended

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Consolidated Class Action Complaint on May 31, 2016. See SAC. Plaintiffs limited the

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defendants in the action to SeaWorld Entertainment, James Atchison, James M. Heaney,

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Marc Swanson, and The Blackstone Group L.P. Plaintiffs also limited their causes of

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action to two counts for violations of Sections 10(b) and 20 of the Securities Exchange

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Act of 1934. See id. Plaintiffs seek the following relief on behalf of the class: (a) a

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declaration that this action is a proper class action, designating Plaintiffs as class

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representatives under Rule 23 and Plaintiffs’ counsel as Class Counsel; (b) compensatory

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damages against Defendants jointly and severally, including interest; (c) reasonable costs

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and expenses incurred in this action, including counsel fees and expert fees; and (d)

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awarding all equitable and other relief as the Court may deem just. See id.

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On June 29, 2016, Defendants filed a motion to dismiss Plaintiffs’ SAC for failure

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to state a claim under Rules 9(b) and 12(b)(6), as well as the Private Securities Litigation

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Reform Act of 1995 (15 U.S.C. § 78u-4). Doc. No. 128. The Court heard oral argument

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on the motion, and denied Defendants’ motion to dismiss. Doc. No. 142. On May 19,
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2017, Plaintiffs filed the instant motion.

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PLAINTIFFS’ PROPOSED CLASS

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Plaintiffs seek to represent a class of all persons and entities who purchased or

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otherwise acquired SEAS Common Stock between August 29, 2013 and August 12,

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2014, and who were damaged thereby. SAC ¶ 1. Excluded from the class are: (i)

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Defendants, (ii) present or former executive officers of SeaWorld, members of

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SeaWorld’s Board of Directors, and members of their immediate families, (iii) any of the

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foregoing persons’ legal representatives, heirs, successors or assigns, and (iv) any entity

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in which Defendants have or had a controlling interest or any affiliate of SeaWorld. Id.

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LEGAL STANDARD
Federal Rule of Civil Procedure 23 governs the certification of a class. Fed. R.

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Civ. P. 23. “Parties seeking class certification bear the burden of demonstrating that they

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have met each of the four requirements of Federal Rule of Civil Procedure 23(a) and at

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least one of the requirements of Rule 23(b).” Ellis v. Costco Wholesale Corp., 657 F.3d

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970, 979-80 (9th Cir. 2011) (citing Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180,

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1186 (9th Cir. 2001), amended by 273 F.3d 1266 (9th Cir. 2001)). Rule 23(a) requires a

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party seeking class certification to establish the following four elements:

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(1) that the class is so large that joinder of all members is impracticable
(numerosity); (2) that there are one or more questions of law or fact common
to the class (commonality); (3) that the named parties’ claims are typical of
the class (typicality); and (4) that the class representatives will fairly and
adequately protect the interests of other members of the class (adequacy of
representation).

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Id. at 980 (citing Fed. R. Civ. P. 23(a)). The United States Supreme Court has made clear

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that “Rule 23 does not set forth a mere pleading standard.” Wal-Mart Stores, Inc. v.

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Dukes, 564 U.S. 338, 350 (2011). Instead, “[a] party seeking class certification must

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affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to

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prove that there are in fact sufficiently numerous parties, common questions of law or
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fact, etc.” Id.
At the certification stage, district courts must “engage in a ‘rigorous analysis’ of

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each Rule 23(a) factor when determining whether plaintiffs seeking class certification

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have met the requirements of Rule 23.” Ellis, 657 F.3d at 980. “In many cases, that

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‘rigorous analysis’ will entail some overlap with the merits of the plaintiff’s underlying

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claim. . . .” Id. (internal citation and quotation omitted). “[T]he merits of the class

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members’ substantive claims are often highly relevant when determining whether to

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certify a class. More importantly, it is not correct to say a district court may consider the

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merits to the extent that they overlap with class certification issues; rather, a district court

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must consider the merits if they overlap with the Rule 23(a) requirements.” Id. at 981

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(emphasis in original).

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Once the prerequisites of Rule 23(a) are met, the Court must then determine

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whether the class action is maintainable under Rule 23(b). “Under Rule 23(b)(3), a class

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may be certified if the district court ‘finds that the questions of law or fact common to

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class members predominate over any questions affecting only individual members, and

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that a class action is superior to other available methods for fairly and efficiently

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adjudicating the controversy.’” Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935,

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944 (9th Cir. 2009) (quoting Fed. R. Civ. P. 23(b)(3)); see also Stockwell v. City & Cnty.

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of S.F., 749 F.3d 1107, 1111 (9th Cir. 2014). “The party seeking certification bears the

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burden of demonstrating that he has met the requirements of Rule 23(b).” Vinole, 571

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F.3d at 944 n.9.
DISCUSSION

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I.

Defendants’ Request for Judicial Notice
As an initial matter, Defendants request that the Court take judicial notice of

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several documents in connection with their opposition to Plaintiffs’ motion for class

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certification (Exhibits 1-3, and 8-10 to the Declaration of Chet A. Kronenberg). See Doc.

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No. 198-21. Plaintiffs do not oppose this request.

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Generally, a court must take judicial notice if a party requests it and supplies the
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court with the requisite information. Fed. R. Evid. 201(d). “A judicially noticed fact

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must be one not subject to reasonable dispute in that it is either (1) generally known

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within the territorial jurisdiction of the trial court or (2) capable of accurate and ready

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determination by resort to sources whose accuracy cannot reasonably be questioned.”

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Fed. R. Evid. 201(b); see Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th

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Cir. 1986) (citing Sears, Roebuck & Co. v. Metropolitan Engravers, Ltd., 245 F.2d 67, 70

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(9th Cir. 1956)). While a court may take judicial notice of matters of public record, it

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may not take judicial notice of a fact that is subject to reasonable dispute. Fed. R. Evid.

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201(b); Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).

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The Court previously took judicial notice of Exhibits 1, 3, 8 and 10, all of which

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were filed with the SEC, in connection with Defendants’ motion to dismiss Plaintiffs’

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CAC. See Doc. No. 102 at 8-9. Exhibit 2 is an excerpt from SeaWorld’s Prospectus,

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filed with the SEC on or about December 12, 2013. Exhibit 9 is a transcript of

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SeaWorld’s Fourth Quarter 2013 Financial Results Conference Call, held on or about

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March 13, 2014. Because these documents are publicly-available and capable of accurate

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determination, the Court GRANTS Defendants’ request for judicial notice. See In re

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New Century, 588 F. Supp. 2d 1206, 1219 (C.D. Cal. 2008) (“It is well-established that

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courts may take judicial notice of SEC filings.”); see also In re Washington Mut., Inc.

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Sec., Derivative & ERISA Litig., 259 F.R.D. 490, 495 (W.D. Wash. 2009) (taking judicial

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notice of conference call transcripts).

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II.

Plaintiffs’ Motion for Class Certification

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Defendants oppose certification on several grounds. First, Defendants contend

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Plaintiffs do not satisfy Rule 23(a)’s adequacy and typicality requirements because: a)

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Plaintiffs’ investment decisions were not typical; b) PBU may be subject to atypical

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standing defenses; and c) Plaintiffs have not instituted mechanisms to ensure

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coordination of their efforts in the litigation. See Doc. No. 215. Second, Defendants

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assert Plaintiffs cannot meet Rule 23(b)(3)’s predominance requirement because: a)

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Defendants rebut Plaintiffs’ presumption of reliance; and b) Plaintiffs fail to proffer a
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damages model that is susceptible to proof on a class-wide basis. See id. The Court

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addresses each requirement of Rule 23(a) and Rule 23(b)(3) below.

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A.

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Rule 23(a)
1. Numerosity

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Rule 23(a)(1) requires the proposed class to be “so numerous that joinder of all

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members is impracticable.” Fed. R. Civ. P. 23(a)(1). Here, Plaintiffs allege the class

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consists of “potentially thousands of investors in SEAS Common Stock, which was

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traded on the New York Stock Exchange.” Doc. No. 213-1 at 8. Defendants do not

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dispute that Rule 23(a)(1)’s numerosity requirement is met in this case. Accordingly, the

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Court finds that the numerosity requirement is satisfied. See Moore v. Ulta Salon,

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Cosmetics & Fragrance, Inc., 311 F.R.D. 590, 602-03 (C.D. Cal. 2015) (“‘As a general

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matter, courts have found that numerosity is satisfied when class size exceeds 40

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members[.]’”) (quoting Slaven v. BP Am., Inc., 190 F.R.D. 649, 654 (C.D. Cal. 2000)).

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2. Commonality
Rule 23(a)(2) requires that there be a question of law or fact common to the class.

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See Fed. R. Civ. P. 23(a)(2). The common question “must be of such a nature that it is

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capable of classwide resolution—which means that determination of its truth or falsity

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will resolve an issue that is central to the validity of each one of the claims in one stroke.”

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Dukes, 564 U.S. at 350. Commonality therefore “requires plaintiffs to demonstrate that

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the class members have suffered the same injury, not merely violations of the same

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provision of law.” Parsons v. Ryan, 754 F.3d 657, 674–75 (9th Cir. 2014) (citations and

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quotations omitted). Accordingly, “[w]here the circumstances of each particular class

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member vary but retain a common core of factual or legal issues with the rest of the class,

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commonality exists.” Id. at 675 (quoting Evon v. Law Offices of Sidney Mickell, 688 F.3d

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1015, 1029 (9th Cir. 2012)). As the Supreme Court has noted, “for purposes of Rule

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23(a)(2) even a single common question will do.” Dukes, 564 U.S. at 359 (internal

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quotation and alteration omitted).

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Here, Plaintiffs argue several common questions of law and fact exist, including:
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(i) whether Defendants violated federal securities law; (ii) whether Defendants’

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statements during the class period misrepresented or omitted facts about the business and

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management of the company; (iii) whether those statements and/or omissions were

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material; (iv) whether Defendants acted with the requisite state of mind; (v) whether the

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market price of SEAS Common Stock was artificially inflated during the class period due

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to the alleged material misrepresentations and omissions; and (vi) whether Defendants’

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conduct resulted in damages to the class. See Doc. No. 213-1 at 9. Defendants do not

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dispute that Rule 23(a)(2)’s commonality requirement is satisfied. As such, the Court

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finds this requirement is met. See In re LDK Solar Sec. Litig., 255 F.R.D. 519, 530 (N.D.

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Cal. 2009) (“all class members are unified by an interest in proving the same common

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course of conduct regarding [the defendants’] allegedly fraudulent . . . representations”);

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Schaefer v. Overland Express Family of Funds, 169 F.R.D. 124, 128 (S.D. Cal. 1996)

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(finding Rule 23(a)(2) was met in a securities fraud case when the legal claims arose

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from common misrepresentations).

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3. Typicality
Rule 23(a)(3) requires that “the claims or defenses of the representative parties are

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typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3).

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“[R]epresentative claims are ‘typical’ if they are reasonably coextensive with those of

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absent class members; they need not be substantially identical.” Parsons, 754 F.3d at

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685. The typicality requirement “assure[s] that the interest of the named representative

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aligns with the interests of the class.” Wolin v. Jaguar Land Rover N. Am., LLC, 617

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F.3d 1168, 1175 (9th Cir. 2010) (quoting Hanon v. Dataproducts Corp., 976 F.2d 497,

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508 (9th Cir. 1992)). “The test of typicality is whether other members have the same or

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similar injury, whether the action is based on conduct which is not unique to the named

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plaintiffs, and whether other class members have been injured by the same course of

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conduct.” Id. (quoting Hanon, 976 F.2d at 508).

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Plaintiffs argue that their claims are typical of all class members, as they purchased

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SEAS Common Stock during the class period for investment purposes. Defendants claim
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information).” In re Diamond Foods, Inc., Sec. Litig., 295 F.R.D. 240, 253 (N.D. Cal.

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2013).

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Defendants’ reliance on GAMCO Investors, Inc. v. Vivendi, S.A. is misplaced. 927

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F. Supp. 2d 88 (S.D.N.Y. 2013). In GAMCO, following class certification and a bench

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trial, the district court found that an investor who relied on “a private method of

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valuation” to purchase shares of the defendant company could not rely on the fraud-on-

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the-market theory. Id. at 102. In fact, the investor continued to purchase stock after the

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fraud had been fully disclosed; thus, the defendant had proven that “but for the alleged

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misrepresentations and omissions, Plaintiffs would have been more likely to invest in [the

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defendant company].” Id. (emphasis in original). Here, however, Westwood sold its

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SeaWorld shares shortly after learning of the alleged fraud. See Doc. No. 243-1 at 823;

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see also In re Diamond Foods, Inc., 295 F.R.D. at 253 (distinguishing GAMCO where the

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plaintiffs’ investment manager recommended selling shares based on concerns about

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alleged fraud).

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Additionally, Defendants emphasize the fact that

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According to Plaintiffs, there is “no evidence that Westwood knew during the class

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period that SeaWorld’s public denials of Blackfish’s impact were false.” Doc. No. 243 at

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6 (emphasis in original).

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. See In re Intuitive Surgical Sec. Litig., 2016 WL 7425926, at *6

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(N.D. Cal. Dec. 22, 2016) (noting that the “record here does not suggest Plaintiffs

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possessed material non-public information or otherwise operated under materially distinct
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Here, Defendants’ argument is insufficient to defeat typicality. The record reveals

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Thus,
Defendants have not shown PBU is atypical.

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In sum, the Court concludes that Plaintiffs have satisfied the typicality

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requirement. Plaintiffs’ claims are “typical of the claims” of the class, and there is

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insufficient evidence in the record to support a finding that Plaintiffs are subject to

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atypical defenses. Fed. R. Civ. P. 23(a)(3); see also In re Intuitive Surgical Sec. Litig.,

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2016 WL 7425926, at *6 (“Plaintiffs’ claims are generally founded on the same alleged

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facts and legal theories as the claims of other Class members . . . .”) (internal quotation

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marks omitted).

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4. Adequacy
Rule 23(a)(4) requires that “the representative parties will fairly and adequately

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protect the interests of the class.” Fed. R. Civ. P. 23(a)(4). “To determine whether

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named plaintiffs will adequately represent a class, courts must resolve two questions: ‘(1)

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do the named plaintiffs and their counsel have any conflicts of interest with other class

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members and (2) will the named plaintiffs and their counsel prosecute the action

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vigorously on behalf of the class?’” Ellis, 657 F.3d at 985 (quoting Hanlon v. Chrysler

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Corp., 150 F.3d 1011, 1020 (9th Cir. 1998)). This requirement satisfies due process for

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absent class members who are bound by entry of judgment. Hanlon, 150 F.3d at 1020.

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Here, Defendants do not raise any potential conflicts of interest, and the Court is

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unaware of any such conflicts in this case. Thus, the Court finds the first question of the

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adequacy test is met.

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Regarding the second question, however, Defendants assert that Plaintiffs are not
adequate class representatives because they have not shown that they are able to
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coordinate their efforts in the litigation. Doc. No. 215 at 11 (citing Schriver v. Impac

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Mortg. Holdings, Inc., 2006 WL 6886020, at *8 (C.D. Cal. May 2, 2006)).2

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.3 Defendants further contend Plaintiffs submitted a misleading declaration

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wherein PBU and APERS assert they “have discussed with each other mechanisms for

8

joint decision-making, including the implementation of communication procedures to

9

enable PBU and APERS to confer with or without counsel, via telephone and/or e-mail. .

10

. .” Doc. No. 215-19 at 6.4 Defendants claim the submission of a misleading declaration

11

is “independently a sufficient reason to find [Plaintiffs] inadequate to represent the class.”

12

Doc. No. 215 at 12.

13

In response, Plaintiffs assert

14
15
16
17
18

. Moreover, Plaintiffs claim that Defendants
misrepresent the record regarding mechanisms for joint decision making,

19
20
21

.

22

Here, the Court finds that Plaintiffs PBU and APERS are adequate class

23
24
25
26

2

The district court in Schriver considered the adequacy of the plaintiffs at the appointment of the lead
plaintiff stage. See id. Here, in contrast, the Court appointed PBU and APERS as lead plaintiffs nearly
three years ago. See Doc. No. 25.

27

3

Citations to documents 215-7 and 215-8 refer to the pagination assigned by the CM/ECF system.

28

4

Citations to this document refer to the pagination assigned by the CM/ECF system.
-16-

14cv2129-MMA (AGS)

1

representatives that will prosecute the action vigorously on behalf of the class. See

2

Staton v. Boeing Co., 327 F.3d 938, 957 (9th Cir. 2003).

3
4
5
6
Lastly, Plaintiffs assert that Lead Counsel Nix Patterson & Roach, LLP (“NPR”)

7
8

and Kessler Topaz Meltzer & Cheek, LLP (“Kessler Topaz”), are “highly experienced

9

and amply qualified to serve as counsel for the proposed Class.” Doc. No. 213-1 at 12.

10

Defendants do not contest this point, and the Court finds no reason why NPR and Kessler

11

Topaz are not qualified to represent the proposed class, or would not otherwise be

12

adequate pursuant to Rule 23(g). As such, the Court appoints NPR and Kessler Topaz as

13

Class Counsel.

14

In sum, the Court finds that Plaintiffs and Class Counsel have shown that they will

15

“fairly and adequately protect the interests of the class,” thereby satisfying the adequacy

16

requirement. Fed. R. Civ. P. 23(a)(4).

17

B.

18
19

Rule 23(b)(3)
1. Predominance
“Under Rule 23(b)(3), the court must find that questions of law or fact common to

20

class members predominate over any questions affecting only individual members.”

21

Lambert v. Nutraceutical Corp., 870 F.3d 1170, 1182 (9th Cir. 2017) (internal quotation

22

marks omitted). “Rule 23(b)(3), however, does not require a plaintiff seeking class

23

certification to prove that each elemen[t] of [her] claim [is] susceptible to classwide

24

proof.” Amgen Inc. v. Conn. Ret. Plans and Trust Funds, 568 U.S. 455, 469 (2013)

25

(internal quotation marks omitted) (emphasis in original).

26

“Considering whether ‘questions of law or fact common to class members

27

predominate’ begins, of course, with the elements of the underlying cause of action.”

28

Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 809 (2011) (“Halliburton I”)
-17-

14cv2129-MMA (AGS)

1

(quoting Fed. R. Civ. P. 23(b)(3)). “To succeed on the merits, plaintiffs alleging

2

securities fraud under [Section 10(b) of the Securities Exchange Act of 1934 and] Rule

3

10b-5 ‘must prove (1) a material misrepresentation or omission by the defendant; (2)

4

scienter; (3) a connection between the misrepresentation or omission and the purchase of

5

sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss;

6

and (6) loss causation.’” Stockwell, 749 F.3d at 1112 (quoting Amgen, 568 U.S. at 460-

7

61). “Predominance is a test readily met in certain cases alleging . . . securities fraud . . .

8

.” Amchem Prods, Inc. v. Windsor, 521 U.S. 591, 625 (1997).

9

Here, Defendants argue individual issues predominate regarding the fourth and

10

fifth elements of Plaintiffs’ Section 10(b) claim—reliance and damages. See Doc. No.

11

215 at 12. Specifically, Defendants contend Plaintiffs: a) lack a viable class-wide theory

12

of reliance, as “none of the alleged misrepresentations resulted in any price inflation of

13

SeaWorld shares;” and b) fail to show damages can be measured on a class-wide basis.

14

Id. at 13, 19. The Court addresses Defendants’ arguments in turn.

15
16
17

a. Reliance
i.

Presumption of Reliance

Pursuant to the “fraud on the market” theory, plaintiffs in a securities class action

18

may invoke a presumption of class-wide reliance by demonstrating that the common

19

stock at issue traded in an efficient market. Basic, Inc. v. Levinson, 485 U.S. 224, 247

20

(1988). This is based on the hypothesis that “in an open and developed securities market,

21

the price of a company’s stock is determined by the available material information” and

22

that “[m]isleading statements will therefore defraud purchasers of stock even if the

23

purchasers do not directly rely on the misstatements[.]” Id. at 241-42.

24

In order to invoke Basic’s presumption of reliance, a plaintiff “must prove that: (1)

25

the alleged misrepresentations were publicly known, (2) the stock traded in an efficient

26

market, and (3) the relevant transaction took place ‘between the time the

27

misrepresentations were made and the time the truth was revealed.’” In re Diamond

28

Foods, Inc., 295 F.R.D. at 247 (quoting Basic, 485 U.S. at 248 n.27)).
-18-

14cv2129-MMA (AGS)

1

Here, Plaintiffs contend that the prerequisites for invoking the fraud on the market

2

presumption are “easily met.” Doc. No. 213-1 at 15. Plaintiffs claim that the alleged

3

false statements and omissions “occurred during conference calls and public interviews,

4

and were reflected in SEC filings and news stories[.]” Id. Additionally, all class

5

members “purchased SEAS Common Stock after the actionable statements/omissions

6

were made and before disclosure of the relevant truth concealed by Defendants.” Id.

7

Lastly, the market was efficient throughout the class period. See id.

8
9

Defendants do not dispute, and the Court agrees, that Plaintiffs have satisfied the
prerequisites for invoking Basic’s presumption of reliance. The Court finds that the

10

alleged misstatements were publicly made, and that the relevant transactions took place

11

between the time the alleged misrepresentations were made and when the alleged truthful

12

disclosures were made. The Court addresses market efficiency below.

13

The Ninth Circuit utilizes the five-factor test set forth in Cammer v. Bloom, 711 F.

14

Supp. 1264, 1287 (D.N.J. 1989), in determining market efficiency. See Binder v.

15

Gillespie, 184 F.3d 1059, 1065 (9th Cir. 1999). The Cammer factors consider: (1)

16

whether the stock trades at a high weekly volume; (2) whether securities analysts follow

17

and report on the stock; (3) whether the stock has market makers and arbitrageurs; (4)

18

whether the company is eligible to file SEC Registration Form S-3; and (5) whether there

19

are “empirical facts showing a cause and effect relationship between unexpected

20

corporate events or financial releases and an immediate response in the stock price.” 711

21

F. Supp. at 1287.

22

Plaintiffs present an event study conducted by their expert, Mr. Coffman, who

23

opines that the market for SEAS Common Stock was efficient through the class period.

24

See Doc. No. 213-22 (hereinafter “Coffman Rpt.”). “The event study method is an

25

accepted method for the evaluation of materiality [and] damages to a class of

26

stockholders in a defendant corporation.” In re Diamond Foods, Inc., 295 F.R.D. at 251.

27
28

Here, the Court finds that Plaintiffs have met their burden in demonstrating that
SeaWorld Common Stock traded in an efficient market. The average weekly trading
-19-

14cv2129-MMA (AGS)

1

volume was 4.9 million shares, equating to 5.41% of total outstanding shares. Coffman

2

Rpt. ¶ 28; see also Cammer, 711 F. Supp. at 1293 (“Turnover measured by average

3

weekly trading of 2% or more of the outstanding shares would justify a strong

4

presumption that the market for the security is an efficient one; 1% would justify a

5

substantial presumption.”). Moreover, “[t]here were at least 44 reports issued during the

6

Class Period and . . . 6 separate firms that issued reports on SeaWorld, including major

7

firms such as Barclays, JP Morgan, and Wells Fargo.” Coffman Rpt. ¶ 33. SEAS

8

Common Stock traded on the New York Stock Exchange during the class period, further

9

supporting a finding of market efficiency. Id. ¶ 39. Regarding the fourth factor, SEAS

10

was not S-3 eligible until April 2014, as SeaWorld had been public for approximately

11

four months at the beginning of the class period. Id. ¶ 44. Mr. Coffman concluded,

12

however, that he “found no evidence that SeaWorld was not [S-3] eligible starting in

13

April 2014 . . . .” Id. Finally, regarding the last factor, the results of Mr. Coffman’s

14

event study reveal “a clear cause-and-effect relationship between new public information

15

about SeaWorld and the market price of SEAS Common Stock.” Id. ¶ 48. The event

16

study took into account “market and industry factors,” and “examined the price response

17

of SEAS Common Stock to multiple earnings releases and guidance updates throughout

18

the Class Period, including the corrective disclosure on August 13, 2014.” Doc. No. 213-

19

1 at 21; see also Coffman Rpt. ¶¶ 48-58. Specifically, Mr. Coffman found that “of the six

20

regular quarterly earnings announcements and guidance updates SeaWorld issued during

21

the Class Period, five resulted in statistically significant price movements above the 95%

22

confidence level.” Coffman Rpt. ¶ 57.

23
24
25
26
27
28

Accordingly, the Court finds that Plaintiffs have made a preliminary showing that
they are entitled to Basic’s presumption of reliance in this case.
ii.

Rebutting the Presumption of Reliance

Defendants contend that they have rebutted the presumption of reliance by
showing lack of price impact from the alleged fraud.
A defendant may introduce evidence at the class certification stage that the alleged
-20-

14cv2129-MMA (AGS)

1

misrepresentation did not affect stock price to rebut the Basic presumption. “Basic itself

2

‘made clear that the presumption was just that, and could be rebutted by appropriate

3

evidence,’ including evidence that the asserted misrepresentation (or its correction) did

4

not affect the market price of the defendant’s stock.” Halliburton Co. v. Erica P. John

5

Fund, Inc., 134 S. Ct. 2398, 2414 (2014) (“Halliburton II”) (citing Halliburton I, 563

6

U.S. at 811). “Any showing that severs the link between the alleged misrepresentation

7

and . . . the price received (or paid) by the plaintiff . . . will be sufficient to rebut the

8

presumption of reliance[.]” Basic, 485 U.S. at 248. If the presumption is successfully

9

rebutted, “a Rule 10b-5 suit cannot proceed as a class action” because individual

10

questions will predominate over common questions of law and fact. Halliburton II, 134

11

S. Ct. at 2416.

12

Defendants present an event study conducted by their expert, Dr. Torous, who

13

opines that Mr. Coffman never examined whether the alleged misrepresentations were

14

associated with a statistically significant price impact. See Doc. No. 215-13 (hereinafter

15

“Torous Rpt.”). Specifically, Defendants argue that of the six dates Defendants are

16

alleged to have made a material misrepresentation, there is no statistically significant

17

evidence of price inflation. See Doc. No. 215 at 14-19; Torous Rpt. ¶ 14. Dr. Torous

18

claims Mr. Coffman arbitrarily removed dates from consideration, resulting in a bias in

19

favor of finding that SeaWorld’s stock price reaction on an event day was statistically

20

significant. Torous Rpt. ¶ 30. In his event study, Dr. Torous “included all market dates

21

unrelated to any alleged misrepresentation or corrective disclosure identified in the SAC,

22

and excluded all alleged misrepresentation dates and the alleged corrective disclosure

23

date from the estimation,” which he refers to as the “corrected Coffman study.” Id. ¶ 31.

24

“The corrected Coffman event study demonstrates a lack of price impact following all six

25

alleged misrepresentations.” Id. ¶ 33.

26

Further, Dr. Torous asserts that even Mr. Coffman’s “flawed event study” confirms

27

that SEAS Common Stock shares did not experience a statistically significant price

28

increase in connection with any alleged misrepresentations, with the exception of March
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14cv2129-MMA (AGS)

1

13, 2014. Id. ¶ 35. Dr. Torous asserts that this result is inaccurate, and by using the

2

corrected Coffman study, the March 13, 2014 date is no longer statistically significant.

3

Id. Defendants argue that “[i]t is no surprise that Defendants’ alleged misrepresentations

4

had no price impact” because the “market had been saturated with speculation about the

5

potential impact of Blackfish on SeaWorld.” Doc. No. 215 at 18. “Dr. Torous conducted

6

a detailed review of market analyst and media reports throughout the relevant class

7

period, and determined that ‘analysts and news media had reached their own conclusions

8

about the potential effect of Blackfish on SeaWorld’s business.’” Id. (citing Torous Rpt.

9

¶ 26).

10

As an initial matter, to the extent Defendants seek to challenge the materiality of

11

the alleged misrepresentations, such an argument is a premature truth-on-the-market

12

defense. See Amgen, 568 U.S. at 482 (noting that when “news of the [truth] credibly

13

entered the market” is “a matter for trial” and “the potential immateriality of Amgen’s

14

alleged misrepresentations and omissions is no barrier to finding that common questions

15

predominate.”) (internal citations omitted); Aranaz v. Catlyst Pharma. Partners Inc., 302

16

F.R.D. 657, 671 (S.D. Fla. 2014) (“a truth-on-the-market defense may not be used at the

17

class certification stage to prove an absence of price impact so as to show a lack of

18

predominance because it goes to materiality”).

19
20
21
22
23

. Accordingly, Defendants’ argument that
the alleged misrepresentations did not alter the total mix of information is premature.
Regarding the alleged lack of price impact, Plaintiffs contend that “‘[p]rice impact

24

in securities fraud cases is not measured solely by price increase on the date of the

25

misstatement; it can be quantified by decline in price when the truth is revealed.’” Doc.

26

No. 243 at 8 (citing Hatamian v. Advanced Micro Devices, Inc., 2016 WL 1042502, at *7

27

(N.D. Cal. Mar. 16, 2016)). This is known as the price maintenance theory. Thus,

28

Plaintiffs contend Defendants’ focus on the price impact at the time of each alleged
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14cv2129-MMA (AGS)

1

misrepresentation “ignor[es] price impact at the time of [the alleged August 13]

2

corrective disclosure.” Id. at 9 (citing Hatamian, 2016 WL 1042502, at *7).

3
4
5

Mr. Coffman found a statistically

6

significant price decline of SEAS Common Stock on the alleged disclosure date of

7

August 13, 2014, wherein the stock price fell nearly 33%. Coffman Rpt. ¶ 22. The t-

8

statistic reported in the Coffman Report was -22.35, indicating that there is greater than

9

99% confidence that this finding is not due to chance. See id., Exh. 7. Dr. Torous does

10

not dispute that the price decline on this day was statistically significant. See Torous Rpt.

11

¶¶ 40-46.

12

Defendants advance two arguments in opposition to Plaintiffs’ price maintenance

13

theory. First, Defendants assert that Plaintiffs’ price maintenance theory is “contrary to

14

binding Supreme Court precedent holding that a defendant can rebut the fraud-on-the-

15

market presumption by showing either that the misrepresentation or its correction did not

16

affect the stock price—not both as Plaintiffs contend.” Doc No. 246 at 2 (emphasis in

17

original). Defendants urge this Court to rely on the recent Eighth Circuit decision in

18

IBEW Local 98 Pension Fund v. Best Buy Co., wherein the Eighth Circuit determined a

19

finding of no price impact was dispositive, and that the defendants “rebutted the Basic

20

presumption by submitting direct evidence (the opinions of both parties’ experts) that

21

severed any link between the alleged . . . misrepresentations and the stock price at which

22

plaintiffs purchased.” 818 F.3d 775, 783 (8th Cir. 2016). However, Best Buy is

23

distinguishable from the case at bar. There, the Eighth Circuit noted that the “allegedly

24

‘inflated price’ was established by [a] non-fraudulent” disclosure. 818 F.3d at 783. Here,

25

in contrast, Plaintiffs contend that each of the allegedly false misstatements “propped up

26

SeaWorld’s stock price[.]” Doc. No. 247 at 4.

27
28

Further, the Second, Seventh, and Eleventh Circuits have all reached contrary
conclusions, holding that “the lack of price movement on the dates of the alleged
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14cv2129-MMA (AGS)

1

misrepresentations does not rebut the Basic presumption.” Waggoner v. Barclays PLC,--

2

F.3d --, 2017 WL 5077355, at *19 (2d Cir. Nov. 6, 2017); see also In re Vivendi, S.A.

3

Sec. Litig., 838 F.3d 223, 259 (2d Cir. 2016) (noting that “securities-fraud defendants

4

cannot avoid liability for an alleged misstatement merely because the misstatement is not

5

associated with an uptick in inflation.”); Glickenhaus & Co. v. Household Intern., Inc.,

6

787 F.3d 408, 418 (7th Cir. 2015) (same); FindWhat Investor Grp. v. FindWhat.com, 658

7

F.3d 1282, 1316 (11th Cir. 2011) (“There is no reason to draw any legal distinction

8

between fraudulent statements that wrongfully prolong the presence of inflation in a stock

9

price and fraudulent statements that initially introduce that inflation.”).

10

As such, the Court finds persuasive the reasoning of the Second, Seventh, and

11

Eleventh Circuits, and agrees that Defendants cannot rebut the presumption of reliance by

12

only arguing that the alleged misrepresentations did not affect the stock price. See

13

Barclays, 2017 WL 5077355, at *19; Thorpe v. Walter Inv. Mgmt., Corp., 2016 WL

14

4006661, at *13 (S.D. Fla. Mar. 16, 2016) (“Measuring price change . . . at the time of

15

the corrective disclosure, rather than at the time of the corresponding misrepresentation,

16

allows for the fact that many alleged misrepresentations conceal a truth, and thus

17

maintain a stock’s price.”); In re Goldman Sachs Grp., Inc. Sec. Litig., 2015 WL

18

5613150, at *6 (S.D. N.Y. Sept. 24, 2015) (“[T]hat the misstatements had no impact on

19

the stock price when made is insignificant.”). Because Defendants introduce no evidence

20

of a lack of price impact associated with the August 13 disclosure, Defendants fail to

21

rebut the presumption of reliance.5
Second, Defendants assert that even if this Court adopts Plaintiffs’ price

22
23
24
25
26
27
28

In light of the Court’s finding that Defendants fail to rebut the presumption of reliance, the Court
declines to determine at this time whether there was a statistically significant price movement associated
with the alleged misrepresentation on March 13, 2014. In any event, the Court declines to narrow the
class period at this stage of the litigation. Defendants’ argument that “under no circumstances could a
class be certified before March 13, 2014” because “Plaintiffs still fail to submit any evidence that
SeaWorld’s stock price was inflated before March 13, 2014” is misplaced. Doc. No. 215 at 19
(emphasis in original). As discussed in detail above, the “lack of a statistically significant price increase
does not necessarily equate to lack of price impact.” Hatamian, 2016 WL 1042502, at *7.
5

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14cv2129-MMA (AGS)

1

maintenance theory, “class certification should be denied because Plaintiffs’ theory, by

2

Plaintiffs’ own admission, requires a corrective disclosure.” Doc. No. 246 at 5 (internal

3

quotation marks and citation omitted). Defendants argue that the August 13, 2014

4

statement “cannot be considered to be a corrective disclosure because it only addressed a

5

decline in attendance in the second quarter of 2014—a quarter about which no alleged

6

misrepresentations were made—and did not address statements concerning attendance in

7

2013 or the first quarter of 2014.” Id.

8

Plaintiffs contend this argument is “not a challenge as to whether there was a

9

statistically significant price reaction following the alleged corrective disclosure (all

10

parties and experts agree there was); rather, it is a class loss causation argument that is

11

premature . . . at this stage.” Doc. No. 247 at 4. The Court agrees. “[I]nquiries into loss

12

causation are properly addressed by a fact-finder on the merits; Plaintiffs need not show

13

loss causation as a condition of class certification.” Hatamian, 2016 WL 1042502, at * 9

14

(citing Halliburton I, 563 U.S. at 813) (finding the circuit court erred in requiring the

15

plaintiff “to show loss causation as a condition of obtaining class certification”); see also

16

Amgen, 568 U.S. at 475 (“loss causation and the falsity or misleading nature of the

17

defendant’s alleged statements or omissions are common questions that need not be

18

adjudicated before a class is certified.”). Accordingly, Defendants’ argument is

19

premature at this time.

20

iii.

Conclusion

21

In sum, Defendants have not introduced evidence that “severs the link between the

22

alleged misrepresentation and . . . the price received (or paid) by [Plaintiffs.]” Basic, 485

23

U.S. at 248. Accordingly, the Court finds that Defendants fail to rebut the presumption

24

of reliance.

25
26

b. Damages
Defendants, relying on Comcast Corp. v. Behrend, 569 U.S. 27 (2013), argue that

27

Plaintiffs fail to proffer a class-wide method for computing damages. Thus, according to

28

Defendants, individual damages assessments will predominate. See Doc. No. 215 at 19.
-25-

14cv2129-MMA (AGS)

1

The plaintiff “must show a class wide method for damages calculations as a part of

2

the assessment of whether common questions predominate over individual questions.”

3

Lambert, 870 F.3d at 1182 (citing Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th

4

Cir. 2013)). The Ninth Circuit recently articulated that “uncertain damages calculations

5

alone cannot defeat class certification because Comcast stood only for the proposition

6

that ‘plaintiffs must be able to show that their damages stemmed from the defendant’s

7

actions that created the legal liability.’” Id. (citing Levya, 716 F.3d at 513-14). Thus,

8

“[u]ncertainty regarding class members’ damages does not prevent certification of a class

9

as long as a valid method has been proposed for calculating those damages.” Id.

10

Plaintiffs contend that they will utilize the standard measures of damages in

11

“virtually all Section 10(b)” cases—the “out-of-pocket” methodology. Doc. No. 213-1 at

12

21. Plaintiffs’ expert, Mr. Coffman, opines that the “out-of-pocket” methodology can be

13

applied using a common formula for the entire class. Coffman Rpt. ¶ 77. Specifically,

14

“the standard methodology to quantify artificial inflation is to perform an event study that

15

measures price reactions to disclosures that revealed the relevant truth concealed by the

16

alleged material omissions and/or misrepresentations. This analysis, and the evidence

17

supporting it, would be common to the Class.” Id. ¶ 78. “Damages for any individual

18

class member could then be calculated formulaically” from the data. Id.

19

In opposition, Defendants again focus on the purported lack of a corrective

20

disclosure in this case. Specifically, Defendants assert that “Mr. Coffman’s deposition

21

confirms that he made no effort to form a view as to whether the ‘out-of-pocket’ model

22

could actually apply to the specific facts of this case.” Doc. No. 215 at 20. Defendants

23

argue Mr. Coffman omits factual analysis from his damages opinion because “he cannot

24

identify any ‘corrective disclosure’ in this case.” Id. Defendants further assert that the

25

August 2014 statement cannot serve as a corrective disclosure in this case, as the August

26

2014 statement relates only to attendance declines in the second quarter of 2014—not

27
28
-26-

14cv2129-MMA (AGS)

1

attendance in 2013 or the first quarter of 2014. See id. at 21-22 (emphasis added).6 Thus,

2

Defendants conclude that given “the lack of corrective disclosure in this case, Mr.

3

Coffman’s proposed ‘out-of-pocket’ damages method collapses, leaving only a

4

hypothetical damages model untethered to Plaintiffs’ theory of liability.” Id. at 23.
In response, Plaintiffs assert that “Defendants’ argument [ ] that Plaintiffs cannot

5
6

satisfy Comcast without proof of a corrective disclosure—i.e., loss causation,” is

7

misplaced. Doc. No. 243 at 13. In Hatamian, the district court noted that the defendants

8

attacked the “‘fit’ between an alleged corrective disclosure and a prior alleged fraudulent

9

statement.” 2016 WL 1042502, at *9. The district court stated, however, that “[t]his is

10

nothing more than an attack on loss causation, or Plaintiffs’ ability to ‘show that a

11

misrepresentation that affected the integrity of the market price also caused a subsequent

12

economic loss.’” Id. (emphasis in original) (citing Halliburton I, 563 U.S. at 813). The

13

Court agrees.

14
15
16
17
18
19
20
21

Accordingly,
Defendants’ argument is premature at this time.

22
23
Defendants cite to the Court’s March 31, 2016 order granting Defendants’ first motion to dismiss,
wherein the Court stated that “[e]ven if one infer[ed] that the statement was really a tacit reference to the
so-called Blackfish effect as a whole, rather than just the California legislation, the statement only refers
to attendance during the second quarter of 2014, not the entire Class Period.” 2016 WL 2993481, at *11
(S.D. Cal. Mar. 31, 2016). However, the Court expressly declined to consider loss causation. See id. at
*18 (“the Court declines to address [Defendants’ loss causation argument] at this time as it appears that
th[is] issue[] will be best considered after Plaintiffs have first pleaded a material misrepresentation or
omission under the requisite pleading standards.”). Further, the Court denied Defendants’ motion to
dismiss the SAC, finding Plaintiffs sufficiently allege loss causation. See Doc. No. 142.
6

24
25
26
27
28

-27-

14cv2129-MMA (AGS)

1

Defendants also rely upon the Fifth Circuit’s decision in Ludlow v. BP, P.L.C.,

2

based on the BP oil spill, wherein the circuit court found that the plaintiffs’ proposed

3

“materialization of the risk” theory of damages “hinges on a determination that each

4

plaintiff would not have bought BP stock at all if not for the alleged misrepresentations—

5

a determination not derivable as a common question, but rather one requiring

6

individualized inquiry.” 800 F.3d 674, 690 (5th Cir. 2015) (emphasis in original).

7

Defendants argue Plaintiffs’ SAC asserts the same theory of liability found incapable of

8

class-wide damages in Ludlow. See Doc. No. 215 at 24 (citing SAC ¶ 253).

9

Notably, the Fifth Circuit in Ludlow considered two sub-classes: one involving

10

plaintiffs who purchased stock before the oil spill (the pre-spill class), and another

11

involving purchasers of the stock after the spill started (the post-spill class). 800 F.3d at

12

680. The pre-spill damage theory is based on a materialization of the risk theory, where

13

“BP allegedly misstated the efficacy of its safety procedures, creating an impression that

14

the risk of a catastrophic failure was lower than it actually was.” Id. at 689. Thus, the

15

plaintiffs claimed that when the risk was materialized (i.e., the spill occurred), and BP’s

16

stock price fell, the investors who were defrauded into taking on that heightened risk

17

could recover the bulk of that fall as damages. Id. The Fifth Circuit affirmed the district

18

court’s determination that this theory of damages was not capable of class-wide

19

determination. Id. at 690.

20

Here, however, Plaintiffs do not advance a materialization of the risk theory of

21

damages. In fact, Plaintiffs clearly assert an “out-of-pocket” damages methodology. See

22

Doc. No. 213 at 22 (“The standard formula for assessing damages for each Class Member

23

is the artificial inflation per share at the time of purchase, less the artificial inflation at the

24

time of sale,” which is “applicable on a class-wide basis.”). Thus, the case at bar is

25

actually analogous to the post-spill class in Ludlow. As the Fifth Circuit noted, the

26

plaintiffs’ theory of damages in the post-spill class was that “because of BP’s

27

misstatements, the stock price was higher than it should have been. The damages model,

28

in turn, relied on a theory that the ‘inflation’ in the stock price caused by the
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misstatements would be exposed by the fall in the price when certain ‘corrective events’

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brought the ‘true’ information to the market’s attention.” 800 F.3d at 680. The Fifth

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Circuit affirmed the district court’s order certifying the post-spill class. As such,

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Defendants’ reliance on Ludlow is misplaced.

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On this record, the Court finds that Plaintiffs’ proposed damages model is

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sufficiently linked to their theory of liability. Defendants’ arguments to the contrary are

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unavailing. See Blackie, 524 F.2d at 905 (“The amount of damages is invariably an

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individual question and does not defeat class action treatment. . . . [W]e are confident that

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should the class prevail[,] the amount of price inflation during the period can be charted

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and the process of computing individual damages will be . . .a mechanical task.”).

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Accordingly, the Court finds that Plaintiffs have sufficiently shown damages are capable

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of measurement on a class-wide basis.

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c. Conclusion

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In sum, the Court concludes that Plaintiffs have sufficiently demonstrated that

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questions of law or fact common to class members predominate over any individual

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questions, thereby satisfying the predominance requirement of Rule 23(b)(3).

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2. Superiority
“In addition to establishing predominance of a common question, a class proponent

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must also demonstrate that the class action is superior to other methods of adjudicating

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the controversy.” Just Film, Inc. v. Buono, 847 F.3d 1108, 1123 (9th Cir. 2017) (citing

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Fed. R. Civ. P. 23(b)(3)).

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Here, Plaintiffs assert the superiority requirement is satisfied because thousands of

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individual claims will unnecessarily burden the judiciary, Plaintiffs are unaware of any

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other action asserting similar claims to those asserted in this action, the geographic

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dispersion of class members makes it desirable to litigate in this forum, and there are no

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foreseeable management difficulties that would preclude this action from being

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maintained as a class action. See Doc. No. 213-1 at 24-25. Defendants do not dispute

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that the superiority requirement is met. Thus, the Court finds that the superiority
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requirement of Rule 23(b)(3) is satisfied. See Valentino v. Carter-Wallace, Inc., 97 F.3d

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1227, 1234 (9th Cir. 1996) (“where classwide litigation of common issues will reduce

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litigation costs and promote greater efficiency, a class action may be superior to other

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methods of litigation.”)

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C.

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“In-Out” Traders
Finally, Defendants argue that any class must exclude “in-out” traders who sold

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SEAS common stock shares prior to August 13, 2014. See Doc. No. 215 at 25.

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Defendants claim that traders who sold their securities prior to the alleged corrective

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disclosure on August 13, 2014 will be unable to prove economic loss based on the alleged

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misrepresentations. See id. Plaintiffs contend that it is premature to exclude in-out

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traders at the class certification stage, as Defendants can move for summary judgment on

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this issue, if appropriate. See Doc. No. 243 at 15 n.31.

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In-out traders are those who “purchased stock during the period of

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misrepresentation but sold it before any disclosure which either partially or completely

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corrected the misrepresentation.” Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1437

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(9th Cir. 1987), overruled on other grounds by Holligner v. Titan Capital Corp., 914 F.2d

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1564, 1575 (9th Cir. 1990). “Proof of causation of economic loss is an element of a

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cause of action for securities fraud.” In re Juniper Networks Sec. Litig., 264 F.R.D. 584,

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594 (N.D. Cal. 2009) (citing Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005)).

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“Thus, in order to determine whether in-and-out traders should remain part of the

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proposed class, it is necessary to demonstrate that they might be able to prove a loss, i.e.,

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damages.” Id. (quoting In re BearingPoint, Inc. Sec. Litig., 232 F.R.D. 534, 544 (E.D.

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Va. 2006)).

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“District Courts in the Ninth Circuit have been in conflict with each other over

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whether in-and-out traders are appropriately included.” McGuire v. Dendreon Corp., 267

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F.R.D. 690, 699 (W.D. Wash. 2010). Plaintiffs rely on Buttonwood Tree Value Partners,

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LP v. Sweeney, where the district court declined to exclude in-out traders because “it

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remains an open question as to whether the [first in time disclosure currently identified by
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the parties] was [indeed] the first corrective disclosure, or the first time damages

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occurred.” 2013 WL 12125980, at *15 (C.D. Cal. Sept. 12, 2013) (internal citation

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omitted); see also McGuire, 267 F.R.D. at 699 (including in-out traders in the class at the

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class certification stage). Defendants rely on In re Juniper Networks, where the district

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court excluded in-out traders who sold their Juniper securities prior to the first date on

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which the plaintiffs allege that partially curative disclosures were made to the public.

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264 F.R.D. at 594; see also In re UTStarcom, Inc. Sec. Litig., 2010 WL 1945737, at *11-

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12 (excluding in-out traders who sold their stock before the first alleged corrective

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disclosure).

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Here, unlike Buttonwood, where it was unclear whether the first corrective

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disclosure identified by the parties was the indeed the first corrective disclosure, the SAC

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alleges only one corrective disclosure—the August 13, 2014 statement. Thus, only those

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who held SEAS Common Stock through that date were allegedly harmed. All other

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persons or investors who may have bought or acquired SEAS Common Stock during the

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proposed class period, but sold prior to August 13, 2014, “would not have suffered any

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injury because they would have also sold the stock at an alleged artificially inflated price,

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and the level of artificial inflation present in the stock cannot change, absent any

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intervening corrective disclosures.” Torous Rpt. ¶ 56.

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Accordingly, the Court excludes in-out traders from the class (i.e., those who sold
their SEAS Common Stock shares prior to August 13, 2014).
CONCLUSION
Based on the foregoing, the Court GRANTS Plaintiffs’ motion for class
certification. The Court certifies Plaintiffs’ class as follows:

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All persons and entities who purchased or otherwise acquired the publicly
traded common stock of SeaWorld Entertainment, Inc. between August 29,
2013 and August 12, 2014, who did not sell such acquired securities before
August 13, 2014, and were damaged. Excluded from the class are: (i)
Defendants, (ii) present or former executive officers of SeaWorld, members
of SeaWorld’s Board of Directors, and members of their immediate families,
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(iii) any of the foregoing persons’ legal representative, heirs, successors or
assigns, and (iv) any entity in which Defendants have or had a controlling
interest or any affiliate of SeaWorld.

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The Court appoints APERS and PBU as Class Representatives. Additionally, the

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Court appoints the law firms Nix Patterson & Roach, LLP and Kessler Topaz Meltzer &

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Cheek, LLP as Class Counsel.

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IT IS SO ORDERED.

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Dated: November 29, 2017

_____________________________
HON. MICHAEL M. ANELLO
United States District Judge

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