City of Birmingham Firemen's and Policemen's Supplemental Pension System v…

Background

The City of Birmingham Firemen’s and Policemen’s Supplemental Pension System brought a putative class action against Ryanair Holdings plc and its Chief Executive Officer, Michael O’Leary. The plaintiff asserted claims under Section 10(b) of the Securities Exchange Act, Securities and Exchange Commission Rule 10b-5, and Section 20(a) of the Act.

The complaint alleged that Ryanair and O’Leary misled the market about three subjects: Ryanair’s labor relations, the effect of labor developments on profitability, and Ryanair’s ability to meet growth targets. The alleged class period ran from May 30, 2017, through September 28, 2018.

According to the complaint, Ryanair had historically opposed employee unions. After labor problems, including flight cancellations caused by a pilot-rostering issue, Ryanair announced in December 2017 that it would recognize unions for pilots and cabin crew. During later union negotiations, employee strikes caused additional flight cancellations. Ryanair later disclosed a 32 percent increase in personnel costs and a 12 percent decrease in projected earnings, followed by a decline in its stock price.

Motion-to-dismiss standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Because the case involved alleged securities fraud, the complaint also had to meet heightened requirements under Rule 9(b) and the Private Securities Litigation Reform Act. It had to identify the allegedly fraudulent statements, their speakers, where and when they were made, and why they were fraudulent.

For the Section 10(b) and Rule 10b-5 claims, the plaintiff also had to plead a material misrepresentation or omission and scienter, meaning an intent to deceive, manipulate, or defraud, or sufficiently reckless conduct.

Unionization statements

The court held that the plaintiff adequately pleaded claims based on statements indicating that unionization was highly unlikely. The complaint cited statements by O’Leary that Ryanair would remain nonunion and that unionization would not occur. The court found those statements difficult to reconcile with O’Leary’s later statement that he had long anticipated that Ryanair would eventually become unionized.

The court concluded that these allegations adequately pleaded falsity, materiality, and scienter for the unionization-related statements. Those Section 10(b) and Rule 10b-5 claims were therefore not dismissed.

Other labor-relations statements

The court dismissed claims based on general statements describing Ryanair’s pay, working conditions, job security, and career opportunities. It treated those statements as “puffery,” meaning generalized promotional language that a reasonable investor would not ordinarily rely on.

The court also found that the plaintiff had not pleaded with enough specificity that Ryanair’s explanation for the September 2017 flight cancellations was false. The cited pilot letter, analyst comments, media reports, and executive statements did not sufficiently show that the defendants knew the explanation was false when they made it.

Profitability statements

The court dismissed claims based on statements minimizing the effect of the European Court of Justice’s Mons decision on Ryanair’s costs. The complaint did not identify specific facts showing that the defendants knew, when they made their predictions, that the decision would increase compensation, social taxes, or litigation costs.

The court also dismissed claims alleging that the defendants misleadingly minimized the long-term costs of union recognition. The plaintiff had not pleaded specific facts showing that the defendants knew at the time that unionization would materially affect Ryanair’s cost structure or operational flexibility. Evidence that employees had made demands before unionization did not establish that the defendants knew the eventual consequences were certain.

Growth-target statements

The court dismissed claims concerning Ryanair’s target of carrying 200 million passengers by March 2024. The plaintiff had not identified specific information available to the defendants when the target was issued showing that the target depended on unionization. Analyst opinions and O’Leary’s later statements about expansion into France and Scandinavia did not establish that the target was false when made.

Control-person liability

The plaintiff also asserted Section 20(a) control-person claims. Because those claims required an adequately pleaded primary securities-law violation, the court dismissed them except to the extent they were based on statements about the likelihood of unionization.

Leave to amend and other motion

The court granted the plaintiff leave to amend the dismissed claims. The plaintiff had requested permission to file an amended complaint, and the court noted that plaintiffs are typically given at least one opportunity to plead alleged fraud with greater specificity when claims are dismissed under the heightened pleading rules.

The plaintiff separately moved to strike appendices and exhibits attached to the defendants’ motion. Because the court had not relied on those materials, it denied that motion as moot.

Disposition

Judge J. Paul Oetken granted in part and denied in part the defendants’ motion to dismiss. The claims based on statements about the likelihood of unionization remained, while the other challenged claims were dismissed. Leave to amend was granted, and the motion to strike was denied as moot.