In Re: Anheuser-Busch InBev SA/NV Securities Litigation

Background

Lead Plaintiff City of Birmingham Retirement and Relief System brought a proposed class action against Anheuser-Busch InBev SA/NV and its officers Carlos Brito and Felipe Dutra. The operative amended complaint covered investors who purchased Anheuser-Busch American Depositary Shares between March 1, 2018, and October 24, 2018.

The complaint asserted two claims. Count One alleged that Anheuser-Busch violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 by making materially false or misleading statements. Count Two alleged that Brito and Dutra were liable as control persons under Section 20(a) of the Exchange Act.

The allegations focused on Anheuser-Busch’s statements that it was on track to reduce its debt, expected dividends to grow modestly over time, had sufficient liquidity, and had managed its currency and other financial risks. In October 2018, the company announced a 50% dividend cut, citing currency volatility and the need to accelerate debt reduction. The price of its American Depositary Shares then declined by approximately 9.5%.

Legal standards

To survive a motion to dismiss, a complaint must contain enough factual matter to state a plausible claim. Securities-fraud claims also must meet heightened pleading requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. The complaint had to identify each allegedly misleading statement, explain specifically why it was misleading, and plead particular facts creating a strong inference that the defendants acted with the required intent to deceive, manipulate, or defraud. Recklessness can satisfy that intent requirement.

A Section 20(a) control-person claim requires an underlying securities-law violation, control over the primary violator, and culpable participation in the fraud.

Reasons for dismissal

The court held that most of the challenged statements were forward-looking statements. Statements that the company was tracking its debt-reduction targets and expected dividends to grow concerned projected performance and future dividends, even when combined with statements about current progress.

The court also held that the statements were accompanied by meaningful cautionary language. Anheuser-Busch’s Form 20-F warned that the company might be unable to pay dividends and explained that dividend payments would depend on its outlook, cash-flow needs, financial performance, market conditions, the economy, and other factors. It also warned that the increased debt from the SABMiller combination could restrict the amount of dividends the company could pay. The court concluded that the Private Securities Litigation Reform Act’s safe harbor protected the forward-looking statements.

The court found that the statements about the company’s debt profile and exposure to currency volatility were not adequately alleged to be false or misleading. The complaint relied mainly on the fact that currency volatility later became one reason for the dividend cut. The court characterized that reasoning as impermissible fraud by hindsight.

The court further treated the dividend-growth statements as opinions. It held that the complaint did not specifically allege that the defendants disbelieved their statements, supplied false supporting facts, or omitted information about their investigation or knowledge in a way that made the opinions misleading when made. The existence of financial challenges did not by itself make the defendants’ optimistic opinions actionable, particularly because the company had acknowledged risks and described efforts to manage them.

Separately, the court held that the complaint did not adequately plead scienter, meaning the required intent or recklessness. The allegations that Brito and Dutra held senior positions, were responsible for company statements, knew the importance of the dividend, and had access to financial information were too general. The complaint did not identify a specific financial metric, report, or other information that supposedly showed the company could not maintain its dividend when the statements were made. It also did not allege that the defendants had already planned to cut the dividend at that time.

Because the complaint failed to plead a primary violation under Section 10(b) and Rule 10b-5, the court held that the Section 20(a) control-person claim also failed.

Disposition

Judge Alvin K. Hellerstein granted Defendants’ motion to dismiss. The opinion states that Count One and Count Two were dismissed, and it directed the Clerk to close the open motion and the case. The opinion does not state that the dismissal was with or without prejudice.