Hawaii Structural Ironworkers Pension Trust Fund v. AMC Entertainment Holdings

Background

Plaintiffs brought federal securities-law claims for themselves and a proposed class of people and entities who purchased or acquired AMC common stock connected to AMC’s February 2017 secondary public offering or during the period from December 20, 2016, through August 1, 2017. The defendants included AMC, officers and board members, and financial institutions that served as underwriters for the offering.

Plaintiffs alleged that defendants’ registration statement and other statements contained material misstatements or omissions. The allegations that remained after an earlier motion to dismiss concerned AMC’s alleged underinvestment in Carmike theaters, the conversion of Carmike loyalty-program members to AMC’s program, and the seasonality of AMC’s European business. The earlier motion to dismiss had been granted in part and denied in part; that earlier disposition was not the ruling addressed by this opinion.

Class-certification standard

The court applied Federal Rule of Civil Procedure 23. Under Rule 23(a), plaintiffs had to show numerosity, commonality, typicality, and adequacy of representation. Under Rule 23(b)(3), they also had to show that common legal or factual questions predominated over individual ones and that a class action was the superior method for resolving the dispute. Plaintiffs had to establish these requirements by a preponderance of the evidence, meaning that the requirements were more likely than not satisfied.

Rule 23(a) requirements

The court found that all four Rule 23(a) requirements were satisfied for both the Securities Act and Exchange Act claims.

For numerosity, plaintiffs presented evidence that more than 230 million AMC shares were purchased and sold on U.S. markets during the class period and that approximately 34.3 million to 55.1 million shares were issued and outstanding. The court concluded that the proposed class likely contained thousands of people, well above the threshold generally used for numerosity.

The court found commonality because the claims arose from the same alleged conduct and involved common questions, including whether defendants made materially false or misleading statements or omissions. It found typicality because the representatives’ claims arose from the same alleged misrepresentations and omissions as the claims of the proposed class.

For adequacy, the court found that the proposed class counsel were qualified and experienced in complex securities litigation and that the representatives’ interests were aligned with those of the class. Defendants argued that Hawaii Structural Ironworkers Pension Trust Fund was inadequate because its deposition representative lacked familiarity with the complaint, the investigation, the litigation’s developments, some public disclosures, and the fund’s trading records. The court nevertheless found that the representative understood the basic facts and nature of the claims, understood Hawaii’s role and duties as a class representative, and was willing to perform those duties. The court therefore found Hawaii Structural Ironworkers Pension Trust Fund adequate.

Rule 23(b)(3) requirements

The court found that common questions predominated and that a class action was superior for both sets of claims. Defendants did not contest these requirements.

For the Securities Act claims, the court explained that plaintiffs did not need to prove intent to deceive, reliance, or loss causation. The primary liability questions were whether AMC’s registration statement contained misrepresentations or omissions and whether they were material. The court held that these questions could be addressed with generalized proof.

The court rejected defendants’ argument that purchasers who bought shares on the secondary market should be excluded from the Section 11 class. Some such purchasers might need individualized proof to trace their shares to the challenged registration statement, but the court held that the possibility of individual tracing inquiries did not defeat predominance. The common liability issues would arise before any individual tracing issues.

For the Exchange Act claims, the court recognized that falsity, materiality, and loss causation were common issues for purposes of certification. Because reliance was the central issue, the court considered two presumptions of reliance. It found that the presumption for material omissions applied because plaintiffs had shown the materiality of the omitted information about Carmike’s underinvestment and AMC’s duty to disclose it. It also found that the fraud-on-the-market presumption applied to the affirmative misstatements because the statements were publicly known and material, AMC stock traded in an efficient market, and plaintiffs traded during the relevant period. The court noted that AMC stock traded on the New York Stock Exchange and that plaintiffs’ evidence showed average weekly trading volume of 14.1 percent during the class period. Defendants did not contest these presumptions.

The court also found that a class action was superior because multiple individual lawsuits would be costly and inefficient in this complex securities litigation.

Requested exclusions

The court denied defendants’ request to exclude Section 11 purchasers who sold AMC shares above the $31.50 offering price. It also denied defendants’ request to exclude Exchange Act “in-and-out” traders who sold before the August 1, 2017 corrective disclosure. The court reasoned that if those people were not damaged, they would not have viable claims, making express exclusions unnecessary and a damages determination premature.

The court further denied defendants’ request to exclude purchasers whose Section 12(a)(2) statutory seller was not an underwriter. Whether a defendant was a statutory seller was an element of liability, and the court concluded that deciding that issue was not necessary to determine whether Rule 23 was satisfied at the certification stage.

Lead counsel and disposition

The court confirmed that Shepherd, Finkelman, Miller & Shah, LLP was qualified to serve as class counsel under Rule 23(g), based on its experience and competence in complex securities litigation.

Judge Alison J. Nathan granted plaintiffs’ motion for class certification in full, denied defendants’ proposed exclusions from the class definition, and directed the parties to proceed with discovery under the existing case-management and scheduling orders. This order decided whether the claims could proceed as a class action; it did not determine defendants’ ultimate liability on the securities claims.