Collinsville Police Pension Board on behalf of the Collinsville Police Pension…

Background

The plaintiffs, two public pension systems, brought a proposed securities class action under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. They acquired Warner Bros. Discovery, Inc. common stock through the merger of Discovery, Inc. and WarnerMedia and through later open-market purchases. The plaintiffs alleged that pre-merger registration statements, prospectuses, information statements, a related filing, and a written earnings-call communication contained material misstatements or omissions that inflated the company’s stock price.

The alleged omissions concerned six subjects: the number and type of streaming subscribers; WarnerMedia’s shift in content-licensing strategy; whether WarnerMedia had analyzed the likely profitability of its content investments; the direct-to-streaming and simultaneous theatrical-release strategies; the planned cancellation of CNN+; and the scope and quality of Discovery’s merger-related investigation.

Motions and Legal Standard

Defendants moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Discovery, Inc. also moved to dismiss for lack of personal jurisdiction, but the plaintiffs conceded that Discovery, Inc. was not a proper defendant. The court applied the rule requiring a complaint to contain enough factual matter to state a plausible claim for relief, accepting well-pleaded factual allegations as true while not accepting unsupported legal conclusions as facts.

For Sections 11 and 12(a)(2), the court explained that liability can arise from a materially misleading statement or from omitting information needed to keep a statement from misleading a reasonable investor. The court also explained that a company generally need not disclose every fact investors might want to know, and that securities claims cannot be based on hindsight about later business results.

Analysis of Sections 11 and 12(a)(2)

Streaming subscribers. The offering documents reported subscriber totals and explained that the figures could include unactivated HBO and HBO Max accounts and subscriptions across Discovery’s direct-to-consumer services. The court concluded that the reported numbers were accurate and that the plaintiffs’ disagreement with the method of reporting did not identify an actionable omission. The company’s later decision to exclude certain subscribers from its reported totals did not make the earlier disclosures misleading.

Content licensing. The court held that the defendants did not have to disclose that WarnerMedia had reduced or de-prioritized new third-party licensing deals. The documents accurately described WarnerMedia’s existing licensing strategy and warned that licensing agreements might not be renewed or might be renewed on less favorable terms. The plaintiffs had not alleged that the defendants previously promised to follow an exclusive third-party-licensing strategy and then changed it without disclosure.

Profitability of content investments. The court found that the plaintiffs had not adequately alleged that WarnerMedia failed to analyze the likely profitability of its multibillion-dollar content investments. Later statements that some investments did not satisfy Warner Bros. Discovery’s preferred investment standards did not establish that WarnerMedia had conducted no profitability analysis before the merger.

Direct-to-streaming strategy. The court found that the plaintiffs had not adequately alleged that WarnerMedia continued releasing films simultaneously in theaters and on HBO Max during 2022. The cited post-merger statements instead indicated that Warner Bros. Discovery was shifting toward theatrical releases. The plaintiffs also did not adequately allege that defendants had access, when the offering documents were issued, to information showing that direct-to-streaming releases lacked economic value.

CNN+. The court held that the defendants had no duty to disclose alleged pre-merger plans to cancel CNN+. The offering documents made broad statements about the combined company’s entertainment, news, sports, and streaming content, but the plaintiffs did not explain how the alleged CNN+ decision made those broader statements misleading.

Merger-related investigation. The court held that the offering documents stated that the parties had conducted merger-related investigation and exchanged access to certain nonpublic information; they did not represent that Discovery had received complete access or that the investigation was adequate in every respect. The fact that Warner Bros. Discovery later reduced projected earnings did not make those statements false or misleading. The court also rejected an alleged duty to disclose that the investigation was inadequate because the plaintiffs had not pleaded unlawful conduct or shown that Discovery failed to conduct an investigation.

Section 15 claims

Section 15 provides a claim against a controlling person when there is an underlying violation by the controlled person. Because the plaintiffs had not adequately pleaded a primary violation under Sections 11 or 12(a)(2), the court held that the Section 15 claims failed as well.

Disposition

The court granted defendants’ motions to dismiss and dismissed the case with prejudice. It denied the plaintiffs’ request for leave to amend because they gave no indication how amendment would cure the deficiencies. The court directed the Clerk of Court to close the case and any open motions.