Rio & Buster
Rio: Quick, gimme a place I could be going
Buster: Where do scumbag lads from the 24 holiday?
Rio: 😑
Rio: Safe to say nowhere that looks like the French Riviera
Rio: going somewhere without phone signal guys, no there won't be pics to show you when I'm back either, bye
Buster: For real though, you could say you've got a job somewhere
Buster: No tourist shots 'cause you're working so hard, like
Buster: Under lock and key serving those drinks
Rio: Hmm
Rio: might work
Rio: can just say it was shit when I come back after no time at all
Buster: When you're getting picking grapes at a vineyard but don't get picked by the man of your dreams 💔
Buster: You just can't get the daddies these days, babe
Rio: 😂 Shut up
Rio: clearly past it but you don't need to rub it in
Buster: You shut up
Buster: You're with me, you've never looked better
Rio: Firstly, that's the point, no I ain't
Rio: Stick to the story boy!
Buster: 😂
Buster: Didn't realise you were screenshotting this convo, like
Rio: Obviously
Rio: Everyone so highkey
Rio: Like no one's questioning Nance what she's really doing or who she's going with 🙄
Buster: If you wanna go gay so nobody questions why you're coming with me you probably should've put some groundwork in before now
Buster: Better go kiss some hot girls quick, like
Rio: Very subtle, babe
Rio: Been there, done that
Rio: still don't think it's gonna be bought
Buster: 😏
Buster: Have you actually?
Rio: 🙄
Rio: FOCUS
Buster: I am
Buster: On that
Rio: Thought you didn't like sharing?
Rio: Double standard, like
Buster: It was before me so I'm not
Rio: Hmm
Rio: Not dying to know all the hot lads I've kissed though are you 😂
Buster: We can compare numbers if you want, babe
Buster: No shame here
Rio: Knew it 😏
Rio: Posh boys
Buster: It's not my fault if half the boys at school are in love with me
Buster: Irresistible, aren't I
Rio: So charitable
Buster: Well, I was gonna take you shopping before we go but if you don't wanna then fine
Rio: I was being nice
Rio: 😇
Buster: I reckon you can be nicer
Rio: Fine
Rio: I'll tell you all about the hot girls
Buster: Yeah?
Rio: but first 💳 me
Buster: Fine
Buster: I was being purely selfish anyway, there's so much shit I need before we can go
Rio: Jokes, babe
Rio: Same though
Rio: Last year's bikini ain't gonna cut it
Buster: Honestly, you can't be showing me up even if you are safe from the socials
Buster: So tell me what you need
Rio: I ain't walking 50 paces behind you
Rio: even if you've got lanky ass legs
Buster: Please, I could get you to do anything
Buster: But there's no fun in that, you gotta walk in front if anything
Rio: Keep it up and I'm walking away fr
Rio: Birthday boy or nah
Buster: 😂
Buster: Try it, I'm faster than you, and I'll easily just pick you up and carry you away, babe
Rio: 😠 Try it
Rio: 👊
Buster: I will if I have to
Rio: I wouldn't if I were you, I couldn't find you anything special so I'm like half your present still
Rio: Keep me on side, trust
Buster: You're protesting too much. You know you'd love it
Rio: Shh
Rio: You're being very unhelpful when I'm sat here tryna swear blind I ain't going away with a lad
Buster: You should just admit you are
Buster: That way we don't have to keep the bruising to a discrete minimum
Rio: Effort though
Rio: creating a fake mans, easiest way to get caught out
Buster: I'm real
Buster: Just don't use my name or family tree, obviously
Rio: Work on my mates
Rio: Not sure if the fam is that dim
Rio: hmm, sounds vaguely familiar 😂
Buster: How many details do they need?
Buster: Fucking hell
Buster: None of your business fam 😂
Rio: You have no idea 🙄
Rio: Perks of avoiding 'em truly
Buster: All your exes drop in with a CV and blood sample or what, like?
Rio: Don't
Rio: You know my 'rents out here making 'em part of the fam when we're like 2 weeks in
Rio: irony not escaping me 😬
Buster: We're literally never telling 'em
Buster: I'd have to dump you
Buster: Christ
Rio: What have I been saying?
Buster: How the fuck have our parents got such different vibes?
Rio: I know, how did my Ma happen tbh? 😂
Buster: She fits in to this fam's whole touchy feeling mood
Buster: It's my 'rents who are keeping that professional distance
Rio: You reckon?
Rio: It's a pretty even split tbh
Rio: how often are we seeing Joe, like
Buster: True
Buster: But like, I told my dad the birthday plan, cool place, hot girl, and he hit with an eyebrow and moved on
Buster: Nan and Granddad spinning in the graves they ain't yet in
Rio: Don't jinx 'em like
Rio: but nah
Rio: I reckon they just reckon that's how you prefer it
Rio: Little enthusiasm wouldn't hurt, though
Buster: Maybe they used it all on Nance's ideas
Buster: Gotta make sure she doesn't dramatically throw herself into the sea or some shit
Rio: I'm telling ya
Rio: Gon' be sipping cocktails with a babe in some naff resort
Rio: Got you all so fooled with this artsy shit
Buster: 😂
Buster: Benidorm with a butch
Rio: I'm glad you went for that joke 'cos it's too soon for Costa Del Sol with a cougar, like
Buster: Don't start me on the whole MILF thing
Buster: 🙄
Rio: Poor Nance
Buster: You've gotta draw the line when she's got actual existing kids
Buster: I'm not trying to be that kind of daddy
Rio: Don't think she planned on bringing the kids along, like
Rio: So not part of the fantasy
Buster: Don't
Buster: Never say fantasy in relation to Nance again, yeah?
Rio: Got it
Rio: That's a line I'm fine not crossing, don't worry
Buster: Better be
Buster: If you tell me she's one of the hot girls you've kissed we're over
Rio: Don't be twisted
Buster: I'm just saying
Buster: No need to take the sibling rivalry there
Rio: Gross
Rio: safe to assume I ain't her type either, like
Buster: Unlucky babe
Rio: 💔
Rio: Guess you'll do
Buster: Fuck off
Buster: You love me
Rio: Yeah
Rio: you know
Buster: Say it though
Rio: I love you
Rio: Idiot
Buster: You better
Buster: I'm sharing my birthday with you
Buster: Haven't done that since I was a kid, cheers
Rio: Hey, I'm fine with a party bag, babe
Rio: All about you
Buster: I'm not gonna hit you with a slice of cake and send you on your way
Buster: Don't worry
Rio: Good to know
Rio: Bit of a trek for some Colin the catterpillar tbh
Rio: love you and everything but
Buster: 😂
Buster: You think my mum ever gave us that? Come on
Rio: And you tryna say they're so zoned out
Buster: Always ready to brag, every single one of us
Rio: You know I had the best though
Rio: 👸
Buster: 'Course
Rio: When ur first daddy just spoils you too hard, like
Rio: 💁
Buster: Explains a lot
Rio: wys boy
Buster: 😏
Rio: Rude
Rio: 😣 Imma stay here if you're not being nice
Buster: It ain't. You know I like it
Buster: Start shopping, babe, you'll see how nice I'm ready to be
Rio: Ain't even got your bday money yet baby
Buster: We're spending that when we're there
Rio: Exactly, so I got me
Buster: It's my birthday you have to do what I want
Rio: But
Buster: But nothing
Buster: I've got you
Rio: Okay
Rio: I won't argue
Rio: bday rules and all
Buster: Good
Rio: How many out out outfits do I need?
Buster: like 4
Rio: Right
Rio: I can make this work
Buster: No doubt
Buster: Not to sound like my sister but I swear I'm over my entire wardrobe right now
Rio: 😂
Rio: Any excuse
Buster: Babe you can laugh but what the fuck is some of this? Like seriously
Rio: 😏 I mean
Rio: sure I tried to tell you at the time
Buster: I find that hard to believe
Buster: You always manage to make yourself heard somehow
Rio: I know
Rio: Impressive, isn't it?
Buster: One word for it
Rio: Come on, ain't trying keep you quiet
Rio: say what you mean, babe
Buster: Don't distract me, I'm very busy 😏
Rio: Having a wardrobe crisis, sure
Rio: Promise, don't care what you're wearing
Buster: Alright, catch me in the finest the 24 has to offer
Rio: Hoping to catch you out of 'em like but alright
Buster: You don't need hope
Buster: Just determination
Buster: Have you thought of your lie yet?
Rio: Planning to be hard to get all of a sudden?
Rio: I'm just gonna not lie
Rio: but be vague, obviously
Rio: social media ban should keep from suspicion, been to enough places I can describe a generic hol, like
Buster: Well, you're always saying I'm vague and you'll know where I am if you need a hand
Buster: Have you been too enough places with shit WIFI to make that believable though?
Rio: 😩 idk
Rio: its stressing me
Rio: maybe you're camera shy
Rio: or ugly as hell
Buster: Baby calm down it's alright
Buster: This is meant to be a good thing, yeah?
Buster: Me and you together celebrating
Rio: I know
Rio: I'm sorry
Rio: Everyone can just respectfully fuck off for a bit
Rio: It'll be good, I will, promise
Buster: I love you
Buster: And we're gonna figure this out
Rio: I love you too
Rio: pisses me off 'cos it feels needless
Rio: I know we have to and it ain't but, shouldn't have to be this much of a drama
Buster: Yeah, I know
Buster: I know what I said about keeping your fam in the dark forever and tempting as it is, I swear it won't always be like this
Rio: Don't chuck me
Buster: Don't be an idiot
Rio: It's what you said
Buster: Come on
Rio: I know
Rio: this is why we ain't telling
Rio: talk about an awkward breakup
Rio: imagine if your 'rents had
Rio: did they ever think of that like, could hardly avoid each other
Buster: Maybe they did but they couldn't handle the awkwardness
Buster: Fuck staying together for the kids, they had to do it for the whole fam's sake, like
Rio: Oh my God
Rio: what I'm saying, really trapped themselves
Rio: 😬
Buster: If you get sick of me give me warning so I can move to another country, yeah?
Rio: 'Course
Rio: least I could do
Buster: Cheers
Rio: Promise I won't get all psycho Chlo about it either
Buster: Don't
Buster: I see her at school so often it's got me so jumpy every time I walk past a mirror I cross myself in case she appears
Rio: Yeah, that is shit
Rio: at least I don't HAVE to be anywhere Ryan is
Rio: can hardly walk out or tell her to leave
Buster: Yeah
Buster: Speaking of that cunt though, how's he been behaving?
Rio: Been pretty quiet
Rio: knock on wood, like
Rio: saw him in town once and he was his usual charming self but that was just chance so
Buster: Glad I don't have to waste a wish on that then
Rio: Definitely not
Rio: Lucky that, really don't fancy adding him to the list of people I gotta give the dl on where I'm going 😂
Buster: Lucky 'cause I don't fancy you getting mad at me when I knock him out, more like
Rio: Oh, babe
Rio: forget about him, I am
Buster: Sorry
Rio: Don't be
Rio: You're cute, and I wouldn't be mad on principle
Buster: I hate that I can't protect you from all his shit, that's all
Rio: I know
Rio: but it ain't that bad
Buster: I get that you can handle it, I'm not saying that, I just don't want you to have to
Buster: If I could be the protective boyfriend and warn him off everything would be fine but
Rio: Maybe but
Rio: maybe not
Rio: he's just a prick
Buster: Yeah
Buster: Fuck him, we don't need to talk about him anymore
Rio: Agreed
Rio: Maybe I can get a job out there
Rio: in the casinos, hmm
Buster: We're meant to be playing hard not working hard, babe
Rio: You know I gotta hustle
Rio: I'm over the angel fr
Buster: Get a London job when we get back, then I'll never have to miss you
Rio: That'd be nice
Rio: But we both know I can't
Buster: Lie to me
Buster: I want you here all the time
Rio: I wanna be with you all the time too
Rio: Again, one day
Rio: I think Drew would at least cover Indie's rent but she shouldn't be alone, she's still a kid
Buster: Yeah, I know
Buster: You wouldn't be you if you didn't look out for her
Buster: And I quite like you so
Rio: 😏 Steady
Rio: Don't get all mushy
Buster: 'Course not
Buster: Who do you think I am?
Rio: Was gonna say
Rio: slow down and wait for me if you've already started your celebrations, like
Buster: I wish
Rio: We'll be making up for lost time so soon baby
Buster: You gonna jump out of a cake for me?
Rio: Couldn't get Dad to bake me in
Rio: Spoilsport much
Buster: 😂
Buster: To be a fly on the wall for that convo, though
Rio: He knows I'm extra but
Buster: Unfair 'cause I'm always insisting you keep my secrets but you're such an open book, babe
Rio: I dunno
Rio: I kinda like it just being me who knows
Rio: How selfish
Buster: I'm well proud
Buster: You really are learning
Rio: Bound to happen eventually
Rio: So persistent, babe 😉
Buster: What can I say? You're worth putting the work in
Rio: 😚
Rio: Baby
Buster: I'm not going soft, don't worry
Buster: I'll be rude to you later, I'm sure
Rio: Be the rudest if you did go soft on me
Rio: Ultimate insult
Buster: Fuck that
Buster: I could never
Rio: Happens to the best of us, don't worry 😂
Buster: Shut up
Rio: Really, nothing to be embarrassed about babe
Buster: Are you trying to jinx me or what?
Buster: Good luck
Rio: Just giving you something to prove
Rio: you're so adorable when you're mad
Buster: You trying to say I've still gotta prove myself to you?
Rio: No
Rio: I'm saying I like it when you do
Buster: Yeah?
Rio: Yeah
Rio: been too long
Buster: I miss you too, babe
Rio: It's so stupid
Rio: not even gone yet and already thinking about how much I'll miss you when we're back
Buster: It's shit
Buster: But it'll be Christmas hols before we know it and nobody can bat an eyelid about us being together then
Rio: Hooray for forced family time, yeah?
Rio: Don't let anyone hear YOU saying that though, so suspect
Buster: You know I don't waste my time talking to any of that lot
Rio: Hmm
Rio: So bad 😏
Buster: I wonder if Nance will be in a better mood with me by then
Buster: Don't really wanna have to do a whole secret santa vibe
Rio: Season of goodwill
Rio: Can put hope
Rio: add it to your wishlist now, like
Buster: I'll start thinking about her gift soon
Buster: Go big or go home, literally maybe
Rio: Work on that Winter wardrobe
Buster: Maybe I can send her on another trip, get her out of my way and do a nice thing all at once
Rio: Maybe
Rio: Sure you don't wanna spend time with her though?
Buster: You're funny
Rio: I'm not joking, like
Buster: Well, it's still hilarious
Buster: I'm trying to get her on side not further off
Rio: Maybe it is running before you can walk
Rio: still, gotta start somewhere, babe
Buster: You do, you mean
Buster: You're well determined to sort this, aren't you?
Rio: Your relationship with your family?
Rio: Duh
Buster: You're cute
Buster: Annoying but cute
Rio: What, like you want it like this
Rio: Come on now
Buster: Like it matters how I want it
Buster: I don't get to fuck up and still call the shots
Rio: It does matter
Rio: and she's not renounced you
Rio: it ain't that deep
Rio: not quite
Buster: Whatever
Buster: I can't make her talk to me
Buster: She's not you
Rio: I'll lock you in a room like
Rio: she can be mad at me then instead
Buster: Don't you dare
Rio: 😂
Rio: Don't be a baby
Buster: Don't start
Buster: You were behaving
Rio: Only lasts for so long
Rio: Do something about it if you're mad
Buster: Nice try
Buster: I'm not gonna make it that easy for you to get what you want
Rio: 😒
Rio: I'm so offended
Buster: Don't be a baby
Rio: 😲
Rio: Touche
Buster: 😏
Rio: 😣
Buster: Are you giving up just like that, babe?
Rio: I'm very busy don't distract me
Buster: Touche
Buster: But you didn't listen when I said it, so don't expect me too
Rio: I'll leave you to it then
Rio: So sorry
Buster: Don't
Rio: Sure?
Buster: Stay
Rio: 'Course
Rio: You don't want a kitten, do you?
Buster: You've got so many jokes today
Rio: We're giving Nancy one
Rio: Ma found a pregnant cat
Rio: they're so cute
Buster: 'Course she did
Buster: Sounds like you want me to have one so you can, babe
Rio: Shh
Rio: stop foiling my plans
Rio: [pics]
Buster: I'm not raising a baby with you
Rio: Cats are so low maintenance
Rio: it will keep you company
Buster: Good for them 'cause I ain't
Buster: Also not lonely, like
Rio: Boo
Buster: Take one for Indie, I'm sure she'd be buzzing
Buster: So would the cat if they can get high, like, but
Rio: I'm definitely not giving you one now
Rio: don't get a cat stoned, you monster 😂
Rio: and Indie wants a dog
Buster: Dogs can definitely get high, right?
Buster: Sure I've seen that online before
Buster: Indie'll have to clean up her act
Rio: We'll see if that's strong enough incentive
Rio: I doubt it but
Buster: Yeah
Buster: She'd have to get pregnant to make that stick I reckon and nobody's ready for that
Rio: Don't even play
Rio: Jesus
Buster: Just saying
Buster: Unlikely you'll be taking care of a puppy or kitten any time soon
Rio: We can have a dog
Rio: not like she's gonna be blowing smoke in the poor things face
Rio: so dramatic
Buster: You don't reckon you've got enough responsibility with her and the flat?
Buster: More fool you
Rio: Only got to walk and feed it
Rio: waaayyy easier than Indie
Buster: True
Buster: What isn't though?
Rio: Bless her
Buster: Maybe I can throw a kitten Chlo's way
Buster: Properly distract her
Buster: She'd probably call it a love token though, yeah?
Rio: Um yeah
Rio: may as well wife her now, like
Rio: no no
Rio: and she ain't having one of mine 😒
Buster: What so you're gonna keep them all?
Rio: Have you been to my gaff?
Rio: Probably 😂
Rio: if Ma knows people who might want 'em then they'll go
Buster: I can't believe you're giving my sister one
Rio: She's so buzzing
Rio: Easy bday present forreal, unlike some
Buster: I thought you were my present
Buster: So unless you're gonna be difficult
Rio: I had to get you something
Rio: Don't get too excited though
Rio: well, can about me
Rio: standard 😉
Buster: I was gonna say
Buster: Don't do yourself down, babe
Rio: Please
Buster: I mean, do put the work in still
Buster: As much as I miss you, you've still gotta bring it
Rio: When have I ever done anything less?
Buster: I can't lie, you ain't yet but you know
Buster: You might get bored of all this
Rio: You gonna stop bringing it too?
Rio: 'Cos that's the only way that's happening
Buster: Please
Buster: That shit's impossible
Rio: Glad to hear it, babe
Buster: I love you
Rio: Love you
Buster: I wish we could go now
Buster: With or without your fam's need for details being satisfied
Rio: Me too
Rio: I don't care no more
Rio: think I'm drug trafficking if you like
Rio: save the intervention 'til I'm back, though
Buster: 😂
Buster: Seriously, it's bad enough that I can't brag that I'm with you day to day, on my birthday when you're the gift that keeps giving, I should be able to
Rio: Babe
Rio: You're so cute
Buster: Shhh
Buster: You know I'm speaking the truth
Buster: So over not being able to pose with you ever
Rio: I know
Rio: Me too
Rio: but it's still worth it
Buster: 'Course
Buster: Don't ever think I'm saying it ain't, yeah?
Buster: Unless I actually do, but that's not happening
Rio: Got it
Rio: When do you reckon we can tell people
Rio: or if we should
Buster: I'll tell them now if you want
Buster: Just say the word
Rio: You don't wanna do that
Rio: time for celebration yeah
Buster: I want you
Buster: It's too late for them to take their gifts back if they ain't still in the mood to celebrate
Rio: Priorities
Buster: When do you wanna do it? Sat around the Christmas tree, like?
Buster: There's never gonna be a good time
Rio: Exactly
Rio: I'm scared
Buster: I know
Buster: But whatever happens, you're safe with me
Buster: I'm not going anywhere, not without you
Rio: Yeah
Rio: I feel it, I really do
Rio: We'll think about it, but we've got fun to have first, like
Buster: Just think, they can't all hate us, there's so many of them, that's basic probability, yeah? Someone's gotta be alright with it
Buster: It's not like any of the fam actually have room to judge anyway
Rio: It's a number's game, yeah? 😂
Rio: Already thinking like you in that casino
Rio: I don't want any of them to hate us, is the issue but you know
Rio: gotta be real
Rio: it's too hard to live like this and think it's forever, nah
Buster: You know it, babe 🎲 I'm so ready
Buster: Yeah, but I don't reckon anyone will
Buster: Not with all the shit this fam has been through already
Buster: And like you said, even if there's drama, it's gotta be done
Rio: Same 💃
Rio: I don't wanna think about it anymore, distract me
Buster: Okay baby
Buster: [Sends pics]
Buster: Think about me
Rio: How could I think about anything else now? 😻
Rio: Why you so good
Buster: Spending too much time with you, obviously
Rio: I mean #myinfluence
Rio: Your nude game has no doubt gone ⬆
Buster: Doing yourself a favor is the ultimate selfishness
Buster: Well done
Buster: So proud
Rio: See? I knew what I was doing all along 😚
Rio: Basic rules of karma, send good nudes and you shall receive
Buster: I'll ignore the implication that my angles were for shit before, yeah?
Buster: 'Cause when you asked for a distraction I don't reckon you wanted a fight
Rio: Come on 😏 Gimme that
Rio: you can say you've my fair lady'd me if you want
Buster: I'll let you have it 'cause I know I wasn't trying for the girls in this postcode
Buster: If you promise not to get too fancy on me
Rio: I'm not gonna be the one to call myself a bit of rough but we all thinking it
Buster: I was gonna say real
Buster: But alright
Rio: I prefer that
Buster: Whatever we're calling it, it's working for me
Buster: I like you
Rio: Works for me
Rio: You're not so bad yourself too so
Buster: Yeah, I know
Buster: 😏
Rio: Letting you have it
Buster: What else are you gonna let me have before it's officially my birthday?
Rio: Not your presents, if that's what you're thinking
Buster: Come on
Buster: I'll act proper surprised on the day
Rio: 😏
Rio: Was about to doubt your acting ability but we've pulled this off so far so maybe you can be trusted
Buster: No need to ever doubt me, babe
Buster: I'm that good
Rio: Okay, just one, like
Rio: Mum enough for you? 😂
Buster: 😂
Buster: OG MILF
Buster: Nance missed a trick there
Rio: It's frankly insulting
Rio: she's seen me in peak ma action and still not feeling it
Buster: Poor baby
Buster: I got all the good taste, that's all
Rio: 😻
Rio: Gonna let you have that too, not just to save my ego
Buster: You know it's true too
Buster: You've always been my type, babe
Rio: Yeah?
Buster: Yeah
Buster: Don't let the torture like kiss fool you
Buster: I reckoned it was gonna be my finest moment, at the time
Rio: It was perfect
Buster: Babe
Buster: Don't lie
Rio: I mean
Rio: obviously it wasn't the most technically perfect but
Rio: I'm glad it was you
Buster: Me too
Buster: My mum and dad talk a lot of shit but there's something to be said for having firsts with someone
Buster: Someone you actually want
Rio: Yeah
Rio: never good to look back on someone you've been with and really think, what the fuck
Buster: I've got enough of them without adding you to the list
Rio: Same frankly
Rio: Gotta try and keep the number down
Buster: Exactly
Buster: Why I don't do repeats
Rio: Well, the idea is repeat when you like 'em
Rio: not guaranteed you won't regret but you know, better odds in that category
Buster: 'Course
Rio: Have you ever slept with the same person more than once though?
Rio: Surely
Buster: Yeah. You
Buster: I mean, when I was a kid I did all my firsts with the same girl but once we fucked she chucked me so
Buster: Lesson learned
Rio: Awh
Rio: How mean
Buster: She regretted it
Buster: Not my bad, like I was obviously incredible but
Rio: Naturally
Rio: Nah, most people do
Rio: well, from what I can gather, the girls do and the boys were just scared then underwhelmed by it all
Rio: oh god, do not take me back, like
Buster: Same
Buster: Granted there's a lot of shit I could and would do better or not bother doing in the first place but like
Buster: Nah
Rio: Yeah, can't waste your time on that
Rio: who knows who or where you'd be now if you did it different, like
Buster: Cunt then, cunt now
Buster: It doesn't matter
Rio: Shut up
Rio: You are not
Rio: and you weren't that bad, anyway, we're all entitled to that phase
Buster: You're so biased
Buster: Just always loved me
Buster: Can't get enough of it
Rio: 😏
Rio: Why do you want me to think you're a cunt so bad, honestly
Buster: 'Cause I am
Buster: And you're too smart to buy into my bullshit, yeah?
Rio: I am
Rio: but you might not be if you're actually convinced you're a bad person, like
Buster: I'm not saying I'm 😈 just that I ain't a good person, let's be honest
Buster: Chlo reckons you can't buy class but what you can't buy is a decent set of morals
Rio: You are
Rio: You've just done some shit things and who hasn't
Buster: Like I said, you're shamelessly influenced by your 😍
Buster: I'm not mad about it though
Rio: 😑
Rio: No
Buster: Don't get mad about it yourself
Rio: I'm not mad just
Rio: You should know you aren't a bad person
Buster: Give me another year of being stuck here being a cunt first
Buster: 'Cause I know there ain't much I can do about that
Rio: That don't count, they don't deserve nice things or you
Buster: Stay with me though, yeah? Even though you do
Rio: I will because you are
Rio: You're good where it counts
Rio: and you're gonna make things up with Nancy you know
Buster: I'm gonna try
Buster: Patience is one thing I am good at, like
Buster: Get it done in the end
Rio: Exactly, you wouldn't give a shit if you were an actual cunt
Buster: I'm sure not every cunt is an only child, babe
Buster: She's still my sister
Rio: Stop fighting it
Rio: Accept your 😇
Buster: Alright
Buster: But only 'cause I'm hoping it means you get to be 😈
Rio: Might make an exception for you, babe
Rio: 'cos you know, I'm practically perfect in every way, like
Buster: Yeah
Buster: Perfect for me, which means you know when to be good and when not to
Buster: So please
Rio: Okay
Rio: I'm convinced 😈
Buster: Glad to hear it
Buster: Call me until I'm convinced too
Rio: 🤤 Sir yes sir
0 notes
GE trying to get case dismissed.
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
M & M HART LIVING TRUST, individually and on behalf of all others similarly situated,
Plaintiff, v.
GLOBAL EAGLE ENTERTAINMENT INC., DAVID M. DAVIS, THOMAS E. SEVERSON JR., and MICHAEL ZEMETRA,
Defendants.
Case No. 2:17-cv-01479 PA
DEFENDANTS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THEIR MOTION TO DISMISS PLAINTIFF’S AMENDED CLASS ACTION COMPLAINT
Hon. Percy Anderson Courtroom 9A
Hearing Date: July 17, 2017 Hearing Time: 1:30 p.m.
Action Filed: February 23, 2017 Trial Date: Not set
Defendant Global Eagle Entertainment Inc. (“Global Eagle” or the “Company”) and Defendants David M. Davis, Thomas E. Severson Jr., and Michael Zemetra (collectively, the “Individual Defendants”) respectfully submit this Memorandum of Points and Authorities in support of their Motion to Dismiss Plaintiff’s Amended Class Action Complaint (the “FAC”).
PRELIMINARY STATEMENT
Plaintiff claims Defendants committed fraud by waiting until February 2017 to tell investors that Global Eagle’s 2016 Form 10-K would be delayed due to, inter alia, its increased size and complexity following a major acquisition and certain material weaknesses with respect to its internal controls. This claim fails because Global Eagle timely and repeatedly disclosed its material weaknesses and warned the market that it faced potential filing delays. Moreover, Plaintiff fails to plead any facts showing Global Eagle should have made this disclosure any sooner than it did.
Global Eagle provides satellite-based connectivity and media content to its customers. Since its inception in 2013, the Company has grown rapidly (in large part by acquisition) and has expanded from its initial customer base—airlines—to also provide connectively, content, and media services to ships and remote land locations. As often happens with fast growing companies, Global Eagle has faced certain challenges associated with its growth. In particular, since 2013, it has reported certain material weaknesses with respect to its control environment, as its Finance Department and related personnel have endeavored to keep up with its growth in scope and scale. Importantly, none of these material weaknesses has ever required a restatement of the Company’s prior financial statements, and the Company has devoted considerable resources to remediating these issues.
On July 27, 2016, Global Eagle acquired Emerging Markets Communications, a company focused on maritime and remote land connectivity. This was Global Eagle’s largest acquisition to date. On February 21, 2017, the
Company announced executive management changes and disclosed it would be late in filing its 2016 Form 10-K Annual Report due to, inter alia, the impact of the EMC acquisition on its financial reporting processes and the need to undertake additional accounting procedures as a result of its previously disclosed material weaknesses. The Company’s stock price declined and this suit soon followed.
Plaintiff alleges, in conclusory fashion, that Defendants “misled investors about the success of the [EMC] acquisition” and “failed to inform investors that their internal controls were in shambles and that Global Eagle was never capable of successfully acquiring EMC.” FAC ¶ 4. Plaintiff assert claims for securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Even though the FAC is Plaintiff’s second effort to state a claim in this matter, it is woefully deficient and should be dismissed with prejudice for the following reasons:
No Misstatements or Omissions: The FAC fails to adequately allege any false or misleading statements or omissions. Plaintiff identifies no facts showing the challenged disclosures were false or misleading when made. Also, most of the FAC’s claims relate to forward-looking statements that are protected by the PSLRA’s “safe harbor.” Moreover, the FAC fails because Global Eagle carefully disclosed the material weaknesses and associated risks of delay that it is accused of concealing. In sum, Plaintiff’s allegations are nothing more than an assertion that Defendants should have disclosed certain information sooner (primarily, the delay in filing the 10-K), without any facts suggesting Defendants were able to do before they did. Such fraud-by-hindsight pleading should be summarily dismissed.
No Strong Inference of Scienter: The FAC also fails to plead facts giving rise to the required “strong inference of scienter.” In fact, Plaintiff pleads no particularized facts supporting a finding that any defendant engaged in intentional or even reckless wrongdoing. Instead, Plaintiff relies on (i) boilerplate allegations that are routinely rejected; (ii) the announced departures of certain executives, with no facts tying these departures to the control deficiencies at issue; and (iii) an ill-
conceived theory that Defendants sought to increase their 2016 bonuses by inflating 2016 earning guidance, without any allegation that the Company ever paid a bonus based on guidance, any explanation of how 2016 bonuses were supposedly calculated, or any indication that such bonuses were even paid at all.
This is precisely the type of case that Congress intended to eliminate when it passed the PSLRA. Because Plaintiff alleges no actionable facts as to either falsity or scienter, the FAC should be dismissed in its entirety and with prejudice.
BACKGROUND
The Parties: Global Eagle provides media content, connectivity and digital
media solutions for the global travel industry. See ¶ 21.1 Davis was the CEO and a director of Global Eagle from July 2014 until February 20, 2017. ¶ 14. Severson was the CFO of Global Eagle from August 2016 until February 20, 2017. ¶ 15. Zemetra was the Company’s CFO from November 2014 until August 2016. ¶ 16.
Global Eagle’s Rapid Expansion: Global Eagle’s business began in 2013 with the acquisition of two airline connectivity and media content businesses. RJN Ex. C (2015 10-K) at 11. Since 2013, Global Eagle has expanded beyond its initial core businesses through multiple acquisitions, and has grown rapidly.
Global Eagle Revenue (in millions)
2013A 2014A 2015A
See RJN Exs. C (2015 10-K) at 3-12, 37 & M (Q3 2016 Earnings Call Tr.) at 7. 2013-2015: Challenges Associated With Rapid Growth: One consequenceof Global Eagle’s acquisition strategy has been the significant stress placed on the Company’s Finance Department. In particular, Global Eagle’s Finance Department has not scaled as quickly as the Company itself, impacting its ability to timely account for Global Eagle’s expanding business. Global Eagle repeatedly disclosed this challenge to investors. In its 2013 and 2014 Form 10-K Annual Reports, Global Eagle reported several material weaknesses, including those related to “timely . . . financial statement close,” “[a]ccounting for business combinations . . . [and] taxes” and “manual controls . . . at certain subsidiaries.” See RJN Exs. A (2013 10-K) at 22-23, 59-61 & B (2014 10-K) at 23, 65-66. These are process deficiencies, and Global Eagle did not restate its previously reported financials in these periods.
In its 2015 Form 10-K, filed March 17, 2016, Global Eagle disclosed a single material weakness (an improvement from four in 2013 and two in 2014) regarding the “timeliness of financial reporting” due to “a lack of a sufficient number of personnel to execute a timely financial close and properly accumulate certain analysis and reconciliations consistently in a timely and accurate manner.” See RJN Ex. C (2015 10-K) at 23, 65-66. The Company particularly noted its challenge with analyses related to “certain manual controls,” reflective of the fact that certain of its acquired businesses’ financial results needed to be manually consolidated. Id. at 65.
Global Eagle sought to remediate the issues it experienced. For example, Global Eagle stated that “[d]uring 2016, our management is committed to remediating the material weakness through continuing training of personnel, improving the timeliness of our accounting close process, and continuing to enhance our financial review controls.” See id. at 66.
While taking steps to address the issues, Global Eagle provided no assurances to investors that the challenges it faced from 2013-2015 would not recur. Instead, it repeatedly gave detailed warnings to investors about this very issue. For example, the Company stated in its 2014 and 2015 Form 10-Ks that it “may engage in further acquisitions . . . to augment our growth” and warned that such acquisitions “could prove difficult to integrate, disrupt our ongoing business, . . . or have an adverse
effect on our results of operations.” RJN Exs. B (2014 10-K) at 24-25 & C (2015 -4-
Id. (emphasis added).
In its 2015 Form 10-K, Global Eagle also warned investors that it might
“need to expend significant financial resources to remediate” its control issues and cautioned that “we may not be able to produce timely and accurate financial
statements,” which may cause “investors [to] lose confidence in the accuracy and
completeness of our financial reports” and that “the market price of our securities
could decline.” RJN Ex. C (2015 10-K) at 23.
2016: Acquisition of EMC: On July 27, 2016, Global Eagle completed the
acquisition of Emerging Markets Communications (“EMC”), a leading provider of communications services to maritime and hard-to-reach land markets and the
Company’s largest and most significant acquisition to date. Global called this a
“transformational acquisition.” RJN Ex. I (July 27, 2016 8-K) at 2. The Company made specific risk disclosures in connection with the EMC acquisition, warning
about a number of “risks and uncertainties” including about: its “ability to
successfully integrate EMC and achieve synergies therefrom,” a “delay or inability
of the combined company to realize the expected benefits and synergies of the transaction,” and “execution and compliance costs relating to new regulatory and
compliance frameworks.” RJN Ex. H (May 9, 2016 8-K) at 5. Global Eagle’s Form
10-Q filed on August 9, 2016, two weeks after the deal closed, also warned about
risks to “integrat[ing],” “realiz[ing] expected benefits and synergies” and
“disruptions from the EMC acquisition.” RJN Ex. D (Q2 2016 10-Q) at 32. -5-
Memorandum of Points and Authorities in Support of Motion to Dismiss Case No. 2:17-cv-01479 PA
“distraction of management”;
“delays associated with or resources being devoted to” acquisition
related activities;
• “difficulty integrating . . . the acquired business”;
• “difficulty integrating the financial results of the acquired business in our consolidated financial statements”; and
• exposure to risks related to “controls in the acquired business”
Case 2:17-cv-01479-PA-MRW Document 37 Filed 06/19/17 Page 11 of 30 Page ID #:368
Global Eagle’s Timely Disclosure of Further Internal Control Issues:
Several months after the EMC transaction closed, Global Eagle disclosed that it had
identified certain additional control deficiencies. Specifically, in a Form S-3 filed
on October 11, 2016, the Company noted additional material weakness, including
those related to the “design of controls with the appropriate precision and
responsiveness to address risks relating to the accuracy of financial information
being reported by WOI” (one of its 2015 acquisitions) and the “design . . . timely
and effective implementation . . . [and] [e]ffective monitoring of our controls.”
9 RJN Ex. F (Oct. 11, 2016 S-3) at 7. These issues were reiterated in the Company’s
November 9, 2016 Form 10-Q for quarter ended September 30, 2016. ¶ 62.
The Company explained that the EMC acquisition had:
16 RJN Ex. E (Q3 2016 10-Q) at 67. It also disclosed that it had identified a similar,
but additional weakness in income tax accounting, arising from a lack of “a
occupied significant resources of our personnel who are also responsible for the performance of important controls. Due to our focus on this transaction and the lack of sufficient qualified resources, we failed to execute certain control and monitoring activities timely, and at a sufficient level of precision to address the risk of material misstatement to our financial statements
sufficient number of personnel in the income tax function resulting in an untimely
execution of internal controls.” Id.
The Company then explicitly warned investors in both of these filings that:
• “We may need to expend significant financial resources to remediate these material weaknesses”;
See RJN Ex. F (Oct. 11, 2016 S-3) at 7-8 & E (Q3 2016 10-Q) at 68 (emphasis
added).
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• We “may also identify additional material weaknesses in the future.”
• “If we are unable to remediate these material weaknesses . . ., the accuracy and timeliness of our financial reporting may be adversely affected.”
• If we are “not be able to produce timely and accurate financial statements . . ., the market price of our securities could decline[, etc.]”
Case 2:17-cv-01479-PA-MRW Document 37 Filed 06/19/17 Page 12 of 30 Page ID #:369
1 Global Eagle Announces 10-K Filing Delay: Three months after issuing the
2 warnings discussed above, Global Eagle announced that it would delay the filing of
3 its annual report on Form 10-K for the year ended December 31, 2016. The
4 Company in part cited: “its increased size and complexity after the [EMC
5 acquisition] and its need to complete additional financial-closing procedures
6 associated with the Company’s material weaknesses in internal control over its
7 financial reporting.” RJN Ex. K (Feb. 21, 2017 8-K) at 2.
8 The Company also announced that it had appointed a new Chief Executive
9 Officer, Jeff Leddy, an experienced industry executive and long-time Board
10 member; the Company’s CEO, Defendant Davis had “resigned . . . to pursue other
11 endeavors” and would “continue to support the Company as a consultant during a
12 transition period”; and the Company’s CFO, Defendant Severson had also resigned.
13 Id. at 1. On March 13, 2017, Global Eagle announced that its Chief Accounting
14 Officer would be resigning his position on April 14, 2017. ¶ 74. Neither any
15 statement by the Company nor any other fact alleged in the FAC suggests that these
16 personnel changes were implemented as a result of the 10-K filing delay or the
17 associated material weakness issues.2
18 Plaintiff’s Claims: Plaintiff alleges that Defendants “misled investors about
19 the success of the [EMC] acquisition” because Global Eagle later disclosed that it
20 “would be late in filing its Annual Report for 2016” in part “due to the acquisition
2 On March 16, 2017, the day after its 10-K filing deadline, Global Eagle filed a Form 12b-25 with the SEC, which informed investors that it expected that its subsequent Form 10-K would include the “[m]aterial weaknesses that the Company previously reported but has not yet fully remedied” and certain additional material weaknesses. RJN Ex. G (Mar. 16, 2017 Form 12b-25) at 2.
Global Eagle also held a conference call with investors on April 18, 2017, during which CEO Jeff Leddy stated that the changes in the CEO and CFO position were “not a result of any fraud or misconduct” but instead were based on a decision about who was best to lead the Company going forward. RJN Ex. N (Apr. 18, 2017 Tr.) at 3. In that call, both he and the Company’s CFO, Paul Rainey, emphasized that there was no evidence of any fraud or irregularity associated with the Company’s financial statements. Mr. Rainey further stated that “based on the information available to us as of today, we do not believe that we will have to restate our financials or EMC stand-alone financials for any prior period.” Id. at 7. Mr. Rainey also set a target date of June 30, 2017 to file the delayed 10-K. Id. at 6, 7.
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1 of EMC,” and that its “internal control[s] were not effective as of December 31,
2 2016.” ¶¶ 4-5. Plaintiff alleges that Defendants made false statements about:
7 Plaintiff further alleges that “Defendants failed to inform investors that their internal
8 controls were in shambles and that Global Eagle was never capable of successfully
9 acquiring a company the size of EMC.” ¶ 4; see also ¶¶ 25, 36, 39, 44.
10 ARGUMENT
11 To survive a motion to dismiss under Federal Rule of Civil Procedure
12 12(b)(6), Plaintiff’s complaint must “contain sufficient factual matter, accepted as
13 true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
14 U.S. 662, 678 (2009). Conclusory allegations and legal conclusions “are not entitled
15 to the assumption of truth.” Id. at 679. Instead, Plaintiff must allege “plausible
16 grounds to infer” that its claim rise “above the speculative level.” Bell Atlantic
17 Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).
18 Plaintiff’s securities fraud claim must also satisfy both the heightened
19 pleading obligations of Federal Rule of Civil Procedure 9(b), which requires that
20 Plaintiff “state with particularity the circumstances constituting fraud or mistake”
21 and the “more exacting” pleading standards of the Private Securities Litigation
22 Reform Act (“PSLRA”). See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d
23 981, 990 (9th Cir. 2009). The PSLRA requires that Plaintiff “specify each statement
24 alleged to have been misleading, [and] the reason or reasons why the statement is
25 misleading.” 15 U.S.C. § 78u-4(b)(1)(B). The complaint also must “state with
26 particularity facts giving rise to a strong inference that the defendant acted with the
27 required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A).
28
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Memorandum of Points and Authorities in Support of Motion to Dismiss Case No. 2:17-cv-01479 PA
Global Eagle’s integration of EMC (¶¶ 4, 38-39, 55-60);
Global Eagle’s future performance, including earnings guidance and
expected EMC acquisition synergies (¶¶ 4, 35-36, 41-44, 56-59); and • Global Eagle’s internal controls (¶¶ 4, 35-37, 49-50, 59-60, 66).
Case 2:17-cv-01479-PA-MRW Document 37 Filed 06/19/17 Page 14 of 30 Page ID #:371
As discussed below, the FAC fails to satisfy each of these pleading standards. Instead of relying on well-pleaded facts to lay out a plausible case of fraud, the FAC is based on sheer speculation. Instead of pleading falsity in detail, the FAC relies on conclusory allegations that ignore the Company’s public disclosures. Instead of pleading facts giving rise to a strong inference of scienter, the FAC makes almost no effort to plead scienter at all. In sum, the FAC is deficient in nearly every way.
I. PLAINTIFF’S SECTION 10(B) CLAIM MUST BE DISMISSED
To bring a claim under Section 10(b), Plaintiff must plead that Defendants made a material misrepresentation or omission of fact, with scienter, in connection with the purchase or sale of a security, causing economic loss. See Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1061 (9th Cir. 2008). The FAC fails to even approach the requisite pleading standard and should be dismissed.
A. Plaintiff Fails To Plead Falsity By Misrepresentation or Omission 1. No Material Misrepresentation
To plead an actionable misrepresentation, Plaintiff must “precisely” identify the challenged statements, “explain why the statements were false and misleading” and “why the disputed statement was untrue or misleading when made.” In re NetSol Technologies Sec. Litig., No. 14-5787, 2015 WL 12911622, at *3 (C.D. Cal. Mar. 9, 2015) (Anderson, J.). Because none of the alleged misrepresentations here satisfies the PSLRA’s “exacting requirements for pleading ‘falsity,’” Metzler, 540 F.3d at 1070, they should be dismissed.
The Business Integration Statements: Plaintiff claims that Defendants “misled investors about the success of the [EMC] acquisition, telling investors that the integration was ‘going well’” when “the reality was that Global Eagle could not integrate EMC because they did not have adequate internal controls.” ¶¶ 4, 57, 60. Plaintiff targets three specific statements: (i) “[t]he integration process is well underway” on August 8 (¶ 38); (ii) “[t]he integration of the EMC business . . . is well underway” on November 8 (¶ 55); and (iii) “[s]o far the integration is going
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1 well” also on November 8 (¶ 58). These statements are not actionable for several
2 reasons.
3 First, the statements are quintessential “non-actionable statements of
4 corporate optimism” that do not give rise to a claim under the securities laws. See
5 Jui-Yang Hong v. Extreme Networks, No. 15-04883, 2017 WL 1508991, at *12
6 (N.D. Cal. Apr. 27, 2017) (statement that company has “made dramatic progress
7 towards finalizing the integration” not actionable); In re Dot Hill Sys. Corp. Sec.
8 Litig., 594 F. Supp. 2d 1150, 1158 (S.D. Cal. 2008) (statements that integration was
9 “on schedule” and continuing smoothly” were, at worst, non-actionable “puffery”);
10 In re Level 3 Commc’ns Sec. Litig., 667 F.3d 1331, 1340 (10th Cir. 2012) (statement
11 that “integration . . . is progressing well” was non-actionable).
12 Second, these statements are not actionable because Global Eagle cautioned
13 investors that it faced risks related to its ability to “successfully integrate” EMC,
14 highlighting both the potential “delay or inability to realize the expected benefits
15 and synergies of the EMC acquisition” and “the risk that disruptions from the EMC
16 acquisition will harm [its] business.” RJN Ex. D (Q2 2016 10-Q) at 32. Read in the
17 context of these stark risk disclosures, nothing about the statements could be
18 misleading. See In re Leapfrog Enter., Inc. Sec. Litig., 200 F. Supp. 3d 987, 1003-
19 04 (N.D. Cal. 2016) (other statements “put the alleged misleading statements . . . in
20 context” and “substantially mitigate[d] the potentially misleading nature of the
21 challenged statements”).
22 Finally, Plaintiff has failed to plead why Global Eagle’s subsequent
23 disclosure of internal control deficiencies rendered general statements about
24 integration false. There are numerous aspects to integrating an acquired company,
25 including, inter alia, combining facilities, production, sales, marketing, PR, HR,
26 legal and accounting functions. Plaintiff cannot transform generic integration
27 statement into a specific promise that Global Eagle would incorporate EMC’s
28 financial results into its consolidated financial statements on a timely basis. See, -10-
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1 e.g., Extreme Networks, 2017 WL 1508991, at *15 (dismissing claim that statements
2 about integration were misleading because “the reasons Plaintiffs offer as to why the
3 statements are false or misleading bear no connection to the substance of the
4 statements themselves”); In re Australia & New Zealand Banking Grp. Ltd. Sec.
5 Litig., No. 08-11278, 2009 WL 4823923, *9-10, *14 (S.D.N.Y. Dec. 14, 2009)
6 (dismissing claim that statements predicting “growth” and that the company was “on
7 track to deliver a turnaround in performance” were misleading in light of alleged
8 “woefully deficient internal controls” because statements did not speak to internal
9 controls and Plaintiff “fail[ed] to match its theory of fraud to the [defendant’s10 ‘general’] public statements”).
11 The Forward-Looking Synergies Guidance: Plaintiff claims that Global
12 Eagle’s statement that it “expects to realize synergies of $15 million in 2017,
13 growing to $40 million in 2018 and thereafter” (¶ 35 (emphasis added)) was false
14 and misleading because “Global Eagle lacked the internal controls and personnel to
15 issue any type of estimates or guidance related to its acquisition of EMC” (¶ 36).
16 However, Plaintiff has no basis to allege that Global Eagle’s forward-looking 2017-
17 2018 guidance was false. It is only June 2017. And, Global Eagle has repeatedly
18 reaffirmed its 2017-2018 synergy guidance and stated its initial guidance “may
19 prove to be conservative.” See ¶ 55; see also ¶¶ 38, 41, 43, 58; RJN Ex. N (Apr. 18,
20 2017 Tr.) at 6 (“[W]e still expect to achieve our synergy goals”).3
21 Plaintiff also claims the Company falsely told investors that when it acquired
22 EMC “synergies would soon be seen.” ¶ 4. But those are Plaintiff’s own words.
23 24 25 26 27 28
3 To the extent that Plaintiff claims that Defendants’ statements about anticipated 2017- 2018 synergies have been rendered false by the Company’s November 8, 2016 disclosure of “slower than originally estimated execution of EMC Acquisition synergies” (¶¶ 55-56), such a claim would fail. That statement related only to the Company’s explanation for a downward revision in its Q4 2016 EBITDA forecast. Because the Company made no public projections about what synergies it would derive from the EMC acquisition in Q4 2016, this statement cannot be actionable. Moreover, at the same time as the challenged statement, the Company reaffirmed its 2017-2018 synergy guidance and indeed indicated that those synergies could even exceed the Company’s original projections. ¶ 58. In other words, Global Eagle was cautioning investors that realization of some of its expected 2016 synergies would be deferred, not that its 2017-2018 synergy expectations were incorrect.
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1 The FAC cites no statement from any Defendant to support the assertion that this
2 claim was made. Thus, it is not actionable.4
3 The Forward-Looking Earnings Guidance: Plaintiff claims that Global
4 Eagle’s forward-looking earnings guidance for the remainder of 2016 that was
5 issued in connection with its second and third quarter earnings releases was
6 misleading “because Global Eagle was in no position to give guidance or estimates
7 related to EMC” and “Global Eagle could not reasonably issue forecasts but did so
8 anyway.” Id. ¶¶ 39, 44, 56-57, 59-60. However, “[t]he mere fact that [a] forecast
9 proved to be wrong in hindsight . . . does not render the statement untrue when
10 made.” Rubin v. Trimble, No. 95–4353, 1997 WL 227956, at *15 (N.D. Cal. Apr.
11 28, 1997). Plaintiff must allege specific facts indicating that Defendants knew their
12 statements were false when made. In re Syntex Corp. Sec. Litig., 95 F.3d 922, 934
13 (9th Cir. 1996). To do so, “plaintiff must set forth facts . . ., [which] may need to
14 draw on contemporaneous statements or conditions.” In re GlenFed, Inc. Sec. Litig.,
15 42 F.3d 1541, 1549 (9th Cir. 1994) (superseded by statute on other grounds); see
16 also Nursing Home Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1230
17 (9th Cir. 2004) (relying on allegations based on “contemporaneous reports or data,
18 available to the party, which contradict the statement”).
19 Here, Plaintiff pleads no such contemporaneous facts. Instead, it asks the
20 Court to speculate that because (a) in hindsight, Global Eagle issued downward
21 adjustments to its guidance, and (b) subsequently disclosed certain control
22 deficiencies, Defendants were incapable of forecasting. This reasoning is flawed on
23 multiple levels. The existence of control deficiencies—primarily related to timely
24 financial statement close and technical accounting issues—do not mean that Global
4 Even if Global Eagle made such a statement, it would have been non-actionable puffery. See Extreme Networks, 2017 WL 1508991, at *12 (“[G]eneral statements in anticipation of synergies resulting from the merger . . . are not actionable.”). Moreover, as discussed infra at Parts 1.A.1, 1.B.1, any claims based on the synergies guidance should be dismissed because these are forward-looking statements accompanied by meaningful cautionary language and not made with actual knowledge of their falsity and thus protected by the PSLRA safe harbor.
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1 Eagle could not responsibly issue forward-looking guidance. Nor does a guidance
2 adjustment require a post hoc conclusion that the initial guidance was somehow
3 fraudulent. Asking the Court to draw such a speculative inference demonstrates that
4 this claim is a pure example of fraud-by-hindsight and should be dismissed.5
5 Moreover, the PSLRA “safe harbor” protects forward-looking statements like
6 Global Eagle’s synergies and earnings guidance. The PSLRA recognized that
7 lawsuits over forward-looking guidance were often classic fraud-by-hindsight
8 claims that projections must have been fraudulent because a business did not
9 perform as expected. See In re Daou Sys., Inc., 411 F.3d 1006, 1021 (9th Cir.
10 2005). It therefore created a “safe harbor” for “forward-looking statements,”
11 insulating them from liability where (1) the “forward-looking statement” is
12 identified as such and “accompanied by meaningful cautionary statements” or (2)
13 “plaintiff fails to prove that the forward-looking statement . . . was made with actual
14 knowledge . . . that the statement was false or misleading.” 15 U.S.C. § 78u-5(c)(1).
15 The PLSRA safe-harbor clearly applies here. First, the challenged synergy
16 and guidance statements discussed above are quintessential forward-looking
17 statements. See No. 84 Emp’r–Teamster Joint Council Pension Trust Fund v. Am.
18 W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (safe-harbor applies to
19 “financial projections” and “plans and objectives of management for future
20 operations”). Second, the specific statements challenged in the Complaint were
21 each clearly identified as forward-looking, using forward-looking words such as
22 “expects,” “goal,” and “guidance.” ¶¶ 35, 38, 41. Additionally, the challenged
23 releases highlight that they contain “forward-looking statements” (see RJN Exs. I
5 Plaintiff repeatedly relies on Global Eagle’s disclosure that it reduced its guidance because, inter alia, it was required to account for “$4 million in EMC Acquisition satellite capacity discounts” as “an element of purchase price accounting” rather than its “initial[] explanation [that they would be] realized post acquisition” to claim that that “Global Eagle was in no position to give guidance.” ¶¶ 44, 55-56. This is a highly technical accounting issue. If Plaintiff’s assertion was correct, any company’s guidance could be attacked as unreliable if that Company previously made any sort of accounting error or miscalculation. The law does not accept such sweeping assertions.
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1 (July 27, 2016 8-K) at 3 & J (Aug. 8, 2016 8-K) at 7-8) and a similar forward-
2 looking statement disclaimer at the start of the challenged earnings call (see RJN Ex.
3 L (Aug. 8, 2016 Tr.) at 2). Third, as explained below, the statements were each
4 accompanied by “meaningful cautionary statements.” 15 U.S.C. § 78u-5(c)(1).
5 The safe-harbor applies where “the cautionary language mention[s] important
6 factors that could cause actual result to differ materially from those in the forward-
7 looking statement.” See Emp’r Teamsters Local Nox. 175 & 505 Pension Trust
8 Fund v. Clorox Co., 353 F.3d 1125, 1133 (9th Cir. 2004). This standard is easily
9 met. Global Eagle consistently directed shareholders to cautionary language that the
10 Company’s “current expectations, forecasts and assumptions” involve “substantial
11 risks and uncertainties,” and that “[a]ctual results may vary materially from those
12 expressed or implied by the forward looking statements,” including risks related to:
13
“our ability to integrate our acquired businesses;”
“any delay or inability to realize the expected benefits and synergies of
17 See RJN Exs. D (Q2 2016 10-Q) at 32; F (Form S-3) at 2-4; E (Q3 2016 10-Q) at
18 43-44. Such language clearly invokes the “safe harbor.”6
the EMC acquisition;” and
• “the risk that disruptions from the EMC acquisition will harm our business.”
19 The Sarbanes-Oxley Certifications: Finally, Plaintiff alleges that the
20 Sarbanes-Oxley (SOX) certifications signed by Davis and Zemetra in connection
21 with the Company’s August 9 Form 10-Q (¶¶ 47-48) and by Davis and Severson in
22 connection with the Company’s November 9 Form 10-Q (¶¶ 64-65) were “false
23 and/or misleading” because they made statements to the effect that Defendants have
24 25 26 27 28
6 Additionally, this claim must be dismissed because Plaintiff fails to allege a single fact suggesting that any defendant had actual knowledge that these statements were false when made. It cannot base a claim on the assertion the Defendants were “reckless” in issuing guidance. It must show that that Defendants had “actual knowledge” that the challenged statements were false. 15 U.S.C. § 78u-5(c)(1)(B); see also In re Skechers U.S.A. Sec. Litig., No. 03-02094, 2004 WL 1080174, at *6 (C.D. Cal. May 7, 2004) (Anderson, J.) (statements “qualify for safe harbor protection if Plaintiff fails to allege sufficient facts to establish that the Defendants made or approved the statements with actual knowledge of the falsity of the statements”).
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1 disclosed “any change in the registrant’s internal control[s]” and “[a]ll significant
2 deficiencies and material weaknesses in the design or operation of internal controls.”
3 However, SOX certifications provide no basis for Section 10(b) liability absent
4 “facts indicating that, at the time of the certification, defendants knew or
5 consciously avoided any meaningful exposure to the information that was rendering
6 their SOX certification erroneous.” In re Intelligroup Sec. Litig., 527 F. Supp. 2d
7 262, 290 (D.N.J. 2007). Because Plaintiff fails to allege any facts suggesting that
8 these certifications were knowingly false when made, or that defendants consciously
9 or recklessly avoided that knowledge, these claims must also be dismissed.
10 2. No Material Omission
11 To plead an actionable omission, Plaintiff must show (a) a duty to disclose the
12 allegedly omitted information or (b) that an omission rendered an affirmative
13 statement materially misleading. See, e.g., Matrixx Initiatives, Inc. v. Siracusano,
14 563 U.S. 27, 44-45 (2011). Moreover, pleading an omission does not absolve
15 Plaintiff from complying with the PSLRA’s pleading requirements. See In re
16 PetSmart, Inc. Sec. Litig., 61 F. Supp. 2d 982, 996 (D. Ariz. 1999) (granting motion
17 to dismiss omissions claim where “plaintiffs provide no specifics as to the ‘adverse
18 impacts’ omitted from defendants’ public statements beyond a vague reference” and
19 “conclusory allegations”). Here, neither of the two categories of omission identified
20 by Plaintiff meets these pleading requirements and thus both should be dismissed.
21 The Internal Control Omissions: Plaintiff alleges that Defendants
22 “with[eld] information about the lack of internal controls,” and “failed to inform
23 investors that their internal controls were in shambles.” ¶¶ 4, 25; see also ¶¶ 36, 39,
24 44, 46, 49, 56, 59, 66. These allegations fail for numerous reasons.
25 Because Plaintiff fails to allege an affirmative duty to disclose this
26 information, its claim is, of necessity, predicated on the supposed need to make
27 these disclosures in order to prevent other statements from being misleading. In
28 essence, Plaintiff claims that when Global Eagle disclosed certain material -15-
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1 weaknesses it should have also disclosed other later announced material weaknesses
2 to avoid rendering its initial statements misleading. However, where Plaintiff
3 alleges no facts to suggest that Global Eagle was aware of these weaknesses prior to
4 their disclosure, this is again classic fraud-by-hindsight. “Mere allegations that
5 statements in one report should have been made in earlier reports do not make out a
6 claim of securities fraud.” Acito v. IMCERA Grp., 47 F.3d 47, 53 (2d Cir. 1995);
7 see also Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978) (noting that while
8 “greater clairvoyance” might have allowed the defendants to predict subsequent
9 developments, the “failure to make such perceptions does not constitute fraud”).
10 Plaintiff alleges no facts suggesting that Global Eagle’s disclosures contained
11 omissions when they were made. In re Magnum Hunter Res. Corp. Sec. Litig. is
12 instructive. In that case, the “defendants repeatedly assured investors that they had
13 ‘[d]esigned’ and ‘[e]valuated the effectiveness’ of their controls . . . , yet followed
14 those statements with later admissions of errors and material weaknesses.” 26 F.
15 Supp. 3d 278, 294-295 (S.D.N.Y. 2014), aff’d, 616 F. App’x 442 (2d Cir. 2015).
16 The court held “[t]he fact that defendants recognized problems, announced that they
17 were implementing effective controls and procedures, and then recognized more
18 problems does not indicate that their statements were false at the time that they were
19 made.” It criticized plaintiff’s complete reliance on defendant’s own disclosures,
20 rather than statements from confidential witnesses or internal reports to “support an
21 inference that defendants’ statements or omissions regarding their controls were
22 known to be false at the time made” and explained that the appropriate inference in
23 these circumstances is “one of an oversight failure of management,” not fraud. Id.
24 at 295. As in Magnum Hunter, Plaintiff’s failure to pleads facts suggesting that
25 Defendants were aware of the subsequently disclosed control deficiencies any
26 earlier than when they were disclosed necessitates dismissal of its claims.7
27 28
7 Moreover, Global Eagle’s October 11, 2016 Form S-3 and its November 9, 2016 Form 10-Q warned investors that it “may also identify additional material weaknesses in the future.” RJN Exs. F (Form S-3) at 7-8 & E (Q3 2016 10-Q) at 68. The fact that Global
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1 Plaintiff’s other omissions claim, that Global Eagle failed to disclose its
2 internal controls were “in shambles” is conclusory rhetoric that must be dismissed.
3 This claim consists solely of Plaintiff’s pejorative re-characterization of Defendants’
4 factual disclosures and thus is non-actionable. See, e.g., Novak v. Kasaks, 216 F.3d
5 300, 309 (2d Cir. 2000) (“[A]s long as the public statements are consistent with
6 reasonably available data, corporate officials need not present an overly gloomy or
7 cautious picture.”). Moreover, rather than suggesting that Global Eagle’s controls
8 were “in shambles,” the Company’s disclosures reflect that Global Eagle proactively
9 advised investors of its discovery of control issues and warned investors of related
10 risks. Further, while Global Eagle warned investors that the material weaknesses
11 “may” “adversely affect” its historical financial reporting, the Company has not
12 restated its results, and has recently reported that it has “not discovered and ha[s] no
13 reason to believe that [it] will discover any fraud associated with [its] financials or
14 EMC historical stand-alone financials . . . . [and] do[es] not believe that [it] will
15 have to restate [its] financials or EMC stand-alone financials for any prior period.”
16 RJN Ex. N (Apr. 18, 2017 Tr.) at 7.8
17 The Acquisition Risk Omission: Finally, Plaintiff alleges that “Defendants
18 failed to inform investors that Global Eagle was never capable of successfully
Eagle proactively disclosed issues as they were discovered and warned investors that it could discover additional issues is very telling. A court found that a similar disclosure “demonstrate[d] that defendants . . . disclosed what they knew, when they knew it” and rejected plaintiff’s argument that the subsequent disclosures created an inference that defendants were aware of the problems earlier. City of Taylor Gen. Emps. Ret. Sys. v. Magna Int’l Inc., 967 F. Supp. 2d 771, 794 (S.D.N.Y. 2013) (dismissing where “plaintiff has failed to allege any particularized facts supporting the conclusion that defendants knew or had access to information that either contradicted their public descriptions of the[ir] problems, or permitted them to expound upon these [new] issues earlier than they did”).
8 Global Eagle’s internal control issues have resulted in delayed filings, but Global Eagle clearly disclosed that risk, warning investors that it “may also identify additional material weaknesses,” and that it “may not be able to produce timely and accurate financial statements,” which could cause “the market price of our securities [to] decline.” See RJN Ex. E (Q3 2016 10-Q) at 67-68. Plaintiff cannot premise a securities claim on the failure to disclose risks that were, in fact, disclosed. See Browning v. Amyris, No. 13-02209, 2014 WL 1285175, at *13 (N.D. Cal. Mar. 24, 2014) (dismissing claims where defendant “warned of the precise risks that underlie the events described in the complaint”).
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1 acquiring a company the size of EMC” and of “the additional stress that an
2 acquisition the size of EMC would have on the Company.” ¶¶ 4, 36; see also ¶¶ 25,
3 39, 44. Plaintiff does nothing to explain what is required to “successfully acquir[e]
4 a company.” In fact, with EMC, Global Eagle is now a larger and more influential
5 company by many metrics, including customer base and employee count. See, e.g.,
6 RJN Ex. O (EMC Presentation) at 12-15. Plaintiff’s vague assertions simply cannot
7 support a claim. See In re Skechers, 2004 WL 1080174, at *6 (Anderson, J.)
8 (dismissing fraud claim where “the bulk of the alleged adverse facts are generic,
9 subjective, difficult to prove or refute, and could be alleged against almost any
10 company”). Moreover, even absent the required particularity, Plaintiff fails to plead
11 any facts suggesting that Global Eagle was “never capable” of acquiring EMC.
12 Plaintiff offers no facts, for example, suggesting that the business of EMC has been
13 mismanaged since the acquisition. To the contrary, the Company has reaffirmed its
14 projection that it will achieve (and possibly exceed) its projected 2017 and 2018
15 synergies. See ¶ 58. Thus, there is simply no basis to support this vague, ill-defined
16 alleged omission.
17 As to its second claim, Plaintiff falsely asserts that Global Eagle failed to
18 warn investors about the risks associated with a large acquisition such as EMC. To
19 the contrary, the Company clearly disclosed that the acquisition carried with it
20 significant integration and business disruption risks. See supra at Part 1.A.1.
21 B. Plaintiff Fails To Plead Facts Giving Rise To A Strong Inference
Of Scienter
inference that [each] defendant acted with the required state of mind,” 15 U.S.C.
25
§ 78u-4(b)(2). This scienter requirement obligates Plaintiff to demonstrate that each
26
defendant acted with “intent[]” or “deliberate recklessness.” Zucco, 552 F.3d at
27
991. Moreover, a “strong inference” of scienter exists only where “a reasonable
28
Plaintiff’s Section 10(b) claim should also be dismissed because Plaintiff fails to meet its burden of pleading “with particularity facts giving rise to a strong
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1 person would deem the inference of scienter cogent and at least as compelling as
2 any opposing inference one could draw from the facts alleged.” Id. (quoting
3 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).
4 1. Plaintiff Fails To Plead The Individual Defendants’ Scienter
5 Plaintiff’s scienter allegations against the three individual defendants are
6 extraordinarily weak. Indeed, the FAC has none of the hallmarks of permissible
7 scienter pleading, such as incorporation of internal documents, confidential witness
8 statements, whistleblower allegations or evidence of insider stock sales from which
9 this Court could find a strong inference of scienter. This type of ipse dixit pleading
10 has been repeatedly and resoundingly rejected as inadequate under the PSLRA.
11 Plaintiff’s Boilerplate Scienter Allegations Should Be Disregarded: The
12 FAC contains various generic allegations of scienter such as “[b]ecause of their
13 positions and access to material non-public information available to them, the
14 Individual Defendants knew the adverse facts specified here . . . and that positive
15 representations were false and/or misleading.” ¶ 18; see also ¶¶ 118, 120, 125, 127,
16 128. The PSLRA prohibits this type of boilerplate pleading. Plaintiff cannot “infer
17 scienter by virtue of a position in a company,” as that pleading standard “would
18 eliminate the necessity for specially pleading scienter, as any corporate officer could
19 be said to possess the requisite knowledge by virtue of its or her position.” Weiss v.
20 Amkor Tech., Inc., 527 F. Supp. 2d 938, 949 (D. Ariz. 2007) (quoting In re Autodesk
21 Sec. Litig., 132 F. Supp. 2d 833, 844 (N.D. Cal. 2000)).
22 Plaintiff also makes no effort to plead scienter separately as to each individual
23 defendant. Scienter must be pleaded “on an individualized, defendant-by-defendant
24 basis.” In re Finisar Corp. Derivative Litig., No. 06-07660, 2012 WL 2873844, at
25 *9 (N.D. Cal. July 12, 2012). The PSLRA does not permit “group pleading.” Id.
26 Although the FAC attributes certain statements to specific Defendants based on
27 whether they were the speaker or a signatory, see, e.g., ¶ 41 (statements by Davis
28 and Zemetra), ¶ 48 (certification from Zemetra), Plaintiff includes no allegations of -19-
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1 individual scienter as to any of the Defendants. This deficiency is particularly
2 troubling as not all Individual Defendants were employed by Global Eagle
3 throughout the relevant period. Zemetra resigned to pursue another opportunity on
4 August 24, 2016, so he cannot be liable for statements made in subsequent
5 disclosures. (As previously noted, Global Eagle did not complete the EMC
6 acquisition until July 27, 2016, less than a month before Zemetra’s departure).
7 Similarly, Severson, who only served as the Company’s CFO for six months, cannot
8 be liable for statements made prior to his appointment on August 24, 2016.9 Nor
9 does Plaintiff explain why Severson would risk his reputation and career by
10 engaging in fraud when he only spent six months as Global Eagle’s CFO.
11 Plaintiff’s Motive Allegations Are Ill-Pleaded: Eschewing the typical
12 approach to pleading motive and opportunity based on stock sales by individuals
13 during the class period, Plaintiff instead claims that the Individual Defendants
14 fraudulently acquired EMC “to increase their cash bonus[es].” ¶ 3. According to
15 Plaintiff, Global Eagle’s 2015 executive bonus plan awarded “45% [based on]
16 achievement of pre-bonus Adjusted EBITDA targets.” Plaintiff suggests—with no
17 factual support—that the Individual Defendants must have “encourag[ed] an
18 environment of inadequate internal controls” so that they could “inflate adjusted
19 EBITDA and gain financially.” ¶¶ 29, 88; see also ¶ 3.
20 This scienter theory is completely devoid of well-pleaded facts. Companies
21 pay bonuses based on actual results, not on guidance. Plaintiff fails to plead any
22 connection between Global Eagle’s 2016 guidance and its 2016 bonus. There are no
23 factual allegations of (i) how 2016 bonuses were to be calculated (Plaintiff only
24 25 26 27 28
9 The fact that the Individual Defendants signed SOX Certifications also cannot establish scienter. See Zucco, 552 F.3d at 1003-04; see also, e.g., Oklahoma Firefighters Pension & Ret. Sys. v. Ixia, No. 13-08440, 2015 WL 1775221, at *29 n.239 (C.D. Cal. Apr. 14, 2015) (“[M]erely signing the certification required by Sarbanes-Oxley does not suffice to give rise to a strong inference of scienter.”). While Plaintiff claims that certain certifications were false (¶¶ 47, 48, 64, 65), it pleads no facts as to any Defendant’s knowledge or lack of diligence at the time these certifications were signed. Thus, the certifications “add nothing substantial to the scienter calculus.” Zucco, 552 F.3d at 1003-04.
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1 cites the 2015 bonus plan) (¶ 87); (ii) how 2016 bonuses would be affected by the
2 EMC acquisition (as opposed to Global Eagle’s pre-existing business plan); (iii)
3 how guidance would affect bonuses, if at; and (iv) whether 2016 bonuses were even
4 paid. Moreover, Plaintiff fails to plead that any Defendant was aware that any
5 guidance was false when made. In sum, Plaintiff fails to offer the Court a single fact
6 suggesting that any aspect of the Company’s 2016 Adjusted EBITDA guidance
7 provided any incentive for any Individual Defendant to commit fraud.
8 Plaintiff Fails To Allege Circumstantial Evidence Of Misconduct: A
9 plaintiff can also attempt to meet the scienter requirement by “plead[ing], in great
10 detail, facts that constitute strong circumstantial evidence of deliberately reckless or
11 conscious misconduct.” In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974
12 (9th Cir. 1999).10 Plaintiff fails to plead any such facts.
13 As this Court has held, Plaintiff must “allege contemporaneous facts in
14 sufficient detail and in a manner that would create a strong inference that the alleged
15 adverse facts were known at the time of the challenged statements.” In re Skechers,
16 2004 WL 1080174, at *6 (quoting In re Vantive, 283 F.3d 1079, 1085 (9th Cir.
17 2002). “[V]ague allegations” and “conclusory statements” are not sufficient. Id.
18 Plaintiff’s claim that Global Eagle’s control deficiencies and downward adjustment
19 to its 2016 guidance support an inference, with respect to the Company’s guidance,
20 that “Defendants knew they were issuing false and misleading statements about the
21 EMC acquisition.” ¶ 34. These assertions are textbook fraud-by-hindsight pleading
22 that has repeatedly been held insufficient. See In re Synovis Life Tech., Inc. Sec.
23 Litig., 2005 WL 2063870, at *14-15 (D. Minn. Aug. 25, 2005) (no strong inference
24 of scienter where plaintiff alleged that defendants had “no basis” for their earnings
25 projections where plaintiff failed to allege the methodology was false or
26 misleading); In re Duane Reade Inc. Sec. Litig., No. 02-6478, 2003 WL 22801416,
27
10 As discussed above, Plaintiff must plead “actual knowledge” of falsity with respect to the many statements it relies on that fall within the PSLRA safe harbor.
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1 at *10 (S.D.N.Y. Nov. 25, 2003) (dismissing claim because allegation that the
2 defendant must have known that its projections for the second quarter were
3 inaccurate due to sales being down at the end of the first quarter was “the typical
4 type of ‘fraud by hindsight’ theory that courts have been unwilling to entertain”);
5 Abrams v. Baker Hughes Inc., 292 F.3d 424, 433 (5th Cir. 2002) (dismissing claim
6 because “plaintiffs have not pointed to any particular reports or information—
7 available to defendants before the announced financial restatements—that are
8 contrary to the restatements” and explaining that restatements “can easily arise from
9 negligence, oversight or simple mismanagement, none of which rise to the standard
10 necessary to support a securities fraud action”).
11 Plaintiff next alleges that Global Eagle’s 2013-2015 disclosures of internal
12 control deficiencies, several of which related to issues at previously acquired
13 businesses, is “highly indicative” of scienter because “Defendants had knowledge
14 that acquisitions were the cause of many of their internal weaknesses” but
15 nevertheless filed only “partial disclosures of its internal weaknesses.” ¶¶ 90-93. In
16 essence, Plaintiff claims that it has pleaded scienter because Defendants should have
17 known that the EMC acquisition would lead to additional, not yet disclosed, internal
18 control deficiencies. Once again, this pleading is deficient both because it is a
19 general, vague allegation and because it supports, at most, an assertion that
20 Defendants “should have known” of future problems, a far cry from the demanding
21 scienter standard. Indeed, it is well-established that a failure “to identify problems
22 with the defendant-company’s internal controls and accounting practices does not
23 constitute reckless conduct sufficient for § 10(b) liability.” Novak, 216 F.3d at 309;
24 see Acito, 47 F.3d at 53 (“Mere allegations that statements in one report should have
25 been made in earlier reports do not make out a claim of securities fraud.”).
26 Magnum Hunter is again instructive. The plaintiff there argued that because
27 “Magnum Hunter repeatedly disclosed ongoing control weaknesses in late–2012
28 through mid–2013” it can be inferred that defendants were “knowingly or recklessly -22-
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1 disregarding that the internal controls were ineffective.” In re Magnum Hunter Res.
2 Corp. Sec. Litig., 616 F. App’x 442, 445, 446 (2d Cir. 2015). The Second Circuit
3 disagreed, holding such facts were only consistent with an inference that Magnum
4 “had inadequate internal controls; they do not imply that any defendant made
5 specific disclosures with fraudulent scienter.” Id. at 446. Instead, as the district
6 court explained, this fact pattern was more consistent with the inference that
7 “defendants were in a constant game of ‘Catch up’—acknowledging the company's
8 material weaknesses and disclosing their continued efforts to resolve them, only to
9 learn of yet more.” Id. at 445 (quoting district court).11
10 Scienter Cannot Be Based on The Individual Defendants’ Resignations:
11 Resignations, absent facts linking them to the alleged fraud, do not support a strong
12 inference of scienter. The Ninth Circuit has dismissed similar allegations where the
13 plaintiffs “fail to provide any facts to connect [the] departures with the problems at
14 issue.” See In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1062-63 (9th Cir. 2014);
15 see also Schott v. Nobilis Health Corp., 211 F. Supp. 3d 936, 956 (S.D. Tex. 2016)
16 (finding that resignation of CEO “is, in and of itself, unavailing as proof of the
17 commission of fraud when no specific evidence indicates the resigning officials or
18 their replacements knew of any accounting irregularities or that such irregularities
19 were the reason for their resignations”).
20 Similarly, it is insufficient to rely—as Plaintiff does in ¶¶ 97-99—on the fact
21 that resignations were announced during the Class Period or around other alleged
22 corrective disclosures. See, e,g., Zucco, 552 F.3d at 1002 (“
sufficient information to differentiate between a suspicious change in personnel and
a benign one”; it is not enough to make an allegation that somebody resigns “during
11 Moreover, Plaintiff’s contention that Defendants were reckless in making any projections following the acquisition of EMC is belied by the fact that Global Eagle’s earlier disclosures of material weaknesses had not resulted in a restatement and that Global Eagle was taking efforts to remediate those weaknesses. Plaintiff must plead more than a post hoc assertion that Defendants should have predicted the effect of the EMC acquisition on its internal controls.
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[A] plaintiff must allege
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1 the class period or shortly before the corporation issues its restatement.”); In re
2 Cadence Design Sys., Inc. Sec. Litig., 654 F. Supp. 2d 1037, 1050 (N.D. Cal. 2009)
3 (resignations of six officers one week prior to a restatement “not, in and of
4 themselves, strongly indicative of scienter” because plaintiff failed to “allege
5 sufficient information to differentiate between a suspicious change in personnel and
6 a benign one”).12 Plaintiff pleads no facts to suggest the disclosed reasons for the
7 management changes, such as that Zemetra resigned to “pursue other opportunities”
8 (¶ 98), should be disregarded in favor of a conspiratorial inferences.
9 2. Plaintiff Fails To Plead Corporate Scienter
10 Plaintiff makes no effort to plead non-conclusory facts establishing that
11 Global Eagle itself acted with scienter. See ¶¶ 19-20. Because Plaintiff also fails to
12 plead that the Individual Defendants acted with scienter, it cannot impute their
13 scienter to the Company. Plaintiff’s claim against Global Eagle therefore fails.
14 3. There Is No Compelling Inference of Fraud
15 To conclude its scienter analysis, the Court “must compare the malicious and
16 innocent inferences cognizable from the facts pled in the complaint, and only allow
17 the complaint to survive a motion to dismiss if the malicious inference is at least as
18 compelling as any opposing innocent inference.” Zucco, 552 F.3d at 991. The far
19 more compelling inference here is that (i) Global Eagle provided investors with its
20 best available estimates of future earnings and synergies from the EMC acquisition;
21 (ii) the Company provided investors with real-time disclosure of its discovery of
22 internal control deficiencies, and warned them, among other things, that more
12 Moreover, Plaintiff’s contention that “it is likely that Zemetra, after disseminating false information to inflate his bonus, had a change of heart and was pushed out” (¶ 98) is baseless speculation, and is contrary to Global Eagle’s disclosure that he had “resigned to pursue other opportunities,” (id.) as well as failing because of the numerous shortcomings with the “bonus theory” set forth above. Additionally, Plaintiff makes no effort to explain why Severson (who was EMC’s CFO before the acquisition) would have joined in a Global Eagle fraud. Indeed, Mr. Severson was not a Global Eagle employee before the EMC acquisition, and he could not conceivably have supported the acquisition to obtain any Global Eagle bonus. Plaintiff theories are nothing but illogical and—frankly— desperate speculation that are being offered in the place of valid scienter allegations.
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1 deficiencies might be discovered and there could be delays to financial reporting as
2 a result; and (iii) the turnover among Global Eagle’s senior executives was based on
3 personal choice and strategic decisions made by the Company’s board of directors.
4 These allegations come nowhere near supporting an inference of scienter.
5 II. PLAINTIFF’S SECTION 20(A) CLAIM MUST BE DISMISSED
Plaintiff’s Section 20(a) “control person” claim should also be dismissed.
7 Such claims “may be dismissed summarily . . . if a plaintiff fails to adequately plead
8 a primary violation of section 10(b).” Zucco, 552 F.3d at 990. Here, because
9 Plaintiff’s Section 10(b) claim fails, its Section 20(a) claim does as well.
10 III. PLAINTIFF’S FAC SHOULD BE DISMISSED WITH PREJUDICE
6
It is appropriate to deny leave to amend when “leave to amend would have
12 been a futile exercise.” Gompper v. VISX, 298 F.3d 893, 898 (9th Cir. 2002); see
13 also DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 n.3 (9th Cir. 1987) (a
14 district court’s discretion to deny leave to amend “is especially broad ‘where the
15 court has already given a plaintiff one or more opportunities to amend his
16 complaint’”) (citation omitted). Plaintiff has had ample opportunity to state a claim.
17 Plaintiff’s initial complaint was so weak that it was amended in response to
18 Defendants’ initial motion to dismiss. As set forth above, the FAC fares no better.
19 Having filed two deficient complaints, Plaintiff should not be permitted a third.
20 CONCLUSION
21 For each of the foregoing reasons, Defendants respectfully request that the
22 Court dismiss the FAC in its entirety with prejudice.
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11
Dated: June 19, 2017
SIMPSON THACHER & BARTLETT LLP By /s/JamesG.Kreissman
James G. Kreissman
Attorneys for Defendants
0 notes