A Fort Worth federal judge has dismissed a securities fraud class action against Arlington-based Six Flags Entertainment Corp. after finding the allegations of two anonymous employees unreliable — allegations that essentially anchored the plaintiffs’ entire case.
Filed in February 2020, the lawsuit alleges the world’s largest regional theme park operator and two highly-ranked executives made false or misleading statements or omissions related to the development of Six Flags parks in China.
The plaintiffs said the statements were related to the financial health of Riverside Investment Group, Six Flags’ partner on the project; construction progress of the parks; projected park opening dates; and revenue recognition. The lawsuit was brought by a group of investor plaintiffs spearheaded by the Oklahoma Firefighters Pension and Retirement System.
The timing of the plaintiffs’ suit came after Six Flags announced it had terminated its agreements with Riverside after Riverside defaulted on its payments to Six Flags. The plaintiffs alleged that the truth about what was really going on came out in a series of corrective disclosures, each of which caused the company stock price to suffer double-digit percentage declines.
In a 60-page ruling issued last Tuesday, U.S. District Judge Mark Pittman dismissed the plaintiffs’ case with prejudice, citing precedent by the U.S. Court of Appeals for the Fifth Circuit that required him to view allegations made by confidential witnesses through a discounted lens.
Moreover, he ruled the plaintiffs failed to properly plead that the witnesses had personal knowledge of what they were alleging and that in some instances the confidential witnesses were merely asserting their opinions instead of facts.
“Plaintiffs rely on conclusory statements — mere opinions — by a confidential witness,” the ruling says. “The court finds these conclusory statements insufficient to overcome a motion to dismiss.”
Lawyers for both sides declined to comment on the case. The plaintiffs are represented by Bernstein Litowitz Berger & Grossman, and the defendants are represented by Kirkland & Ellis.
The confidential witnesses were identified only as “Former Employee 1” (FE1) and “Former Employee 2” (FE 2) in the opinion. FE1 was the director of international construction and project management and was responsible for overseeing the construction of the China parks and internally reporting on their progress. FE2 was Six Flags’ account manager.
As Judge Pittman points out, the plaintiffs relied on FE1 in particular in their complaint because FE1 prepared reports about construction progress of the China parks that ended up in the hands of former Six Flags CEO James Reid-Anderson, which supports their argument of scienter (a wrongful state of mind by the defendants) because Reid-Anderson and other executives were making misleading statements while having direct knowledge about what was really happening behind the curtain.
But Judge Pittman ruled that the confidential witness allegations also failed to prove scienter because there is no evidence that the defendants, which include Reid-Anderson and former CFO Marshall Barber, saw the reports.
“Plaintiffs simply assume that these reports — created by a confidential witness, submitted to individuals not named as defendants — were presented to Reid-Anderson without stating when the reports were created, when they were presented to defendants, or whether defendants actually saw the reports,” Judge Pittman wrote. “Reliance on the internal reports is particularly weak as to Barber since there is no pled allegation that the reports were presented to Barber or that he ever reviewed them.”
Throughout his ruling, the judge cited the heightened pleading standards under the Private Securities Litigation Reform Act as he laid out his reasoning. In one example, Judge Pittman ruled that any statements made by Reid-Anderson and Barber about Riverside and the Asia parks are protected by the PLSRA’s safe harbor provision as forward-looking statements, corporate optimism and puffery.
The Kirkland team representing Six Flags includes Dallas partner Jeremy Fielding and New York partners Sandra Goldstein and Stefan Atkinson and associate Daniel Cellucci.
The plaintiffs’ team includes Lewis LeClair, a partner in McKool Smith’s Dallas office. The Bernstein Litowitz lawyers involved are Hannah Ross, Katherine Sinderson, Abraham Alexander, Adam Hollander, Avi Josefson, Christopher Miles, John Hamilton and Michael Blatchley.