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City of Omaha, Nebraska Civilian Employees' Retirement System, City of v. Cbs Corporation

May 10, 2012

CITY OF OMAHA, NEBRASKA CIVILIAN EMPLOYEES' RETIREMENT SYSTEM, CITY OF OMAHA POLICE AND FIRE RETIREMENT SYSTEM, PLAINTIFFS-APPELLANTS, CITY OF PONTIAC GENERAL EMPLOYEES' RETIREMENT SYSTEM, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
CBS CORPORATION, LESLIE MOONVES, FREDERIC G. REYNOLDS, SUSAN C. GORDON, SUMNER REDSTONE, DEFENDANTS-APPELLEES, JOSEPH R. IANNIELLO, DEFENDANT.



Appeal from a judgment of the United States District Court for the Southern District of New York (P. Kevin Castel, Judge) dismissing appellants' amended and second amended complaints for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6).

Per curiam.

11-2575-cv

City of Omaha, Neb. Civilian Emps.' Ret. Sys. v. CBS Corp.

Argued: March 14, 2012

Before: WINTER, RAGGI, Circuit Judges, and RAKOFF, District Judge.*fn1

Appellants argue that they stated a claim for securities fraud by alleging that the CBS Corporation, and individuals associated therewith, delayed interim impairment testing of the corporation's intangible assets despite indicia that such a test was necessary at an earlier date. We affirm.

Plaintiffs City of Omaha, Nebraska Civilian Employees' Retirement System and 20 City of Omaha Police and Fire Retirement System appeal from Judge Castel's dismissal 21 of their amended and second amended complaints for failure to state a claim, pursuant to 22 Fed. R. Civ. P. 12(b)(6). The two complaints asserted claims for relief against defendants 23 CBS Corp., Leslie Moonves, Frederic G. Reynolds, Susan Gordon, and Sumner Redstone 24 under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("1934 Act"), see 25 15 U.S.C. §§ 78j(b), 78t(a), and S.E.C. Rule 10b-5, see 17 C.F.R. § 240.10b-5. We 26 assume the parties' familiarity with the facts and record of prior proceedings, which we 27 reference only as necessary to explain our decision to affirm.

1 Though plaintiffs' 77-page second amended complaint is replete with broad 2 references to misrepresentations regarding CBS's revenue and the value of CBS's assets 3 in early- to mid-2008, the asserted basis for plaintiffs' securities fraud claims is quite 4 limited.*fn2 On October 10, 2008, CBS announced that it was performing an interim 5 impairment test on its existing goodwill, and that, as a result, CBS expected to incur a 6 non-cash impairment charge during the third quarter of approximately $14 billion.

7 Plaintiffs allege that defendants knew about the facts that led CBS to perform an interim 8 impairment test much earlier than October 2008, so CBS should have performed the test 9 and disclosed its results during the first or second quarter of 2008--that is, no later than 10 June 30, 2008. Thus, plaintiffs submit, defendants' statements about CBS's goodwill and 11 its general financial condition during the first and second quarters of 2008 were 12 knowingly or recklessly false.*fn3

13 We review a judgment of dismissal "de novo, accepting all well-pleaded 14 allegations in the complaint[s] as true and drawing all reasonable inferences in 15 [plaintiffs'] favor." S.E.C. v. Gabelli, 653 F.3d 49, 57 (2d Cir. 2011) (alterations, internal 16 quotation marks, and citation omitted). To survive dismissal, a complaint must "allege a 17 plausible set of facts sufficient 'to raise a right to relief above the speculative level.'" Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 2 86, 91 (2d Cir. 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

3 This requires plaintiffs to plead "factual content that allows the court to draw the 4 reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. 5 Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949 (2009). Moreover, complaints of securities 6 fraud are subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b) 7 (requiring circumstances constituting fraud to be stated with particularity), and the Private 8 Securities Litigation Reform Act, see 15 U.S.C. § 78u-4(b)(1) (requiring, inter alia, that 9 complaint "specify each statement alleged to have been misleading" and explain why 10 statement is misleading); id. § 78u-4(b)(2) (requiring that facts supporting requisite 11 scienter be pleaded with particularity). See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 12 493 F.3d 87, 99 (2d Cir. 2007).

13 Applying these principles here, we affirm for substantially the reasons stated in the 14 district court's thoughtful and thorough opinions. See City of Omaha, Neb. Civilian 15 Emps.' Ret. Sys. v. CBS Corp., No. 08 Civ. 10816 (PKC), 2011 WL 2119734 (S.D.N.Y. 16 May 24, 2011); City of Omaha, Neb. Civilian Emps.' Ret. Sys. v. CBS Corp., No. 08 Civ. 17 10816 (PKC), 2010 WL 1029290 (S.D.N.Y. Mar. 16, 2010). That conclusion is reinforce 18 by Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir. 2011), which had not yet been 19 decided at the time of the district court's decisions.

20 The Fait plaintiffs also claimed that various statements concerning goodwill were 21 false and misleading due to defendants' failure to conduct timely interim impairment 22 testing. Id. at 108, 110. We rejected the argument, reasoning that the "plaintiff's 23 allegations regarding goodwill d[id] not involve misstatements or omissions of material 24 fact, but rather misstatements regarding . . . opinion." Id. at 110 (observing that, 1 "[e]stimates of goodwill . . . are not matters of objective fact."). Relying in part on 2 Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), we held that in this specific 3 context, a plaintiff must "plausibly allege that defendants did not believe the statements 4 regarding goodwill at the time they made them" to plead a material misstatement or 5 omission. Fait v. Regions Fin. Corp., 655 F.3d at 112.*fn4 Though Fait involved claims 6 under Sections 11 and 12 of the Securities Act of 1933, see 15 U.S.C. §§ 77k, 77l, the 7 same reasoning applies under Sections 10(a) and 20(b) of the 1934 Act, as these claims 8 all share a material misstatement or omission element. See Fait v. Regions Fin. Corp., 9 655 F.3d at 109; Ashland Inc. v. Morgan Stanley & Co., 652 F.3d 333, 337 (2d Cir. 2011) 10 (reviewing elements of Section 10(b) claims).*fn5

11 In urging otherwise, plaintiffs here, as in Fait, place considerable reliance on the 12 Financial Accounting Standards Board's Statement of Financial Accounting Standards 13 ("SFAS") No. 142, which "requires that goodwill be tested for impairment annually, or 14 'more frequently if events or changed circumstances indicate that the asset might be 15 impaired.'" Fait v. Regions Fin. Corp., 655 F.3d at 110. Plaintiffs maintain that the 16 second amended complaint contains a number of factual allegations suggesting CBS's 17 general financial deterioration during the first and second quarters of 2008, thereby 18 plausibly demonstrating that proper application of SFAS No. ...


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