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Arkansas Teacher Ret. Sys. v. Bankrate, Inc.

United States District Court, S.D. New York

April 30, 2014

ARKANSAS TEACHER RETIREMENT SYSTEM, and FRESNO COUNTY EMPLOYEES' RETIREMENT ASSOCIATION, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
BANKRATE, INC., THOMAS R. EVANS, EDWARD J. DIMARIA, APAX PARTNERS L.P., APAX PARTNERS LLP, and APAX PARTNERS EUROPE MANAGERS LTD., Defendants,

Decided: April 29, 2014.

For Arkansas Teacher Retirement System, individually and on behalf of all others similarly situated, Plaintiff: John James Rizio-Hamilton, Lauren Amy Ormsbee, Rebecca Ellen Boon, Salvatore Jo Graziano, LEAD ATTORNEYS, Avi Josefson, Gerald H. Silk, Jeroen Van Kwawegen, Bernstein, Litowitz, Berger & Grossman, LLP, New York, NY; Stefanie Jill Sundel, LEAD ATTORNEY, Bernstein, Litowitz, Berger & Grossman, New York, NY.

For Fresno County Employees Retirement Association, Movant: Gerald H. Silk, John James Rizio-Hamilton, Lauren Amy Ormsbee, Rebecca Ellen Boon, Salvatore Jo Graziano, LEAD ATTORNEYS, Bernstein, Litowitz, Berger & Grossman, LLP, New York, NY; Stefanie Jill Sundel, LEAD ATTORNEY, Bernstein, Litowitz, Berger & Grossman, New York, NY.

For Bankrate Inc., Thomas R. Evans, Edward J. Dimaria, Defendants: George T Conway, III, Warren R. Stern, LEAD ATTORNEYS, Wachtell, Lipton, Rosen & Katz, New York, NY; Lauren Marie Kofke, Wachtell, Lipton, Rosen & Katz, New York, NY.

For Seth Brody, Peter C. Morse, Bruce Nelson, Richard J. Pinola, Christian Stahl, James Tieng, Mitch Truwit, Defendants: Warren R. Stern, Wachtell, Lipton, Rosen & Katz, New York, NY; Lauren Marie Kofke, Wachtell, Lipton, Rosen & Katz, New York, NY.

For Allen & Company LLC, Citigroup Global Markets, Inc., Credit Suisse Securities (USA), LLC, Goldman Sachs & Co., J.P. Morgan Securities, LLC, RBC Capital Markets, LLC, Stephens, Inc., Stifel, Nicolaus & Company, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., Defendants: Mitchell A. Lowenthal, LEAD ATTORNEY, Cleary Gottlieb, New York, NY; Meredith Eve Kotler, Cleary Gottlieb, New York, NY.

OPINION

Page 483

MEMORANDUM

JED S. RAKOFF, U.S.D.J.

Arkansas Teacher Retirement System and Fresno County Employees' Retirement Association bring this putative class action on behalf of themselves and all other

Page 484

similarly situated persons who purchased securities in Bankrate, Inc. (" Bankrate" ) between June 16, 2011 and October 15, 2012 (the " Class Period" ). Plaintiffs allege that Bankrate and its then two most senior officers, CEO Thomas R. Evans and CFO Edward J. DiMaria, violated Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j (b), and Rule 10b-5 promulgated thereunder, by misrepresenting the quality of Bankrate's insurance " leads." Defendants moved to dismiss the complaint, contending, first, that plaintiffs failed to plead with particularity any material misstatement or omission as required by 15 U.S.C. § 78u-4(b)(1); second, that plaintiffs failed to plead particularized facts raising the strong inference of scienter required by 15 U.S.C. § 78u-4(b) (2); and third, that plaintiffs failed to state a claim for control-person liability under Section 20(a) against Apax Partners L.P., Apax Partners LLP, and Apax Partners Europe Managers Ltd (together, the " Apax defendants" ). After full briefing and oral argument, the Court, in an April 15, 2014 " bottom line" Order, granted defendants' motion only with respect to the control-person liability claim. This Memorandum sets forth the reasons for that decision.

Bankrate operates a network of consumer financial websites, earning revenue by locating potential customers of financial products and giving financial services providers access to those potential customers. Amended Complaint (" Am. Compl." ) ¶ ¶ 26, 32. For example, as explained by defendants, a consumer might search for a particular product on Google 1 which might direct her to a Bankrate site; on the site, the consumer could read about mortgages and research rates in her area; if the consumer saw a rate she liked, she could click on a link to the lender's webpage and apply for a loan. See Defendants' Memorandum of Law in Support of their Motion to Dismiss (" Defendants' Memo." ) at 4. In addition, Bankrate also locates potential customers for financial services providers by purchasing " leads" generated by affiliates for re-sale. Am. Compl. ¶ 35. Bankrate charges the financial services providers a " cost per click" fee when a consumer clicks on a provider's link, charges fees for advertising on its sites, and finally (the subject of this dispute), charges a " cost per lead" fee for information about a potential consumer. Id. ¶ 33.

During the Class Period, plaintiffs allege that Bankrate made material misrepresentations and omissions concerning " lead" quality. For example, during an August 10, 2011 earnings call, CEO Evans stated, in reference to Bankrate's lead quality, that " we're feeling very good about our sources of traffic . . [t]here's a lot of volume out there so you can be picky about making sure it's high-quality. I can tell you we've cut off some sources. We're constantly testing and monitoring, and I think we're doing a pretty good job of that. So I do think we have a competitive advantage." Declaration of Lauren M. Kofke date February 11, 2014 (" Kofke Decl." ), Exhibit (" Ex." ) 4 at 10. During the same time period that statement was made, but not disclosed until thereafter, approximately $12 million worth of Bankrate's insurance leads were determined to be of such poor quality that they could not be sold and were ...


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