United States District Court, S.D. New York
CONSTRUCTION LABORERS PENSION TRUST FOR SOUTHERN CALIFORNIA, GENE SAMIT and JOHN LANTZ, individually and on behalf of all others similarly situated, Plaintiffs,
CBS CORPORATION et al., Defendants.
OPINION AND ORDER
VALERIE CAPRONI, UNITED STATES DISTRICT JUDGE.
a putative securities class action against CBS Corporation
(“CBS” or “the Company”) and several
of its officers and employees, including former CEO and
Chairman of the Board Leslie Moonves. Plaintiffs bring claims
under Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and related
Amended Complaint alleges that Moonves-the architect of the
Company's success-concealed a dark history of sexual
misconduct and fostered a hostile workplace culture that
posed material business risks to the Company. Am. Compl.
(Dkt. 59) ¶¶ 2-3, 5. Defendants allegedly failed to
disclose the risk that journalists would uncover and expose
Moonves's misconduct and force Moonves out, all the while
paying lip service to the Company's purported
anti-harassment ethical standards. Id. ¶¶
putative class includes purchasers of CBS stock from
September 26, 2016, to December 4, 2018 (the “Class
Period”) and hinges on two corrective disclosures-Ronan
Farrow's initial exposé on Moonves and CBS that
was published in the New Yorker on July 27, 2018, and three
articles that were published on December 4, 2018, by the New
York Times disclosing new details about Moonves's
misconduct that the reporters drew from an independent
investigation that had been commissioned by CBS and then
leaked to the press. Id. ¶¶ 1, 19.
all individual Defendants except Moonves made a joint motion
to dismiss, and Moonves made a separate motion to dismiss.
Dkts. 76-77. Both argue that the Amended Complaint fails to
state a claim and must be dismissed under Federal Rule of
Civil Procedure 12(b)(6). The Court grants in part and denies
in part both motions.
a mass media, entertainment, and publishing company. Am.
Compl. ¶ 28. It operates various businesses spanning
these industries, including the CBS Television Network, cable
networks, content production and distribution, television
stations, internet-based businesses, and consumer publishing.
Id. ¶ 2. Individual Defendants include Moonves,
his former co-Board member and CBS's controlling
shareholder Shari Redstone, other Board members from the
Class Period, and three executive employees: former COO
Joseph Ianniello, former Executive VP Lawrence Liding, and
President of CBS News David Rhodes. Id. ¶¶
28- 29, 30-33. The facts in this case center on Moonves's
allegedly unique value to the Company and on accusations of
sexual misconduct made against Moonves and other
non-defendant executives at CBS that were reported by the New
Yorker and other news organizations.
Moonves's Leadership Was Instrumental to CBS's
led CBS for over two decades in varying roles, including
President, CEO, and Chairman of the Board. Id.
¶¶ 38-41. He stepped down on September 9, 2018, and
was terminated for cause on December 17, 2018. Id.
¶¶ 18, 29. During his tenure, CBS's stock rose
from $5 per share to $70. Id. ¶ 39. Analysts
lauded his leadership, stating, for example, that Moonves was
the “secret weapon” and “key to”
CBS's success. Id. ¶ 40. Analysts placed an
“unquantifiable premium” on Moonves's
creative input, network, and successful strategic track
record. Id. ¶ 41. The Company's proxy
statements attributed record-setting revenues in 2016 and
2017 to Moonves's leadership. Id. ¶¶
Moonves and CBS Face a #MeToo Reckoning
events portended what has become known as the #MeToo
movement-a wave of victim- and journalist-driven revelations
of sexual assault perpetrated by media and entertainment
power brokers. In late 2016, Fox News came under scrutiny
when it settled several sexual harassment claims against top
executives and media figures, including Bill O'Reilly and
Roger Ailes. Id. ¶ 44. These and past
settlements came to light due to investigative reporting,
leading to O'Reilly's termination. Id. A
ground swell of solidarity from victims of sexual harassment
and assault trended on Twitter as hashtag MeToo, rattling the
industries as new accusations against executives rolled out
from what came to be characterized as a
“movement.” Id. ¶¶ 44-45. The
most significant report, credited with officially kicking off
the #MeToo movement, was Ronan Farrow's exposé
published in the New Yorker in October 2017 of film producer
Harvey Weinstein, describing in lurid detail a long history
of sexual misconduct. Id. ¶¶ 7, 46.
and after the New Yorker article about Weinstein, CBS had its
own issues with workplace sexual harassment. Producer Brad
Kern, executive producer Andrew Kreisberg, vice president
Vincent Favale, and other senior level managers were accused
of sexual harassment; CBS terminated or suspended some of
them and settled several related lawsuits. Id.
¶¶ 13, 66, 70-73, 84. There were also allegations
of retaliation against victims by those managers.
Id. ¶¶ 70, 74, 87. On November 20, 2017,
the Washington Post published an article detailing alleged
sexual misconduct by Charlie Rose-a contributing
correspondent for CBS News's 60 Minutes and co-host of
CBS This Morning-involving multiple women who worked with
him. Id. ¶ 7. CBS News fired Rose shortly after
the report ran. Id. ¶ 68.
November 2017, Moonves learned of a criminal complaint that
had been filed with the Los Angeles Police Department
(“LAPD”) “accusing Moonves of physically
restraining [the complainant] and forcing her to perform oral
sex on him, and of exposing himself to her and violently
throwing her against a wall in later incidents.”
Id. ¶¶ 15, 55. Law enforcement sources
later reported that they found the complainant's
allegations “credible and consistent but prosecutors
declined to pursue charges because the statutes of
limitations for the crimes had expired.” Id.
early December 2017, on the heels of learning about the LAPD
complaint, Moonves was contacted by Marv Dauer, the former
manager of actress Bobbie Phillips, about the possibility
that Phillips would publicly reveal incidents of sexual
assault by Moonves that occurred at the beginning of her
career. Id. ¶¶ 16, 57-58. Moonves
acknowledged to Dauer that he believed that an article about
him and Phillips would be published shortly. Id.
¶ 80. Through Dauer, Moonves offered Phillips work at
CBS, stating privately to Dauer that he believed he would be
“done” if Phillips talked to the media.
Id. ¶¶ 58, 80.
January 2018, Redstone heard rumors that Moonves would soon
face accusations of sexual misconduct and have a
“#MeToo moment” in the press. Id. ¶
78. At her direction, CBS engaged a law firm to investigate
the rumor. Id. ¶ 79. In late January, the law
firm reported that “Moonves had told [them] that while
there might have been a few incidents before he came to CBS,
there was no cause for concern now.” Sept. 12, 2018,
N.Y. Times Article (Dkt. 80, Ex. 28) at 3. The law firm told
CBS that “there was nothing to worry about.” Nov.
28, 2018, N.Y. Times Article (Dkt. 80, Ex. 29) at 6-7. Also
in early 2018, Moonves informed some members of the
nomination and governance (“N&G”) committee
of the CBS Board about the complaint that had been filed with
the LAPD; in April 2018, the CBS Board called an emergency
meeting to discuss a course of action if a rumored-of report
should publicly emerge regarding Moonves. Am. Compl. ¶
78. The Board cancelled the meeting when it discovered that
Moonves was not the subject of the soon-to-be-published
article about which they had heard rumors. Id.
months later, on July 27, 2018, the New Yorker published an
exposé detailing accusations from six women who
claimed Moonves had sexually assaulted them “between
the nineteen-eighties and the late aughts, ” with the
most recent incident allegedly occurring in 2006.
Id. ¶¶ 9, 49, 52, 145, 149; see July 27,
2018, N.Y. Times Article (Dkt. 80, Ex. 21). The accusations
included “forcible touching or kissing during business
meetings, in what they said appeared to be a practiced
routine, ” and two women stated that “Moonves
physically intimidated them or threatened to derail their
careers.” Id. ¶¶ 49-53. A second New
Yorker article, published on September 9, 2018, detailed
accusations from six other women, including allegations of
forced oral sex. Id. ¶¶ 54-56. Moonves
also allegedly retaliated against his accusers. Id.
In addition, these articles and others from outlets such as
the Wall Street Journal described incidents of sexual
harassment at CBS that went beyond Moonves, including with
“60 Minutes” chief Jeff Fager. Id.
after first New Yorker article broke in July 2018, the CBS
Board announced that it would engage outside counsel to
independently investigate the allegations against Moonves and
CBS. Id. ¶¶ 18, 59. The day of the second
article's publication, CBS reported that Moonves would
step down as the Company's Chairman and CEO. Id.
Draft Report Leaks from CBS's Independent Investigation
December 4, 2018, the New York Times published the details of
a fifty-nine page draft report from CBS's independent
investigation into Moonves, describing previously unreported
acts of sexual misconduct by Moonves. Id.
¶¶ 19-20, 154-55. The draft report highlighted that
Moonves had “repeatedly lied to investigators about his
behavior” and “destroyed evidence and misled
investigators in an attempt to preserve his reputation and
save a lucrative severance deal.” Id. ¶
155. In investigating CBS's workplace culture more
generally, the draft report described “past incidents
of improper and unprofessional conduct” by other senior
CBS employees. Id. ¶¶ 19, 89. The draft
report concluded that Moonves's behavior “arguably
constitutes willful misfeasance and violation of the
company's sexual harassment policy, ” and
“the Company's historical policies, practices and
structures have not reflected a high institutional priority
on preventing harassment and retaliation.” Id.
¶¶ 60, 89.
reviewing the findings of the investigation, which included
interviews with approximately 350 people, CBS's Board
decided to terminate Moonves for cause due to his
“willful misfeasance” and lack of cooperation
with the investigation. Id. ¶¶ 150, 157.
Defendants' Public Statements
2016 to 2018, CBS's proxy statements incorporated the
Company's Business Conduct Statement (“BCS”),
which “sets forth the Company's standards for
ethical conduct that are expected of all directors and
employees of the Company.” Id. ¶ 100. The
proxies stated that the BCS was designed to address
“[t]he Company's commitment to providing . . . a
bias-free and harassment-free workplace environment.”
Id. The BCS itself contained a section stating that
“CBS has a ‘zero tolerance' policy for sexual
harassment, ” and that CBS would “take all steps
necessary and appropriate to stop such acts of harassment or
discrimination of which it becomes aware.” Id.
proxies from 2016 to 2018 also discussed CBS's
Supplemental Code of Ethics for Senior Financial Officers
(the “Ethics Code”). Id. ¶ 105. The
proxies stated that the Ethics Code was “applicable to
the Company's Chief Executive Officer, ” and
required the CEO to disclose any information regarding a
violation of the BCS to CBS's Chief Legal Officer.
the proxies described Moonves as being a “critical link
to management's perspective” and as having a
“unique institutional knowledge of the Company.”
Id. ¶ 99. Additionally, CBS-in its annual and
quarterly reports during the class period-disclosed potential
risks to “the Company's business” and
revenues if CBS were to lose its “chief executive
officer” or other “key employees.”
Id. ¶ 95.
November 29, 2017, shortly after Charlie Rose was fired,
Moonves told an audience at Variety magazine's Innovate
Summit-where he was the keynote presenter and interviewee-
that the #MeToo movement was “a watershed moment”
and that “it's important that a company's
culture will not allow for this. . . . There's a lot
we're learning. There's a lot we didn't
know.” Id. ¶ 8; Keynote Presentation
Video (Dkt. 95, Ex. 36).
March 2018, Rhodes, President of CBS News, made a series of
statements regarding the allegations of sexual misconduct
against Rose. Specifically, Rhodes denied having any
knowledge of Rose's misconduct during Rose's time at
CBS News and spoke of the need to take seriously the
imperative of removing “misconduct and
harassment” from the workplace while “drawing out
the truth-revealing, not concealing.” Am. Compl. ¶
130. A representative of CBS News similarly stated in May
2018 that “[CBS News] take[s] swift action when we
learn of unacceptable behavior.” Id. ¶
138. Finally, in an interview with Hollywood Reporter on July
19, 2018, Rhodes stated that Moonves was “really
good” at managing the oversight of sexual harassment
claims. Id. ¶ 143.
CBS's Stock Fluctuation and Trading Activity by
the July 27, 2018, publication of sexual assault allegations
involving Moonves, CBS Class A and Class B stock prices fell
about six percent, from $57.85 to $54.27 per share and $57.53
to $54.01 per share, respectively. Id. ¶¶
10, 146. By the next trading day, the stock prices had each
fallen about ten percent total. Id. The stock price
recovered slightly, but following the December 2018 New York
Times article regarding the draft report from the independent
investigation, CBS's stock prices again declined
approximately 4%. Id. ¶ 21.
sexual harassment allegations against CBS executives became
public, Moonves and other CBS executives collectively sold
approximately 3.4 million shares of CBS stock. Id.
¶ 91. Moonves sold around $155 million worth between
June 2017 and May 2018. Id. Ianniello sold around
$30 million worth between January 2017 and June 2018.
Id. Liding sold around $2 million worth between
February and March 2017, and non-defendant Gil Schwartz (head
of communications at CBS) sold around $15 million worth
between February 2017 and June 2018. Id.
¶¶ 20, 91.
Standard of Review
survive a motion to dismiss under Rule 12(b)(6), “a
complaint must allege sufficient facts, taken as true, to
state a plausible claim for relief.” Johnson v.
Priceline.com, Inc., 711 F.3d 271, 275 (2d Cir. 2013)
(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555-56 (2007)). “[A] complaint does not need to contain
detailed or elaborate factual allegations, but only
allegations sufficient to raise an entitlement to relief
above the speculative level.” Keiler v. Harlequin
Enters., Ltd., 751 F.3d 64, 70 (2d Cir. 2014) (citation
omitted). The Court accepts all factual allegations in the
complaint as true and draws all reasonable inferences in the
light most favorable to the plaintiff. See Gibbons v.
Malone, 703 F.3d 595, 599 (2d Cir. 2013). The Court,
though, is “not bound to accept as true a legal
conclusion couched as a factual allegation.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Twombly, 550 U.S. at 555).
Motions to Dismiss Plaintiffs' Section 10(b) Claim
Elements of the Claim
10(b) of the Securities Exchange Act makes it unlawful to
“use or employ, in connection with the purchase or sale
of any security . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as
the Commission may prescribe.” 15 U.S.C. § 78j(b).
The SEC's implementing rule, Rule 10b-5, makes it
unlawful to “make any untrue statement of a material
fact” or “omit to state a material fact necessary
in order to make the statements made, in light of the
circumstances under which they were made, not
misleading.” 17 C.F.R. § 240.10b-5.
state a claim under these provisions, a plaintiff must plead
six elements: “(1) a material misrepresentation or
omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or
sale of a security; (4) reliance upon the misrepresentation
or omission; (5) economic loss; and (6) loss
causation.” Pac. Inv. Mgmt. Co. v. Mayer Brown
LLP, 603 F.3d 144, 151 (2d Cir. 2010) (quoting
Stoneridge Inv. Partners v. Scientific-Atlanta,
Inc., 552 U.S. 148, 157 (2008)).
claims under Section 10(b) and Rule 10b-5 sound in fraud, a
heightened pleading requirement applies. Pursuant to Federal
Rule of Civil Procedure 9(b) and the Private Securities
Litigation Reform Act (“PSLRA”), the complaint
must “(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state
where and when the statements were made, and (4) explain why
the statements were fraudulent.” ATSI Commc'ns,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007)
(citing Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir.
2000)); see also 15 U.S.C. § 78u-4(b)(1)(B).
Amended Complaint Does Not “Puzzle Plead”
first argues that the Amended Complaint should be dismissed
in its entirety because it does not explain why and how each
particular statement is false or misleading. That sort of
“puzzle pleading”-marked by lengthy block quotes
followed by pro forma reasons why the statements quoted are
allegedly false-fails to state a claim because it is
insufficiently particular under the PSLRA. See
Boca Raton Firefighters & Police Pension Fund v.
Bahash, 506 Fed.Appx. 32, 37-38 (2d Cir. 2012). But
CBS's characterization of the Amended Complaint is
inaccurate. Although the Amended Complaint is not a model of
clarity, it identifies statements and omissions, describes
relevant predicate events, and alleges how those events make
the statements and omissions false or misleading. In doing
so, the Amended Complaint describes “what portion of
each quotation constitutes a false representation” and
avoids “placing the burden on the Court to sort out the
alleged misrepresentations and then match them with the
corresponding adverse facts.” In re Alcatel Sec.
Litig., 382 F.Supp.2d 513, 534 (S.D.N.Y. 2005). The
Amended Complaint is far from the 280-page complaint in
Bahash where the lengthy quotations and canned allegations
made any analysis a Sisyphean task.
Amended Complaint Adequately Alleges One Misleading Statement
of Material Fact
single theory of securities fraud underpins the Amended
Complaint. Plaintiffs allege that Moonves and other managers
and officers sexually harassed and threatened female
employees behind the scenes for years, fostering a crude and
hostile workplace culture. This behavior and culture created
a risk that CBS would lose Moonves, its star executive,
should his dirty laundry come to light. Plaintiffs'
securities fraud theory is that, with the advent of the
#MeToo movement, the risk of losing Moonves to sexual scandal
increased, and yet Defendants failed to disclose the risk
even as they touted CBS's ethical culture and
Moonves's importance to the Company's financial
performance. See Am. Compl. ¶¶ 2, 16, 98, 106-11,
123-24, 129, 140, 144.
Amended Complaint includes numerous alleged misstatements
that fall broadly into six categories: (1) the BCS, Ethics
Code, and various related statements,  Id.
¶¶ 100-05, 119-21, 134-36; (2) disclosures about
the importance to CBS of key personnel and Moonves in
particular, Id. ¶¶ 95-97, 99, 114, 116-18,
122, 127, 132, 139; (3) management statements to news media
made by Moonves, Rhodes, and CBS News, Id.
¶¶ 125, 130-31, 138, 141-43; (4) disclosures about
legal proceedings, Id. ¶ 128; (5) disclosures
contained in a press release announcing CBS's financial
results, Id. ¶ 126; and (6) disclosures about
CBS's corporate governance, Id. ¶ 137.
the last three categories, Plaintiffs did not respond to
Defendants' arguments that these statements were neither
material nor misleading. Thus, Plaintiffs abandoned their
claims as to the statements contained in categories four,
five, and six. See In re Mylan N.V. Sec.
Litig., No. 16-CV-7926, 2018 WL 1595985, at *14
n.9 (S.D.N.Y. Mar. 28, 2018).
the first three categories, the statement by Moonves to the
Variety audience is materially misleading, but the remaining
statements are either immaterial or not adequately alleged to
be false or misleading.
support a claim of securities fraud, the stated or omitted
fact must be material. A fact is material if it “would
have been viewed by the reasonable investor as having
significantly altered the total mix of information
available.” Basic Inc. v. Levinson, 485 U.S.
224, 231-32 (1988) (quotation omitted). Put differently,
“there is a substantial likelihood that a reasonable
person would consider it important in deciding whether to buy
or sell shares of stock.” Operating Local 649
Annuity Tr. Fund v. Smith Barney Fund Mgmt. LLC, 595
F.3d 86, 92-93 (2d Cir. 2010) (quotation omitted). Statements
that are too vague or general to be relied upon- puffery-are,
by definition, not material. ECA, Local 134 IBEW Joint
Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d
187, 206 (2d Cir. 2009). “Whether a representation is
‘mere puffery' depends, in part, on the context in
which it is made.” In re Petrobras Sec.
Litig., 116 F.Supp.3d 368, 381 (S.D.N.Y. 2015).
alleged statement or omission must also be false or
misleading. Whether a statement is false or misleading is
“evaluated not only by ‘literal truth,' but
by ‘context and manner of presentation.'”
Singh v. Cigna Corp.,918 F.3d 57, 63 (2d Cir. 2019)
(quoting Operating Local, 595 F.3d at 92). To base a claim on
an omission-such as failing to disclose a material business
risk-a plaintiff must also plead that ...