Court Opinion

ID: 9961510
Source: CourtListenerOpinion
Date Created: 2024-04-19 00:00:49.420944+00
Date Added: 2024-06-11T08:20:51.334775
License: Public Domain

Case: 23-10696          Document: 100-1           Page: 1    Date Filed: 04/18/2024

          United States Court of Appeals
               for the Fifth Circuit                                              United States Court of Appeals
                                                                                           Fifth Circuit

                                  ____________                                           FILED
                                                                                     April 18, 2024
                                    No. 23-10696                                    Lyle W. Cayce
                                  ____________                                           Clerk

Oklahoma Firefighters Pension and Retirement System,

                                                                 Plaintiff—Appellant,

Key West Police & Fire Pension Fund,

                                                                 Movant—Appellant,

                                         versus

Six Flags Entertainment Corporation; James Reid-
Anderson; Marshall Barber,

                                           Defendants—Appellees.
                  ______________________________

                  Appeal from the United States District Court
                      for the Northern District of Texas
                            USDC No. 4:20-CV-201
                  ______________________________

Before Wiener, Haynes, and Higginson, Circuit Judges.
Haynes, Circuit Judge:*
      Oklahoma Firefighters Pension and Retirement System and Key West
Police & Fire Pension Fund appeal the District Court’s (1) grant of the

      _____________________
      *
          This opinion is not designated for publication. See 5th Cir. R. 47.5.
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motion for judgment on the pleadings filed Six Flags Entertainment
Corporation, its then Chief Executive Officer James Reid-Anderson, and its
then Chief Financial Officer Marshall Barber; (2) denial of Key West’s
motion to intervene; and (3) denial of Oklahoma Firefighters’ motion for
leave to file an amended complaint. For the reasons set forth below, we
REVERSE and REMAND.

                                          Background

        This is the second appeal in this securities fraud class action case.
Because the underlying facts of this case are set forth in detail in Oklahoma
Firefighters Pension & Retirement System v. Six Flags Entertainment Corp., 58
F.4th 195 (5th Cir. 2023) (“Oklahoma I”), we recount only those facts that
are necessary to understand the disposition of this appeal.

            Facts1

        In the early 2010s, Six Flags2 put into place a series of strategic
incentive plans that entitled c-suite executives to substantial equity awards if
the company met its goals regarding earnings before interest, taxes,
depreciation, and amortization (“EBITDA”). In 2014, in an effort to
increase its EBITDA, Six Flags entered into a licensing agreement with
Riverside Investment Group (“Riverside”), a Chinese real estate developer,
to develop multiple Six Flags-branded theme parks in China. Under this
agreement, Six Flags received initial fees during the parks’ development, and
then substantial licensing and management fees once the parks opened.
Thereafter, Six Flags announced the development of eleven parks at three
        _____________________
        1
         For purposes of this appeal, we assume all facts are true as alleged in the amended,
consolidated class action complaint.
        2
          Unless otherwise noted, we refer to all defendants collectively as “Six Flags” for
simplicity.

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different locations in China. Three parks were slated to open in 2019; four
in 2020; and the other four, 2021.
        However, according to the amended complaint, from April 24, 2018,
until February 19, 2020 (the “Class Period”), Six Flags made numerous
material misstatements and omissions about the development of these theme
parks in China and relating to its business partner, Riverside. Six Flags’
alleged material misstatements and omissions can be broadly grouped into
four categories.3 First, Six Flags misled investors by continually representing
that the parks’ opening dates remained on track.                    Second, Six Flags
misrepresented to investors that construction on these parks continued to
progress. Third, Six Flags assured investors that Riverside had the necessary
funding and financial wherewithal to complete construction of the parks and
meet its contractual obligations under their licensing agreements. Fourth
and finally, Six Flags improperly recognized revenue for these parks under
U.S. Generally Accepted Accounting Principles (“GAAP”).4 These
statements were false because, among other reasons, the local Chinese
government had effectively withdrawn its support for some of the projects
and Riverside lacked much of the necessary funding and employees to make
meaningful progress on the construction of the parks, let alone to remain
current on its licensing payments to Six Flags.
        Later in 2019, Six Flags began speaking more cautiously about the
parks—though it still assured investors that there was “ongoing building”

        _____________________
        3
         The parties and the district court also identified these four categories of alleged
misstatements.
        4
        As permitted under GAAP, Six Flags recognized revenue from its licensing
agreements with Riverside to the extent that Riverside made licensing payments under the
agreements and made progress on the development of the parks.

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and “no delays” to the new opening timelines. On October 23, 2019,
however, Six Flags admitted that the China parks could be further delayed,
disclosing that there was “a very high likelihood going forward that we will
see changes in the timing of the park openings.” A little less than a week
later, Oklahoma Firefighters Pension and Retirement System (“Oklahoma
Firefighters”) started purchasing Six Flags’ stock.
       On January 10, 2020, Six Flags disclosed that Riverside had defaulted
on its payment obligations, which could lead “to the termination of all the
Six-Flags-branded projects in China.” As a result, Six Flags expected “a
negative $1 million revenue adjustment” and “aggregate one-time charges of
approximately $10 million.”
       On February 20, 2020, Six Flags announced the termination of its
agreements with Riverside and that Barber would retire as CFO. During the
class period, Six Flags’ stock declined from a high of $73.38 on June 22, 2018,
to close at $31.89 on February 20, 2020, the company’s lowest stock price in
over seven years.

          Procedural History

       In February 2020, Electrical Workers Pension Fund, Local 103,
International Brotherhood of Electrical Workers (“Local 103”), filed a class
action lawsuit against Six Flags for alleged violations of §§ 10(b) and 20(a) of
the Securities Exchange Act of 1934 and Rule 10b-5 on behalf of all persons
and entities that purchased Six Flags’ common stock between April 25, 2018,
and January 9, 2020. Thereafter, the district court appointed Oklahoma
Firefighters and Local 103 as co-lead plaintiffs.
       The co-lead plaintiffs then filed an amended and consolidated class
action complaint against Six Flags, amending the class period to include all
purchasers of Six Flags’ common stock from April 24, 2018, to February 19,

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2020. Six Flags moved to dismiss under Rule 12(b)(6). The district court
granted Six Flags’ motion. On appeal, we reversed and reinstated the vast
majority of Oklahoma Firefighters’ claims. As pertinent here, we evaluated
whether Oklahoma Firefighters had adequately pleaded that Six Flags made
material misstatements regarding the four categories. For the misstatements
relating to the timing of the parks’ opening dates, we concluded:
              By late 2019, however, Defendants’ language
              had changed. According to the complaint,
              during the October 2019 earnings call,
              “Defendant Barber denied that there was ‘any
              material change in the time line of China over the
              last 90 days.” But in the full exchange on that
              call, Defendant Reid-Anderson admitted there
              was a “very high likelihood going forward that
              we will see changes in the timing of park
              openings” and that it was “unrealistic” to think
              the timelines would hold.
              Therefore, we hold that the statements before October
              2019 satisfy the pleading standard, but, because
              Defendants had adequately tempered their
              optimistic language by October, the later allegations
              do not.
Oklahoma I, 58 F.4th at 218 (emphasis added). Thus, we held that the
October 22 and 23, 2019, alleged misstatements and/or omissions were not
actionable as a matter of law.
       On remand, Oklahoma Firefighters filed a motion for leave to file an
amended complaint, seeking to substitute Local 103 with Key West. In
response, Six Flags moved for judgment on the pleadings, arguing that
Oklahoma Firefighters lacks Article III standing because it purchased its Six
Flags’ stock after the alleged October 23, 2019, corrective disclosure.
Thereafter, Key West moved to intervene. The district court granted Six

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Flags’ motion for judgment on the pleadings, and denied both Oklahoma
Firefighters’ motion for leave to file an amended complaint and Key West’s
motion to intervene. Oklahoma Firefighters and Key West timely appealed.

                        Jurisdiction & Standards of Review

       The district court had jurisdiction under Securities Exchange Act
§ 27, 15 U.S.C. § 78aa, and 28 U.S.C. §§ 1331 and 1337. We have jurisdiction
under 28 U.S.C. § 1291.
       “We review the grant of a judgment on the pleadings de novo,
utilizing the same standard as a motion to dismiss under Rule 12(b)(6).”
Troice v. Greenberg Traurig, L.L.P., 921 F.3d 501, 504 (5th Cir. 2019) (internal
quotation marks and citation omitted). We “accept all factual allegations in
the complaint as true,” and the “complaint does not need detailed factual
allegations, but must provide the plaintiff’s grounds for entitlement to
relief.” Lormand v. US Unwired, Inc., 565 F.3d 228, 232 (5th Cir. 2009)
(quotation omitted).
       We review “[a] district court’s decision denying intervention of
right” under Federal Rule of Civil Procedure 24(a)(2) de novo. Entergy Gulf
States La., L.L.C. v. EPA, 817 F.3d 198, 202 (5th Cir. 2016).
       We “review a district court’s denial of leave to amend under Rule
15(a) for an abuse of discretion.” Stripling v. Jordan Prod. Co., LLC, 234 F.3d
863, 872 (5th Cir. 2000). “A district court abuses its discretion [when] it . . .
relies on erroneous conclusions of law.” Villarreal v. Wells Fargo Bank, N.A.,
814 F.3d 763, 767 (5th Cir. 2016) (quotation omitted) (cleaned up).

                                     Discussion

       The primary issues on appeal are whether the district court erred
in: (1) granting Six Flags’ motion for judgment on the pleadings by
concluding that Oklahoma Firefighters lacks Article III standing; and

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(2) denying Oklahoma Firefighters’ motion for leave to file an amended
complaint and Key West’s motion to intervene as a lead plaintiff. As
explained more fully below, the district court erred on both issues.

            Six Flags’ motion for judgment on the pleadings

        This issue turns on whether we held in Oklahoma I that the alleged
fraud was fully disclosed by October 2019. If we did, Six Flags argues,
Oklahoma Firefighters lacks Article III standing because it purchased Six
Flags’ stock after the fraud was fully disclosed, meaning Oklahoma
Firefighters’ injury in fact is not fairly traceable to Six Flags’ alleged
misstatements.
        To allege Article III standing in the securities class action context, a
plaintiff must allege that when the defendant’s fraud was revealed, the
plaintiff’s stock price declined. See Martone v. Robb, 902 F.3d 519, 524 & n.11
(5th Cir. 2018).5 Thus, if a plaintiff purchased a defendant’s stock after the
fraud was revealed, the plaintiff’s injury in fact—the economic loss
associated with a decline in stock price—is not fairly traceable to the
defendant’s fraud. Cf. Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S.
455, 472 (2013) (explaining that “a plaintiff whose relevant transactions were
not executed between the time the misrepresentation was made and the time
the truth was revealed cannot be said to have indirectly relied on the
misrepresentation through its reliance on the integrity of the market price”).

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        5
          Oklahoma Firefighters cites to 7547 Corp. v. Parker & Parsley Development
Partners, L.P., 38 F.3d 211 (5th Cir. 1994) as establishing the requirements of Article III
standing for a securities fraud class action. But that decision relied on Birnbaum v. Newport
Steel Corp., 193 F.2d 461 (2d Cir. 1952) and Blue Chip Stamps v. Manor Drug Stores, 421
U.S. 723 (1975), both of which have been construed as delineating the requirements for
statutory standing. See, e.g., Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd., 54 F.4th
82, 86 (2d Cir. 2022). So, 7547 Corp. is inapposite.

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        As a theoretical matter, we agree with Six Flags that if a plaintiff
purchased stock after the fraud was fully disclosed, the plaintiff’s injury in
fact would not be fairly traceable to the alleged misstatements. However, a
clear review of the facts, as stated in the prior opinion, demonstrates that this
did not occur in the present case. Importantly, we never held in Oklahoma I
that the fraud was fully disclosed by October 2019. Instead, we clearly held
that Six Flags’ October 2019 statements about the parks’ opening dates were
not actionable because, by October, Six Flags had adequately tempered its
optimistic language about the parks’ opening dates. The upshot of this
holding is that Oklahoma Firefighters’ injury can relate to other false
statements but not to the opening dates misstatements because Oklahoma
Firefighters purchased Six Flags’ stock after that portion of the fraud was
disclosed. But, of course, there was a number of other claimed frauds still in
play.
        Any fair reading shows why our prior opinion very clearly did not hold
the alleged fraud was fully disclosed by October 2019. The most obvious
sign is the absence of any statement expressly concluding that all purported
fraud was fully disclosed by October 2019 and that therefore, the class period
was truncated. Given that such a conclusion would all but end the case as to
Oklahoma Firefighters, it stands to reason that if that was actually our
decision, we would have said so explicitly. To borrow a familiar phrase from
statutory interpretation principles, we do not “hide elephants in
mouseholes.” Whitman v. Am. Trucking Ass’ns, Inc., 531 U.S. 457, 467–68,
(2001).
        Another very clear sign that we were only addressing Six Flags’
alleged misstatements relating to the parks’ opening dates is the structure of
our opinion. In evaluating whether Oklahoma Firefighters had adequately
pled that Six Flags’ alleged misstatements were affirmatively false or
misleading when made, we adopted the exact same structure used by the

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district court and the parties—organizing the alleged misstatements into four
categories: (1) Riverside’s financial condition and quality as a partner; (2) the
parks’ construction progress; (3) the projected parks’ opening dates; and (4)
Six Flags’ revenue recognition from the international licensing agreements.6
We then proceeded to analyze these categories of alleged misstatements by
year, ending with the 2019 alleged misstatements relating to the projected
parks’ opening dates. In other words, we treated these as different alleged
frauds.
        Despite receiving our prior opinion,7 the district court misapplied the
very doctrine it sought to adhere to, parsing our prior opinion like the
“language of a statute” to reach an incorrect outcome when context and
common sense suggested otherwise. Nat’l Pork Producers Council v. Ross, 598
U.S. 356, 373 (2023) (“[T]he language of an opinion is not always to be
parsed as though we were dealing with language of a statute. . . . and
[opinions] must be read with a careful eye to context.” (internal quotation

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        6
           The first three categories of alleged misstatements were addressed under II.B and
III.B. of our prior opinion while the fourth category was addressed under a separate section
altogether.
        7
           Six Flags also argues that we must have concluded the alleged fraud ended by
October 23, 2019, because otherwise, we would have concluded there were actionable
omissions in the October 22 and 23, 2019 disclosures. This argument conflates falsity with
causation, which are two separate requirements of pleading a § 10(b) and Rule 10b-5 claim.
See In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781, 791 (9th Cir. 2020). Moreover, for
purposes of a class action, the fraud ends, and the class period closes, when the fraud is
fully revealed, not when a defendant stops making misleading statements. See Loc. 703, I.B.
of T. Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp., 762 F.3d 1248, 1261 (11th Cir.
2014) (remanding to the district court to clarify the end date of the class period because the
last corrective disclosure occurred on January 20 before the market opened for trading and
therefore those individuals who purchased shares on January 20 should likely be excluded
from the class).

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marks and citation omitted)). We reverse the district court’s lack of standing
dismissal of Oklahoma Firefigthers.

            Oklahoma Firefighters’ motion to amend and Key West’s
            motion to intervene

       The district court also erred by denying Key West’s motion to
intervene. The main basis for the district court’s denial of this motion was
its holding that Oklahoma Firefighters lacked Article III standing. Because
we hold that Oklahoma Firefighters has standing, the district court’s denial
of this motion cannot survive on that ground. But even if Oklahoma
Firefighters did not have Article III standing, the district court still would
have erred by denying Key West’s motion to intervene (which Key West
filed, not just Oklahoma Firefighters). We have held “[w]hen a separate and
independent jurisdictional basis exists a federal court has the discretion to
treat an intervention as a separate action, and may adjudicate it despite
dismissal of the main demand if failure to do so might result in unnecessary
delay or other prejudice.” Arkoma Assocs. v. Carden, 904 F.2d 5, 7 (5th Cir.
1990) (per curiam); see also Harris v. Amoco Prod. Co., 768 F.2d 669, 676 (5th
Cir. 1985) (“The law of this circuit is that there are circumstances in which
an intervenor can continue to litigate after dismissal of the party that
originated the action.”). As such, even if Oklahoma Firefighters lacked
Article III standing, which it does not, this would not be dispositive of Key
West’s motion to intervene since Key West purchased Six Flags’ stock prior
to any alleged disclosure of the fraud and thus would have Article III
standing.
       Key West argues that it has the right to intervene. We agree. At the
time Key West filed its motion to intervene, the class certification had not
been decided. Thus, it was a member of the putative class. The Supreme
Court has provided greater protections to putative classes than independent

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third parties. See, e.g., Am. Pipe & Const. Co. v. Utah, 414 U.S. 538, 550–52
(1974) (holding that the timely filing of a class action tolls the applicable
statute of limitations for all persons encompassed by the class action
complaint, i.e., the putative class); see also Deposit Guar. Nat’l Bank v. Roper,
445 U.S. 326, 332 n.5 (1980) (explaining “the district court has a
responsibility” prior to dismissal and after denial of class certification “to
provide an opportunity for intervention by a member of the putative class for
the purpose of appealing the denial of class certification”).8
        Turning to the intervention, there is no question that Key West
bought stock before any of the alleged fraud was revealed. Accordingly, it is
a proper party to intervene and should be allowed to do so. Thus, we reverse
and remand to the district court to allow Key West to intervene to allow a
party that has standing on all of the issues to be part of the case. See Ford v.
City of Huntsville, 242 F.3d 235, 239–41 (5th Cir. 2001) (per curiam)
(addressing in the first instance the Rule 24(a)(2) factors and reversing the
district court to allow the appellant to intervene on remand).
        Finally, because the only basis for denying the amendment that
Oklahoma Firefighters requested was the erroneous determination of no
standing, we reverse and remand for the district court to address, in the first
instance, whether Oklahoma Firefighters has satisfied the requirements of
Rule 15(a).

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        8
           We are also unconvinced that Krim v. pcOrder.com, Inc., 402 F.3d 489 (5th Cir.
2005) calls for a different result. There, at the time the motion to intervene was filed, class
certification had been denied so there was no longer any putative class. See id. at 492–93,
502.

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                                   Conclusion

       For the reasons set forth above, we REVERSE and REMAND.
Oklahoma Firefighters shall remain in the case and Key West shall be allowed
to intervene. The district court shall then consider the amendment motion
on its merits.

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