Baker Seaworldresponse

8/9/2019 Baker Seaworldresponse

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Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss

Case No. 3:14-cv-02129-MMA-KSC

Chet A. Kronenberg (State Bar No. 222335)[email protected] THACHER & BARTLETT LLP1999 Avenue of the Stars, 29th Floor Los Angeles, California 90067Telephone: (310) 407-7500

Facsimile: (310) 407-7502Jonathan K. Youngwood ( pro hac vice) [email protected] A. Gochman ( pro hac vice pending ) [email protected] D. Karp ( pro hac vice pending )[email protected] THACHER & BARTLETT LLP425 Lexington Avenue New York, New York 10017Telephone: (212) 455-2000Facsimile: (212) 455-2502

Attorneys for Defendants SeaWorldEntertainment, Inc., James Atchison, JamesM. Heaney, Marc Swanson, David F.D’Alessandro, Bruce McEvoy, PeterWallace, Joseph Baratta, Judith A. McHale,Deborah Thomas, and The BlackstoneGroup L.P.

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF CALIFORNIA

LOU BAKER, n v ua y an on behalf of all others similarly situated,

Plaintiff,

v.

SEAWORLD ENTERTAINMENT,

INC., JAMES ATCHISON, JAMES M.HEANEY, MARC SWANSON,DAVID F. D’ALESSANDRO,BRUCE MCEVOY, PETERWALLACE, JOSEPH BARATTA,JUDITH A. MCHALE, DEBORAHTHOMAS, THE BLACKSTONEGROUP L.P., BARCLAYS CAPITALINC., BLACKSTONE CAPITALMARKETS L.P., CITIGROUPGLOBAL MARKETS INC.,


MEMORANDUM OF POINTSAND AUTHORITIES INSUPPORT OF THE SEAWORLD,INDIVIDUAL ANDBLACKSTONE DEFENDANTS’MOTION TO DISMISS THE

CONSOLIDATED AMENDEDCLASS ACTION COMPLAINT

Date: TBDTime: TBDJudge: Honorable Michael M. AnelloCourtroom: 3A

[Filed concurrently herewith: Noticeof Motion and Motion to Dismiss and

otice of Joinder; Request for

Case 3:14-cv-02129-MMA-KSC Document 88-1 Filed 05/29/15 Page 1 of 57


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Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


DEUTSCHE BANK SECURITIESINC., DREXEL HAMILTON, LLC,GOLDMAN, SACHS & CO., J.P.MORGAN SECURITIES LLC,KEYBANC CAPITAL MARKETSINC., LAZARD CAPITAL MARKETS

LLC, MACQUARIE CAPITAL (USA)INC., MERRILL LYNCH, PIERCE,FENNER & SMITH INC., NOMURASECURITIES INTERNATIONALINC., PIPER JAFFRAY & CO.,SAMUEL A. RAMIREZ &COMPANY, INC., TELSEYADVISORY GROUP LLC, ANDWELLS FARGO SECURITIES, LLC,

Defendants.

Ju c a Not ce; Cert cate oService]



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Table of Contents i Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT...............................................................................1

BACKGROUND....................................................................................................... 6

I. ATTENDANCE.............................................................................................. 7

II. COMPETITORS............................................................................................. 8

III. BLACKFISH AND NEGATIVE PUBLICITY............................................... 8

IV. IPO AND SPOS .............................................................................................. 9

V. ALLEGED MISREPRESENTATIONS AND OMISSIONS.......................10

VI. THE CONFIDENTIAL WITNESSES.......................................................... 11

ARGUMENT...........................................................................................................12

I. THE CAC MUST BE DISMISSED IN ITS ENTIRETY BECAUSE IT

FAILS TO ALLEGE ANY MATERIAL MISREPRESENTATIONS OROMISSIONS .................................................................................................12

A. Plaintiffs Must Allege Misrepresentations and Omissions withParticularity, as Required by the Heightened Pleading Standard ofthe PSLRA and Rule 9(b) ...................................................................13

B. Plaintiffs Fail to Plead Any Material Misrepresentations orOmissions Under the PSLRA, Rule 9(b) or Rule 8............................15

1. Quarter-by-Quarter Declines in Attendance at SeaWorld’sParks Do Not Correlate with the Timing of Plaintiffs’ Blackfish Allegations................................................................ 15

2. Allegations Regarding SeaWorld’s Competitors Do NotPlead that SeaWorld’s Decreased Attendance Was Caused by Blackfish ...................................................................................17

3. Allegations Regarding Negative Publicity and Attention Do Not Plead that Blackfish Impacted Attendance........................ 19

4. Allegations Concerning Proposed California LegislationAmount to Nothing More Than Fraud by Hindsight................21

5. Allegations Based Upon Information from the FourConfidential Witnesses Do Not Plead that BlackfishImpacted Attendance ................................................................22



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Table of Contents ii Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


II. SEAWORLD’S RISK FACTOR DISCLOSURES CANNOT BE A

BASIS FOR LIABILITY FOR THE INDEPENDENT REASONS THATTHEY ARE FORWARD-LOOKING STATEMENTS, STATEMENTS

OF OPINION AND THE ALLEGED MISREPRESENTATIONS IN

THESE DISCLOSURES ARE NOT MATERIAL ...................................... 24

A. The Risk Factor Disclosures Are Protected by the PSLRA SafeHarbor and/or the “Bespeaks Caution” Doctrine................................ 24

B. Plaintiffs Have Failed to Plead that the Risk Disclosures AreActionable under Omnicare ................................................................26

C. Defendants’ Risk Factor Disclosures Adequately Disclosed thePotential Risk and Therefore Cannot Be Found to ConstituteMaterial Misrepresentations ...............................................................27

III. PLAINTIFFS’ CLAIM UNDER SECTION 12 OF THE SECURITIES

ACT FAILS AGAINST SEAWORLD AND BLACKSTONE BECAUSETHEY DID NOT OFFER OR SELL THE SECURITIES PURCHASED

BY PLAINTIFFS .......................................................................................... 30

IV. PLAINTIFFS’ EXCHANGE ACT CLAIMS MUST BE DISMISSEDBECAUSE THE CAC FAILS TO PLEAD WITH PARTICULARITY

ANY FACTS CREATING A STRONG INFERENCE OF SCIENTER..... 32

A. Plaintiffs’ Confidential Witness Allegations Do Not Support anInference of Scienter as to the Officer Defendants or SeaWorld ....... 33

1. Internal Reports Did Not Show an Impact from Blackfish onAttendance................................................................................34

2. There Was No Discussion of Blackfish Impacting Attendanceat Employee Meetings ..............................................................36

3. Allegations about Negative Publicity Surrounding Blackfishand SeaWorld’s Response Do Not Plead Scienter................... 36

B. Plaintiffs Fail to Plead Scienter as to the Officer Defendants orSeaWorld through the Narrow Core Operations Exception...............37

C. Plaintiffs’ Boilerplate and Conclusory Allegations Do Not Supporta Strong Inference of Scienter ............................................................39

D. Neither His Stock Sales Pursuant to a Trading Plan Nor HisResignation from SeaWorld After the Class Period Support aStrong Inference of Scienter as to Mr. Atchison ................................40

E. Plaintiffs’ Allegations Do Not Give Rise to a Strong Inference ofScienter When Viewed Holistically.................................................... 42



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Table of Contents iii Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


V. PLAINTIFFS’ EXCHANGE ACT CLAIMS SHOULD BE DISMISSED

BECAUSE THE CAC FAILS TO PLEAD LOSS CAUSATION...............43

VI. PLAINTIFFS FAIL TO PLEAD CLAIMS UNDER SECTION 15 OFTHE SECURITIES ACT AND SECTION 20(A) OF THE EXCHANGE

ACT ............................................................................................................. 45

CONCLUSION ....................................................................................................... 48



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Table of Authorities i Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


TABLE OF AUTHORITIES

Page(s)

CASES

Arthur Children’s Trust v. Keim, 994 F.2d 1390 (9th Cir. 1993) ...........................46 Aschcroft v. Iqbal , 556 U.S. 662 (2009)............................................................ 14, 27

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ................................................... 15

Brodsky v. Yahoo! Inc., 630 F. Supp. 2d 1104 (N.D. Cal. 2009)...................... 23, 39

Brown v. Ambow Educ. Holding Ltd., No. CV 12-5062 PSG AJWX,2014 WL 523166 (C.D. Cal. Feb. 6, 2014) ........................................................43

Dahlia v. Rodriguez , 735 F.3d 1060 (9th Cir. 2013) ..............................................19

Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) ..............................................43 Emp’rs Teamsters Local Nos. 175 & 505 Pension Trust Fund v.

Clorox Co., 353 F.3d 1125 (9th Cir. 2004)..................................................24, 25

Glazer Capital Mgmt., LP v. Magistri, 549 F.3d 736 (9th Cir. 2008) .................... 32

Higginbotham v. Baxter Int’l Inc., 495 F.3d 753 (7th Cir. 2007)...........................41

Howard v. Everex Sys., Inc., 228 F.3d 1057 (9th Cir. 2000) ......................45, 46, 47

In re Accuray, Inc. Sec. Litig., 757 F. Supp. 2d 936 (N.D. Cal. 2010) .............23, 34

In re Am. Apparel, Inc. S’holder Litig., No. CV 10-06352 MMMJCGX, 2013 WL 174119 (C.D. Cal. Jan. 16, 2013) .................................... 46, 47

In re Apple Computer Sec. Litig ., 886 F.2d 1109 (9th Cir. 1989)...........................40

In re Bare Escentuals, Inc. Sec. Litig., 745 F. Supp. 2d 1052 (N.D.Cal. 2010) ........................................................................................................... 46

In re China Educ. Alliance, Inc. Sec. Litig., No. CV 10–9239 CAS(JCx), 2012 WL 1155860 (C.D. Cal. Apr. 6, 2012 ).......................................... 46

In re Convergent Tech. Sec. Litig., 948 F.2d 507 (9th Cir. 1991)...........................29

In re Countrywide Fin. Corp. Secs. Litig., 588 F. Supp. 2d 1132 (C.D.Cal. 2008) ........................................................................................................... 30

In re Cutera Sec. Litig., 610 F.3d 1103 (9th Cir. 2010).......................................... 26

In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005).......................................passim

In re DotHill Sys. Corp. Sec. Litig., No. 06-CV-228 JLS (WMc), 2009WL 734296 (S.D. Cal. Mar. 18, 2009)...............................................................14



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Table of Authorities ii Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


In re Downey Sec. Litig., No. CV 08-3261-JFW(RZX), 2009 WL2767670 (C.D. Cal. Aug. 21, 2009) ...................................................................39

In re Exodus Commc’ns, Inc. Sec. Litig., No. 01-CV-2661 MMC,2005 WL 1869289 (N.D. Cal. Aug. 5, 2005)..................................................... 24

In re Gilead Scis. Sec. Litig., 536 F.3d 1049 (9th Cir. 2008)..................................19 In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541 (9th Cir. 1994).................................22

In re Immune Response Sec. Litig., 375 F. Supp. 2d 983 (S.D. Cal.2005)...................................................................................................................46

In re Infonet Servs. Corp. Sec. Litig., 310 F. Supp. 2d 1080 (C.D. Cal.2003)...................................................................................................................25

In re LeapFrog Enters., Inc. Sec. Litig., 527 F. Supp. 2d 1033 (N.D.Cal. 2007) ..................................................................................................... 27, 28

In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248 (N.D.Cal. 2000) ..................................................................................................... 43, 46

In re Netflix, Inc. Sec. Litig., No. C04-2978 FMS, 2005 WL 1562858(N.D. Cal. June 28, 2005)...................................................................................40

In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014)............38, 39, 41, 42

In re Oak Tech. Sec. Litig., 1997 WL 448168 (N.D. Cal. Aug. 1,1997)...................................................................................................................39

In re Omnicom Grp., Inc. Sec. Litig., No. 02 CIV. 4483 (RCC), 2005WL 735937 (S.D.N.Y. Mar. 30, 2005) ..............................................................19

In re Oracle Corp. Sec. Litig., 627 F.3d 376 (9th Cir. 2010)..................................44

In re PetSmart, Inc. Sec. Litig., 61 F. Supp. 2d 982 (D. Ariz. 1999)...................... 22

In re PXRE Grp., Ltd., Sec. Litig., 600 F. Supp. 2d 510 (S.D.N.Y.2009) a ff’d sub nom. Condra v. PXRE Grp. Ltd., 357 F. App’x 393(2d Cir. 2009) .....................................................................................................19

In re Rackable Sys., Inc. Sec. Litig ., No. C 09-0222 CW, 2010 WL3447857 (N.D. Cal. Aug. 27, 2010).............................................................35, 37

In re Read-Rite Corp. Sec. Litig., 335 F.3d 843 (9th Cir. 2003)...........13, 16, 32, 38 In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869 (9th Cir. 2012)........................ 14

In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999)..13, 32, 39, 40

In re Stac Elec. Sec. Litig., 89 F.3d 1399 (9th Cir. 1996)....................................... 14

In re Syntex Corp. Sec. Litig., 95 F.3d 922 (9th Cir. 1996) .................................... 45



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Table of Authorities iii Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


In re Tibco Software, Inc., No 05-CV-2146 SBA, 2006 WL 1469654(N.D. Cal. May 25, 2006)...................................................................................24

In re U.S. Aggregates, Inc. Sec. Litig., 235 F. Supp. 2d 1063 (N.D.Cal. 2002) ........................................................................................................... 41

In re Ubiquiti Networks, Inc. Sec. Litig., 33 F. Supp. 3d 1107 (N.D.Cal. 2014) ...............................................................................................14, 27, 28

In re UBS AG Sec. Litig., No. 07 CIV. 11225 RJS, 2012 WL 4471265(S.D.N.Y. Sept. 28, 2012) aff’d sub nom. City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2dCir. 2014)............................................................................................................ 29

In re Vantive Corp. Sec. Litig., 283 F.3d 1079 (9th Cir. 2002)...................22, 32, 36

In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994).......................... 25

Lilley v. Charren, 936 F. Supp. 708 (N.D. Cal. 1996) ............................................46

Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., 238 F.3d 363 (5th Cir.2001)...................................................................................................................30

Maine State Ret. Sys. v. Countrywide Fin. Corp., No. 10-CV-0302MRP, 2011 WL 4389689 (C.D. Cal. May 5, 2011)...........................................31

Mallen v. Alphatec Holdings, Inc., 861 F. Supp. 2d 1111 (S.D. Cal.2012).............................................................................................................14, 27

McNamara v. Pre-Paid Legal Servs., 189 F. App’x 702 (10th Cir.2006)...................................................................................................................43

Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049 (9th Cir.2008)............................................................................................................passim

Middlesex Ret. Sys. v. Quest Software Inc., 527 F. Supp. 2d 1164(C.D. Cal. 2007) .................................................................................................41

Miller v. Thane Int’l, Inc., 519 F.3d 879 (9th Cir. 2008) ........................................ 13

Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund , 135 S.Ct. 1318 (2015).................................................................... 4, 26, 27

Pinter v. Dahl , 486 U.S. 622 (1988)..................................................................30, 31

Plevy v. Haggerty, 38 F. Supp. 2d 816 (C.D. Cal. 1998)........................................ 29

Police Retirement System of St. Louis v. Intuitive Surgical Inc., 759F.3d 1051 (9th Cir. 2014).............................................................................34, 38

Primo v. Pac. Biosciences of California, Inc., 940 F. Supp. 2d 1105(N.D. Cal. 2013) .................................................................................................30



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Table of Authorities iv Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


Ronconi v. Larkin, 253 F.3d 423 (9th Cir. 2001) ..............................................14, 41

Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009)..............................14

S.E.C. v. Todd , 642 F.3d 1207 (9th Cir. 2011)........................................................ 46

South Ferry LP v. Killinger , 542 F.3d 776 (9th Cir. 2008).....................................38Sprewell v. Golden State Warriors, 266 F.3d 979 (9th Cir. 2001) ......................... 19

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ..................33, 42

Wozniak v. Align Technology, Inc., 850 F. Supp. 2d 1029 (N.D. Cal.2012)...................................................................................................................35

Zeid v. Kimberly, 930 F. Supp. 431 (N.D. Cal. 1996).............................................28

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) .........passim

STATUTES

15 U.S.C. § 77l ........................................................................................................ 30

15 U.S.C. § 77l (a)(2) ......................................................................................... 13, 30

15 U.S.C. § 77l (b)....................................................................................................43

15 U.S.C. § 77z-2(b)(2)(D) ..................................................................................... 25

15 U.S.C. § 78u-4 ...................................................................................................... 1

15 U.S.C. § 78u-4(b)(2)..................................................................................... 32, 37

15 U.S.C. § 78u-5(c)(1)(A)(i)..................................................................................24

15 U.S.C. §78t(a).....................................................................................................45

OTHER AUTHORITIES

17 C.F.R. § 229.503.................................................................................................29

Rule 8 of the Federal Rules of Civil Procedure........................................1,14, 15, 47

Rule 9(b) of the Federal Rules of Civil Procedure...................................1,13, 14, 15

Rule 12(b)(6) of the Federal Rules of Civil Procedure .............................................1



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1 Memo of Points and Authorities in Support ofDefendants’ Motion to Dismiss


Defendants SeaWorld Entertainment Inc. (“SeaWorld”), The Blackstone

Group L.P. (“Blackstone”), James Atchison, James M. Heaney and Marc Swanson

(the “Officer Defendants”), David F. D’Alessandro, Bruce McEvoy, Peter Wallace,

Joseph Baratta, Judith McHale and Deborah Thomas (the “Director Defendants,”together with the Officer Defendants, the “Individual Defendants” and, together

with SeaWorld and Blackstone, “Defendants”) respectfully submit this

Memorandum of Points and Authorities in support of their Motion to Dismiss the

Consolidated Amended Class Action Complaint (the “CAC”) pursuant to Federal

Rules of Civil Procedure 8, 9(b) and 12(b)(6) and the Private Securities Litigation

Reform Act of 1995, 15 U.S.C. § 78u-4 (the “PSLRA”).1

PRELIMINARY STATEMENT

This lawsuit concerns the purported impact that Blackfish, a documentary

exploring the 2010 death of a SeaWorld trainer involving a killer whale, had on

attendance at SeaWorld’s eleven theme parks from the time it premiered on

January 19, 2013 through August 12, 2014, the last day of the class period.

The crux of Plaintiffs’ complaint is that, as a result of Blackfish, SeaWorld

was subjected to widespread negative publicity and criticism, which, Plaintiffs

allege, Defendants knew, but did not disclose, must have had a correlated impact

on attendance. The CAC contains page-upon-page of allegations that, for example,

celebrities tweeted about the film, bands canceled appearances at a SeaWorld

concert, corporate sponsors ended relationships with SeaWorld and animal activist

groups targeted SeaWorld. This negative publicity and attention, however, was no

secret to the market, nor was it a secret that, overall, attendance at SeaWorld wasdown between April 18, 2013 through August 12, 2014 (the “Class Period”). Both

1 This motion is made on behalf of Defendants (as defined above). UnderwriterDefendants (as defined in Defendants’ Notice of Motion) have filed a separatemotion to dismiss the CAC. Defendants join in that motion to the extent thatthe Underwriter Defendants seek to dismiss Plaintiffs’ Securities Act Claims based on traceability grounds and as time-barred by the statute of limitationswith respect to the IPO. See Underwriter Defendants Motion at 4-7, 10-13.



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sets of facts were fully disclosed in SeaWorld’s public filings and, as Plaintiffs

themselves allege, widely known to the public before SeaWorld’s April 18, 2013

Initial Public Offering (“IPO”). See ¶ 8 (by the time of the IPO, Blackfish “had

already generated a powerful public and media response”).2

Nonetheless, Plaintiffs conclusorily allege that Defendants violated the

federal securities laws because the reasons given by SeaWorld and certain

Defendants for lower attendance levels were wrong or incomplete and, instead, the

real (and secretly known) cause for declining attendance was Blackfish.

Significantly, however, the CAC is devoid of allegations that link Blackfish, or the

negative publicity stemming from Blackfish, to declining attendance. Plaintiffs do

not allege, for instance, that there were any surveys, market research, models, data,

reports or analysis utilized by SeaWorld that showed Blackfish’s material impact

on attendance. The Confidential Witnesses (“CWs”), four anonymous former

employees upon whom Plaintiffs rely, do nothing more than confirm (as SeaWorld

fully disclosed) that attendance was down in certain SeaWorld parks, that

SeaWorld monitored attendance levels, and that SeaWorld was aware of Blackfish

and engaged in a public relations effort to counter its impact. This information—

all of which was fully disclosed and public—is unremarkable and does not bolster

Plaintiffs’ claims.

Furthermore, Plaintiffs ignore the fact that attendance trends at SeaWorld’s

parks fluctuated during the Class Period and that these fluctuations do not correlate

with the timing of the CAC’s primary Blackfish allegations. For example, although

Blackfish premiered on CNN early in the fourth quarter 2013 (and was purportedlyviewed by millions), it was this very quarter that the SeaWorld-named parks had

record setting attendance. Moreover, in the third quarter of 2013, admissions

revenues were up by over 5 percent, and, overall, SeaWorld experienced record

2 All citations to “¶ __” reference the CAC.



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revenues in 2013 (which comprised the majority of the Class Period), beating 2012,

when there was no Blackfish, by 3 percent. At bottom, Plaintiffs’ allegations

amount to nothing more than unwarranted inferences, based purely on speculation,

and the CAC should now be dismissed.Plaintiffs’ case is based entirely on either (a) facts made well known to the

market or (b) conclusory assertions of certain correlations between the movie and

attendance that are nowhere properly pled in Plaintiffs’ 121-page and 328-

paragraph CAC. Dismissal here is warranted for the following reasons:

First , the Court should dismiss the CAC, in its entirety, because Plaintiffs

fail to plead any misrepresentations or omissions at any time, a requisite element of

each of the claims alleged. The offering documents filed in connection with

SeaWorld’s IPO and secondary public offerings (“SPO”) (and incorporated by

reference in other public filings throughout the Class Period) fully disclosed that:

• In 2010 a trainer was killed while interacting with a killer whale;

• Following the trainer’s death, there was significant media attention,including a documentary;

•

Social media compounded the impact of such negative publicity; and• Such negative publicity may harm SeaWorld’s reputation, reduce

attendance and negatively impact its business.

Notwithstanding these robust disclosures, Plaintiffs allege these statements

were false and misleading because SeaWorld stated that the negative publicity

associated with Blackfish “may” harm attendance when, they argue, in reality it

“had” harmed attendance. Plaintiffs also allege that other statements by SeaWorld

and certain Defendants—that SeaWorld’s declining attendance was caused by

adverse weather conditions, the timing of holidays, new pricing strategies and not

Blackfish —were false and misleading. Plaintiffs’ claims, however, are based

purely on conjecture and improper speculation. Remarkably, the CAC does not



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contain a single non-conclusory allegation that ties any material decline in

attendance to Blackfish.

Second , Plaintiffs’ claims under Sections 11, 12 and 15 of the Securities Act

of 1933 (the “Securities Act Claims”) must be dismissed for three independentreasons. First, the Risk Factor disclosures are forward-looking, and thereby

protected by the PSLRA’s safe harbor, the common law bespeaks caution doctrine,

or both. Second, they are statements of opinion, which are inactionable under the

Supreme Court’s recent decision in Omnicare, Inc. v. Laborers District Council

Construction Industry Pension Fund absent a non-conclusory allegation that they

were not sincerely held. Last, the alleged misrepresentations are not possibly

material because the statements fully disclose the risk at issue. For the same

reasons, to the extent based upon the Risk Factor disclosures, Plaintiffs’ claims

under Sections 10(b) and 20(a) of the Exchange Act of 1934 and 10b-5

promulgated thereunder (the “Exchange Act Claims”) also must fail.

Third , Plaintiffs’ claim under Section 12 of the Securities Act should also be

dismissed against SeaWorld and Blackstone because they did not offer or sell the

securities purchased by Plaintiffs.

Fourth , Plaintiffs’ Exchange Act Claims should be dismissed because

Plaintiffs fail to allege a “strong inference” of scienter. The CAC contains no

specific contemporaneous statements or conditions that could demonstrate that

SeaWorld or the Officer Defendants issued any false or misleading statements,

much less intentionally or with deliberate recklessness. The CAC does not even

allege that the anonymous CWs were privy to any communications with the OfficerDefendants or were provided any information connecting Blackfish to declining

attendance (other than pure speculation). Furthermore, allegations such as James

Atchison’s stock sales pursuant to a 10b5-1 trading plan, his resignation from

SeaWorld as CEO months after the Class Period or the fact that there was negative

publicity are not sufficient to allege scienter. Indeed, that attendance declines at



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SeaWorld were attributable to bad weather during certain peak times, the timing of

the holidays and SeaWorld’s intentional pricing strategies, which decreased

attendance while increasing revenue, is a far more compelling and cogent inference

than fraud. This inference is supported by the fact that attendance trends did notcorrelate with Plaintiffs’ primary Blackfish allegations. The success during the

same time period of certain SeaWorld competitors (Disney and Universal) does not

change this result, especially since they opened new attractions in 2013 and their

very success could have, in and of itself, caused decreases in attendance at

SeaWorld’s parks.

Fifth , Plaintiffs have failed to plead loss causation because they have not

adequately alleged that Blackfish caused SeaWorld’s stock to drop. The purported

corrective disclosure on August 12, 2014 concerned the impact of proposed

legislation in California, not Blackfish. Notably, this same disclosure also included

guidance that SeaWorld had significantly lowered its full year revenue numbers, a

more plausible cause for the subsequent stock price drop.

Finally , Plaintiffs’ claim under Section 15 of the Securities Act against the

Individual Defendants and Blackstone and under Section 20 of the Exchange Act

against the Officer Defendants and Blackstone fail because Plaintiffs have not

alleged primary violations of Sections 11, 12 and Rule 10b-5. In addition,

Plaintiffs’ Section 15 claim fails as to the Director Defendants because Plaintiffs do

not allege that the Director Defendants exercised actual power or control over

SeaWorld. Plaintiffs’ Section 15 and Section 20 claims also fail as to Blackstone,

for statements made after the December 2013 SPO, because Plaintiffs fail to pleadfacts that Blackstone exercised actual power or control over SeaWorld during that

time.



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BACKGROUND3

SeaWorld is an aquatic theme park and entertainment company. See ¶ 4. It

owns and operates eleven parks in the United States, only three of which (located

in Orlando, San Diego and San Antonio), have the name, “SeaWorld.” See ¶ 28. The other eight parks are Busch Gardens amusement parks (one in Tampa and one

in Virginia), Aquatica, a water park in Orlando and in San Diego, Adventure

Island, a water park in Tampa, Water Country USA, a water park in Virginia,

Discovery Cove, an interactive animal park in Orlando, and Sesame Place, a

Sesame Street themed amusement park in Pennsylvania. See id. The three

SeaWorld parks are home to 24 killer whales in total. See ¶ 67. The other eight

parks do not carry the SeaWorld name and have no connection to whales.

This lawsuit brings claims under the Exchange Act and the Securities Act on

behalf of a purported class of shareholders who purchased or otherwise acquired

SeaWorld’s common stock during the Class Period. Plaintiffs allege that SeaWorld

and the Officer Defendants made a series of misrepresentations and omissions by

failing to acknowledge that Blackfish negatively impacted attendance levels at

SeaWorld’s eleven parks during the Class Period. On August 13, 2014, SeaWorld

disclosed that media attention surrounding certain proposed legislation in

California, seeking to ban killer whale performances, had impacted attendance.

See ¶¶ 19, 162; Ex. A at 2 (Aug. 13, 2014 Press Release).4 As part of the same

disclosure, SeaWorld also revised its earnings estimates downward, revenue by 6-7

percent and Adjusted EBITDA by 14-16 percent. See Ex. A at 3 (Aug. 13, 2014

Press Release). Following this announcement, SeaWorld’s stock dropped by 33 percent. See ¶ 19.

3 Allegations in the CAC are assumed to be true solely for the purposes of this

motion.4 All citations to “Ex. __” reference exhibits attached to Defendants’ Request for

Judicial Notice, dated May 29, 2015 (the “RJN”). The exhibits are incorporatedinto the CAC by reference and/or publicly filed with the SEC. See RJN (citingcases).



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I. ATTENDANCE

SeaWorld has disclosed that attendance at its eleven parks is often affected

by various factors beyond SeaWorld’s control such as school holidays, weather, the

economy, competition from direct competitors, and ticket pricing. See, e.g., Ex. B

at 14, 17, 19, 22 (2013 Form 10-K). In order to predict attendance trends and

understand the likely cause or causes of either declining or increasing attendance

levels, SeaWorld utilizes data collection and analysis tools such as national

surveys, questionnaires and modeling. See ¶¶ 114, 171, 225.

Although, overall, attendance levels at SeaWorld’s parks were down during

the Class Period, they fluctuated throughout. As an initial matter, attendance was

up by 2 percent during the first quarter 2013. See Ex. C at 17 (1Q13 Form 10-Q).

Significantly, this is the quarter that immediately preceded the IPO and the Class

Period (by 18 days) and in which Blackfish premiered at the Sundance Film

Festival. Attendance then dropped by 9.5 percent in the second quarter of 2013

( see ¶ 195), but, by the third quarter of 2013, had improved significantly, with only

a 3.6 percent drop over 2012 levels. See ¶ 208. Attendance continued to improve

with the fourth quarter 2013 ending only 1.4 percent below prior year levels. See ¶

220. Notably, although fourth quarter attendance was slightly down, the

SeaWorld-named parks had a record number of visitors and outperformed

SeaWorld’s other parks by a considerable margin. See ¶ 225. This was true even

though it was early in the fourth quarter that Blackfish aired on CNN to millions of

viewers. ¶ 91. In the first quarter of 2014, attendance declined again, dropping 13

percent ( see ¶ 231), but, although not alleged in the CAC, trends improved

considerably in the second quarter of 2014 (the last full quarter of the Class

Period), and attendance ended up that quarter by .3 percent. See Ex. A at 2 (Aug.

13, 2014 Press Release).



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II. COMPETITORS

SeaWorld has disclosed that its eleven parks directly compete with other

theme parks throughout the country including those operated by The Walt Disney

Company, Universal Studios, Six Flags, Cedar Fair, Merlin Entertainments and

Hershey Entertainment and Resorts Company. See Ex. B at 22-23 (2013 Form 10-

K). The theme park industry is highly competitive and, as disclosed, SeaWorld

may not be able to compete successfully against certain competitors. See id.(“Our

competitors may be able to attract guests to their theme parks in lieu of our own

through the development or acquisition of new rides, attractions or shows that are

perceived by guests to be of a higher quality and entertainment value.”). Of

SeaWorld’s competitors, Disney and Universal performed best during the Class

Period. According to the Themed Entertainment Association’s 2013 Global

Attractions Attendance Report (“TEA Report”), the industry report cited in the

CAC, 2013 attendance growth at Disney was driven by the “renovation and

significant expansion of Fantasyland.” Ex. D at 25 (TEA Report). Similarly, the

opening of the Transformers ride as well as a new Springfield area for the

Simpson’s ride “pushed attendance [at Universal] up significantly . . . .” Id. In2013, although North American theme parks, like Universal and Disney, had

increased attendance, North American water parks saw attendance decline by 2.3

percent. See id. at 23.

III. BLACKFISH AND NEGATIVE PUBLICITY

On January 19, 2013, Blackfish premiered at the Sundance Film Festival.

See ¶ 86. It chronicled the history of a SeaWorld killer whale that had killed trainer

Dawn Brancheau in 2010. See id. In July 2013, the film was released in a small

number of theaters in Los Angeles, New York and Toronto and made available to

Netflix customers in the United Kingdom. See ¶ 90. Subsequently, on October 24,

2013, Blackfish premiered on CNN and was shown periodically on CNN after that



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time. See ¶ 91. In December 2013, Blackfish was made available on Netflix in the

United States. See ¶ 93.

Since its premier at Sundance, Blackfish, which is critical of SeaWorld, has

generated significant media attention. See ¶ 8. By way of example, as alleged byPlaintiffs (and known to the market contemporaneously with the events

themselves), various celebrities throughout 2013 tweeted about Blackfish to

followers ( see ¶ 138), a school in California canceled a trip to SeaWorld ( see ¶

146), several bands pulled out of SeaWorld Orlando’s concert series ( see ¶ 148),

and certain corporate sponsors ended their relationships with SeaWorld. See ¶ 154.

In response, SeaWorld has mounted a public relations campaign to set the record

straight regarding its treatments of killer whales and other animals. See ¶ 8.

IV. IPO AND SPOS

On December 27, 2012, before Blackfish premiered, SeaWorld filed a

registration statement (which included a prospectus) with the SEC in connection

with its IPO ( see ¶ 98), which was declared effective by the SEC on April 18, 2013.

These materials included extensive disclosure regarding the death of the trainer,

Ms. Brancheau, and the negative publicity that resulted. See, e.g., Ex. E at 19, 20

(Form S-1, Apr. 18, 2013). In the IPO, investment funds affiliated with Blackstone

and certain co-investors (the “Blackstone-Affiliated Funds”) sold 19.9 million

shares of SeaWorld common stock (after which they owned 63.3 percent of

SeaWorld common stock) and SeaWorld sold 10 million shares of stock, both at a

price of $27.00 per share. See ¶¶ 39, 63. Later, in a SPO that was completed on

December 17, 2013, the Blackstone-Affiliated Funds sold 18 million shares ofSeaWorld stock (after which they owned approximately 42.8 percent of SeaWorld

common stock) at a price of $30.00 per share. See ¶¶ 93, 64. And, on April 9,

2014, SeaWorld completed an additional SPO, also at $30 per share, in which the

Blackstone-Affiliated Funds sold 17.25 million shares of common stock, taking its



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ownership of SeaWorld down to approximately 22.5 percent. See ¶¶ 39, 65; Ex. F

at 44 (Apr. 17, 2014 Proxy Statement).5

V. ALLEGED MISREPRESENTATIONS AND OMISSIONS

Plaintiffs allege a series of misrepresentations and omissions by Defendantsthat fall into two categories. First, Plaintiffs allege that certain of SeaWorld’s Risk

Factor disclosures—included in the registration statements and prospectuses filed

in connection with the IPO and SPOs (the “Offering Materials”) and incorporated

by reference in other SEC filings—were not sufficient. The disclosures state:

An accident or an injury at any of our theme parks . . .that receives media attention, is the topic of a book, film,documentary or is otherwise the subject of publicdiscussions, may harm our brands or reputation, cause aloss of consumer confidence in the Company, reduceattendance at our theme parks and negatively impact ourresults of operations. Such incidents have occurred inthe past and may occur in the future. . . Theconsiderable expansion in the use of social media overrecent years has compounded the impact of negativepublicity .

* * *

[ I ]n February 2010, a trainer was ki l led whi le engagedin an interaction with a kill er whale

. Following thisincident, we were subject to an inspection by the U.S.Department of Labor’s Occupational Safety and HealthAdministration (OSHA), which resulted in three citationsconcerning alleged violations of the Occupational Safetyand Health Act and certain regulations thereunder . . .This incident has also been the subject of signi f icantmedia attention, including television and newspapercoverage, a documentary and a book, as well asdiscussions in social media. This incident and simi larevents that may occur in the future may harm ourreputation, reduce attendance and negatively impactour business, financial condition and results of

operations.

See, e.g., Ex. E at 19, 20 (Form S-1, Apr. 18, 2013) (emphasis added). According

to Plaintiffs, this extensive disclosure was false and misleading because it stated

5 These numbers do not include the 3.25 million shares of common stockSeaWorld repurchased in connection with the SPOs. See infra n. 15.



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that the death of the trainer in 2010, and the resultant media attention, may harm

SeaWorld’s reputation and reduce attendance rather state than that such incidents

have harmed SeaWorld’s reputation and reduced attendance. See, e.g., ¶ 188.

Second, Plaintiffs allege that certain Defendants made a series of false andmisleading statements—in quarterly and annual SEC filings, press releases, during

earnings calls and to the media—throughout the Class Period, attributing

SeaWorld’s declining attendance to factors including adverse weather conditions,

the timing of holidays and new pricing and yield management strategies. See, e.g.,

¶ 207. Plaintiffs also allege that, in some instances, certain Defendants made false

and misleading statements because they said SeaWorld had seen no impact from

Blackfish on attendance. See e.g., ¶ 215 (citing CEO James Atchison’s December

30, 2013 statement to the Orlando Sentinel : “[a]s much data as we have and as

much as we look, I can’t connect anything really between the attention that the film

has gotten and any effect on our business.”).

VI. THE CONFIDENTIAL WITNESSES

Plaintiffs rely upon information provided by four anonymous former

employees, the CWs, to allege that there were misrepresentations and omissions

and that SeaWorld and Messrs. Defendants Atchison, Heaney and Swanson acted

with scienter in making, or acquiescing in the making of, the statements at issue.

See, e.g., ¶¶ 189, 204, 213, 221, 252. Although the various CWs were privy to

information showing declining attendance numbers and SeaWorld’s monitoring

and response to negative publicity, none of them had any communications with the

Officer Defendants (only one in fact even worked at SeaWorld’s headquarters) orhad any particular knowledge, whatsoever, that Blackfish impacted attendance.



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ARGUMENT

As a threshold matter, each of the claims alleged in the CAC requires that

Plaintiffs plead, with particularity, material misrepresentations or omissions.

Plaintiffs fail to do so and, for this reason, the CAC should be dismissed in itsentirety. In addition, Plaintiffs’ Securities Act Claims should be dismissed because

they are based solely on forward-looking Risk Factor disclosures, which are

protected by the PSLRA’s safe harbor, the common law bespeaks caution doctrine,

or both. These same statements are also statements of opinion and, as such, not

actionable under the recent Supreme Court case, Omnicare. Furthermore, the

language in the Risk Factor disclosures alleged to be misleading is not material and

thus cannot be the basis for Plaintiffs’ claims. Separately, Plaintiffs’ Section 12

claim fails as to SeaWorld and Blackstone because they did not offer or sell the

securities purchased by Plaintiffs. Plaintiffs’ Exchange Act Claims also should be

dismissed for the independent reasons that Plaintiffs fail to plead (i) scienter and

(ii) loss causation, both required elements. Finally, Plaintiffs’ claims under Section

15 of the Securities Act and Section 20 of the Exchange Act should be dismissed

against all Defendants because there are no primary violations of either statute.

Separately, Plaintiffs’ Section 15 claim against the Director Defendants and

Sections 15 and 20 claims against Blackstone (with respect to statements made

after the December SPO) also should be dismissed because Plaintiffs do not plead

control.

I. THE CAC MUST BE DISMISSED IN ITS ENTIRETY BECAUSE ITFAILS TO ALLEGE ANY MATERIAL MISREPRESENTATIONS OROMISSIONS

To bring their Exchange Act Claims, Plaintiffs must plead, inter alia, that

Defendants made a material misrepresentation or omission of fact, with scienter, in

connection with the purchase or sale of a security. See Metzler Inv. GMBH v.

Corinthian Colls., Inc., 540 F.3d 1049, 1061 (9th Cir. 2008). Section 11 of the



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Securities Act requires that Plaintiffs plead that a registration statement contains a

material omission or misrepresentation that would have misled a reasonable

investor about the nature of his or her investment. See In re Daou Sys., Inc., 411

F.3d 1006, 1027 (9th Cir. 2005) (internal citation omitted). To prevail underSection 12, Plaintiffs must demonstrate an offer or sale of a security by means of a

prospectus or oral communication that includes “an untrue statement of material

fact or omits to state a material fact that is necessary to make the statements not

misleading.” Miller v. Thane Int’l, Inc., 519 F.3d 879, 885 (9th Cir. 2008); see also

15 U.S.C. § 77l (a)(2). Thus, because Plaintiffs fail to plead a material

misrepresentation or omission, which is a requisite element of each of the claims

alleged, dismissal of the CAC is required.

A. Plaintiffs Must Allege Misrepresentations and Omissions withParticularity, as Required by the Heightened Pleading Standard ofthe PSLRA and Rule 9(b)

The PSLRA, which was enacted in 1995 to “prevent plaintiffs from asserting

baseless securities fraud claims,” governs Plaintiffs’ Exchange Act Claims. In re

Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 977 (9th Cir. 1999). “The PSLRA

has exacting requirements for pleading ‘falsity.’” Metzler , 540 F.3d at 1070.

Under the PSLRA, the CAC must “‘specify each statement alleged to have been

misleading, the reason or reasons why the statement is misleading, and, if an

allegation regarding the statement or omission is made on information and belief, .

. . state with particularity all facts on which that belief is formed.’” Zucco

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990-91 (9th Cir. 2009) (internal

citation omitted). Specifically, a plaintiff must allege, with particularity,“contemporaneous statements or conditions” that are “inconsistent” with the

challenged statement so as to demonstrate that it was false when made. In re Read-

Rite Corp. Sec. Litig., 335 F.3d 843, 846 (9th Cir. 2003) (internal quotations and

citations omitted). Furthermore, “[a]llegations that are ‘not necessarily

inconsistent’ with the allegedly false statement do not establish falsity.” In re



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DotHill Sys. Corp. Sec. Litig., No. 06-CV-228 JLS (WMc), 2009 WL 734296, at

*10 (S.D. Cal. Mar. 18, 2009) (quoting Ronconi v. Larkin, 253 F.3d 423, 432-33

(9th Cir. 2001)).

A similar exacting standard applies to Plaintiffs’ Securities Act Claims.Courts apply Rule 9(b) of the Federal Rules of Civil Procedure to Securities Act

Claims, where, as here, the complaint “sounds in fraud” and “allege[s] a unified

course of fraudulent conduct.” Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156,

1161 (9th Cir. 2009) (internal quotations and citations omitted).6 The two Risk

Factor disclosures that form the basis of Plaintiffs’ Securities Act Claims are also

statements alleged to be fraudulent for purposes of Plaintiffs’ Exchange Act

Claims. See, e.g., ¶ 187. Moreover, the CAC incorporates by reference and

“makes a ‘wholesale adoption’ of the securities fraud allegations for purposes of

the Securities Act claims,” which is the exact type of pleading the Ninth Circuit has

expressly found “must satisfy the heightened pleading standard set out in Rule

9(b).” Daou, 411 F.3d at 1028; see In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d

869, 886 (9th Cir. 2012) (applying Rule 9(b) to a Section 11 claim where that claim

“relie[d] on the same alleged misrepresentations”); In re Ubiquiti Networks, Inc.

Sec. Litig., 33 F. Supp. 3d 1107, 1120 (N.D. Cal. 2014) (“If a complaint employs

‘the exact same factual allegations to allege violations of Section 11 as it uses to

allege fraudulent conduct under section 10(b) of the Exchange Act,’ the court may

‘assume that it sounds in fraud.’”) (internal citation omitted).7

6 Although Plaintiffs allege that their Securities Act Claims “do not sound in[]

fraud” (¶ 234), such disclaimers for purposes of applying Rule 9(b) are“unconvincing where the gravamen of the complaint is plainly fraud.” In reStac Elec. Sec. Litig., 89 F.3d 1399,1404 n. 2 (9th Cir. 1996); Mallen v. Alphatec Holdings, Inc., 861 F. Supp. 2d 1111, 1124 (S.D. Cal. 2012)(“Plaintiffs’ attempts to disclaim any allegations of fraud, scienter, or intent todefraud with respect to the Securities Act claims are unpersuasive.”).

7 For the reasons set forth below, Plaintiffs’ Securities Act Claims fail even if judged against the pleading standard set forth in Rule 8 because the CAC failsto allege “factual content that allows the court to draw the reasonable inferencethat the defendant is liable for the misconduct alleged.” Aschcroft v. Iqbal , 556U.S. 662, 678 (2009) (“A pleading that offers ‘labels and conclusions’ or a



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B. Plaintiffs Fail to Plead Any Material Misrepresentations orOmissions Under the PSLRA, Rule 9(b) or Rule 8

Neither of the two categories of statements alleged in the CAC are

misrepresentations or omissions under the pleading standards of the PSLRA, Rule

9(b) or, for that matter, Rule 8. The first category are the two Risk Factor

disclosures contained in SeaWorld’s Offering Materials, and incorporated by

reference in quarterly and annual filings made with the SEC. SeaWorld fully

disclosed, inter alia, that there has been significant media attention, including a

documentary, following the 2010 death of a trainer, which may harm SeaWorld’s

reputation and reduce attendance. See, e.g., Ex. E at 19, 20 (Form S-1, Apr. 18,

2013). Nonetheless, Plaintiffs allege that these disclosures were materially falseand misleading because they stated that the incident and publicity may reduce

attendance, rather than that they already had reduced attendance. See, e.g., ¶ 188.

The second category is a series of statements made by SeaWorld in SEC filings,

and by Messrs. Atchison, Heaney and the Vice President of Corporate

Communications, Fred Jacobs, to the press and during earnings calls, that

SeaWorld’s decline in attendance was attributable to (i) new pricing strategies, (ii)

adverse weather conditions, and (iii) the unfavorable timing of Easter. Plaintiffs

allege that these statements were false and misleading because they failed to

include Blackfish as a factor impacting attendance. See, e.g., ¶ 202. Plaintiffs also

allege that these Defendants made material misrepresentations by affirmatively

stating that Blackfish had no impact on attendance. See, e.g., ¶ 226. As set forth

below, Plaintiffs’ allegations are entirely conclusory and the CAC does not plead

any misrepresentation or omission.

1. Quarter-by-Quarter Declines in Attendance atSeaWorld’s Parks Do Not Correlate with the Timing ofPlaintiffs’ Blackfish Allegations

‘formulaic recitation of the elements of a cause of action will not do.’”) (citationomitted); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (“Factualallegations must be enough to raise a right to relief above the speculative level .. . .”).



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Plaintiffs’ allegations, that Blackfish impacted attendance, are belied by

quarter-by-quarter attendance levels, which do not correlate with the CAC’s

primary Blackfish allegations. Notably, in the fourth quarter 2013, when Plaintiffs

allege that CNN aired Blackfish to millions, attendance at the SeaWorld-named parks was at record levels. See ¶ 225. In addition, although overall attendance was

down, SeaWorld experienced record-setting revenues for 2013, 3 percent above

2012. See Ex. G at 1, 2 (Mar. 13, 2014 Press Release). Thus, Plaintiffs fail to

plead, as they must, “contemporaneous . . . conditions” that are “inconsistent” with

the challenged statements to demonstrate that they were false when made” ( Read-

Rite, 335 F.3d at 846 (internal quotations and citations omitted)). For example:

• 1Q2013: In the first quarter 2013, attendance at SeaWorld parkswas up by 2 percent as compared to the same time in 2012. See Ex.C at 17 (1Q13 Form 10-Q). This was true even though Blackfish premiered less than three weeks into the quarter (on January 19,2013) and even though Plaintiffs allege that by the time of the IPO,which was only 18 days into the second quarter, “the documentaryhad already generated a powerful public and media response.” ¶ 8.That attendance was up , not down, in the months after Blackfish premiered refutes Plaintiffs’ allegations that the film impactedattendance levels during this period.

•

3Q2013: While attendance was down this quarter, it hadsignificantly improved from the prior quarter. The third quarter hada “3.6% decline versus a 9.5% decline in the second quarter.” ¶ 208. This improvement occurred even though the CAC allegesthat Blackfish gained greater exposure and negative publicityincreased in the third quarter. See, e.g., ¶¶ 11, 213. Trends withinthe third quarter also improved. Attendance in July, when therewas adverse weather in Florida, was down 5.7 percent, butimproved in August and September, when the weather improved,declining only 1.8 percent. See ¶ 208. Moreover and notably, thethird quarter experienced an increase in admissions revenue of 5.1percent over the prior year. See Ex. H at 24 (3Q13 Form 10-Q).Thus, it is far more plausible that it was the weather and pricing

strategies, and not Blackfish, that impacted attendance rates duringthe third quarter.

• 4Q2013: Attendance continued to improve in the fourth quarter2013, declining only 1.4 percent. More significantly, theSeaWorld-named parks experienced “record attendance in thefour th quarter of the year” and “outperformed SeaWorld’s other parks by a considerable margin.” ¶ 225 (emphasis added). Thisfact alone refutes Plaintiffs’ claims. It was just three weeks into thefourth quarter that Blackfish was broadcast on CNN to “tens ofmillions [of] people.” ¶ 91. Yet, it was during this very quarter



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that the SeaWorld-named parks experienced record settingattendance, outperforming the other SeaWorld parks (such as BuschGardens, Sesame Place, and Water Country USA), which areunlikely to be associated with the SeaWorld name, by aconsiderable margin.

• 2Q2014: This was the last full quarter prior to the end of the Class

Period. Although not alleged in the CAC, attendance levels wereup 0.3 percent this quarter. See Ex. A at 2 (Aug. 13, 2014 PressRelease). This was true even though the CAC alleged continuingand mounting negative publicity including the impact of legislation proposed in March 2014 in California seeking to ban killer whale performances.

2. Allegations Regarding SeaWorld’s Competitors Do NotPlead that SeaWorld’s Decreased Attendance WasCaused by Blackfish

Plaintiffs allege that SeaWorld (and certain Defendants) falsely attributed

declining attendance to three factors—bad weather, the timing of holidays and

pricing strategies—rather than Blackfish. Plaintiffs allege that these factors did not

cause attendance declines because certain SeaWorld competitors (namely Disney

and Universal, the highest performing of SeaWorld’s six principal competitors),

had increased attendance during the Class Period. Plaintiffs do not plead (nor

could they) that Disney’s parks and Universal’s parks are identical to SeaWorld’s

and, of course, there could be any number of factors that affect attendance at each.

In addition, SeaWorld’s parks include a number of water parks (e.g., Aquatica and

Water Country USA) and a number of parks that are only opened for a limited

season (e.g., Busch Gardens and Aquatica San Diego). See Ex. E at 25 (Form S-1,

Apr. 18, 2013). Logically, inclement weather during the peak season could more

significantly affect these parks. See Ex. D at 23 (TEA Report) (2013 waterpark

attendance down 2.3 percent in North America); Ex. E at 25 (Form S-1, Apr. 18,2013) (for parks with an operating season of limited duration “there is only a

limited period of time during which the impact of those conditions or events can be

mitigated. Accordingly, such conditions or events may have a disproportionately

adverse effect on our revenues and cash flow.”).



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Indeed, the TEA Report, on which Plaintiffs rely ( see ¶¶ 71, 119-21, 221),

singled out Disney and Universal as “experienc[ing] the strongest growth” in 2013

among all North American theme parks. See Ex. D at 25 (TEA Report).

Specifically, the TEA Report attributed the 6.0 percent growth at the MagicKingdom at Walt Disney World—“the most visited theme park in the world”—to

“the renovation and significant expansion of Fantasyland.” Id. Similarly, the TEA

Report noted both that “[t]he opening this year of Transformers™ . . . pushed

attendance [at Universal Studios] up significantly to an estimated 7.1 million visits

in 2013, an increase of 14.0 percent” and that the “new Springfield area anchored

by The Simpsons Ride” also contributed to Universal’s attendance growth. Id.

Moreover, the very fact that Disney and Universal experienced such strong

growth in and of itself could have been a factor contributing to attendance declines

at SeaWorld parks. SeaWorld’s Class Period public filings specifically warn of

this precise risk in a Risk Factor disclosure:

Certain of our direct competitors have substantiallygreater financial resources than we do, and they may beable to adapt more quickly to changes in guest

preferences or devote greater resources to promotion oftheir offerings and attractions than us. Our competitorsmay be able to attract guests to their theme parks in lieuof our own through the development or acquisition ofnew rides, attractions or shows that are perceived byguests to be of a higher quality and entertainment value.As a result, we may not be able to compete successfullyagainst such competitors.

See, e.g., Ex. E at 21 (Form S-1, Apr. 18, 2013). Furthermore, SeaWorld

specifically pointed to “new attraction offerings at competitor destination parks”

and “a delay in one of the Company’s new attractions” as reasons for “negativeattendance trends” in 2014. Ex. A at 2 (Aug. 13, 2014 Press Release).

Given the myriad uncertainties regarding any comparison between a

company and its competitors, it is not surprising that cases have rejected

allegations, like Plaintiffs’ here, that are based on such comparisons. See, e.g., In

re PXRE Grp., Ltd., Sec. Litig., 600 F. Supp. 2d 510, 540-41 (S.D.N.Y. 2009)



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(“declin[ing] to infer, based on the behavior of . . . PXRE’s peer companies, that

Defendants were reckless” because plaintiff did “not provide[] the Court with any

information regarding the ‘competitors’ or ‘peers,’” specifically), a ff’d sub nom.

Condra v. PXRE Grp. Ltd., 357 F. App’x 393 (2d Cir. 2009); In re Omnicom Grp., Inc. Sec. Litig., No. 02 CIV. 4483 (RCC), 2005 WL 735937, at *5 (S.D.N.Y. Mar.

30, 2005) (dismissing securities fraud complaint that “rest[ed] on Defendants’

public comparisons of its organic growth to that of its competitors”).

3. Allegations Regarding Negative Publicity and AttentionDo Not Plead that Blackfish Impacted Attendance

Plaintiffs advance a litany of allegations regarding the social media response

to Blackfish, protests by animal advocates, cancelations by bands at SeaWorld’s

concert series, and corporate sponsors terminating their relationships. None of

these allegations, however, pleads anything more than what was publicly known

and fully disclosed by SeaWorld—that the company had received significant

negative publicity and attention. These allegations do not link Blackfish to

declining attendance and Plaintiffs’ conclusory statements otherwise should be

rejected. See Dahlia v. Rodriguez , 735 F.3d 1060, 1076 (9th Cir. 2013) (“[I]t is

within [the court’s] wheelhouse to reject, as implausible, allegations that are too

speculative to warrant further factual development.”); In re Gilead Scis. Sec. Litig.,

536 F.3d 1049, 1055 (9th Cir. 2008) (holding that courts are not “‘required to

accept as true allegations that are merely conclusory, unwarranted deductions of

fact, or unreasonable inferences’”) (quoting Sprewell v. Golden State Warriors, 266

F.3d 979, 988 (9th Cir. 2001)).For example, according to Plaintiffs, “the social media conversation

generated by Blackfish reached a fever pitch following the CNN premiere of the

film on October 24, 2013” (¶ 139) with celebrities, like 19 year old teen singer

Ariana Grande, tweeting to her 25 million followers to “never go to @SeaWorld

again.” ¶ 141. The CAC, however, does not allege who Ariana Grande’s (or other



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celebrities’) followers are, what country they live in, if they even read the tweets,

and, if they do, whether they do as Ms. Grande suggests, or if any followers had

plans to go to SeaWorld, which they canceled because of the tweets. Furthermore,

Plaintiffs’ allegations are directly belied by the fact that at the time social media purportedly reached “a fever pitch,” the SeaWorld-named parks had record setting

attendance levels. See supra Section (I)(B)(1).

The CAC also alleges that “[b]eginning as early as November 2013, as a

direct consequence of Blackfish, nearly every act SeaWorld had booked to headline

the Company’s . . . concert series . . . cancelled their appearances.” ¶ 216; see also

¶¶ 147-52. Absent from the CAC, however, are any allegations that the

cancelations had a direct impact on business— i.e., that guests, who would have

visited SeaWorld, did not do so because of the cancelations. Moreover, in the

fourth quarter of 2013, when bands began to cancel their appearances (and, in

doing so, generated negative publicity), the SeaWorld named-parks again

experienced record attendance levels. See supra Section (I)(B)(1); ¶ 225.

Plaintiffs further allege that corporate sponsors terminated their relationships

with SeaWorld, but fail to allege how these terminations impacted attendance at

SeaWorld’s parks. For example, Plaintiffs allege that Outdoor Play and

Savings.com withdrew from sponsorship arrangements with SeaWorld in the

second quarter of 2014. See ¶ 158. Outdoor Play is an apparel company that

Plaintiffs allege refused to fill SeaWorld orders. See id. It is hard to imagine how

this alleged refusal could have possibly impacted attendance levels. Savings.com

purportedly stopped offering digital coupons to SeaWorld, but Plaintiffs do not plead how many coupons it typically offered or how many SeaWorld visitors used

coupons from Savings.com to purchase tickets. Id. Similarly, in May 2014, STA

travel purportedly stopped booking trips to SeaWorld. See ¶ 157. Plaintiffs,

though, do not allege the number of trips STA typically books to SeaWorld,

whether its clients traveled elsewhere or whether they booked their trips to



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SeaWorld through a different travel service. Without such information, Plaintiffs’

allegations are entirely conclusory and do not support their claims. Furthermore, in

the second quarter of 2014, when these corporate arrangements had been

terminated, attendance increased, not decreased.8

4. Allegations Concerning Proposed California LegislationAmount to Nothing More Than Fraud by Hindsight

Plaintiffs allege that statements regarding the cause of attendance declines

during the first quarter 2014 were false and misleading because, on March 7, 2014,

legislation was proposed in California to ban killer whale performances. See ¶ 233.

According to Plaintiffs, the legislation, if passed, would have a devastating impact

on SeaWorld’s business. Id. The legislation, however, was not passed and, in fact,

only one month after being proposed, was tabled for further consideration. See ¶

165. Moreover, the only impact the proposed legislation could have had on

attendance during the first quarter would necessarily have been in the last three

weeks of March, following its announcement. The CAC contains no allegations

that this occurred. Instead, Plaintiffs rely solely on the fact that SeaWorld

disclosed an impact on attendance from media attention surrounding the proposed

legislation on August 13, 2014. This August disclosure, however, does not mean

that the legislation had any impact in attendance during the first quarter, i.e. the last

three weeks in March. Such allegations are impermissible pleading by hindsight

and do not support Plaintiffs’ claims. See e.g., In re Vantive Corp. Sec. Litig., 283

8 Plaintiffs also allege that Blackfish impacted attendance because it caused twoschools to cancel trips to SeaWorld. ¶¶ 146, 213, 216. Two canceled classtrips, however, cannot possibly have had a material impact on SeaWorld’s business. Similarly, Plaintiffs allege that two external polls, conducted by theOrlando Sentinel and CNN, “evidenced that consumers were no longerinterested in attending SeaWorld’s parks after viewing Blackfish.” ¶ 213; seealso ¶¶ 144, 145. However, with respect to the Orlando Sentinel poll, the CACnot only fails to allege how many people were polled, but the poll also askedonly whether “CNN’s ‘Blackfish’ [sic] documentary changes your perception ofSeaWorld,” and therefore it did not link Blackfish with attendance. ¶ 145. TheCNN poll was conducted in the fourth quarter of 2013, the quarter in whichSeaWorld parks experienced record attendance, so is of little value. See ¶ 225.



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F.3d 1079, 1084-85 (“The purpose of [the PSLRA’s] heightened pleading

requirement was . . . to put an end to the practice of pleading ‘fraud by

hindsight.’”) (internal citation omitted); In re GlenFed, Inc. Sec. Litig., 42 F.3d

1541, 1549 (9th Cir. 1994) (“The fact that an allegedly fraudulent statement and alater statement are different does not necessarily amount to an explanation as to

why the earlier statement was false. . . . [P]laintiff must set forth facts explaining

why the difference between the earlier and the later statements is . . . the result of a

falsehood.”).

Furthermore, the fact that Mr. Atchison explained on August 13, 2014 that,

in May 2014, SeaWorld was “still grappling with what impact there would be

related to the news attention around the legislation” and that “‘it was too early to

call and tell what kind of impact’ Blackfish may have” (¶ 233) certainly does not

mean that the statements made in May were misleading. SeaWorld’s inability to

accurately predict the impact of legislation on attendance in May (just two months

after it was proposed and one month after it was tabled), does not constitute

securities fraud. In re PetSmart, Inc. Sec. Litig., 61 F. Supp. 2d 982, 992 (D. Ariz.

1999) (“[D]efendants’ lack of clairvoyance simply does not constitute securities

fraud.”) (internal citation omitted).

5. Allegations Based Upon Information from the FourConfidential Witnesses Do Not Plead that BlackfishImpacted Attendance

Plaintiffs’ reliance on four anonymous CWs in an attempt to plead

misrepresentations or omissions also fails. The only information alleged to have

been provided by the CWs is either vague and speculative or not inconsistent withany of Defendants’ statements. For example, Plaintiffs allege that CW-4, a director

in food and beverage services at the San Diego park, believed that “there was a

noticeable dip in attendance following the premiere” of Blackfish in the first

quarter of 2013. ¶ 189. The CAC alleges no particulars about, for instance, when

CW-4 noticed the “dip,” why she thought it was connected to Blackfish or whether



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other factors were at play (like cold or wet weather). Moreover, attendance at the

combined SeaWorld parks was up, not down, during the first quarter of 2013

calling into question the credibility of CW-4’s belief. Similarly, CW-3, a

supervisor at the San Diego park, also purportedly believed that SeaWorld’sstatements “were ‘pretty false’” and that “attendance was ‘off’” following the IPO

because of negative publicity due to Blackfish. ¶ 204. Like, CW-4, CW-3’s vague

belief that attendance was off because of Blackfish, based on no personal

knowledge or specific information, cannot suffice to allege misrepresentations or

omissions. See In re Accuray, Inc. Sec. Litig., 757 F. Supp. 2d 936, 944 (N.D. Cal.

2010) (“CW 1’s opinion that the term agreements ‘seemed geared to allow far more

speculative, contingent deals to be added to the order backlog,’ is speculative itself,

and it cannot substitute for the specific facts necessary to plead falsity.”) (internal

citation omitted); Brodsky v. Yahoo! Inc., 630 F. Supp. 2d 1104, 1115 (N.D. Cal.

2009) (“To survive a motion to dismiss, Plaintiffs must describe with particularity

the CW’s personal knowledge of Yahoo!’s revenue recognition process. CW 5’s

observations about customer complaints do not bolster Plaintiffs’ allegations of

Defendants’ fraudulent revenue recognition.”).

In addition, that SeaWorld monitored attendance (in daily attendance reports

and a Daily Attendance Budget for the year), that attendance was declining, that

Blackfish (and, separately, attendance) was discussed at employee meetings, and

that SeaWorld mounted a public relations campaign to counter negative media

attention resulting from Blackfish are not inconsistent with any of Defendants’

statements. None of this information is remarkable; it was public knowledge andfully disclosed that SeaWorld’s attendance was declining, Blackfish resulted in

negative publicity and SeaWorld engaged in a campaign to counter that publicity.

Significantly, the CWs do not provide even a shred of concrete or particular

information linking Blackfish to attendance declines. Accordingly, as none of the

alleged statements by the CWs contradicts or is inconsistent with any of the



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statements challenged in the CAC, they are insufficient to establish falsity. See,

e.g., In re Tibco Software, Inc., No 05-CV-2146 SBA, 2006 WL 1469654, at *23-

25 (N.D. Cal. May 25, 2006) (allegations by confidential witness did not establish

falsity when

Documents

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