The U.S. District Court for the Northern District of California Aug. 20 threw out a would-be securities class action alleging that Internet television and movie subscription service Netflix Inc.(NFLX) and certain of its officials made material misrepresentations about the prospects of a new “streaming-focus” model that led to a sharp decline in Netflix stock price after the alleged falsity of the statements was revealed (In re Netflix, Inc. Sec. Litig., N.D. Cal., No. 12-00225 SC, 8/20/13).
The court, in a ruling by Judge Samuel Conti, dismissed the plaintiffs’ claims based on their failure to plead false or misleading statements.
It said the plaintiffs “have had two opportunities to plead false statements, but in both cases they failed to do so.” As such, the court dismissed the complaint with prejudice.
The court recounted that Netflix allows consumers to watch movies either by streaming them over the Internet directly to their televisions, computers, or mobile devices, or by receiving DVDs sent to their homes. Allegedly, Netflix encountered various difficulties in attempting to develop its streaming services.
In their lawsuit, the court said, the plaintiffs essentially contended that the defendants “knew streaming would be relatively less profitable than DVD offerings, but decided to tell the public that Netflix’s shift to streaming would be a good thing for the company.”
Dismissing, the court said the plaintiffs' allegations “depend on the tenuous theory that Defendants withheld discrete and accurate financial information about streaming while also touting streaming’s profitability.” It said it “has not found this to be the case for any statement Plaintiffs cite.”
The plaintiffs, the court said, supply “an array of vague, sometime conclusory, statements to support a theory that requires much more by virtue of its being narrow and fact-sensitive.” This is insufficient to satisfy Private Securities Litigation Reform Act pleading requirements.
In other specifics, the court said that the defendants made clear throughout the class period that the “success of a streaming-focused business model was contingent on other factors, primarily the growth and retention of Netflix’s subscriber base, suggesting that Defendants did not omit any information or warnings in a way that would be misleading under” 1934 Securities Exchange Act Rule 10b-5.
The court also said that because the plaintiffs failed to plead a Section 10(b) violation, their control person and insider trading claims also are inadequate.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).