DreamWorks Animation beats securities lawsuit

A U.S. District Court judge recently ruled in favor of DreamWorks Animation's motion to dismiss a class action shareholder suit.

The lawsuit was filed by Charles Paddock and others in 2014, in a consolidated complaint of three class actions. The plaintiffs alleged that they suffered losses when DreamWorks' stock price dropped early in 2014 by 12 percent. The drop came on the heels of the company's announcement of a write-down on Turbo, an animated film that cost $135 million to make, but only grossed $83 million domestically. Following the announcement DreamWorks said that the SEC had been investigating the write-down since May, resulting in another 12 percent drop in stocks.

However, as he made his ruling, U.S. District Judge James Otero said that the plaintiffs hadn't provided sufficient facts to prove falsity, scienter and loss causation. He referenced a comment from DreamWorks CEO Jeffrey Katzenberg during a 2013 second-quarter earnings call, stating, "Katzenberg did not simply say Turbo will be a profitable film, but instead said 'based on the data that we have to date, we do believe that Turbo will be a profitable film."

According to Otero, the plaintiffs should not have made the conclusion that DreamWorks had no basis to expect the film to make a profit, since accounting principles generally use ranges when measuring expected performance. Otero added that the lawsuit "aligns more closely to fraud-by-hindsight claims."

The judge dismissed the complaint with leave to amend, which means plaintiffs have 15 days to address the points the judge made and bring back a more factual suit.

If you believe someone has infringed upon your rights it is important to contact an experienced business attorney as soon as possible.

Categorised in: Business Law

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