United States District Court, D. Maryland
Richard D. Bennett, United States District Judge
Aberdeen City Council as Administrating Authority for the
North East Scotland Pension Fund (“Aberdeen” or
“Lead Plaintiff”) and Monroe County
Employees' Retirement System (“Monroe”)
(collectively, “Plaintiffs”) bring this putative
class action against Under Armour, Inc. (“Under
Armour” or “the Company”) and Kevin A.
Plank (“Plank”) (collectively,
“Defendants”) alleging violations of federal
securities laws. (Consol. Second Am. Compl., ECF No.
Plaintiffs bring this federal class action under the
Securities Exchange Act of 1934 (“Exchange Act”)
§§ 10(b), 20(a), and 20A, 15 U.S.C. §§
78j(b), 78(t)(a), 78t-1, and Rule 10b-5 promulgated
thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs purport to
represent a class of all persons or entities that purchased
or acquired common stock of Under Armour between September
16, 2015 to January 30, 2017, inclusive (“Class
Period”), and who were damaged thereby. (ECF No. 78 at
pending before this Court are three motions: (1)
Defendants' Motion to Dismiss Plaintiffs'
Consolidated Second Amended Complaint (ECF No. 80); (2)
Defendants' Motion to Strike the Declarations of Mark A.
Cohen and Professor M. Todd Henderson (ECF No. 79); and (3)
Plaintiffs' Motion to Strike Exhibits 21, 23, and 24
Attached to Defendants' Motion to Dismiss Plaintiffs'
Consolidated Second Amended Complaint (ECF No. 88). The
parties' submissions have been reviewed, and no hearing
is necessary. See Local Rule 105.6 (D. Md. 2018).
reasons that follow, this Court shall GRANT Defendants'
dismissal motion, and shall also GRANT both parties'
motions to strike. Specifically, this Court concludes that
Plaintiffs have failed to meet the burden imposed upon them
by the heightened pleading standards to which the Exchange
Act claims of Count I are subject. Therefore, Count I shall
be dismissed with prejudice. Since Count I must be dismissed,
Counts II and III also fail because they are each dependent
upon a predicate violation of the Exchange Act.
ruling on a motion to dismiss, this Court “accept[s] as
true all well-pleaded facts in a complaint and construe[s]
them in the light most favorable to the plaintiff.”
Wikimedia Found. v. Nat'l Sec. Agency, 857 F.3d
193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black &
Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir. 2015)).
The Court may consider only such sources outside the
complaint that are, in effect, deemed to be part of the
complaint, for example, documents incorporated into the
complaint by reference and matters of which a court may take
judicial notice. Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007); see also
Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988 (9th
Cir. 2018) (clarifying the proper use of judicial notice and
incorporation-by-reference in securities
brief,  Under Armour is a Maryland-based sports
apparel company that sells branded athletic apparel, footwear
and accessories worldwide. (ECF No. 78 at ¶ 4.) Since
its formation in 1996, the Company grew to become a leading
premium sportswear brand, achieving the position of number
two sportswear brand by revenue in the United States by 2014.
(Id. at ¶¶ 5-6.) By capitalizing on its
premium brand image and reputation for state-of-the-art
fabrics, Under Armour reported 26 consecutive quarters of 20%
or more compounded annual growth between 2010 and 2016.
(Id. at ¶ 6.) Plank is the Company's
founder, Chief Executive Officer, Chairman of the Board, and
largest shareholder. (Id. at ¶ 24.) Plaintiffs
allege generally that beginning in September 2015,
Defendants' public statements concealed that they knew
consumer demand for Under Armour's products was
declining, so the Company abandoned its “brand strength
over price” sales philosophy and resorted to
discounting, which led to Under Armour's stock prices
being artificially inflated by lower-margin sales and
international expansion. (Id. at ¶¶ 9-12.)
In January 2016, Morgan Stanley & Co. LLC (“Morgan
Stanley”) published a report relying on industry
sales data that revealed Under Armour's
average-sales-price and market-share decline, which started a
corresponding decline in the Company's stock prices.
(Id. at ¶ 13.) Plaintiffs also allege that
Plank “personally cashed in on” the stock's
artificial inflation by selling a substantial amount of his
stock in the Company during the Class Period. (Id.
at ¶ 12.)
initial Complaints alleging violations of federal securities
law were filed in February and March 2017 and were
consolidated on March 23, 2017. A Consolidated Amended Complaint
was filed on August 9, 2017, claiming four causes of action:
Counts I and II for violations of the Securities
and Counts III and IV for violations of the Exchange
(ECF No. 30.) On September 18, 2018, this Court granted
Defendants' dismissal motions, dismissing the Securities
Act claims (Counts I and II) with prejudice, and dismissing
the Exchange Act claims (Counts III and IV) without
prejudice. In re Under Armour Sec. Litig., 342
F.Supp.3d 658 (D. Md. 2018). By their Consolidated Second
Amended Complaint (ECF No. 78), filed on November 16, 2018,
Plaintiffs have dropped all defendants except for Plank and
Under Armour, contending that the prior pleading deficiencies
have been remedied and that all necessary elements have been
adequately alleged to establish that Plank and Under Armour
violated §§ 10(b), 20(a) and 20A of the Securities
Exchange Act of 1934. (Pls.' Resp. 1, ECF No. 86.) By the
Defendants' Motion to Dismiss Plaintiffs'
Consolidated Second Amended Complaint, the Defendants seek
the dismissal with prejudice of Plaintiffs' claims.
(Defs.' Mot., ECF No. 80.) Defendants assert that
Plaintiffs have added no new factual allegations and still
fail to plead scienter as to either Plank or the Company, the
only two remaining defendants. (Mot. Mem. 1, ECF No. 80-2.)
Defendants further contend that Plaintiffs have attempted to
address the deficiencies in their pleadings by adding
declarations from “expert” witnesses to support
their conclusions. (Id. at 2.) By the
Defendants' Motion to Strike the Declarations of Mark A.
Cohen and Professor M. Todd Henderson, the Defendants move
this Court to strike the declarations and disregard the
opinions expressed in them. (ECF No. 79.) Defendants assert
that an expert report attached to a complaint is not a
“written instrument” under Rule 10(c) of the
Federal Rules of Civil Procedure and that opinions cannot act
as substitutes for facts under the heightened pleading
standard of the Private Securities Litigation Reform Act of
1995 (“PSLRA”), 15 U.S.C. §§ 78u-4,
Plaintiffs seek to have this Court strike certain exhibits
attached to Defendants' Motion to Dismiss. (ECF No. 88.)
Specifically, Plaintiffs move, pursuant to the PSLRA and Rule
12(f) of the Federal Rules of Civil Procedure, to strike
Exhibits 21, 23, and 24 attached to Defendants' Motion to
Dismiss and to strike all references to, and assertions based
upon, those materials. (Id.) Defendants contend that
the three documents are not incorporated by reference nor or
they the proper subjects of judicial notice and are attached
for the improper purpose of rebutting Plaintiffs'
allegations of scienter. (Pls.' Mot. Mem. 4, ECF No.
Court shall address first the motions to strike and then the
substantive motion to dismiss. For the reasons that follow,
this Court shall GRANT all three motions. Specifically, this
Court concludes that Plaintiffs have failed to meet the
burden imposed upon them by the heightened pleading standards
to which the Exchange Act claims of Count I are subject.
Therefore, Count I shall be dismissed with prejudice. Since
Count I must be dismissed, Counts II and III also fail
because they are each dependent upon a predicate violation of
the Exchange Act.
8(a)(2) of the Federal Rules of Civil Procedure requires that
a complaint contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) authorizes the dismissal
of a complaint if it fails to state a claim upon which relief
can be granted. Fed.R.Civ.P. 12(b)(6). The United States
Supreme Court's opinions in Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007), and Ashcroft v.
Iqbal, 556 U.S. 662 (2009), require that complaints in
civil actions be alleged with greater specificity than
previously was required. While a court must accept as true
all factual allegations contained in the complaint, legal
conclusions drawn from those facts are not afforded such
deference. Iqbal, 556 U.S. at 678. A complaint must
set forth “enough factual matter (taken as true) to
suggest” a cognizable cause of action, “even if .
. . [the] actual proof of those facts is improbable and . . .
recovery is very remote and unlikely.”
Twombly, 550 U.S. at 556 (internal quotations
importantly, this Court has noted that a claim for securities
fraud must meet the heightened pleading requirements of
Federal Rule of Civil Procedure 9(b) and the Private
Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b).
In re Constellation Energy Grp., Inc. Sec. Litig.,
738 F.Supp.2d 614, 634 (D. Md. 2010). Rule 9(b) of the
Federal Rules of Civil Procedure requires that “the
circumstances constituting fraud be stated with
particularity.” Fed.R.Civ.P. 9(b). The rule “does
not require the elucidation of every detail of the alleged
fraud, but does require more than a bare assertion that such
a cause of action exists.” Mylan Labs., Inc. v.
Akzo, N.V., 770 F.Supp. 1053, 1074 (D. Md.
1991). To satisfy the rule, a plaintiff must “identify
with some precision the date, place and time of active
misrepresentations or the circumstances of active
concealments.” Johnson v. Wheeler, 492
F.Supp.2d 492, 509 (D. Md. 2007). As the United States Court
of Appeals for the Fourth Circuit stated in United States
ex rel. Nathan v. Takeda Pharmaceuticals North America,
Inc., 707 F.3d 451 (4th Cir. 2013), the aims of Rule
9(b) are to provide notice to defendants of their alleged
misconduct, prevent frivolous suits, eliminate fraud actions
where all the facts are learned after discovery, and protect
defendants from harm to their goodwill and reputation. 707
F.3d at 456 (citation omitted).
Private Securities Litigation Reform Act further requires a
securities fraud claim to (1) “specify each statement
alleged to have been misleading [and] the reason or reasons
why the statement is misleading, ” and (2) “state
with particularity facts giving rise to a strong inference
that the defendant acted with the required state of
mind.” Tellabs, 551 U.S. at 321 (quoting 15
U.S.C. § 78u-4(b)(1), (b)(2)). These heightened pleading
standards in the securities fraud context are demanding but
were implemented because Congress recognized that there was
potential for abuse. Cozzarelli v. Inspire Pharm.
Inc., 549 F.3d 618, 623 (4th Cir. 2008). Courts were
charged to “be vigilant in preventing meritless
securities fraud claims from reaching the discovery phase of
litigation” and “instructed courts to dismiss any
securities fraud complaint that does not” plead a
strong inference of scienter. Id. (citing 15 U.S.C.
Motions to Strike
this Court shall begin its analysis by determining which
exhibits are properly before the Court at this time. The
parties have requested that this Court strike several items:
(1) two expert declarations attached to the Plaintiffs'
complaint; and (2) three exhibits attached to the
Defendants' dismissal motion. (ECF Nos. 79, 88.)
Rule 12(f) of the Federal Rules of Civil Procedure, the Court
“may strike from a pleading an insufficient defense or
any redundant, immaterial, impertinent, or scandalous
matter” on its own or on a party's timely motion.
Fed.R.Civ.P. 12(f). In Waste Mgmt. Holdings, Inc. v.
Gilmore, 252 F.3d 316, 347 (4th Cir. 2001), the United
States Court of Appeals for the Fourth Circuit noted that,
“Rule 12(f) motions are generally viewed with disfavor
‘because striking a portion of a pleading is a drastic
remedy and because it is often sought by the movant simply as
a dilatory tactic' ” (citing 5A C. Wright & A.
Miller, Federal Practice & Procedure §
1380, 647 (2d ed. 1990)). See also Stockart.com, LLC v.
Caraustar Custom Packaging Grp., Inc., RDB-05-2409, 240
F.R.D. 195, 199 (D. Md. 2006). However, if “the
pleading is obviously insufficient as a matter of law,
” a court has discretion to grant a motion to strike.
Ong v. Chipotle Mexican Grill, Inc., 294 F.Supp.3d
199, 222 (S.D.N.Y. 2018) (citations omitted).
Declarations Attached to the Complaint
argue that the expert declarations attached as Exhibits D and
E to the Second Amended Complaint qualify as “written
instruments” under Fed.R.Civ.P. 10(c). (ECF No. 87 at
7.) Plaintiffs assert that the declarations are integral to
the complaint, are incorporated by reference, and their
authenticity is not challenged. (Id. at 8.) Further,
Plaintiffs rely on them to “explain key specific
facts” supporting their allegations of scienter.
copy of a written instrument that is an exhibit to a pleading
is part of the pleading for all purposes.” Fed.R.Civ.P.
10(c); see also Thompson v. Greene, 427 F.3d 263,
268 (4th Cir. 2005) (“[T]he complaint is deemed to
include any written instrument attached to it as an exhibit
or any statements or documents incorporated in it by
reference.”). The Fourth Circuit has not specifically
addressed whether declarations are permissible attachments to
pleadings under Fed.R.Civ.P. 10(c). See Occupy Columbia
v. Haley, 738 F.3d 107, 116-17 (4th Cir. 2013)
(commenting on there being no uniform rule among the circuits
with respect to whether affidavits are “written
instruments” that may be considered in resolving a
some district courts have accepted affidavits or declarations
for purposes of evaluating a dismissal motion, while other
district courts have not. Compare Malinowski v. Lichter
Grp., LLC, Civil No. WDQ-14-917, 2015 WL 857511, at *4
(D. Md. Feb. 26, 2015) (“Documents contemplated by Rule
10(c) include ‘contracts, notes, and other writing[s]
on which [a party's] action or defense is based,' but
not affidavits.”) (quoting Rose v. Bartle, 871
F.2d 331, 339 n.3 (3d Cir. 1989)); and Copeland v.
Aerisyn, LLC, No. 1:10-CV-78, 2011 WL 2181497, at *1
(E.D. Tenn. June 3, 2011) (“An ‘instrument'
is defined by Black's Law Dictionary (9th ed. 2009) as
‘[a] written legal document that defines rights,
duties, entitlements, or liabilities, such as a contract,
will, promissory note, or share certificate.'”);
with Alvarez-Soto v. B. Frank Joy, LLC, 258
F.Supp.3d 615, 623 (D. Md. 2017) (considering declarations
attached to the complaint but not those attached to the
motions); and Reaves v. Am. Home Mortg. Servicing,
Inc., No. 5:15-CV-180-FL, 2017 WL 9478517, at *3 (E.D.
N.C. Aug. 21, 2017) (“The court ‘may properly
take notice of matters of public record' and ‘may
also consider documents attached to the complaint,
see Fed. R. Civ. P. 10(c), as well as those attached
to the motion to dismiss, so long as they are integral to the
complaint and authentic.'”) (quoting Phillips
v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th
this case is subject to a heightened pleading standard.
Complaints filed under the PSLRA “must allege specific
facts demonstrating material misstatements or omissions made
with scienter. Even if non-opinion portions of an
expert's affidavit constitute an instrument pursuant to
Rule 10, opinions cannot substitute for facts under the
PSLRA.” Fin. Acquisition Partners LP v.
Blackwell, 440 F.3d 278, 286 (5th Cir. 2006). As this
Court has previously noted, “Plaintiffs may not
substitute factual allegations with the speculation of their
expert witness.” Lerner v. Northwest
Biotherapeutics, 273 F.Supp.3d 573, 590 (D. Md. 2017).
In the context of securities fraud complaints, courts have
stricken a declaration where plaintiffs asked the court to
consider it for the truth of its opinions, see Ong,
294 F.Supp.3d at 209, but at least one court has allowed a
declaration when used “merely to buttress” the
plaintiffs contentions, see In re MannKind Sec.
Actions, 835 F.Supp.2d 797, 821 (C.D. Cal. 2011). It is
apparent that both the context of the case and the purpose of
the declarations are important elements for a court to
evaluate when considering whether to strike the documents.
case, Plaintiffs contend that the declarations “only
serve to support and help explain the allegations” in
the complaint. (ECF No. 87 at 10.) Therefore, they do not
form the basis of the complaint, are not integral to the
complaint, and this Court will not refer to them as a
substitution for its own analysis. This Court's
evaluation of a motion to dismiss accepts as true all the
factual allegations, so “buttressing” and
external support are unnecessary. See Twombly, 550
U.S. at 555-56. However, this Court also distinguishes
factual allegations from “mere conclusory statements,
” opinions, or legal conclusions. Iqbal, 556
U.S. at 678. Expert opinions generated for purposes of
supporting Plaintiffs' theories in a third version of
their complaint do not warrant the assumption of truth.
this Court shall GRANT Defendants' Motion to Strike the
Declarations of Mark A. Cohen and Professor M. Todd Henderson
(ECF No. 79). However, any factual allegations in the Second
Amended Complaint that were derived from the expert reports,
if any, shall be accorded the consideration due to factual
allegations in a dismissal context.
Defendants' Exhibits Attached to Motion
note that Defendants submitted 32 exhibits spanning nearly 1,
700 pages. (Pls.' Mot. Mem. 1, ECF No. 88-1.) Plaintiffs
move to exclude three exhibits that they contend are not
incorporated by reference or subject to judicial notice.
(Id. at 2.) Defendants argue that the challenged
exhibits are subject to judicial notice. (ECF No. 92 at 2.)
The three challenged exhibits include a press release filed
with the United States Securities and Exchange Commission
(“SEC”) and two Maryland state court filings.
(Id.) Defendants assert that the documents are
publicly filed documents offered for the limited purpose of
establishing the timing of events to which they relate and
not to establish the truth of the matters contained therein.
are permitted to consider facts and documents subject to
judicial notice without converting the motion to dismiss into
one for summary judgment.” Zak v. Chelsea
Therapeutics Int'l, Ltd., 780 F.3d 597, 607 (4th
Cir. 2015). Under Federal Rules of Evidence 201, facts that
are not “subject to reasonable dispute” may be
judicially noticed. Fed.R.Evid. 201(b). If a fact is
“generally known, ” or “can be accurately
and readily determined from sources whose accuracy cannot
reasonably be questioned, ” then it is “not
subject to reasonable dispute.” Id. If a court
considers such facts at the motion to dismiss stage, the
facts must be construed “in the light most favorable to
the plaintiffs.” Zak, 780 F.3d at 607
Court previously noted, in August 2018, the Ninth Circuit
clarified the proper use of judicial notice and
incorporation-by-reference in securities litigation. See
In re Under Armour Sec. Litig., 342 F.Supp.3d at 667 n.
3 (citing Khoja, 899 F.3d 988). In Khoja,
the Ninth Circuit reminded district courts that generally, if
materials outside the pleadings are considered, the dismissal
motion is converted into a motion for summary judgment so
that both parties have an opportunity to present material
pertinent to the motion. 899 F.3d at 998 (citing Lee v.
City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)).
Judicial notice and incorporation-by-reference are exceptions
to this general rule. Id. (citing Fed.R.Evid. 201).
However, improper application of these exceptions may lead to
premature dismissals that may have been valid if discovery
were allowed, and this risk is especially significant in SEC
fraud matters where plaintiffs are subject to heightened
pleading standards. Id. The Ninth Circuit further
noted that “accuracy is only part of the inquiry under
Rule 201(b). A court must also consider-and identify-which
fact or facts it is noticing . . . .” Id.
Exhibits 21 and 23 relate to proceedings in another case in a
different court, namely the Under Armour Shareholder
Litigation in the Maryland Circuit Court for Baltimore City.
(ECF No. 92 at 3.) Exhibit 24 is an SEC filing on Form 8-K,
filed on March 16, 2016. All three exhibits relate to the
Class C stock issuance. (Id.) Defendants assert that
the exhibits are offered only to establish the timeline of
events in connection with the Class C stock issuance.
(Id. at 4.) Defendants argue that such documents are
routinely subject to judicial notice, and they assert that
they are not asking the Court to take judicial notice of any
disputed facts. (Id. at 5-7.) Defendants also note
that there is no disputed fact with regard to the timeline,
but merely a typographical error in the Second Amended
Complaint. (Id. at 10.)
“courts routinely take judicial notice of documents
filed in other courts . . . to establish the fact of such
litigation and related filings.” Kramer v. Time
Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991) (citations
omitted). Also, “[j]udicial notice is appropriate of
the content of S.E.C. filings, to the extent that this
establishes that the statements therein were made, and the
fact that these documents were filed with the agency. . .
.” In re Mun. Mortg. & Equity, LLC, Sec. &
Derivative Litig., 876 F.Supp.2d 616, 653 n.7 (D. Md.
2012), aff'd sub nom. Yates v. Mun. Mortg. &
Equity, LLC, 744 F.3d 874 (4th Cir. 2014). However,