OK Firefighters Pension v. Six Flags Entmt

Majority - Leslie H. Southwick

Yes, the complaint adequately pleads material misrepresentations and a strong inference of scienter, meeting the heightened pleading requirements for securities fraud. The Fifth Circuit reversed the district court's dismissal, finding that the plaintiff had sufficiently alleged actionable misstatements and the defendants' culpable state of mind. The court determined that the allegations from Former Employee 1 (FE1) should be minimally discounted, not significantly, because his role as Director of International Construction and Project Management, direct oversight of China parks, and detailed accounts (including site inspections, meetings with Six Flags and Riverside personnel, and internal reporting) provided sufficient particularity to support his personal knowledge of the facts, including Riverside's financial health issues and the lack of construction progress. This aligns with the principle that reliability depends on the level of detail provided about the source. Regarding the 2018 statements, the court held that remarks such as "all our parks are progressing nicely towards their anticipated opening dates" were "mixed present/future statements" because they asserted a present fact (current progress) and thus were ineligible for the Private Securities Litigation Reform Act's (PSLRA) safe harbor protection. While some statements were purely forward-looking, the court found the accompanying cautionary language (e.g., general disclaimers in earnings calls and 10-K forms) to be mere boilerplate and not "meaningful" or company-specific. The complaint sufficiently alleged these statements were material misrepresentations through specific factual allegations from FE1, such as the absence of fundamental blueprints, Riverside's inability to pay vendors for critical rides, and a corroborating photo showing minimal construction. The court rejected the district court's imposition of an "impossibility" standard, stating that plaintiffs need only plead why a statement is misleading, not that a future deadline was strictly impossible. A strong inference of scienter for the 2018 statements was established by combining the defendants' motive—significant equity awards (600% and 300% of base salaries) tied to achieving a $600 million EBITDA target, which Six Flags barely missed due to a later $15 million downward adjustment related to the China parks—with FE1's detailed "weekly presentations" and "master reports" regarding the project's disastrous state. These reports were presented to senior management, including Defendant Reid-Anderson and the Board, supporting an inference of "actual knowledge" of falsity. Under Tellabs, where competing inferences about scienter are equally strong, a tie favors the plaintiff. For the 2019 statements, the court found none eligible for safe harbor protection because they concerned present information about Riverside's financial condition (e.g., "continues to pay," "financing is in place") or reassurances about current progress toward new deadlines. These statements were deemed materially misleading omissions given FE1's allegations that Riverside was firing employees, underpaying workers, and had "zero funds." Similarly, statements about "ongoing" and "progressing" construction were misleading in context, as investors would expect substantial progress, not minimal activity like "weeds growing." The court noted, however, that statements after October 2019, where defendants tempered their optimism, were not actionable. While the pecuniary motive of bonuses was absent for 2019, a strong inference of "severe recklessness" was still met due to the defendants' potential motivation to "save face," combined with FE1's August 2019 letter describing the projects as "irreversibly off-track" and "a mess," and the "core operations" theory given the projects' importance to Six Flags' future growth. The court also clarified that specific statements about projected opening dates or construction progress are not non-actionable corporate optimism or puffery. Finally, the court held that allegations of improper revenue recognition were adequately pled, as they directly depended on the materially misleading statements about park progress and opening dates, with the $15 million downward adjustment serving as an acknowledged overstatement. The reversal of the primary Section 10(b) claims also led to the reversal of the dismissal of control person liability under Section 20(a).