Oaktree Wins Affirmance of Securities Class Action Dismissal

Paul, Weiss secured a Seventh Circuit affirmance of the 2020 dismissal, with prejudice, of a putative securities class action brought against our client Oaktree Capital Management, L.P. over Oaktree’s investment in Tribune Media Company.

The litigation arose from a failed merger between Tribune and Sinclair Broadcast Corporation in 2018. Oaktree had been a Tribune creditor and then a Tribune shareholder prior to the merger announcement. Tribune announced its merger with Sinclair in May 2017, which was approved by shareholders five months later. Shortly thereafter, Oaktree sold a portion of its Tribune holdings in a secondary offering.

Subsequently, Sinclair engaged in negotiations with the Department of Justice and the Federal Communications Commission, whose approvals were needed for the merger, relating to the divestiture of broadcast stations. In August 2018, after the FCC chairman expressed concerns about the transaction because certain proposed station divestitures “would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Tribune terminated the merger.

Tribune shareholders filed suit in the Northern District of Illinois against Tribune and its board, Oaktree and Morgan Stanley, the underwriter of Oaktree’s secondary offering. The plaintiffs alleged that Oaktree knew when it was conducting the secondary offering that the merger was unlikely to be consummated because of supposed difficulties in the negotiations over the divestitures, and that it sold a portion of its holdings to avoid a loss before those difficulties became public, in violation of federal securities laws.

The district court granted our motion to dismiss in full in January 2020, holding that plaintiffs did not adequately allege that Oaktree had material nonpublic information during the secondary offering, that Oaktree owed fiduciary duties to Tribune, that Oaktree had knowledge of wrongdoing at the time of the offering, or that the alleged violations caused shareholder losses. 

The shareholders appealed to the Seventh Circuit, which affirmed the district court’s ruling dismissing the plaintiffs’ claims. The panel found that the allegations “fall short.”

“The complaint does not tell us when, if at all, Tribune learned about the ‘entanglements’ (the parties’ word for the conditions on divestiture) that led to the merger’s demise; the complaint is not specific about either dates or details,” the panel wrote. “At all events, plaintiffs do not deny that Tribune wanted the merger to close; no one there had anything to gain by its failure, which would diminish the price of management’s stock (and Oaktree’s remaining holdings) as surely as it would injure outside investors.”

The Paul, Weiss team included litigation partners Andrew Ehrlich, who argued the appeal, and Gregory Laufer.