Paul, Weiss Wins Dismissal of Securities Class Action Against Oaktree

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

The litigation arose from a failed merger between Tribune and Sinclair Broadcast Corporation in 2018. Prior to the announcement of the merger, Oaktree had been a Tribune creditor; after Tribune was restructured in bankruptcy, Oaktree became a Tribune shareholder, and an Oaktree executive was named chairman of Tribune’s board. Tribune announced its merger with Sinclair in May 2017 and, five months later, Tribune’s shareholders approved the merger and the Oaktree executive resigned from Tribune’s board. 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 Sinclair/Tribune 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.

A Tribune shareholder subsequently filed suit in the U.S. District Court for the Northern District of Illinois against Tribune and its board, Oaktree, and Morgan Stanley, the underwriter of Oaktree’s secondary offering. 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 sold a portion of its holdings to avoid a loss before those difficulties became public, claiming violations of Section 20A of the Securities Exchange Act of 1934, based on alleged insider trading, and of Section 20(a) of the Exchange Act, based on control person allegations. Oaktree moved to dismiss the complaint.

In granting our motion to dismiss in full on January 6, the court held 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 Paul, Weiss team included litigation partners Andrew Ehrlich and Gregory Laufer.