Advance Wins Second Circuit Appeal Affirming Dismissal of Securities Action Regarding Blockbuster WarnerMedia-Discovery Merger

Paul, Weiss achieved a significant victory on behalf of media conglomerate Advance and certain of its officers and directors, when the U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal with prejudice of a putative securities class action arising out of the $150 billion merger between AT&T’s WarnerMedia and Discovery, Inc., to form Warner Bros. Discovery. Advance was a founder of and major shareholder in Discovery.

The lawsuit alleged that the offering materials for the merger, as well as certain portions of a pre-merger earnings call, contained numerous misstatements, and that these misstatements artificially inflated Warner Bros. Discovery’s share price before closing. These alleged misstatements related to, among other things, pre-merger subscriber counts for streaming services, third-party licensing strategy, and a simultaneous-release strategy across theatrical and streaming platforms. The plaintiffs sued under the Securities Act of 1933, claiming that a post-closing drop in Warner Bros. Discovery’s share price was caused by certain disclosures related to these alleged misstatements. In February 2024, U.S. District Judge Valerie Caproni dismissed the lawsuit in its entirety with prejudice, holding that the plaintiffs had failed to plead any plausible claim. The plaintiffs appealed.

The Second Circuit affirmed, agreeing with the district court and Advance that the plaintiffs-appellants failed to plausibly allege an actionable misstatement or omission under the Securities Act. The court of appeals found that the offering documents provided an accurate accounting of the defendants’ subscriber totals; that the defendants’ decision not to pursue new licensing deals did not render pre-merger statements misleading; and that the defendants’ alleged failure to disclose an intent to continue simultaneously releasing films in theaters and on streaming platforms was not misleading, and the claim was premised on pure speculation in any event. The court summarily disregarded the balance of the plaintiffs-appellants’ arguments.

The Paul, Weiss team includes litigation partners Jaren Janghorbani, Geoffrey Chepiga and Paul Paterson and counsel Matthew Stachel and Johan Tatoy. Paul, Weiss worked with Weil, Gotshal & Manges, which represented Discovery/Warner Bros. Discovery and related individuals in this case.