Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 1 of 14 Page ID #:2956
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`Present: The Honorable
`Kamilla Sali-Suleyman
`Deputy Clerk
`Attorneys Present for Plaintiff:
`None
`IN CHAMBERS – COURT ORDER
`
`PERCY ANDERSON, UNITED STATES DISTRICT JUDGE
`Not Reported
`N/A
`Court Reporter
`Tape No.
`Attorneys Present for Defendant:
`None
`
`Proceedings:
`
`Before the Court is a Motion to Dismiss Third Amended Class Action Complaint filed by
`defendants Activision Blizzard, Inc. (“Activision Blizzard” or “Company”), Robert A. Kotick
`(“Kotick”), Dennis Durkin (“Durkin”), Armin Zerza (“Zerza”), and Brian Kelly (“Kelly”)
`(collectively, the “Defendants”). (Docket No. 91.) Pursuant to Rule 78 of the Federal Rules of
`Civil Procedure and Local Rule 7-15, the Court finds this matter appropriate for decision without
`oral argument. The hearing calendared for January 9, 2023, was previously vacated, and the
`matter taken off calendar. (Docket No. 97.)
`
`I.
`
`Background
`
`The facts and procedural history of this case are familiar to the Court and parties and will
`not be recounted here in full. Any critical facts or procedural history are noted in this section
`and in the Court’s analysis below.
`
`This is a private securities fraud, class action case brought by lead plaintiff Jeff Ross and
`six other named plaintiffs, individually and on behalf of all others similarly situated
`(collectively, “Plaintiffs”). (Docket No. 90 ¶ 1.) Plaintiffs allege two causes of action:
`(1) violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and
`Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, against all Defendants; and (2)
`control person liability under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), against
`defendants Kotick, Durkin, Zerza, and Kelly (collectively, “Individual Defendants”). (Id. ¶¶
`487–501.) The crux of Plaintiffs’ claims is that Defendants misled the investing public by
`making material misstatements and omissions concerning rampant sexual harassment and
`discrimination at the Company, and the existence of investigations initiated in 2018 by the
`California Department of Fair Employment and Housing (“DFEH”) and the United States Equal
`Employment Opportunity Commission (“EEOC”) (collectively, the “Investigations”). (See
`generally id.) Plaintiffs allege that the material misstatements and omissions were made in the
`Company’s 2019 through 2020 Form 10-K SEC filings, and third quarter 2018 through first
`
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
`
`Page 1 of 14
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`

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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 2 of 14 Page ID #:2957
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`quarter 2021 Form 10-Q filings (collectively, “SEC filings”). (Id. ¶¶ 390–426.) The SEC filings
`represented that the Company was only “party to routine claims, suits, investigations . . . arising
`in[/from] the ordinary course of business” and that “such routine claims and lawsuits are not
`significant” and “not expect[ed] [] to have a material adverse effect on” the Company’s business.
` (Id.)
`
`The Court previously granted Defendants’ motions to dismiss the First and Second
`Amended Class Action Complaints on the basis that Plaintiffs failed to plead sufficient facts to
`establish that the SEC filing statements were false or misleading, and failed to plead
`particularized facts from which the Court could draw the necessary strong inference of scienter.
`(See Docket Nos. 75, 87.) Plaintiffs then filed a Third Amended Class Action Complaint (“3rd
`AC”). Notably, the 3rd AC contains references to five new confidential witnesses (“CWs”) that
`worked in various roles in the Company’s Human Resources (“HR”) departments.1/ The 3rd AC
`also contains some new allegations – or expansions upon prior ones – that Plaintiffs use to
`support their theories of falsity and/or scienter. These include the following allegations.
`
`First, the 3rd AC references two additional news articles – a January 26, 2018 Wall Street
`Journal article about a pattern of sexual misconduct by the CEO of Wynn Resorts, and a January
`21, 2020 Los Angeles Times article about a sexual assault and discrimination lawsuit against
`Riot Games. (Docket No. 90 ¶¶ 27, 245, 297, 410, 448.) Plaintiffs allege that these articles
`“show[] the immense danger of public sexual harassment allegations to the value of a company.”
`(Id. ¶ 245.)
`
`Second, Plaintiffs reference the Company’s 2018 Proxy statement, which touted that the
`Company prioritizes and values diversity and inclusion. (Id. ¶ 246.) Plaintiffs allege that this
`demonstrates how “Activision Blizzard was especially vulnerable to reputational damage from
`sexual harassment allegations.” (Id.)
`
`Third, Plaintiffs allege that CW14 stated that, after the Investigations began, the
`Company’s attorneys told her about the Investigations and “made an ‘urgent’ request for ‘huge’
`data sets on the Company’s employees dating back many years.” (Id. ¶ 261.) Plaintiffs also
`allege that CW14 stated that she was confident that the higher-ups at the Company were worried
`about the Investigations. (Id.)
`
`The five new CWs referenced in the 3rd AC are CW10, CW11, CW13, CW14, and
`1/
`CW16. (Docket No. 90 ¶¶ 86–87, 89, 90, 92.)
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
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`Page 2 of 14
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`

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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 3 of 14 Page ID #:2958
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`Fourth, in the Company’s Answer to the DFEH’s Amended Complaint,2/ the Company
`“admitted it opened an internal investigation of practices and policies of its Human Resources
`department in 2018.” (Id. ¶ 262.) Plaintiffs allege that “[t]he fact that Activision Blizzard spent
`the time and money conducting this parallel investigation shows the significant and non-routine
`nature of the DFEH and EEOC Investigations and also put Defendants on notice of the endemic
`misconduct at the Company.” (Id. ¶ 265.) Plaintiffs further allege that the Company had tried to
`negotiate with the DFEH about mediating any claims the DFEH may bring against the Company.
`Plaintiffs allege that, “it is clear that Activision Blizzard believed that there was significant risk
`that the DFEH would find cause for one or more of its claims.” (Id. ¶ 321.)
`
`Fifth, Plaintiffs cite to the statements of CW10, CW11, and CW16 to allege that the
`Company’s Human Resources (“HR”) underwent significant changes – such as the establishment
`of an Employee Relations Team – at Kotick’s direction, in the years after the Investigations
`commenced. (See, e.g., id. ¶¶ 294, 307–11.) Plaintiffs allege that “it is clear that this significant
`restructuring of Human Resources was due [to] the ongoing Investigations.” (Id. ¶ 294.)
`
`Sixth, Plaintiffs allege that the firing of higher-ups – such as Blizzard’s Chief Technology
`Officer, Ben Kilgore (“Kilgore”), Senior Manager of Global Business Strategy and Operations,
`Tyler Rosen (“Rosen”), and Senior Creative Director of World of Warcraft, Alex Afrasaibi
`(“Afrasaibi”) – were “dramatic, non-routine, shift[s] of policy” and “could only have been
`explained by the Investigations . . . .” (Id. ¶¶ 226, 272, 439.) Plaintiffs further allege that Kotick
`personally approved of the firings of Rosen and Kilgore because Kotick’s approval was needed
`to terminate anyone at the level of Senior Vice President and up. (Id. ¶¶ 219–22.) Plaintiffs
`base these allegations on CW statements and a news article. (Id.)
`
`Seventh, Plaintiffs allege that multiple employees, including CW3 and CW6, complained
`to higher-ups at the Company, such as Kotick and Blizzard President Brack (“Brack”), about
`sexual harassment and discrimination. (Id. ¶¶ 286, 401.) Plaintiffs also cite to a November 16,
`2021 Wall Street Journal article to allege that “Kotick was aware of a 2020 email that 30 female
`employees working in Activision Blizzard’s Esports division wrote to their unit’s leaders ‘saying
`that female employees had been subject to unwanted touching, demeaning comments, exclusion
`from important meetings, and unsolicited comments on their appearance.’” (Id. ¶¶ 14, 317.)
`
`The DFEH filed a public complaint against the Company on July 20, 2021. Plaintiffs’
`2/
`“Exhibit 2 ” to the 3rd AC (Docket No. 90-2) is Activision Blizzard’s Answer to the DFEH’s
`First Amended Complaint, filed on May 9, 2022. See DFEH v. Activision Blizzard, Inc., et al.,
`21 ST CV 26571 (Cal. Supr. Ct.).
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 4 of 14 Page ID #:2959
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`In addition to these new allegations, Plaintiffs’ 3rd AC recycles allegations from the
`previous amended complaints to support Plaintiffs’ claim that the statements in each SEC filing
`were allegedly false. (Id. ¶¶ 390–426.)
`
`The 3rd AC also alleges reasons why defendants Kotick, Durkin, Zerza, and Kelly
`(collectively, “Individual Defendants”) acted knowingly or recklessly in signing the SEC filings
`and/or related Sarbanes-Oxley Act (“SOX”) certifications. (Id. ¶¶ 432–45.) Specifically,
`Plaintiffs allege that Kotick “acted knowingly or recklessly” because he was aware of the
`pervasive sexual harassment and discrimination at the Company, the Investigations and the
`details thereof, and the changes to the Company’s HR department. (Id. ¶¶ 432–41.) Plaintiffs
`allege that Durkin and Zerza “acted knowingly or recklessly” because, in their roles as
`CFO/COO, “a minimal level of due diligence would have informed” them of the Investigations,
`the firing of employees like Kilgore, Afrasaibi, and Rosen, the changes to the HR department,
`and the pervasive sexual harassment and discrimination at the Company. (Id. ¶¶ 442–44.)
`Similarly, Plaintiffs allege that Kelly “acted knowingly or recklessly” because a Wall Street
`Journal Article stated that the Company’s Board of Directors had been “‘informed at all times
`with respect to the status of regulatory matter,’ referring to the DFEH and EEOC
`Investigations.’” (Id. ¶ 445.)
`
`Defendants now move to dismiss Plaintiffs’ 3rd AC for failure to state a claim, pursuant
`to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, and the Private Securities
`Litigation Reform Act, arguing that Plaintiffs fail to plead falsity, scienter, and loss causation.
`(See generally Docket Nos. 91, 91-1.)
`
`II.
`
`Request for Judicial Notice
`
`Defendants request that the Court take judicial notice of six documents, including a press
`release, SEC filings, a list of historic stock prices, a letter from the Company’s CEO referenced
`in the 3rd AC, and documents maintained on the DFEH’s and EEOC’s respective websites.
`(Docket No. 91-10, Exs. A–F.) Plaintiffs do not oppose Defendants’ requests. In ruling on a
`Rule 12(b)(6) motion to dismiss, a court may take judicial notice of matters referred to in the
`complaint, but not attached, where the document’s authenticity is not contested and the
`complaint necessarily relies on them. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.
`2001). A court may also judicially notice matters of public record. Id. at 789. Moreover, courts
`routinely find SEC filings, as well as press releases, and other information made available to the
`market to be matters of public record, regardless of whether it was referenced in the complaint.
`See Dreiling v. Am. Express Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006); Heliotrope Gen., Inc. v.
`Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999); In re Hansen Nat. Corp. Sec. Litig., 527
`F. Supp. 2d 1142, 1149 (C.D. Cal. 2007). Accordingly, the Court grants the requested judicial
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 4 of 14
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 5 of 14 Page ID #:2960
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`notice of all documents, but not as to the truth of the matters asserted therein. See Asner v.
`SAG-AFTRA Health Fund, 557 F. Supp. 3d 1018, 1024 (C.D. Cal. 2021).
`
`III.
`
`Legal Standard
`
`For purposes of a Motion to Dismiss brought pursuant to Federal Rule of Civil Procedure
`12(b)(6), plaintiffs in federal court are generally required to give only “a short and plain
`statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
`The purpose of Rule 8(a)(2) is to “give the defendant fair notice of what the . . . claim is and the
`grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While
`the Federal Rules allow a court to dismiss a cause of action for “failure to state a claim upon
`which relief can be granted,” they also require all pleadings to be “construed so as to do justice.”
`Fed. R. Civ. P. 12(b)(6), 8(e).
`
`However, in Twombly, the Supreme Court rejected the notion that “a wholly conclusory
`statement of a claim would survive a motion to dismiss whenever the pleadings left open the
`possibility that a plaintiff might later establish some set of undisclosed facts to support
`recovery.” Twombly, 550 U.S. at 561. Instead, the Court adopted a “plausibility standard,” in
`which the complaint must “raise a reasonable expectation that discovery will reveal evidence of
`[the alleged infraction].” Id. at 556. For a complaint to meet this standard, the “[f]actual
`allegations must be enough to raise a right to relief above the speculative level.” Id. at 555
`(citing 5 C. Wright & A. Miller, Federal Practice and Procedure §1216, pp. 235–36 (3d ed.
`2004) (“[T]he pleading must contain something more . . . than . . . a statement of facts that
`merely creates a suspicion [of] a legally cognizable right of action”) (alteration in original));
`Daniel v. County of Santa Barbara, 288 F.3d 375, 380 (9th Cir. 2002) (“‘All allegations of
`material fact are taken as true and construed in the light most favorable to the nonmoving
`party.’”) (quoting Burgert v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir.
`2000)). “[A] plaintiff’s obligation to provide the grounds of his entitlement to relief requires
`more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
`will not do.” Twombly, 550 U.S. at 555 (internal quotations omitted). In construing the
`Twombly standard, the Supreme Court has advised that “a court considering a motion to dismiss
`can choose to begin by identifying pleadings that, because they are no more than conclusions, are
`not entitled to the assumption of truth. While legal conclusions can provide the framework of a
`complaint, they must be supported by factual allegations. When there are well-pleaded factual
`allegations, a court should assume their veracity and then determine whether they plausibly give
`rise to an entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
`
`In a private action for securities fraud under Section 10(b), a complaint must satisfy
`heightened pleading requirements. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
`CIVIL MINUTES - GENERAL
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 6 of 14 Page ID #:2961
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`308, 321, 127 S. Ct. 2499, 168 L. Ed. 2d 179 (2007). First, the complaint must state with
`particularity the circumstances constituting fraud or mistake. Fed. R. Civ. P. 9(b). In addition,
`the Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires “the complaint [to]
`specify each statement alleged to have been misleading, the reason or reasons why the statement
`is misleading, and, if an allegation regarding the statement or omission is made on information
`and belief, the complaint shall state with particularity all facts on which that belief is formed.”
`15 U.S.C. § 78u-4(b)(1). To adequately plead scienter, the complaint must “state with
`particularity facts giving rise to a strong inference that the defendant acted with the required
`state of mind.” 15 U.S.C. § 78u-4(b)(2). “The pleadings must state precisely the time, place,
`and nature of the misleading statement, misrepresentations, and specific acts of fraud.” Kaplan
`v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994). “Congress enacted the PSLRA to deter
`opportunistic private plaintiffs from filing abusive securities fraud claims, in part, by raising the
`pleading standards for private securities fraud plaintiffs.” In re Silicon Graphics Sec. Litig., 183
`F.3d 970, 973 (9th Cir. 1999) (citing H.R. REP. CONF. NO. 104-369, at 32–41 (1995); 15
`U.S.C. § 78u-4(b)(1)–(2) (1997)). A court must dismiss a private securities fraud action seeking
`money damages if the complaint fails to meet the pleading requirements. See 15 U.S.C. § 78u-
`4(b)(3)(A).
`
`IV. Analysis
`
`The Court previously determined that the facts in Plaintiffs’ prior Complaints were
`insufficient to properly allege the necessary misrepresentation (or “falsity”) and scienter
`elements of Plaintiffs’ claims. (See Docket Nos. 75, 87.) The Court therefore does not revisit
`those facts in detail here. Instead, the Court analyzes the sufficiency of Plaintiffs’ newly alleged
`facts, taken both individually and in the context of all other allegations.
`
`A.
`
`Section 10(b) and Rule 10b-5
`
`Section 10(b) of the Securities Exchange Act (“Section 10(b)”) makes it unlawful “for
`any person . . . to use or employ, in connection with the purchase or sale of any security . . . any
`manipulative or deceptive device or contrivance in contravention of such rules and regulations as
`the Commission may prescribe[.]” Rule 10b-5, 17 C.F.R. § 240.10b-5, defines three categories
`of manipulative or deceptive devices that constitute a violation of Section 10(b):
`
`(a)
`
`(b)
`
`To employ any device, scheme, or artifice to defraud,
`
`To make any untrue statement of a material fact or to omit to
`state a material fact necessary in order to make the statements
`
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 7 of 14 Page ID #:2962
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`made, in light of the circumstances under which they were
`made, not misleading, or
`
`(c)
`
`To engage in any act, practice, or course of business which
`operates or would operate as a fraud or deceit upon any
`person, in connection with the purchase or sale of any
`security.
`
`17 C.F.R. § 240.10b-5.
`
`In a typical Section 10(b) private action based on material misrepresentations or
`omissions, a plaintiff must prove: (1) a material misrepresentation or omission by the defendant
`(“falsity”); (2) scienter; (3) a connection between the misrepresentation or omission and the
`purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic
`loss; and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148,
`157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008); see also Snellink v. Gulf Res., Inc., 870 F. Supp. 2d
`930, 936 (C.D. Cal. 2012). Additionally, as noted in the Court’s prior dismissal orders,
`“[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the
`misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)
`(quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)).
`
`1.
`
`Falsity
`
`For a statement to be actionable under Section 10(b), the allegations must support both
`falsity and materiality of the statement at the time the statement was made. See Basic Inc. v.
`Levinson, 485 U.S. 224, 238, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988); Zucco Partners, LLC v.
`Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009), as amended (Feb. 10, 2009). A plaintiff
`must specify each statement alleged to be misleading and why the statement was false or
`misleading. See 15 U.S.C. § 78u-4(b)(1); In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548–49
`(9th Cir. 1994) (en banc), superseded by statute on other grounds (“[T]he plaintiff must set forth
`an explanation as to why the statement or omission complained of was false or misleading.”).
`“[I]t is clearly insufficient for plaintiffs to say that a later, sobering revelation makes an earlier,
`cheerier statement a falsehood.” In re Read-Rite Corp. Sec. Litig., 335 F.3d 843, 846 (9th Cir.
`2003) (internal quotations omitted). “A litany of alleged false statements, unaccompanied by the
`pleading of specific facts indicating why those statements were false, does not meet this
`standard.” Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1070 (9th Cir. 2008).
`
`The Ninth Circuit applies the “objective standard of a ‘reasonable investor’ to determine
`whether a statement is misleading.” In re Alphabet Inc. Sec. Litig., 1 F.4th 687, 699 (9th Cir.
`CIVIL MINUTES - GENERAL
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 8 of 14 Page ID #:2963
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`2021). Furthermore, Section 10(b) and Rule 10b-5(b) do not create an affirmative duty to
`disclose any and all material information; rather, disclosure is required “only when necessary to
`make statements made, in the light of the circumstances under which they were made, not
`misleading.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44, 131 S. Ct. 1309, 179 L.
`Ed. 2d 398 (2011) (internal quotations omitted); see 17 C.F.R. § 240.10b-5. A misleading
`omission is material if “there is a substantial likelihood that [it] would have been viewed by the
`reasonable investor as having significantly altered the total mix of information made available
`for the purpose of decisionmaking by stockholders concerning their investments.” Retail
`Wholesale & Dep’t Store Union Loc. 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268,
`1274 (9th Cir. 2017) (citations and internal quotations omitted)).
`
`Here, Plaintiffs allege that the following statement in the Company’s SEC filings was
`misleading: the Company is “party to routine . . . investigations . . . arising from the ordinary
`course of business, including . . . labor and employment matters . . . . In the opinion of
`management, after consultation with legal counsel, such routine claims and lawsuits are not
`significant and we do not expect them to have a material adverse effect . . . .” (See, e.g., Docket
`No. 90 ¶ 276.) According to Plaintiffs, it was misleading to state that these investigations were
`routine or the ordinary course of business, that the routine matters were not significant, and that
`management did not expect the routine matters to have a material adverse effect. (Docket No.
`95 at 9-10.) Further, Plaintiffs argue that once Defendants spoke of investigations, they were
`then required to discuss investigations in a non-misleading way. See Berson v. Applied Signal
`Tech., Inc., 527 F.3d 982, 987 (9th Cir. 2008) (“[O]nce defendants chose to tout the company’s
`backlog, they were bound to do so in a manner that wouldn’t mislead investors as to what that
`backlog consisted of.”).
`
`Though the 3rd AC includes new factual allegations, as well as a reorganization of
`previously alleged facts, the Court continues to find Plaintiffs’ allegations deficient to show
`falsity.3/ First, Plaintiffs’ new references to reporting on sexual misconduct and resulting fallout
`at Wynn Resorts and Riot Games fail to support falsity. Plaintiffs argue that these articles
`demonstrate the threat that #MeToo, sexual harassment allegations, and the Investigations posed
`to the Company. However, Plaintiffs cannot use these articles, that are not about the Company
`and concern external matters, or the broader backdrop of a national social movement absent
`specific contemporaneous facts to support a claim that Defendants knew the statements within
`the SEC filings were false at the time they were made. (See Docket No. 87 at 11-12.)
`
`The parties dispute whether the challenged SEC filing statement constitutes an opinion
`3/
`statement. Given the deficient factual allegations, however, the Court need not delve into the
`issue. (See Docket No. 87 at 10.)
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
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`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 9 of 14 Page ID #:2964
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`Second, Plaintiffs allege that the language in the Company’s April 30, 2018 Proxy
`statement about prioritizing a culture of diversity and inclusion at the Company demonstrates
`how Activision Blizzard “was especially vulnerable to reputational damage” from the sexual
`harassment allegations. (Id. ¶ 246.) As previously explained, the Company’s professed values
`bear a tenuous connection to the substance of the alleged misstatements and fail to meet the
`PLSRA’s elevated pleading requirements. (See Docket No. 87 at 12.)
`
`Third, Plaintiffs allege that the Company’s attorneys’ “urgent” request for “huge” data
`sets on employees, shortly after the Investigations started, illustrate that Defendants knew the
`Investigations were not routine. (Docket No. 95 at 13-14.) Despite CW14’s statement that “she
`was confident that the higher ups were worried about the Investigations,” there are no allegations
`to substantiate that belief and there is nothing out of the ordinary about the Company’s attorneys
`collecting data relevant to the Investigations. (See Docket No. 90 ¶ 261) CW14’s belief about
`the higher-ups, the Company’s attorneys knowledge of the Investigations, and the attorneys’
`pursuit of relevant data do not establish that the Defendants considered the Investigations to not
`be routine or the ordinary course of business. See Xiaojiao Lu v. Align Tech., Inc., 417 F. Supp.
`3d 1266, 1277–80 (N.D. Cal. 2019) (“[T]hese factual allegations are almost entirely untethered
`to the actual statements made by Defendants, and require the Court to guess how these factual
`allegations render the Defendants’ representations misleading at the time they were made.”).
`
`Fourth, Plaintiffs allege that the Company’s Answer to the DFEH’s Amended Complaint
`illustrates that the Company internally acknowledged the Investigations represented a significant
`risk. Specifically, that the Company’s Answer admitted negotiations with DFEH had broken
`down, revealing the Company’s concern that a cause finding would issue and suit would follow,
`and that the Company opened an internal investigation of its HR department, revealing that the
`Company believed a costly internal investigation was necessary. (Id. ¶¶ 31, 262, 265, 321–22.)
`However, Plaintiffs provide nothing more than conjecture in making the argument that these
`facts show Defendants’ were concerned the Investigations were a significant risk. That the
`Company was discussing the possibility of mediation with the DFEH, or that the Company
`conducted an internal investigation, do not demonstrate that the Investigations were not routine
`or that the SEC filing statements were false when made.
`
`Fifth, Plaintiffs allege that CW10’s, CW11’s, and CW16’s statements that the Company’s
`HR department, at the direction of Kotick, underwent continuing extensive changes, such as the
`establishment of the Employee Relations Team in June of 2020, show that by June 2020 at the
`latest the Investigations were not routine. (Docket No. 95 at 15-16.) However, these CWs’
`statements at most support that Kotick was involved in changes to the HR department, that some
`of the Company’s employees believed that the HR department changes were a result of the
`Investigations, and that the Company pivoted to a standardized procedure. The allegations fail
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 9 of 14
`
`

`

`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 10 of 14 Page ID #:2965
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`to show how the Investigations were not routine or that the SEC filing statements were false or
`misleading when made.
`
`Sixth, Plaintiffs allege that the firing of higher-ups such as Kilgore and Rosen were
`“dramatic, non-routine, shift[s] of policy” and “could only have been explained by the
`Investigations.” (Docket No. 90 ¶¶ 226, 272.) Plaintiffs further allege that Kotick personally
`approved of the firings, as Kotick’s approval was needed to terminate anyone at or above the
`level of Senior Vice President. (Id. ¶¶ 219–22.) Plaintiffs’ allegations stem from the statements
`of CWs, as well as a Wall Street Journal article. (Id. ¶¶ 219–226, 272.) However, Plaintiffs fail
`to connect these firings or the statements surrounding them to any challenged statement’s falsity.
`(See Docket No. 87 at 11.)
`
`Seventh, Plaintiffs allege that multiple employees complained to higher-ups at the
`Company (such as Kotick and Brack) about sexual harassment and discrimination. (See, e.g.,
`Docket No. 90 ¶¶ 286, 401.) While these facts may demonstrate that higher-ups were aware of
`instances of sexual harassment and discrimination at the Company, they do not establish that the
`SEC filing statements were false when made.
`
`In sum, the 3rd AC fails to plead the factual detail necessary to satisfy the PSLRA
`pleading standard with regard to falsity. Though Plaintiffs plead facts demonstrating the
`Company’s toxic workplace, toleration of reprehensible conduct, and mistreatment of female
`employees, the “allegations are not particular enough to satisfy Rule 9(b)” with regard to
`Plaintiffs’ claims in this action. Vess, 317 F.3d at 1107. The central deficiency of Plaintiffs’ 3rd
`AC is that there are insufficient facts connecting allegations of the sexual harassment and
`discrimination at the Company, the effects of the Investigations, and the related knowledge of
`Defendants to the alleged falsity of the statements in the SEC filings. Therefore, Plaintiffs’ 3rd
`AC does not present sufficient, cogent reasons demonstrating the statements in the SEC filings
`were false or misleading when made.
`
`2.
`
`Scienter
`
`Defendants additionally argue that Plaintiffs fail to adequately plead scienter. To survive
`a motion to dismiss, a plaintiff must “state with particularity facts giving rise to a strong
`inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2); In
`re Cutera Sec. Litig., 610 F.3d 1103, 1112 (9th Cir. 2010). Specifically, scienter requires an
`intent to deceive, manipulate, or defraud. Tellabs, 551 U.S. at 319, 127 S. Ct. 2499. The
`standard is not whether a reasonable person can draw an inference that the defendant acted with
`scienter. Id. at 317, 127 S. Ct. 2499. In the Section 10(b) context, scienter requires proof that
`the defendant acted knowingly or recklessly. See Hollinger v. Titan Capital Corp., 914 F.2d
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 10 of 14
`
`

`

`Case 2:21-cv-06240-PA-JEM Document 98 Filed 01/22/23 Page 11 of 14 Page ID #:2966
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`CIVIL MINUTES - GENERAL
`Case No. CV 21-6240 PA (JEMx)
`Title
`Gary Cheng, et al. v. Activision Blizzard, Inc., et al.
`
`Date
`
`January 22, 2023
`
`1564, 1568–69 (9th Cir.1990) (en banc). “To adequately demonstrate that the ‘defendant acted
`with the required state of mind,’ a complaint must ‘allege that the defendant[] made false or
`misleading statements either intentionally or with deliberate reckles