Opinion
Index No. 151344/2022 Motion Seq. No. 003
11-20-2023
IN RE SEA LIMITED SECURITIES LITIGATION Plaintiff, v. XXX, Defendant.
Unpublished Opinion
DECISION + ORDER ON MOTION
Andrew Borrok, Judge
The following e-filed documents, listed by NYSCEF document number (Motion 003) 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108 were read on this motion to/for REARGUMENT/RECONSIDERATION
Upon the foregoing documents, the Plaintiffs' motion for leave to renew or reargue this Court's Decision and Order (the Prior Decision; NYSCEF Doc. No. 83) dated May 15, 2023 is denied.
Simply put, (i) the Court did not overlook or misapprehend any issues of law or fact, (ii) the Plaintiffs do not offer new evidence not available at the time the Court issued the Prior Decision with reasonable justification for their failure to present any such evidence and (iii) there has not been a change in the law that would change the prior determination (CPLR 2221[d] and [e]). At bottom, the Plaintiffs' motion amounts to its disagreement as to the conclusions reached by this Court in its Prior Decision.
As discussed in the Prior Decision, the Second Amended Complaint (the SAC) is predicated on allegations that the Offering Documents issued in connection with the Secondary Offering were materially misleading because they failed to (i) adequately disclose the risk that the Company's Free Fire app would be banned in India because the Government of India had already banned apps that were (x) owned by Chinese companies and (y) apps that were not owned by Chinese companies but were published by Chinese companies and (ii) disclose interim financial data that indicated a decline in the growth rate of user engagement (NYSCEF Doc. No. 83, at 1-2). In the Prior Decision and at oral argument, the Court addressed these arguments and rejected them:
As to the first argument, the Company is not a Chinese company. It is a Singaporean company with three divisions - Garena, Shopee, and SeaMoney. Garena was devoted to the Company's digital entertainment platform, Shopee was the division devoted to the Company's e-commerce platform and SeaMoney was the division devoted to the Company's digital financial services platform. Garena released the Free Fire app - a battle royale-type shooter available in over 130 markets which had growing user bases in Brazil, Mexico, India, North America, Russia and the Middle East (NYSCEF 65 ¶ 30). It was one of Garena's top five games which games contributed to approximately 96% of the Company's revenue (id., ¶ 31 [a]). As discussed above, although India had banned apps published or owned by Chinese companies, including WeChat and Snack Video, the Government of India's ban of the Company's Free Fire app was the very first ban of an app of a non-Chinese company where merely having an investor (Tencent) who happens to be Chinese, was the cause of a ban. This was not anticipated and came as a total shock (NYSCEF Doc. Nos. 56-59). Indeed, the Government of Singapore inquired if this has been unintentional (NYSCEF Doc. Nos. 57). To be sure, the Company did disclose the possibility of a government ban (NYSCEF Doc. No. 35, at 22), but most significantly, far from there being warnings signs of a ban based on having a Chinese company as an investor and one that had a member on the board, the Company had good reason to expect that no such ban would occur by the Government of India.
Krafton Inc. (Krafton), a South Korean company, published a game called PlayerUnknown's Battlegrounds (PUBG) that was a competitor to Free Fire (NYSCEF Doc. No. 65, ¶ 6). PUBG was distributed by Tencent, a Chinese company who was also a shareholder in Krafton and who also had a member on the board (id., ¶ 76). In September 2020, PUBG was initially temporarily banned in India because it was published by Tencent (id., ¶ 77). In response to the ban, months later, in June 2021, PUBG relaunched. This time without being distributed by Tencent, and as of the time of the Secondary Offering, PUBG was not subject to ban by the Government of India (id., ¶ 84). In other words, and as indicated above, far from there being a red flag warning that the Government of India would ban Free Fire because Tencent was merely an investor, inasmuch as PUBG which was banned based on having Tencent as a distributor but was no longer banned when Tencent was merely an investor (as with the Company), the Government of India signaled a green flag to the Company that Free Fire would
not be subject to ban. Inasmuch as the lack of clairvoyance is not actionable, the unexpected ban of Free Fire can not form a predicate for liability under the 1933 Act (In re Uxin Ltd. Sec. Litig., 66 Misc.3d 1232[A], * 8 [Sup Ct, NY County 2020], citing Shemian v Research in Motion Ltd., 2013 WL 1285779, * 21 [SD NY 2013], affd 570 Fed.Appx. 32 [2d Cir 2014]; Matter of NIO Inc. Sec. Litig., 211 A.D.3d 464, 466 [1st Dept 2022]).
The second argument that certain interim financial data was required to be disclosed also fails. The test is whether the omission is material:
It is well settled in the Second Circuit that the test for whether an omission of interim financial data is material and therefore violates Section 11 of the Securities Act is 'whether there is a 'substantial likelihood that the disclosure of the omitted [information] would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available
(Asay v Pinduoduo Inc., 2021 WL 3871269 [2d Cir 2021] citing Stadnick v. Vivint Solar, Inc., 861 F.3d 31,37 [2d Cir. 2017], quoting DeMaria v. Andersen, 318 F.3d 170, 180 [2d Cir. 2003]).
The plaintiffs do not allege that the historical data disclosed in the Offering Documents was not accurate and do not dispute that the historical data reflected a slowing of growth in three of the previous four quarters (NYSCEF Doc. No. 66, Pg. 2). This matters because the failure to disclose interim data as to one quarter's growth rate where the Company had a history of volatility is not actionable (Stadnick v Vivint Solar, Inc., 861 F.3d31, 38-39 [2d Cir 2017]). In addition, for completeness, the Offering Documents contained certain general precatory warnings including that historical results are not indicative of future performance (NYSCEF Doc. No. 35, at 6) and operating results may vary from quarter to quarter and may not be satisfactory at all (id., at 9 and 17). Significantly, the Offering Documents also disclosed certain specific warnings including that (x) user engagement had increased during the lockdown and social distancing measures implemented to control the spread of CO VID-19, and (y) that such increased engagement may not continue based on the availability and effectiveness of vaccines and treatments and other measures taken by authorities and that as a result "growth prospect may not be as strong" (id., at 12). To be clear, user engagement did continue to grow. At year end 2020, the Company projected for the year 2021, bookings for digital entertainment would be between $4.3 billion and $4.5 billion (NYSCEF Doc. No. 41, at 4). After Q2 2021, the Company raised its guidance to reflect that expected bookings for digital entertainment would be between $4.5 billion and $4.7 billion (NYSCEF Doc. No. 37, at 2). At year end 2021, the Company reported that its bookings for digital entertainment for the year 2021 was $4.6 billion, up 44.3% year-on-year and in line with its guidance (NYSCEF Doc. No. 36, at 4). In other words, as indicated above, user engagement did not decrease at all and in fact increased. When the Company announced its earnings for Q3 2021, the revenue of digital entertainment was $1.1 billion, i.e., still higher than it had been in every quarter in
the last nearly two years (NYSCEF Doc. No. 43, at 4). Recently, the Appellate Division held that statements that were mere puffery were not rendered materially misleading by omitting information then tied to a decline of 1.4% in a single quarter's earnings as to a revenue source that was only one of the defendant's three principal revenue sources (City of Warwick Mun. Empl. Pension Fund v Rest. Brands Inti. Inc., 210 A.D.3d 461, 462 [1st Dept 2022]). This is not even that. Accordingly, the SAC must be dismissed with prejudice.(id., at 2-5).
For completeness, the Court notes that in support of the branch of their motion seeking renewal, the Plaintiffs argue that that they are entitled to renewal because they have now done additional due diligence (to which they do not contest they could have previously done) which additional due diligence has unearthed certain dated articles which discuss the possibility of Free Fire being banned and certain other information indicating declines in Free Fire daily use. However, and dispositively, they offer no reasonable justification for their failure to present any of such new and previously available information in opposition to the prior motion. In any event, such "new" information would not have changed the prior determination. As such, renewal is not appropriate.
The Court has considered the Plaintiffs remaining arguments and finds them unavailing.
Accordingly, the motion is denied.