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Shareholder Lawsuit Against SeaWorld Claims Management Misrepresented Reasons for Financial Losses

Shamu1.jpgA shareholder’s lawsuit against the owner and operator of the SeaWorld theme parks alleges that the company misled investors about declining revenues and park attendance in connection with its 2013 initial public offering (IPO). Baker v. SeaWorld Entertainment, et al, No. 3:14-cv-02129, complaint (S.D. Cal., Sep. 9, 2014). The company has faced extensive criticism over the treatment of marine animals in its parks, particularly its iconic killer whales, also known as orcas. After an orca killed a trainer at the company’s Orlando, Florida park, the company faced regulatory investigation, fines, protests, lawsuits, and close media scrutiny. The plaintiff in the shareholder lawsuit claims that the company withheld material information regarding the impact of these events on its financial condition.

SeaWorld Entertainment, Inc. (“SeaWorld”) operates three SeaWorld park locations in San Diego, San Antonio, and Orlando, as well as other theme parks around the country. Its attractions include trainer-led performances by orcas, dolphins, sea lions, and other marine animals. The company has long faced criticism from animal-rights activists and others. These criticisms gained mainstream attention in February 2010 when Tilikum, an orca with a particularly troubled history, killed a trainer in front of dozens of park guests. The Occupational Safety and Health Administration (OSHA) cited the company for multiple safety violations with regard to its trainers. See SeaWorld of Florida v. Solis, No. 12-1375, slip op. (D.C. Cir., Apr. 11, 2014).

While the company claims to have made improvements to its animal habitats, SeaWorld parks continue to face protests, including at least one (unsuccessful) lawsuit filed on behalf of Tilikum and other whales. Tilikum, et al v. SeaWorld Parks & Entertainment, 842 F.Supp.2d 1259 (S.D. Cal. 2012). The biggest hit to the company’s image, however, may have come from a 2013 documentary entitled Blackfish, which traces the history of Tilikum’s captivity and examines the physical and psychological effects of captivity on orcas and other animals kept at marine parks like SeaWorld. While SeaWorld called the film “propaganda, not a documentary,” it appears to have had a noticeable effect on the company’s reputation and business.

SeaWorld went public in April 2013, raising $702 million in its IPO. The plaintiff alleges that the company made materially misleading and false statements in documents filed with the Securities and Exchange Commission (SEC). The company, the plaintiff claims, failed to disclose the alleged mistreatment of its orcas or the adverse impact of the recent negative attention on park attendance. The company’s quarterly statements for 2013, including Form 10-Q and Sarbanes-Oxley Act of 2002 certifications, allegedly failed to disclose material information about the company’s financial condition.

The complaint compares the timeline of the company’s public filings with the release schedule of Blackfish, which premiered at the Sundance Film Festival in January 2013, had a limited theatrical release in July, and premiered on CNN in October. The company “finally came clean” about the connection between Blackfish and declining park attendance in August 2014, the plaintiff claims. Baker, complaint at 14. The lawsuit alleges “manipulative and deceptive devices” under the Securities Exchange Act, 15 U.S.C. § 78j(b), 17 C.F.R. § 240.10b-5; and seeks to hold “controlling persons” liable under the Securities Exchange Act, 15 U.S.C. § 78t(a), and the Securities Act, id. at §§ 77k, 77o.

If you or your business is involved in a dispute, a skilled business law attorney can help you understand your rights and fight to protect your interests. James G. Schwartz has represented Bay Area businesses since 1976. To schedule a free and confidential consultation to see how we can help you, contact us today online or at (925) 463-1073.

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Photo credit: By Milan Boers [CC BY 2.0], via Wikimedia Commons.