Long-time readers know that a litigation phenomenon on which I have frequently commented is the filing of securities class action lawsuits in the wake of antitrust enforcement actions. These follow-on civil actions represent something of a translation of an antitrust matter into a securities lawsuit. In the latest example of this phenomenon, a plaintiff shareholder has filed a securities suit against the concert company Live Nation following news reports of an imminent U.S. Department of Justice antitrust lawsuit against the company and its ticketing service Ticketmaster relating to allegations that the concert company pressures clients to use the ticketing service. The new lawsuit raises a number of interesting issues, as discussed below. A copy of the August 4, 2023 complaint can be found here.
Live Nation and Ticketmaster merged in January 2010, subject to a Department of Justice consent decree to preserve competition in live events. In 2019, after facing federal scrutiny for pressuring concert venues to use Ticketmaster, Live Nation agreed to extend the consent decree to December 2025 and added new provisions. Live Nation agreed to accept new rules, including not threatening to condition the provision of Live Nation concerts on a venue choosing Ticketmaster.
In November 2022, the New York Times reported that the Department of Justice had opened an antitrust investigation into Ticketmaster and Live Nation after the ticketing platform’s system crashed during the pre-sale of tickets for Taylor Swift’s concert tour. In early 2023, following congressional hearings, several senators sent the Department of Justice a letter alleging that “Live Nation is harming America’s music industry,” and encouraging the DOJ to take action if it found that Live Nation had “walled itself off from competitive pressure at the expense of the industry and fans.”
On July 28, 2023, Politico reported that the DOJ “could file an antitrust lawsuit” against Live Nation and Ticketmaster by the end of the year. Politico further reported that the DOJ complaint is expected to allege that “the entertainment giant is abusing its power over the live music industry.” The subsequently filed securities lawsuit complaint alleges that the company’s share price fell on this news.
On August 4, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against Live Nation and certain of its executives. The complaint purports to be filed on behalf of a class of investors who purchased Live Nation securities between February 23, 2022 and July 28, 2023.
The complaint alleges that during the class period the defendants failed to disclose to investors: “(1) that Live Nation engaged in anticompetitive conduct, including charging high fees and extended contracts with talent, and retaliated against venues; (2) that, as a result, Live Nation was reasonably likely to incur regulatory scrutiny and face fines, penalties, and reputational harm; and (3) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.
Follow-on securities litigation in the wake of an antitrust enforcement action is an established phenomenon. In numerous prior posts, I have discussed specific situations in which companies caught up in antitrust enforcement actions can become the target of follow-on securities litigation.
For example, as discussed here, numerous companies in the poultry production industry were hit with follow-on securities lawsuits, after a number of companies in the industry were targeted with private antitrust litigation alleging that companies in the industry had engaged in price-fixing.
Similarly, as discussed here, a number of generic drug companies were hit with securities suits after news that the federal antitrust authorities were pursuing criminal antitrust charges against certain companies in the industry on price-fixing charges.
In addition, plaintiffs’ lawyers initiated a number of securities suits against auto parts companies (refer, for example, here) following news that the DOJ and the EU were investigating companies in the auto parts industry for possible collusion and price-fixing.
While the follow-on civil suit is a well-established phenomenon, the new lawsuit against Live Nation may be somewhat distinct, because there has as yet been no antitrust enforcement action filed against Live Nation; rather, there have simply been news reports that the DOJ will file an antitrust lawsuit before the end of the year. Apparently now even just the threat of an enforcement action is sufficient to trigger a securities lawsuit.
I should note that while over the years plaintiffs’ securities lawyers have shown an interest in pursuing these kinds of follow-on claims, that does not mean that the cases have been particularly successful; indeed, many of them have in fact been dismissed outright, and, as I have noted with respect to these outcomes the dismissals arguably represent a strong signal that merely because a company is caught up in antitrust proceedings does not mean that the company has committed or is liable for securities fraud. Indeed, some courts have evinced a skepticism of the plaintiff’s efforts to try to “piggyback” a securities fraud claim onto allegations of antitrust misconduct.
The translation of antitrust enforcement actions (or even just threatened enforcement actions) into potential liabilities under the securities laws has significant implications from a D&O insurance perspective. Under most public company D&O insurance policies, the policies’ entity coverage extends only to securities claims. Many antitrust enforcement actions target the entity; but antitrust enforcement actions against the corporate entity would not trigger the D&O insurance policies’ entity coverage. A securities claim against a publicly traded company typically would trigger the company’s D&O insurance policy’s entity coverage. In other words, the follow-on suit transforms a matter that would not trigger the policy into something that does trigger the policy. The follow-on suits accordingly are a phenomenon that should be of concern to D&O insurers.