ORLANDO, Fla. – Pending a last-minute settlement, a federal jury is scheduled to be impaneled in San Diego next month to hear evidence in a high-stakes dispute pitting SeaWorld Entertainment Inc. and its former executives against investors who claim the Orlando-based company defrauded them.
At issue is the 2013 documentary “Blackfish,” a controversial film that criticized SeaWorld’s practice of keeping killer whales in captivity.
The class action lawsuit, filed by a group of shareholders in 2014, accuses SeaWorld executives of making false or misleading statements about how the film was impacting theme park attendance.
SeaWorld officials insist the company acted reasonably and prudently in measuring the film's potential risks to shareholders.
"The evidence will show that analysts and investors were aware of the risk to the company posed by negative publicity generated by 'Blackfish'," SeaWorld attorneys wrote in a recent court filing.
Two of the plaintiffs, the Arkansas Public Employees Retirement System and a teacher's pension fund based in Denmark, claim they suffered more than $4 million in losses in August 2014 when SeaWorld first acknowledged the film was indirectly hurting attendance.
The class action lawsuit is focused on the yearlong period between SeaWorld’s first public statements about “Blackfish” in late 2013 and the company’s share price losing nearly a third of its value the following summer. SeaWorld stock has since rebounded.
In court documents filed ahead of the Feb. 18 trial, the parties revealed their potential legal strategy and likely witnesses, including SeaWorld’s former chief executive officer and a former company spokesman.
SeaWorld’s public statements about ‘Blackfish’
“Blackfish” premiered at the Sundance Film Festival in January 2013 and was shown in a small number of theaters nationwide later that summer, including Winter Park’s Enzian Theater.
In August 2013, shortly before the documentary began reaching a wider audience by airing on CNN in October and Netflix in December, the Los Angeles Times published an article under the headline “Is ‘Blackfish’ documentary hurting SeaWorld attendance?”
"‘Blackfish’ has had no attendance impact,” former SeaWorld Corporate Communications Vice President Fred Jacobs told the newspaper in response to questions about a 6% drop in visitation over the first half of the year.
In a Bloomberg article published the same day, Jacobs stated, “We can attribute no attendance impact at all to the movie.”
Instead, the company blamed the decline on bad weather in Florida and Virginia, along with Easter falling on the same week as many schools were closed for Spring Break.
Following the company’s next quarterly reporting in November, former SeaWorld CEO James Atchison downplayed “Blackfish” to the Wall Street Journal.
“I scratch my head if there’s any notable impact from this film at all and I can’t attribute one to it,” Atchison said. “Ironically, our attendance has improved since the movie came out.”
Atchison shared a similar sentiment with the Orlando Sentinel that December.
"As much data as we have and as much as we look, I can't connect anything really between the attention that the film has gotten and any effect on our business," he said.
Those statements to the press, along with comments made in SeaWorld's quarterly earnings reports through August 2014 that blame attendance issues on factors unrelated to the film such as ticket pricing, are the basis of the plaintiff's claims against SeaWorld.
“Plaintiffs have uncovered reams of evidence demonstrating that ‘Blackfish’ was impacting SeaWorld’s reputation, attendance, performance, and financial health,” the plaintiffs attorneys wrote in a recent court filing. “Despite this, Defendants repeatedly assured investors that ‘Blackfish’ was a non-event, and that disappointing results were fully explained by other transient, less serious causes.”
SeaWorld to defend public statements
When Atchison takes the witness stand during the trial in SeaWorld's defense, he is expected to testify that there was "no noticeable impact" from the film during the latter half of 2013, court records show.
Atchison shared that sentiment with investors during a conference call following SeaWorld's quarterly earnings report in March 2014.
"(Our) surveys don't reflect any shift in sentiment about intent to visit our parks," the former CEO said after announcing SeaWorld parks had record attendance in the fourth quarter of that year.
“The evidence will show that a reasonable investor would have understood Mr. Atchison’s statement to mean that the Company was proactively monitoring and addressing reputational issues related to Blackfish,” SeaWorld attorneys wrote in a recent court filing. “(But) given its strong performance in 2013 as ‘Blackfish’s’ visibility and market penetration increased, the company did not believe the film was materially impacting its business.”
SeaWorld's lawyers plan to call a former competitor to the stand, a longtime Disney executive, to provide an opinion on factors that typically impact theme park attendance.
Karl Holz worked at Disney for 22 years until his retirement, most recently serving as president of Disney Cruise Line.
"Holz, a veteran executive of the theme park industry, will testify that the factors SeaWorld considered in these attendance driver analyses are factors that are understood by theme park professionals as relevant to park performance," SeaWorld's attorneys wrote.
SeaWorld stock plunges after announcement related to ‘Blackfish’
By early 2014, attorneys for the investors argue that “Blackfish” was taking a toll on SeaWorld.
Under pressure from social media, musicians such as Willie Nelson cancelled concerts at the theme park while longtime business partners like Southwest Airlines severed ties with the company.
During that period, SeaWorld attorneys claim the company properly disclosed potential risks posed by the documentary through filings and reports mandated by the U.S. Securities and Exchange Commission.
One such disclosure, which SeaWorld published in a March 2014 SEC filing, related to a bill proposed by a California state lawmaker seeking to ban the display of captive killer whales.
Assemblyman Richard Bloom’s proposed legislation was informally known as the “Blackfish bill.”
Five months later, as SeaWorld reported its quarterly earnings, the company mentioned that proposal once again.
“Attendance in the quarter was impacted by demand pressures we believe were related to recent media attention surrounding proposed legislation in the state of California,” the company stated in the August 2014 earnings report.
According to the plaintiffs, it was the first time SeaWorld had formally acknowledged "Blackfish" was hurting theme park attendance.
SeaWorld's stock price plunged nearly 33% that day, dropping $9.37 per share.
“The market was surprised by this important new information and swiftly reacted,” the plaintiffs wrote in court filings. “(SeaWorld’s) alleged misstatements and omissions were a substantial, proximate cause of this stock price decline.”
Attorneys for SeaWorld dispute the shareholders' contention that the company made a "corrective disclosure" when it tied the attendance drop to the proposed California legislation.
"The earnings release did not... revise or correct any prior statements, and the company has never retracted, modified or otherwise called into question the accuracy of any of the challenged disclosures," the defendants' attorneys wrote.
Shareholders seek testimony from SeaWorld's formal spokesman
Ahead of next month's scheduled trial, attorneys for the shareholders indicated they plan to call the company's former vice president of communications as a witness.
"(Fred) Jacobs testified under oath that (the August 2013 statement to the Los Angeles Times) was not true at the time it was made," the plaintiffs' attorneys recently wrote.
They are referring to comments Jacobs made during a pretrial deposition in which he reportedly acknowledged his belief that "Blackfish" was having an impact on park attendance despite his public statement suggesting otherwise.
"Jacobs made (the) statement at the direction of (former CEO) Atchison," the plaintiffs wrote. "He did so despite the fact that SeaWorld had not studied the question, and despite the affirmative evidence SeaWorld possessed that rendered the statement false or misleading."
Attorneys for SeaWorld argue that Jacobs's statement accurately communicated the company's position.
“In his role as communications officer, (Jacobs) conveyed to the press the genuinely held views of management,” the defense wrote. “It is their intent that matters, not Mr. Jacobs'.”
Plaintiffs lost $7.52 per share, expert claims
Chad Coffman, a financial analyst retained by the plaintiffs as an expert witness, is expected to share his opinion that SeaWorld's misrepresentations caused SeaWorld's stock price to drop in August 2014.
According to Coffman's calculations, investors lost $7.52 per share due to the alleged fraud, court records show.
SeaWorld's attorneys dispute the methodology Coffman used to make that financial calculation, in part because they claim it does not factor in SeaWorld's fluctuating financial performance during the period addressed by the class action lawsuit.
“Because it is Plaintiffs’ burden to show damages, a jury’s rejection of Mr. Coffman’s (constant dollar inflation) methodology—the only methodology he proffers—will properly result in an award of zero damages against SeaWorld,” the defense attorneys wrote.