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Southern District Of New York Grants In Part And Denies In Part Motion To Dismiss Claims In Securities Class Action Against E-Commerce Platform Alleging Misstatements As To Marketplace Activities And AI
02/04/2025On January 27, 2025, Judge Jesse M. Furman of the United States District Court for the Southern District of New York partially granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against an e-commerce platform (the “Company”), the underwriter of its IPO, and certain of its officers and directors. In re Gigacloud Tech. Inc. Sec. Litig., 23-cv-10645-JMF (S.D.N.Y. Jan. 27, 2025).
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District Of New Jersey Dismisses Securities Claim Against Financial Technology Company Based On Failure To Allege A Material False or Misleading Statement
02/04/2025On January 29, 2025, Judge Robert Kirsch of the United States District Court for the District of New Jersey granted a motion to dismiss a securities action asserting claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against a financial technology company (the “Company”) and certain of its former officers. In re PayPal Holdings Inc. Sec. Litig., 22-cv-5864-RK (D.N.J. Jan. 29, 2025). Plaintiffs claimed that defendants misstated the Company’s growth and future prospects, through statements concerning its Net New Active Accounts (“NNAs”) and Total Payment Volume (“TPV”). The Court dismissed the action, holding that plaintiffs failed to adequately allege any material false or misleading statement.Category : Falsity
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Northern District Of California Grants Motion To Dismiss Securities Fraud Claim Against Ridesharing Company
01/31/2025
On January 16, 2025, Judge Trina L. Thompson of the United States District Court for the Northern District of California granted a motion to dismiss a securities action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against a ridesharing company (the “Company”) and its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Chen v. Lyft, Inc., et al., No. 24-cv-01330-TLT (N.D. Cal. Jan. 16, 2025). Plaintiff claimed that defendants fraudulently misstated the Company’s earnings forecast and failed to correct the misstatement quickly enough. The Court held that (i) the alleged misstatements were inactionable forward-looking statements, (ii) plaintiff in any event failed to allege scienter despite purporting to support its allegations with expert opinions, and (iii) defendants’ update was sufficiently quick to discharge any claimed duty to update even though there is an open question as to whether such a duty exists. On this basis, the Court dismissed the action with leave to amend. -
Eastern District Of North Carolina Dismisses Securities Claims Against Auto Parts Retailers
01/31/2025On January 23, 2025, Judge James C. Dever III of the United States District Court for the Eastern District of North Carolina dismissed a putative securities class action against an auto parts retailer (the “Company”) and certain of its former executives alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. Suarez v. Advanced Auto Parts, Inc. et al., No. 5:23-cv-00563 (E.D.N.C., Jan. 23, 2025). The Court granted defendants’ motion to dismiss on the ground that plaintiff failed to plead facts giving rise to a strong inference of scienter, holding that a reasonable person would find the cogent, non-culpable explanations for the alleged misconduct more compelling.
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The Ninth Circuit Affirms Dismissal Of Claims Against Hearing Aid Manufacturer Regarding Statements About Insurance Coverage
01/31/2025On January 10, 2025, the United States Court of Appeals for the Ninth Circuit Court affirmed the dismissal of a putative securities class action brought by a pension plan alleging that a hearing aid manufacturer (the “Company”) violated the Securities Act of 1933 (the “Securities Act”) by issuing a prospectus for its initial public offering (“IPO”) that allegedly included false and misleading statements regarding revenue recognition, risk factors, and potential growth. Cai v. Eargo, Inc., No. 23-3470, 3:21-cv-08597-CRB (9th Cir. Jan. 10, 2025). Plaintiffs also alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”) based on certain post-IPO statements concerning an audit by an insurance carrier, revenue recognition, risk factors, and the Company’s growth. The Court, in an unpublished opinion, affirmed the district court’s decision dismissing the complaint (which we previously covered here) holding that the alleged misstatements were not misleading or were puffery and thus not actionable under the securities laws and that plaintiffs failed to plead facts giving rise to a strong inference of scienter.
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Two Appellate Courts Weigh “Uptier” Transactions Under New York Law
01/22/2025On December 31, 2024, the United States Court of Appeals for the Fifth Circuit and the New York Appellate Division, First Department, both issued decisions evaluating the validity of so-called “uptier” transactions under New York law. In re Serta Simmons Bedding, LLC, Excluded Lenders, No. 23-20181 (5th Cir. Dec. 31, 2024) (“Serta”); Ocean Trails CLO VII, et al. v. MLN TopCo Ltd., et al., No. 2024-00169 (N.Y. App. Div. 1st Dep’t Dec. 31, 2024) (“Mitel”).Category : Uncategorized
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Southern District Of California Grants Motion To Dismiss Securities Claims Against Hardware Company For Lack Of Statutory Standing And Failure To State A Claim
01/22/2025On January 2, 2025, Judge Cathy Ann Bencivengo of the United States District Court for the Southern District of California granted a motion to dismiss a securities action asserting claims under Sections 10(b), 20(a), and 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) against a hardware company (the “Company”) and certain of its former and current officers. HBK Master Fund L.P. v. MaxLinear Inc., et al., No. 3:24-cv-01033-CAB-VET (S.D. Cal. Jan. 2, 2025).
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ESG Investing Takes A Blow In Texas Federal Court
01/22/2025On January 10, 2025, Judge Reed O’Connor of the United States District Court for the Northern District of Texas ruled, following a four-day bench trial, that an airline breached ERISA fiduciary duties when investing employees’ 401(k) plan retirement assets utilizing investment managers and funds with environmental, social, and governance (“ESG”) objectives. Spence v. American Airlines Inc., et al., No. 23-cv-00552, 2025 WL 225127 (N.D. Tex. Jan. 10, 2025).Category : Uncategorized
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Southern District Of New York Dismisses Exchange Act Claims Against Specialty Insurance Underwriter For Failure To Plausibly Allege Falsity Or Scienter
12/24/2024On December 12, 2024, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against an insurance underwriter (the “Company”) and certain of its former and current executives (the “Individual Defendants” and, with the Company, the “Defendants”). Police & Fire Ret. Sys. City of Detroit, et al. v. Argo Grp. Int’l Holdings, Ltd., et al., 22-cv-8971 (S.D.N.Y. Dec. 12, 2024).
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Northern District Of California Certifies Securities Class Action Based On Damages Model That Accounted For Varied Price Impact That Correlated With Plaintiffs’ Leakage Theory
12/24/2024On December 17, 2024, Judge Vince Chhabria of the United States District Court for the Northern District of California granted a renewed motion for class certification in a securities action against a majority shareholder of a biotechnology company (the “Company”) under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. In re Vaxart, Inc. Sec. Litig., 20-cv-05949 (N.D. Cal. Dec. 17, 2024).
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United States Supreme Court Dismisses NVIDIA Appeal As “Improvidently Granted,” The Second Such Dismissal This Term
12/17/2024On December 11, 2024, the United States Supreme Court issued a one-sentence decision dismissing the appeal—after having already heard oral argument—in a putative class action asserting claims under the Securities Exchange Act of 1934 against a technology company and certain of its officers. NVIDIA Corp. v. E. Ohman J:or Fonder AB, No. 23-970. The Court’s order dismissed the writ of certiorari as “improvidently granted.”
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Middle District Of Florida Denies Motion To Dismiss Federal Securities Action Against Retailer Holding Plaintiff Adequately Pleaded Exchange Act Claims
12/11/2024On December 4, 2024, Judge John L. Badalamenti of the United States District Court for the Middle District of Florida denied a motion to dismiss a putative securities fraud action against a retail company (the “Company”), its CEO, and its Board of Directors, alleging violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated thereunder. Craig v. Target Corp., et al., No. 2:23-cv-599-JLB-KCD (M.D. Fla. Dec. 4, 2024).
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Northern District Of California Grants Motion To Dismiss Federal Securities Class Action Against Subscription Streaming Services Company For Failure To Plead Falsity
12/11/2024On November 26, 2024, Judge Jon S. Tigar of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities fraud class action against a subscription streaming services company (the “Company”), and its CEOs, CFO, and COO (the “Individual Defendants”). Pirani v. Netflix, Inc., et al., No. 22-cv-02672-JST (N.D. Cal. Nov. 26, 2024).
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Ninth Circuit Affirms Dismissal Of Securities Class Action With Prejudice Against Enterprise Data Platform For Repeated Failure To Allege Falsity
11/26/2024On November 19, 2024, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a putative class action complaint alleging that a data management and analytics software company (the “Company”) and certain of its officers and directors made misleading statements and omissions regarding the technical capabilities of the Company’s products and its financial outlook in violation of Sections 11(a), 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. In re Cloudera Securities Litigation, No. 22-16807 (9th Cir. Nov. 19, 2024). The Court held that plaintiff failed to allege falsity and affirmed the dismissal with prejudice based on plaintiff’s failure to cure the deficiencies of which he had been warned.
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Southern District Of New York Dismisses Securities Act Claims As Untimely And Pares Claims In Putative Class Action Against Robotic Software Company
11/26/2024On November 4, 2024, Judge Denise L. Cote of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative class action brought under Sections 10b-5 and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5, as well as under Sections 11 and 15 of the Securities Act of 1933 (“Securities Act”), against a robotic process automation (“RPA”) software company (“Company”) and certain of its executives (“Individual Defendants”). In re UiPath, Inc. Sec. Litig., 23-cv-7908 (DLC) (S.D.N.Y. Nov. 4, 2024). Plaintiffs alleged that the Company misrepresented its financial condition and business operations. Although it dismissed all of plaintiffs’ Securities Act claims as time-barred and most of plaintiffs’ Exchange Act claims, the Court held that plaintiffs identified several actionable misstatements and adequately alleged scienter to support claims under the Exchange Act.
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United States Supreme Court Dismisses As “Improvidently Granted” A Putative Securities Class Action Against Meta For Alleged Misuse Of User Data
11/26/2024On November 22, 2024, the United States Supreme Court dismissed Meta’s appeal of the United States Court of Appeals for the Ninth Circuit’s decision to partially reinstate a putative class action asserting claims under the Securities Exchange Act of 1934 against the social media company, alleging that Meta (the “Company”) made misrepresentations relating to the misuse of user data by a third party. Facebook v. Amalgamated Bank, No. 23-980, 604 U.S. --- (2024). As we covered in a previous post, the Supreme Court granted the Company’s petition for certiorari to address the following question: “Are risk disclosures false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm.” The Court dismissed the Company’s appeal in a single-sentence, per curiam order, stating “The writ of certiorari is dismissed as improvidently granted.”
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Supreme Court Hears Oral Argument On Standard For Pleading Securities Fraud In Private Civil Suits
11/19/2024On November 13, 2024, the United States Supreme Court heard oral argument in an appeal from a decision of the United States Court of Appeals for the Ninth Circuit in a putative class action asserting claims under the Securities Exchange Act of 1934 against a technology company and certain of its officers. NVIDIA Corporation v. E. Ohman J:or Fonder AB, No. 23-970. Relevant to the appeal, plaintiffs allege that (a) expert analysis revealed that defendants had materially understated the extent to which the company’s graphics processing units were purchased by the volatile cryptocurrency mining industry and (b) the company’s CEO had known of the misrepresentations because he received internal reports reflecting the truth. As discussed in prior posts, the district court dismissed the case entirely and with prejudice, but the Ninth Circuit, in a 2-1 decision, partially reversed, holding that plaintiffs adequately alleged that statements by two executives had been misleading, and adequately alleged scienter as to the company’s CEO. The Supreme Court granted certiorari to address the following questions: “1. Whether plaintiffs seeking to allege scienter under the Private Securities Litigation Reform Act (“PSLRA”) based on allegations about internal company documents must plead with particularity the contents of those documents”; and “2. Whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact.”
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Western District Of Louisiana Grants Motion To Dismiss Putative Federal Securities Class Action Against Telecommunications Company For Failure To Allege Falsity, Loss Causation, Or Scienter
11/12/2024On October 30, 2024, Judge Terry A. Doughty of the United States District Court for the Western District of Louisiana adopted the September 30, 2024 Report and Recommendation of Magistrate Judge Kayla Dye McClusky and granted with prejudice a motion to dismiss a putative securities class action against a telecommunications company (the “Company”) and certain of its officers (the “Individual Defendants”). In re Lumen Techs., Inc. Sec. Litig., No. 3:23-00286 (W.D. La. Sept. 30, 2024). Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by allegedly making false statements regarding the Company’s fiber optics expansion project. The Court granted defendants’ motion to dismiss with prejudice, holding that plaintiffs failed to adequately plead any actionable misstatements or omissions or loss causation and that plaintiffs failed to plead a strong inference of scienter as to any defendant.
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The Second Circuit Revives Exchange Act Claims Against Outside Auditor, Finding Alleged Misstatements In Audit Certification To Be Material
11/05/2024On October 31, 2024, the United States Court of Appeals for the Second Circuit revived claims brought under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 against an outside auditor (the “Auditor”) that performed audit and assurance services for a property and casualty insurer (the “Company”), in which plaintiffs are investors. New England Carpenters Guaranteed Annuity & Pension Funds, et. al.v. AmTrust Fin. Servs. Inc., et. al., 20-1643 (Oct. 31, 2024). In an earlier opinion, dated August 23, 2023, which we previously covered here, the Second Circuit affirmed the district court’s conclusion that plaintiffs failed to plausibly allege that alleged misstatements in the Auditor’s 2013 audit opinion were sufficiently material to support a claim under the Exchange Act. However, the Second Circuit granted plaintiffs’ petition for reconsideration and held that it had erred in its materiality analysis. It, therefore, vacated and remanded the district court’s dismissal of plaintiffs’ Exchange Act claims against the Auditor.
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Northern District Of Texas Dismisses Putative Securities Class Action For Failure To Establish Standing
11/05/2024On October 24, 2024, Judge Jane J. Boyle of the United States District Court for the Northern District of Texas dismissed a putative securities class action alleging that a bond issuer (the “Company”) and certain of its directors and officers violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”). In re GWG Holdings, Inc. Sec. Litig., No. 3:22-CV-0410-B (N.D. Tex. Oct. 24, 2024). The Court found that lead plaintiff failed to establish it had statutory standing sufficient to assert claims under Sections 11 and 12—and by extension, also Section 15—of the Securities Act. The Court dismissed the case without prejudice with leave to amend.
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Tenth Circuit Court Of Appeals Affirms Dismissal Of Securities Class Action Against Online Retailer
10/22/2024On October 15, 2024, a three-judge panel of the United States Court of Appeals for the Tenth Circuit affirmed a decision by the United States District Court for the District of Utah granting a motion to dismiss a putative securities class action against an online retailer (the “Company”), its former CEO, and other senior management at the Company. The Mangrove Partners Master Fund, Ltd. v. Overstock.com, Inc., et al., No. 21-4126 (10th Cir. Oct. 15, 2024). Plaintiff asserted claims under Sections 10(b), 20(a), and 20A of the Securities Exchange Act, and Rule 10b-5 thereunder. -
Eastern District Of Wisconsin Dismisses Putative Securities Class Action Against Department Store Chain For Failing To Plead Falsity
10/16/2024On September 30, 2024, Judge Lynn Adelman of the United States District Court for the Eastern District of Wisconsin granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 14a-9, against a retail department store chain (the “Company”) and certain of its officers and board members (“Individual Defendants” and, collectively, “Defendants”). Thomas Frame v. Kohl’s Corp., No. 22-CV-1016 (E.D. Wis. Sept. 30, 2024). Plaintiff alleged that Defendants made materially misleading statements and omissions in order to stave off a hostile takeover by an activist investment firm. The Court held that plaintiff failed to identify a single actionable misstatement or omission and, therefore, dismissed the action without prejudice.
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District Of New Jersey Dismisses Putative Securities Class Action Against Pool Equipment Company
10/16/2024On October 2, 2024, Judge William J. Martini of the United States District Court for the District of New Jersey dismissed a putative class action against a pool equipment company (the “Company”), its private equity majority shareholders, an investment advisor for one of the private equity firms, and two of the Company’s senior executives (the “Individual Defendants”) alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. City of Southfield Fire & Police Ret. Sys. v. Hayward Holdings, Inc., No. 2:23-CV-04146 (WJM) (D.N.J. Oct. 2, 2024). The Court dismissed the complaint because it did not plead with specificity which portions of the Company’s or Individual Defendants’ statements were actionable, why they were actionable, or whether the Individual Defendants acted with the required state of mind.
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Southern District Of Florida Dismisses Putative Class Action Arising From Allegations Of Campaign Finance Violations For Failure To Adequately Plead Loss Causation
10/08/2024On September 27, 2024, Judge Aileen Cannon of the United States District Court for the Southern District of Florida dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against an electric utility, its parent company, and certain of their executives. Jastram v. NextEra Energy, Inc., No. 23-cv-80833, slip. op. (S.D. Fla. Sept. 27, 2024), ECF No. 118. Plaintiffs alleged that defendants made misrepresentations in response to claims in the media that the utility used corporate funds to influence state and local elections, targeted elected officials who opposed its initiatives, employed a news outlet to support its efforts against these officials, and intimidated journalists. The Court held that plaintiffs failed to adequately allege loss causation and therefore dismissed the action with prejudice.Category : Loss Causation
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Illinois District Court Narrows Claims In Putative Class Action Against Airplane Manufacturer
10/08/2024On September 30, 2024, Judge Franklin U. Valderrama of the United States District Court for the Northern District of Illinois granted in part a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against an airplane manufacturing company and certain of its executives. Seeks v. The Boeing Company, No. 19‑2394, 2024 WL 4367846 (N.D. Ill. Sept. 30, 2024). Plaintiffs alleged that the company had made misrepresentations in public statements regarding the safety of its airplanes and in connection with two accidents involving company airplanes. After prior claims were dismissed without prejudice, plaintiffs added detail in support of their claims. The Court held that plaintiffs had sufficiently alleged falsity as to certain statements but not others and that scienter was adequately alleged.
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Michigan District Court Declines Class Certification, Holding Defendants Rebutted Basic Presumption Of Reliance
10/08/2024On September 30, 2024, the United States District Court for the Eastern District of Michigan denied class certification in a putative class action asserting claims under the Securities Exchange Act of 1934 against a mortgage company and certain of its executives. Shupe v. Rocket Cos. Inc., No. 1:21-cv-11528, slip op. (E.D. Mich. Sept. 30, 2024), ECF No. 227. Plaintiffs alleged that defendants made misrepresentations regarding the financial health of the company. The Court held that class certification was inappropriate for multiple reasons, but critically held that defendants had successfully rebutted the presumption of reliance afforded by Basic Inc.v. Levinson, 485 U.S. 224 (1988)—by demonstrating that the alleged misrepresentations did not impact the company’s stock price—and thus individual issues of reliance would predominate, precluding class certification.
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Northern District Of California Pares Claims In Putative Class Action Against Social Media Company
10/08/2024On September 30, 2024, Judge Araceli Martínez-Olguín of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative class action asserting claims under the Securities and Exchange Act of 1934 against a social media company and certain of its executives. Ohio Public Emps. Ret. Sys. v. Meta Platforms, Inc., et al., 2024 WL 4353049 (N.D. Cal. 2024). Plaintiffs alleged that the company made misrepresentations regarding various business operations. Although it dismissed claims relating to certain statements, the Court held that plaintiffs adequately alleged that others were false or misleading and that plaintiffs had adequately alleged scienter and loss causation.
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Eastern District Of New York Grants In Part And Denies In Part Motion To Dismiss Securities Class Action Against Online Clothing Rental Company
10/01/2024On September 25, 2024, Judge Orelia E. Merchant of the United States District Court for the Eastern District of New York granted in part and denied in part a motion to dismiss a putative securities class action against an online clothing rental company (the “Company”) and the Company’s underwriters and certain officers, directors and other related individuals. Rajat Sharma v. Rent the Runway, Inc., et al. (E.D.N.Y. Sept. 25, 2024).Plaintiffs asserted claims on behalf of a putative class of investors who allegedly purchased shares in the Company’s IPO, alleging violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, and Items 105 and 303 promulgated thereunder.
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Western District Of Texas Dismisses Putative Securities Class Action Against Cryptocurrency Exchange For Lack Of Personal Jurisdiction And Failure To Allege A Domestic Transaction
09/24/2024On September 6, 2024, Judge Robert Pitman of the United States District Court for the Western District of Texas dismissed a putative securities class action against a family of corporations (“Corporate Defendants”) that, together, control and operate a decentralized cryptocurrency exchange and blockchain protocol (the “Protocol”), and its individual founders (the “Individual Defendants” and together “Defendants”), asserting claims under Sections 5 and 12(a)(1) of the Securities Act of 1933 (“Securities Act”), Sections 5, 10(b), 15(a)(1) and 29(b) of the Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5. Plaintiffs alleged that defendants touted complete protection from losses to investments in the Protocol in order to attract investors, which ultimately proved illusory when a surge of withdrawals from the Protocol’s exchange strained its liquidity and caused investors to suffer significant losses. S. Magistrate Judge Mark Lane found in a Report & Recommendation, dated July 31, 2024 (“R&R”), that the Court lacked personal jurisdiction over defendants and that the federal securities laws are inapplicable to the transactions at issue, and recommended that the suit be dismissed in its entirety. Reviewing the R&R de novo, Judge Pitman adopted its reasoning and dismissed the suit without prejudice. Basic et. al. v. BProtocol Foundation et. al., A-23-CV-533-RP, (W.D. Tex. Sept. 6, 2024).
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Southern District Of Florida Dismisses Securities Fraud Claim Against Equity Fund Alleging “Scheme” To Inflate Company Stock Price To Protect Majority Shareholder Personal Financial Interests
09/24/2024
On September 13, 2024, Judge K. Michael Moore of the United States District Court for the Southern District of Florida dismissed a complaint alleging that an equity fund (the “Company”), its affiliate companies, and several directors and officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. Kosowsky v. Icahn Enterprises L.P., et al., 1:23-cv-21773-KMM (S.D.Fla. Sep 13, 2024). According to plaintiffs, defendants allegedly engaged in a scheme to artificially inflate the Company stock price by issuing dividends while supposedly concealing key financial information from investors to support the Company’s majority shareholder’s personal borrowing and financial interests. The Court dismissed the complaint without prejudice, holding that plaintiffs failed to allege any material misstatement or omission or facts giving rise to a strong inference of scienter.
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Second Circuit Dismisses Rule 10b-5 Claims Based On Pure Omissions Theory Following Remand From The United States Supreme Court
09/17/2024On August 19, 2024, the United States Court of Appeals for the Second Circuit dismissed, on remand from the United States Supreme Court, putative class action claims brought under Section 10(b) of the Securities Exchange Act of 1934 because they were based on a “pure omissions” theory. Moab Partners, L.P., v. Macquarie Infrastructure Corp., No. 21-2524, 2024 WL 3867669 (2d Cir. Aug. 19, 2024). As addressed in our prior post, the Supreme Court held that, contrary to prior authority in the Second Circuit, Section 10(b) and Rule 10b-5 promulgated thereunder do not impose an affirmative duty to disclose information but rather only require information to be disclosed if necessary to make other statements clear and complete.Category : Misstatement/Omission
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Florida District Court Pares Claims In Putative Class Action Against NFT Companies And Their Celebrity Promoter
09/17/2024On August 16, 2024, Judge Federico A. Morena of the United States District Court for the Southern District of Florida granted in part and denied in part a motion to dismiss a putative class action asserting claims under Sections 5, 12(a)(1), and 15 of the Securities Act of 1933 against an NFT company, certain of its affiliates, and their celebrity promoter. Harper v. O’Neal, No. 23-21912, 2024 WL 3845444 (S.D. Fla. Aug. 16, 2024). Plaintiffs alleged that defendants had impermissibly engaged in the offer and sale of unregistered securities when they promoted a collection of non-fungible tokens (“NFTs”) allegedly designed to be used in a virtual world (or “metaverse”) that the company planned to build. The Court held that plaintiffs had sufficiently alleged that a celebrity promoter of the NFTs was a “seller” under Section 12 of the Securities Act, but that certain allegations were time-barred, and the promoter was not a “control person” under Section 15 of the Securities Act.
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Eighth Circuit Reverses Jury Verdict For Aiding And Abetting Ponzi Scheme, Holding That In Pari Delicto Defense Barred Bankruptcy Trustee’s Claims
09/17/2024On September 12, 2024, the United States Court of Appeals for the Eighth Circuit reversed a trial court decision that had rejected a bank’s assertion of the in pari delicto defense to aiding and abetting claims brought by the bankruptcy trustee for a debtor that had allegedly perpetrated a Ponzi scheme. Kelley v. BMO Harris Bank Nat’l Ass’n, 2024 WL 4158179 (8th Cir. Sept. 12, 2024). The trustee alleged various claims under Minnesota law against the bank, including a claim for aiding and abetting breach of fiduciary duty, alleging that employees of the bank’s predecessor-in-interest knew about the Ponzi scheme, ignored money‑laundering alerts, and allowed the company to overdraft more money than permitted under bank policy. The trial court held that the in pari delicto defense was unavailable because the company had previously been placed in receivership before filing for bankruptcy; the jury then found the bank liable and awarded more than $550 million in compensatory and punitive damages. The Eighth Circuit reversed, holding that the bankruptcy trustee stood in the shoes of the debtor, including with respect to the in pari delicto defense, even if under Minnesota law the defense could not have been asserted against a receiver while the company was in receivership.Category : Uncategorized -
Northern District Of Texas Allows Claims Alleging “Scheme” Liability Securities Fraud To Proceed Against Oil Company
09/17/2024On August 12, 2024, Judge David C. Godbey of the United States District Court for the Northern District of Texas denied a motion for judgment on the pleadings in an action alleging that an oil company (the “Company”) and a former senior manager violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Yoshikawa v. Exxon Mobil Corp., No. 3:21-CV-0194-N (N.D. Tex. Aug. 12, 2024). According to plaintiffs, the former manager allegedly artificially inflated the net present value (“NPV”) of certain oil and gas assets by using impossible drilling assumptions so that the valuation could support publicly-stated production forecasts. The Court denied defendants’ motion for judgment on the pleadings, holding, among other things, that the complaint adequately alleged that the inflated valuation was incorporated into public statements.
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Northern District Of California Grants Motion To Dismiss Putative Class Action Against Financial Technology Company For Failure To Adequately Allege Scienter
09/17/2024On August 26, 2024, Judge Araceli Martínez-Olguin of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a financial technology company (the “Company”) and certain of its officers. In re Affirm Holdings, Inc. Sec. Litig., 22-cv-07770-AMO (N.D. Cal. Aug. 26, 2024). Plaintiff alleged that the Company made false and misleading statements regarding its ability to manage interest rate risks and the impact of rising interest rates on its business. The Court held that plaintiff failed to allege facts that raised a strong inference that defendants made those alleged misstatements with scienter and dismissed plaintiff’s claims without prejudice.
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Eastern District Of Pennsylvania Denies In Part Motion To Dismiss Putative Securities Class Action Against Pharmaceutical Company
09/17/2024
On September 3, 2024, Judge Mitchell S. Goldberg of the United States District Court for the Eastern District of Pennsylvania granted in part and denied in part a motion to dismiss a putative securities class action against a pharmaceutical company (the “Company”) and its CEO and CFO. Kranthi Gorlamari v. Verrica Pharm., Inc., et al., No. 22-cv-2226 (E.D. Pa. Sept. 3, 2024). Plaintiff asserted claims on behalf of a putative class of investors in the Company under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 thereunder. The Court denied in part the motion to dismiss the second amended complaint and allowed certain claims to proceed on the basis of confidential witness allegations. In doing so, the Court refused to consider at the motion to dismiss stage declarations from those purported confidential witnesses, submitted by defendants, in which the witnesses recanted the purported statements attributed to them in the complaint, and the Court credited those allegations in finding that a strong inference of scienter was sufficiently alleged by the complaint.
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Northern District Of California Grants Motion To Dismiss Putative Securities Fraud Class Action Against Technology Company For Failure To Adequately Plead Falsity And Scienter
09/17/2024
On September 3, 2024, Judge Rita F. Lin of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities fraud class action against a technology and digital advertising company (the “Company”) and certain of its officers. Ami-Government Employees Provident Fund Mgmt. Company LTD., et al., v. Alphabet Inc., et al., No. 23-cv-01186-RFL (N.D. Cal. Sept. 3, 2024). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act, and Rule 10b-5 promulgated thereunder, by making false and misleading statements about the Company’s digital advertising technology products and the competitiveness of the advertising technology market in general. The Court granted defendants’ motion to dismiss, holding that plaintiffs failed to adequately plead falsity and scienter.
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Central District Of California Grants Motion To Dismiss Putative Securities Class Action Against Plant-Based Meat Substitute Company For Failure To Allege Falsity Or Scienter
08/20/2024
On August 9, 2024, Judge Michael W. Fitzgerald of the United States District Court for the Central District of California granted a motion to dismiss a putative securities class action against a producer of plant-based meat substitutes (the “Company”) and three of its officers. Saskatchewan Healthcare Emp.s’ Pension Plan v. Beyond Meat, Inc., et al., 23-03602-MWF (C.D. Cal. Aug. 9, 2024). Plaintiff asserted claims for violations of Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 thereunder, based on defendants’ alleged misrepresentations regarding the Company’s ability to scale production to meet its partners’ demands. The Court granted defendants’ motion to dismiss, holding that plaintiff failed to sufficiently allege falsity and scienter.
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District Of Arizona Grants Motion To Dismiss Shareholder Derivative Suit Against Residential Property Dealer In Connection With De-SPAC Merger
08/20/2024
On August 14, 2024, Judge Michael T. Liburdi of the United States District Court for the District of Arizona granted with leave to amend a motion to dismiss a shareholder derivative suit brought in the name of the company, a buyer and seller of residential properties (the “Company”), against numerous current and former directors and officers of the Company as well as directors of the special purpose acquisition company—or SPAC—through which the Company went public (the “Individual Defendants”). Gera v. Palihapitiya, et al., CV-23-02164-PHX-MTL (D. Ariz. Aug. 14, 2024). Plaintiff asserted a claim under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 14a-9 thereunder.
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Northern District of California Denies Motion To Dismiss Putative Class Action Based On Financial Services Company’s Alleged Misstatements About Diverse Hiring Practice
08/13/2024On July 29, 2024, Judge Trina L. Thompson of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities class action brought by investors against a financial services company (the “Company”) and certain of its officers (the “Individual Defendants” and, collectively “Defendants”) asserting claims under Section 10(b) of the Securities and Exchange Act of 1934 (“Exchange Act”), as well as Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act. SEB Inv. Mgmt., AB v. Wells Fargo & Co., Case No. 22-cv-03811-TLT (N.D. Cal. July 29, 2024).
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Ninth Circuit Affirms Dismissal Of Exchange Act Claims Against Post deSPAC Company, Holding That Shareholders Of The SPAC Lack Standing To Pursue Claims Based On Target Company’s Alleged Pre-Transaction Misstatements
08/13/2024On August 8, 2024, the United States Court of Appeals for the Ninth Circuit affirmed United States District Judge Yvonne Gonzalez Rogers’s dismissal of a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 against an electric vehicle company (the “Company”) and certain of its executives. In re CCIV / Lucid Motors Sec. Litig., No. 23-16049 (9th Cir. Aug. 8, 2023).
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Southern District Of New York Grants Motion To Dismiss Putative Securities Class Action Against Cannabis Company For Failure To Adequately Plead Scienter
07/30/2024
On July 17, 2024, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York granted a motion to dismiss a putative securities class action against a cannabis company and three of its officers. In re Canopy Growth Securities Litigation, 23 Civ. 4302 (PAE) (S.D.N.Y. July 17, 2024). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act, and Rule 10b-5 promulgated thereunder, by making false and misleading statements about the financial prospects of the Company’s newly acquired sports drink subsidiary (the “Subsidiary”). The Court granted defendants’ motion to dismiss with prejudice, holding that plaintiffs failed to adequately plead scienter.
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New Jersey District Court Denies Motion To Dismiss Putative Securities Class Action Against Education Company, Finding Plaintiff Sufficiently Alleged Misstatements, Scienter, And Loss Causation
07/17/2024On June 25, 2024, Judge Michael E. Farbiarz of the United States District Court for the District of New Jersey denied in large part a motion to dismiss a putative securities class action against an internet-based educational platform that sells online classes and certain of its senior officers. Zequi Wu, et al. v. GSX Techedu Inc., et al., No. 20-4457 (MEF) (JRA) (D.N.J. June 25, 2024). Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false statements that misled investors about defendants’ inclusion of fake “bot” students in enrollment numbers to inflate the company’s revenue. The Court in large part denied defendants’ motion to dismiss, finding that plaintiff sufficiently alleged numerous false statements and scienter.
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United States Supreme Court Issues Landmark Decision Overturning Chevron Doctrine
07/17/2024On June 28, 2024, the Supreme Court of the United States issued a landmark decision overturning its prior decision Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., et al., 467 U.S. 837 (1984) (“Chevron”). Loper Bright Enterprises, et al. v. Raimondo Secretary of Commerce, et al., and Relentless Inc., et al. v. Department of Commerce, et al., 603 U.S. ___ (2024). For the past 40 years, Chevron mandated that, when a statute does not expressly delegate authority to an administrative agency on a particular issue or question, courts defer to a federal agency’s interpretation of ambiguous statutes which the agency is charged with administering, if such interpretation was “permissible,” which has generally been interpreted to mean reasonable. There has been some subsequent narrowing of the scope of Chevron deference by the Supreme Court, for example to agency interpretations reached through formal proceedings with the force of law (see United States v. Mead Corp., 533 U. S. 218, 230 (2001)). In a 6-3 ruling delivered by Chief Justice Roberts, the Supreme Court expressly overruled Chevron, holding that the Administrative Procedure Act (“APA”) requires courts to exercise independent judgment in determining whether a federal agency has acted within its statutory authority, and that courts may not defer to an agency’s interpretation of the law merely because a statute is ambiguous. Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined the Chief Justice’s opinion.Category : Supreme Court
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Northern District Of California Dismisses Putative Class Action Without Prejudice Against Cybersecurity Company
07/17/2024On July 2, 2024, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California granted a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a cybersecurity company and certain of its officers. In re SentinelOne, Inc. Sec. Litig., No. 23-cv-2786-HSG (N.D. Cal. July 2, 2024). Plaintiff alleged that defendants artificially inflated key business metrics in its SEC filings, necessitating a downward revision of revenue and projection figures. The Court dismissed plaintiff’s claims without prejudice, primarily for lack of scienter.
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District Of Massachusetts Dismisses Putative Class Action Against Drug Development Company
07/17/2024On July 1, 2024, Judge Denise J. Casper of the United States District Court for the District of Massachusetts granted a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a drug-development company and certain of its officers. State Teachers Ret. Sys. v. Charles River Lab. Int’l, Inc., No. 23-cv-11132-DJC (D. Mass. July 1, 2024). Plaintiff alleged that defendants misled investors to believe that the company complied with all applicable laws in its importation of endangered non-human primates (“NHPs”) for animal testing of biologic pharmaceuticals. The Court dismissed the action, holding that plaintiff failed to identify any actionable statement or omission in the company’s filings or to adequately allege that defendants acted with the requisite scienter.
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Southern District Of New York Grants Motion To Dismiss Putative Class Action Against Coffee Chain For Failure To Adequately Allege Materially False Or Misleading Statements And Scienter
07/17/2024On June 24, 2024, the United States District Court for the Southern District of New York granted with prejudice a motion to dismiss a putative securities class action against a coffee chain and two of its executive officers.Rein v. Dutch Bros, Inc., et al., No. 23-cv-1794 (PAE) (S.D.N.Y. June 24, 2024).Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by making a series of false and misleading statements touting the company’s performance in a manner that understated the threat to sales and profitability presented by rising inflation affecting the cost of commodities key to the company’s success.The Court granted defendants’ motion to dismiss the amended complaint with prejudice, holding that plaintiff failed to allege materially false or misleading statements and scienter.
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First Circuit Affirms Dismissal Of Putative Class Action Against Biotech Company For Failure To Adequately Allege Scienter
07/17/2024On July 2, 2024, the United States Court of Appeals for the First Circuit affirmed the dismissal with prejudice of a putative class action asserting claims under the Securities Exchange Act of 1934 against a biotechnology company, its CEO, and its Chief Development Officer (“CDO”). Quinones v. Frequency Therapeutics, Inc., —F.4th—, 2024 WL 3275030 (1st Cir. 2024). Plaintiffs alleged the company made misrepresentations regarding clinical trials for the company’s treatment for severe sensorineural hearing loss. The district court determined that plaintiffs’ amended complaint adequately alleged certain misstatements but failed to demonstrate that those statements were made with the required degree of scienter, and on that basis dismissed the amended complaint. The First Circuit affirmed both rulings.
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Second Circuit Affirms District Court’s Dismissal Of Putative Securities Fraud Class Action Against China-Based Real Estate Company For Lack Of Falsity
06/25/2024
On June 10, 2024, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative shareholders’ class action against a real estate company (the “Company”) and several of its directors (the “Individual Defendants”), asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder. Maso Cap. Invs. Ltd. v. E-House (China) Holdings Ltd., No. 22-355 (2d Cir. June 10, 2024). Plaintiffs alleged the Company made false and misleading statements and omissions to entice approval of a go-private merger with a buyer group comprised of the Individual Defendants. The district court granted the Company’s motion to dismiss. Reviewing the district court’s decision de novo, the Court affirmed finding that plaintiffs failed to identify a single actionable statement or omission.
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United States Supreme Court Grants Certiorari To Consider The Application Of Heightened Pleading Standards Of The PLSRA For Falsity And Scienter
06/25/2024
On June 17, 2024, the Supreme Court granted certiorari to review a decision of the United States Court of Appeals for the Ninth Circuit reversing the dismissal of a putative class action asserting claims under the Securities Exchange Act of 1934 and to address the following questions: “1. Whether plaintiffs seeking to allege scienter under the Private Securities Litigation Reform Act (“PSLRA”) based on allegations about internal company documents must plead with particularity the contents of those documents”; and “2. Whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact.”