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Northern District Of California Dismisses Putative Securities Class Action Against Grocery Delivery Company For Failure To Adequately Plead Actionable Misstatements As Well As Scienter And Loss Causation
05/20/2025On May 9, 2025, Judge Edward J. Davila of the Northern District of California granted a motion to dismiss a purported securities class action against a grocery delivery company (the “Company”), certain of its officers and directors, and the underwriters to the Company’s IPO. Stephens v. Maplebear Inc. (d/b/a Instacart), et al., No. 5:24-cv-00465-EJD (N.D. Cal. May 9, 2025). Plaintiffs, on behalf of a putative class of investors in the Company, alleged that defendants made false and misleading statements in connection with the Company’s IPO regarding the strength of its brand and its financial forecasts in violation of Sections 10(b) and 20(a) of the Exchange Act and Sections 11 and 15 of the Securities Act. The Court dismissed the complaint with leave to amend, holding that plaintiffs failed to sufficiently plead falsity, scienter, or loss causation.
According to the amended complaint, the Company was founded in 2012 as a grocery technology company that partners with various grocery stores to offer online shopping. Plaintiffs allege that after the onset of the COVID-19 pandemic, the Company’s revenues increased nearly eightfold and it reached a peak valuation of $39 billion in 2021, but that the Company’s growth slowed once lockdowns were lifted.
Plaintiffs alleged that in connection with the IPO, defendants made false and misleading statements about the strength of the Company’s brand and the Company’s financial forecasts. The Court held that plaintiffs “ha[d] not pled, as a factual matter, that the brand-related events [the Company] allegedly concealed or lied about actually happened, and they have not explained how the challenged forecasting statements relate to their theory of falsity.” As to the brand-related statements, the Court noted that plaintiffs relied “almost exclusively on allegations from a single confidential witness” and found they did not “substantiate” plaintiffs’ theory because they “describe[d] events pre-dating the challenged statements” by nine months. According to the Court, “[m]uch could have changed in those intervening months” and falsity must be “measured against the state of affairs when a statement is made, not the one nine months prior.”
As for the financial forecasting statements, the Court noted that plaintiffs “make a stronger case” but that these claims failed because those challenged statements were “largely not about forecasts at all,” but rather, for example, “commonsensical truisms” about how “lower fees make ordering online more appealing” or were “better viewed as simply identifying the things that [the Company] needs to do, or the benchmarks it needs to hit, to be successful.” The Court did identify one specific forecast about the Company’s alleged expected growth rate, but held that the related statements occurred before the proposed class period and therefore were not actionable. The Court also found that certain other statements were not actionable because they were opinion statements, forward-looking statements accompanied by sufficient cautionary language, or mere puffery.
The Court went on to consider scienter and loss causation. The Court held that plaintiffs could not rely on the confidential witness allegations to establish a strong inference of scienter, as they pre-dated the alleged misstatements by at least nine months. The Court noted that plaintiffs otherwise pointed only to generalized allegations about motive and access to information and that “[n]either does the trick” because the alleged stock sales were to satisfy tax obligations, and the amended complaint did not identify to what forms of information defendants allegedly had access.
The Court also held that plaintiffs failed to sufficiently plead loss causation in support of their Exchange Act claims because they failed to plead any relevant link between the Company’s alleged fraud and their alleged losses. However, the Court stated “this does not automatically mean that [the Company] has established negative causation for Plaintiffs’ Section 11 claims” because “[n]egative causation is an affirmative defense for which [the Company] bears a ‘heavy burden’” and that “[a]ll that it takes to overcome [it] is to show that the alleged fraud ‘touches upon the reasons for an investment’s decline in value’” (quoting Hildes v. Arthur Andersen LLP, 734 F.3d 854, 860 (9th Cir. 2013)).
Finally, the Court held that because plaintiffs failed to plead any primary violation of the Exchange Act or Securities Act, plaintiffs’ control person claims must also be dismissed. The Court dismissed all claims but allowed plaintiffs to file an amended complaint.
