On March 2, 2018, Judge Charles R. Breyer of the United States District Court for the Northern District of California granted defendants’ request for reconsideration of a motion to dismiss a putative class action brought against Volkswagen Aktiengesellschaf (“VW AG”), Volkswagen Group of America, Inc. (“VWGoA”), Volkswagen Group of America Finance, LLC (“VWGoAF”), and former executives of VW AG and VWGoA.  In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, MDL No. 2672 CRB (JSC) (N.D. Cal. Mar. 2, 2018).  Plaintiff had alleged that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines, in violation of Section 10(b) of the Securities Exchange Act of 1934.  In its previous July 19, 2017 order, the Court dismissed certain claims but found that plaintiff could rely on a presumption of reliance under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), because plaintiff primarily alleged omissions as opposed to misstatements.  Defendants asked the Court to reconsider that ruling in light of the Second Circuit’s November 2017 decision in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. Nov. 6, 2017)—which held that the Affiliated Ute presumption does not apply when the only omission alleged is the omission of the truth that an affirmative misstatement misrepresented.  The Court did so, agreed with Waggoner, and dismissed plaintiff’s remaining claims for failure to adequately plead reliance.

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On February 26, 2018, the United States Court of Appeals for the Fifth Circuit affirmed in a per curiam unpublished decision the dismissal of a putative securities class action against UBS AG and certain affiliated entities.  Giancarlo, et al. v. UBS Financial Services Inc., et al., No. 16-20663 (5th Cir. Feb. 26, 2018).  Plaintiffs—former clients of a defendant UBS affiliate who invested in former energy giant Enron using the UBS affiliate as their broker—alleged that defendants violated Section 10(b) of the Securities Exchange Act by failing to disclose information purportedly revealing problems with Enron’s accounting, leading to alleged losses when Enron’s precarious financial position was uncovered in November 2001.  The United States District Court for the Southern District of Texas dismissed plaintiffs’ claims, finding that plaintiffs failed to plead facts demonstrating that defendants’ separate corporate status should be disregarded, and thus had failed to adequately plead their “single, fully integrated entity” theory of liability.  The District Court further found that plaintiffs had failed to identify specific brokers or allege facts demonstrating that each broker had an intent to deceive, manipulate, or defraud.  The Fifth Circuit agreed, holding that plaintiffs had failed to meet the heightened specificity requirements for pleading securities fraud under Federal Rule of Civil Procedure 9(b), noting that plaintiffs had not adequately alleged that defendants had knowledge of Enron’s practices, nor a duty to disclose such information to plaintiffs.   

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On February 27, 2018, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities fraud action brought against Chinese mobile internet service provider NQ Mobile, Inc. (“NQ”) and its CEO and Vice President.  Finocchiaro, et al v. NQ Mobile Inc., et al., No. 1:15-cv-06385 (S.D.N.Y. Feb. 27, 2018).  Plaintiffs—shareholders of NQ—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act by making affirmative misstatements about NQ’s value and failing to disclose to investors certain material facts relating to NQ’s corporate acquisition strategy, allegedly causing plaintiffs to suffer losses when the truth was revealed and NQ’s stock dropped.  The Court held that the alleged affirmative misrepresentation was mere puffery which plaintiffs could not have reasonably relied upon and that the alleged material omissions were in fact properly disclosed.  Accordingly, the Court dismissed the complaint with prejudice. 

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On February 12, 2018, Judge Samuel Der-Yeghiayan of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative class action under the Securities Exchange Act of 1934 against Treehouse Foods, Inc. (“TreeHouse”) and certain TreeHouse executives.  Public Employees’ Retirement System of Mississippi v. TreeHouse Foods, Inc. et al., 16 C 10632 (N.D. Ill. Feb. 12, 2018).  Plaintiff alleged that TreeHouse, a manufacturer of store brand food products for grocery stores, materially misrepresented that its acquisitions of Flagstone Foods and the “Private Brands” business of ConAgra Foods, Inc. were successful.  The Court denied the motion to dismiss, holding among other things that plaintiff adequately alleged that defendants made actionable misstatements.

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On January 30, 2018, Judge John R. Tunheim of the United States District Court for the District of Minnesota granted class certification in a consolidated securities fraud class action against Medtronic and certain of its officers and employees.  West Virginia Pipe Trades Health & Welfare Fund v. Medtronic, Inc., et al., No. 13-cv-01686-JRT-FLN (D. Minn. Jan. 30, 2018).  Plaintiffs—institutional investors who purchased Medtronic stock during the proposed class period—allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by manipulating early clinical studies of INFUSE, an alternative to replacement bone-tissue graft, by knowingly concealing adverse side effects observed in clinical trials, and by failing to sufficiently disclose that it paid physician authors a total of $210 million to publish positive articles about INFUSE in medical journals.  Plaintiffs allege that Medtronic’s deception artificially inflated the company’s stock price, causing a large stock drop in August 2011, when the truth was revealed through a corrective disclosure.  Plaintiffs sought to certify a class of all purchasers of Medtronic stock between September 8, 2010 and August 3, 2011.  The Court certified the class, but shortened the class period end date to June 3, 2011, which is the date of the initial corrective disclosure.

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On December 18, 2017, Judge Aleta A. Trauger of the United States District Court for the Middle District of Tennessee denied a motion to dismiss a putative class action under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) filed against CoreCivic—a publicly traded real estate investment trust that operates private prisons—and certain CoreCivic executives.  Grae v. Corr. Corp. of Am., No. 3:16-CV-2267, 2017 WL 6442145 (M.D. Tenn. Dec. 18, 2017).  Plaintiffs alleged that CoreCivic and the individual defendants made and authorized numerous false and misleading statements concerning the quality of CoreCivic’s operations and how those operations complied with standards set by the U.S. Federal Bureau of Prisons (“BOP”) despite being on notice that their operations failed to so comply in numerous instances, and that defendants’ statements were later contradicted by a United States Department of Justice Office of Inspector General (“OIG”) audit report and a memorandum by then–Deputy Attorney General Sally Q. Yates critical of the private prison industry, causing CoreCivic’s stock price to plummet more than 50% in eight days.  In denying defendants’ motion to dismiss, the Court held that the totality of plaintiffs’ allegations sufficiently supported their “central theory of liability.”

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On December 5, 2017, the United States District Court for the Northern District of California denied class certification in a putative securities fraud class action against Finisar Corporation (“Finisar”), a technology company focused on fiber optic subsystems, and its current chairman/CEO and former CEO, in which plaintiffs alleged that defendants misled investors by denying that Finisar’s revenue growth was the result of inventory build-up by customers.  In re Finisar Corporation Securities Litigation, No. 5:11-cv-01252-EJD (N.D. Cal. Dec. 5, 2017).  In denying plaintiffs’ motion for class certification, the Court ruled that defendants successfully rebutted the fraud-on-the-market presumption of reliance by demonstrating that defendants’ statements had no statistically significant impact on Finisar’s stock price.

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On December 6, 2017, the United States District Court for the Northern District of Illinois dismissed a securities fraud lawsuit brought against DeVry Education Group, Inc. and several of its executives (“DeVry”), with leave to amend, because plaintiffs failed to sufficiently plead that DeVry executives knowingly misrepresented the employment rates and placement statistics of DeVry University (“DVU”) graduates in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  Pension Trust Fund for Operating Engineers v. DeVry Education Group, Inc., No. 16 Civ. 5198 (N.D. Ill. Dec. 6, 2017).  The Court held that the Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires plaintiffs to set forth “particularized factual allegations” that do more than show the “plausibility or reasonableness” of scienter allegations and that the complaint, which relied heavily on earlier lawsuits by regulators, failed to meet this standard.  The decision serves as a reminder that securities lawsuits often fail when they attempt to piggy-back on lawsuits filed by government regulators or other stakeholders.

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On October 20, 2017, Judge Michael M. Anello of the United States District Court for the Southern District of California denied in part and granted in part a motion to dismiss brought by Qualcomm, Inc. (the “Company”), its CEO, and four directors, in response to a shareholder lawsuit.  3226701 Canada, Inc. v. Qualcomm, Inc., Case No. 15-cv-2678-MMA (WVG) (S.D. Cal. Oct. 20, 2017).  Plaintiff alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), as well as violations of SEC Rule 10b-5, in connection with statements made by the Company and its directors regarding one of its microprocessors used in smartphones and other mobile devices.  The Court held that plaintiff had adequately pleaded falsity and scienter in connection with some of the alleged statements, but that other statements were not actionable.  The Court allowed the claims against the CEO and the Company to proceed, but dismissed the claims against the four directors.

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On October 18, 2017, Judge Ricardo S. Martinez of the United States District Court for the Western District of Washington dismissed with leave to amend a consolidated amended complaint asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Seattle Genetics, Inc. (the “Company”) and certain of its current and former executives (the “Individual Defendants”).  Patel v. Seattle Genetics Inc., No. C17-41RSM (W.D. Wash. Oct. 18, 2017).  Based largely on information obtained from a confidential witness, the complaint alleged that defendants misled investors by claiming that the Company’s cancer treatment drug did not cause a toxic side effect on a patient’s liver, while failing to disclose that certain patients in a clinical trial had already experienced liver toxicity (hepatotoxicity).  Although the Court found that plaintiff adequately alleged a material omission, it dismissed the complaint for failure to plead scienter because, in the Court’s opinion, the Individual Defendants’ general knowledge of the Company’s day-to-day business was insufficient to impute to them knowledge about potential problems with hepatotoxicity in a clinical trial. 

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Resolution of whether Item 303 of Securities and Exchange Commission Regulation S-K creates an affirmative duty to disclose and a private right of enforcement under the Securities Exchange Act of 1934 will have to wait.  On October 17, 2017, the Supreme Court of the United States removed argument in Leidos, Inc. v. Indiana Public Retirement System, et al., 583 U.S. __, 16-581 (Oct. 17, 2017), from its calendar and held further proceedings in abeyance.  Leidos is an appeal in a putative shareholder class action alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against government contractor Leidos, Inc. (“Leidos”).  See U.S. Supreme Court To Consider Registrant’s Liability For Non-Disclosure Under Item 303 Of Regulation S-K, Shearman & Sterling LLP Need to Know Litig. Newsletter (Apr. 4, 2017), http://www.lit-sl.shearman.com/us-supreme-court-to-consider-registrantrsquos-lia.  The Court granted certiorari on March 27, 2017, merits briefing was completed on October 2, 2017, and the Court had set oral argument for November 6, 2017.  In their October 6, 2017, joint motion noting an agreement in principle to settle, the parties stated that they were preparing settlement documentation and will ask the Court to reschedule argument for October Term 2018 if a final settlement is not approved by May 31, 2018.

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On September 22, 2017, United States District Judge Alison J. Nathan of the United States District Court for the Southern District of New York dismissed with prejudice an amended consolidated putative class action complaint asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Eros International Plc (“Eros”) and certain of its current and former executives.  In re Eros Int’l Sec. Litig., No. 15-cv-8956-AJN (S.D.N.Y. Sept. 22, 2017).  The complaint alleged that defendants deceived investors by touting growth in the number of “registered users” of Eros’s video streaming service, many of whom could not actually use the service, and also by overstating the number of annual releases in its video library.  In dismissing the action, the Court found that plaintiffs’ own definition of an otherwise undefined term could not make a statement actionable when other definitions of those terms were equally plausible.

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On October 2, 2017, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California dismissed with prejudice a putative securities fraud class action against Nimble Storage, Inc. (“Nimble”), a flash storage technology company, and several of its officers.  In re. Nimble Storage Secs. Litig., No. 15-cv-05803 (N.D. Cal., Oct. 2, 2017).  Plaintiffs alleged that Defendants misrepresented Nimble’s prospects and financial condition in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.  The Court found that Nimble’s statements about growth were not misleading because they were accompanied by sales and profit data, which accurately reported the company’s condition to the public.

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On September 19, 2017, Judge Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York allowed a putative securities fraud class action to proceed against VEON Ltd. (“VEON”), a telecommunications company formerly known as VimpelCom, and several of its current and former executives, denying in large part the company’s motion to dismiss.  In re VEON Ltd. Sec. Litig., 15-cv-08672 (ALC) (S.D.N.Y. Sept. 19, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) asserting that VEON’s failure to disclose in its SEC filings its admitted bribery scheme in Uzbekistan made the company’s statements about its growth materially misleading.  While VEON argued that plaintiffs’ claims were an impermissible attempt to enforce the Foreign Corrupt Practices Act (“FCPA”), for which there is no private right of action, the Court disagreed, holding that plaintiffs’ allegations were sufficiently distinct and sufficient to plead violations of Sections 10(b) and 20(a) of the Exchange Act.

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On September 12, 2017, United States District Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California dismissed without prejudice a consolidated putative class action against Dynavax Technologies Corporation and certain of its officers.  In re Dynavax Securities Litigation, No. 4:16-cv-06690-YGR (N.D. Cal. Sept. 12, 2017).  Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, by knowingly or recklessly disseminating false and misleading statements about Dynavax’s developments and efforts to earn FDA approval of its proprietary hepatitis B vaccine.  The Court dismissed the consolidated complaint without prejudice, finding that plaintiff had not met the heightened pleading standards for securities fraud under the PSLRA.

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On September 6, 2017, Judge Fernando M. Olguin of the Central District of California granted in part and denied in part a motion by defendants to dismiss a putative securities fraud class action against Goldcorp, Inc., a gold mining company, its former CEO Charles A. Jeannes, and other current and former officers of Goldcorp.  Cowan v. Goldcorp, No. 16-CV-6391 (C.D. Cal. Sept. 6, 2017).  The complaint asserted that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by misleading investors about pollution levels at one of Goldcorp’s major mines in Mexico.  In denying in part and granting in part the motion to dismiss, the Court ruled that—with the exception of a statement by Goldcorp’s former CEO—the complaint failed to adequately allege a materially false or misleading statement, noting that the complaint relied extensively on allegations raised in a Reuters article and lacked any corroboration.
 

On September 6, 2017, Judge Andrew J. Guilford of the Central District of California denied motions to dismiss a putative securities class action asserting claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Banc of California (“Banc”) and its former CEO, Steven Sugarman.  In re Banc of Cal. Sec. Litig., No. 17-CV-118 (C.D. Cal. Sept. 6, 2017).  Based largely on a short seller report published online, the complaint alleged among other things that defendants omitted information regarding Sugarman’s alleged financial and business ties to Jason Galanis, an individual who pled guilty to criminal securities fraud in connection with other companies.  In denying the motions to dismiss, the Court shed light on how courts might evaluate claims based on blog posts, an increasingly common basis for claims in securities cases.

On September 5, 2017, Judge Richard M. Berman of the United States District Court for the Southern District of New York dismissed a putative class action against Ambac Financial Group, Inc. (“Ambac”), asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.  Wilbush v. Ambac Fin. Grp., Inc., No. 16 Civ. 5076 (RMB), slip op. (S.D.N.Y. Sept. 5, 2017), ECF No. 41.  Plaintiff alleged that Ambac, an insurer, concealed its true credit risk and loss exposure to more than $10 billion in Puerto Rican bonds it insured.  The Court held that plaintiff failed to adequately allege actionable misstatements, and further that plaintiff’s allegations of scienter were insufficient, given that there was no indication that defendants had access to non-public information contradicting their public statements. 

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On August 24, 2017, Judge Alison J. Nathan of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities class action against hotel chain La Quinta Holdings, Inc. (“La Quinta”), certain of its officers and directors, and La Quinta’s majority shareholder.  Police and Fire Retirement System of the City of Detroit v. La Quinta Holdings, Inc. et al, No. 16-cv-3068  (S.D.N.Y. Aug. 24, 2017).  Plaintiff claimed that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, based on various alleged misstatements and omissions that allegedly hid from the public operational and other difficulties facing La Quinta, including at the time of La Quinta’s secondary public offerings in November 2014 and April 2015.  The Court dismissed the second amended complaint in its entirety with prejudice, holding that the plaintiff failed to adequately plead a material misrepresentation or omission.

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On August 25, 2017, Judge Lee Yeakel of the United States District Court for the Western District of Texas dismissed with prejudice a putative securities class action against Whole Foods Market, Inc. and certain of its officers.  Markman v. Whole Foods Market Inc. et al, No. 1:15-cv-681-LY (W.D. Tex. Aug 25, 2017).  Plaintiffs alleged that defendants’ knowingly or recklessly engaged in a scheme to overcharge customers by placing inaccurate food-weight labels on prepackaged foods, thereby rendering Whole Foods’ financial statements false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Lead plaintiffs—the Employees’ Retirement System of the State of Hawaii—filed a second amended complaint (“SAC”) after the Court dismissed their original complaint for failure to state a claim.  The Court held that the SAC failed to adequately plead a material misrepresentation or omission, scienter, and loss causation, and denied plaintiffs’ request for leave to amend the complaint again.

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On August 23, 2017, the United States Circuit Court of Appeals for the Third Circuit affirmed a district court decision dismissing a putative class action against Globus Medical, Inc. (“Globus” or the “Company”), a medical device company that designs, develops and sells musculoskeletal implants, and several individual officers.  Williams v. Globus Medical, Inc., No. 16-3607 (3d Cir. Aug. 23, 2017).  The lawsuit alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 based on allegations that the Company failed to disclose the termination of a distribution partnership or the impact the termination would have on its revenue projections.  The decision sheds light on how district courts in the Third Circuit should evaluate claims that are based on an alleged omission that, according to plaintiffs, rendered a prior disclosure inaccurate, incomplete or misleading, and also addresses the requirements for stating a claim based on allegedly misleading revenue projections.

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On August 22, 2017, the United States Court of Appeals for the First Circuit affirmed an order from the District of Massachusetts, dismissing a putative securities class action that asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder against drug maker Sarepta Therapeutics Inc. (“Sarepta”) and certain of its current and former officers.  Corban, et al. v. Sarepta Pharmaceutical Inc., et al., No. 16-1658 (1st Cir. Aug. 22, 2017).  The complaint alleged that Sarepta deceived investors about the significance of trial data for the company’s new muscular dystrophy drug, eteplirsen, and the likelihood that the company would obtain United States Food and Drug Administration (“FDA”) approval for that drug.  The First Circuit held that plaintiffs failed to plead a “cogent inference of scienter” that Sarepta misled investors, and also held that while opinions implying false facts may suffice to allege a fraud claim, the opinions at issue were insufficient because they “came replete with caveats.”

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On August 11, 2017, Judge Lucy H. Koh of the United States District Court for the Northern District of California dismissed a putative securities class action brought against SolarCity Corp. (“SolarCity”) and four of its senior officers that alleged the defendants made materially misleading misrepresentations in SolarCity’s SEC filings, written communications with investors, and quarterly earnings calls with analysts.  In re SolarCity Corp. Sec. Litig., No. 5:16-cv-4686, 2017 WL 3453387 (N.D. Cal. Aug. 11, 2017).  Plaintiffs asserted a claim under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder against all defendants, and a claim under Section 20(a) of the Exchange Act against the individual defendants.  In dismissing the complaint and granting leave to amend, the Court held that plaintiffs had not adequately alleged that any of the defendants had either made actionable false or misleading statements or acted with the requisite fraudulent intent.

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On August 10, 2017, Judge Sidney A. Fitzwater of the United States District Court for the Northern District of Texas dismissed a putative securities class action brought against Pier 1 Imports, Inc. (“Pier 1”) and its former CEO and CFO that alleged the defendants had misrepresented the company’s excess inventory and potential price markdown risk in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.  Town of Davie Police Pension Plan v. Pier 1 Imports, Inc. et al., No. 3:15-cv-3415-D, 2017 WL 3437215 (N.D. Tex. Aug. 10, 2017).  The Court held that the plaintiffs had failed to plead that defendants had either misrepresented Pier 1 inventory or intended to do so.

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On August 4, 2017, United States District Judge David O. Carter of the United States District Court for the Central District of California denied a motion to dismiss a putative securities fraud class action against El Pollo Loco Holdings, Inc. (“EPL”), certain of its directors and officers, and EPL’s controlling shareholders.  Turocy, et al. v. El Pollo Loco Holdings, Inc., et al., No. SACV-15-1343-DOC (C.D. Cal. Aug. 4, 2017).  Plaintiffs alleged that defendants violated Sections 10(b), 20(a) and/or 20A of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5, by failing to disclose material facts and making materially false or misleading statements as part of a scheme to artificially inflate the stock price of EPL between May 15, 2015 and August 13, 2015, and/or selling their personally held shares in EPL shortly after making the alleged false or misleading statements despite having not sold any shares during the previous six months and not selling the shares pursuant to any Rule 10b5-1 trading plan.  After dismissing without prejudice the original and amended complaints in this action, the Court held that plaintiffs sufficiently alleged misstatements and a strong inference that defendants were aware of the falsity of such statements, and denied defendants’ motion to dismiss the third amended complaint.

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On July 28, 2017, the United States Circuit Court of Appeals for the Ninth Circuit reversed a district court decision dismissing a putative class action lawsuit against Quality Systems, Inc., (“QSI” or the “Company”), a company that develops and markets management software for medical and dental providers, and several of its officers.  In re Quality Systems, Inc. Secs. Litig., No. 15-55173 (9th Cir. July 28, 2017).  Plaintiffs brought a putative shareholder class action against defendants alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 in connection with statements made over the course of several months regarding the Company’s past and projected sales as well as guidance given to investors about the Company’s projected growth and revenue.  The Ninth Circuit reversed, finding that many of the defendants’ statements “mixed” forward and non-forward looking statements and holding for the first time in the Ninth Circuit that it is appropriate to consider the forward and non-forward looking aspects of a “mixed” statement separately when evaluating a securities claim.

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On July 26, 2017, Judge Claudia Wilken of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities class action alleging that GoPro, Inc. (“GoPro”), its CEO, Nicholas Woodman, and other GoPro executives described in the Complaint but not named as defendants, had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements regarding the rollout of a new camera and line of airborne drones.  Bielousov v. GoPro, Inc., No. 16-CV-06654-CW, 2017 WL 3168522 (N.D. Cal. July 26, 2017).  In so doing, the Court found that plaintiff had adequately alleged that a statement by GoPro’s CFO that “we believe” GoPro is “on track to make” its 2016 revenue guidance, was not covered by the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and, along with certain other representations, was false and mischaracterized the new drone’s availability and capabilities.

On July 19, 2017, Judge Charles R. Breyer of the United States District Court for the Northern District of California partially dismissed a putative class action against Volkswagen Aktiengesellschaf (“VW AG”), Volkswagen Group of America, Inc. (“VWGoA”), Volkswagen Group of America Finance, LLC (“VWGoAF”), and former executives of VW AG and VWGoA.  In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, And Products Liability Litigation, MDL No. 2762 CRB (JSC) (N.D. Cal. July 19, 2017).  Plaintiffs are institutional investors who purchased bonds offered by VWGoAF.  VWGoAF is a wholly-owned subsidiary of VWGoA, and the bonds were guaranteed by VW AG, the ultimate parent of VWGoA and VWGoAF.  Plaintiffs alleged that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  The Court concluded that plaintiffs had plausibly alleged that the bond offering memorandum was misleading, and that some, but not all, of the defendants made statements and omissions in the offering memorandum with scienter.

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On June 28, 2017, Judge Charles R. Breyer of the United States District Court for the Northern District of California ruled, among other things, that allegations of knowledge of “defeat devices” did not equate to knowledge of the probability of exposure from the devices and granted in part a motion to dismiss a putative securities class action against Volkswagen Aktiengesellschaft and certain of its affiliates (“VW”) and officers and directors, asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as additional “control person” claims against the officers and directors under Section 20(a) of the Exchange Act.  In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, MDL No. 2672 CRB (JSC), 2017 WL 2798525 (N.D. Cal. June 28, 2017).  Plaintiffs alleged that VW’s financial statements and statements regarding its U.S. vehicles’ compliance with diesel emissions standards were misleading because VW had failed to disclose, in various manners, that it had been using “defeat device” software to manipulate emissions tests in vehicles sold in the United States.  After plaintiffs were given leave to replead following an earlier motion to dismiss, the Court held that the amended complaint’s allegations supported claims regarding financial statements after May 2014, but dismissed claims regarding earlier alleged misstatements.  In addition, the Court dismissed claims against one individual defendant for failure to sufficiently allege scienter and “control.”

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On June 21, 2017, the United States Court of Appeals for the Second Circuit affirmed a lower court’s decision dismissing a putative class action asserting claims under the Securities Act of 1933 (the “Securities Act”) against Vivint Solar, Inc. (“Vivint”), certain of its officers and directors, and the underwriters of its October 2014 initial public offering (“IPO”).  Stadnick v. Vivint Solar, Inc., No. 16-65 (2d Cir. June 21, 2017).  On appeal, plaintiff relied on the decision of the United States Court of Appeals for the First Circuit in Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996), to argue that Vivint was obligated to disclose in its IPO prospectus and registration statement financial information for the quarter that ended the day before the IPO because, according to plaintiff, the company’s performance during that time constituted an “extreme departure” from past performance.  In affirming the district court’s dismissal, the court declined to follow Shaw, holding instead that the issue of whether Vivint had an obligation to disclose the information should be based on whether the allegedly omitted information would have “significantly altered the total mix of information made available” at the time of the offering.

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On June 14, 2017, Judge Ricardo S. Martinez of the United States District Court for the Western District of Washington denied a motion to dismiss a putative securities fraud class action against Juno Therapeutics, Inc. (“Juno” or the “Company”), a biopharmaceutical corporation, and certain of its senior officers.  In re Juno Therapeutics, Inc., No. 16 Civ. 1069 (W.D. Wash. June 14, 2017).  In their complaint, plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by repeatedly touting positive results from the first phase of a clinical trial for a new cancer treatment, while failing to disclose certain negative outcomes associated with the second phase of a clinical trial.  In denying the motion to dismiss, the Court ruled that plaintiffs had adequately alleged that the omitted information was material to investors and that the defendants were deliberately reckless in failing to disclose it. 

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​On June 13, 2017, Judge Vernon S. Broderick of the United States District Court for the Southern District of New York dismissed a putative securities class action against gold mining and exploration company Pretium Resources, Inc. (“Pretium”) under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.  In re Pretium Resources Inc. Sec. Litig., No. 13-CV-7552 (VSB), 2017 WL 2560005 (S.D.N.Y. June 13, 2017).  Plaintiffs alleged that Pretium’s press releases were misleading because they contained statements regarding a major gold exploration site that were contrary to views expressed to the company by its consultants.  The Court held that plaintiffs had failed to identify actionable misrepresentations or omissions and to adequately plead scienter. 

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On June 6, 2017, United States District Judge George A. O’Toole, Jr. of the United States District Court for the District of Massachusetts dismissed with prejudice a putative securities class action against Sonus Networks, Inc., its CEO and its CFO.  Sousa v. Sonus Networks, Inc., et al., No. 16-10657-GAO (D. Mass. June 6, 2017).  Plaintiffs alleged that defendants violated Sections 10(b) (and SEC Rule 10b-5 promulgated thereunder) of the Securities Exchange Act of 1934 (the “Exchange Act”), and separately alleged that the individual defendants violated Section 20(a) of the Exchange Act, by misleading investors regarding Sonus’ revenue projection for the first quarter of 2015.  The Court held that plaintiff had not met the heightened pleading standard for alleging securities fraud under the Private Securities Litigation Reform Act (“PSLRA”), finding that plaintiff had not sufficiently alleged a material misrepresentation or omission with respect to certain allegations and had not sufficiently alleged scienter with respect to other allegations.  

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On May 23, 2017, the United States Court of Appeals for the Third Circuit, in a non-precedential opinion, affirmed the dismissal of a putative securities fraud class action against Amarin Plc., a biopharmaceutical corporation, and certain of its officers.  In re Amarin Corp. Plc. Sec. Litig., No. 16-2640 (3d Cir. May 23, 2017).  Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) by intentionally misrepresenting the risk that the U.S. Food and Drug Administration (“FDA”) would require Amarin to complete an “outcomes study” in order to obtain approval of its drug Vascepa for the treatment of patients with elevated triglyceride levels.  In affirming the district court, the Third Circuit found that none of defendants’ statements identified in the complaint were misleading in the context in which they were made because reasonable investors understand there is “a continuous dialogue between the FDA and the proponent of a new drug.”

On May 23, 2017, Judge Victor Marrero of the United States District Court for the Southern District of New York denied in part and granted in part a motion to dismiss a putative securities class action against Inovalon Holdings, Inc. (“Inovalon”), six of Inovalon’s officers and directors (the “Individual Defendants”), and nine underwriters of Inovalon’s IPO (the “Underwriter Defendants”).  Xiang v. Inovalon Holdings, Inc., No. 16-CV-4923 (VM).  Plaintiffs asserted claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) on the basis of alleged misstatements in Inovalon’s IPO registration statement and prospectus.  The Court dismissed the Section 12 claims against the Individual Defendants and found the remaining claims to be adequately pleaded.

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On May 12, 2017, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities class action against biopharmaceutical company Biogen Inc. and three of its officers.  In Re: Biogen Inc. Sec. Litig., No. 16-1976, 2017 WL 1963468 (1st Cir. May 12, 2017).  Plaintiffs alleged that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by concealing declining sales of multiple sclerosis drug Tecfidera following the death of a trial patient, leading to a stock drop when the company later reduced its growth forecasts for 2015.  The First Circuit, in affirming the prior ruling of United States District Judge F. Dennis Saylor, IV of the United States District Court for the District of Massachusetts dismissing the amended complaint with prejudice, held that although the amended complaint gave rise to a “plausible” inference of scienter on the part of defendants, it did not support a “strong” inference of scienter as required under the heightened pleading requirements of the Private Securities Litigation Reform Act (“PSLRA”).

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On May 1, 2017, Judge Jon Tigar of the United States District Court for the Northern District of California dismissed a putative securities fraud class action against GoPro, Inc. (“GoPro” or the “Company”) and certain executives, in which plaintiffs alleged that defendants made material misrepresentations about the strength of GoPro’s camera sales.  Bodri v. GoPro, Inc., No. 16-cv-00232-JST (N.D. Cal. May 1, 2017).  The Court dismissed the claims, stating that plaintiffs had taken defendants’ statements out of context and failed to point to any facts that made the statements false, and that certain of the statements were non-actionable “corporate puffery.”  This decision adds to the body of cases that caution against taking statements out of context and serves as a reminder that conclusory allegations of falsity without supporting facts will not survive dismissal.  

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On May 5, 2017, the United States Court of Appeals for the Ninth Circuit affirmed a lower court’s decision dismissing a putative securities fraud class action against orthodontics and dental products maker Align Technology, Inc., finding that plaintiff’s allegations failed to meet the falsity standard for statements of opinion established by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015).  City of Dearborn Heights Act 345 Policy & Fire Retirement Sys. v. Align Tech. Inc., No. 14-16814 (9th Cir. May 5, 2017).  Plaintiff alleged that Align and certain of its officers violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) by misleading investors about the goodwill valuation of a business unit of a company that it had recently purchased.  In affirming the district court’s decision that Align’s statements regarding goodwill were inactionable statements of opinion, the Ninth Circuit joined the Second Circuit in applying the Omnicare standard to Section 10(b) claims.

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On April 27, 2017, Judge Madeline Cox Arleo of the United States District Court for the District of New Jersey dismissed a putative securities fraud class action against Hertz Global Holdings, Inc. and certain of its executives, in which plaintiffs alleged that the company knew or consciously disregarded that statements made in multiple financial reports between 2011 and 2013 were false, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  In re Hertz Global Holdings, Inc. Sec. Litig., 2017 WL 1536223 (D.N.J. Apr. 27, 2017).  The Court had already dismissed this case twice without prejudice.  This time the Court dismissed the claims with prejudice.  

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On April 26, 2017, District Judge John F. Keenan of the United States District Court for the Southern District of New York granted in part and denied in part motions to dismiss brought by defendants Investment Technology Group, Inc. (“ITG” or “the company”), and three of its current and former executives.  In re: Investment Technology Group Inc., Case No. 1:15-cv-06369 (S.D.N.Y. April 26, 2017).  Plaintiff’s amended complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5.  While the Court dismissed the claims against two individual defendants—ITG’s CFO and its General Counsel—on the ground that plaintiff failed to plead a strong inference of scienter as to those defendants, the Court allowed the plaintiff’s Section 10(b) claim against ITG and its former CEO to proceed, narrowing the claims to a five-month period in 2011 and holding that the alleged misstatements outside of the class period were not actionable.
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On April 21, 2017, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a shareholder class action lawsuit against certain officers and directors of ATP Oil & Gas Corporation (“ATP”).  Neiman et al. v. Buhlman et al., Case No. 15-31094 (5th Cir. Apr. 21, 2017).  Plaintiffs, who alleged that defendants misrepresented the production of a new oil well, the liquidity of the company, and the reason that the former CEO had resigned, brought claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5, as well as control-person claims under Section 20(a) of the Exchange Act.  The Fifth Circuit affirmed the Louisiana district court’s dismissal of plaintiffs’ Second Amended Complaint, holding that plaintiffs had failed to adequately plead scienter in support of each of their claims.

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On April 7, 2017, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities fraud class action against the biopharmaceutical developer Zafgen, Inc. (“Zafgen”) and its CEO.  Brennan v. Zafgen, Inc., No. 16-2057, 2017 WL 1291194 (1st Cir. Apr. 7, 2017).  Plaintiffs had asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleging that in Zafgen’s IPO registration statement and other public statements defendants omitted information regarding adverse events during clinical trials for Zafgen’s only drug in development, the obesity drug Beloranib.  The Court held that plaintiffs did not adequately plead scienter under the heightened requirements of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), stressing that a defendant’s mere knowledge of omitted information is not sufficient to support a cogent and compelling inference of fraudulent intent.

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On April 6, 2017, Judge Harvey Bartle III, sitting by designation in the United States District Court for the District of the Virgin Islands, dismissed a putative class action against Altisource Asset Management Corporation (“AAMC”) and certain of its former directors and officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  City of Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., No. 1:15-cv-00004, slip op. (D.V.I. Apr. 6, 2017), ECF No. 74.  Plaintiffs alleged that AAMC—a provider of asset management and corporate governance advising services related to mortgage servicing—made material misstatements in SEC filings and other disclosures relating to services it provided to the mortgage servicing company Ocwen Financial Corporation (“Ocwen”) and certain related companies.  The Court held that plaintiffs’ allegations were insufficient to demonstrate that the alleged misstatements were false or misleading, and further that plaintiffs failed to show that their claimed losses were caused by the alleged misstatements at issue. 

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On March 29, 2017, Chief District Judge Lee Rosenthal of the United States District Court for the Southern District of Texas, Houston Division dismissed a putative class action against Plains All American Pipeline, a major national oil and gas pipeline operator, and its holding companies (collectively, “Plains Defendants”), as well as individual officer and director defendants of Plains All American Pipeline, L.P. (collectively, “Individual Defendants”), and financial institutions which acted as underwriters in the securities offerings at issue (collectively, “Underwriter Defendants”).  In re Plains All American Pipeline, L.P. Sec. Litig., Case No. H:15-2404 (S.D.T.X. Mar. 29, 2017).  Plaintiffs, individuals and institutional investors who purchased equity and debt instruments issued by entities affiliated with Plains All American Pipeline in seven different public offerings, brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”).  The claims were brought after a May 2015 oil spill allegedly caused by a ruptured Plains pipeline that resulted in approximately 101,000 gallons of oil spilling into the Pacific Ocean.  Plaintiffs alleged that, prior to and after the spill, the company falsely claimed to have a comprehensive, effective environmental and regulatory compliance program to prevent oil spills and, if such spills occurred, to quickly remediate the effects.

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On April 1, 2017, District Judge John G. Koeltl of the United States District Court for the Southern District of New York dismissed a putative class action against brokerage firm E*TRADE Financial Corporation and E*TRADE Securities LLC (collectively, “E*Trade”).  Rayner v. E*TRADE Financial Corporation et al, No. 1:16-cv-7129 (S.D.N.Y. Apr. 1, 2017).  Plaintiff brought claims for breach of fiduciary duty, unjust enrichment, and declaratory judgment, alleging that E*Trade selected third-party trading venues for the execution of trading orders based on the amount of rebates those venues paid or “kicked back” to E*Trade rather than selecting the most efficient or cost-effective trading venue for E*Trade’s clients that plaintiff contends is required by the duty of best execution.  The Court dismissed all of the claims, holding that they were precluded by the Securities Litigation Uniform Standards Act (the “SLUSA”), which prohibits class actions based on state law claims that rely on allegations that defendant made a misrepresentation or omission of material fact, or employed any manipulative or deceptive device, in connection with the purchase or sale of a covered security.  

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On March 27, 2017, the United States Supreme Court granted a petition for a writ of certiorari to resolve a circuit split on whether corporate issuers’ disclosure obligation under Item 303 of S.E.C. Regulation S-K can be an independent source of liability under Section 10(b) of the Securities Exchange Act of 1934.  Leidos, Inc. v. Ind. Pub. Ret. Sys., No. 16-581.  The appeal concerns a March 2016 decision by the United States Court of Appeals for the Second Circuit which, in a departure from earlier decisions by the Third and Ninth Circuits, held that an issuer’s failure to disclose “known trends or uncertainties” under Item 303 could give rise to a securities fraud claim under Section 10(b).  The Supreme Court’s consideration of the question could result in either a significant expansion or a significant narrowing of registrants’ potential exposure to securities fraud claims.

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On March 17, 2017, Judge Michael Watson of the United States District Court for the Southern District of Ohio certified a securities class action brought against Big Lots, Inc. (“Big Lots”) and various current and former officers for alleged misrepresentations in SEC filings in violation of the antifraud provisions of the Securities Exchange Act of 1934 (the “Exchange Act”).  Willis v. Big Lots, Inc., No. 2:12-cv-00604 (S.D. Ohio Mar. 17, 2017).  Plaintiffs alleged misleading statements concerning the company’s performance and ability to meet various sales targets.  In holding that the requirements for class certification were satisfied, the court held notably that (i) being a value investor—including using investment advisors that made their own assessments of Big Lots’ intrinsic value—is insufficient, particularly at the class certification stage, to show that the lead plaintiffs were not typical representatives of the class; and (ii) where the stock price did not rise as the result of alleged misrepresentations, defendants still bore the burden of establishing a lack of price impact under the price maintenance theory.

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On March 13, 2017, the United States District Court for the District of Delaware rejected LRR Energy L.P. (“LRR”) and Vanguard Natural Resources, LLC’s (“Vanguard”) motion to dismiss, allowing the putative shareholder class action suit against them and various current and former directors to proceed.  Robert Hurwitz v. LRR Energy, L.P., et al., Civ. No. 15-711-SLR (D. Del. March 13, 2017).  Plaintiff asserted claims under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”), alleging that Vanguard and LRR Energy failed to disclose material information related to Vanguard’s debt agreements in the proxy statement and registration statement issued by LRR and Vanguard, respectively, in connection with Vanguard’s acquisition of LRR in 2015.  In denying the motion to dismiss, the Court held that plaintiffs had sufficiently pled that the proxy and registration statement failed to disclose material information as to Vanguard’s ability to service its debt, and the consequences of such debt servicing issues.

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On March 16, 2017, District Judge Ann M. Donnelly of the United States District Court for the Eastern District of New York dismissed with prejudice a putative class action against Etsy, Inc., its CEO, CFO, certain of its directors, and the underwriters of its initial public offering (“IPO”).  Altayyar, et al., v. Etsy, Inc., et al., No. 1:15-cv-2785 (E.D.N.Y. March 16, 2017).  Plaintiffs alleged that the company and the individual defendants violated Section 10(b) of the Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, by artificially inflating Etsy’s stock price through misrepresentations leading up to Etsy’s IPO, causing plaintiffs to suffer losses when additional information was revealed and the company’s stock price dropped.  Plaintiffs also brought claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”) against all defendants, as well as claims under Section 15 of the Securities Act and Section 20(a) of the Exchange Act against the individual defendants.  In dismissing the complaint in its entirety, the Court found that plaintiffs had failed to establish that the company’s statements were objectively false, intentionally inaccurate, or materially misleading when made.

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On March 6, 2017, Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed a putative class action against 6D Global Technologies, Inc. (“6D” or the “Company”) and certain of its officers and directors.  Puddu v. 6D Glob. Techs., Inc., No. 15-cv-8061 (RWS) (S.D.N.Y. Mar. 6, 2017).  Plaintiffs—purported shareholders of 6D—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they failed to disclose the Company’s association with an individual whom United States regulators have charged in connection with stock manipulation schemes.  The decision illustrates the challenges plaintiffs face when making claims based on alleged omissions because often there is no duty to disclose the omitted information.   

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