On November 20, 2025, Judge Edward J. Davila of the United States District Court for the Northern District of California dismissed with prejudice a putative securities class action against a social media platform (the “Company”) and its chief executive officer (the “CEO” and, collectively, “Defendants”) under Sections 10(b) and Section 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.
Hollingsworth v. Nextdoor Holdings, Inc. et al., No. 5:24-cv-1213-EJD (N.D. Cal. Nov. 20, 2025). The Court held that the second amended complaint (“SAC”) failed to cure the defects the Court identified in the first amended complaint (“FAC”), which we previously covered
here. The Court further held plaintiff’s failure to sufficiently allege facts giving rise to a strong inference scienter and loss causation also warranted dismissal.
The FAC alleged the Company’s “active user” definition included not only on-platform, or actively engaged, users, but also recipients who merely opened Company marketing emails. Plaintiff alleged this rendered a May 2022 statement by the CEO statement about strengthening user metrics and the share of weekly/daily active users misleading. In relevant part, the CEO stated, “[o]ur product strategy in 2022 is centered on strengthening engagement through building an active valued community” and that the strategy was working, as reflected by the fact that “[i]n Q1, over 50% of [users] were weekly active and over half of weekly active users were active daily, highlighting . . . [these users] have a high propensity to make [the Company] a daily use case.” On May 19, 2025, the Court dismissed the FAC, holding the Company clearly disclosed that “active users” included off-platform email openers. The Court gave plaintiff one last opportunity to replead.
In the SAC, plaintiff recast the same May 2022 statement as an insinuation by the Company that “the proportion of active users that were purely off-platform was negligible” because the statement contained other language and parlance that ordinarily would connote that the “active users” referred therein interacted and engaged with the site. The Court rejected this, holding that nothing identified in the SAC could be read to “reasonably imply any particular percentage” of off-platform users who constituted “active users.”
With respect to scienter, the Court held plaintiff failed to plead the CEO knew, or was deliberately reckless in not knowing, that her statement would mislead.
First, it held that the allegations the CEO received executive reports regarding off-platform active users were devoid of particularized facts about what those reports showed and when the CEO received them in relation to the May 2022 statement. The Court further found plaintiff’s generalized allegations about Company employees being concerned that active users included off-platform users was not germane to plaintiff’s new theory and that plaintiff’s “core operations” theory also failed because the SAC failed to plead the active user on- and off-platform ratio was central to Company operations.
Finally, although plaintiff alleged that the Company stock dropped on August 9 and November 8, 2022, after disclosures regarding declining advertising revenue metrics, the Court held the SAC did not connect those alleged price declines to a revelation about the “active user” metric or the alleged on/off-platform split and therefore failed to allege loss causation sufficiently.
The Court held that any further attempt to replead would be futile and therefore dismissed the action with prejudice.
