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  • Fifth Circuit Holds That Complaint Based On Confidential Informant’s Allegations Sufficiently Alleged Material Misrepresentation And Omission In Investor Class Action
     
    02/03/2023

    On January 18, 2023, the United States Court of Appeals for the Fifth Circuit reversed and remanded the district court’s order dismissing the putative securities class action with prejudice, holding that plaintiff sufficiently alleged that a major theme park operator (the “Company”) and two of its executives made material misstatements and omissions in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  Oklahoma Firefighter Pension and Retirement Systems v. Six Flags Entertainment Corporation, No. 21-10865, 2023 WL 228268 (5th Cir. 2023).  Largely on information from a former employee (“FE”), the complaint alleged that defendants misled investors by projecting unrealistic or impossible timelines for opening theme parks in China.  After significantly discounting the FE’s allegations, the district court dismissed the complaint with prejudice.  The Fifth Circuit reversed, holding that the complaint adequately alleged the FE’s personal knowledge of the relevant topics and that the FE’s allegations should be discounted “only minimally.”
  • California District Court Grants With Prejudice Motion To Dismiss Securities Fraud Class Action Against Video Game Company, Finding Plaintiffs Failed To Plead Falsity And Scienter
     
    02/03/2023

    On January 22, 2023, Judge Percy Anderson of the United States District Court for the Central District of California granted a motion to dismiss the third amended class action complaint (“TAC”) in a putative class action alleging that a video game company (the “Company”) and four of its officers misled investors by making material misstatements and omissions concerning sexual harassment and discrimination at the Company.  Cheng v. Activision Blizzard Inc. et al., 2:21-cv-06240 (C.D. Cal. Jan. 22, 2023).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder.  The Court dismissed plaintiffs’ TAC with prejudice, finding plaintiffs failed to plead falsity and scienter.
  • The United States Supreme Court Decides Not To Rule On Case Considering Test For Application Of Attorney-Client Privilege To So-Called “Dual-Purpose” Communications, After Hearing Oral Argument
     
    02/03/2023

    On January 23, 2023, the United States Supreme Court dismissed the writ of certiorari as improvidently granted in a case that asked the Court to consider how to determine the application of attorney-client privilege to so-called “dual-purpose” communications, i.e., communications that reflect both legal and non-legal advice.  In re Grand Jury, No. 21-1397, slip op., 589 U.S. ___ (2023).  As we covered in a previous post, the Court granted a petition for certiorari to review a Ninth Circuit decision that held that the “primary purpose” should apply, which the Ninth Circuit stated requires the court to look to whether the primary purpose of the communication was to give or receive legal advice.  The Ninth Circuit had expressly left open whether the test should focus on determining whether “a primary purpose” or “the primary purpose” is seeking or providing legal advice.  In re Grand Jury, 23 F.4th 1088, 1091-92, 1094 (9th Cir. 2022).
  • Western District Of New York Holds That Desire To Raise Capital In Specific Offering Can Provide A Basis to Infer Scienter
     
    02/03/2023

    On January 6, 2023, Judge John L. Sinatra, Jr. of the United States District Court for the Western District of New York denied a motion to dismiss claims against a cannabis and tobacco engineering company (the “Company”) alleging that the Company failed to disclose an investigation by the United States Securities and Exchange Commission (“SEC”) in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Noto v. 22nd Century Group Inc., No. 1:19-cv-01285, 2023 WL 122305 (W.D.N.Y. Jan. 6, 2023). Following a January 2021 dismissal of the complaint, and the Second Circuit’s reversal of that decision, the Company again moved to dismiss plaintiffs’ claims. The Court denied the Company’s motion and permitted plaintiffs’ Section 10(b) and 20(a) claims to proceed.
  • Northern District Of California Holds That SPAC Investors Have Standing To Sue Regarding Alleged Misstatements About A Different Entity, But Dismisses Putative Class Action For Failure To Allege Material Misstatements
     
    01/18/2023

    On January 11, 2023, the United States District Court for the Northern District of California dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) against an electric vehicle company and its CEO.  In re CCIV/Lucid Motors Sec. Litig., No. 4:21-cv-9323, slip op. (N.D. Cal. Jan. 11, 2023), ECF No. 151.  Plaintiffs, who allegedly purchased shares in a Special Purpose Acquisition Company (“SPAC”) that later merged with the electric vehicle company (with the electric vehicle company becoming the surviving entity of the merger), alleged that, prior to the merger, the company had made misrepresentations and omissions about its value.  Plaintiffs claimed to have invested in the SPAC after the press had announced the SPAC was “in talks” with the electric vehicle company, but before the merger was officially announced by the SPAC and the company themselves.  Following post-merger statements that allegedly contradicted the company’s pre-merger statements, plaintiffs sued, claiming that defendants’ alleged misrepresentations regarding the electric vehicle company’s value had caused them to pay an inflated price for the SPAC’s stock.  The Court held that plaintiffs had standing to sue the electric vehicle company, but dismissed their claims for failure to identify any material misrepresentations because the challenged statements were made before the SPAC and the electric vehicle company had announced or confirmed that they were in merger discussions.
  • Southern District Of New York Dismisses Putative Class Action Against Online Sports Gaming Company For Failure To Allege Actionable Misrepresentations Or Scienter
     
    01/18/2023

    On January 10, 2023, Judge Paul Engelmayer of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against an online sports gaming and betting company and certain of its executives.  In re DraftKings Inc. Sec. Litig., 2023 WL 145591 (S.D.N.Y. Jan. 10, 2023).  Plaintiffs alleged that the company made misrepresentations and omissions regarding whether a target company it acquired had gambling operations in jurisdictions where gambling was illegal.  The Court held that plaintiffs failed to adequately allege actionable misrepresentations or scienter.
  • Supreme Court Considers Test For Application Of Attorney-Client Privilege To So-Called “Dual-Purpose” Communications
     
    01/18/2023

    On January 9, 2023, the United States Supreme Court heard oral argument in In re Grand Jury, No. 21-1397, a case with potentially far-reaching implications concerning the application of the attorney-client privilege to so-called “dual-purpose” communications, i.e., communications that reflect both legal and non-legal advice.
  • Ninth Circuit Holds That Complaint Sufficiently Alleged Company Was “Statutory Seller” Under Section 12(a)(2) Based On Social Media Videos Even Though Plaintiff Was Not Specifically Solicited
     
    01/12/2023

    On December 21, 2022, the United States Court of Appeals for the Ninth Circuit affirmed in part and denied in part the dismissal of a purported class action suit against a real estate property management company (the “Company”) alleging the Company made material misstatements or omissions in social media posts, in violation Sections 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”).  Pino v. Cardone Capital, LLC, No. 21-55564, 2022 WL 17826876 (9th Cir. Dec. 21, 2022).  Plaintiff alleged that the Company misrepresented the returns investors could make by investing in the Company’s investment funds in videos posted on social media sites.  The district court found that the Company was not a “statutory seller” under Section 12 and dismissed the suit in its entirety.  In a unanimous opinion, the Ninth Circuit disagreed, finding that the Company did qualify as a statutory seller.  In a memorandum disposition filed on the same day, the Ninth Circuit held that some of the alleged misstatements were not actionable under the Securities Act and affirmed dismissal of claims based on those statements.
  • The United States Supreme Court Will Hear Case Presenting Question Of Whether Investors Have Standing To Bring Securities Act Claims In Connection With Shares They Cannot Prove Were Registered Under The Registration Statement They Allege Is False Or Misleading, Such As Shares Purchased Through Direct Listings
     
    01/12/2023

    On December 13, 2022, the United States Supreme Court granted a petition for certiorari to review a split decision by the Ninth Circuit holding that plaintiff-investors had standing under the Securities Act of 1933 (the “Securities Act”) to sue a workplace communication software company (the “Company”) based on shares purchased through a direct listing.  Slack Technologies, LLC, et al., v Fiyyaz Pirani, No. 22-200 (U.S. Dec. 13, 2022).  The issue before the Supreme Court is whether Sections 11 and 12(a)(2) of the Securities Act require plaintiffs to plead and prove that they bought shares that were registered under the registration statement they claim was misleading.
  • Southern District Of New York Grants Summary Judgment To Pharmaceutical Company In Investor Class Action
     
    12/20/2022

    On December 12, 2022, Judge Colleen McMahon of the United States District Court for the Southern District of New York granted summary judgment to a major pharmaceutical company (the “Company”) and dismissed class action claims that the Company failed to disclose a “serious and known link” between the Company’s breast implant products and a rare form of cancer, breast implant-associated anaplastic large cell lymphoma (BIA-ALCL), in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. In re Allergan PLC Securities Litigation, 2022 WL 17584155 (S.D.N.Y. 2022).  The Court held that the challenged statements were “literally true and not misleading” and that plaintiff failed to prove after extensive discovery that either scientific studies or the regulatory community had determined that the Company’s implants were in fact more closely associated with BIA-ALCL than other types of implants. Because discovery did not uncover any evidence of falsity and plaintiff failed to raise a genuine issue of fact with respect to the materiality of the alleged misrepresentations or as to loss causation, the Court granted the Company’s motion for summary judgment.
  • Western District Of Washington Largely Declines To Dismiss Putative Class Action Against Online Real Estate Listing Company
     
    12/13/2022

    On December 7, 2022, the United States District Court for the Western District of Washington largely denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against an online real estate listing company and certain of its executives.  Jaeger v. Zillow Group, Inc., 2022 WL 17486297 (W.D. Wash. Dec. 7, 2022). Plaintiff alleged that the company made misrepresentations in connection with a real estate purchasing program.  While the Court dismissed one allegation as a non-actionable forward-looking statement, the Court held that the remainder of plaintiff’s allegations stated a claim.
  • Southern District Of New York Dismisses Putative Class Action Against Beverage Manufacturer For Failure To Adequately Allege Misrepresentations
     
    12/13/2022

    On December 5, 2022, Judge Denise Cote of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against an alcoholic beverage manufacturer and certain of its executives.  Siegel v. Boston Beer Co., Inc., 2022 WL 17417111 (S.D.N.Y. Dec. 5, 2022). Plaintiff alleged that the company made misleading statements related to the performance of the company’s products in the hard seltzer market as the pandemic subsided and consumers returned to bars and restaurants. The Court assessed three categories of alleged misstatements and held that none was actionable.
  • Fourth Circuit Affirms Dismissal Of Suit Against Online Education Platform
     
    12/13/2022
     
    On November 22, 2022, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action against an online education platform (the “Company”) under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. Boykin v. K12, Inc., No. 21-2351, 2022 WL 17097453 (4th Cir. 2022). Plaintiffs alleged that the Company artificially inflated the cost of its shares by misrepresenting the state of its business during the COVID-19 pandemic. The district court found that plaintiffs failed to plead falsity and scienter and granted the Company’s motion to dismiss with prejudice. The Fourth Circuit affirmed, holding that plaintiffs failed to allege actionable misrepresentations or facts giving rise to a strong inference of scienter.
  • Eastern District Of New York Court Grants In Part Motion To Dismiss Putative Securities Class Action Brought Against Space Exploration Company
     
    11/15/2022

    On November 7, 2022, Judge Allyne R. Ross of the United States District Court for the Eastern District of New York granted in part a motion to dismiss a putative securities class action against a space exploration company (the “Company”), its founder, and certain of its current and former executives. Kusnier and Scheele v. Virgin Galactic Holdings, Inc., et al, No. 21-cv-03070-ARR (E.D.N.Y. Nov. 7, 2022). Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Sections 20(a) and 20A of the Exchange Act, by making materially false and misleading statements regarding the safety history and functioning capabilities of the Company’s spacecraft. The Court granted the motion in part but found sufficient at the pleading stage certain alleged misstatements.
     
  • Northern District Of California Dismisses Putative Class Action Against Enterprise Data Platform
     
    11/08/2022

    On October 25, 2022, Judge Maxine M. Chesney of the United States District Court for the Northern District of California granted a motion to dismiss a putative class action against an enterprise data cloud platform company (the “Company”). In re Cloudera, Inc. Securities Litigation, No. 19-CV-03221-MMC, 2022 WL 14813896 (N.D. Cal. Oct. 25, 2022). Plaintiffs alleged that the Company misled investors in its characterization of the Company’s platform in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5. The Court, having dismissed an earlier complaint, dismissed the claims without further leave to amend, finding that the Company’s statements were not false or misleading.
  • District Court Of Massachusetts Denies Communications Infrastructure Company’s Motion To Dismiss Finding Plaintiffs Adequately Pled Scienter
     
    11/01/2022

    On October 20, 2022, Judge George A. O’Toole, Jr. of the United States District Court for the District of Massachusetts (the “Court”) denied a motion to dismiss a putative securities class action against a business communications infrastructure company (the “Company”) and three of its executives.  Miller v. Sonus Networks, Inc., et al, No. 18-12344-GAO (D. Mass Oct. 20, 2022).  Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, by making materially false and misleading statements regarding the Company’s projected sales and revenue forecast.  The Court denied the motion, finding that plaintiff adequately pled scienter.
  • Second Circuit Affirms Decision Dismissing Putative Class Action Alleging Manipulation Of Yen-LIBOR And Euroyen TIBOR Rates
     
    11/01/2022

    On October 18, 2022, the United States Court of Appeals for the Second Circuit affirmed the dismissal by the United States District Court for the Southern District of New York of a putative class action against more than twenty banks and certain brokers alleging a conspiracy to manipulate Yen-LIBOR (“LIBOR”) and Euroyen TIBOR (“TIBOR”) rates.  Laydon v. Coöperatieve Rabobank U.A., et al., No. 20-3626 (2d Cir. Oct. 18, 2022).  Plaintiff brought claims under the Commodity Exchange Act (“CEA”), 7 U.S.C. § 1 et seq., and the Sherman Antitrust Act, 15 U.S.C. § 1 et seq., and sought leave to assert claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962, 1964(c).  The Court affirmed the district court’s order dismissing the CEA and antitrust claims and denying leave to add the RICO claims, holding that the alleged conduct was impermissibly extraterritorial under the CEA, plaintiff lacked antitrust standing because he would not be an efficient enforcer of the antitrust laws, and plaintiff failed to allege proximate causation for a RICO claim.
  • Eastern District Of New York Grants In Part And Denies In Part Motion To Dismiss Securities Fraud Class Action Against Mattress Company
     
    10/18/2022

    On September 30, 2022, Judge Margo K. Brodie of the Unites States District Court for the Eastern District of New York granted in part and denied in part a motion to dismiss a securities fraud class action against a bedding company (the “Company”) alleging that the Company misled investors about the Company’s strength and potential for growth in violation of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  Lematta v. Casper Sleep, Inc., et al., No. 20-CV-2744 (MKB), 2022 WL 4637795 (E.D.N.Y. Sept. 30, 2022).  The Court held that (i) alleged misstatements about optimizing pricing and promotional strategies in offering materials for the Company’s initial public offering (“IPO”) were not misleading and (ii) alleged misstatements about anticipated growth were puffery or forward-looking statements accompanied by sufficient cautionary language.  The Court otherwise denied the motion to dismiss.
  • Southern District Of New York Dismisses Putative Class Action Against E‑Cigarette Manufacturer
     
    10/11/2022

    On September 30, 2022, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action asserting claims under the Securities Act of 1933 against an e-cigarette manufacturer, certain of its officers and directors, and the underwriters of the company’s initial public offering in the United States.  Garnett v. RLX Tech., Inc., No. 21-cv-5125, 2022 WL 4632323 (S.D.N.Y. Sept. 30, 2022).  Plaintiffs alleged that the China-based company failed to disclose the likelihood of increased e-cigarette regulations in China that would harm the company’s financial prospects.  The Court held that plaintiffs failed to adequately allege any actionable misrepresentation.
  • Northern District Of Texas Dismisses Putative Class Action Against Oil And Gas Company For Failure To Allege Scienter
     
    10/11/2022

    On September 29, 2022, Chief Judge David C. Godbey of the United States District Court for the Northern District of Texas dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against an oil company and certain of its officers.  Yoshikawa v. Exxon Mobil Corp., No. 3:21-CV-00194-N, 2022 WL 4677621 (N.D. Tex. Sept. 29, 2022).  Plaintiffs alleged that the company made misrepresentations in connection with the company’s purchase of certain oil and gas assets and its expected production from those assets.  The Court held that plaintiffs failed to adequately allege scienter but granted plaintiffs’ request for leave to amend with respect to certain alleged misstatements as to which the Court held plaintiffs had alleged a plausible theory of falsity and materiality.
  • Second Circuit Affirms Dismissal Of Exchange Act Claims Against Acquired Public Company, Holding That Shareholders Of An M&A Acquiror Do Not Have Standing To Pursue Claims Based On Acquired Company’s Alleged Pre-Transaction Misstatements
     
    10/11/2022

    On September 30, 2022, a panel of the United States Court of Appeals for the Second Circuit affirmed a decision of the United States District Court for the Southern District of New York dismissing a putative securities fraud class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder against a flavoring and fragrance products company (the “Company”) and several of its executives.  Menora Mivtachim Ins. Ltd., et al. v. Frutarom Indus. Ltd., et al., No 21-1076 (2d Cir. Sept. 30, 2022).  Plaintiffs alleged that, from 2002 to 2018, the Company engaged in a “long-running bribery scheme,” and that defendants made materially misleading statements about the Company’s compliance with anti-bribery laws and its business growth in public documents filed when the Company was acquired in 2018.  The district court granted the motion to dismiss as against the Company and its officers, holding that plaintiffs failed to sufficiently allege statutory standing to pursue their securities fraud claims.  The Second Circuit affirmed.
  • Southern District Of New York Dismisses Putative Class Action Against Pharmaceutical Company For Failure To Adequately Allege Misstatements, Scienter
     
    09/30/2022

    On September 12, 2022, Judge J. Paul Oetken of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives.  In re AstraZeneca plc Sec. Litig., 2022 WL 4133258 (S.D.N.Y. Sept. 12, 2022).  Plaintiffs alleged that the company made misstatements and omissions with respect to clinical trials of its COVID-19 vaccine.  The Court held that plaintiffs failed to identify any misleading statements and failed to adequately allege scienter.
  • Eastern District Of Pennsylvania Certifies Class Of Investors In Suit Against Natural Gas Company After Finding That Presumption Of Reliance Was Not Rebutted
     
    09/07/2022

    On August 23, 2022, Judge Gerald Austin McHugh, Jr. of the United States District Court for the Eastern District of Pennsylvania granted class certification in a securities fraud class action against an energy company and its subsidiary (the “Company”) and its executives under the Securities Exchange Act of 1934.  The suit alleged that defendants made misstatements and omissions regarding the status of the construction of three natural gas pipelines and that the Company’s stock price dropped following certain corrective disclosures.  The Court certified the class after holding that plaintiffs met the requirements of Rule 23(a) as well as the predominance and superiority requirements of Rule 23(b)(3).
    CATEGORIES : Class CertificationReliance
  • Tenth Circuit Panel Revives Putative Class Action Against Online Education Company
     
    09/07/2022

    On August 23, 2022, the United States Court of Appeals for the Tenth Circuit unanimously reversed the dismissal of a putative securities class action against an online education company (the “Company”), alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), SEC Rule 10b-5, Section 20A of the Exchange Act, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”).  Plaintiffs alleged that the Company made false and misleading statements about the size and productivity of the Company’s sales force.  The district court dismissed the Exchange Act claims because plaintiffs failed to plead a strong inference of scienter and dismissed both the Exchange Act and the Securities Act claims for failure to plead a violation of Item 303 of SEC Regulation S-K.  On appeal, the Tenth Circuit reversed and remanded, holding that (i) the Exchange Act allegations “support[ed] an inference of scienter at least as compelling as any nonculpable inference” and (ii) the district court relied on “erroneous reasoning” to dismiss the Exchange Act and Securities Act claims based on the alleged violation of Item 303.
    CATEGORIES : Item 303Scienter
  • First Circuit Affirms Denial Of Motion To Dismiss Securities Fraud Class Action, Finding Plaintiffs Failed To Allege Any Actionable False Statements Or Misleading Omissions By Healthcare Company In Connection With Its Merger
     
    08/23/2022

    On August 18, 2022, a unanimous panel of the United States Court of Appeals for the First Circuit affirmed a decision by the United States District Court for the District of Rhode Island granting a motion to dismiss a putative securities fraud class action asserting claims under Section 10(b) of the Securities Exchange Act (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange against a health care and pharmaceutical company (the “Company”) and two of its senior executives. City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, et. al. v. CVS Health Corporation, No. 21-1479 (1st Cir. Aug 18, 2022). Plaintiffs alleged that, following the Company’s 2015 acquisition of another health care company (the “Merger”), the Company’s executives issued false statements and misleading omissions about various post-Merger issues. In affirming dismissal of the amended complaint, the First Circuit held that the district court’s assessment was “right on the mark” and that “[p]laintiffs failed to allege that defendants made statements of fact that were false when made or misleadingly incomplete in light of the contemporaneous circumstances.”
  • Georgia District Court Grants Motion To Dismiss Class Action Against Investment Bank For Aiding And Abetting Fraud, Finding That Alleged Investments At Issue Were A “Covered Security” Under SLUSA
     
    08/23/2022

    On August 17, 2022, Judge Steven D. Grimberg of the United States District Court for the Northern District of Georgia granted a motion to dismiss a putative class action alleging an investment bank (the “Company”), certain of its advisors (the “Advisor Defendants”), and certain of its external accountants (the “Accounting Defendants”) aided and abetted one of the Company’s former advisors (the “Individual Defendant”) in facilitating an alleged decade-long Ponzi scheme.  6694 Dawson Blvd, LLC v. Oppenheimer & Co., Inc., et al., 1:21-cv-03625.  (N.D. Geo. Aug. 17, 2022).  Plaintiffs alleged that defendants misrepresented or concealed material facts that, had plaintiffs known, would have caused them not to purchase allegedly “bogus” securities from the Individual Defendant.
  • First Circuit Affirms Denial Of Motion To Dismiss Securities Fraud Class Action, Finding Plaintiffs Failed To Allege Any Actionable False Statements Or Misleading Omissions By Healthcare Company In Connection With Its Merger
     
    08/23/2022

    On August 18, 2022, a unanimous panel of the United States Court of Appeals for the First Circuit affirmed a decision by the United States District Court for the District of Rhode Island granting a motion to dismiss a putative securities fraud class action asserting claims under Section 10(b) of the Securities Exchange Act (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange against a health care and pharmaceutical company (the “Company”) and two of its senior executives.  City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, et. al. v. CVS Health Corporation, No. 21-1479 (1st Cir. Aug 18, 2022).  Plaintiffs alleged that, following the Company’s 2015 acquisition of another health care company (the “Merger”), the Company’s executives issued false statements and misleading omissions about various post-Merger issues.  In affirming dismissal of the amended complaint, the First Circuit held that the district court’s assessment was “right on the mark” and that “[p]laintiffs failed to allege that defendants made statements of fact that were false when made or misleadingly incomplete in light of the contemporaneous circumstances.”
  • Northern District Of California Dismisses Putative Class Action Suit Against Financial Technology Company That Underscores The Challenges Plaintiffs Face When Predicating Securities Claims On The Disclosure Of A Regulatory Investigation
     
    08/16/2022

    On August 8, 2022, Judge Charles R. Breyer of the United States District Court for the Northern District of California granted a motion to dismiss a proposed securities class action suit against a financial technology company (the “Company”) and four of its executives alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  Huei-Ting Kang v. PayPal Holdings Inc., No. 3:21-cv-06468 (N.D. Cal. Aug. 8, 2022).  Plaintiffs alleged that the Company misled investors about its compliance with (1) a Consumer Financial Protection Bureau (“CFPB”) Consent Order (the “Consent Order”) prohibiting deceptive marketing of the company’s revolving line of credit; and (2) the Federal Reserve Board’s Regulation II, which caps debit card interchange fees.  The Court’s dismissal of the complaint (with leave to amend) is a reminder of the challenges plaintiffs face when trying to assert securities claims in the wake of company announcements of regulatory investigations.
  • Middle District Of Florida Dismisses Putative Class Action Against Recycling Company For Failure To Adequately Allege Misrepresentations Or Scienter
     
    08/16/2022

    On August 4, 2022, the United States District Court for the Middle District of Florida dismissed without prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a recycling services company, certain of its officers and directors, and the former CEO of a special purpose acquisition company (SPAC) that acquired the company.  Theodore v. PureCycle Tech. Inc., No. 6:21-cv-809-PGB-GJK, slip op. (M.D. Fla. Aug. 4, 2022), ECF No. 112.  Plaintiffs alleged that the company made misrepresentations with respect to its management team’s experience, the value of its patented recycling process, and its future production and financial projections, which were allegedly revealed in a short-seller report.  The Court held that the complaint on its face failed to state precisely which statements or omissions were at issue and where they were made, that plaintiffs adequately alleged certain misrepresentations but not others, and that plaintiffs adequately alleged loss causation but not scienter.
  • District Of New Jersey Dismisses Putative Securities Class Action Against Pharmaceutical Company For Failure To Adequately Allege Misrepresentations And Scienter
     
    08/16/2022

    On August 4, 2022, the United States District Court for the District of New Jersey dismissed a putative securities class action asserting claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives.  Paxton v. Provention Bio, Inc., No. 3:21-cv-11613, slip op. (D.N.J. Aug. 4, 2022), ECF No. 57.  Plaintiffs alleged the company made misrepresentations in connection with the company’s candidate drug intended to delay or prevent the progression of Type One Diabetes.  The Court held that plaintiffs failed to adequately allege actionable misrepresentations, scienter, or loss causation.
  • Eleventh Circuit Affirms Dismissal Of Putative Class Action Against Medical Technology Company For Failure To Adequately Allege Misrepresentations
     
    08/16/2022

    On August 1, 2022, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative securities class action asserting claims under the Securities Act of 1933 against a medical technology company, certain of its officers and directors, and the underwriters of the company’s stock offerings.  Einhorn v. Axogen, Inc., —F.4th—, 2022 WL 3022297 (11th Cir. 2022).  The appeal solely concerned plaintiffs’ claim that the company had overstated the frequency of peripheral nerve injuries and repairs.  The Court held that these statements were forward-looking statements that were not actionable under the safe-harbor provision of the Securities Act.
  • Illinois District Court Grants In Part And Denies In Part Insurance Company’s Motion For Summary Judgment In Putative Securities Fraud Lawsuit
     
    08/03/2022

    On July 26, 2022, Judge Robert W. Gettleman of the United States District Court for the Northern District of Illinois Eastern Division granted in part and denied in part a motion for summary judgment in a securities fraud class action against an insurance company (the “Company”) and certain of its executives.  In re The Allstate Corp. Sec. Litig., No. 16-C-10510 (N.D. Ill. July 26, 2022).  Plaintiffs alleged that defendants violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making material misstatements and omissions regarding a spike in the frequency of automobile policy claims, which plaintiffs alleged had a negative impact on the Company’s financial condition and stock price.
  • Seventh Circuit Affirms Dismissal Of Exchange Act Claim Against Owner Of Options Exchange, Finding Plaintiffs Failed To Adequately Plead Scienter
     
    08/03/2022

    On July 27, 2022, a unanimous panel of the United States Court of Appeals for the Seventh Circuit affirmed a decision of the United States District Court for the Northern District of Illinois dismissing a putative securities fraud class action asserting a claim under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder, as well as claims under the Commodities Exchange Act, against an options and futures exchange company (the “Company”).  Brian Barry, et al. v. CBOE Global Markets, Inc., et al., No. 20-1843 (7th Cir. July 27, 2022).  Plaintiffs alleged that the Company violated the Exchange Act by trading options and futures based on an index it created (“VIX”) that was designed to estimate the near-term volatility in the S&P 500 Index, but allegedly was subject to market manipulation by unknown traders (the “Doe Defendants”) soon after its creation.  The Seventh Circuit affirmed the dismissal of the claims, holding that plaintiffs failed to plead scienter.
    CATEGORIES : CommoditiesExchange ActScienter
  • Northern District Of California Largely Denies Motion To Dismiss Securities Fraud Class Action Against Biopharmaceutical Company
     
    07/28/2022

    On July 15, 2022, Judge Edward M. Chen of the United States District Court for the Northern District of California largely denied a motion to dismiss a securities fraud class action against a biopharmaceutical company (the “Company”) and certain of its officers alleging violations of Sections 10(b) of the Securities Exchange Act of 1934.  In re FibroGen, Inc. Securities Litigation, No. 21-cv-02623-EMC (N.D. Cal. July 15, 2022).  Plaintiffs alleged that the Company made 96 false and misleading statements concerning the “safety and efficacy data of its flagship drug.”  Although the Court held that a handful of the misstatements were not actionable for failure to adequately allege falsity, the Court otherwise denied the motion to dismiss.
    CATEGORIES : Exchange ActFalsityPSLRAScienter
  • Central District Of California Dismisses With Prejudice Suit Against Children’s Cartoon Company And Finds That The Complaint Violated Rule 8 Of The Federal Rules Of Civil Procedure
     
    07/28/2022

    On July 15, 2022, the United States District Court for the Central District of California granted a motion to dismiss a putative class action against a children’s cartoon company (the “Company”) and certain of its officers alleging violations of Section 10(b) of the Securities Exchange Act of 1934.  In Re Genius Brands Int’l, Inc. Sec. Litig., CV 20-7457 DSF (RAOx) (C.D. Cal. July 15, 2022).  In a second amended complaint, plaintiffs alleged that the Company made materially false and misleading statements and omissions about the Company’s engagement of a stock promotion company, an impending acquisition by Disney or Netflix, and its economic resilience in the face of COVID-19, among other topics.  The Court dismissed the claims with prejudice for failure to adequately plead falsity or materiality, and further held that the complaint of 289 paragraphs and 84 pages violated Rule 8 of the Federal Rules of Civil Procedure that requires a “short and plain statement” of the claims.
  • Central District Of California Largely Denies Motion To Dismiss Putative Class Action Regarding Proposed Acquisition Of Space Industry Startup By SPAC
     
    07/20/2022

    On July 13, 2022, the United States District Court for the Central District of California largely denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a special purpose acquisition company (SPAC), a space industry startup that was the SPAC’s target, certain executives of both companies, and an investor that served as sponsor of the SPAC.  In re Stable Road Acquisition Sec. Litig., No. 2:21-cv-05744, slip op. (C.D. Cal. July 13, 2022), ECF No. 154.  Plaintiff alleged that the target company made misrepresentations regarding the viability of its technology and the immigration and national security status of its CEO, which the SPAC allegedly repeated without conducting adequate due diligence.  The Court held that plaintiff’s allegations were largely sufficient but that plaintiff failed to adequately allege scienter or control person liability with respect to certain executives.
  • Northern District Of California Grants Motion To Dismiss Securities And Exchange Act Claims Against Mobile Gaming Technology Company Holding That Plaintiffs Did Not Adequately Plead Falsity, Scienter, Loss Causation, Or Material Misstatements Or Omissions
     
    07/12/2022

    On July 5, 2022, Chief Judge Richard Seeborg of the Northern District of California granted motions to dismiss a putative securities class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 thereunder, Section 20(a) of the Exchange Act, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“Securities Act”), against a mobile gaming technology company (the “Company”), certain of its officers and directors, and its underwriters.  Jedrzejczyk, et al. v. Skillz Inc., et al., No. 21-cv-03450-RS (N.D. Cal. July 5, 2022).  Plaintiffs alleged that defendants made material misstatements and omissions regarding the Company’s financial condition, technical capabilities, and business prospects.  The Court granted defendants’ motions to dismiss, holding that plaintiffs failed to adequately plead falsity, scienter, or loss causation as to the Exchange Act claims, and that plaintiffs had not established standing or adequately pled material untrue statements or omissions as to the Securities Act claims.
  • Ninth Circuit Affirms Decision Dismissing Securities Class Action Against Medical Device Manufacturer For Failure To Allege An Actionable False Or Misleading Statement
     
    07/12/2022

    On July 7, 2022, a panel of the United States Court of Appeals for the Ninth Circuit affirmed the district court’s dismissal of a putative securities fraud class action against a medical device manufacturer company (the “Company”) and certain of its executives.  Macomb County Employees’ Retirement System et al. v. Align Technology Inc. et al., No. 21-15823 (9th Cir. July 7, 2022).  Plaintiff alleged that defendants violated Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, by misrepresenting the Company’s prospects about its future success in China.  The Court affirmed the district court’s order granting defendants’ motion to dismiss, holding that six of the challenged statements were non-actionable “puffery,” and the remaining six statements did not misrepresent the Company’s growth in China.
  • District Of New Jersey Dismisses Putative Class Action Against Women’s Clothing Retailer For Failure To Allege Material Misstatement And Scienter
     
    07/06/2022

    On June 28, 2022, Judge Kevin McNulty of the United States District Court for the District of New Jersey granted a motion to dismiss a putative class action against a retail clothing brand (the “Company”) and two of its executives (“Individual Defendants”) alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  In re Ascena Retail Grp., Inc. Sec. Litig., No. CV1913529KMJBC, 2022 WL 2314890 (D.N.J. June 28, 2022).  Plaintiffs alleged that the Company knowingly or recklessly overstated the value and business prospects of the Company and its subsidiaries in public statements and SEC filings.  The Court dismissed plaintiffs’ complaint for failure to plead an actionable misrepresentation or allegations sufficient to support a strong inference of scienter.
  • Second Circuit Affirms Dismissal Of Claims On Defaulted Argentina Bonds As Time-Barred
     
    07/06/2022

    On June 22, 2022, the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims seeking recovery on defaulted bonds issued by the Republic of Argentina.  Bainbridge Fund Ltd. v. Republic of Argentina, —F.4th—, 2022 WL 2231401 (2d Cir. 2022).  Plaintiff held bonds issued by Argentina which went into default in 2001, but did not sue until 2016.  The Court held that plaintiff’s claims were time-barred under New York’s six-year statute of limitations for breach-of-contract claims.
  • California District Court Grants Motion To Dismiss With Prejudice Putative Securities Class Action Against Healthcare Company, Finding That Plaintiffs Failed To Allege False Statements Or Misleading Omissions In The Company’s IPO Offering Documents
     
    06/23/2022

    On June 9, 2022, Judge David O. Carter of the United States District Court for the Central District of California granted a motion to dismiss a putative class action lawsuit alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against a healthcare company (the “Company”), its directors, and the underwriters of the Company’s initial public offering.  R. Brian Terenzini v. GoodRx Holdings, Inc. et al., No. 2:20-cv-11444, (C.D. Cal. June 9, 2022).  Plaintiffs alleged in their amended complaint that at the time of the Company’s IPO it failed to disclose in its Registration Statement and subsequent investor communications the significant risk of competition from a large online retailer.  The Court held that—as with the original complaint—plaintiffs failed to allege actionable misstatements or omissions as well as scienter and granted defendants’ motion to dismiss with prejudice.
     
  • Middle District Of Tennessee Certifies Class In Suit Over Healthcare Company’s $1.3 Billion Acquisition Of Diet Company, Finding Price Impact Was Not Disproven
     
    06/14/2022

    On June 7, 2022, Judge Waverly D. Crenshaw, Jr. of the United States District Court for the Middle District of Tennessee granted a motion for class certification in a putative class action against a healthcare company (the “Company”) and its executives, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Robert Strougo v. Tivity Health Inc. et al., No. 3:20-cv-00165 (M.D. Tenn. June 7, 2022).  Plaintiff alleged that the Company misled investors during and after the $1.3 billion acquisition of a well-known diet and nutrition company that closed in the second quarter of 2019 by announcing that the new division created by the merger (the “Nutrition Segment”) was “on track” even though it performed poorly from the time of the acquisition and had significant revenue problems.  The Court granted class certification.
  • Northern District Of California Dismisses Without Prejudice Putative Class Action Against Synthetic Biology Company For Failure To Allege Scienter
     
    06/07/2022

    On May 31, 2022, Judge Beth Labson Freeman of the Northern District of California dismissed without prejudice a putative class action asserting claims under the Securities Exchange Act against a synthetic biology company and certain of its executives.  Joseph v. Precigen, Inc., No. 20-cv-06936-BLF (N.D. Cal. May 31, 2022).  Plaintiff alleged that the company misrepresented the efficiency and economic viability of its methane conversion program.  The Court held that plaintiff failed to adequately allege scienter and failed to allege falsity with respect to certain alleged misrepresentations; however, the Court granted leave to replead.
  • Eleventh Circuit Affirms Dismissal Of State-Law Class Action Claims Against Brokerage Firm As Barred By SLUSA
     
    06/07/2022

    On May 31, 2022, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative class action asserting claims under Georgia state law for breach of fiduciary duty against a brokerage firm and its parent company.  Cochran v. Penn Mut. Life Ins., No. 20-13477 (11th Cir. May 31, 2022).  Plaintiff alleged that the brokerage firm breached a fiduciary duty when it advised plaintiff to use funds in a retirement account to invest in a variable annuity, a product that allegedly resulted in higher fees for the broker and no benefit to plaintiff because his retirement account was already tax-advantaged.  The district court dismissed the class action allegations and the Eleventh Circuit affirmed, holding that the Securities Litigation Uniform Standards Act (“SLUSA”) precludes bringing such claims as a class action.
    CATEGORIES : Misstatement/OmissionSLUSA
  • First Circuit Affirms Dismissal Of Putative Securities Class Action Against Bank For Alleged Failure To Disclose Deteriorating Bond Market Conditions
     
    06/02/2022

    On May 20, 2022, the United States Court of Appeals for the First Circuit affirmed the district court’s dismissal of claims under Section 10(b) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder against a bank and its affiliates (the “Bank”).  Ponsa-Rabell v. Santander Sec. LLC, et al., No. 20-01857 (1st Cir. May 20, 2022).  Plaintiffs alleged the Bank devised a scheme to defraud investors into purchasing Puerto Rican government bonds by omitting material information about the state of the market and about its own alleged program to rid itself of those securities.  The appeal did not pertain to the district court’s dismissal of claims under Section 17(a) of the 1933 Securities Act or Plaintiffs’ claims brought under Puerto Rican law for which the district court declined to exercise supplemental jurisdiction after dismissing plaintiffs’ securities claims.
    CATEGORIES : Exchange ActOmission
  • Second Circuit Vacates In Part Decision To Dismiss Putative Securities Class Action Against Tobacco And Cannabis Company For Alleged Failure To Disclose SEC Investigation
     
    06/02/2022

    On May 24, 2022, the United States Court of Appeals for the Second Circuit affirmed and vacated in part the district court’s dismissal of claims under Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder against a company that genetically engineers tobacco and cannabis products (the “Company”) and two of its former officers.  Noto, et al. v. 22nd Century Group Inc. et al., No. 21-347 (2d Cir. May 24, 2022).  Plaintiffs alleged the Company engaged in an illegal stock promotion scheme by paying authors to write promotional articles about the Company without revealing that the Company paid for the articles, and further failed to disclose an SEC investigation into the Company’s alleged financial control weaknesses.  The Court affirmed the district court’s order granting defendant’s motion to dismiss in part, holding that plaintiffs did not adequately plead a claim that the Company violated the Exchange Act by failing to disclose that it paid for the articles, but vacated the district court’s dismissal of claims related to the SEC investigation and remanded for further proceedings.
    CATEGORIES : Exchange ActOmission
  • Northern District Of California Grants In Part Summary Judgment In Securities Fraud Action Against Electric Carmaker Over Twitter Posts Contemplating Go-Private Deal
     
    05/24/2022

    On May 10, 2022, Judge Edward Chen of the United States District Court for the District of Northern California unsealed an April 1, 2022 order granting in part a motion for summary judgment in a securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a designer and manufacturer of electric cars (the “Company”), its co-founder and CEO (the “Individual Defendant”), and its directors.  In re Tesla, Inc. Sec. Litig., No. 18-CV-04865-EMC, 2022 WL 1497559 (N.D. Cal. Apr. 1, 2022).  Plaintiff claims that the Individual Defendant inflated the Company’s stock price by posting false and misleading statements on Twitter regarding a potential take-private deal.  The case proceeded to summary judgment following the Court’s prior denial of the Company’s motion to dismiss in April 2020, which we covered here.  Nearly two years later, the Court granted plaintiff’s motion for summary judgment as to the Individual Defendant’s statements about securing funding and investor support for the potential take-private deal because he was aware at the time of the statements that the take-private deal remained subject to a number of contingencies.
  • Ninth Circuit Affirms Dismissal Of Complaint Against Pharmaceutical Company For Failure To Allege Falsity And Loss Causation
     
    05/24/2022

    On May 19, 2022, the United States Court of Appeals for the Ninth Circuit affirmed a district court’s dismissal of a putative class action against a pharmaceutical company (the “Company”) asserting claims under Section 10(b) of the Securities Exchange Act of 1934.  In re Nektar Therapeutics Inc. Sec. Litig., No. 21-15170 (9th Cir. May 19, 2022).  Plaintiffs alleged that the Company misled investors about the results of its preliminary trial of the Company’s flagship drug when it presented the information without disclosing that outlier data was included in the average.  In December 2020, the Northern District of California dismissed the complaint for failure to plead falsity, scienter, or loss causation, which we covered here.  The Ninth Circuit affirmed the dismissal, holding that plaintiffs failed to sufficiently explain how the inclusion of the outlier data misled investors, or how the announcement of subsequent trial results caused a loss.
  • New York District Court Denies Motion To Dismiss Putative Securities Class Action Against Investment Company, Finding Plaintiffs Sufficiently Alleged Misleading Statements And Omissions In The Company’s Offering Documents
     
    05/17/2022

    On May 4, 2022, Judge Victor Marrero of the United States District Court for the Southern District of New York denied a motion to dismiss a putative class action alleging, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder against an investment company (the “Company”), its related entities, and its president and co-founder.  Michael Tecku et al. v. YieldStreet Inc. et al., No. 1:20-cv-07327 (S.D.N.Y May 4, 2022).  Plaintiffs alleged that the Company “misrepresented material facts about the stability and attractiveness of their investment products in its offering documents” by making misleading statements or omissions in private placement memoranda (“PPMs”) and series notes supplements (“SNSs”).  The Court held that, accepting plaintiffs’ allegations as true, plaintiffs sufficiently alleged securities fraud violations for certain alleged misstatements and omissions.
  • California Appellate Court Affirms Decision To Dismiss Putative Securities Class Action Against Hair Implantation Company Because Of Federal Forum Provision
     
    05/17/2022

    On April 28, 2022, the First Appellate District Court of Appeals for the State of California affirmed the dismissal of putative securities class action against a hair transplant technology company (the “Company”) alleging violations of the Securities Act of 1933 (the “1933 Act”).  Wong v. Restoration Robotics, Inc., A161489 (Cal. Ct. App. Apr. 28, 2022).  Plaintiff initiated the action in California state court, alleging that the offering documents for the Company’s 2017 initial public offering (“IPO”) contained materially false and misleading statements in violation of the 1933 Act.  The trial court dismissed the complaint on the basis of a federal forum provision (“FFP”) in the Company’s certificate of incorporation.  The Court affirmed, holding that the FFP was enforceable and that the trial court would only have jurisdiction if the Company consented to a different forum, which it had not.
    CATEGORIES : Exchange ActJurisdiction
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