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  • Fourth Circuit Affirms Dismissal Of Putative Class Action Against Business Development Financing Company For Failure To Adequately Allege Scienter
     
    03/02/2021

    On February 22, 2021, the United States Court of Appeals for the Fourth Circuit unanimously affirmed the dismissal of a putative class action asserting claims under Sections 10(b) and 20(a) the Securities Exchange Act of 1934 against a business development financing company (the “Company”) and three of its executives.  In re Triangle Capital Corporation Sec. Lit., No. 19-2162 (4th Cir. Feb. 22, 2021).  Plaintiffs alleged that the Company persisted in a risky investment strategy without adequately disclosing its risks.  The District Court for the Eastern District of North Carolina dismissed the first amended complaint for failure to adequately allege scienter and denied as futile plaintiffs’ motion for leave to amend again.  The Fourth Circuit affirmed and dismissed the action with prejudice, holding that the factual allegations related to “legitimate, subjective business judgments” and that, “to the extent we can make any inference of scienter from these allegations, it is exceptionally weak.”
     
    CATEGORY: Scienter
  • New York Appellate Court Affirms Dismissal Of Securities Act Claim Against Canadian Cannabis Producer Alleging Material Misstatements Regarding Product Quality
     
    02/23/2021

    On February 16, 2021, the Appellate Division of the New York Supreme Court, First Judicial Department, unanimously affirmed the dismissal of a putative class action against a Canadian cannabis producer (the “Company”), certain of its officers and directors, and its underwriters for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Item 303 and Item 105 of Regulations S-K.
     
  • Eastern District Of New York Dismisses Putative Class Action Against Cannabis Operator For Failure To Plead Misrepresentation And Loss Causation
     
    02/23/2021

    On February 16, 2021, Judge Brian M. Cogan of the United States District Court for the Eastern District of New York dismissed a putative securities class action against a medical and wellness cannabis operator and certain of its officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. In re Curaleaf Holdings Inc. Securities Litigation, No. 19-cv-04486 (E.D.N.Y. 2021). Plaintiffs alleged the Company made false and misleading statements regarding the benefits and legality of its cannabinol (“CBD”) products. The Court dismissed the complaint, holding that the Company disclosed what plaintiffs claimed was not disclosed and that plaintiffs thus failed to plead falsity or, with respect to certain alleged misstatements, loss causation.
     
  • Southern District Of New York Grants Motion To Dismiss Securities Fraud Claims Against Restaurant Company, Finding Plaintiff Failed To Plead Material Misstatements
     
    02/11/2021

    On February 3, 2021, Judge Kimba M. Wood of the Southern District of New York granted a motion to dismiss claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, as well as Section 20(a) of the Exchange Act against an international chain restaurant (the “Company”) and two of its senior former executives.  Okla. Law Enf’t Ret. Sys. v. Papa John’s International Inc. et al., No. 18-CV-7927 (KMW) (S.D.N.Y. Feb. 3, 2021).  In the First Amended Complaint (“FAC”), plaintiffs alleged the Company made materially false and misleading statements concerning the Company’s culture and failed to disclose material information concerning the Company’s workplace.  The Court granted the Company’s motion to dismiss the FAC with leave to amend, holding certain alleged misstatements were not actionable as mere puffery and that statements about the Company’s culture were too speculative to be actionable.  See Oklahoma Law Enf’t Ret. Sys. v. Papa John’s Int’l, Inc., 444 F. Supp. 3d 550 (S.D.N.Y. 2020) (“Papa John’s I”).  In addressing the sufficiency of plaintiffs’ Second Amended Complaint (“SAC”), the Court found that it “failed to plausibly allege that [defendants’] positive assurances about the Company’s toxic culture exceeded the protected bounds of generic puffery.”  The Court also found that allegations that the Company would face harmful consequences from the allegedly toxic workplace was not “so concrete and substantial that there arose an affirmative duty to disclose it.”  Accordingly, the Court granted defendants’ motions to dismiss with prejudice.
  • Southern District Of New York Grants Motion To Dismiss Securities Fraud Claims Against Global Logistics And Shipping Company, Finding Plaintiffs Failed To Adequately Plead Material Misstatements And Scienter
     
    02/11/2021

    On February 4, 2021, Judge Ronnie Abrams of the Southern District of New York granted a motion to dismiss putative class action claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, against a global logistics and shipping company (the “Company”) and certain of its executives.  In re FedEx Securities Litigation, No. 19-cv-05990 (S.D.N.Y. Feb. 4, 2021).  Plaintiffs alleged defendants made materially false and misleading statements concerning the financial impacts to the Company resulting from a cyberattack affecting a recently acquired European shipping subsidiary (the “Subsidiary”).  The Court granted defendants’ motion to dismiss plaintiffs’ consolidated class action complaint (the “CAC”) with prejudice.
  • Second Circuit Affirms Dismissal Of Foreign Investor’s Claims Based On Private Offering For Failure To Plead Domestic Application Of Section 10(b)
     
    02/03/2021

    On January 25, 2021, the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a Bermudan capital investment company (the “Company”) and its Chief Executive Officer and Chairman.  Cavello Bay Reinsurance Ltd. v. Shubin Stein et al., No. 20-1371 (2d Cir. Jan. 25, 2021). 
     
    CATEGORIES: Exchange ActJurisdiction
  • Ninth Circuit Affirms Dismissal Of A Putative Securities Class Action Against An Electric Carmaker Related To Production Delays
     
    02/03/2021

    On January 26, 2021, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a putative securities class action against an electric car manufacturer (the “Company”) and certain of its officers for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.
     
  • District Of New Jersey Dismisses Putative Class Action With Prejudice For Failure To Allege Misrepresentations
     
    01/26/2021

    On January 21, 2021, Judge Stanley R. Chesler of the United States District Court for the District of New Jersey dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a real estate services company and certain of its current and former executives.  Tanaskovic v. Realogy Holdings Corp., No. 19-cv-15053, slip op. (D.N.J. Jan. 21, 2021).  Plaintiff alleged that the company made misrepresentations concerning:  (1) the effect of increased commissions paid to its agents; (2) technology offerings; (3) the company’s acquisition strategy; and (4) allegedly anticompetitive behavior that inflated the company’s average commissions.  The Court held that the alleged misstatements were either not alleged to be false with the required particularity or were otherwise not actionable.
     
  • Eastern District Of New York Grants Motion To Dismiss Exchange Act Claims Against Life Insurance Company In Connection With Its Retirement And Income Solution Program
     
    01/20/2021

    On January 7, 2021, Judge Sterling Johnson, Jr. of the Eastern District of New York granted a motion to dismiss, with prejudice, in a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and SEC Regulation S-K, Item 303, against a life insurance company (the “Company”) and certain of its executives.  Parchmann v. Metlife, et al., No. 18-cv-00780-SJ-RLM (E.D.N.Y. Jan. 7, 2021).  Plaintiff alleged that defendants made materially misleading statements regarding the Company’s financial condition and internal controls with respect to one of the Company’s Retirement and Income Solution (“RIS”) programs.  The Court granted defendants’ motion to dismiss with prejudice, holding, among other things, that plaintiffs failed to adequately plead falsity, loss causation, and scienter.
     
  • Ninth Circuit Reverses In Part Dismissal Of Exchange Act Claims Against Pharmaceutical Manufacturer, Holding That Plaintiffs Adequately Pled Certain Alleged Misstatements And Loss Causation
     
    01/20/2021

    On January 11, 2021, the Ninth Circuit in an unpublished decision affirmed in part and reversed in part the dismissal at the pleading stage of Section 10(b) claims under the Exchange Act of 1934 against a pharmaceutical manufacturer (the “Company”) and several of its officers for alleged misstatements regarding an alleged price fixing scheme and the performance of one of its generic drugs.  N.Y. Hotels Trades Council & Hotel Association of NYC Inc. Pension Fund et al. v. Impax Laboratories, Inc., et al., No. 19-16744 (9th Cir. Jan. 11, 2021).  The Court held that plaintiffs’ Second Amended Complaint (the “SAC”) adequately alleged falsity with respect to statements allegedly made by defendants concerning the performance of one of the Company’s drugs (diclofenac) as well forward-looking statements regarding earnings projections and revenue guidance, and further held that plaintiffs adequately alleged loss causation.  Our prior analysis of the district court’s decision can be found here.
     
  • Southern District Of New York Pares Down Putative Securities Class Action Against Data Analytics Company
     
    01/13/2021

    On January 5, 2021, Judge Jesse M. Furman of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative securities class action against a data analytics company (the “Company”) for alleged violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934, and Item 303 of Regulation S-K (“Item 303”).  In re Nielsen Holdings PLC Securities Litigation, No. 1:18-cv-07143 (S.D.N.Y. Jan. 5, 2021).  Plaintiffs alleged the Company made misstatements about the financial performance of some of its business segments and the impact of the enactment of the General Data Protection Regulation (“GDPR”) in the European Union on the Company’s measurement and analytics services.  The Court dismissed some of plaintiffs’ claims, pared down others based on the Company’s knowledge at the time of certain alleged misstatements, and granted plaintiffs’ request for leave to amend.
     
  • Northern District Of California Dismisses A Putative Securities Class Action Against A Biopharmaceutical Company Related To Its Flagship Cancer Drug In Development
     
    01/13/2021

    On December 30, 2020, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California granted a motion to dismiss a putative class action against a biopharmaceutical company (the “Company”) and certain of its officers for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  Malquin v. Nektar Therapeutics, No. 18-cv-06607 (N.D. Cal. Dec. 30, 2020).  Plaintiffs alleged that the Company made false and misleading statements and omissions about the efficacy of its flagship cancer drug in development.  The Court dismissed the amended complaint with prejudice, confirming that securities claims cannot be based on allegations that a company failed to use the best or preferred statistical methods for evaluating the effectiveness of a new drug and that short seller reports will not constitute corrective disclosures sufficient to allege loss causation unless the reports can be characterized plausibly as revealing new information to the market.
     
  • Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United States
     
    01/13/2021

    Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court, and in some cases have already been argued—that may be of particular interest to readers of the Need-to-Know Litigation Weekly.  These cases pertain to various topics in Securities Litigation, Antitrust, IP Litigation, and jurisdictional questions of broad interest.
     
  • Northern District Of California Dismisses Putative Securities Class Action Against Manufacturing Company For Failure To Adequately Allege Misrepresentations
     
    12/22/2020

    On December 10, 2020, Judge Lucy Koh of the United States District Court for the Northern District of California dismissed with prejudice a putative securities class action asserting claims under the Securities Exchange Act of 1934 against a manufacturing and design company and certain of its officers.  Kipling v. Flex Ltd., No. 18-CV-02706-LHK, 2020 WL 7261314 (N.D. Cal. Dec. 10, 2020).  Plaintiff alleged that the company made misrepresentations concerning a major contract to manufacture shoes for a shoe company.  The Court held that plaintiff failed to adequately allege actionable misstatements or omissions and, because the Court had already granted plaintiff an opportunity to replead in a prior order, dismissed the case with prejudice.
     
  • Supreme Court Will Hear Case Raising Whether Securities Class Action Defendants May Rebut The Basic  Presumption Of Reliance In Opposing Class Certification By Pointing To The Generic Nature Of The Alleged Misstatements To Demonstrate Lack Of Price Impact
     
    12/15/2020

    On December 11, 2020, the United States Supreme Court granted a petition for certiorari to review a decision from the United States Court of Appeals for the Second Circuit to address whether a defendant in a securities class action may rebut the presumption of classwide reliance recognized in Basic Inc. v. Levinson, 485 U.S. 224 (1988), by pointing to the generic nature of the alleged misstatements in showing that the statements had no impact on the price of the security (and whether, in seeking to do so, a defendant has the burden of persuasion).  Goldman Sachs Group, Inc. v. Arkansas Teacher Ret. Sys., No. 20-222 (U.S. Dec. 11, 2020).
     
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Social Media Company, Finding Plaintiffs Failed To Plead Material Misstatements And Scienter
     
    12/15/2020

    On December 10, 2020, Judge Yvonne Gonzalez Rogers of the Northern District of California granted a motion to dismiss a claim under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, as well as Section 20(a) of the Exchange Act, against a social media platform (the “Company”) and certain of its executives.  In re Twitter Securities Litigation, No. 19-cv-07149 (N.D. Cal. Dec. 10, 2020).  Plaintiffs alleged that defendants made materially false and misleading statements concerning the Company’s advertising products and revenue predictions that caused the Company’s stock price to drop more than 20% when the Company made purportedly corrective disclosures.  The Court granted defendants’ motion to dismiss plaintiffs’ consolidated class action complaint (the “CCAC”), but granted plaintiffs leave to replead.
     
  • New York Appellate Court Reverses Denial Of Motion To Dismiss Securities Act Claim And Dismisses Complaint Against Chinese E-Commerce Company Alleging Material Omissions
     
    12/08/2020

    On December 3, 2020, the Appellate Division of the New York Supreme Court, First Judicial Department, reversed an order that denied defendants’ motion to dismiss a securities action complaint against a Chinese e-commerce marketing company (the “Company”) under Section 11 of the Securities Act of 1933, and directed that a judgment be entered dismissing the complaint.  Lyu v. Ruhnn Holdings Ltd., No. 12553, 2020 WL 7062118 (1st Dep’t Dec. 3, 2020).  This is the first substantive Securities Act ruling from a New York appeals court since the United States Supreme Court’s decision in Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), which held that state courts have jurisdiction to adjudicate class actions brought under the Securities Act and that such actions generally cannot be removed from state to federal court.
     
    CATEGORIES: OmissionSecurities Act
  • District of New Jersey Dismisses A Putative Securities Class Action Against Food and Snack Company For Failure To Allege Scienter
     
    12/08/2020

    On November 30, 2020, Judge Noel L. Hillman of the United States District Court for the District of New Jersey dismissed without prejudice a putative securities class action against a food and snack company (the “Company”) and certain of its top executives for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  In Re Campbell Soup Co. Securities Litigation, No. 1:18-cv-14385 (D.N.J. Nov. 30, 2020).  Plaintiffs alleged that the Company made material misrepresentations and omissions concerning the profitability of its fresh foods division (the “Fresh Foods Division”).  The Court dismissed the complaint with leave to amend because plaintiffs failed to allege scienter.
     
    CATEGORIES: Exchange ActScienter
  • Southern District Of New York Dismisses A Putative Securities Class Action Against A Weight Loss Company Related To Its Strategic Rebranding Initiative
     
    12/08/2020

    On November 30, 2020, Judge William H. Pauley III of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action asserting violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against a weight loss company (the “Company”), certain of its officers and directors, and its largest shareholder.  In re Weight Watchers Int’l Inc. Sec. Litig., No. 19-cv-2005 (S.D.N.Y. Nov. 30, 2020).  Plaintiffs alleged that the Company made false and misleading statements and omissions about its strategic rebranding initiative.  The Court dismissed these claims because plaintiffs failed to allege falsity, observing that plaintiffs’ claims “have little bearing on disclosure . . . and are [instead] fundamentally about corporate mismanagement.”  Although the Court concluded that plaintiffs’ failure to allege an actionable misrepresentation was sufficient to dismiss the case, the Court addressed the parties’ remaining arguments, including two issues on which the Second Circuit has yet to weigh in, holding that:  (1) the exercise of stock options can be considered for the purpose of determining whether an individual’s stock sales are sufficient to allege scienter; and (2) a selling shareholder is not a “statutory seller” for purposes of Section 12(a)(2) simply because it signed the registration statement.  The Court also held that the selling shareholder was not a “maker” of the allegedly misleading statements and thus could not be held liable under Section 10(b).
     
  • Utah District Court Dismisses Putative Securities Class Action Against Biotechnology Firm For Failure To Allege Falsity And Loss Causation
     
    12/01/2020

    On November 22, 2020, Judge Howard C. Nielson, Jr. of the United States District Court for the District of Utah dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a biotechnology company and certain of its executives.  In re PolarityTE, Inc. Sec. Litig., No. 2:18-cv-00510, 2020 WL 6873798 (D. Utah Nov. 22, 2020).  Plaintiffs alleged that the company made material misstatements in the course of a reverse merger and in subsequent SEC filings.  The Court held that plaintiffs failed to adequately allege falsity with respect to certain challenged statements and failed to establish loss causation for the remainder.
     
  • Second Circuit Vacates Summary Judgment That Had Required Investment Advisor’s Customer To Disgorge Short-Swing Profits
     
    12/01/2020

    On November 23, 2020, the United States Court of Appeals for the Second Circuit vacated a grant of summary judgment to the plaintiff in a derivative action seeking disgorgement of alleged “short-swing profits” in an action under Section 16(b) of the Securities Exchange Act of 1934 against a registered investment advisor, its customer, and the individual defendant who held positions at both entities.  Packer v. Raging Cap. Mgmt., LLC, —F.3d—, 2020 WL 6844063 (2d Cir. 2020).  Plaintiff alleged that the customer was the “beneficial owner” of more than ten percent of a certain company’s shares and, therefore, was required to return profits it earned from buying and selling the company’s shares within a six-month period.  The district court granted summary judgment in plaintiff’s favor, but the Second Circuit vacated the judgment.  The Court held that factual issues remained regarding whether the customer was the beneficial owner of the shares in question and therefore remanded the matter for further proceedings.
     
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Battery Recycling Company, Finding Plaintiffs Failed To Plead Material Misstatements Or Scienter
     
    11/24/2020

    On November 16, 2020, Judge Haywood S. Gilliam, Jr. of the Northern District of California granted a motion to dismiss a Section 10(b) claim under the Securities Exchange Act of 1934 (the “Exchange Act”), as well as a Section 20(a) claim under the Exchange Act as it relates to the Section 10(b) claim, against a lead-acid battery recycler (the “Company”) and three of its senior officers.  In re Aqua Metals Inc. Securities Litigation, No. 17-cv-07142 (N.D. Cal. Nov. 16, 2020).  Plaintiffs alleged that defendants made materially false and misleading statements concerning the Company’s novel recycling technology and its commercialization process.  The Court granted defendants’ motion to dismiss, holding that plaintiffs failed to plead any actionable material misstatements or scienter.  Certain claims in the case addressed in connection with a prior motion to dismiss were not the subject of this decision and will survive.
     
  • Eastern District Of New York Dismisses A Putative Securities Class Action Against A South African Mining Company In Connection With Safety Incidents At Its Mines
     
    11/17/2020

    On November 10, 2020, Judge Kiyo Matsumoto of the United States District Court for the Eastern District of New York granted a motion to dismiss a putative securities class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against a South African precious metals mining company (the “Company”) and its CEO and CFO.  In re Sibanye Gold Ltd. Sec. Litig., No. 18-CV-3721 (E.D.N.Y. Nov. 10, 2020).  Plaintiffs alleged that the Company made false and misleading statements and omissions about its mine safety program and the reasons for miner fatalities.  The Court dismissed these claims for failure to allege plausible facts supporting plaintiffs’ conclusionary allegations.
     
  • Northern District of California Dismisses Putative Securities Class Action Against Customer Service Software Provider For Failure To Allege Falsity and Scienter
     
    11/17/2020

    On November 10, 2020, Judge Charles R. Breyer of the United States District Court for the Northern District of California dismissed without prejudice a putative class action against a software company (the “Company”) and several of its officers, for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  Reidinger v. Zendesk Inc. et al., No. 3:19-cv-06968 (N.D. Cal. Nov. 10, 2020).  Plaintiff alleged that defendants made false and misleading statements and omissions regarding the Company’s performance and sales capabilities in Europe, the Middle East, and Africa (“EMEA”) and the Asian Pacific (“APAC”) and the strength of its data security.  The Court dismissed the complaint with leave to amend because plaintiff failed to allege falsity or scienter, highlighting the formidable challenges plaintiffs face in pleading event-driven claims based on worse than expected earnings results.
     
  • Northern District Of California Pares Claims In Putative Class Action Against Technology Company
     
    11/10/2020

    On November 4, 2020, Judge Yvonne Gonzalez Rogers of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss claims asserted under the Securities Exchange Act of 1934 against a technology company and certain of its executives.  In re Apple Inc. Sec. Litig., No. 19-cv-02033-YGR, slip. op. (N.D. Cal. Nov. 4, 2020), ECF No. 118.  Plaintiffs alleged that the company and its CEO made material misstatements relating to the company’s earnings guidance, which the company ultimately did not meet.  Slip. op. at 4.  The Court dismissed claims based on certain of the alleged misstatements, which it held were not false or misleading, but determined that falsity and scienter were sufficiently alleged as to other alleged misstatements.
     
  • Eastern District Of Virginia Denies Motions To Dismiss Exchange Act Claims Against Building Products Company In Connection With Its Pricing Strategy And Purported Anti-Competitive Conduct
     
    11/03/2020

    On October 26, 2020, Judge John A. Gibney, Jr. of the Eastern District of Virginia denied motions to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a building products company (the “Company”), certain of its executives, and an institutional majority shareholder of the Company.  Cambridge Retirement System v. Jeld-Wen Holding, Inc., et al., No. 3:20-cv-112 (E.D. Va. Oct. 26, 2020).  Plaintiffs alleged defendants made material misstatements and omissions concerning the Company’s pricing strategy, alleged anti-competitive conduct, and the impact of a finding of liability in a separate antitrust private suit.  The Court denied defendants’ motions to dismiss the amended complaint, holding that plaintiffs adequately pled material misrepresentations or omissions, falsity, scienter and loss causation.
     
  • Northern District Of Illinois Dismisses A Putative Securities Class Action Alleging Failure To Disclose Fraudulent Channel Stuffing In Connection With A Merger Of Two Large Packaged Foods Companies
     
    10/27/2020

    On October 15, 2020, Judge Martha M. Pacold of the United States District Court for the Northern District of Illinois granted a motion to dismiss a putative securities class action asserting violations of 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 against a large packaged foods company (the “Company”), as well as certain of its officers and directors, and its underwriters.  W. Palm Beach Firefighters’ Pension Fund v. Conagra Brands, Inc., No. 19-cv-101323, 2020 WL 6118605 (N.D. Ill. Oct. 15, 2020).  Plaintiffs alleged that, in connection with a secondary public offering (“SPO”) to finance the acquisition of another packaged foods company (the “Acquired Company”), the Company failed to disclose that the Acquired Company had engaged in channel stuffing—a form of accounting fraud—to disguise the fact its key brands were struggling.  The Court dismissed these claims in their entirety because, among other reasons, plaintiffs failed to allege adequately that the Acquired Company engaged in fraudulent channel stuffing.
     
  • Northern District Of California Dismisses Putative Securities Act Class Action Against Cloud-Based Storage Provider For Failure To Allege Falsity And As Time-Barred
     
    10/27/2020

    On October 21, 2020, Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed a putative securities class action against a large online cloud-based storage provider (the “Company”), certain of its officers and directors, certain of its controlling shareholders, and the underwriters of its IPO, for alleged violations of Sections 11 and 15 of the Securities Act of 1933 and Item 303 of SEC Regulation S-K.  In re Dropbox Securities Litigation, No. 19-cv-06348 (N.D. Cal. Oct. 21, 2020).  Plaintiffs alleged that the offering materials filed in connection with the Company’s IPO omitted to disclose the decelerating rate at which the Company was converting non-paying registered users into paying subscription users, which gave investors a false impression of the Company’s revenue growth.  The Court dismissed the complaint with leave to amend because plaintiffs failed to allege the offering materials were false or misleading and because plaintiffs’ claims were time-barred.
     
  • Central District Of California Dismisses Putative Class Action Against Food Company For Failure To Adequately Allege Misrepresentations
     
    10/20/2020

    On October 8, 2020, Judge Michael W. Fitzgerald of the United States District Court for the Central District of California dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against a food company and certain of its executives.  Larry Tran v. Beyond Meat, Inc., et al., No. 20-CV-00963-MWF-AFM, slip op. (C.D. Cal. Oct. 8, 2020).  Plaintiffs alleged that the company made misleading statements in public filings falsely suggesting that litigation brought against the company by a supplier, after the company had terminated a manufacturing agreement with that supplier, was meritless.  The Court held that plaintiffs failed to adequately allege an actionable misstatement or omission.
     
  • Southern District Of New York Dismisses Putative Class Action Against Pharmaceutical Company For Failure To Allege Material Misstatement Or Omission
     
    10/20/2020

    On October 14, 2020, Judge Alison J. Nathan 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, certain of its executives, and investors that participated in a go-private merger with the company.  Altimeo Asset Management v. WuXi PharmaTech (Cayman) Inc., No. 19-cv-1654 (AJN), slip op. (S.D.N.Y. Oct. 14, 2020).  Plaintiff alleged that the company made misstatements about its long-term plans and future prospects in connection with the going-private transaction.  The Court held that plaintiff failed to plausibly allege that the company made a material misrepresentation or omission.
     
  • Southern District Of New York Dismisses Putative Class Action Against Lending Company For Failure To Adequately Allege Misrepresentations
     
    10/20/2020

    On October 14, 2020, Judge Alison J. Nathan 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 lending company and certain of its executives.  Burr v. Equity Bancshares, Inc., No. 19-cv-4346 (AJN), slip op. (S.D.N.Y. Oct. 14, 2020).  Plaintiffs alleged that the company failed to disclose problems with its largest credit relationship—involving two companies that ultimately declared Chapter 11 bankruptcy—and that its loan loss reserves in its disclosures to the SEC were false and misleading.  The Court held that plaintiffs failed to adequately allege any actionable misstatement or omission.
     
  • District Of Massachusetts Grants Motion To Dismiss Securities Fraud Claims Against Cloud-Based Remote Software Services Company In Connection With Its Acquisition Of A Competitor, Finding Plaintiffs Failed To Plead Material Misstatements Or Scienter
     
    10/13/2020

    On October 7, 2020, Judge Allison Burroughs of the District of Massachusetts granted in full a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a cloud-based remote software services company (the “Company”) and certain of its executives.  Wasson v. LogMeIn Inc., No. 18-cv-12330 (D. Mass. Oct. 7, 2020).  Plaintiffs alleged defendants made materially false and misleading statements concerning the Company’s integration of a newly acquired competitor.  The Court granted defendants’ motion to dismiss plaintiffs’ amended complaint, holding that plaintiffs failed to plead any actionable material misstatements or scienter, but granted plaintiffs leave to amend.
     
  • Ninth Circuit Reverses Dismissal Of Exchange Act Claims Against Bank And Its Executives, Holding Plaintiffs Adequately Alleged Loss Causation For Certain Claims
     
    10/13/2020

    On October 8, 2020, the Court of Appeals for the Ninth Circuit reversed the dismissal of a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a federally chartered savings bank and its holding company (collectively the “Bank”) and several of its executives, for alleged misstatements regarding the Bank’s underwriting standards, internal controls, and compliance program.  In re BofI Holding, Inc. Securities Litigation, No. 18-55415 (9th Cir. Oct. 8, 2020).  The district court granted defendants’ motion to dismiss the third amended complaint, holding that although plaintiffs adequately pled material misstatements and scienter, plaintiffs failed to sufficiently plead loss causation.  The Ninth Circuit (with Judge Paul J. Watford writing for the majority) vacated the dismissal, holding that plaintiffs sufficiently pled loss causation based on a whistleblower lawsuit filed by a former employee.  Judge Kenneth K. Lee concurred in part and dissented in part.
     
  • District of Utah Dismisses A Putative Class Action Alleging Market Manipulation In Connection With The Issuance Of A Digital Dividend As “Speculation And Fraud-By-Hindsight”
     
    10/08/2020

    On September 28, 2020, Judge Dale A. Kimball of the United States District Court for the District of Utah granted a motion to dismiss a putative securities fraud class action asserting violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against an online home goods retailer (the “Company”) and certain of its current and former officers.  Mangrove Partners Master Fund, Ltd. v. Overstock.com, No. 2:19-CV-709-DAK-DAO (D. Utah Sept. 28, 2020).  Plaintiff, a short seller, alleged that the Company (i) manipulated the market by issuing a digital dividend through the Company’s newly developed alternative trading platform and triggering a “short squeeze,” and (ii) misrepresented the purpose of the digital dividend by not disclosing it would result in a short squeeze and the Company’s financial condition by adjusting its earnings guidance upwards.  The Court dismissed the claims because they were based on “speculation and fraud-by-hindsight.”
     
  • The Second Circuit Affirms The Dismissal Of A Putative Securities Fraud Class Action Against A Tax Services Provider In Connection With The Termination of Its CEO For Sexual Misconduct
     
    10/08/2020

    On September 30, 2020, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative securities fraud class action asserting violations of Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 14a-3, and 14a-9 against a company that provides tax preparation services (the “Company”) as well as certain of its officers.  In re Liberty Tax, Inc. Sec. Litig., No. 20-652, 2020 WL 5807566 (2d Cir. Sept. 30, 2020).  Plaintiffs alleged that the Company made false or misleading statements and omissions concerning its compliance efforts and the termination of its CEO and Chairman, in light of an ongoing internal investigation into allegations that he had engaged in sexual misconduct.  The district court dismissed the suit for failure to adequately allege material misrepresentations and loss causation.  The Second Circuit, in a summary order, affirmed the district’s courts dismissal of the claims for failure to adequately allege any material misrepresentations.
     
  • Eastern District Of New York Dismisses Putative Class Action Against Cosmetics Company For Failure To Allege Actionable Misstatements And Scienter
     
    09/29/2020

    On September 17, 2020, Judge Rachel P. Kovner of the United States District Court for the Eastern District of New York dismissed without prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a cosmetics company and certain of its executives.  Lachman v. Revlon, Inc., No. 19-CV-2859 RPK RER, 2020 WL 5577406 (E.D.N.Y. Sept. 17, 2020).  Plaintiffs alleged that the company made misrepresentations regarding a new software system that was supposed to combine the tracking of different areas of the company’s operations but allegedly led instead to production delays, lost sales, and a material weakness in the company’s internal controls with respect to financial reporting.  The Court held that plaintiffs failed to identify any actionable misstatement or to plead that defendants acted with scienter.
     
  • Northern District Of California Allows Certain Securities Fraud Claims To Proceed Against Cloud Services Company, Holding Plaintiffs Adequately Alleged Falsity And Scienter
     
    09/22/2020

    On September 11, 2020, Judge William H. Orrick of the Northern District of California denied a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a software company (the “Company”) and two of its executive officers.  Scheller v. Nutanix Inc., No. 19-cv-01651 (N.D. Cal. Sept. 11, 2020).  This case was previously dismissed with leave to amend by Judge Orrick in March, and was covered in our newsletter.  Plaintiffs filed a Second Amended Complaint (“SAC”) in an attempt to cure the prior pleading defects.  The Court noted that the SAC “suffers from many of the same deficiencies as [the] prior complaint” and held that certain categories of allegations were insufficient, but the Court allowed certain claims to proceed.
     
  • Eastern District Of New York Grants Motion To Dismiss Securities Fraud Claims Against Steel Manufacturer Related To Purported Argentinian Bribery Scheme Uncovered In “Notebooks Case” Investigation
     
    09/22/2020

    On September 14, 2020, Judge Pamela K. Chen of the Eastern District of New York granted in full a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a steel products manufacturer (the “Company”) and certain of its executives and former employees.  Ulbricht v. Ternium S.A. et al., No. 18-cv-06801-PKC (E.D.N.Y. Sept. 14, 2020).  Plaintiffs, investors of the Company’s American Depository Shares (“ADSs”), alleged that defendants made materially false and misleading statements and omissions in connection with the purchase of the Company’s subsidiary by the Venezuelan government by failing to disclose the alleged bribery scheme that helped facilitate the transaction.  The Court granted defendants’ motion to dismiss plaintiffs’ consolidated amended complaint, and—although “skeptical” of plaintiffs’ likelihood of success—the Court granted plaintiffs leave to amend.
     
  • Northern District Of California Grants In Part And Denies In Part Motion To Dismiss A Putative Securities Fraud Class Action Against Rideshare Company
     
    09/15/2020

    On September 8, 2020, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities fraud class action against a ridesharing company (the “Company”) and certain of its directors under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). In re Lyft Inc. Securities Litigation, No. 19 Civ. 2690 (HSG), 2020 WL 5366325 (N.D. Cal. Sept. 8, 2020).  Plaintiff alleged that the Company’s prospectus and registration statement (the “Registration Statement”) contained numerous false or misleading statements and omissions, including those concerning reported sexual assaults by the Company’s drivers and defects with bicycles that were part of the Company’s bikeshare fleet.  Although the Court found that certain statements and omissions regarding rider safety were actionable, the Court dismissed plaintiff’s remaining claims for failure to allege falsity or because the statements constituted non-actionable puffery.
     
  • Northern District Of California Dismisses With Prejudice Most Exchange Act Claims Against Medical Device Company, Holding Plaintiff Failed To Plead Falsity For Material Misrepresentations And Contemporaneity Requirement For Insider Trading Liability
     
    09/15/2020

    On September 9, 2020, Judge Lucy H. Koh of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities class action against a medical device company (the “Company”) and certain of its executive officers under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.  SEC Investment Mgmt. AB, et al. v. Align Technology, Inc., et al., No. 18-cv-06720-LHK (N.D. Cal. Sept. 9, 2020).  Plaintiff alleged that the Company made false or misleading statements regarding its strategies to curb competition in the market.  Plaintiff also asserted an insider trading claim against the Company’s CEO.  The Court largely granted defendants’ motion to dismiss, holding that plaintiff failed to adequately plead falsity for all but one alleged misrepresentation and, for the insider trading claim, that the trading activities of plaintiff and the CEO were not “contemporaneous.”
     
  • Northern District Of Illinois Denies Motion To Dismiss Putative Securities Class Action Against Pharmaceutical Company Relating To Alleged Kickback Scheme
     
    09/09/2020

    On September 1, 2020, Judge Charles R. Norgle of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives.  Holwill v. AbbVie Inc., No. 1:18-cv-6790, slip. op. (N.D. Ill. Sept. 1, 2020).  Plaintiffs alleged that the company made material misstatements regarding the reasons for the success of the company’s principal drug that were rendered misleading because the company failed to disclose a kickback scheme that allegedly contributed to the drug’s success.  The Court held that the complaint adequately alleged actionable misrepresentations as well as the elements of scienter and loss causation.
     
  • Eastern District Of Pennsylvania Denies Motions To Dismiss Putative Class Action Against Biopharmaceutical Company, Including For Overreliance On Documents Outside Of The Pleadings
     
    09/09/2020

    On August 28, 2020, Judge Cynthia Rufe of the United States District Court for the Eastern District of Pennsylvania denied three separate motions to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a biopharmaceutical company, its CEO, and its Chief Medical Officer.  Tomaszewski v. Trevena, Inc., No. 18-cv-4378, slip op. (E.D. Pa. Aug. 28, 2020).  Plaintiffs alleged that the company and its executives made various misrepresentations and omissions regarding interactions with the FDA concerning a drug candidate.  The Court denied the motions of the company and CEO, after granting plaintiffs’ motion to strike certain documents on which those motions relied, and further held that plaintiffs adequately alleged actionable misstatements and scienter with respect to the Chief Medical Officer (“CMO”).
     
  • California State Court Dismisses Securities Act Claims Based On Federal Forum Selection Provision In Company’s Certificate Of Incorporation
     
    09/09/2020

    On September 1, 2020, Judge Marie S. Weiner of the Superior Court of California, County of San Mateo, addressing “an issue of first impression in the United States,” dismissed certain defendants from a putative class action asserting claims under the Securities Act of 1933 on the basis of a federal forum selection provision in the Delaware company’s certificate of incorporation.  Wong v. Restoration Robotics, Inc., No. 18-cv-2609, slip op. (Cal. Super. Ct. Sept. 1, 2020).  The decision is not citable precedent under California law, but it is summarized here because it is the first decision addressing the substantive enforceability of such provisions since they were held facially valid by the Delaware Supreme Court.
     
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  • First Circuit Affirms The Dismissal Of A Putative Securities Fraud Class Action Against Medical Robotics Company In Connection With The FDA’s Issuance Of A Warning Letter
     
    09/01/2020

    On August 25, 2020, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities fraud class action asserting violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) as well as Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against a medical robotics company (the “Company”) as well as certain of its officers.  Yan v. ReWalk Robotics Ltd., et al., No. 19-1614, 2020 WL 5014858 (1st Cir. Aug. 25, 2020).  Plaintiffs alleged that the Company made false or misleading statements and omissions in its IPO registration statement (the “Registration Statement”) and subsequent quarterly and annual disclosures concerning its dealings with the Food and Drug Administration (the “FDA”) regarding one of the Company’s devices.  The First Circuit affirmed the district court’s dismissal of the Securities Act claims, finding that plaintiffs failed to allege a material misstatement or omission.  Although it disagreed with the district court’s reasoning in dismissing the Exchange Act claims for lack of standing, the First Circuit nevertheless found that the Exchange Act claims were properly dismissed because plaintiffs failed to sufficiently allege a material misstatement or scienter.
     
  • Delaware District Court Grants Class Certification With Modifications In Suit Against Student Loan Processor
     
    09/01/2020

    On August 25, 2020, U.S. District Judge Maryellen Noreika certified two classes of investors bringing claims against a student loan servicing company (the “Company”), certain of its executives, and the underwriters of two of the Company’s debt offerings.  Lord Abbett Affiliated Fund Inc., et al. v. Navient Corp., et al., No. 1:16-cv-00112 (D. Del. Aug. 25, 2020).  Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“the Securities Act”) alleging that defendants inflated the price of the Company’s securities by concealing problems in its loan servicing practices and other risks.  The Court granted plaintiffs’ motion for class certification in part, certifying one class of investors with alleged claims under the Securities Act and a second narrowed class with alleged claims under the Exchange Act.
     
  • Southern District Of New York Dismisses Securities Fraud Action Against Chinese Internet Company Based On Confidential Witness Statements
     
    08/25/2020

    On August 14, 2020, United States District Judge Paul A. Engelmayer dismissed with prejudice a putative securities class action against a Chinese internet company (the “Company”) and its co-founders and a director under Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5.  Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co., et al., 19 Civ. 10067 (PAE) (S.D.N.Y. Aug. 14, 2020).  Plaintiffs, relying on statements from a confidential witness (the “CW”) and several media reports, alleged that defendants deliberately withheld the Company’s plans to relist on a Chinese stock exchange after they took the Company private in a merger transaction.  The Court granted defendants’ motion to dismiss because the CW statements and newspaper articles failed to provide the type of particularized facts needed to state a claim under the securities laws.
     
  • Southern District Of New York Grants In Part And Denies In Part Motion To Dismiss A Putative Securities Fraud Class Action Against An Insurance Company In Connection With Delisting Of Preferred Stock
     
    08/25/2020

    On August 14, 2020, United States District Judge Katherine Polk Failla of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 against an insurance company (the “Company”) as well as certain of its officers, who were members of the family that founded the Company and were long-time controlling stockholders.  Martinek v. Amtrust Fin. Serv., Inc., No. 19 Civ. 8030 (KPF), 2020 WL 4735189 (S.D.N.Y. August 14, 2020).  Plaintiff alleged that the Company made false or misleading statements and omissions about whether the Company’s preferred stock would continue to trade on the New York Stock Exchange (“NYSE”) following a proposed buyout of the common stock by the controlling stockholders.  The Court largely denied defendants’ motion to dismiss, holding that plaintiff had adequately alleged scienter and the falsity of two categories of alleged misstatements. 
     
  • Southern District Of New York Denies Motion To Dismiss Putative Class Action Against Sports Entertainment Company
     
    08/18/2020

    On August 6, 2020, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 against a sports entertainment company and certain of its executives.  City of Warren Police & Fire Ret. Sys., v. World Wrestling Ent. Inc., No. 20-CV-2031 (JSR), 2020 WL 4547217, at *1 (S.D.N.Y. Aug. 6, 2020).  Plaintiff alleged that the company made misrepresentations about its media contracts in the Middle East and North Africa (“MENA”).  The Court held that the complaint, “while not a model of clarity, adequately alleges an overall claim of securities fraud,” including with respect to actionable misrepresentations, scienter, and loss causation.
     
  • Second Circuit Affirms Denial Of Post-Judgment Motion For Relief In Putative Securities Class Action
     
    08/18/2020

    On August 12, 2020, the United States Court of Appeals for the Second Circuit affirmed a decision by the United States District Court for the Southern District of New York denying a motion for relief from judgment filed by plaintiffs in a putative class action asserting claims against a restaurant chain and certain of its executives under the Securities Exchange Act of 1934.  Metzler Inv. Gmbh v. Chipotle Mexican Grill, Inc., —F.3d—, 2020 WL 4644799 (2d Cir. 2020).  As discussed in our prior post, the district court dismissed plaintiffs’ second amended complaint with prejudice, holding that plaintiffs had not adequately alleged actionable misstatements and denying plaintiffs’ request for leave to amend.  Id. at *6.  Following that decision, plaintiffs moved for relief from the judgment and again sought leave to file a third amended complaint.  Id.  The district court denied plaintiffs’ post-judgment motion, concluding that plaintiffs had failed to demonstrate newly-discovered facts that would justify vacating the judgment, and that, in any event, further amendment would be futile.  Id.  The Second Circuit affirmed, holding that the district court applied the correct legal standard in adjudicating the post-judgment motion and did not abuse its discretion.  The Second Circuit thus did not need to reach the question of futility.
     
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  • Second Circuit Reverses Dismissal Of Exchange Act Claims Against REIT, Holding Plaintiffs Adequately Alleged Scienter
     
    08/11/2020

    On August 3, 2020, the Second Circuit reversed the dismissal of Exchange Act claims against a real estate investment trust (the “Company”) and several of its senior officers for alleged misstatements regarding the financial health of one of the Company’s healthcare facility operators (the “Operator”).  In re Omega Healthcare Investors, Inc. Securities Litigation, No. 19-1095 (2d Cir. Aug. 3, 2020).  The district court had granted defendants’ motion to dismiss the amended complaint, finding that although plaintiffs adequately pled material misstatements, they failed to sufficiently plead scienter.  The Second Circuit vacated the dismissal, holding that plaintiffs sufficiently pled scienter based on defendants’ alleged consciously reckless omission of certain material information that made certain statements in public filings and conference calls regarding the financial health of the Operator misleading.
     
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