New York Supreme Court Dismisses Securities Act Of 1933 Claims, Holding That Plaintiffs’ Allegations Of Misleading Statements Are Inactionable Forward-Looking Statements Or Opinions Under Omnicare
On July 11, 2019, Justice Andrew Borrok of the New York State Supreme Court, County of New York, Commercial Division, dismissed a putative securities class action against a Brazilian based online retailer (the “Company”), certain of its executives and directors, and its underwriters in connection with the Company’s initial public offering (“IPO”). In re Netshoes Sec. Litig., Index No. 157435/2018 (Sup. Ct., N.Y. Cty., July 11, 2019). Plaintiffs—purchasers of the Company’s stock—brought claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”), claiming that defendants made materially false and misleading statements in a registration statement filed with the SEC in connection with the IPO. The Court dismissed the Securities Act claims without prejudice, finding that the allegations were inactionable opinions under the Supreme Court’s decision in Omnicare, Inc. v. Laborers Dist. Council Const. Indus., 135 S. Ct. 1318 (2015), or were inactionable because they were about past performance, were forward-looking, or were expressions of puffery.
State Court Stays Discovery Under The PSLRA During Pendency Of Motion To Strike
On May 15, 2019, Judge Charles T. Lee of the Connecticut Superior Court at Stamford granted a protective order staying discovery pending a motion to strike in an action alleging violations of the Securities Act of 1933 (the “Securities Act”) against an issuer, certain officers and the underwriters (“Defendants”) in connection with an initial public offering. City of Livonia Retiree Health & Disability Benefits Plan v. Pitney Bowes Inc., No. X08 FST CV 18 6038160 S (Conn. Super. Ct. May 15, 2019). In Cyan Inc. v. Beaver Cty. Employees Ret. Fund, 138 S. Ct. 1061 (2018) (“Cyan”), the Supreme Court of the United States held that the substantive protections of the Private Securities Litigation Reform Act (“PSLRA”) necessarily apply “wherever” an action proceeds. Relying on this, the Connecticut court determined that 15 U.S.C. § 77z-1(b)(1) of the Securities Act, which provides for a stay of discovery during the pendency of a motion to dismiss, applies to actions filed in state court. Though there have been decisions going both ways on the issue of whether the PSLRA discovery stay applies in state court, this is the first opinion to analyze the issue thoroughly in the wake of Cyan and should serve as persuasive authority in other jurisdictions.
District Court Dismisses Putative Class Action Asserting Securities Fraud, Holding That Plaintiffs Failed To Adequately Allege Actionable Material Misstatements Or Omissions And Scienter
On April 30, 2019, the United States District Court for the District of Massachusetts granted a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder against a biopharmaceutical company (the “Company”) and certain of its executives, and claims under Section 20(a) of the Exchange Act against the executives. In re Ocular Therapeutix, Inc. Securities Litigation, No. 17-CV-12288 (D. Mass. Apr. 30, 2019). Plaintiffs alleged that defendants made misstatements regarding manufacturing issues with respect to an ocular pain drug developed by the Company. The Court held that plaintiffs failed to adequately allege actionable misstatements or omissions and scienter, and granted the motion to dismiss.
Central District Of California Sustains Putative Class Action Against Canadian Silver Company And Its Auditor For Failing To Disclose Major Potential Tax Liability In Its Public Financial Statements
On March 25, 2019, Judge Christina A. Snyder of the United States District Court for the Central District of California denied a motion to dismiss a class action filed against a Canadian silver company (the “Company”), current and former executives of the Company, and its auditor and tax consultant (the “Auditor”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. In Re Silver Wheaton Corp. Secs. Lit., No. 2:15-cv-05146; 2:15-cv-5173 (C.D. Cal. Mar. 25, 2019). Plaintiffs allege defendants failed to disclose USD$207 million in Canadian tax liabilities and that the Auditor wrongfully issued clean audit opinions. The Court held that plaintiffs sufficiently pleaded claims against all defendants. Of particular note, while the Court acknowledged several hurdles that generally result in the dismissal of claims against auditors, it held that those hurdles had been surmounted by plaintiffs given the unique circumstances of the case.