On April 9, 2024, Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a technology company, certain of its current and former officers and directors, and related corporate entities. Mehedi v. View, Inc., 2024 WL 1560009 (N.D. Cal. Apr. 9, 2024). Lead plaintiff alleged that the company materially misstated its financial results. The Court held that lead plaintiff could not establish loss causation and therefore lacked standing to pursue claims on behalf of the putative class, requiring the case to be dismissed in its entirety.

On October 11, 2023, a divided panel of the United States Court of Appeals for the Ninth Circuit dismissed for lack of standing an appeal from the dismissal of a putative class action asserting claims under the Securities Exchange Act of 1934 against a medical device company and its former CEO.  Habelt v. iRhythm Technologies, Inc., —F.4th—, 2023 WL 6614359 (9th Cir. 2023).  Lead plaintiff alleged that the Company made misrepresentations regarding the regulatory process prior to the company receiving a historically low Medicare reimbursement rate for one of its products.  After the district court granted defendants’ motion to dismiss, lead plaintiff declined to appeal.

On August 29, 2023, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action against a decentralized cryptocurrency trading platform and certain of its investors under Section 12(a)(1) of the Securities Act and Section 29(b) of the Securities Exchange Act.  Risley v. Universal Navigation Inc., 2023 WL 5609200 (S.D.N.Y. Aug. 29, 2023).  Plaintiffs alleged that they purchased fraudulent cryptocurrency tokens on the exchange.  The Court held, assuming but not deciding that the tokens were securities, that plaintiffs failed to state a claim for rescission.

On August 23, 2023, the United States Court of Appeals for the Second Circuit affirmed in part and vacated in part an order dismissing a putative securities class action against a property and casualty insurer (the “Company”), various corporate officers and board members of the Company, the Company’s outside auditor, and multiple underwriters of the Company’s sale of securities.  New England Carpenters Guaranteed Annuity and Pension Funds, et al. v. AmTrust Financial Services Inc., et al., 20-1643 (Aug. 23, 2023).  In vacating the district court’s dismissal in part, the Second Circuit held that in light of its more recent precedent, certain alleged misstatements of opinion were actionable as alleged in the complaint, and therefore reversed the district court’s dismissal of claims related to those alleged misstatements, but otherwise affirmed the district court’s decision dismissing the remaining claims.

On July 10, 2023, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a consolidated putative class action alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, against a biomedical company (the “Company”), certain of its executives, and its former auditor.  Carpenters Pension Fund of Ill. v. MiMedx Group, Inc., No. 22-10633 (11th Cir. July 10, 2023).  The United States District Court for the Northern District of Georgia dismissed plaintiff’s second amended complaint (“SAC”), holding that plaintiff lacked standing to bring the claim and further holding that plaintiff failed to plead loss causation.  While the Eleventh Circuit determined that the district court erred in holding that plaintiff lacked standing, it affirmed the district court’s holding that plaintiff failed to sufficiently plead loss causation.

On June 2, 2023, the United States District Court for the Northern District of Texas dismissed a putative class action against an amusement park operator and certain of its executives asserting claims under Section 10(b) of the Securities Exchange Act of 1934.  Okla. Firefighters Pension & Ret. Sys. v. Six Flags Ent. Corp., —F. Supp. 3d—, 2023 WL 3781645 (N.D. Tex. June 2, 2023).  Plaintiff alleged that the company made misrepresentation about its plans to develop amusement parks in China.  The Court held that plaintiff lacked standing because it purchased shares too late to have relied on any actionable misstatements and therefore dismissed the action with prejudice.  The Court also denied a motion to intervene by another potential plaintiff that claimed to have purchased shares earlier.

On June 1, 2023, the United States Supreme Court held in a unanimous decision that, under Section 11 of the Securities Act of 1933 (the “Securities Act”), plaintiffs must plead and prove that they purchased securities that were traceable to the registration statement that plaintiffs claim contained a material misstatement or omission.  Slack Technologies, LLC v. Pirani, No. 22-200 (June 1, 2023).  At issue was whether a plaintiff who purchased shares of a company through a direct listing, in which shares that were registered under the alleged misleading registration statement were sold alongside unregistered shares, had standing to bring a Securities Act claim when plaintiff had not adequately pled that the shares it purchased were registered.  We previously covered the now-vacated Ninth Circuit’s decision, the Supreme Court’s grant of the petition for certiorari to review the Ninth Circuit’s decision and the parties’ oral argument before the Supreme Court.

On April 17, 2023, the United States Supreme Court heard oral argument in a case addressing whether “tracing” a share to specific registration statement is required in order to have standing to sue under Sections 11 and 12(a)(2) of the Securities Act of 1933.  While the case arises out of a direct listing, the Court’s anticipated ruling may have a significant impact on standing issues in the context of traditional public offerings.  Slack Technologies, LLC, et al., v. Fiyyaz Pirani, No. 22-200.  Slack Technologies (the “Company”) went public through a direct listing in which, unlike in a traditional initial public offering, a company does not issue new shares and files a registration statement for the purpose of allowing existing shareholders to sell their shares directly to the public on an exchange.  Because of applicable exemptions, both registered and unregistered shares are available for public trading from the first day of a direct listing and are intermixed in the market. The Company argued that this prevented investors from showing that they had standing to sue under the Securities Act, which generally allows suits brought only by those who purchase “such security” issued pursuant to an allegedly misleading registration statement (Section 11) or by means of a misleading prospectus (Section 12(a)(2)).

On April 26, 2023, the United States Court of Appeals for the Second Circuit affirmed the dismissal of two actions brought by issuers of collateralized debt obligations (“CDOs”) against the trustee and master servicer of certain residential mortgage-backed securities (“RMBS”) that served as collateral for the CDOs.  Phoenix Light SF Ltd. v. Bank of New York Mellon, —F.4th—, 2023 WL 3082212 (2d Cir. 2023).  The Second Circuit affirmed the district courts’ holding that, even assuming plaintiffs had Article III standing, they were precluded from relitigating prudential standing because plaintiffs were previously found to lack prudential standing in a case they had brought against one of the same defendants.

On March 31, 2023, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed a putative class action arising out of a SPAC transaction that resulted in a consignment-to-retail used car marketplace becoming publicly traded.  In re CarLotz, Inc. Sec. Litig., 2023 WL 2744064 (S.D.N.Y. Mar. 31, 2023).  Plaintiffs asserted claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 against the marketplace, the SPAC entity, and certain related entities and individuals, alleging that they made misrepresentations regarding the marketplace’s business model.  Id. at *2.  The Court held that plaintiffs lacked standing to sue under either the Securities Act or Exchange Act, and accordingly dismissed the complaint while permitting plaintiffs leave to replead.

On March 13, 2023, Magistrate Judge James M. Wicks of the United States District Court for the Eastern District of New York dismissed a derivative action brought on behalf of an online flower company against certain of its beneficial owners, seeking disgorgement of profits from alleged short-swing transactions under Section 16(b) of the Securities Exchange Act of 1934. Packer ex rel. 1-800 Flowers.com, Inc. v. Raging Capital Mgmt., LLC,—F. Supp. 3d—, 2023 WL 2484442 (E.D.N.Y. 2023). The Court held that, because plaintiff failed to allege a concrete harm that the company suffered from the transactions in question, plaintiff lacked standing to pursue the claim.

On February 1, 2023, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed a putative class action against a cryptocurrency exchange company, its parent, and the parent’s CEO, asserting claims under Section 12(a)(1) of the Securities Act of 1933, Section 29(b) of the Securities Exchange Act of 1934, and certain California, Florida, and New Jersey statutes.  Underwood v. Coinbase Global, Inc.,—F. Supp. 3d—, 2023 WL 1431965 (S.D.N.Y. 2023).  Plaintiffs alleged that the company sold or solicited securities, and entered into contracts to buy and sell securities, without registering as an exchange or broker-dealer.  The Court held that, even if cryptocurrencies were deemed securities, plaintiffs failed to adequately allege that the company itself sold or solicited cryptocurrency tokens to or from exchange participants, or that any contract with the company required plaintiffs to purchase or sell prohibited securities.
 

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.

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.

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.

On September 20, 2021, the Ninth Circuit, in a split decision, held that plaintiff—a shareholder who allegedly purchased shares through a direct listing by a technology company (the “Company”)—had standing to bring claims under Sections 11, 12(a)(2), and 15(a) of the Securities Act of 1933 (the “Securities Act”).  Fiyyaz Pirani v. Slack Technologies, Inc., et al, No. 20-16419 (9th Cir. Sept. 20, 2021).  The Ninth Circuit affirmed the district court’s order denying in part a motion to dismiss securities fraud claims.  The Company challenged plaintiff’s standing to sue under Sections 11 and 12(a)(2) of the Securities Act for failure to prove his shares were registered under the alleged misleading registration statement.  The Court held that plaintiff had standing to bring Securities Act claims because, whether registered or unregistered, his shares could not have been purchased without the issuance of the Company’s registration statement.  The Court concluded that the shares purchased by plaintiff were governed by Sections 11 and 12 of the Securities Act and affirmed the district court’s partial denial of the Company’s motion to dismiss.

On June 1, 2020, the United States Supreme Court, in an opinion by Justice Kavanaugh and joined by Chief Justice Roberts and Justices Alito and Gorsuch, held that plaintiffs—participants of a defined-benefit pension plan—lacked Article III standing to seek restoration of alleged plan losses or injunctive relief, under the Employee Retirement Income Security Act of 1974 (“ERISA”), because they had no “concrete stake” in the lawsuit.  Thole v. U.S. Bank, N.A., et al., No. 17-1712 (June 1, 2020).  The case was on appeal from the Eighth Circuit, and was previously previewed in our weekly newsletter at the beginning of this year.  Plaintiffs alleged that the defined-benefit plan’s fiduciaries mismanaged the plan, causing about $750 million in losses.  The Court affirmed the Eight Circuit’s dismissal of the case, after holding that, insofar as whether plaintiffs won or lost the outcome “would not change the plaintiffs’ monthly pension benefits” under their defined-benefit plan, they had not suffered any concrete injury sufficient to satisfy Article III standing.
 

On January 23, 2020, the Court of Appeal of the First Appellate District of California affirmed a lower court’s judgment holding that investors lacked standing to pursue claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 against an open-end management investment company (the “Company”), its investment advisor, the investment advisor’s parent company, and certain members of the board of trustees of the Company.  Jensen v. iShares Tr., 44 Cal. App. 5th 618 (Ct. App. 2020), review denied (May 27, 2020).  Plaintiffs, who purchased shares of exchanged-traded funds (“ETFs”) on the secondary market, claimed that the Company failed to adequately disclose the risks associated with “flash crashes” that were known to occur in the ETF market.  The Court affirmed the lower court’s dismissal, holding that plaintiffs lacked standing under Section 11 because they could not satisfy the tracing requirement and that plaintiffs lacked standing under Section 12(a)(2) because they failed to allege direct contract with defendants.
 

On April 21, 2020, Judge Susan Illston 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 class action lawsuit asserting claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against a software company (the “Company”), certain of its executives and directors, and three venture capital firms (the “VC Defendants”) that held a significant percentage of the Company’s voting power.  Fiyyaz Pirani v. Slack Technologies, Inc., et. al., No. 19-cv-05857-SI (N.D. Cal. Apr. 21, 2020).  Plaintiff alleged that defendants were liable for materially misleading statements and omissions concerning the Company’s service outages, competition, scalability, and growth strategy in offering materials in connection with the Company’s direct listing of preexisting shares to the public.  The Court granted in part and denied in part defendants’ motion to dismiss, and granted plaintiff leave to amend to cure the amended complaint’s deficiencies.
 

Rejecting a widely-held consensus, on August 5, 2019, the United States Court of Appeals for the Second Circuit held that Section 47(b)(2) of the Investment Company Act (“ICA”) creates an implied private right of action for rescission in favor of a party to a contract that allegedly violates the ICA (or whose performance allegedly violates the ICA).  Oxford University Bank v. Lansuppe Feeder, Inc., No. 16-4061 (2d Cir. Aug. 5, 2019).

On May 16, 2019, Judge F. Dennis Saylor IV of the United States District Court for the District of Massachusetts dismissed a putative class action against the medical device company ReWalk Robotics and certain of its officers and directors under the Securities Exchange Act of 1934 (“Exchange Act”).  Yan v. ReWalk Robotics Ltd., No. 17 Civ. 10169 (D. Mass. May 16, 2019).  As discussed in our prior post, the Court previously dismissed, with prejudice, claims under the Securities Act of 1933 (“Securities Act”) related to an IPO registration statement for failure to identify a false or misleading statement in the registration statement.  The Court also dismissed, for lack of standing, Exchange Act claims based on alleged post-IPO misstatements, because the sole lead plaintiff only purchased stock in the IPO.  The prior dismissal of the Exchange Act claims, however, was without prejudice.  The lead plaintiff then moved for leave to amend the complaint to add a plaintiff who purportedly had standing to bring the Exchange Act claims.  The Court again held that plaintiff lacked standing, and further held that the lack of standing was fatal to the putative class action and could not be cured by amendment.

On April 10, 2019, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed an action asserting violations of Section 10(b) of the Securities and Exchange Act of 1934 and claims under state law against a broker-dealer (the “Broker-Dealer”) and several individuals who participated in a bond offering facilitated by the Broker-Dealer.  Palm Beach Maritime Museum v. Hapoalim Sec. USA, Inc., 19 Civ. 908 (LAP), 2019 WL 1950139 (S.D.N.Y. Apr. 10, 2019).  Plaintiff, a non-profit corporation approved as a charter school in Florida, alleged that defendants made materially false statements in connection with a bond purchase agreement to finance plaintiff’s purchase and expansion of property.  The Court held that plaintiff lacked standing to pursue its Section 10(b) claim because it was not the buyer or seller of a security. 
 

On October 24, 2018, Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania granted judgment on the pleadings and dismissed a putative securities class action against Rite Aid Corporation, Walgreens Boots Alliance, Inc., and certain of their executives under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder relating to the ultimately unsuccessful merger between the two companies. Hering v. Walgreens Boots Alliance, Inc., —F. Supp. 3d—, 2018 WL 5276189 (M.D. Pa. 2018). This decision follows from a decision issued earlier this summer and reviewed in a prior post. In that earlier decision, Judge Jones dismissed claims with respect to Rite Aid’s statements and held that only Walgreens’ statements made after October 2016 were actionable. In its most recent decision, the Court held that, since the named plaintiff’s last alleged stock purchase predated October 2016, he no longer had standing. Further, the Court denied a motion to intervene filed by putative class members, but noted that the proposed intervenors were free to file their own actions.

On August 23, 2018, Judge F. Dennis Saylor IV of the United States District Court for the District of Massachusetts dismissed the claims asserted in a putative class action against ReWalk Robotics and its officers, directors, and IPO underwriters under the Securities Act of 1933 (“Securities Act”) for misrepresentations made in a registration statement with prejudice, but dismissed the claims asserted under the Securities Exchange Act of 1934 (“Exchange Act”) for alleged post-IPO misstatements without prejudice.  Yan v. ReWalk Robotics Ltd., No. 17 Civ. 10169, slip op. (D. Mass. Aug. 23, 2018), ECF No. 107.

On March 22, 2018, Chief Judge Colleen McMahon of the United States District Court for the Southern District of New York granted in part and denied in part class certification in a putative class action alleging breach of contract claims against Citibank, N.A.  Merryman et al. v. Citigroup Inc. et al., 15 Civ. 9185 (CM) (S.D.N.Y. Mar. 22, 2018).  Plaintiffs, former holders of American Depositary Receipts (“ADRs”) in three separate companies, brought this putative class action on behalf of a proposed class who currently or previously held any of 35 separate ADRs for which defendant served as depositary bank.  Plaintiffs alleged that defendant breached the contracts governing these ADRs by converting cash distributions received from foreign issuers at one foreign exchange rate and then supposedly using a less favorable rate when remitting the proceeds to ADR holders and retaining the difference (the “spread”).  The Court granted class certification with respect to the securities previously owned by plaintiffs, but held that plaintiffs lacked class standing to bring claims on behalf of holders of other securities.

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On October 19, 2017, the United States Court of Appeals for the Second Circuit, in a summary order, affirmed dismissal of an action seeking disgorgement of alleged short-swing profits realized by Defendants Eminence Partners II, L.P. and related entities in connection with their sale of common stock in The Men’s Wearhouse, Inc. (“Men’s Wearhouse”) under Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78p(b).  Morrison v. Eminence Partners II, LP, No. 17-843 (2d Cir. Oct. 19, 2017).  The Second Circuit held that plaintiff lacked standing under Section 16(b) because his shares of Men’s Wearhouse stock were exchanged for shares in its parent company, Tailored Brands, Inc. (“Tailored Brands”), in a corporate reorganization that was completed before the lawsuit was filed.

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On June 12, 2017, Judge Richard Seeborg of the United States District Court for the Northern District of California dismissed without prejudice a putative securities class action against Charles Schwab & Co. (“Schwab”) under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.  Crago v. Charles Schwab & Co., Inc., 2017 WL 2540577 (N.D. Cal. June 12, 2017).  Plaintiffs, Schwab customers who placed trades through Schwab, alleged that Schwab’s stated commitment to securing best execution for its clients was false and misleading in light of Schwab’s bulk order routing through UBS Securities LLC (“UBS”), as a result of which plaintiffs allegedly suffered harm because they lost the opportunity for price improvement.  The Court held that although plaintiffs had standing to pursue their claims, they had insufficiently alleged falsity, scienter, economic loss, loss causation and reliance, and granted leave to replead.

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On December 29, 2016, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California dismissed a putative securities class action against Solazyme, Inc. (“Solazyme”), certain of its officers and directors, and the underwriters of two of its securities offerings.  Norfolk Cty. Ret. Sys. v. Solazyme, Inc., et al., No. 15-cv-02938 (N.D. Ca. Dec. 29, 2016).  Plaintiffs, investors who allegedly purchased Solazyme securities traceable to public offerings of notes and common stock that were both made on March 27, 2014, claimed that defendants made false statements about Solazyme’s oil production facility in Moema, Brazil (the “Moema Facility”), in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  The Court granted defendants’ motion to dismiss, in part, because plaintiffs failed to plead with particularity that the challenged statements were false or misleading at the time they were made.  

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On September 20, 2016, Judge Susan O. Hickey of the United States District Court for the Western District of Arkansas certified a class of investors in an action brought against Wal-Mart Stores Inc. for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.  City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. et al., No. 5:12-cv-05162 (W.D. Ark. Sept. 20, 2016).  The Court held that the proposed class met the numerosity, commonality, typicality, and adequacy of representation requirements under Rule 23 of the Federal Rules of Civil Procedures (“Rule 23”), and named the City of Pontiac General Employees’ Retirement System as class representative.  

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On July 1, 2016, Judge William Pauley III 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 class action concerning Virtus Investment Partners, the parent of an investment advisory company that managed and provided advice to mutual funds.  See Youngers v. Virtus Inv. Partners Inc., No. 15-cv-8262 (S.D.N.Y. July 1, 2016).  Plaintiffs purported to assert claims under Section 10(b) of the Securities Exchange Act of 1934 and Sections 11 and 12(a)(2) of the
Securities Act of 1933, on behalf of investors who purchased shares in certain Virtus mutual funds between May 8, 2010 and December 22, 2014.  Plaintiffs’ allegations concerned statements in the funds’ registration statement that the above-market performance of the funds using a particular investment strategy (the “AlphaSector” strategy) was calculated based on live trading since 2001.  Plaintiffs alleged that the pre-2008 returns were actually generated using only back-testing, as the algorithm was not developed until 2008.  

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