The Ninth Circuit has affirmed the lower court’s decision to dismiss Ganesh Kasilingam’s class action securities fraud case against Stitch Fix, Inc with prejudice. They found he did not have plausible evidence to claim Stitch Fix Incs statements regarding their marketing strategy were misleading.
Stitch Fix is a clothing subscription service that historically has marketed mostly through the internet. In November 2017, after going public, they moved into television advertising as well, court filings say. Although the move was successful, they decided to temporarily halt TV advertising in Q4 of 2018 to determine how many new customers these ads were bringing. As a result, their stock dropped 35%.
Numerous securities fraud complaints were filed against Stitch Fix, which were later consolidated with Ganesh as lead plaintiff. In September 2020, the district court dismissed the consolidated complaint with leave to amend. Two months later, Ganesh filed an amended complaint, which was then dismissed in September 2021 with prejudice. Ganesh appealed.
In the order, the court lists out the six requirements to plead a claim under rule 10(b) and 10(b)-5 of the Securities Exchange Act of 1934 but stated that they only needed to address the existence of a material misrepresentation or omission. The Ninth Circuit found that Stitch Fix’s statements regarding TV advertising were too broad to reasonably imply that this dark test was a permanent cessation of this marketing strategy. Furthermore, even if Ganesh’s allegation of the company not providing “near-term payback” as promised were taken as true, the company did attain 50,000 new customers that quarter.
Ganesh Kasilingam was represented by Robbins Geller Rudman & Dowd, LLP. Stitch Fix was represented by Cooley, LLP.