On Friday, the Northern District of California issued an order denying Uber’s motion to dismiss the putative class action led by Boston Retirement System (BRS) regarding Uber’s initial public offering (IPO), whereby the plaintiffs alleged that Uber and its executives made false or misleading statements and omissions with its IPO and violated the Securities Act of 1933.
In May 2019, Uber launched its IPO, which sold 180,000,000 shares of common stock at $45 per share, which created $8 billion in revenue for Uber. Several documents were filed with the Securities and Exchange Commission (SEC) in connection with the IPO. BRS purchased common stock in the IPO, however, Uber shares then declined from $45 per share to $25.99. The plaintiffs alleged that the documents that were relied upon for this information contained false information, misrepresentations, or omissions and violated Sections 11, 12(a)(2), and 15 of the Securities Act.
Uber claimed that BRS “engaged in impermissible ‘puzzle pleading.’” The court noted that BRS explained why it considered statements made to Uber to be false and concluded that this was not the case, “[w]hile the complaint might be ‘repetitive’ and ‘hard to follow, it is not so deficient as to amount to puzzle pleading.’”
Uber and the defendants asserted that “they did not omit any material fact necessary to render the [registration statement] RS not misleading, because the facts BRS alleges were omitted were in fact disclosed.” Specifically, BRS alleged that Uber omitted material facts about the legality of its business model, its passenger safety record, and its financial condition. However, Uber argued that these were adequately disclosed in its documentation.
The court found that the “defendants are correct that their disclosures were neither ‘terse’ nor ‘generic,” however, the RS was misleading and “affirmatively create[d] an impression of a state of affairs that differs in a material way from the one that actually exist[ed].” Furthermore, the RS created an optimistic state for Uber and did not suggest any troubling scenarios. For example, BRS alleged that “Uber intentionally delayed layoffs and restructuring it knew were inevitable given its financial position at the time of its IPO, in order to mislead the markets.”
The court stated that “what was disclosed in the RS was not enough to render what was not disclosed, not misleading.” Uber counter that “the facts which BRS alleges were improperly omitted were adequately disclosed in the press coverage about Uber leading up to its IPO.” This truth-on-the-market defense theory is not commonly used with Section 11 claims. The court noted it is “less applicable to registration statements, IPOs, and Section 11 claims.” The court added that this is “not available at the motion to dismiss stage” and if it was available the defendants have not met their burden “of demonstrating it is appropriate on these facts.”
The defendants also argued that “they had no duty to disclose more information than they did.” However, the court noted that “BRS has plausibly alleged that at least three independent bases which compelled defendants to disclose more than they did.” As a result, these omissions were required disclosures.
Lastly, Uber alleged that the misstatements that BRS alleged are non-actionable. The court stated that the alleged misstatements “are not mere corporate puffery” when taken in context. The court also found that the “complaint does not engage in impermissible hindsight pleading,” as Uber alleged. Consequently, the court disagreed with Uber’s allegations and reasoning to dismiss the complaint.
Uber is represented by Shearman & Sterling LLP and Willkie Farr & Gallagher LLP. The plaintiffs are represented by Labaton Sucharow LLP and Thornton Law Firm LLP.