Judge Yvonne Gonzalez Rogers of the Northern District of California issued an order on Thursday granting Twitter’s motion to dismiss a consolidated class-action securities suit, citing the plaintiffs’ failure to adequately plead violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act.
According to the order, lead plaintiffs the Weston Family Partnership and Twitter Investor Group brought the consolidated class-action securities lawsuit against Twitter and executives, claiming that the social media company omitted information and issued false and misleading statements during the Class Period, July 26, 2019, and October 23, 2019.
In its motion to dismiss, Twitter claimed the plaintiffs fail to: “(i) allege statements that are materially false or misleading, or otherwise actionable; (ii) establish a strong inference of scienter; and (iii) establish loss causation.” Moreover, “(w)ithout a primary violation of Section 10(b), defendants argue plaintiffs’ Section 20(a) claim similarly fails.”
Key to the suit is Twitter’s Mobile Advertising Promotion (MAP), a campaign designed to encourage users to open an advertiser’s app, or download the app if they do not have it already. In particular, the plaintiffs pointed to several purportedly fraudulent statements or omissions: Twitter’s July 2019 statements about the progress of MAP and predicting revenue and reporting financial results for the quarter ending on June 30, 2019; the defendants’ August 2019 announcement about software bugs affecting MAP; and defendant Segal’s September 2019 statement about the MAP progress and Asia’s focus on the MAP during a call with investors. The plaintiffs claimed that these statements were materially false and misleading because when they were made, they “created the ‘misimpression that [d]efandants’ work to improve MAP was on track[ ] and would lead to increased revenue.” However, the plaintiffs asserted that since the improved MAP was “delayed,” the defendants could not reasonably claim that MAP revenue would increase.
The court sided with Twitter, finding that Twitters’ claims were reasonable puffery; forward looking statements have safe harbor protection under the Private Securities Litigation Reform Act of 1995 (PSLRA) because they are “accompanied by ‘meaningful cautionary statement, or are ‘immaterial,’ or were not made ‘with actual knowledge’ of the falsity or misleading nature of the statement.'”
The court also considered if the allegations sufficiently plead scienter. The order noted that “(s)center includes knowledge of the falsity as well as ‘deliberate or conscious recklessness.’” However, the court found that the plaintiffs’ allegations were not adequate “to draw a strong inference of scienter because they do not describe with particularity the specific contents of these daily summaries and periodic reviews of key metrics.” Therefore, the judge stated that “(w)ithout more detail, plaintiffs’ allegation that the reports ‘showed [ ] demand for MAP ads was materially declining which meant Twitter was receiving materially less MAP revenue” is not sufficiently specific for the Court to infer that the contents of the reports were inconsistent with any of defendants’ public statements.”
The court granted the motion with leave to amend. Twitter is represented by Latham & Watkins LLP. The lead plaintiffs are represented by Kaplan Fox & Kilsheimer LLP as well as Pomerantz LLP and Levi & Korinsky, LLP.