Google Presses for Stay of Mandate Pending SCOTUS Petition in Software Bug Disclosure Suit

After Alphabet Inc. was denied a rehearing through a panel vote which reversed in favor of the plaintiff, Rhode Island, the tech giant sought to stay the court’s mandate pending its appeal to the nation’s high court late last week. Alphabet, Google’s holding company, is appealing the ruling that it did not adequately disclose information to investors about a Google+ security vulnerability in two Securities and Exchange Commission (SEC) quarterly disclosure forms.

At the trial court level, Google won its bid to block a motion to dismiss. The San Francisco, California federal court overseeing the matter found that Rhode Island’s accusations failed to meet securities fraud law’s scienter and falsity requirements.

The state appealed and prevailed in mid-June. The Ninth Circuit held, among other things, that “Rhode Island’s complaint plausibly alleged the materiality of the costs and consequences associated with the Privacy Bug, and its public disclosure, and how Alphabet’s decision to omit information about the Privacy Bug in its 10-Qs significantly altered the total mix of information available for decisionmaking by a reasonable investor.”

Last week’s motion explained that the panel’s holding raises important questions of law, “including the continued viability within this circuit of the Supreme Court’s rule that public companies have no ‘affirmative duty to disclose any and all material information.’” Alphabet also argued that the ruling has substantial implications for every publicly traded company. For example, the filing said, the holding will cause them to shower shareholders with excessive and trivial information in federal filings.

Alphabet contended that a stay is appropriate based on the circuit law permitting stays except when a petition for a writ of certiorari is frivolous or filed for the purpose of delaying the litigation. The Ninth Circuit’s mandate sends the securities case back to the trial court for discovery and eventually trial proceedings, which Alphabet argued will be complex and resource-consumptive.

In turn, the motion asked for a 90-day stay pending the filing of the company’s certiorari petition. Google is represented by Wilson Sonsini Goodrich & Rosati.  Robbins Geller Rudman & Dowd LLP is lead counsel for Rhode Island.