Boston Retirement System v. Uber Technologies, Inc.

• Court: District Court, N.D. California
• Decided: August 7, 2020
• Docket: 3:19-cv-06361
• Status: Unknown

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 BOSTON RETIREMENT SYSTEM, et al.,1 10 Case No. 19-cv-06361-RS Plaintiffs, 11 v. ORDER DENYING 12 MOTION TO DISMISS UBER TECHNOLOGIES, INC., et al., 13 Defendants. 14

15 I. INTRODUCTION 16 Lead plaintiff Boston Retirement System (“BRS”) brings this putative class action against 17 defendants Uber Technologies, Inc. (“Uber”), several of its current and former executives, and the 18 underwriters of its initial public offering (“IPO”). BRS alleges defendants made false or 19 misleading statements and omissions in connection with Uber’s IPO in violation of Sections 11, 20 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”). Defendants now move to dismiss 21 the complaint under Rule 12(b)(6). Pursuant to Civil Local Rule 7-1(b), the motion is suitable for 22 disposition without oral argument, and the hearing set for August 13, 2020 is vacated. For the 23 reasons set forth below, the motion is denied. 24 II. BACKGROUND2 25 1 This case was originally filed as Benjamin Stirratt v. Uber Technologies, Inc. Boston Retirement 26 System was subsequently appointed lead plaintiff. The Clerk shall change the caption of the case on ECF. 27 1 Uber is a transportation company which provides on demand rides and food delivery. The 2 company was founded in San Francisco in 2009 and has since expanded globally. On May 10, 3 2019, Uber conducted its IPO, in which it sold 180,000,000 shares of common share stock to the 4 public. The IPO was priced at $45 per share and generated nearly $8 billion in proceeds for Uber. 5 The IPO was conducted pursuant to several documents filed by defendants with the U.S. 6 Securities and Exchange Commission (“SEC”), including an April 11, 2019 Registration 7 Statement on Form S-1, which, after amendment, was declared effective by the SEC on May 5, 8 2019. See ECF No. 86-1 (“RS”). 9 BRS purchased Uber’s common stock in the IPO, and from an underwriter of the IPO, 10 pursuant to the offering documents, including the RS. At the time BRS purchased this stock, only 11 Uber shares offered in the IPO were available in the market. Uber’s share price subsequently 12 declined from $45 to an all-time low of $25.99 on November 14, 2019. This action was brought, 13 alleging violations of Sections 11, 12(a)(2), and 15 of the Securities Act. In January 2020, BRS 14 was appointed lead plaintiff. The named defendants are Uber, several of its past and present 15 executives, and the underwriters of its IPO.3 16 III. INCORPORATION BY REFERENCE AND JUDICIAL NOTICE 17 A. Legal Standard 18

19 judicial notice may be taken. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); see 20 generally Part III, infra. 21 3 The full list of defendants is: Uber, Dara Khosrowshahi, Nelson Chai, Glen Ceremony, Ronald Sugar, Ursula Burns, Garrett Camp, Matt Cohler, Ryan Graves, Arianna Huffington, Travis 22 Kalanick, Wan Ling Martello, H.E. Yasir Al- Rumayyan, John Thain, David Trujillo, Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith 23 Incorporated, Barclays Capital Inc., Citigroup Global Markets, Inc., Allen & Company LLC, RBC Capital Markets, LLC, SunTrust Robinson Humphrey, Inc., Deutsche Bank Securities Inc., HSBC 24 Securities (USA) Inc., SMBC Nikko Securities America, Inc., Mizuho Securities USA LLC, Needham & Company, LLC, Loop Capital Markets LLC, Siebert Cisneros Shank & Co., L.L.C., 25 Academy Securities, Inc., BTIG, LLC, Canaccord Genuity LLC, CastleOak Securities, L.P., Cowen and Company, LLC, Evercore Group L.L.C., JMP Securities LLC, Macquarie Capital 26 (USA) Inc., Mischler Financial Group, Inc., Oppenheimer & Co. Inc., Raymond James & Associates, Inc., William Blair & Company, L.L.C., The Williams Capital Group, L.P., and TPG 27 Capital BD, LLC. Defendants bring the present motion to dismiss jointly. 1 Generally, district courts may not consider material outside the pleadings when assessing 2 the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Lee v. 3 City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). However, “[t]here are two exceptions to 4 this rule: the incorporation-by-reference doctrine, and judicial notice under Federal Rule of 5 Evidence 201.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018); see also 6 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (noting documents 7 incorporated by reference and “matters of which a court may take judicial notice” are properly 8 considered when ruling on a motion to dismiss). 9 “Incorporation-by-reference is a judicially created doctrine that treats certain documents as 10 though they are part of the complaint itself.” Khoja, 899 F.3d at 1002. A defendant may seek to 11 incorporate a document into the complaint “if the plaintiff refers extensively to the document or 12 the document forms the basis of the plaintiff’s claim.” Ritchie, 342 F.3d at 907 (emphasis added). 13 “The doctrine prevents plaintiffs from selecting only portions of documents that support their 14 claims, while omitting portions of those very documents that weaken—or doom—their claims.” 15 Khoja, 899 F.3d at 1002. In general, “a court may assume an incorporated document’s contents are 16 true for purposes of a motion to dismiss under Rule 12(b)(6) . . . [but] it is improper to assume the 17 truth of an incorporated document if such assumptions only serve to dispute facts stated in a well- 18 pleaded complaint.” Id. at 1003 (internal quotations and citations omitted). 19 “Judicial notice under Rule 201 permits a court to notice an adjudicative fact if it is ‘not 20 subject to reasonable dispute.’” Id. at 999 (citing Fed. R. Evid. 201(b)). “A fact is ‘not subject to 21 reasonable dispute’ if it is ‘generally known,’ or ‘can be accurately and readily determined from 22 sources whose accuracy cannot reasonably be questioned.’” Id. (quoting Fed. R. Evid. 201(b)(1)– 23 (2)). “Accordingly, a court may take judicial notice of matters of public record without converting 24 a motion to dismiss into a motion for summary judgment . . . [b]ut a court cannot take judicial notice of disputed facts contained in such public records.” Id. (internal quotations and citation 25 omitted). If either party requests judicial notice and “supplie[s] the necessary information,” 26 judicial notice “must” be taken. Fed. R. Evid. 201(c)(2). 27 1 B. Discussion 2 In support of their motion to dismiss, defendants seek incorporation by reference and/or 3 judicial notice of 29 documents, termed “exhibits” for ease of reference. Exhibit A is the amended 4 RS for Uber’s IPO, as filed with the SEC on Form S-1/A on April 26, 2019. BRS agrees that the 5 complaint refers extensively to, and in fact depends on, the amended RS; thus, incorporation by 6 reference of the RS is appropriate. 7 Exhibits B and C are Uber’s press releases announcing its financial results for the first and 8 second quarters of 2019. These were filed with the SEC on May 30 and August 8, 2019, 9 respectively. BRS argues incorporation by reference is inappropriate because the complaint 10 “barely mentions” Uber’s financial results; the company’s earnings results, it points out, are 11 mentioned in fewer than ten of the hundreds of paragraphs of the complaint. That argument, 12 however, would allow BRS to do precisely what incorporation by reference attempts to avoid: 13 selective use of documents. The complaint refers to Uber’s financial results “extensively” in that 14 one of its three main theories is that the company misrepresented its financial position to investors 15 in violation of the Securities Act. Put differently, that theory “depends on” Uber’s 2019 financial 16 results, which BRS alleges paint a very different financial picture than the RS. Notably, BRS does 17 not dispute the accuracy of the contents of Exhibits B and C; on the contrary, their contents, i.e., 18 Uber’s Q1 and Q2 2019 financial results, bolster BRS’s claims. Incorporation by reference of 19 Exhibits B and C is thus appropriate.4 20 The remaining 26 exhibits are news articles written in various publications about Uber 21 between 2014 and 2019. BRS argues they should not be incorporated by reference because they 22 are referenced nowhere in the complaint, and judicial notice should not be taken because they are 23 offered for the sole purpose of raising a “truth-on-the-market” defense, which is inappropriate at 24

25 4 Alternatively, because “SEC filings are publicly-filed documents whose accuracy cannot 26 reasonably be questioned,” judicial notice may be taken at least in order to “determin[e] what representations [Uber] made to the market.” In re Pivotal Sec. Litig., No. 19-cv-03589, 2020 WL 27 4193384, at *5 (N.D. Cal. July 21, 2020). 1 the motion to dismiss stage. However, both arguments miss the mark. Defendants do not propose 2 incorporation by reference, and whether they may offer a “truth-on-the-market” defense in a 3 motion to dismiss, or whether the defense would succeed, goes to the substance of the motion, see 4 section IV.B.2, infra, not the admissibility of evidence. Defendants have “supplied the necessary 5 information”—notably, BRS does not dispute that the articles were published on the dates and in 6 the publications that defendants represent they were—and judicial notice must therefore be taken. 7 However, “[j]ust because [a] document itself is susceptible to judicial notice does not mean that 8 every assertion of fact within that document is judicially noticeable for its truth.” Khoja, 899 F.3d 9 at 999. Thus “judicial notice of these documents” will be taken “not for the truth of the matter 10 asserted, but ‘for the purpose of showing that particular information was available to the stock 11 market.’” In re Apple Inc. Sec. Litig., No. 19-cv-02033, 2020 WL 2857397, at *6 (N.D. Cal. June 12 2, 2020) (quoting Helitrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999)). 13 IV. MOTION TO DISMISS 14 A. Legal Standard 15 A complaint must contain “a short and plain statement of the claim showing that the 16 pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While “detailed factual allegations are not 17 required,” a complaint must include sufficient facts to “state a claim to relief that is plausible on its 18 face.” Iqbal, 556 U.S. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 19 claim is facially plausible “when the pleaded factual content allows the court to draw the 20 reasonable inference that the defendant is liable for the misconduct alleged.” Id. 21 A motion to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil 22 Procedure tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus. 23 v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). Dismissal under Rule 12(b)(6) may be based 24 either on the “lack of a cognizable legal theory” or on “the absence of sufficient facts alleged 25 under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.1988). When evaluating such a motion, the court must accept all material allegations in the 26 complaint as true, even if doubtful, and construe them in the light most favorable to the non- 27 1 movant. Twombly, 550 U.S. at 570. “[C]onclusory allegations of law and unwarranted inferences,” 2 however, “are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v. 3 Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996); see also Iqbal, 556 U.S. at 4 678 (citing Twombly, 550 U.S. at 555 (“threadbare recitals of the elements of the cause of action, 5 supported by mere conclusory statements,” are not taken as true)). 6 Complaints in securities cases must also meet the pleading standards set forth by the 7 Private Securities Litigation Reform Act (“PSLRA”). The PSLRA mandates that “securities fraud 8 complaints ‘specify’ each misleading statement; that they set forth the facts ‘on which [a] belief’ 9 that a statement is misleading was ‘formed’; and that they ‘state with particularity facts giving rise 10 to a strong inference that the defendant acted with the required state of mind.’” Dura Pharm., Inc. 11 v. Broudo, 544 U.S. 336, 345 (2005) (alterations in original) (quoting 15 U.S.C. §§ 78u–4(b)(1)– 12 (2)). Furthermore, securities claims which are “grounded in fraud” must meet the pleading 13 requirements of Rule 9(b). In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 886 (9th Cir. 2012). 14 “To satisfy Rule 9(b), a pleading must identify the who, what, when, where, and how of the 15 misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] 16 statement, and why it is false.” Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 17 1047, 1055 (9th Cir. 2011) (internal quotations and citations omitted). 18 B. Discussion 19 BRS asserts claims under Sections 11 and 12(a)(2) of the Securities Act, as well as a 20 derivative claim under Section 15. To state a claim under Section 11, a plaintiff must allege 21 plausibly that a registration statement “contained an untrue statement of material fact” or “omitted 22 to state a material fact . . . necessary to make the statements therein not misleading.” 15 U.S.C. § 23 77k(a). An “untrue statement of material fact” must be both (1) false and (2) material to investors. 24 See Rigel Pharm, 697 F.3d at 880 n.8. Not all relevant or material omitted facts are actionable omissions. Id. (citing Matrixx Initiatives v. Siracusano, 563 U.S. 27, 38 (2011)); Brody v. 25 Transitional Hospitals Corp., 280 F.3d 997, 1006 (9th Cir. 2002). Rather, to be actionable an 26 omission “must affirmatively create an impression of a state of affairs that differs in a material 27 1 way from the one that actually exists” to be actionable. Brody, 280 F.3d at 1006. Section 11 2 imposes strict liability. In re Daou Sys., Inc., 411 F.3d 1006, 1028 (9th Cir. 2005). 3 Section 12(a)(2) applies the same standard. See 15 U.S.C. § 77l (imposing liability where a 4 prospectus or communication “includes an untrue statement of a material fact” or “omits to state a 5 material fact necessary in order to make the statements, in the light of the circumstances under 6 which they were made, not misleading”). It creates said liability for any person who offers or sells 7 a security through a prospectus or an oral communication creating a material misstatement or 8 omission. Section 15 creates liability for anyone who “controls” a defendant who is themselves 9 liable under Section 11 or 12(a)(2). 10 As a threshold matter, the parties disagree as to whether the heightened Rule 9(b) pleading 11 standard applies. Rule 9(b) only applies to Section 11 claims which are “grounded in fraud.” In re 12 Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404–05 (9th Cir. 1996). Each cause of action in the 13 complaint explicitly disclaims a fraud theory. See, e.g., Amended Complaint (“Complaint’), ECF 14 No. 80, at 108 (“This cause of action does not sound in fraud.”). While defendants are correct that 15 “a disclaimer alone is insufficient to re-characterize a complaint whose gravamen is plainly fraud, 16 here [BRS has] made an effort to plead a non-fraudulent basis for Section 11 liability.” 17 Knollenberg v. Harmonic, Inc., 152 F. App’x 674, 684 (9th Cir. 2005) (citing Stac Elecs., 89 F.3d 18 at 1405 n.2). In particular, the complaint states the claims against Uber are based on a strict 19 liability theory and against all other defendants on negligence. See Complaint at 108. BRS will be 20 held to this representation, and the heightened Rule 9(b) standard thus will not apply—with one 21 exception. The complaint “expressly disclaims any allegations of scienter or fraudulent intent . . . 22 except that any challenged statements of opinion or belief made in connection with the IPO are 23 alleged to have been materially misstated statements of opinion or belief when made.” Id. 24 Challenged statements of opinion, see section IV.B.3, infra, must be pled with particularity. 1. Puzzle Pleading 25 Defendants’ first argument in favor of dismissal is that BRS has engaged in impermissible 26 “puzzle pleading.” “In the securities fraud context, the term ‘puzzle pleading’ refers to a pleading 27 1 that requires a defendant and the court to ‘match up’ the statements that form the basis of the 2 plaintiff’s claims with the reasons why those statements are misleading.” In re Cisco Sys. Inc. Sec. 3 Litig., No. 11-cv-01568, 2013 WL 1402788, at *5 (N.D. Cal. Mar. 29, 2013); see also In re Splash 4 Tech. Holdings, Inc. Sec. Litig., 160 F. Supp. 2d 1059, 1073 (N.D. Cal. 2001) (finding structure of 5 complaint rendered it “exceedingly difficult to discern precisely which statements are alleged to be 6 misleading”). “[A] securities fraud complaint that employs a true puzzle-style pleading format will 7 recite lengthy statements attributed to the defendants, followed by a generalized list of reasons that 8 the statements may have been false or misleading or a generalized list of omissions that were 9 required to make the statements not misleading.” Tarapara v. K12 Inc., No. 16-cv-04069, 2017 10 WL 3727112, at *9 (N.D. Cal. Aug. 30, 2017). 11 The complaint in the present case may be “long, confusing, and meandering,” such that “it 12 is difficult to locate the main points within it.” Id. However, it “is not so deficient that 13 [d]efendants are incapable of figuring out what statements are alleged to be false.” Park v. GoPro, 14 Inc., No. 18-cv-00193, 2019 WL 1231175, at *8 (N.D. Cal. Mar. 15, 2019). BRS has 15 “emphasize[d] the portions of [the RS] that [it] allege[s] to be false or misleading.” Id. 16 “Furthermore, [BRS] set forth the reasons why [it] believe[s] each statement to be false or 17 misleading . . . .” Id. While the complaint might be “repetitive” and “hard to follow, it is not so 18 deficient as to amount to puzzle pleading.” Id. See also In re GlenFed, Inc., Sec. Litig., 42 F.3d 19 1541 (9th Cir. 1994) (finding that a 113-page complaint, which “ramble[d] through long stretches 20 of material quotes from defendants’ public statement,” suffered from “poor draftsmanship,” and 21 was “cumbersome almost to the point of abusiveness,” nevertheless did not engage in puzzle 22 pleading). BRS has not engaged in impermissible puzzle pleading. 23 2. Omissions 24 Defendants’ next argument favoring dismissal is that they did not omit any material fact necessary to render the RS not misleading, because the facts BRS alleges were omitted were in 25 fact disclosed. BRS alleges defendants omitted material facts about the legality (or lack thereof) of 26 Uber’s business model, its passenger safety record, and its financial condition. 27 1 Defendants argue each of these three categories of facts was adequately disclosed in the 2 RS. With regard to the business model, the RS stated Uber was “subject to national, state, local, or 3 municipal laws and regulations that are ambiguous in their application or enforcement or that we 4 believe are invalid or inapplicable.” RS at 62. It provided examples of such laws, for example the 5 California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court 6 regarding the differences between employees and independent contractors. Id. at 35. With regard 7 to passenger safety, the RS disclosed that “numerous incidents and allegations worldwide” of 8 sexual assault, abuse, and kidnapping had been reported—though not the details of any of those 9 instances. Id. at 40. The RS also stated the company planned to release a “transparency report” 10 about these instances sometime in 2019 which could result in “negative media coverage and 11 increased regulatory scrutiny.” Id. at 38. Finally, with regard to the company’s financial position, 12 the RS disclosed that Uber expected its operating expenses to increase, largely as a result of 13 promotional spending, and that it would incur losses “in the near term” as a result. Id. at 34. 14 “[W]here a company's filings contain abundant and specific disclosures regarding the risks 15 facing the company, as opposed to terse, generic statements, the investing public is on notice of 16 these risks and cannot be heard to complain that the risks were masked as mere contingencies.” 17 Plevy v. Haggerty, 38 F. Supp. 2d 816, 832 (C.D. Cal. 1998) (collecting cases). Here, defendants 18 are correct that their disclosures were neither “terse” nor “generic.” However, the point remains: 19 given the facts BRS has plausibly alleged, the RS was “misleading; in other words, it . . . 20 affirmatively create[d] an impression of a state of affairs that differs in a material way from the 21 one that actually exist[ed].” Brody, 280 F.3d at 1006. 22 In particular, the RS begins with a letter from Uber’s CEO, defendant Dara Khosrowshahi, 23 which acknowledges Uber “didn’t get everything right” and made “missteps” in its past. RS at vi. 24 However, Khosrowshahi proclaims, “we’ve changed.” Id. He goes on to explain the changes Uber has made to fulfill the unique responsibilities that come with being a public company. Id. The RS 25 touts Khosrowshahi’s installation as CEO as the beginning of a “new path forward” for Uber. Id. 26 at 116. See also id. at 160 (“It’s a new day at Uber.”). The “Risk Factors” portion of the RS goes 27 1 on to list numerous potential scenarios that, should they materialize, might affect Uber’s 2 prospects, but does not suggest that any of those scenarios already exist. 3 Thus, the RS affirmatively created an impression of an optimistic state affairs: no matter 4 what trouble Uber had faced in the past, Khosrowshahi was leading the company down a new 5 path. The RS represented that, while Uber’s future was not blemish-free, the company had turned 6 over a new leaf. Unfortunately, given the facts BRS has plausibly alleged, this state of affairs 7 differs in a material way from the one that actually existed. For example, BRS has alleged 8 plausibly that Uber was continuing, well into 2019, to use a “playbook” to launch in new markets 9 in ways it knew were undoubtedly illegal. In fact, BRS alleges Uber viewed paying fines for 10 violating local laws, or bribes for avoiding those fines, as a cost of doing business. The laws were 11 not, as the RS represented, “ambiguous” or “inapplicable,” and Uber knew that. Similarly, BRS 12 plausibly alleges that Uber intentionally delayed layoffs and restructuring it knew were inevitable 13 given its financial position at the time of its IPO, in order to mislead the markets. In particular, 14 mere weeks after its IPO, Uber announced it was dissolving its CMO and COO positions “with the 15 IPO behind us.” In other words, the “Risk Factors” in the RS were not mere possibilities; many 16 had already “come to fruition.” Siracusano v. Matrixx Initiatives, Inc., 585 F.3d 1167, 1181 (9th 17 Cir. 2009) (internal citation omitted), aff’d, 563 U.S. 27. Thus, what was disclosed in the RS was 18 not enough to render what was not disclosed, not misleading. 19 Defendants next argue that the facts which BRS alleges were improperly omitted were 20 adequately disclosed in the press coverage about Uber leading up to its IPO, 26 examples of which 21 it presents as exhibits. See Part III, supra. That is, there had been enough unfavorable press 22 coverage about Uber before its IPO, that the market was on notice about the risks of investing in 23 it. This “truth-on-the-market” defense is unavailing for at least three reasons. 24 First, a truth-on-the-market defense is typically raised in the context of Section 10(b) of the Securities Exchange Act of 1934, not Section 11 of the Securities Act. See, e.g., Provenz v. Miller, 25 102 F.3d 1478, 1492 (9th Cir. 1996). While Section 11 is limited to liability for misrepresentations 26 and omissions in registration statements, 15 U.S.C. § 77k(a), Section 10(b) sweeps more broadly, 27 1 to all securities fraud, 15 U.S.C. § 78j. A truth-on-the-market defense is based on the theory that, 2 if an alleged misstatement or omission of fact is already known to the market, then the fact will 3 already be reflected in the stock price, and the market has not been misled. Provenz, 102 F.3d at 4 1492. Thus, the defense is less applicable to registration statements, IPOs, and Section 11 claims, 5 where the stock price has been set privately; the public market has necessarily not had the 6 opportunity to factor in information it may have into the share price. 7 Second, even assuming the defense is available for Section 11 claims, it is not available at 8 the motion to dismiss stage. In re Thoratec Corp. Sec. Litig., No. 04-cv-03168, 2006 WL 9 1305226, at *4 (N.D. Cal. May 11, 2006) (citing Asher v. Baxter Int’l Inc., 377 F.3d 727, 734 (7th 10 Cir. 2004)). This is because, “as the Supreme Court and Ninth Circuit have explained, the truth- 11 on-the-market defense is a method of refuting an alleged misrepresentation’s materiality.” 12 Connecticut Ret. Plans & Tr. Funds v. Amgen Inc., 660 F.3d 1170, 1177 (9th Cir. 2011), aff'd, 568 13 U.S. 455 (internal citations omitted). Materiality is a “mixed question of law and fact,” TSC 14 Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976), and “[p]roof of that sort is a matter for 15 trial,” Basic Inc. v. Levinson, 485 U.S. 224, 249 (1988). See also Provenz, 102 F.3d at 1493 16 (stating summary judgment on truth-on-the-market defense is only warranted if defendants show 17 “no rational jury could find that the market was misled,” which is a “heavy burden of proof”); 18 Ganino v. Citizens Utilities Co., 228 F.3d 154, 167 (2d Cir. 2000) (“The truth-on-the-market 19 defense is intensely fact-specific and is rarely an appropriate basis for dismissing a § 10(b) 20 complaint for failure to plead materiality.”). 21 Finally, even if the truth-on-the-market defense were available at this juncture, defendants 22 have not met their heavy burden of demonstrating it is appropriate on these facts. “[I]nvestors are 23 not generally required to look beyond a given document to discover what is true and what is not.” 24 Miller v. Thane Int’l, Inc., 519 F.3d 879, 887 (9th Cir. 2008). The volume of the judicially noticed articles might demonstrate that the alleged misstatements and omissions were known to the 25 market, or it might demonstrate that investors like BRS would have had to follow all press 26 coverage about Uber quite closely to be on notice of all the alleged facts. At the present juncture, 27 1 the plausible allegations must be construed in the light most favorable to BRS; viewing the facts 2 this way requires the latter inference. Furthermore, there is no legal basis for defendants’ 3 contention that the form of the information—news articles, as opposed to SEC filings—determines 4 whether it was “known” to the market as a matter of law. Thus, for at least these reasons, the 5 judicially noticed articles do not defeat BRS’s plausible allegations at this juncture. 6 Defendants’ final argument on this point is that they had no duty to disclose more 7 information than they did. They are correct that they had no duty to disclose every legal challenge, 8 passenger safety complaint, or financial detail—that is, there is no “freestanding completeness 9 requirement.” Brody, 280 F.3d at 1006. However, BRS has plausibly alleged that at least three 10 independent bases which compelled defendants to disclose more than they did. First, as discussed 11 above, the information defendants did disclose “create[d] an impression of a state of affairs that 12 differ[ed] in a material way from the one that actually exist[ed].” Id. Under the facts as alleged by 13 BRS, defendants had an affirmative duty to correct that impression. Second and third, Items 105 14 and 303 of SEC Security Regulation S–K impose their own duties to disclose, respectively, “the 15 most significant factors that make an investment in the registrant or offering speculative or risky” 16 and “any known trends or uncertainties that have had or that the registrant reasonably expects will 17 have a material favorable or unfavorable impact on net sales or revenues or income from 18 continuing operations.” 17 C.F.R. §§ 229.105, 229.303(3)(a)(ii). See also Pirani v. Slack Techs., 19 Inc., No. 19-cv-05857, 2020 WL 1929241, at *12 (N.D. Cal. Apr. 21, 2020). For the same reasons 20 BRS has plausibly alleged a claim under Sections 11 and 12(a)(2), it has plausibly alleged a 21 violation of Regulation S–K, see Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir. 22 1998), which imposes independent duties. Thus, the alleged omissions were required disclosures 23 which were not adequately disclosed by defendants. 24 3. Non-Actionable Statements Defendants’ final argument favoring dismissal is that the misstatements BRS alleges are 25 not actionable for a variety of reasons. As discussed below, each argument is unavailing. 26 First, the alleged misstatements, considered in context, are not mere corporate puffery. “In 27 1 the Ninth Circuit, vague, generalized assertions of corporate optimism or statements of mere 2 puffing are not actionable material misrepresentations under federal securities laws because no 3 reasonable investor would rely on such statements.” In re Restoration Robotics, Inc. Sec. Litig., 4 417 F. Supp. 3d 1242, 1255 (N.D. Cal. 2019) (internal quotations and citations omitted). On the 5 other hand, “general statements of optimism, when taken in context, may form a basis for a 6 securities fraud claim when those statements address specific aspects of a company’s operation 7 that the speaker knows to be performing poorly.” In re Quality Sys., Inc. Sec. Litig., 865 F.3d 8 1130, 1143 (9th Cir. 2017) (emphases added) (internal citation omitted). Put differently, 9 “[s]tatements by a company that are capable of objective verification are not ‘puffery’ and can 10 constitute material misrepresentations.” Oregon Pub. Employees Ret. Fund v. Apollo Grp. Inc., 11 774 F.3d 598, 606 (9th Cir. 2014). 12 Here, the optimistic statements in the RS—for example, “it’s a new day Uber”—are not 13 mere puffery when taken in context. As described above, the RS admitted Uber had stumbled in 14 its past, by failing to comply with local laws and tolerating sexual harassment and even abuse of 15 its passengers and employees. The RS implied the company had turned a corner, particularly with 16 Khosrowshahi’s hiring, and these problems were in the past. “It’s a new day” is not mere puffery 17 when the speaker knows significant remnants of the “old day”—for example, continuing to launch 18 in markets where Uber was clearly illegal, and paying fines or bribes as a cost of doing business— 19 remain. Similarly, the RS’s claims that Uber was “committed to enhancing safety” or “work[ing] 20 tirelessly to earn [its] customers’ trust” are vague without context. However, when presented in the 21 context of Uber’s troubled history and the “new day” theme, they imply that something has 22 changed—not, as BRS has pled, that Uber’s customer service team was still forbidden from 23 involving law enforcement when passengers reported harassment or assault. Complaint at 11. BRS 24 has adequately pled that defendants knew Uber was performing poorly in passenger safety—the company was in the process of compiling a passenger safety report, which was conveniently 25 released after the IPO and demonstrated just how bad the situation was—yet allowed these 26 misleading statements to be made. Cf. Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th Cir. 1996) 27 1 (telling investors FDA approval was “going fine” when the company knew approval would never 2 come was not puffery); Fecht v. Price Co., 70 F.3d 1078, 1081 (9th Cir. 1995) (saying the 3 company “anticipates a continuation of its accelerated expansion schedule” when the expansion 4 already failed was not puffery). Thus, the optimistic statements in Uber’s RS are actionable. 5 Second, the complaint does not engage in impermissible hindsight pleading. Defendants 6 are correct that plaintiffs cannot use post-IPO developments to claim statements in the RS were 7 untrue at the time they were made, but the complaint relies on contemporaneous, not post-IPO 8 events. For example, while defendants are correct that the California State Assembly passed AB5, 9 classifying Uber drivers as employees, ten days after the IPO, the legislative process was well 10 underway, and in any case the California Supreme Court had decided Dynamex, which AB5 11 codified, prior to the IPO. BRS thus plausibly pleads that defendants were aware at the time of the 12 IPO that Uber’s classification of its drivers as independent contractors was imminently, if not 13 already, illegal in California. They chose, however, to disclose that Risk Factor as a mere 14 possibility. Similarly, defendants are correct that they were not required to disclose their Q2 2019 15 financial results at the time of the IPO, which occurred during Q2. However, they were required to 16 remain transparent about the company’s financial position, and thus not to state, that they 17 “expect[ed] . . . growth to continue,” RS at 118, when Uber had sustained (though conveniently, 18 not yet disclosed) its biggest losses to date in Q1 2019, and had planned massive restructuring and 19 layoffs for a few weeks after the IPO, as BRS has plausibly pled.5 Thus, defendants’ statements 20 were misleading given the information available to them at the time the statements were made. 21 Third, the bespeaks caution doctrine does not protect defendants at this juncture. “The 22 bespeaks caution doctrine protects affirmative, forward-looking statements from becoming the 23 basis for a securities fraud claim when they are accompanied by cautionary language or risk 24

25 5 Defendants misstate the law on this point. They claim SEC Regulation S–X required them to 26 disclose their financial position as of 135 days prior to the RS’s effective date. However, Regulation S–X merely requires that the financial information disclosed be no more than 135 days 27 old. See 17 C.F.R. § 210.3-12(a), (g). 1 disclosure.” In re Infonet Servs. Corp. Sec. Litig., 310 F. Supp. 2d 1080, 1088 (C.D. Cal. 2003) 2 (citing In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1413 (9th Cir. 1994)). “[I]nclusion of 3 some cautionary language is not enough to support a determination as a matter of law that 4 defendants’ statements were not misleading.” Stac Elecs., 89 F.3d at 1408 (internal quotations 5 omitted). “Dismissal on the pleadings under the bespeaks caution doctrine . . . requires a stringent 6 showing: There must be sufficient cautionary language or risk disclosure [such] that reasonable 7 minds could not disagree that the challenged statements were not misleading.” Livid Holdings Ltd. 8 v. Salomon Smith Barney, Inc., 416 F.3d 940, 947 (9th Cir. 2005) (internal quotations omitted). 9 Defendants have not made the stringent showing required.6 It cannot be said that all reasonable 10 minds would agree that the forward-looking statements in the RS were not misleading. To the 11 contrary, as described above, BRS has plausibly pled that the predictions about Uber’s future in 12 the RS were misleading given the facts at the time of the IPO. Discovery may illuminate that the 13 disclosures were enough, given defendants’ knowledge at the time, to render the RS not 14 misleading. However, the bespeaks caution does not warrant dismissal at this juncture. 15 Finally, the alleged misstatements are not inactionable opinions. In Omnicare, Inc. v. 16 Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175 (2015), the Supreme Court held 17 that opinion statements—for example, statements prefaced by “we believe”—can serve as the 18 basis for a securities fraud claim under limited circumstances. To plead fraud based on an opinion 19 statement under an omissions theory, a plaintiff must “identify particular (and material) facts 20 going to the basis for the issuer’s opinion—facts about the inquiry the issuer did or did not 21 conduct or the knowledge it did or did not have—whose omission makes the opinion statement at 22 issue misleading to a reasonable person reading the statement fairly and in context.” Id. at 194. 23 That is, the plaintiff must plead facts that “call into question the issuer’s basis for offering the 24 opinion.” Id. That is precisely what BRS has done here. In particular, BRS has pled that the RS represented defendants believed Uber was complying with the law, keeping its passengers safe, 25

26 6 Defendants’ argument on this point, in their motion to dismiss and reply combined, spans all of 27 two paragraphs out of 60 pages. 1 and performing well financially—even though defendants had no factual basis for offering these 2 || opinions. To the contrary, the facts known to defendants at the time—for example, the facts set 3 forth in the soon-to-be-released transparency report and Q1 results—demonstrated otherwise. 4 || Furthermore, to the extent the statements of opinion “are alleged to have been materially misstated 5 statements of opinion or belief when made,” Complaint at 108, BRS has pled them with 6 || particularity as required by Rule 9(b). That is, BRS has pled the underlying facts of which it 7 alleges defendants had knowledge, when and in what context those facts arose, and why they 8 || rendered the opinion misleading. The allegations are not inactionable opinions under Omnicare. 9 V. CONCLUSION 10 For the reasons set forth above, the motion to dismiss is denied. Defendants shall respond 11 to the complaint within 21 days of this Order as set forth by Rule 12(a)(1)(A)Q). 12 13 || ITIS SO ORDERED.

15 Dated: August 7, 2020 FEMA She RICHARD SEEBORG 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28 ORDER CASE No. 19-cv-06361-RS