1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 ASIF MEHEDI, et al., Case No. 21-cv-06374-BLF
8 Plaintiffs, ORDER GRANTING MOTIONS TO 9 v. DISMISS SECOND AMENDED COMPLAINT 10 VIEW, INC., et al., [Re: ECF No. 181, 183, 184] 11 Defendants.
12 13 This is a putative class action for securities fraud against View, Inc. and various 14 individuals connected to View’s SEC filings. Before the Court are Defendants’ motions to 15 dismiss Plaintiffs’ second amended complaint. ECF No. 181 (“View Mot.”); ECF No. 183 (“CF II 16 Mot.”); ECF No. 184 (“Prakash Mot.”). Plaintiffs oppose the motion. ECF No. 185 (“Opp.”). 17 Defendants have filed replies. ECF Nos. 188 (“Prakash Reply”); ECF No. 189 (“CF II Reply”); 18 ECF No. 190 (“View Reply”). The Court held a hearing on the motions on March 14, 2024. ECF 19 No. 197. 20 For the following reasons, the Court GRANTS the motions to dismiss. 21 I. BACKGROUND 22 View is a technology company that manufactures smart building products, including a 23 “smart” glass panel (“smart panels”) that adjusts in response to the sun. ECF No. 175 (“SAC”) 24 ¶¶ 3, 51. On March 8, 2021, View became a publicly traded company through a merger with 25 CF II, a special purpose acquisition company (“SPAC”). Id. ¶¶ 5, 52, 71. Plaintiffs allege that 26 Defendants made material misrepresentations to investors concerning a materially misstated and 27 understated warranty accrual related to Legacy View’s “smart panels.” See, e.g., id. ¶¶ 87, 92. 1 86; View’s December 23, 2020 De-SPAC Registration Statement, including the two amendments 2 thereto (collectively the “De-SPAC Registration Statement”), id. ¶¶ 88–103; a March 12, 2021 3 Form 8-K, id. ¶¶ 104–11; an April 7, 2021 Form S-1, id. ¶¶ 112–15; a May 12, 2021 press release 4 filed on Form 8-K, id. ¶¶ 116–117; and a May 17, 2021 Form 10-Q, id. ¶¶ 118–27. Plaintiff 5 alleges that the De-SPAC Registration Statement and Proxy were jointly prepared by Legacy 6 View and CF II. Id. ¶ 88. 7 On August 16, 2021, five months after going public, View announced that its Audit 8 Committee “began an independent investigation concerning the adequacy of the company’s 9 previously disclosed warranty accrual” and that View would not file its Form 10-Q for the second 10 fiscal quarter of 2021. SAC ¶ 128. The following day, View’s stock price fell $1.26, or over 11 24%, to close at $3.92. Id. On November 9, 2021, View announced that the Audit Committee 12 “has now substantially completed its independent investigation and has concluded that the 13 Company’s previously reported liabilities associated with all warranty-related obligations and the 14 cost of revenue associated with the recognition of those liabilities were materially misstated.” Id. 15 ¶ 129. View also announced that it would “be restating its previously issued 2019 and 2020 16 annual and certain unaudited interim financial statements and its Q1 2021 and 2020 unaudited 17 interim financial statements.” Id. Finally, View announced that Defendant Vidul Prakash 18 resigned as CFO of View, effective November 8, 2021. Id. The following day on November 10, 19 2021, View’s stock price fell $0.77, or 13.68%, to close at $5.63. Id. ¶ 130. On November 11, 20 2021, View’s stock price fell an additional $0.22, or 3.9%, to close at $5.41. Id. 21 On May 31, 2022, View reported that its yet-to-be restated warranty-related accruals would 22 be $53, $48, and $42 million as of December 31, 2019, 2020, and 2021 respectively. SAC ¶ 132. 23 Ultimately, on June 15, 2022, View filed its December 31, 2021 Form 10-K, setting forth the 24 View’s restated financial information and stating that the SEC was investigating the warranty 25 accrual. Id. ¶¶ 135–37. 26 On August 18, 2021, the initial complaint was filed in this case. See ECF No. 1 27 (“Compl.”). The initial complaint brought claims on behalf of a putative class of investors who 1 losses based on View’s making materially false or misleading statements and failing to disclose 2 material adverse facts about the company’s business, including warranty costs and internal 3 controls. See id. ¶¶ 36–41. On February 8, 2022, the Court appointed Stadium Capital LLC as 4 Lead Plaintiff. ECF No. 67. On July 15, 2022, Stadium Capital filed the first amended complaint. 5 See ECF No. 96 (“FAC”). The first amended complaint extended the end of the class period to 6 May 10, 2022 and asserted 8 claims against View, current and former officers and directors of 7 View and CF II, CF II entities, and PricewaterhouseCoopers LLP. Id. ¶¶ 1, 130–286. On May 2, 8 2023, the Court granted Defendants’ motions to dismiss and dismissed all of Stadium Capital’s 9 claims with leave to amend. See ECF No. 168. On August 21, 2023, Stadium Capital filed the 10 second amended complaint. See SAC. 11 The second amended complaint changes the end of the class period to November 9, 2021 12 and brings claims against: View, Inc. (“View”), f/k/a CF Finance Acquisition Corp. II (“CF II”); 13 current and former officers and directors of View and CF II; and entities related to CF II 14 (collectively “Defendants”). SAC ¶¶ 26–44. The individual View Defendants include: Rao 15 Mulpuri, View’s Chief Executive Officer at all relevant times, and Vidul Prakash, View’s Chief 16 Financial Officer at all relevant times (collectively “View Individual Defendants”). Id. ¶¶ 27–30. 17 The individual CF II Defendants include: Howard Lutnick, CEO and chairman of the board of 18 CF II; Paul Pion, CFO and a director of CF II; Alice Chan, CFO and a director CF II; Anshu Jain, 19 President and a director of CF II; Robert J. Hochberg, a director of CF II; Charlotte S. Blechman, 20 a director CF II (collectively “CF II Individual Defendants”). Id. ¶¶ 31–37. The entity CF II 21 Defendants include: CF Finance Holdings II, LLC (“CF Holdings II,” CF II’s “Sponsor”); Cantor 22 Fitzgerald & Co. (“CF&Co.”, CF II’s advisor); Cantor Fitzgerald, L.P. (“Cantor,” an affiliate of 23 CF II, the Sponsor, and of Cantor, as well as the Sponsor’s sole member); and CF Group 24 Management, Inc. (“CFGM,” Cantor’s managing general partner) (collectively “CF II Entity 25 Defendants” and collectively, with Individual CF II Defendants, “CF II Defendants”). Id. ¶¶ 43– 26 48. 27 Additionally, the second amended complaint adds David Sherman as a named Plaintiff. 1 Claim Section Defendants SAC ¶¶ 2 1 § 14(a); Rule 14a-9 All Defendants 160–98 2 § 20(a) View Individual Defendants and CF II 199–205 3 Defendants 3 § 10(b); Rule 10b-5(b) View and Prakash 256–61 4 8 § 20(a) View Individual Defendants and CF II 262–66 Defendants except Blechman and 5 Hochberg 6 On October 2, 2023, Defendants filed motions to dismiss. There are three separate 7 motions, each brought by a different Defendant or Group of Defendants: (1) a motion to dismiss 8 brought by Defendants View and Mulpuri, see View Mot.; (2) a motion to dismiss brought by 9 Defendant Prakash, see Prakash Mot.; and (3) a motion to dismiss brought by the CF II 10 Defendants, see CF II Mot. The motions are now before the Court. 11 II. LEGAL STANDARD 12 A. Rule 12(b)(6) 13 “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 14 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 15 Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 16 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 17 as true all well-pled factual allegations and construes them in the light most favorable to the 18 plaintiff. Reese v. BP Expl. (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court 19 need not “accept as true allegations that contradict matters properly subject to judicial notice” or 20 “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 21 inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted). 22 While a complaint need not contain detailed factual allegations, it “must contain sufficient factual 23 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 24 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A 25 claim is facially plausible when it “allows the court to draw the reasonable inference that the 26 defendant is liable for the misconduct alleged.” Id. On a motion to dismiss, the Court’s review is 27 limited to the face of the complaint and matters judicially noticeable. MGIC Indem. Corp. v. 1 Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 2 581 (9th Cir. 1983). 3 B. Rule 9(b) and the Private Securities Litigation Reform Act of 1995 4 In addition to the pleading standards discussed above, a plaintiff asserting a private 5 securities fraud action must meet the heightened pleading requirements imposed by Federal Rule 6 of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In 7 re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012). Rule 9(b) requires a 8 plaintiff to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b); see 9 also In re VeriFone Holdings, 704 F.3d at 701. That is, “the complaint must allege specific facts 10 regarding the fraudulent activity, such as the time, date, place, and content of the alleged 11 fraudulent representation, how or why the representation was false or misleading, and in some 12 cases, the identity of the person engaged in the fraud.” In re Bare Escentuals, Inc. Sec. Litig., 745 13 F. Supp. 2d 1052, 1065 (N.D. Cal. 2010). 14 Similarly, under the PSLRA “the complaint shall specify each statement alleged to have 15 been misleading, the reason or reasons why the statement is misleading, and, if an allegation 16 regarding the statement or omission is made on information and belief, the complaint shall state 17 with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). The PSLRA 18 further requires that “in any private action arising under this chapter in which the plaintiff may 19 recover money damages only on proof that the defendant acted with a particular state of mind, the 20 complaint shall, with respect to each act or omission alleged to violate this chapter, state with 21 particularity facts giving rise to a strong inference that the defendant acted with the required state 22 of mind.” Id. § 78u-4(b)(2)(A). “To satisfy the requisite state of mind element, ‘a complaint must 23 allege that the defendant[ ] made false or misleading statements either intentionally or with 24 deliberate recklessness.’” In re VeriFone Holdings, 704 F.3d at 701 (alteration in original) 25 (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009)). The 26 scienter allegations must give rise not only to a plausible inference of scienter, but to an inference 27 of scienter that is “cogent and at least as compelling as any opposing inference of nonfraudulent III. REQUEST FOR JUDICIAL NOTICE 1 A court generally cannot consider materials outside the pleadings on a motion to dismiss 2 for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). A court may, however, consider items of 3 which it can take judicial notice without converting the motion to dismiss into one for summary 4 judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice 5 of facts “not subject to reasonable dispute” because they are either “(1) generally known within 6 the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by 7 resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201. A court 8 may additionally take judicial notice of “‘matters of public record’ without converting a Motion to 9 Dismiss into a motion for summary judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th 10 Cir. 2001) (quoting MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986)). Under 11 the incorporation by reference doctrine, courts may consider documents “whose contents are 12 alleged in a complaint and whose authenticity no party questions, but which are not physically 13 attached to the [plaintiff’s] pleading.” In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 14 (9th Cir. 1999) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)) (alteration in 15 original). 16 View and Mulpuri request that the Court take judicial notice of the relevant SEC filings, 17 accounting standards, and historical stock prices. See View Mot. at 3; ECF No. 182 (“Berry 18 Decl.”). In particular, View and Mulpuri seek judicial notice of the following exhibits: 19 1. View Exhibit 1, a document attached as Exhibit 99.2 to View’s Form 8-K, filed on 20 November 30, 2020. ECF No. 182-1. 21 2. View Exhibit 2, View’s Form S-4, filed on December 23, 2020. ECF No. 182-2. 22 3. View Exhibit 3, CF II’s Amended and Restated Certificate of Incorporation dated August 23 26, 2020 and attached as Exhibit 3.1 to View’s Form S-4, filed on December 23, 2020. 24 ECF No. 182-3. 25 4. View Exhibit 4, View’s Proxy Statement, filed on February 16, 2021. ECF No. 182-4. 26 5. View Exhibit 5, View’s Form S-1, filed on April 7, 2021. ECF No. 182-5. 27 6. View Exhibit 6, View’s Form 8-K, filed on August 16, 2021. ECF No. 182-6. 1 7. View Exhibit 7, View’s Form 8-K, filed on November 9, 2021. ECF No. 182-7. 2 8. View Exhibit 8, View’s Form 8-K, filed on May 31, 2022. ECF No. 182-8. 3 9. View Exhibit 9, View’s FY 2021 earnings call transcript from May 21, 2022. ECF No. 4 182-9. 5 10. View Exhibit 10, View’s Form 10-K, filed on June 15, 2022. ECF No. 182-10. 6 11. View Exhibit 11, Section 460-10-25 of the Financial Accounting Standards Board’s 7 (“FASB”) publicly available Accounting Standards Codification (“ASC”), which include 8 GAAP rules governing warranty accounting. ECF No. 182-11. 9 12. View Exhibit 12, Section 450-20-25 of the FASB’s ASC, which include GAAP rules 10 governing warranty accounting. ECF No. 182-12. 11 13. View Exhibit 13, a table of daily share price data for View from August 13, 2021 to June 12 2, 2022 from Yahoo! Finance. ECF No. 182-13. 13 14. View Exhibit 14, the complaint in SEC v. Prakash, No. 5:23-cv-03300-BLF (N.D. Cal. 14 July 3, 2023) (Dkt. No. 1). ECF No. 182-14. 15 15. View Exhibit 15, the SEC’s publicly available litigation release concerning SEC v. 16 Prakash, dated July 3, 2023. ECF No. 182-15. 17 16. View Exhibit 16, a copy of an order in Zucker v. Zoran Corp., No. C 06-04843 WHA 18 (N.D. Cal. Feb. 21, 2007) (Dkt. No. 79). ECF No. 182-16. 19 Plaintiffs have not objected to any of View or Mulpuri’s requests for judicial notice. 20 Plaintiffs request that the Court take judicial notice of Plaintiffs Exhibit 1, CF II’s 21 Amendment No. 2 to Form S-1 Registration Statement, which was filed with the SEC on August 22 18, 2020. Opp. at 13–14; ECF No. 185-2. Defendants do not object to this request for judicial 23 notice. 24 Plaintiffs also request that the Court take judicial notice of Supplemental Exhibit 1, a 25 derivative complaint filed in Siseles v. Lutnick, et al., No. 2023-1152-JTL (Del. Ch.). ECF No. 26 193. Plaintiffs note that the derivative complaint contains a slide from a Cantor and CF&Co. 27 presentation on the results of their due diligence to CF II’s Board and that the contents of this slide 1 admissible under the incorporation by reference doctrine and as a document on which Plaintiffs’ 2 allegations necessarily rely. Id. at 2–4. Defendants object to this request for judicial notice, 3 arguing that the Court cannot take judicial notice of the contents of the complaint to establish facts 4 stated therein. ECF No. 194 at 1–3. Defendants also argue that the incorporation by reference 5 doctrine does not apply because Plaintiffs did not reference the due diligence document 6 extensively in the second amended complaint. Id. at 3–4. 7 The Court takes judicial notice of View Exhibits 1–8 and 10 and Plaintiffs Exhibit 1 8 because these documents are judicially noticeable as SEC filings, which are matters of public 9 record not subject to reasonable dispute. See In re Calpine Corp. Sec. Litig., 288 F.Supp.2d 1054, 10 1076 (N.D. Cal. 2003) (“[T]he Court may properly take judicial notice of SEC filings and 11 documents expressly referenced in the [complaint].”). The Court takes judicial notice of View 12 Exhibit 9 because transcripts of earnings calls are publicly available documents and thus are 13 matters of public record not subject to reasonable dispute. See In re Facebook, Inc. Sec. Litig., 14 477 F.Supp.3d 980, 1009 (N.D. Cal. 2020) (taking judicial notice of transcripts of earnings calls). 15 The Court takes judicial notice of View Exhibits 11–12 because they are accounting rules, which 16 “are ‘capable of accurate and ready determination by resort to sources whose accuracy cannot be 17 reasonably questioned.’” Garcia v. J2 Glob., Inc., No. 220CV06096FLAMAAX, 2021 WL 18 1558331, at *10 (C.D. Cal. Mar. 5, 2021) (quoting In re Yahoo! Inc. Sec. Litig., No. C 11-02732 19 CRB, 2012 WL 3282819, at *2 (N.D. Cal. Aug. 10, 2012)). The Court takes judicial notice of 20 View Exhibit 15 because information on government agency websites and agency filings are 21 matters of public record and not subject to reasonable dispute. See In re Ethereummax Inv., No. 22 CV2200163MWFSKX, 2023 WL 6787827, at *39 (C.D. Cal. June 6, 2023) (taking judicial notice 23 of an SEC press release). The Court takes judicial notice of View Exhibit 13 because historical 24 stock price data are incorporated by reference in the second amended complaint and such data are 25 capable of accurate and ready determination by resort to sources whose accuracy cannot 26 reasonably be questioned. See In re Regulus Therapeutics Inc. Sec. Litig., 406 F.Supp.3d 845, 855 27 (S.D. Cal. 2019) (taking judicial notice of historic stock price data). 1 because they are court filings from other cases, which are matters of public record and not subject 2 to reasonable dispute. See Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th 3 Cir. 2006) (taking judicial notice of other court filings). However, the Court will not take judicial 4 notice of any facts contained in these documents. See In re Bare Escentuals, Inc. Sec. Litig., 745 5 F.Supp.2d 1052, 1067 (N.D. Cal. 2010). To the extent that Plaintiffs request that the Court 6 consider the contents of the due diligence presentation alleged in the Siseles complaint, the Court 7 will not do so. The contents of the due diligence presentation are not incorporated by reference in 8 the second amended complaint nor is the presentation a document on which allegations in the 9 second amended complaint necessarily rely. A document “may be incorporated by reference into 10 a complaint if the plaintiff refers extensively to the document or the document forms the basis of 11 the plaintiff’s claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). “[A] court may 12 consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the 13 document; (2) the document is central to the plaintiff[’s] claim; and (3) no party questions the 14 authenticity of the copy attached to the 12(b)(6) motion.” Daniels-Hall v. Nat’l Educ. Ass’n, 629 15 F.3d 992, 998 (9th Cir. 2010). The second amended complaint merely states that “the CF II Board 16 reviewed the results of the due diligence conducted by its management.” SAC ¶ 64. It does not 17 refer to the due diligence presentation, let alone refer to the document extensively, nor is the 18 document central to Plaintiffs’ claims. 19 Accordingly, View and Mulpuri’s request for judicial notice of View Exhibits 1–16 is 20 GRANTED and Plaintiffs’ request for judicial notice of Plaintiffs Exhibit 1 is GRANTED. 21 Plaintiffs’ request for judicial notice of Supplemental Exhibit 1 is GRANTED, but to the extent 22 that Plaintiffs request that the Court consider the contents of Supplemental Exhibit 1, the request is 23 DENIED. 24 IV. DISCUSSION 25 Defendants move to dismiss each of Plaintiffs’ four claims. The Court finds that Plaintiffs’ 26 claims must be dismissed because Plaintiffs cannot plead loss causation, and thus fail to show 27 standing, with respect to Lead Plaintiff Stadium Capital. Because the Court’s analysis of 1 will address the § 10(b) claim first. Finally, the Court will address whether the addition of 2 Plaintiff David Sherman can cure the deficiencies in standing. 3 A. Exchange Act § 10(b) Claim (Count 3) 4 Plaintiffs allege a claim under § 10(b) and Rule 10b-5(a) against Defendants View and 5 Prakash. See SAC ¶¶ 256–61. Section 10(b) makes it unlawful “for any person . . . [t]o use or 6 employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive 7 device or contrivance in contravention of such rules and regulations as the Commission may 8 prescribe[.]” 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the SEC under the authority of 9 Section 10(b), in turn makes it unlawful for any person:
10 (a) To employ any device, scheme or artifice to defraud,
11 (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in 12 light of the circumstances under which they were made, not misleading, or 13 (c) To engage in any act, practice, or course of business which 14 operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 15 16 17 C.F.R. § 240.10b-5. 17 To state a securities fraud claim, a plaintiff must plead: “(1) a material misrepresentation or 18 omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or 19 omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or 20 omission; (5) economic loss; and (6) loss causation.” City of Dearborn Heights Act 345 Police & 21 Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 613 (9th Cir. 2017) (quoting Oregon Pub. Emps. 22 Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 603 (9th Cir. 2014)). 23 View and Prakash argue that Plaintiffs have failed to adequately plead loss causation and 24 scienter. See View Mot. at 3–8; Prakash Mot. at 2–4. The Court need only address loss causation. 25 Loss causation, “i.e., a causal connection between the material misrepresentation and the loss” 26 experienced by the plaintiff, is a necessary element of pleading a securities fraud claim under 27 § 10(b) of the Exchange Act. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342 (2005). “The 1 the truth through ‘corrective disclosures’ which ‘caused the company’s stock price to drop and 2 investors to lose money.’” Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1209 (9th Cir. 2016) (quoting 3 Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2406 (2014)). To be corrective, the 4 disclosure must “relate back to the misrepresentation and not to some other negative information 5 about the company.” In re Nuveen Funds/City of Alameda Sec. Litig., No. 08-cv-4575-SI, 2011 6 WL 1842819, at *10 (N.D. Cal. May 16, 2011) (In re Williams Sec. Litig.-WCG Subclass, 558 7 F.3d 1130, 1139–40 (10th Cir. 2009)). Federal Rule of Civil Procedure 9(b) requires a plaintiff to 8 state with particularity the elements of a securities fraud claim, including loss causation. Apollo, 9 774 F.3d at 605. 10 View argues that Lead Plaintiff Stadium Capital cannot plead loss causation under § 10(b) 11 because it did not own View stock in November 2021, when the alleged truth became known.1 12 See View Mot. at 3. View further argues that even if the August 2021 disclosure of an internal 13 investigation is a “partial” corrective disclosure, the fact that Lead Plaintiff did not own View 14 stock in November 2021 is dispositive. Id. at 4. Finally, View argues that the August 2021 15 disclosure was not a partial corrective disclosure because the price of View stock rebounded by 16 September 2, 2021. Id. at 4–5. Prakash joins in View’s argument. Prakash Mot. at 4. Plaintiffs 17 respond that the August 2021 disclosure of an internal investigation was a partial corrective 18 disclosure because it explicitly stated that the investigation related to View’s previously disclosed 19 warranty accrual. See Opp. at 24 (citing SAC ¶ 140). Plaintiffs also argue that the price recovery 20 after the August 2021 disclosure occurred over 17 days, which sets this case apart from other price 21 recovery cases, in which prices recovered after 1 to 4 days. Id. at 25–26. Although Lead Plaintiff 22 owned View stock in August 2021, Lead Plaintiff had sold all of its shares as of September 24, 23 2021. ECF No. 175-2 (“SAC Ex. B”). 24 In support of their argument that the August 2021 disclosure of an internal investigation 25 1 View also argues that Plaintiffs’ second theory—that View failed to disclose its “above-and- 26 beyond” warranty practice—fails because this practice was not revealed until May 2022 and View had no duty to disclose this practice. View Mot. at 5, 8. In opposition, Plaintiffs concede that the 27 Class Period ends before the May 2022 “above-and-beyond” warranty disclosures and thus 1 was a partial corrective disclosure, Plaintiffs point the Court to Loos v. Immersion Corp., 762 F.3d 2 880 (9th Cir. 2014), and Lloyd v. CBF Financial Corp., 811 F.3d 1200 (9th Cir. 2016). In Loos, 3 the Ninth Circuit held that “the announcement of an investigation, without more, is insufficient to 4 establish loss causation.” Loos, 762 F.3d at 890. In doing so, the Ninth Circuit agreed with the 5 Eleventh Circuit’s reasoning in Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013), and concluded 6 that the mere announcement of an investigation does not reveal fraudulent practices and instead 7 “simply puts investors on notice of a potential future disclosure of fraudulent conduct.” Loos, 762 8 F.3d at 890. Consistent with Meyer, the Ninth Circuit made clear that it did “not mean to suggest 9 that the announcement of an investigation can never form the basis of a viable loss causation 10 theory.” Id. at 890 n.3. Instead, the Ninth Circuit “merely [held] that the announcement of an 11 investigation, ‘standing alone and without any subsequent disclosure of any wrongdoing, does not 12 reveal to the market the pertinent truth of anything, and therefore does not qualify as a corrective 13 disclosure.’” Id. (quoting Meyer, 710 F.3d at 1201 n.13). The Ninth Circuit addressed the 14 question again in Lloyd, which held that “an investigation can ‘form the basis for a viable loss 15 causation theory’ if the complaint also alleges a subsequent corrective disclosure by the 16 defendant.” Lloyd, 811 F.3d at 1210. The Ninth Circuit further held that, under the facts of that 17 case, loss causation was sufficiently pled. Id. Lloyd involved the announcement of an SEC 18 subpoena, after which the company’s stock price dropped 22%. Id. at 1204, 1210. The factual 19 allegations revealed that market analysts perceived the SEC subpoena as related to the alleged 20 misstatements. Id. at 1204–05, 1210–11. A month later, the company confirmed the market’s 21 fears, and the company’s stock price dropped only slightly. Id. at 1205, 1211. The Ninth Circuit 22 found that the later market reaction confirmed that investors understood the announcement of the 23 SEC subpoena as a partial disclosure of the alleged misstatements. Id. at 1210. 24 However, neither Loos nor Lloyd addressed the issue of whether the initial disclosure of an 25 investigation can qualify as a corrective disclosure where, as here, the plaintiff sold its stock 26 before the truth was finally revealed. On this question the Court finds instructive the Eleventh 27 Circuit’s decision in MacPhee v. MiMedx Grp., Inc., 73 F.4th 1220 (11th Cir. 2023). In MacPhee, 1 fraudulent practices were corrective disclosures. See id. at 1247. The lead plaintiff sold its stock 2 after the announcements of lawsuits and investigations but before the truth was finally revealed to 3 the market. See id. at 1230–34, 1248. The Eleventh Circuit held that the announcements of 4 lawsuits and investigations did not qualify as corrective disclosures because the lead plaintiff sold 5 its shares before the relevant truth was revealed. See id. at 1248. The Eleventh Circuit explained 6 that once the truth is revealed, “the market will digest the new information and cease attributing 7 the artificial inflation to the price” and investors that purchased stock at the inflated price “and 8 who still hold their stock will suffer economic loss.” Id. (parenthesis omitted) (quoting FindWhat 9 Inv. Grp. v. FindWhat.com, 658 F.3d 1282, 1315 (11th Cir. 2011)); see also Dura, 544 U.S. at 342 10 (“But if, say, the purchaser sells the shares quickly before the relevant truth begins to leak out, the 11 misrepresentation will not have led to any loss.”). In reaching this conclusion, the Eleventh 12 Circuit acknowledged that, in Meyer, it had left open the possibility that the announcement of an 13 investigation could constitute a corrective disclosure, but found that it did not need to decide the 14 question because the lead plaintiff did not own stock by the time the fraud or wrongdoing was 15 revealed. See MacPhee, 73 F.4th at 1248. For the same reason, the Eleventh Circuit found Lloyd 16 distinguishable. See id. at 1248 n.12. 17 The Court finds that this case is analogous to MacPhee. Plaintiffs allege that on August 18 16, 2021, View announced that its Audit Committee began an independent investigation and 19 would not file its Form 10-Q for the second fiscal quarter of 2021. SAC ¶ 128. Similarly, among 20 the lawsuits and investigations alleged to be partial corrective disclosures in MacPhee was the 21 defendant’s announcement of an audit committee investigation and that it would postpone its 22 Form 10-K. See MacPhee, 73 F.4th at 1233. In MacPhee and this case, the lead plaintiffs sold 23 their shares after the announcements but before the truth was revealed to the market. See SAC Ex. 24 B (showing that Lead Plaintiff sold all of its stock by September 24, 2021); SAC ¶ 129 (alleging 25 that on November 9, 2021, View announced that the Audit Committee “concluded that the 26 Company’s previously reported liabilities associated with all warranty-related obligations and the 27 cost of revenue associated with the recognition of those liabilities were materially misstated”). 1 previously disclosed warranty accrual. Opp at 24. But that fact does not distinguish this case 2 from MacPhee, in which the announcements alleged to be corrective disclosures also included 3 statements about the subject matter of the lawsuits and investigations. See MacPhee, 73 F.4th at 4 1231–33. Finally, Plaintiffs argue that the August 16, 2021 disclosure is a partial corrective 5 disclosure and to hold otherwise would lead to absurd results. Opp at 25. However, Plaintiffs 6 have failed to point the Court to any authority under which a plaintiff can show loss causation 7 despite selling its shares before the truth was revealed. 8 The Court holds that Lead Plaintiff Stadium Capital cannot attribute its losses to the 9 August 2021 announcement—and thus fails to allege loss causation—because Stadium Capital 10 sold its stock before the truth of the underlying falsehood was revealed.2 Put differently, because 11 Stadium Capital sold its shares before the truth was revealed, Stadium Capital was not injured by 12 the alleged misrepresentations. See MacPhee, 73 F.4th at 1243 (“[W]here a purchaser of stock 13 sells its shares ‘before the relevant truth begins to leak out, the misrepresentation will not have led 14 to any loss.’” (quoting Dura, 544 U.S. at 342)). 15 Because Stadium Capital cannot show injury, it follows that Stadium Capital lacks 16 standing to pursue the § 10(b) claim alleged in the second amended complaint. Constitutional 17 standing requires the plaintiff to show (1) an injury in fact (2) that is fairly traceable to the 18 defendant’s actions and (3) that will likely be redressed by a favorable decision. See Lujan v. 19 Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). “In a class action, a lead plaintiff must show 20 that it personally has been injured.” In re Impax Lab’ys, Inc. Sec. Litig., No. C 04-04802 JW, 21 2008 WL 1766943, at *6 (N.D. Cal. Apr. 17, 2008). In similar cases, where the lead plaintiff sold 22 all of its shares before the truth was revealed, courts have found that the lead plaintiff was not 23 injured and thus did not have and never had standing to bring suit. See, e.g., id. at *7; In re 24 Infineon Techs. AG Sec. Litig., 266 F.R.D. 386, 394 (N.D. Cal. 2009). Thus, the Court finds that 25 Stadium Capital does not have and never had standing to pursue the § 10(b) claim. This 26
27 2 Because the Court finds that Plaintiffs have failed to allege loss causation based on Lead 1 deficiency is fatal Plaintiffs’ § 10(b) claim because, as will be discussed below, Ninth Circuit 2 precedent is clear that a new plaintiff such as Sherman cannot be added to save a lawsuit from 3 dismissal where the sole named plaintiff never had standing. See infra Part IV.D. As such, the 4 Court need not address Defendants’ scienter arguments. 5 Accordingly, the Court GRANTS Defendants’ motions to dismiss Plaintiffs’ § 10(b) claim. 6 B. Exchange Act § 14(a) Claim (Count 1) 7 Plaintiffs allege a claim under § 14(a) and Rule 14a-9 against all Defendants. See SAC 8 ¶¶ 160–98. “To state a claim under § 14(a) and Rule 14a-9, a plaintiff must establish that ‘(1) a 9 proxy statement contained a material misrepresentation or omission which (2) caused the plaintiff 10 injury and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation 11 materials, was an essential link in the accomplishment of the transaction.’” New York City Emps.’ 12 Ret. Sys. v. Jobs, 593 F.3d 1018, 1022 (9th Cir. 2010), overruled on the other grounds by Lacey v. 13 Maricopa Cty., 693 F.3d 896 (9th Cir. 2012) (quoting Tracinda Corp. v. DaimlerChrysler AG, 502 14 F.3d 212, 228 (3d Cir. 2007)). Section 14(a) and Rule 14a-9 also include a loss causation 15 requirement. Id. 16 View and Mulpuri argue that the second amended complaint fails to adequately allege loss 17 causation, transaction causation, negligence, and solicitation. View Mot. at 8–11. Prakash joins 18 in View’s arguments regarding loss and transaction causation and, in addition, argues that the 19 second amended complaint fails to allege that Prakash acted with the requisite negligence or that 20 he engaged in solicitation. Prakash Mot. at 4–6. The CF II Defendants also argue that the second 21 amended complaint fails to adequately allege negligence, solicitation, and loss causation and, in 22 addition, that the § 14(a) claims against the CF II Individual Defendants are exculpated under 23 Delaware law. CF II Mot. at 3–9. 24 As stated above, a plaintiff must establish that the allegedly misleading proxy caused the 25 plaintiff injury in the form of economic loss. New York City Emps.’ Ret. Sys., 593 F.3d at 1022. 26 Defendants argue that the § 14(a) claim has the same defect as the § 10(b) claim—namely that 27 Lead Plaintiff Stadium Capital sold all of the CF II shares that it held as of the January 2021 1 agrees. On January 27, 2021—that is, the Record Date on which holders of CF II Class A 2 common stock were entitled to vote to approve the merger between View and CF II, see SAC 3 ¶ 1—Stadium Capital held 80,000 shares of CF II stock. See SAC Ex. B. However, Stadium 4 Capital sold all of these shares on March 9, 2021, well before the truth of any alleged 5 misstatements was revealed. See id. Although Plaintiff bought more View stock, any alleged 6 economic harm from those purchases was not caused by the Proxy Statement because those 7 purchases occurred after the vote solicited by the Proxy Statement. Thus, Stadium Capital does 8 not have and never had standing for the § 14(a) claim alleged in the second amended complaint. 9 See In re Impax Lab’ys, 2008 WL 1766943, at *6. For the same reasons as the § 10(b) claim, 10 Stadium Capital’s lack of standing is fatal to Plaintiffs § 14(a) claim because, as will be discussed 11 below, Sherman cannot be added to cure this deficiency. See infra Part IV.D. As such, the Court 12 need not address Defendants’ arguments regarding transaction causation, the adequacy of the 13 allegations regarding negligence, solicitation, and exculpation. 14 Accordingly, the Court GRANTS Defendants’ motions to dismiss Plaintiffs’ § 14(a) claim. 15 C. Exchange Act § 20(a) Claims (Counts 2 and 4) 16 Plaintiffs allege a claim under § 20(a) in connection with their § 14(a) claim against the 17 View Individual Defendants and the CF II Defendants and a claim under § 20(a) in connection 18 with their § 10(b) claim against the View Individual Defendants and the CF II Defendants except 19 Blechman and Hochberg. See SAC ¶¶ 199–205, 262–66. Section 20(a) claims require an 20 underlying primary violation of the securities laws. See In re Rigel Pharms., Inc. Sec. Litig., 697 21 F.3d 869, 886 (9th Cir. 2012). Because Stadium Capital does not have standing to pursue its 22 § 10(b) and § 14(a) claims, it follows that Stadium Capital does not have standing to pursue its 23 § 20(a) claims. 24 Accordingly, the Court GRANTS Defendants’ motions to dismiss Plaintiffs’ § 20(a) 25 claims. 26 D. Addition of Plaintiff David Sherman 27 Finding that Stadium Capital cannot plead loss causation, and thus does not have standing 1 whether Plaintiffs can add David Sherman to this case to cure the deficiency. Sherman purchased 2 1000 shares of then–CF II stock on January 22, 2021 and, unlike Stadium Capital, there are no 3 records of Sherman selling his shares during the Class Period. See ECF No. 175-3 (“SAC Ex. C”). 4 View argues that Lead Plaintiff cannot unilaterally insert Sherman as a new plaintiff into 5 the action because Plaintiffs failed obtain Court permission under Federal Rules of Civil 6 Procedure 15 or 24. See View Mot. at 12. View also argues that allowing a new plaintiff would 7 serve as an end-run around the PSLRA’s selection process, and that the case should be dismissed 8 because Lead Plaintiff does not have standing to pursue its claims. Id. at 12–13. Prakash joins in 9 View’s arguments. Prakash Mot. at 7. Similarly, the CF II Defendants argue that the addition of a 10 new plaintiff is improper because Stadium Capital does not have standing. See CF II Mot. at 9. 11 Plaintiffs argue that the Court granted Stadium Capital leave to amend under Rule 15, and that 12 courts routinely allow amendment to add additional named plaintiffs. Opp. at 29–30. Plaintiffs 13 also argue that the case need not be dismissed because Sherman is a named plaintiff who has 14 standing to pursue the claims in the second amended complaint. Id. at 30. 15 As an initial matter, the Court finds that, contrary to View’s arguments, the addition of a 16 named plaintiff or the appointment of a new lead plaintiff is not an end-run around the PSLRA’s 17 requirements. See In re Impax Lab’ys, 2008 WL 1766943, at *8 (noting that “[t]he PSLRA’s lead 18 plaintiff provision is designed only to get cases off on the right foot” and holding that substitution 19 of the lead plaintiff was not contrary to the PSLRA); Hunt v. Bloom Energy Corp., No. 19-CV- 20 02935-HSG, 2021 WL 1110260, at *1 (N.D. Cal. Mar. 23, 2021) (“[T]he PSLRA does not in any 21 way prohibit the addition of named plaintiffs to aid the lead plaintiff in representing a class.” 22 (quoting Hevesi v. Citigroup, Inc., 366 F.3d 70, 82–83 (2d Cir. 2004))). 23 Instead, whether the addition of Sherman is appropriate turns on Stadium Capital’s 24 standing. The Ninth Circuit has held that where the sole named plaintiff “never had standing,” and 25 thus was “never a member of the class [it] was named to represent,” the district court must dismiss 26 the action. Lierboe v. State Farm Mut. Auto. Ins. Co., 350 F.3d 1018, 1023 (9th Cir. 2003) 27 (quoting Foster v. Ctr. Township of LaPorte Cnty., 798 F.2d 237, 244–45 (7th Cir. 1986)). 1 class representative in order to cure the class representative’s lack of standing. See, e.g., Skilstaf, 2 Inc. v. CVS Caremark Corp., No. C 09-02514 SI, 2010 WL 199717, at *6 (N.D. Cal. Jan. 13, 3 2010) (denying substitution of class representative and dismissing an action where the class 4 representative did not have standing), aff’d, 669 F.3d 1005 (9th Cir. 2012); In re Exodus 5 Commc’ns, Inc. Sec. Litig., No. C-01-2661 MMC, 2006 WL 2355071, at *1 (N.D. Cal. Aug. 14, 6 2006) (noting that an additional plaintiff may intervene only if one of the named plaintiffs had 7 standing); Zapien v. Washington Mut., Inc., No. 07CV385 DMS (CAB), 2008 WL 11509012, at 8 *3 (S.D. Cal. June 17, 2008) (“When the sole named plaintiff in a class action lawsuit lacks 9 standing, intervention or substitution of another named plaintiff is not permissible, and the court 10 must dismiss the claim.”); Adams v. AllianceOne, Inc., No. 08-CV-248-JAH(WVG), 2010 WL 11 11508282, at *1 (S.D. Cal. Mar. 22, 2010) (“Where a plaintiff never had standing, Ninth Circuit 12 case law is clear that a new plaintiff with standing cannot step in to save the lawsuit from 13 dismissal.”); cf. In re Impax Lab’ys, 2008 WL 1766943, at *8 (allowing substitution of the Lead 14 Plaintiff where at least one named plaintiff had standing). 15 As noted above, Stadium Capital never had standing to pursue the § 10(b) claim because it 16 sold all of its View stock in September 2021, before the truth was ultimately revealed in 17 November 2021. Similarly, Stadium Capital never had standing to pursue the § 14(b) claim 18 because although it held 80,000 shares of CF II stock on the Record Date, it sold those shares in 19 March 2021, again before any truth regarding the alleged misstatements in the proxy statement 20 was revealed. Thus, Stadium Capital does not have standing and was never a member of the class 21 it was named to represent. It follows that Stadium Capital’s claims must be dismissed. Under 22 Lierboe and the approach followed by the other district courts in the Ninth Circuit, this action 23 must also be dismissed because “when the named plaintiff’s claim is dismissed at the pleading 24 stage, there is no longer an Article III ‘case or controversy’ between the parties.” Skilstaf, 2010 25 WL 199717, at *6. Plaintiffs cannot add a plaintiff who has standing to cure Stadium Capital’s 26 lack of standing. See id. (rejecting the plaintiff’s request to substitute a class representative with 27 standing prior to class certification). 1 Stadium Capital leave to amend under Rule 15. See Opp. at 29. However, the Court’s prior order 2 dismissing the first amended complaint granted leave to amend the claims—it did not grant 3 Stadium Capital carte blanche to add an additional plaintiff. See ECF No. 168. Regardless, 4 amendment under Rule 15 or intervention under Rule 24 cannot cure the sole named plaintiff’s 5 lack of standing. “When the sole named plaintiff in a class action lawsuit lacks standing, 6 intervention or substitution of another named plaintiff is not permissible, and the court must 7 dismiss the claim.” Zapien, 2008 WL 11509012, at *3 (rejecting an attempt to substitute the sole 8 named plaintiff, who lacked standing, for a new plaintiff); see also Almeida, 2009 WL 3809808, at 9 *3 (noting that “Lierboe would seem to apply with equal force whether intervention of a new 10 plaintiff is achieved by Rule 15 amendment or Rule 24,” and rejecting a plaintiff’s attempt to 11 substitute a new plaintiff with standing). Plaintiffs suggest that authorities relating to the class 12 certification stage are inapposite, Opp. at 30, but Lierboe’s holding does not depend on class 13 certification. See Adams, 2010 WL 11508282, at *2 (“[Lierboe’s] holding does not change 14 regardless of class certification status.”). Finally, Plaintiffs argue that this case is distinguishable 15 from the district court cases following Lierboe because Sherman is a named plaintiff with 16 standing. Opp. at 30. This argument puts the cart before the horse. The question before the Court 17 is whether Plaintiffs may add Sherman as a named plaintiff to cure Stadium Capital’s lack of 18 standing, and this inquiry requires the Court to examine the standing of the named plaintiff absent 19 Sherman. See, e.g., In re Exodus Commc’ns, 2006 WL 2355071, at *1 (examining the standing of 20 existing plaintiffs, rather than the plaintiffs seeking to intervene); Zapien, 2008 WL 11509012, at 21 *3 (same). 22 Accordingly, because Stadium Capital lacks standing to pursue any of the claims, Plaintiffs 23 may not add Sherman to cure this deficiency, and the Court DISMISSES the case. 24 V. ORDER 25 For the foregoing reasons, IT IS HEREBY ORDERED that: 26 1. Defendants View, Inc., and Rao Mulpuril’s Motion to Dismiss (ECF No. 181) is 27 GRANTED WITHOUT LEAVE TO AMEND. 1 Hochberg, Charlotte S. Blechman, CF Finance Holdings I], LLC, Cantor Fitzgerald & Co., Cantor 2 || Fitzgerald, L.P., and CF Group Management, Inc.’s Motion to Dismiss (ECF No. 183) is 3 || GRANTED WITHOUT LEAVE TO AMEND. 4 3. Defendant Vidul Prakash’s Motion to Dismiss (ECF No. 184) is GRANTED 5 || WITHOUT LEAVE TO AMEND. 6 7 Dated: April 9, 2024 ° BETH LABSON FREEMAN 9 United States District Judge 10 11 12
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