NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 20 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
OKLAHOMA FIREFIGHTERS PENSION No. 23-3932 AND RETIREMENT SYSTEM, D.C. No. 2:21-cv-08892-GW-RAO Plaintiff - Appellant,
v. MEMORANDUM*
SNAP INC.; EVAN SPIEGEL; JEREMI GORMAN,
Defendants - Appellees.
Appeal from the United States District Court for the Central District of California George H. Wu, Senior District Judge, Presiding
Argued and Submitted December 5, 2024 San Francisco, California
Before: BRESS and FORREST, Circuit Judges, and OHTA, District Judge.**
Oklahoma Firefighters Pension and Retirement System (“OFPRS”) appeals
the district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6) of its
third amended class action complaint (“TAC”) alleging violations of Sections 10(b)
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Jinsook Ohta, United States District Judge for the Southern District of California, sitting by designation. and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. OFPRS alleges
that Jeremi Gorman, Snap Inc.’s then-Chief Business Officer, misled investors
during an April 22, 2021, earnings call by stating that “[a]dvertisers that represent a
majority of our direct response advertising revenue have successfully implemented
SKAdNetwork [(“SKAN”)] for their Snap campaigns.” We review de novo a
dismissal under Rule 12(b)(6). Prodanova v. H.C. Wainwright & Co., LLC, 993
F.3d 1097, 1105 (9th Cir. 2021). We have jurisdiction under 28 U.S.C. § 1291, and
we reverse.
1. Although the district court thoughtfully and carefully reviewed the
allegations in the TAC, we respectfully reach a different conclusion. In our view,
the TAC adequately alleges scienter.
In a securities fraud claim, to allege the required scienter the complaint must
“allege that the defendant[] made false or misleading statements either intentionally
or with deliberate recklessness.” Nguyen v. Endologix, Inc., 962 F.3d 405, 414 (9th
Cir. 2020) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th
Cir. 2009)). Deliberate recklessness is “an extreme departure from the standards of
ordinary care . . . which presents a danger of misleading buyers or sellers that is
either known to the defendant or is so obvious that the actor must have been aware
of it.” Prodanova, 993 F.3d at 1106 (quoting Schueneman v. Arena Pharms., Inc.,
840 F.3d 698, 705 (9th Cir. 2016)). “In the securities context, ‘an actor is reckless
2 23-3932 if he had reasonable grounds to believe material facts existed that were misstated or
omitted, but nonetheless failed to obtain and disclose such facts although he could
have done so without extraordinary effort.’” In re Oracle Corp. Sec. Litig., 627 F.3d
376, 390 (9th Cir. 2010) (quoting Howard v. Everex Sys., Inc., 228 F.3d 1057, 1064
(9th Cir. 2000)). Under the Private Securities Litigation Reform Act (“PSLRA”), a
complaint must “state with particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.” Or. Pub. Emps. Ret. Fund v.
Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir. 2014) (quoting 15 U.S.C. § 78u-
4(b)(2)(A)).
OFPRS argues that it has adequately pleaded scienter under both the holistic
inquiry and the core-operations theory. Under the holistic inquiry, “the reviewing
court must ask: When the allegations are accepted as true and taken collectively,
would a reasonable person deem the inference of scienter at least as strong as any
opposing inference?” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 326
(2007). “[A] court must consider plausible, nonculpable explanations for the
defendant’s conduct, as well as inferences favoring the plaintiff.” Id. at 324.
Assessed holistically, we conclude the TAC’s allegations give rise to the strong
inference of scienter required under the PSLRA. They indicate that Snap as a
company knew that Gorman’s statement was false when made and that this
knowledge can be imputed to Gorman herself.
3 23-3932 The TAC contains extensive allegations that Snap’s revenue was concentrated
in “direct response” (“DR”) advertising, and that these advertisers viewed Apple’s
App Tracking Transparency initiative (“ATT”)—and its switch from “Identifiers for
Advertisers” (“IDFA”) to SKAN—with great skepticism and concern. The TAC
pleads particularized facts indicating that at the time of Gorman’s key statement,
Snap “was under intense pressure to strongly reassure the market that its advertising
business was well-equipped to withstand ATT.” In February 2021, Gorman claimed
that Snap had “been working really closely with Apple to implement” SKAN and
had been “communicating very well with advertisers” to mitigate the transition.
The TAC further alleges that Confidential Witness (“CW”) 1, an account
strategist in Snap’s gaming advertising group, confirmed that “there were very few
adoptees [of SKAN] in Q1 and Q2 of 2021,” and that the adoptees “immediately
experienced numerous issues” including the loss of legacy IDFA data, significant
delays in receiving new data, and the inability to obtain data such as the size of a
user’s purchase after clicking on an ad. CW 2, a data scientist tasked with revenue
forecasting for Snap, stated that Snap “had barely begun working with its advertisers
on SKAN” in April 2021 and that, in August 2021, another data scientist showed her
a spreadsheet indicating that most of the company’s DR advertisers had not yet
begun to opt into SKAN.
These allegations sufficiently support the strong inference that advertisers
4 23-3932 representing a majority of DR revenue had not begun to “implement” SKAN, let
alone done so “successfully,” at the time of Gorman’s statement. Fairly read, factual
allegations that “there were very few adoptees,” that Snap “had barely begun
working with its advertisers on SKAN” in April 2021, and that most DR advertisers
had not adopted SKAN by August 2021, create a strong inference that advertisers
representing a majority of DR advertising revenue—and not just a majority of
advertisers by headcount—had not implemented SKAN in April 2021.
The TAC’s allegations also support the strong inference that Gorman herself
knew this contrary information. Gorman oversaw Snap’s sales and advertising
teams and spoke to investors about Snap’s DR business every quarter. In February
2021, Gorman stated on an earnings call that SNAP had been “communicating very
well with advertisers” about ATT and SKAN to “mitigate” the transition.
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS DEC 20 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
OKLAHOMA FIREFIGHTERS PENSION No. 23-3932 AND RETIREMENT SYSTEM, D.C. No. 2:21-cv-08892-GW-RAO Plaintiff - Appellant,
v. MEMORANDUM*
SNAP INC.; EVAN SPIEGEL; JEREMI GORMAN,
Defendants - Appellees.
Appeal from the United States District Court for the Central District of California George H. Wu, Senior District Judge, Presiding
Argued and Submitted December 5, 2024 San Francisco, California
Before: BRESS and FORREST, Circuit Judges, and OHTA, District Judge.**
Oklahoma Firefighters Pension and Retirement System (“OFPRS”) appeals
the district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6) of its
third amended class action complaint (“TAC”) alleging violations of Sections 10(b)
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Jinsook Ohta, United States District Judge for the Southern District of California, sitting by designation. and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. OFPRS alleges
that Jeremi Gorman, Snap Inc.’s then-Chief Business Officer, misled investors
during an April 22, 2021, earnings call by stating that “[a]dvertisers that represent a
majority of our direct response advertising revenue have successfully implemented
SKAdNetwork [(“SKAN”)] for their Snap campaigns.” We review de novo a
dismissal under Rule 12(b)(6). Prodanova v. H.C. Wainwright & Co., LLC, 993
F.3d 1097, 1105 (9th Cir. 2021). We have jurisdiction under 28 U.S.C. § 1291, and
we reverse.
1. Although the district court thoughtfully and carefully reviewed the
allegations in the TAC, we respectfully reach a different conclusion. In our view,
the TAC adequately alleges scienter.
In a securities fraud claim, to allege the required scienter the complaint must
“allege that the defendant[] made false or misleading statements either intentionally
or with deliberate recklessness.” Nguyen v. Endologix, Inc., 962 F.3d 405, 414 (9th
Cir. 2020) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th
Cir. 2009)). Deliberate recklessness is “an extreme departure from the standards of
ordinary care . . . which presents a danger of misleading buyers or sellers that is
either known to the defendant or is so obvious that the actor must have been aware
of it.” Prodanova, 993 F.3d at 1106 (quoting Schueneman v. Arena Pharms., Inc.,
840 F.3d 698, 705 (9th Cir. 2016)). “In the securities context, ‘an actor is reckless
2 23-3932 if he had reasonable grounds to believe material facts existed that were misstated or
omitted, but nonetheless failed to obtain and disclose such facts although he could
have done so without extraordinary effort.’” In re Oracle Corp. Sec. Litig., 627 F.3d
376, 390 (9th Cir. 2010) (quoting Howard v. Everex Sys., Inc., 228 F.3d 1057, 1064
(9th Cir. 2000)). Under the Private Securities Litigation Reform Act (“PSLRA”), a
complaint must “state with particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.” Or. Pub. Emps. Ret. Fund v.
Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir. 2014) (quoting 15 U.S.C. § 78u-
4(b)(2)(A)).
OFPRS argues that it has adequately pleaded scienter under both the holistic
inquiry and the core-operations theory. Under the holistic inquiry, “the reviewing
court must ask: When the allegations are accepted as true and taken collectively,
would a reasonable person deem the inference of scienter at least as strong as any
opposing inference?” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 326
(2007). “[A] court must consider plausible, nonculpable explanations for the
defendant’s conduct, as well as inferences favoring the plaintiff.” Id. at 324.
Assessed holistically, we conclude the TAC’s allegations give rise to the strong
inference of scienter required under the PSLRA. They indicate that Snap as a
company knew that Gorman’s statement was false when made and that this
knowledge can be imputed to Gorman herself.
3 23-3932 The TAC contains extensive allegations that Snap’s revenue was concentrated
in “direct response” (“DR”) advertising, and that these advertisers viewed Apple’s
App Tracking Transparency initiative (“ATT”)—and its switch from “Identifiers for
Advertisers” (“IDFA”) to SKAN—with great skepticism and concern. The TAC
pleads particularized facts indicating that at the time of Gorman’s key statement,
Snap “was under intense pressure to strongly reassure the market that its advertising
business was well-equipped to withstand ATT.” In February 2021, Gorman claimed
that Snap had “been working really closely with Apple to implement” SKAN and
had been “communicating very well with advertisers” to mitigate the transition.
The TAC further alleges that Confidential Witness (“CW”) 1, an account
strategist in Snap’s gaming advertising group, confirmed that “there were very few
adoptees [of SKAN] in Q1 and Q2 of 2021,” and that the adoptees “immediately
experienced numerous issues” including the loss of legacy IDFA data, significant
delays in receiving new data, and the inability to obtain data such as the size of a
user’s purchase after clicking on an ad. CW 2, a data scientist tasked with revenue
forecasting for Snap, stated that Snap “had barely begun working with its advertisers
on SKAN” in April 2021 and that, in August 2021, another data scientist showed her
a spreadsheet indicating that most of the company’s DR advertisers had not yet
begun to opt into SKAN.
These allegations sufficiently support the strong inference that advertisers
4 23-3932 representing a majority of DR revenue had not begun to “implement” SKAN, let
alone done so “successfully,” at the time of Gorman’s statement. Fairly read, factual
allegations that “there were very few adoptees,” that Snap “had barely begun
working with its advertisers on SKAN” in April 2021, and that most DR advertisers
had not adopted SKAN by August 2021, create a strong inference that advertisers
representing a majority of DR advertising revenue—and not just a majority of
advertisers by headcount—had not implemented SKAN in April 2021.
The TAC’s allegations also support the strong inference that Gorman herself
knew this contrary information. Gorman oversaw Snap’s sales and advertising
teams and spoke to investors about Snap’s DR business every quarter. In February
2021, Gorman stated on an earnings call that SNAP had been “communicating very
well with advertisers” about ATT and SKAN to “mitigate” the transition. CW 2
directly participated in small six-to-seven person pre-earnings release meetings
during which Gorman expressed her concerns about ATT’s impact, and CW 2
further alleges that Gorman regularly met with key advertisers and was known for
connecting with Snap’s advertising sales representatives on a first-name basis.
Given CW 2’s allegations regarding Gorman’s concerns about ATT’s impact during
pre-earnings release meetings, the nature of Gorman’s regular communications with
key advertisers and sales representatives and her role and involvement as head of
global advertising, the TAC pleads facts creating a strong inference that Gorman had
5 23-3932 “reasonable grounds to believe” her statement was false when made, and that she
could have obtained contrary information “without extraordinary effort.” See
Oracle Corp., 627 F.3d at 390 (quoting Howard, 228 F.3d at 1064).
The inference of scienter is “as compelling as any opposing inference one
could draw from the facts alleged.” Tellabs, 551 U.S. at 324. Snap advances the
competing inference that Gorman made an optimistic prediction that did not pan out.
But Gorman’s statement that certain advertisers “have successfully implemented”
SKAN is not a forward-looking prediction.
2. We would also find scienter under the core-operations theory’s “actual
access” and “absurdity” tests. The “actual access” test requires particularized
allegations that “suggest that defendants had actual access to the disputed
information.” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 786 (9th Cir. 2008).
The TAC’s allegations that Gorman, as head of global advertising, regularly met
with key advertisers, was focused on DR advertising, and spoke to investors about
the DR business every quarter sufficiently meets this pleading standard.
The TAC also meets the “absurdity” test, which satisfies the PSLRA “without
accompanying particularized allegations, in rare circumstances where the nature of
the relevant fact is of such prominence that it would be ‘absurd’ to suggest that
management was without knowledge of the matter.” S. Ferry, 542 F.3d at 786
(quoting Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 988 (9th Cir. 2008)).
6 23-3932 Given the TAC’s allegations that the ATT transition threatened more than half of
Snap’s revenue, Gorman’s responsibility for DR advertising, and in view of all the
other allegations in the TAC, the TAC sufficiently pleads facts indicating that it
would be absurd to suggest Gorman did not to know that advertisers representing a
majority of DR revenue had not implemented SKAN, let alone done so successfully.
3. OFPRS has adequately alleged the falsity of Gorman’s statement, as the
district court found. The TAC’s allegations provide ample grounds for the inference
that advertisers representing a majority of DR revenue had not adopted SKAN in
April 2021. Snap’s alternative reading of Gorman’s statement—that advertisers had
only adopted SKAN, but had not yet encountered issues with SKAN’s
performance—cannot appropriately be resolved at the motion to dismiss stage.
4. Because the district court dismissed the § 20(a) claims based on the
failure to state an underlying § 10(b) violation, we also reverse the dismissal of this
claim.
REVERSED.
7 23-3932