Sean Ryan v. FIGS, Inc.

• Court: District Court, C.D. California
• Decided: January 10, 2025
• Docket: 2:22-cv-07939
• Status: Unknown

Opinion

O 1

2 3 4 5 6 7

8 United States District Court 9 Central District of California

11 SEAN RYAN, Case № 2:22-cv-07939-ODW (AGRx)

12 Plaintiffs, ORDER GRANTING IN PART AND

13 v. DENYING IN PART DEFENDANTS’ MOTIONS TO DISMISS FIRST 14 FIGS, INC. et al., AMENDED CLASS ACTION

15 Defendants. COMPLAINT [118] [120] [123]

16 17 I. INTRODUCTION 18 On November 1, 2022, Plaintiff Sean Ryan filed the initial Complaint in this 19 putative securities class action. (Compl., ECF No. 1.) Thereafter, the case was 20 consolidated with City of Hallandale Beach Police Officers and Firefighters 21 Personnel Retirement Trust v. FIGS, Inc. et al., No. 2:22-cv-08912-ODW (KSx). 22 (Min. Order, ECF No. 64.) The Court designated this case as the lead case and 23 appointed Ronald Hoch, City of Pensacola Police Officers’ Retirement Plan (“City of 24 Pensacola”), City of Warren Police and Fire Retirement System (“City of Warren”), 25 Kissimmee Utility Authority Employees’ Retirement Plan (“Kissimmee”), and 26 Pompano Beach Police & Firefighters’ Retirement System (“Pompano Beach”) 27 (collectively, “Plaintiffs”) as the lead plaintiffs in the consolidated action. (Id.) 28 1 On April 10, 2023, Plaintiffs filed their consolidated Class Action Complaint. 2 (Class Action Compl. (“CAC”), ECF No. 88.) The Court subsequently dismissed the 3 Class Action Complaint with leave to amend (“January 2024 Order”). (Order. Mot. 4 Dismiss (“Order MTD”) 35, ECF No. 113.) Thereafter, on March 19, 2024, Plaintiffs 5 filed their First Amended Class Action Complaint (“FAC”) against Defendants FIGS, 6 Inc. (“FIGS”), Heather Hasson, Catherine Spear, Daniella Turenshine, Jeffrey D. 7 Lawrence, J. Martin Willhite, Tulco, LLC (“Tulco”), Sheila Antrum, Michael Soenen, 8 and fifteen underwriters1 (collectively, the “Underwriters”) involved in FIGS’s Initial 9 Public Offering (“IPO”) and Secondary Public Offering (“SPO”). (First Am. Compl. 10 (“FAC”), ECF No. 117; Suppl. FAC, ECF No. 148.) 11 All Defendants, in three groupings, now move to dismiss the FAC (“Motions”). 12 (Tulco Mot. Dismiss (“Tulco MTD”), ECF No. 118; Underwriters Mot. Dismiss 13 (“Underwriters MTD”), ECF No. 120; FIGS Mot. Dismiss (“FIGS MTD”), ECF 14 No. 123.) For the reasons below, the Court GRANTS IN PART AND DENIES IN 15 PART Defendants’ Motions.2 16 II. BACKGROUND 17 The Court previously detailed the complex procedural history and extensive 18 factual allegations in this case. As the factual allegations in the 164-page FAC remain 19 largely the same as in the CAC, the Court incorporates much of the background 20 discussion from its January 2024 Order by reference here. (Order MTD 3–8.) The 21 factual allegations and procedural history relevant to the disposition of the present 22 Motions are summarized below.3 23 1 The named underwriters are Goldman Sachs & Co. LLC; Morgan Stanley & Co. LLC; Barclays 24 Capital Inc.; Credit Suisse Securities (USA) LLC; BofA Securities, INC.; Cowen and Company, 25 LLC; Guggenheim Securities, LLC; KeyBanc Capital Markets Inc.; Oppenheimer & Co. Inc.; Piper Sandler & Co.; Telsey Advisory Group LLC; Academy Securities, Inc.; R. Seelaus & Co., LLC; 26 Samuel A. Ramirez & Company, Inc.; and Seibert Williams Shank & Co., LLC. (FAC ¶¶ 65–79.) 2 Having carefully considered the papers filed in connection with the Motions, the Court deemed the 27 matters appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 28 3 All factual references derive from Plaintiffs’ First Amended Class Action Complaint and Supplement to the First Amended Class Action Complaint, and well-pleaded factual allegations are 1 A. Factual Background & Parties 2 In 2013, Hasson and Spear co-founded FIGS, a direct-to-consumer (“DTC”) 3 medical apparel company that sells premium scrubs, lab coats, jackets, vests, and 4 medical apparel. (FAC ¶¶ 43, 86–87.) FIGS’s DTC model bypassed third-party 5 wholesalers and retailers, allowing FIGS to sell directly to customers through its 6 website and mobile application. (Id. ¶ 88.) During the COVID-19 pandemic, FIGS 7 experienced “explosive growth” due to heightened demand for medical scrub products 8 and a global shift to online sales. (Id. ¶¶ 102–104.) Following several years of 9 exponential growth, FIGS went public with its IPO, which closed on June 1, 2021, 10 and its SPO, which closed on September 20, 2021. (Id. ¶ 105.) 11 The IPO and SPO documents (collectively, the “Registration Statements”) were 12 reviewed and signed by FIGS’s Chief Financial Officer, Lawrence, and Directors of 13 FIGS’s Board, Antrum, Soenen, and Willhite. (Id. ¶¶ 47, 49–51.) Turenshine later 14 replaced Lawrence as FIGS’s CFO, in December 2021. (Id. ¶ 215.) The Underwriters 15 agreed to purchase and sell shares in FIGS’s IPO and SPO. (Id. ¶¶ 63–64.) Tulco is a 16 venture capital investment firm that owned a substantial percentage of FIGS’s 17 common stock and sold shares during the IPO and SPO. (Id. ¶ 53.) Willhite 18 simultaneously served as Tulco’s Vice Chairman and as a Director on FIGS’s Board. 19 (Id. ¶ 49.) 20 Plaintiffs are investors who acquired FIGS Class A common stock pursuant to 21 and/or traceable to FIGS’s IPO and/or SPO, conducted on or around May 27, 2021 22 and September 16, 2021, respectively, and during the period thereafter between 23 March 9, 2022, and February 28, 2023 (the “Class Period”). (Id. ¶ 1.) 24 B. Procedural History 25 On March 19, 2024, Plaintiffs filed the operative FAC, renewing their 26 allegations under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 27

28 accepted as true for purposes of these Motions. See Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009); United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). 1 (“Securities Act”) and sections 10(b) and 20(a) of the Securities Exchange Act of 1934 2 (“Exchange Act”). Although the factual allegations in the FAC remain primarily the 3 same as in the CAC, the FAC changes the Class Period, and adds confidential 4 witnesses and new board meeting allegations. 5 Under the Securities Act, Plaintiffs allege that FIGS’s Registration Statements 6 contained eighteen untrue statements or omissions regarding FIGS’s ability to use data 7 to predict buying patterns, reliance on core products to maintain low inventory risk, 8 and reason for increased air freight usage. (Id. ¶¶ 141–48, 154–55, 162–67, 169–70.) 9 Plaintiffs assert: Securities Act section 11 (“Section 11”) claims against FIGS, Hasson, 10 Spear, Lawrence, Willhite, Antrum, Soenen, Tulco, and the Underwriters; Securities 11 Act section 12(a)(2) (“Section 12(a)(2)”) claims against FIGS, Hasson, Spear, Tulco, 12 and the Underwriters; and Securities Act section 15 (“Section 15”) claims against 13 Hasson, Spear, Lawrence, and Tulco. (Id. ¶¶ 43–53, 65–81, 172–206.) 14 Under the Exchange Act, Plaintiffs allege that FIGS, Hasson, Spear, and 15 Turenshine made over forty false and misleading statements during the Class Period. 16 (Id. ¶¶ 249–307.) Plaintiffs similarly claim these statements misled investors about 17 FIGS’s ability to use data to predict buying patterns, reliance on core products to 18 maintain low inventory risk, and reason for increased air freight usage. (Id.) 19 Plaintiffs assert: Exchange Act section 10(b) (“Section 10(b)”) claims against FIGS, 20 Hasson, Spear, and Turenshine; and Exchange Act section 20(a) (“Section 20(a)”) 21 claims against Hasson, Spear, Turenshine, Willhite, and Tulco. (Id. ¶¶ 212–21, 377– 22 87.) 23 Defendants move to dismiss the FAC on the grounds that the FAC fails to 24 satisfy Federal Rule of Civil Procedure (“Rule” or “Rules”) 8, 9(b), and 12(b)(6). 25 (See Tulco MTD; Underwriters MTD; FIGS MTD.) The Motions are fully briefed.4 26

4 (Omnibus Mem. ISO Opp’n (“Opp’n”), ECF No. 129; FIGS Reply, ECF No. 135; Tulco Reply, 27 ECF No. 137; Underwriters Reply, ECF. No. 139; FIGS Suppl. MTD, ECF No. 151; Tulco Suppl. 28 Mem. ISO MTD, ECF. No. 152; Pl. Suppl. Mem. ISO Opp’n, ECF No. 153; FIGS Suppl. Reply ISO MTD, ECF No. 154.) 1 III. LEGAL STANDARD 2 A. Rule 12(b)(6) Generally 3 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable 4 legal theory or insufficient facts pleaded to support an otherwise cognizable legal 5 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To 6 survive a dismissal motion, a complaint need only satisfy the “minimal notice 7 pleading requirements” of Rule 8(a)(2). Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 8 2003). Rule 8(a)(2) requires “a short and plain statement of the claim showing that 9 the pleader is entitled to relief.” The factual “allegations must be enough to raise a 10 right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 11 555 (2007); Iqbal, 556 U.S. at 678 (holding that a claim must be “plausible on its 12 face” to avoid dismissal). 13 The determination of whether a complaint satisfies the plausibility standard is a 14 “context-specific task that requires the reviewing court to draw on its judicial 15 experience and common sense.” Iqbal, 556 U.S. at 679. A court is generally limited 16 to the pleadings and must construe all “factual allegations set forth in the 17 complaint . . . as true and . . . in the light most favorable” to the plaintiff. Lee v. City 18 of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). However, a court need not blindly 19 accept conclusory allegations, unwarranted deductions of fact, and unreasonable 20 inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 21 Ultimately, there must be sufficient factual allegations “to give fair notice and to 22 enable the opposing party to defend itself effectively,” and the “allegations that are 23 taken as true must plausibly suggest an entitlement to relief, such that it is not unfair 24 to require the opposing party to be subjected to the expense of discovery and 25 continued litigation.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 26 Because Plaintiffs in this action allege that Defendants fraudulently violated 27 federal securities laws, Plaintiffs’ initial burden is heightened by the “dual pleading 28 requirements of [Rule] 9(b) and the [Private Securities Litigation Reform Act 1 (‘PSLRA’), 15 U.S.C. § 78u–4].” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 2 981, 990 (9th Cir. 2009). 3 B. Pleading Fraud Under Rule 9(b) 4 Rule 9(b) provides: “In alleging fraud or mistake, a party must state with 5 particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 6 “A pleading satisfies Rule 9(b) if it identifies ‘the who, what, when, where, and how’ 7 of the misconduct charged.” MetroPCS v. SD Phone Trader, 187 F. Supp. 3d 1147, 8 1150 (S.D. Cal. 2016) (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 9 (9th Cir. 2003)). The plaintiff must “set forth more than the neutral facts necessary to 10 identify the transaction.” Vess, 317 F.3d at 1106. “The plaintiff must set forth what is 11 false or misleading about a statement, and why it is false.” Id. 12 C. Pleading Requirements Under the PSLRA 13 Securities fraud claims must also meet a higher pleading standard under the 14 PSLRA. Specifically, a securities fraud plaintiff must plead “(1) each statement 15 alleged to have been misleading; (2) the reason or reasons why the statement is 16 misleading; and (3) all facts on which that belief is formed.” Desaigoudar v. 17 Meyercord, 223 F.3d 1020, 1023 (9th Cir. 2000) (citing 15 U.S.C. § 78u-4(b)(1)). 18 Plaintiffs must “state with particularity facts giving rise to a strong inference that the 19 defendant acted with the required state of mind.” Dura Pharms., Inc. v. Broudo, 20 544 U.S. 336, 345 (2005) (quoting 15 U.S.C. §§ 78u–4(b)(1)–(2)). 21 IV. JUDICIAL NOTICE 22 As a preliminary matter, the Court addresses Tulco’s, FIGS’s, and Plaintiffs’ 23 separate requests for judicial notice.5 In total, the parties seek judicial notice of 24 twenty-two documents.6 25 5 (Tulco Req. Judicial Notice (“RJN”), ECF No. 119; FIGS RJN, ECF No. 125; Pl. RJN, ECF 26 No. 130; Decl. Gregory M. Potrepka ISO Pl. RJN (“Potrepka Decl. ISO Pl. RJN”), ECF No. 131; Pl. Omnibus Opp’n RJN (“Pl. Opp’n RJN”), ECF No. 132; Tulco Reply ISO RJN, ECF No. 138; FIGS 27 Reply ISO RJN, ECF No. 141). 28 6 The sheer volume of documentation and the arguments in the motion papers suggest that the parties may be mistreating the motions to dismiss as motions for summary judgement. For purposes of the 1 Although district courts generally may not consider evidence outside of the 2 pleadings when ruling on a motion to dismiss under Rule 12(b)(6), see Ritchie, 3 342 F.3d at 907–08, a court may properly consider evidence outside of the pleadings if 4 it is properly subject to judicial notice or is incorporated by reference into the 5 pleadings, Lee, 250 F.3d at 688–89. 6 A. Tulco’s Request for Judicial Notice 7 Tulco seeks judicial notice of three exhibits, (Tulco RJN 2–5), all of which the 8 Court judicially noticed in the January 2024 Order, (Order MTD 10–11). Plaintiffs 9 now raise objections to the Court accepting the third exhibit, Tulco’s Form 4, “to 10 demonstrate anything related to Tulco’s control over FIGS.” (Pl. Opp’n RJN 16.) 11 While the court may appropriately “take judicial notice of the content of the 12 SEC Forms 4 and the fact that they were filed with the agency[,] . . . [t]he truth of the 13 content, and the inferences properly drawn from them” are not subject to judicial 14 notice. Patel v. Parnes, 253 F.R.D. 531, 546 (C.D. Cal. 2008). Therefore, the Court’s 15 judicial notice of Tulco’s Form 4 does not include any assessment as to the truth of its 16 content or its inferences regarding Tulco’s control over FIGS. As the Court previously 17 granted judicial notice of these documents, and limits notice of the Form 4 to its 18 content and the fact of its filing, the Court DENIES AS MOOT Tulco’s request for 19 judicial notice. 20 B. FIGS’s Request for Judicial Notice 21 FIGS seeks judicial notice of eighteen documents. (FIGS RJN 2–4; Decl. 22 Heather Speers ISO MTD (“Speers Decl.”) Exs. A–R, ECF Nos. 126–129-9.) The 23 Court previously granted judicial notice of Exhibits A, C, D, E, G, H, I, K, M, N, O, 24 25

26 instant Motions, the Court treats any judicially noticed documents “as part of the complaint, and . . . assume[s] its contents are true for the purposes of a motion to dismiss.” Ritchie, 342 F.3d at 908. 27 The Court does not make any factual determinations at this stage and considers only whether 28 Plaintiffs’ FAC sufficiently pleads “facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. 1 P, Q, and R. (Order MTD 10–11.) Plaintiffs oppose judicial notice of Exhibits B, F, 2 I, J, and L. (Pl. Opp’n RJN 4–17.) 3 1. Exhibits A, C, D, E, G, H, I, K, M, N, O, P, Q, and R 4 In the January 2024 Order, the Court judicially noticed Exhibits A, C, D, E, G, 5 H, I, K, M, N, O, P, Q, and R. (Order MTD 10–11.) Exhibits A, C, D, E, G, K, M, N, 6 O, P, Q, and R are also incorporated by reference in the FAC. (Speers Decl. ¶¶ 2, 4–6, 7 8, 12, 14–18 (listing all paragraphs in the FAC referencing each exhibit).) Exhibits C, 8 E, H, N, and P are SEC filings. These exhibits are therefore properly judicially 9 noticed or incorporated by reference. 10 Plaintiffs newly object to judicial notice of Exhibit I, FIGS’s January 2022 11 corporate presentation. (Pl. Opp’n RJN 13–14; see also Speers Decl. Ex. I.) “In 12 ruling on a motion to dismiss under the PSLRA, the court may take judicial notice of 13 information that was publicly available to reasonable investors at the time the 14 defendant made the allegedly false statements.” In re Wet Seal, Inc. Sec. Litig., 518 F. 15 Supp. 2d 1148, 1158 (C.D. Cal. 2007) (internal quotation marks omitted). The Court 16 may properly judicially notice Exhibit I, not for the truth of its contents, but “only 17 [for] the fact that the information contained in the presentation was available to 18 investors as of” January 2022. Garcia v. J2 Global, Inc., No. 2:20-cv-06096-FLA 19 (MAAx), 2021 WL 1558331, at *9 (C.D. Cal. Mar. 5, 2021). Accordingly, the Court 20 OVERRULES Plaintiffs’ objection to judicial notice of Exhibit I. 21 As the Court, in the January 2024 Order, properly judicially noticed and found 22 incorporated Exhibits A, C, D, E, G, H, I, K, M, N, O, P, Q, and R, the Court 23 DENIES AS MOOT FIGS’s request for judicial notice as to these exhibits. 24 2. Exhibits B, F, J, and L 25 Plaintiffs additionally object to judicial notice of the following newly requested 26 documents: (1) materials from FIGS’s March 5, 2021 board meeting (Exhibit B), 27 (2) materials from FIGS’s November 9, 2021 board meeting (Exhibit F), (3) materials 28 from FIGS’s March 7, 2022 board meeting (Exhibit J), and (4) materials from FIGS’s 1 May 10, 2022 board meeting (Exhibit L). (Pl. Opp’n RJN 4–13.) Although Plaintiffs 2 refer to the events at these board meetings extensively to form the basis for their 3 claims, (Speers Decl. ¶¶ 3, 7, 11, 13), they contest the authenticity and completeness 4 of the proffered exhibits, (Pl. Opp’n RJN 8–12). Judicial notice is appropriate only 5 when the facts are “not subject to reasonable dispute.” Fed. R. Evid. 201(b). 6 Similarly, “[t]he incorporation by reference doctrine applies only when a document is 7 central to plaintiff’s claim and no party questions its authenticity.” Gerritsen v. 8 Warner Bros. Ent., 112 F. Supp. 3d 1011, 1024 (C.D. Cal. 2015). As Plaintiffs dispute 9 the authenticity and completeness of these documents, the Court DENIES FIGS’s 10 request for judicial notice of Exhibits B, F, J, and L, and declines to consider these 11 exhibits as incorporated by reference. 12 C. Plaintiffs’ Request for Judicial Notice 13 Plaintiffs seek judicial notice of FIGS’s stock prices on September 16, 2021. 14 (Pl. RJN; Potrepka Decl. ISO Pl. RJN Ex. A, ECF No. 131-1.) This request is 15 unopposed and the Court “may take judicial notice of a company’s published stock 16 prices.” In re Homestore.com, Inc. Sec. Litig., 347 F. Supp. 2d 814, 816 (C.D. Cal. 17 2004). Therefore, the Court GRANTS Plaintiffs’ request for judicial notice. 18 V. DISCUSSION 19 Under the Securities Act, Plaintiffs assert three causes of action for violations 20 of: (1) Section 11 against FIGS, Hasson, Spear, Lawrence, Willhite, Antrum, Soenen, 21 Tulco, and the Underwriters; (2) Section 12(a)(2) against FIGS, Hasson, Spear, Tulco, 22 and the Underwriters; and (3) Section 15 against Hasson, Spear, Lawrence, Tulco, and 23 Willhite. (FAC ¶¶ 172–206.) Under the Exchange Act, Plaintiffs assert two causes of 24 action for violations of: (1) Section 10(b) against FIGS, Hasson, Spear, and 25 Turenshine; and (2) Section 20(a) against Hasson, Spear, Turenshine, Willhite, and 26 Tulco. (Id. ¶¶ 377–87.) Defendants move to dismiss all causes of action. 27 28 1 A. Violations of Sections 11 and 12(a)(2) of the Securities Act 2 Plaintiffs’ first and second causes of action under Sections 11 and 12(a)(2) arise 3 out of materially false or misleading statements or omissions allegedly contained in 4 FIGS’s Registration Statements. (Id. ¶¶ 172–200.) FIGS, Hasson, Spear, Lawrence, 5 Willhite, Antrum, Soenen, Tulco, and the Underwriters (collectively, the “Securities 6 Act Defendants”) move to dismiss Plaintiffs’ Sections 11 and 12(a)(2) claims for 7 failure to plead a material misrepresentation or omission. (FIGS MTD 13–23; Tulco 8 MTD 5–6, 8; Underwriters MTD 3.) Tulco and the Underwriters also move to dismiss 9 Plaintiffs’ Sections 11 and 12(a)(2) claims for lack of standing and lack of statutory 10 liability. (Tulco MTD 6–9; Underwriters MTD 3–8.) 11 Section 11 creates a private right of action for any purchaser of a security where 12 “any part of the registration statement, when such part became effective, contained an 13 untrue statement of a material fact or omitted to state a material fact required to be 14 stated therein or necessary to make the statements therein not misleading.” 15 U.S.C. 15 § 77k(a). Section 12 imposes civil liability on any person who “offers or sells a 16 security . . . by means of a prospectus or oral communication, which includes an 17 untrue statement of material fact or omits to state a material fact necessary in order to 18 make the statements . . . not misleading.” 15 U.S.C. § 77l(a)(2). “Sections 11 and 19 12(a)(2) are ‘Securities Act siblings’ with similar elements.” In re Velti PLC Sec. 20 Litig., No. 13-cv-03889-WHO, 2015 WL 5736589, at *31 (N.D. Cal. Oct. 1, 2015) 21 (quoting In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 22 2010)). 23 As the analyses of the Sections 11 and 12(a)(2) causes of action overlap, the 24 Court addresses them in tandem. The Court first considers the appropriate pleading 25 standard, then analyzes whether Plaintiffs sufficiently allege material 26 misrepresentations or omissions, statutory standing, and statutory liability. 27 28 1 1. Pleading Standard 2 As a preliminary matter, the parties disagree whether the pleading standard of 3 Rule 8(a) or 9(b) applies to Plaintiffs’ Securities Act claims. Securities Act 4 Defendants assert that Rule 9(b)’s heightened requirements apply because the FAC 5 sounds in fraud. (FIGS MTD 13; Tulco MTD 5, Underwriters MTD 3.) Plaintiffs 6 argue that the Securities Act claims are not grounded in fraud and are subject to 7 Rule 8(a)’s lesser notice pleading. (Opp’n 13.) 8 A plaintiff must “allege their claims with increased particularity under 9 [Rule] 9(b) if their complaint ‘sounds in fraud.’” Rubke v. Capitol Bancorp Ltd., 10 551 F.3d 1156, 1161 (9th Cir. 2009) (quoting In re Daou Sys., 411 F.3d at 1027)). 11 Determining if a complaint “sounds in fraud” requires “a close examination of the 12 language and structure of the complaint, whether the complaint alleges a unified 13 course of fraudulent conduct and relies entirely on that course of conduct as the basis 14 of a claim.” Id. (internal quotation marks omitted). 15 Here, the Court previously found the CAC sounds in fraud. (Order MTD 28.) 16 As in the CAC, the material misstatement allegations in the FAC continue to rely on a 17 unified course of conduct concerning FIGS’s statements about: (1) FIGS’s reliance on 18 data analytics, which Plaintiffs assert FIGS “did not have or was not using,” (FAC 19 ¶¶ 149, 168, 257, 260, 264, 269); (2) FIGS’s focus on nondiscretionary and 20 replenishment-driven core product strategy, which Plaintiffs assert was actually based 21 on Hasson and Spear’s “personal taste or judgment” and rapid development, (id. 22 ¶¶ 149, 168, 276, 279, 284, 287, 291); and (3) FIGS’s use of expensive airfreight, 23 which Plaintiffs allege was used routinely to accommodate Hasson and Spear’s “last 24 minute changes” to orders and designs, (id. ¶¶ 156, 171, 295, 300, 304, 307). 25 Plaintiffs argue that the Securities Act and Exchange Act claims “do not overlap at all” 26 because the Exchange Act claims concern statements made after FIGS issued the 27 Registration Statements. (Opp’n 13–14.) However, Plaintiffs cannot “scissor out a 28 non-fraud claim from the center of [a] unified course of conduct in order to evade the 1 Rule 9(b) requirement.” In re Metricom Sec. Litig., No. C 01-4085 PJH, 2004 WL 2 966291, at *24 (N.D. Cal. Apr. 29, 2004). The gravamen of Plaintiffs’ FAC sounds in 3 fraud. 4 The heightened pleading standard of Rule 9(b) therefore applies to Plaintiffs’ 5 Securities Act claims against FIGS, Hasson, and Spear because the fraud-based 6 Exchange Act and Securities Act claims against them rely on a unified course of 7 fraudulent conduct. See Rubke, 551 F.2d at 1161 (finding a complaint sounds in fraud 8 when it “employs the exact same factual allegations to allege violations of section 11 9 as it uses to allege fraudulent conduct under section 10(b) of the Exchange Act.”). 10 In contrast, Plaintiffs do not assert fraud-based Exchange Act claims against 11 Lawrence, Willhite, Antrum, Soenen, Tulco, and the Underwriters. The factual 12 allegations and claims made against these Defendants are instead rooted in negligence. 13 While allegations of fraudulent conduct must satisfy Rule 9(b), “[a]llegations of non- 14 fraudulent conduct need satisfy only the ordinary notice pleading standards of 15 Rule 8(a).” Vess, 317 F.3d at 1105. Thus, the Securities Act claims against Lawrence, 16 Willhite, Antrum, Soenen, Tulco, and the Underwriters need only satisfy the notice 17 pleading standard under Rule 8(a). 18 2. Misrepresentation or Omission of Material Fact 19 In the January 2024 Order, the Court dismissed Plaintiffs’ Section 11 and 20 Section 12(a)(2) claims for failure to show why the statements were false and 21 misleading. (Order MTD 28–31, 34–35.) To attempt to cure the deficiencies, 22 Plaintiffs add new factual allegations from confidential witness statements and board 23 meeting materials. (See FAC ¶¶ 140–71.) 24 Under Section 11, a plaintiff must plead facts proving: “(1) that the registration 25 statement contained an omission or misrepresentation, and (2) that the omission or 26 misrepresentation was material, that is, it would have misled a reasonable investor 27 about the nature of his or her investment.” Rubke, 551 F.3d at 1161 (quoting In re 28 Daou Sys., Inc. Sec. Litig., 411 F.3d 1006, 1027 (9th Cir. 2005)). “By definition, a 1 plaintiff must show that a purported misstatement in a registration statement was 2 misleading at the time the registration statement was issued.” In re: Resonant Inc. 3 Sec. Litig., No. 2:15-cv-01970 SJO (PJWx), 2016 WL 1737959, at *7 (C.D. Cal. 4 Feb. 8, 2016). Similarly, “[a] claim under section 11 based on the omission of 5 information must demonstrate that the omitted information existed at the time the 6 registration statement became effective.” Rubke, 551 F.3d at 1164. “The 7 ‘misstatement or omission’ requirement under Section 12(a)(2) is materially identical 8 to that under Section 11.” In re Velti PLC, 2015 WL 5736589, at *31. 9 Here, FIGS’s Registration Statements allegedly misrepresented that: (1) FIGS 10 maintained a low-risk product line because FIGS possessed data analytics capabilities 11 that permitted FIGS to “reliably predict buying patterns” and “anticipate demand,” 12 (FAC ¶¶ 141–43, 146–47, 162–63, 165–67); (2) FIGS maintained low risk inventory 13 because FIGS kept “a focus on [its] core scrub offerings” and “utilize[d] a disciplined 14 buying approach,” (id. ¶¶ 144–45, 164); and (3) FIGS utilized more expensive air 15 freight due to factors beyond FIGS’s control, (id. ¶¶ 154–55, 169–70). Plaintiffs rely 16 heavily on the statements of confidential witnesses to show that the above statements 17 are false. 18 The Court first considers the adequacy of the confidential witness statements, 19 then analyzes whether Plaintiffs sufficiently allege material misrepresentations or 20 omissions under Rules 9(b) and 8(a). 21 a. Confidential Witnesses 22 The FAC adds statements from two confidential witnesses to show the alleged 23 misstatements were false and misleading. (Id. ¶¶ 14–36.) “[C]onfidential witness 24 statements may only be relied upon where the confidential witnesses are described 25 ‘with sufficient particularity to support the probability that a person in the position 26 occupied by the source would possess the information alleged.’” Zucco, 552 F.3d 27 at 995. To determine whether a plaintiff adequately pleads that confidential witnesses 28 have personal knowledge of the event they report, “the court considers the level of 1 detail provided by the confidential witnesses, the plausibility of the allegations, the 2 number of sources, the reliability of the sources, corroborating facts, and similar 3 indicia of reliability.” Glazer Cap. Mgmt., L.P. v. Forescout Techs., Inc., 63 F.4th 4 747, 767 (9th Cir. 2023). 5 Confidential Witness 1 (“CW-1”) joined FIGS in 2023 and “worked within the 6 Information Technology (‘IT’) Department.” (FAC ¶ 15.) Plaintiffs rely on CW-1’s 7 statements to show that FIGS’s data systems and demand planning infrastructure was 8 not as “advanced” as FIGS represented in its Registration Statements. (Id.¶¶ 16–23.) 9 But FIGS did not employ CW-1 until 2023, after FIGS made the alleged 10 misstatements and omissions in 2021 and 2022. (See id. ¶¶ 1, 249–307 (alleging 11 misstatements in the Registration Statements issued in 2021 and in subsequent SEC 12 filings and earnings calls in 2022).) Accordingly, Plaintiffs fail to adequately show 13 how CW-1 possesses the information alleged for the relevant period, as CW-1 did not 14 occupy any position at FIGS when the misstatements were allegedly made. See, e.g., 15 Zucco, 552 F.3d. at 996 (finding allegations from two confidential witnesses 16 unreliable because they were not employed during the time period in question and had 17 only secondhand information). 18 Confidential Witness 2 (“CW-2”) worked as a Product Developer at FIGS from 19 August 2020 to February 2023. (FAC ¶ 24.) CW-2 reported to the Head of Product 20 Development and, upon receiving product orders from the merchandising team, 21 worked on the product orders and communicated with the manufacturing factories. 22 (Id. ¶ 25.) Plaintiffs rely on CW-2’s statements to show that FIGS lacked a demand 23 planning system, Spear’s and Hasson’s personal preferences resulted in last-minute 24 changes in product launches, and the last-minute changes resulted in reliance on 25 expensive air freight usage. (Id. ¶¶ 29–36.) However, many of CW-2’s statements, as 26 pleaded, are opinion, speculation, or based on hearsay rather than personal 27 knowledge—i.e. CW-2 “would be told Hasson ‘hates the fabrics, or the color,’” (id. 28 ¶ 29 (emphasis added)), CW-2 “view[ed] that product development at FIGS was based 1 on intuition rather than data,” (id. ¶ 35 (emphasis added)), and “changes from Hasson 2 or Spear seemed to be based on their own personal taste or judgment rather than data,” 3 (id. (emphasis added)). Such statements are not reliable. See Zucco, 552 F.3d at 997 4 (finding knowledge based on “vague hearsay” insufficiently reliable); In re Downey 5 Sec. Litig., No. 2:08-cv-03261-JFW (RZx), 2009 WL 2767670, at *10 (C.D. Cal. 6 Aug. 21, 2009) (finding statements “based on mere rumor and speculation” 7 unreliable). Further, Plaintiffs fail to show how CW-2 was positioned to know the 8 alleged information—CW-2 was a Product Developer who did not work in FIGS’s 9 data analytics, demand planning, or logistics teams, yet CW-2 makes statements 10 regarding FIGS’s data system capabilities and efforts; FIGS’s lack of a Product 11 Lifecycle Management system to predict buying patterns and demand; and FIGS’s 12 unreasonable usage of air freights. (FAC ¶¶ 31–32, 34–36.) 13 Therefore, after eliminating CW-2’s statements based on opinion, speculation, 14 and hearsay, and disregarding CW-2’s statements unsupported by personal 15 knowledge, the Court relies on CW-2’s statements in the analysis below only to the 16 extent they concern product launches and product development, subjects which 17 Plaintiffs adequately allege CW-2’s personal knowledge. 18 b. Rule 9(b) Defendants 19 As mentioned, Plaintiffs’ Section 11 claims against FIGS, Hasson, and Spear 20 are grounded in fraud such that Rule 9(b)’s heightened pleading standard applies. See 21 Rubke, 551 F.3d at 1161. Under this heighted pleading requirement, Plaintiffs must 22 point “to inconsistent contemporaneous statements or information (such as internal 23 reports) which were made by or available to the defendants” to show “what is false or 24 misleading about a statement, and why it is false.” Id. 25 Plaintiffs fail to plead why FIGS’s statements regarding its data analytics tools 26 and capabilities were false. In its Registration Statements, FIGS allegedly touted that 27 its data solutions and analytics can deliver customer insights, predict buying patterns, 28 and lead efficiencies in supply chain and new product development. (FAC ¶¶ 141–43, 1 146–47. 162–63, 165–67.) To establish these statements are false, Plaintiffs rely on 2 the statements of CW-1 and CW-2. (Id. ¶¶ 149, 168.) But, as described above, 3 Plaintiffs fail to show these confidential witness statements are reliable or based on 4 personal knowledge. Therefore, these allegations are insufficient to show falsity. 5 Similarly, Plaintiffs fail to show FIGS’s statements regarding its shipping 6 arrangements are false and misleading. In the Registration Statements, FIGS 7 allegedly stated that its “ability to receive inventory efficiently . . . may be negatively 8 affected by factors beyond [FIGS’s] control” and it “may from time to time need to 9 continue to use more expensive air freight.” (Id. ¶¶ 155, 169–70.) Plaintiffs assert 10 these statements are materially false because FIGS’s increased use of air freight was 11 not due to reasons beyond FIGS’s control, but rather due to Hasson’s and Spear’s last- 12 minute design changes. (Id. ¶ 171.) Plaintiffs rely on CW-2’s statements to show that 13 last-minute changes “one hundred percent affected the need to use air freight.” (Id. 14 ¶ 156.) However, CW-2 lacks personal knowledge of FIGS’s shipping and logistics 15 operations, and CW-2’s statements regarding Hasson’s and Spear’s last-minute 16 changes are unreliably based on speculation and hearsay. Thus, Plaintiffs fail to show 17 that FIGS’s shipping arrangement statements are materially false and misleading. 18 FIGS’s statements regarding its air freight usage, (see id. ¶ 154), is also not 19 false or misleading. FIGS allegedly misled investors to believe FIGS increased air 20 freight was “temporary” when FIGS announced in its IPO that it “increased the use of 21 more costly air freight during 2020 and during the three months ended March 31, 22 2021.” (Id.) However, this statement is not materially misleading because it 23 accurately disclosed the state of FIGS’s air freight use during the period specified. 24 Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002) (holding that a 25 statement is misleading and actionable under securities law if “it affirmatively 26 create[s] an impression of a state of affairs that differs in a material way from the one 27 that actually exists”). 28 1 Likewise, Plaintiffs inadequately plead that FIGS’s statements regarding its 2 ability to maintain low inventory were materially false at the time of the IPO and SPO. 3 In the Registration Statements, FIGS stated it maintained “low inventory risk” and 4 “inventory efficiency” by focusing on its core scrub offerings and utilizing a 5 disciplined buying approach for its non-core colors and styles. (FAC ¶¶ 144–45, 148, 6 164.) To show these statements are false, Plaintiffs allege that during FIGS’s 7 March 2021 board meeting, before the Registration Statements were issued, FIGS’s 8 board identified low sell-through rates of non-core products that resulted in excess 9 leftover inventory. (Suppl. FAC ¶¶ 149, 168.) But the alleged misstatements touted 10 FIGS’s ability to maintain low inventory risk, not low inventory in general. FIGS’s 11 board meeting discussion about increased inventory resulting from poor sales does not 12 show FIGS departed from its “disciplined buying approach” or focus on core scrub 13 offerings. Plaintiffs fail to satisfy their burden as to these statements. 14 Accordingly, the Court GRANTS Defendants’ Motions on these grounds and 15 DISMISSES WITH PREJUDICE Plaintiffs’ claims based on the statement 16 regarding FIGS’s air freight use in 2020 and March 2021, because this statement is 17 true and not actionable. (Id. ¶ 154.) The Court DISMISSES WITH LEAVE TO 18 AMEND Plaintiffs’ remaining Section 11 and 12(a)(2) claims for failure to plead a 19 material misstatement or omission under Rule 9(b). 20 c. Rule 8(a) Defendants 21 The Court next considers whether Plaintiffs adequately plead that Lawrence, 22 Antrum, Soenen, Tulco, Willhite, and the Underwriters made material misstatements 23 or omissions under Rule 8(a)’s “short and plain statement” standard. To do so, the 24 Court “must strip away the allegations that sound in fraud and see if the remaining 25 allegations state a claim.” In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d. 26 1132, 1162 (C.D. Cal. 2008). Rule 8 requires each allegation to be “simple, concise, 27 and direct.” Fed. R. Civ. P. 8(d)(1). However, Plaintiffs’ allegations are deficient 28 even under the “short and plain statement” standard. 1 First, Plaintiffs’ allegations are neither short nor plain. The FAC recites lengthy 2 statements attributed to the Registration Statement, followed by a generalized list of 3 reasons why the statements are false or misleading. For example, in the FAC, 4 Plaintiffs allege eight material misstatements or omissions under the section titled 5 “FIGS Did Not Maintain Low Inventory Risk Because the Company Could Not 6 Reliably Predict Buying Patterns and Was Rapidly Developing New Products for 7 Which Demand Had Not Been Tested or Established.” (FAC ¶¶ 141–48.) The eight 8 statements in this section consist of lengthy paragraphs with selectively bolded and 9 italicized sentences. (Id.) The statements also vary in context, with some statements 10 attributing FIGS’s ability to maintain low inventory risk to FIGS’s merchandising and 11 product launch model, and other statements attributing it to FIGS’s ability to predict 12 demand. (Id.) Yet, Plaintiffs provide a generalized list of reasons why all eight 13 statements are false. (See id. ¶ 149.) Some of these reasons include irrelevant 14 discussions about FIGS’s use of airfreight. (Id. ¶ 149(e).) As pleaded, the Court 15 cannot discern which fact makes which part of specific statements false or misleading. 16 The FAC thus fails to comply with Rule 8’s requirement of a “short and plain 17 statement.” Fed. R. Civ. P. 8(a)(1). 18 Additionally, the FAC fails to cure the “conflicting information” noted by the 19 Court in the January 2024 Order. (Order MTD 30.) Plaintiffs initially allege 20 Lawrence, Willhite, Antrum, and Soenen “had the opportunity to and did review, 21 approve, and sign” the Registration Statements. (FAC ¶¶ 47, 49–51.) Plaintiffs later 22 allege that “Lawrence, Willhite, Antrum, and Soenen signed some or all of the IPO 23 Documents.” (Id. ¶ 179 (emphasis added).) The Court, once more, requires Plaintiffs 24 to clarify these inconsistencies regarding the Defendants’ involvement with the 25 Registration Statements. 26 The Court thus GRANTS Defendants’ Motions and DISMISSES WITH 27 LEAVE TO AMEND Plaintiffs’ Section 11 and 12(a)(2) claims against Lawrence, 28 Antrum, Soenen, Tulco, Willhite, and the Underwriters for failure to satisfy Rule 8(a). 1 3. Statutory Standing 2 Tulco and the Underwriters next challenge Plaintiffs’ standing under 3 Sections 11 and 12(a)(2). (Tulco MTD 7–8; Underwriters MTD 3–4, 6–8.) 4 a. Section 11 Standing 5 Regarding Plaintiffs’ Section 11 claims, Tulco and the Underwriters contend 6 Plaintiffs lack Section 11 standing to assert claims stemming from the SPO because 7 Plaintiffs fail to trace their shares to the SPO. (Tulco MTD 7–8; Underwriters 8 MTD 3–4.) 9 To establish standing under Section 11, “a plaintiff must have purchased stock 10 in the offering at issue, or trace later-purchased stock back to that offering.” Scott v. 11 ZST Digit. Networks, Inc., 896 F. Supp. 2d 877, 883 (C.D. Cal. 2012) (quoting Plichta 12 v. SunPower Corp., 790 F. Supp. 2d 1012, 1022 (N.D. Cal. 2011)). Allegations that a 13 plaintiff purchased “shares directly in the secondary offering itself” can satisfy 14 statutory standing. In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1106 15 (9th Cir. 2013). 16 Here, Plaintiffs do not allege that Hoch, City of Pensacola, City of Warren, and 17 Kissimmee purchased stocks pursuant to or traceable to the SPO. (See FAC ¶¶ 38, 41, 18 184.) In their Opposition, Plaintiffs provide no substantive response or explanation 19 for their failure to trace Hoch’s, City of Pensacola’s, and Kissimmee’s stocks to the 20 SPO. (See Opp’n 24–25); see also Star Fabrics, Inc. v. Ross Stores, Inc., No. 2:17-cv- 21 05877-PA (PLAx), 2017 WL 10439691, at *3 (C.D. Cal. Nov. 20, 2017) (“Where a 22 party fails to oppose arguments made in a motion, a court may find that the party has 23 conceded those arguments . . . .”). Plaintiffs do, however, assert in its opposition that 24 City of Warren “purchased FIGS common stock in the IPO and SPO, respectively.” 25 (Opp’n 24.) But this allegation is conclusory and lacks any facts showing City of 26 Warren purchased stocks traceable to the SPO. Accordingly, Hoch, City of Pensacola, 27 City of Warren, and Kissimmee lack standing to assert Section 11 claims based on the 28 SPO. 1 On the other hand, Plaintiffs adequately allege that “Pompano Beach purchased 2 FIGS Class A common stock . . . from an Underwriter Defendant in the SPO at the 3 $40.25 SPO price.” (FAC ¶ 42.) This is sufficient to show that Pompano Beach has 4 standing to assert a Section 11 claim based on the SPO. See In re Century Aluminum, 5 729 F.3d at 1106; see also In re CytRx Corp. Sec. Litig., No. 2:14-cv-1956-GHK 6 (PJWx), 2015 WL 5031232, at *15 (C.D. Cal. July 13, 2015) (holding that plaintiffs 7 met their burden as to Section 11 standing when they alleged that they “purchased 8 shares during the offering period at the secondary offering price”). 9 Accordingly, the Court GRANTS IN PART and DENIES IN PART Tulco and 10 the Underwriters’ Motions on these grounds. In light of Plaintiffs failure to oppose 11 dismissal of Hoch, City of Pensacola, and Kissimmee for lack standing as to the SPO, 12 the Court DISMISSES WITHOUT LEAVE TO AMEND Hoch’s, City of 13 Pensacola’s and Kissimmee’s Section 11 claims based on the SPO. See Muller v. 14 Morongo Casino, Resort, & Spa, No. 5:14-cv-02308-VAP (KKx), 2015 WL 3824160, 15 at *5 (C.D. Cal. June 17, 2015) (holding plaintiff’s failure to oppose an argument 16 amounted to concession of that argument). Considering Plaintiffs’ opposing argument 17 that City of Warren purchased stocks in the SPO, the Court DISMISSES WITH 18 LEAVE TO AMEND City of Warren’s Section 11 claims. 19 b. Section 12(a)(2) Standing 20 The Underwriters also argue that Hoch, City of Pensacola, and Kissimmee lack 21 standing under Section 12(a)(2). (Underwriters MTD 6–8.) Plaintiffs do not oppose 22 this argument. (See Opp’n 24–26.) 23 “[A] suit under Section 12 may only be maintained by a person who purchased 24 the stock in the offering under the prospectus.” Hertzberg v. Dignity Partners, Inc., 25 191 F.3d 1076, 1080 (9th Cir. 1999) (citing Gustafson v. Alloyd Co., Inc., 513 U.S. 26 561, 571–72 (1995)); see also In re CytRx Corp., 2015 WL 5031232, at 14 (collecting 27 cases). Here, Plaintiffs allege that Hoch, City of Pensacola, and Kissimmee 28 “purchased FIGS Class A common stock pursuant and/or traceable to the IPO.” (FAC 1 ¶¶ 38–39, 41.) “Such wishy-washy allegations are insufficient to demonstrate that 2 Plaintiffs have Section 12 standing—either [Plaintiffs] purchased shares directly from 3 one of the Section 12 Defendants in the [Offering] or they did not.” In re CytRx 4 Corp., 2015 WL 5031232, at 14. Therefore, Hoch, City of Pensacola, and Kissimmee 5 lack standing under Section 12(a)(2). 6 As the allegations are insufficient to support Section 12(a)(2) standing and 7 Plaintiffs concede the point by failing to address this argument in their opposition, see 8 Muller, 2015 WL 3824160, at *5, the Court GRANTS the Underwriters’ Motion on 9 this basis and DISMISSES WITHOUT LEAVE TO AMEND Hoch’s, City of 10 Pensacola’s, and Kissimmee’s Section 12(a)(2) claims. 11 4. Section 11 Statutory Liability 12 Tulco also argues it is not subject to statutory liability under Section 11. (Tulco 13 MTD 6–8.) Plaintiffs contend that Tulco is liable under the doctrine of respondeat 14 superior and as a “partner in the issuer.” (Opp’n 26–27.) 15 Section 11(a) sets forth a list of persons that may be sued for issuing a false 16 registration statement. 15 U.S.C. § 77k(a). This list includes: (1) “every person who 17 signed the registration statement,” (2) “every person who was a director of . . . or 18 partner in the issuer at the time of the filing of the part of the registration statement 19 with respect to which his liability is asserted,” (3) “every person who, with his 20 consent, is named in the registration statement as being or about to become a 21 director . . . or partner,” (4) “every accountant, engineer, or appraiser, or any person 22 whose profession gives authority to a statement made by him, who has with his 23 consent been named as having prepared or certified any part of the registration 24 statement,” and (5) “every underwriter with respect to such security.” Id. 25 Absent from Plaintiffs’ Section 11 claims are any allegations specifying how 26 Tulco may be liable under Section 11(a). (See¶¶ 172–86.) In their opposition, 27 Plaintiffs assert that Tulco is liable under the doctrine of respondeat superior and as a 28 “partner in the issuer” at the time of the IPO. (Opp’n 26–27.) But the Court cannot 1 consider these arguments because they were not alleged in the FAC. See Schneider v. 2 Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (“In determining the 3 proprietary of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to 4 a plaintiff’s moving papers, such as a memorandum in opposition to a defendant’s 5 motion to dismiss.”). 6 Accordingly, the Court GRANTS Tulco’s Motion on these grounds and 7 DISMISSES WITH LEAVE TO AMEND Plaintiffs’ Section 11 claims against 8 Tulco. 9 5. Section 12(a)(2) Liability as a Statutory Seller 10 Tulco and the Underwriters next argue that they are not statutory sellers because 11 Plaintiffs do not specify a particular purchaser or plead solicitation. (Tulco MTD 8–9; 12 Underwriters MTD 4–6.) On this basis, Tulco and the Underwriters move to dismiss 13 the Section 12(a)(2) claims against them. 14 Under Section 12(a)(2), liability is limited “to two narrow classes of 15 defendants: (1) immediate sellers (‘remote purchasers are precluded from bringing 16 actions against remote sellers’); and (2) those who solicit purchases to serve their 17 ‘own financial interests or those of the securities owner.’” Maine State Ret. Sys., 18 2011 WL 4389689, at *9 (quoting In re Countrywide, 588 F. Supp. 2d. at 1183). To 19 adequately establish liability under Section 12(a)(2), “a plaintiff must allege that the 20 defendants did more than simply urge another to purchase a security; rather, the 21 plaintiff must show that the defendants solicited purchase of the securities for their 22 own financial gain.” In re Daou Sys., 411 F.3d at 1029. A solicitation “appl[ies] 23 various mechanisms to ‘urge or persuade’ another to buy a particular security.” In re 24 Genius Brands Int’l, Inc. Sec. Litig., 97 F. 4th 1171, 1182 (9th Cir. 2024) (finding 25 defendants solicited the purchase of securities by disseminating articles); see also 26 Pino v. Cardone Cap., LLC, 55 F.4th 1253, 1260 (9th Cir. 2022) (finding defendants 27 solicited investors by posting on social media). 28 1 Plaintiffs do not plausibly allege that Tulco is a statutory seller under 2 Section 12. The allegations show that Tulco solicited purchasers by participating in 3 the preparation of or signing the Registration Statements. (FAC ¶ 192.) However, 4 mere participation is insufficient. See Pinter v. Dahl, 486 U.S. 622, 650 (1988) 5 (holding that Section 12’s “failure to impose express liability for mere 6 participation . . . suggests that Congress did not intend that the section impose liability 7 on participants collateral to the offer or sale.”); see also Maine State Ret. Sys., 8 2011 WL 4389689, at *10 (requiring allegations of direct solicitation). 9 Conversely, Plaintiffs adequately plead that the Underwriters are statutory 10 sellers for purposes of Section 12(a)(2). Here, Plaintiffs plead that the Underwriters 11 sold, offered, or solicited purchase in the IPO and SPO through the Registration 12 Statements and some Underwriters published analyst reports and coverage notes with 13 a rating of “Buy.” (FAC ¶¶ 153, 158–60.) Plaintiffs further allege that the 14 Underwriters were paid discounts and commissions for the IPO and SPO. (Id. ¶¶ 63– 15 64.) These allegations raise a plausible inference that the Underwriters solicited 16 buyers through the published reports and coverage notes, for their own financial gain. 17 Accordingly, the Court GRANTS Tulco’s Motion on these grounds and 18 DISMISSES WITH LEAVE TO AMEND Plaintiffs’ Section 12(a)(2) claims against 19 Tulco. The Court DENIES the Underwriters’ Motion as to this basis. 20 B. Violation of Section 15 of the Securities Act 21 In their third cause of action, Plaintiffs allege Hasson, Spear, Lawrence, Tulco, 22 and Willhite are liable under Section 15 for material misrepresentations and omissions 23 in the Registration Statements as control persons of FIGS. (FAC ¶¶ 204–05.) FIGS 24 and Tulco move to dismiss the Section 15 claim for failure to plead a primary 25 violation under Sections 11 and 12(a)(2). (FIGS MTD 2, Tulco MTD 10.) 26 Section 15 imposes secondary liability on someone who “controls” any person 27 who is liable for a primary violation under either Section 11 or Section 12(a)(2). See, 28 e.g., In re ZZZZ Best Sec. Litig., No. 87-cv-3574-RSWL (Bx), 1994 WL 746649, at *6 1 (C.D. Cal. Oct. 26, 1994). Section 15 imposes “controlling person” liability that 2 cannot survive absent a primary violation. See, e.g., In re Rigel Pharms., Inc. Sec. 3 Litig., 697 F.3d 869, 886 (9th Cir. 2012) (“Section 20(a) and section 15 both require 4 underlying primary violations of the securities laws.” (citing 15 U.S.C. §§ 77o, 5 78t(a))). Because, as explained above, Plaintiffs fail to plead violations of Sections 11 6 and 12(a)(2), the Court GRANTS Defendants’ Motions and DISMISSES WITH 7 LEAVE TO AMEND Plaintiffs’ Section 15 claims as well. 8 C. Violation of Section 10(b) of the Exchange Act 9 Plaintiffs assert their fourth cause of action against FIGS, Hasson, Spear, and 10 Turenshine (collectively, the “Exchange Act Defendants”) for material misstatements 11 made in conference calls, earnings calls, and SEC filings during the Class Period. 12 (FAC ¶¶ 251–307.) Exchange Act Defendants renew their argument that Plaintiffs fail 13 to plead falsity, scienter, and loss causation. (FIGS MTD 23–34; Tulco MTD 13.) As 14 Plaintiffs’ scienter allegations remain inadequate, the Court addresses only new 15 scienter allegations in the FAC and declines to address Exchange Act Defendants’ 16 arguments regarding falsity and lost causation. 17 Section 10(b) of the Securities and Exchange Act of 1934 makes it unlawful 18 “[t]o use or employ, in connection with the purchase or sale of any security . . . any 19 manipulative or deceptive device or contrivance in contravention of such rules and 20 regulations as the Commission may prescribe.” 15 U.S.C. § 78j(b). Pursuant to this 21 section, the SEC promulgated rule 10b-5 (“Rule 10b-5”), which makes it unlawful, in 22 connection with the purchase or sale of any security: 23 (a) To employ any device, scheme, or artifice to defraud, 24 (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 . . . not 25 misleading, or 26 (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person . . . . 27 28 17 C.F.R. § 240.10b-5. 1 To establish a claim under Section 10(b), a plaintiff must prove the following 2 elements: “(1) a material misrepresentation or omission by the defendant; (2) scienter; 3 (3) a connection between the misrepresentation or omission and the purchase or sale 4 of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; 5 and (6) loss causation.” Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 6 148, 157 (2008). 7 To successfully allege “scienter” under the PSLRA, a plaintiff must “state with 8 particularity facts giving rise to a strong inference that the defendant acted with the 9 required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). A “strong inference” under this 10 section “must be more than merely plausible or reasonable—it must be cogent and at 11 least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. 12 v. Makor Issues & Rights, 551 U.S. 308, 314 (2007). “In [the Ninth C]ircuit, the 13 required state of mind is a mental state that not only covers intent to deceive, 14 manipulate, or defraud, but also deliberate recklessness.” E. Ohman J:or Fonder AB 15 v. NVIDIA Corp., 81 F.4th 918, 937 (9th Cir. 2023) (quoting In re Quality Sys., Inc. 16 Sec. Litig., 865 F.3d 1130, 1144 (9th Cir. 2017)). Thus, a defendant acts with the 17 required state of mind, or scienter, only if she makes “false or misleading statements 18 either intentionally or with deliberate recklessness.” In re Daou Sys., 411 F.3d 19 at 1015. “[D]eliberate recklessness is ‘an extreme departure from the standards of 20 ordinary care . . . which presents a danger of misleading buyers or sellers that is either 21 known to the defendant or is so obvious that the actor must have been aware of it.’” 22 Schueneman v. Arena Pharms., Inc., 840 F.3d 698, 705 (9th Cir. 2016) (alteration in 23 original) (quoting Zucco, 552 F.3d at 991). 24 When analyzing the sufficiency of a plaintiff’s scienter pleadings, a court must 25 first “determine whether any of the allegations, standing alone, are sufficient to create 26 a strong inference of scienter.” N.M. State Inv. Council v. Ernst & Young, 641 F.3d 27 1089, 1095 (9th Cir. 2011) (quoting Zucco, 552 F.3d at 991–92). Second, “if no 28 individual allegation is sufficient . . . the court [must] conduct a ‘holistic’ review of 1 the same allegations to determine whether the insufficient allegations combine to 2 create a strong inference of intentional conduct or deliberate recklessness.” Id. 3 The FAC’s scienter allegations remain largely identical to the allegations in the 4 CAC. Plaintiffs attempt to cure the previously identified deficiencies by adding the 5 following allegations: (1) confidential witness statements, (FAC ¶¶ 315, 329–37); 6 (2) Exchange Act Defendants’ access to data through management systems and 7 e-commerce platforms like Flexport, Whiplash, and Shopify, (id. ¶¶ 323–25); 8 (3) Hasson’s, Spear’s, and Turenshine’s involvement in core operations by attending 9 board meetings, (id. ¶¶ 317, 345); and (4) board discussions during FIGS’s March 7, 10 2022 and May 10, 2022 board meetings, (id. ¶¶ 349–50). 11 1. Confidential Witnesses 12 Plaintiffs claim CW-1’s and CW-2’s statements confirm Exchange Act 13 Defendants knew or recklessly disregarded that FIGS lacked sophisticated demand 14 planning tools. (Opp’n 37; see also FAC ¶¶ 329–37.) But, as discussed above, 15 Plaintiffs fail to establish CW-1’s and CW-2’s personal knowledge regarding FIGS’s 16 demand planning tools and data capabilities. Plaintiffs plead no facts showing how 17 CW-1, who did not join FIGS until 2023, used or had access to FIGS’s demand 18 planning and data analytics tools during the Class Period. Likewise, Plaintiffs fail to 19 support that CW-2, a Product Designer, had personal knowledge about the breadth of 20 FIGS’s demand planning and data analytics systems. Statements from confidential 21 witnesses who are “simply not positioned to know the information alleged,” are not 22 sufficient to raise a strong inference of scienter. Zucco, 552 F.3d at 996. 23 Accordingly, the Court does not find a strong inference of scienter based on the 24 confidential witness statements. 25 2. Access to Data 26 Next, Plaintiffs attempt to cure their previously deficient allegations under the 27 “access to data” theory of scienter. (See Order MTD 16–18.) Under this theory, 28 Plaintiffs again point to FIGS’s access to management systems and e-commerce tools 1 such as Flexport, Whiplash, and Shopify to show that Exchange Act Defendants had 2 data that contradicted their public statements. (FAC ¶¶ 323–24.) These tools 3 purportedly gave FIGS relevant data on “inventory ramp downs, supply chain 4 challenges, and freighting decisions.” (Opp’n 39.) However, these allegations fare no 5 better. 6 In the January 2024 Order, the Court specifically held that Plaintiffs’ data 7 allegations were insufficient when “Plaintiffs fail to identify any uncontroverted data, 8 inconsistent with FIGS’s public statement, that Hasson or Spear learned from these” 9 tools. (Order MTD 17.) Plaintiffs fail once more to do so. The allegations in the 10 FAC under the “access to data” theory remain identical to the CAC and include no 11 new allegations that Flexport, Whiplash, or Shopify provided FIGS, Hasson, Spear, or 12 Turenshine with any hard numbers or data details that contradicted their public 13 statements. See Wozniak v. Align Tech., Inc., 850 F. Supp. 2d 1029, 1034 (N.D. Cal. 14 2012) (finding that, “[a]lthough plaintiff refer[red] to the existence of sales and 15 shipment data and ma[de] a general assertion about what the data showed, plaintiff 16 allege[d] no hard numbers or other specific information” sufficient to plead scienter). 17 For the same reasons as in the January 2024 Order, the Court finds Plaintiffs’ 18 allegations of Exchange Act Defendants’ data access fall short of establishing scienter. 19 3. Core Operations 20 Likewise, Plaintiffs fail once more to raise an inference of scienter under the 21 “core operations” theory. (See FAC ¶ 313; Order MTD 14–16.) 22 “The core operations theory of scienter relies on the principle that corporate 23 officers have knowledge of the critical core operations of their companies.” Police 24 Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1062 (9th Cir. 2014) 25 (cleaned up). Under this theory, a strong inference of scienter can be raised if a 26 plaintiff can demonstrate “specific admissions by one or more corporate executives of 27 detailed involvement in the minutia of a company’s operations” or “witness accounts 28 demonstrating that executives had actual involvement in creating false reports.” Id. 1 However, “[w]here a complaint relies on allegations that management had an 2 important role in the company but does not contain additional detailed allegations 3 about the defendants’ actual exposure to information, it will usually fall short of the 4 PSLRA standard.” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008). 5 As the Ninth Circuit notes, “[p]roof under this theory is not easy.” Intuitive Surgical, 6 759 F.3d at 1062. In “rare circumstances” a plaintiff may establish scienter under the 7 core operations theory by pleading with particularity specific events of such 8 prominence “that it would be ‘absurd’ to suggest that management was without 9 knowledge of the matter.” Killinger, 542 F.3d at 786. 10 Here, Plaintiffs attempt to cure their core operations allegations by adding 11 CW-2’s statements that Hasson and Spear controlled product launches. To show that 12 Hasson’s and Spear’s personal preferences—rather than data—influenced FIGS’s 13 product launches, CW-2 claims the team could not sign off on orders without Hasson 14 and Spear’s blessing. (Id. ¶ 315.) CW-2 “would be told ‘Heather hates the fabric, or 15 the color,’ and was instructed to change the order,” and “Spear ‘dropped’ a product 16 launch of thousands of units simply because Spear changed her mind regarding the 17 product and decided she ‘didn’t like it.’” (Id.) These statements, however, are based 18 on hearsay and CW-2’s impression or speculation. Missing from these allegations are 19 any facts showing CW-2 had direct access to Hasson and Spear to personally know 20 why they did not “like” a product and whether their decisions considered, resulted 21 from, or conflicted with other factors or data. Without such facts, the allegations, at 22 best, “support a ‘mere inference of [the defendants’] knowledge of all core 23 operations,’ not scienter.” Intuitive Surgical, 759 F.3d at 1062 (alteration in original). 24 Plaintiffs also plead facts to show Turenshine “was deeply involved in FIGS’s 25 core operations,” (FAC ¶ 316), but these allegations are not sufficiently detailed. The 26 allegations point broadly to statements by Spear claiming that Turenshine “knows the 27 company inside and out,” has “deep knowledge and passion for the brand,” and 28 “played a critical role in [FIGS’s] rapid and profitable growth.” (Id.) However, 1 Spear’s statements merely mirror the “broad statements of involvement” that the 2 Court previously found did not rise to the level of specificity required to establish a 3 strong inference of scienter or to impute scienter onto another individual. (Order 4 MTD 15–16.) Therefore, these statements are similarly insufficient to infer scienter. 5 Lastly, Plaintiffs supplement their core operations allegations by pointing to 6 Hasson’s, Spear’s, and Turenshine’s presence at board meetings to show their direct 7 involvement “in developing FIGS’s products and in deciding to rely on airfreight to 8 accommodate their last-minute changes.” (Opp’n 43.) Plaintiffs allege the meetings 9 included discussions about “delays in ocean freight shipping,” “the impact of port and 10 shipping delays,” “port congestion,” “global supply chain imbalances,” “air freight 11 and related costs,” “inventory management,” “timing of product launches,” and “any 12 issues with keeping products in stock.” (FAC ¶ 317.) These allegations appear to 13 support, rather than disprove, Exchange Act Defendants’ alleged misstatements. For 14 example, that the board discussed ocean freight shipping delays and global supply 15 chain imbalances supports FIGS’s public statement that its shipping arrangements and 16 airfreight usage may be affected by “shipping delays for reasons outside of [FIGS’s] 17 control.” (Id. ¶¶ 293, 302.) Thus, these allegations also fail to raise a strong inference 18 of scienter. 19 Accordingly, Plaintiffs fail to cure the defects in their core operations theory to 20 plead a strong inference of scienter. 21 4. March 7, 2022 and May 10, 2022 Board Meetings 22 Finally, Plaintiffs point to FIGS’s March 7, 2022 and May 10, 2022 board 23 meetings to show Exchange Act Defendants knew their subsequent public statements 24 were false and misleading. (Id. ¶¶ 349–50.) During the board meetings, FIGS 25 discussed a “ramp down” of its high-waisted Zamora and Yola styles to pursue new 26 waistband styles. (Id.) Later, on FIGS’s March 8, 2022 earnings call, Spear allegedly 27 misled investors when she affirmed FIGS’s core product strategy, despite knowing 28 FIGS would “ramp down” the Zamora and Yola styles, which are core franchise 1 product lines. (Id.) Then, on FIGS’s May 12, 2022 earnings call, Exchange Act 2 Defendants allegedly misrepresented that the lack of Zamora and Yola stock was 3 attributed to supply chain challenges. (Id.) 4 After reviewing the March and May 2022 earnings call transcripts, the Court 5 finds the identified statements are not clearly inconsistent. In the March 8, 2022 6 earnings call, Spear stated that reliance on core styles “enables [FIGS] to produce 7 large volumes further in advance and hold greater quantities in [FIGS’s] warehouses.” 8 (Speers Decl. Ex. K 6.7) The “ramp down” statement from FIGS’s March 7, 2022 9 board meeting does not contradict Spear’s statement about FIGS’s ability to produce 10 large volumes of its core styles. The March 8, 2022 earnings call also reveals that the 11 high-waisted version is only one iteration of the Zamora product. (Id. at 5.) As such, 12 the ramp down of the high-waisted Zamora product, which is just one type of a core 13 product franchise line, does not contradict Exchange Act Defendants’ statement 14 affirming its core product strategy. Moreover, on the May 12, 2022 earnings call, 15 Turenshine accurately disclosed that FIGS transitioned its high-waisted Zamora and 16 Yola styles to a new yoga waistband. (Speers Decl. Ex. M 7.) The “ramp down” 17 statement does not contradict this disclosure. 18 The March and May 2022 statements are not contradictory and do not make a 19 cogent or compelling inference of scienter. Tellabs, 551 U.S. at 314 (holding that a 20 strong inference of scienter under 15 U.S.C. § 78u-4(b)(2)(A) “must be more than 21 merely plausible or reasonable—it must be cogent and at least as compelling as any 22 opposing inference of nonfraudulent intent”). Accordingly, the Court does not find a 23 strong inference of scienter based on the March 7, 2022 and May 10, 2022 board 24 meetings. 25 26 27

28 7 For all earnings call exhibits, (see Speers Decl. Exs. K, M), the Court cites the pagination in gray text on the bottom right of each page. 1 5. Holistic Evaluation of Scienter 2 Considering Plaintiffs’ FAC allegations as a whole, the Court finds Plaintiffs 3 fail to plead a holistic inference of scienter with respect to FIGS, Hasson, Spear, and 4 Turenshine. 5 Accordingly, the Court GRANTS Exchange Act Defendants’ Motions and 6 DISMISSES WITH LEAVE TO AMEND Plaintiffs’ Section 10(b) cause of action. 7 D. Violation of Section 20(a) of the Exchange Act 8 Plaintiffs assert their fifth and final cause of action against Hasson, Spear, 9 Turenshine, Willhite, and Tulco for control person liability under Section 20(a). FIGS 10 and Tulco move to dismiss Plaintiffs Section 20(a) claim for failure to plead a primary 11 violation under Section 10(b) and for failure to plead that Tulco is a control person. 12 (FIGS MTD 34; Tulco MTD 13–14.) 13 A claim under Section 20(a) is dependent on a primary violation of 14 Section 10(b) of the Exchange Act or Rule 10b-5. See Zucco, 552 F.3d at 990 15 (holding the existence of a primary violation under section 10(b) is a prerequisite for 16 control person liability under section 20(a)); see also In re NVIDIA Corp. Sec. Litig., 17 768 F.3d 1046, 1062 (9th Cir. 2014) (“[A plaintiff] must first prove a primary 18 violation of underlying federal securities laws, such as Section 10(b) or Rule 10b-5, 19 and then show that the defendant exercised actual power over the primary violator.”). 20 Here, as explained above, Plaintiffs fail to adequately plead scienter and therefore 21 have not adequately stated a Section 10(b) or Rule 10b-5 violation. As such, Plaintiffs 22 fail to plead a primary violation that could support a Section 20(a) cause of action 23 against Hasson, Spear, Turenshine, Willhite, and Tulco. 24 Accordingly, the Court GRANTS FIGS’s and Tulco’s Motions and 25 DISMISSES WITH LEAVE TO AMEND Plaintiffs’ Section 20(a) cause of action. 26 VI. LEAVE TO AMEND 27 Generally, a court should freely grant leave to amend a dismissed complaint. 28 See Fed. R. Civ. P. 15(a). This is particularly true in the context of the PSLRA, 1 because “an unprecedented degree of specificity is required” and “the drafting of a 2 cognizable complaint can be a matter of trial and error.” Eminence Cap., LLC v. 3 Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). The Court has previously granted 4 Plaintiffs leave to amend, and will do so once more here as specifically described 5 above, because Plaintiffs’ allegations come within the PSLRA. 6 However, Plaintiffs are cautioned that the disorganized, prolix nature of 7 Plaintiffs’ FAC is an additional basis for dismissal. “Neither courts nor defendants 8 should have to wade through the morass of ‘puzzle pleadings’ as this wastes judicial 9 resources and undermines the requisite notice for a defendant to respond.” In re New 10 Century, 588 F. Supp. 2d 1206, 1218–19 (C.D. Cal. 2008). Dismissal is appropriate 11 when, as here, “[t]he inconsistent use of emphasis, use of cross-references, and failure 12 to delineate the reasons why statements were false and misleading presented in the 13 [complaint] require the [c]ourt to parse through statements to discover which are false 14 and misleading.” Jiangchen v. Rentech, Inc., No.2:17-cv-01490-GW (FFMx), 15 2017 WL 10363990, at *8 (C.D. Cal. Nov. 20, 2017). Here, Plaintiffs’164-page 16 pleading requires extensive judicial resources to decipher which portions of lengthy 17 statements Plaintiffs allege to be false. Furthermore, the pleadings are highly 18 repetitive, often in a way that contributes ambiguity and uncertainty to the pleading. 19 It is the plaintiff’s “responsibility to craft a clear and concise complaint.” In re 20 New Century, 588 F. Supp. 2d at 1219. Merely adding allegations to this already 21 byzantine pleading is unlikely to convince the Court that Plaintiffs are able to state a 22 plausible claim. Plaintiffs should take this opportunity to amend the pleading by 23 reducing repetitions and ambiguity. Accordingly, the Court will take a jaundiced view 24 of any amended pleading that is lengthier than the FAC, and will be inclined to strike 25 an amended pleading that perpetuates this prolixity, preventing meaningful analysis of 26 the claims. 27 28 1 Vil. CONCLUSION 2 For the reasons discussed above, the Court GRANTS IN PART AND 3 | DENIES IN PART Defendants’ Motions to Dismiss. (ECF Nos. 118, 120, 123.) 4|| Specifically, the Court hereby: 5 e DISMISSES WITHOUT LEAVE TO AMEND Plaintiffs Hoch’s, City of 6 Pensacola’s, and Kissimmee’s Section 11 claims based on the SPO, and 7 Section 12(a)(2) claims; 8 e DISMISSES WITH PREJUDICE Plaintiffs’ Section 11 claim based on 9 FIGS’s statement about its air freight use in 2020 and March 2021, (FAC 10 4] 154); 11 e DISMISSES WITH LEAVE TO AMEND Plaintiff City of Warren’s 12 Section 11 claim based on the SPO; and 13 e DISMISSES WITH LEAVE TO AMEND Plaintiffs’ remaining claims 14 under Section Section 12(a)(2), Section 15, Section 10(b), and 15 Section 20(a) as described above. 16 If Plaintiffs choose to amend, the Second Amended Class Action Complaint is 17 || due no later than twenty-one (21) days from the date of this Order, in which case 18 || Defendants shall answer or otherwise respond within fourteen (14) days of the filing. 19 | If Plaintiffs do not timely amend, this dismissal shall be deemed a dismissal with 20 || prejudice as to the dismissed claims. 21 22 IT IS SO ORDERED. 23 Se 24 January 10, 2025 LEA. cB 25 Gry x / 7 OTIS D. WRIGHT, I 08 UNITED STATES DISTRICT JUDGE