On May 14, 2024, Judge Rita F. Lin of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action against a ridesharing company (the “Company”) and its CEO and former CFO (collectively, “defendants”). Cao et al. v. Uber Techs., Inc., et al., No. 22-cv-04688-RFL (N.D. Cal. May 14, 2024). Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder by allegedly making false statements in the Company’s post-IPO Sarbanes-Oxley Act (“SOX”) certifications attached to the Company’s quarterly and annual reports for 2019 and 2020, and during its annual general meeting on May 11, 2020.
Plaintiffs asserted that evidence that, in years prior to the Company’s IPO, the Company had utilized illegal tax shelters in Amsterdam and undertaken actions to avoid discovery in enforcement actions rendered certain post-IPO statements misleading. Specifically, plaintiffs claimed that the alleged pre-IPO conduct rendered two categories of the Company’s post-IPO public statements false: (i) a sentence in the Company’s SOX certifications that stated that the signatories had disclosed “[a]ny fraud, whether or not material, that involves management” to the Company’s auditors and audit committee (the “SOX Certification Statements”) and (ii) a statement made by the CEO during the Company’s May 11, 2020 annual general meeting that the Company maintained its Amsterdam office for “many factors” including “corporate taxation structures, local presence, et cetera” (the “Annual Meeting Response”).
The Court held that plaintiffs failed to adequately allege falsity as to any of the alleged misstatements. The Court rejected plaintiffs’ argument that the SOX Certification Statements were false or misleading because they failed to disclose that the Company’s former CEO (who had stepped down in 2017) had allegedly ordered actions to avoid discovery in 2015. The Court found that “the SOX certifications’ present-tense statement ‘neither stated nor implied anything’ about the conduct of a former CEO that occurred years before the time period covered by the reports.” Moreover, the Court found that plaintiffs did not adequately allege that the former CEO had a significant role in the Company’s internal control over financial reporting in 2019 or 2020, and the fact that the reports referred to historical financial data did not alter the time period covered by the reports or the temporal limits of the certification.
Regarding the Annual Meeting Response, the Court rejected plaintiffs’ argument that the Company’s current CEO’s response to a question concerning Amsterdam was false or misleading. The Court noted that “the question itself”—which “asked about the Company’s “plans to adapt to the new world reality subsequent to the public health crisis and the ensuing financial economic and societal crisis,” while recognizing that “[the Company] chose Amsterdam to base its international operations, in large part for a highly advantageous corporate taxation arrangement”—presumed that [the Company] located in Amsterdam partly for tax advantages, which [the CEO] acknowledged,” and the CEO’s statement—that “we have our Amsterdam office for many factors” that “is more than tax,” and that the Company “consistently look[ed]” at “factors” including “corporate taxation structures, local presence, et cetera”—was not materially false or misleading in that context. The Court also rejected plaintiffs’ contention that the CEO’s response failed to disclose that the Company maintained its Amsterdam office allegedly because Dutch authorities allegedly helped it evade taxes and did not take action for its alleged attempts to avoid discovery in 2015. The Court found that, at most, plaintiffs alleged that the CEO did not provide “a more fulsome report,” but no factual allegations established that the Company did not, in fact, have its Amsterdam office for many reasons, nor did the CEO’s response trigger a duty to disclose potential additional reasons.
The Court noted that plaintiffs’ control person claims under § 20(a) necessarily failed absent a primary violation of § 10(b) or Rule 10b-5. The court granted leave to amend.
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