Pirani v. Slack Technologies, Inc., No. 20-16419 (9th Cir. 2021)
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The Ninth Circuit affirmed the district court's order denying in part a motion to dismiss and ruling that plaintiff had standing to sue Slack and individual defendants under Sections 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing. Plaintiff alleges that Slack's registration statement was inaccurate and misleading because it did not alert prospective shareholders to the generous terms of Slack's service agreements, which obligated Slack to pay for service disruptions; nor did it disclose that these service disruptions were frequent in part because Slack guaranteed 99.99% uptime; and the statement downplayed the competition Slack was facing from Microsoft Teams at the time of its direct listing.
The panel concluded that plaintiff had standing to bring a claim under Sections 11 and 12(a)(2) because his shares could not be purchased without the issuance of Slack's registration statement, thus demarking these shares, whether registered or unregistered, as "such security" under Sections 11 and 12 of the Act. The panel explained that because standing existed for plaintiff's section 11 claim against Slack, standing also existed for a dependent section 15 claim against controlling persons. The panel did not resolve the issue of whether plaintiff has sufficiently alleged the other elements of Section 12 liability.
Court Description: Securities Law. The panel affirmed the district court’s order denying in part a motion to dismiss and ruling that Fiyyaz Pirani had standing to sue Slack Technologies, Inc., and individual defendants under §§ 11 and 12(a)(2) of the Securities Act of 1933 based on shares issued under a new rule from the New York Stock Exchange allowing companies to make shares available to the public through a direct listing. Pirani alleged that Slack’s registration statement was inaccurate and misleading under §§ 11 and 12(a)(2). Sections 11 and 12 refer to “such security,” meaning a security issued under a specific registration statement. The panel held that, even though Pirani could not determine if he had purchased registered or unregistered shares in a direct listing, he had standing to bring a claim under §§ 11 and 12 because his shares could not be purchased without the issuance of Slack’s registration statement, thus demarking these shares, whether registered or unregistered, as “such security” under §§ 11 and 12. The panel held that because standing existed for Pirani’s § 11 claim against Slack, standing also existed for a dependent § 15 claim against controlling persons. The panel concluded that statutory standing existed under §§ 11 and 15, and under § 12(a)(1) to the extent it paralleled § 11. 4 PIRANI V. SLACK TECHNOLOGIES Dissenting, Judge Miller wrote that he would reverse the district court’s order and remand with instructions to grant the motion to dismiss in full because Pirani could not prove that his shares were issued under the registration statement that he said was inaccurate, and he therefore lacked statutory standing.
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