Slack Technologies, LLC v. Pirani
598 U. S. ____ (2023) (2023)
Rule of Law:
Section 11 of the Securities Act of 1933 requires a plaintiff to plead and prove that they purchased securities that are traceable to the specific registration statement alleged to contain a material misstatement or omission.
Facts:
- In 2019, Slack Technologies, a technology company, went public through a 'direct listing' on the New York Stock Exchange.
- As part of this process, Slack filed a registration statement with the Securities and Exchange Commission for 118 million shares.
- Simultaneously, the direct listing allowed existing shareholders to sell 165 million pre-existing, unregistered shares to the public.
- Both registered and unregistered shares became available for public purchase on the same day, without a traditional underwriter or lockup period.
- Fiyyaz Pirani purchased 30,000 Slack shares on the day of the direct listing and an additional 220,000 shares over the next few months.
- Subsequently, the price of Slack's stock declined.
- Pirani's complaint did not allege that the specific shares he purchased were from the 118 million registered shares covered by the registration statement, as opposed to the 165 million unregistered shares.
Procedural Posture:
- Fiyyaz Pirani filed a class-action lawsuit against Slack Technologies, LLC in the U.S. District Court for the Northern District of California.
- Slack filed a motion to dismiss the complaint for failure to state a claim, arguing Pirani had not alleged his shares were traceable to the registration statement.
- The district court (trial court) denied Slack's motion to dismiss.
- The district court certified its ruling for an interlocutory appeal.
- The U.S. Court of Appeals for the Ninth Circuit accepted the appeal, with Slack as the appellant and Pirani as the appellee.
- A divided panel of the Ninth Circuit affirmed the district court's decision, creating a circuit split.
- The U.S. Supreme Court granted certiorari.
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Issue:
Does Section 11 of the Securities Act of 1933 permit a plaintiff to bring a claim when they cannot trace the shares they purchased to the allegedly defective registration statement?
Opinions:
Majority - Justice Gorsuch
No. A plaintiff bringing a claim under §11 of the Securities Act of 1933 must plead and prove that the securities acquired are traceable to the allegedly defective registration statement. The Court determined that the phrase 'such security' in §11(a) refers specifically to securities issued pursuant to the particular registration statement at issue. This conclusion is supported by several contextual clues in the 1933 Act: the use of the definite article in 'the registration statement,' the repeated use of 'such' to narrow the law's focus, the provision in §6 that a registration statement is effective only for securities specified therein, and the damages cap in §11(e) which is tied to the value of the underwritten (registered) shares. The Court affirmed the long-standing interpretation of lower courts, beginning with Barnes v. Osofsky, which held that §11 liability is limited to purchasers of shares issued under the defective registration.
Analysis:
This decision resolves a circuit split by reaffirming the traditional 'traceability' requirement for §11 claims, making it a significant hurdle for plaintiffs in cases involving direct listings or other offerings where registered and unregistered shares are sold concurrently. The ruling solidifies the narrower scope of §11's strict liability provision, pushing plaintiffs who cannot trace their shares toward claims under the 1934 Act, which requires proving scienter. The Court's textualist approach, focusing on statutory context rather than broad policy goals, signals a reluctance to expand securities liability to accommodate modern offering structures without explicit congressional action. This holding may insulate companies using direct listings from certain types of securities litigation.
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