Uber Technologies Inc. failed to shake off proposed class claims of securities fraud filed in California federal court related to the sharp drop in its common stock price after the company’s initial public offering last year.
The plaintiffs, led by the Boston Retirement System, have plausibly alleged that Uber “affirmatively created an impression of an optimistic state of affairs” in statements that weren’t mere opinions or corporate puffery, Judge Richard Seeborg said Aug. 7 for the U.S. District Court for the Northern District of California.
The company represented to investors that CEO Dara Khosrowshahi was helping the company turn over a new leaf in preparation for public investment, according to the opinion. But the plaintiffs plausibly asserted Uber was still launching in new markets using a “playbook” of methods it had to know were illegal, the court said.
The plaintiffs also put forward plausible allegations that Uber delayed layoffs and internal restructuring until after the IPO for the purpose of misleading the markets, the court said. It denied Uber’s motion to dismiss the lawsuit brought under the Securities Act.
Uber argued that the allegations constitute an impermissible “puzzle pleading” of meandering, disconnected claims. But while the complaint is indeed lengthy, it’s not so indecipherable that it’s impossible for Uber to figure out which of its statements the plaintiffs allege were falsely made, the court said.
Uber’s common stock debuted at $45 per share in May 2019. By November, the price had sunk to just under $26, according to the opinion.
The company claimed that post-IPO developments like those in the independent contractor classification space contributed to the stock drop, and that the plaintiffs were improperly engaging in hindsight pleading.
But given the California State Assembly was well on its way to passing its gig worker law AB5 ahead of the IPO, and the state supreme court had already issued its Dynamex decision, the plaintiffs plausibly alleged that Uber was “aware at the time of the IPO that Uber’s classification of its drivers as independent contractors was imminently, if not already, illegal in California,” the court said.
Labaton Sucharow LLP and the Thornton Law Firm represent BRS and the class.
Shearman & Sterling LLP represents Uber. Willkie Farr & Gallagher LLP represents the underwriters.
The case is Bos. Ret. Sys. v. Uber Techs., Inc., N.D. Cal., No. 19-cv-06361, 8/7/20.