FindWhat Investor Group v. FindWhat. Com
2011 U.S. App. LEXIS 19887
| 11th Cir. | 2011Background
- MIVA provided pay-per-click advertising and relied on a network of distribution partners; decline in revenue-per-click due to low-quality traffic allegedly from Saveli and Dmitri; plaintiffs allege contemporaneous, undisclosed click-fraud problems supported by internal monitoring systems that allegedly failed; 2004–2005 disclosures and public statements allegedly misled investors about traffic quality and enforcement; a February 23, 2005 conference call and a March 16, 2005 10-K are central to the remaining claims; district court granted summary judgment on loss causation and damages for the two later statements, which the Eleventh Circuit vacated and remanded; class action status and PSLRA pleading standards apply to claims under Rule 10b-5.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Actionability of the March 5, 2004 Form 10-K | Pled false present-fact statements about monitoring and strict guidelines. | Statements were forward-looking or non-misleading given cautionary language. | Affirmed dismissal for lack of adequately pled scienter. |
| Actionability of the July 26, 2004 conference call | Half-truths about overall revenue were misleading regarding click fraud. | Statements about total revenue growth were not tied to click-fraud issues and were not false. | Affirmed dismissal; not actionable. |
| Loss causation and damages from Feb. 23, 2005 and Mar. 16, 2005 statements | Disclosure of click-fraud problems would correct inflation and cause price drop; event study shows loss causation. | Pre-class-period inflation precluded causation; no link shown between these statements and losses. | Vacated summary judgment and remanded for fact-specific loss causation/damages analysis. |
Key Cases Cited
- Basic Inc. v. Levidou (Basic), 485 U.S. 224 (U.S. 1988) (fraud-on-the-market theory; reliance presumed with material misstatement in efficient market)
- DuraPharms., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (loss causation requires inflation removal; but not sole requirement for liability)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference of scienter required; holistic yet per-claim assessment)
- SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir.1968) (material misrepresentation may mislead a reasonable investor)
- Mizzaro v. Home Depot, Inc., 544 F.3d 1230 (11th Cir.2008) (holistic scienter inquiry; aggregate allegations evaluated per defendant/property)
- Backman v. Polaroid Corp., 910 F.2d 50 (1st Cir.1990) (duty to speak; half-truths may be misleading)
- Merchant Capital, LLC v. SEC, 483 F.3d 747 (11th Cir.2007) (duty to disclose material information arising from voluntary statements)
- Rudolph v. Arthur Andersen & Co., 800 F.2d 1040 (11th Cir.1986) (duty to disclose material facts arising from prior statements)
- First Va. Bankshares v. Benson, 559 F.2d 1307 (5th Cir.1977) (duty to disclose when speaking about a subject)