127 F. 4th 1183
9th Cir.2021Background
- Slack went public via a June 20, 2019 NYSE direct listing: no underwriter lock‑up, and both registered and unregistered shares were sold to the public simultaneously.
- Slack’s registration statement (effective June 7, 2019) and prospectus accompanied the listing; Pirani bought Slack shares on the first day but could not determine whether his purchases were of registered or unregistered shares.
- Pirani alleged material omissions/falsehoods in the registration statement (service‑credit liabilities, uptime guarantees, competition from Microsoft Teams) and sued under §§ 11, 12(a)(2), and 15 of the Securities Act.
- The district court denied Slack’s motion to dismiss in part, holding Pirani had statutory standing under § 11 and § 12(a)(2) despite his inability to trace specific shares.
- Slack appealed interlocutorily under 28 U.S.C. § 1292(b); the Ninth Circuit affirmed the district court, but Judge Miller dissented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a purchaser who cannot trace particular shares to the registration statement has § 11 standing in a direct listing | Pirani: § 11 applies because the registration statement was necessary to put any Slack shares on the public market; therefore all shares sold in the direct listing are “such security.” | Slack: § 11 requires purchase of a security issued under the challenged registration statement; tracing is required and Pirani cannot prove he bought registered shares. | Majority: § 11 standing exists — in a direct listing the registration statement enabled public sales of both registered and unregistered shares, so purchasers are acquiring “such security.” Dissent: would require tracing and reverse. |
| Whether § 12(a)(2) standing exists for purchasers in a direct listing | Pirani: Prospectus was part of the offering materials that enabled the public sale, so shares sold were purchased “by means of a prospectus.” | Slack: § 12 requires purchase of a security offered/sold by means of a prospectus (i.e., registered shares); unregistered shares are not offered "by means of" the prospectus. | Majority: § 12(a)(2) standing exists to the extent it parallels § 11 (shares sold in the direct listing were sold by means of the offering materials). Court declined to resolve certain fact‑dependent privity issues. Dissent: would deny § 12 standing absent tracing. |
| Whether derivative § 15 claims against controllers survive | Pirani: § 15 is derivative of § 11/§ 12 — if § 11 standing exists, § 15 standing follows. | Slack: If primary claims fail for lack of standing, derivative § 15 fails. | Held: Because § 11 standing exists, dependent § 15 claims survive the motion to dismiss. |
| Whether existing tracing precedent for successive registrations controls direct listings | Pirani: Direct listings present a distinct tracing problem; a single operative registration that enabled public sales makes precedent inapplicable. | Slack: Precedent (Barnes, Hertzberg, Century Aluminum) requires a plaintiff to show purchase of securities issued under the challenged registration statement regardless of listing mechanics. | Majority: Distinguishes successive‑registration cases; where one registration made public sales possible, § 11 covers shares sold in that listing. Dissent: Would apply precedent and require tracing. |
Key Cases Cited
- Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076 (9th Cir. 1999) (interpreting “such security” as tied to a particular registration statement in successive‑registration contexts)
- In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104 (9th Cir. 2013) (tracing requirement unnecessary where all shares were issued in a single offering under one registration)
- Barnes v. Osofsky, 373 F.2d 269 (2d Cir. 1967) (Judge Friendly’s foundational rule: plaintiffs must show shares were issued pursuant to the challenged registration)
- Gustafson v. Alloyd Co., Inc., 513 U.S. 561 (1995) ("prospectus" is a term of art describing a public offering by issuer or controlling shareholder)
- Pinter v. Dahl, 486 U.S. 622 (1988) (scope of § 12 liability for those who offer or sell securities by means of a prospectus)
- Clark v. Martinez, 543 U.S. 371 (2005) (statutory meaning should not change depending on case facts)