998 F.3d 397
9th Cir.2021Background
- Irving Firemen’s Relief & Retirement Fund bought interests in Uber Series G preferred stock in February 2016 through a limited partnership (New Riders).
- Between 2014–2016 Uber raised over $10 billion in private financings and peaked at an implied private valuation of roughly $68 billion by mid‑2016.
- In 2017 a series of adverse events became public (Susan Fowler harassment blog, Waymo trade‑secrets suit, Greyball program, “Hell” competitive tactics, DOJ probe, 2016 data breach), and by early 2018 investor valuations fell about 30%.
- Irving sued Uber and former CEO Travis Kalanick under California Corporations Code §§ 25400 and 25500 alleging securities fraud based on offering materials and public statements; it pleaded an aggregate theory that concealed misconduct inflated Offering prices.
- The district court dismissed the Second Amended Complaint for failure to plead fraud with particularity and failure to plead loss causation. The Ninth Circuit affirmed, holding Irving failed to allege that defendants’ misstatements or omissions caused its losses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of loss causation under CA securities law | Mere inflation at the time of purchase is enough; damages arise when purchaser paid an inflated price | Must allege that disclosure/revelation caused fraud‑induced inflation to dissipate and thus caused loss | Rejected plaintiff’s view; federal loss‑causation principles apply and mere inflation is insufficient |
| Applicability of federal pleading standards (Rule 9(b)/PSLRA) to state law fraud claims | State law standard is less rigid; PSLRA/federal standards shouldn’t control | Rule 9(b) applies to state fraud claims in federal court; PSLRA may be persuasive | Rule 9(b) applies; Ninth Circuit applied federal pleading rules as persuasive authority |
| Effect of private (nonpublic) securities on loss causation burden | Private nature and investor revaluations suffice to show causation; market‑price mechanics less relevant | Private shares still require proving causal link; absence of efficient market increases plaintiff’s burden | Private trading does not excuse pleading loss causation; plaintiffs face a greater burden to link misstatements to losses |
| Sufficiency of aggregated pleading (lumping many misstatements/scandals) | A string of revelations over the year collectively caused the valuation decline | Plaintiff must tie particular alleged misstatements or specific revelations to valuation drops; aggregations are insufficient | Lumped allegations are inadequate; plaintiff failed to plead particularized causal links and chart evidence undermined its theory |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must permit reasonable inference of liability)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (loss causation requires revelation that reduces fraud‑induced inflation)
- In re Gilead Scis. Sec. Litig., 536 F.3d 1049 (delay in market reaction may be explicable but must be pleaded)
- Nuveen Mun. High Income Opportunity Fund v. City of Alameda, 730 F.3d 1111 (loss causation analysis applies to privately held shares)
- Vess v. Ciba‑Geigy Corp. USA, 317 F.3d 1097 (Rule 9(b) applies to state law fraud claims in federal court)
- In re Daou Sys., Inc., 411 F.3d 1006 (adequate loss causation where disclosures revealed true financial condition)
- In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781 (fraud‑on‑the‑market requires a revelation that dissipates inflation)
- Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598 (Rule 9(b) applies to loss causation in securities actions)
- Lloyd v. CVB Fin. Corp., 811 F.3d 1200 (misstatement must be a substantial cause of investor loss)
- Loos v. Immersion Corp., 762 F.3d 880 (plaintiff must allege fraud was a substantial cause of loss)
- Mirkin v. Wasserman, 858 P.2d 568 (California law discussion on reliance and fraud‑on‑the‑market context)
- Diamond Multimedia Sys., Inc. v. Superior Court, 968 P.2d 539 (California Supreme Court dicta regarding § 25500 and valuation allegations)