598 U.S. 759
U.S.2023Background
- Slack conducted a direct listing on the NYSE in 2019, filing a registration statement for 118 million registered shares while 165 million unregistered (preexisting) shares were simultaneously available for sale.
- Fiyyaz Pirani purchased Slack shares the day of the listing and later; he sued, alleging the registration statement contained material misstatements or omissions in violation of §11 (and §12) of the Securities Act of 1933.
- §11 imposes strict liability for material misstatements or omissions in a registration statement; the dispute centered on whether a §11 plaintiff must have purchased securities traceable to the challenged registration statement.
- The district court denied Slack’s motion to dismiss; the Ninth Circuit affirmed in a divided decision, creating a circuit split by allowing §11 claims even when plaintiff’s shares were not traceable to the registration statement.
- The Supreme Court granted certiorari and held that §11 requires a plaintiff to plead and prove he purchased securities registered under the allegedly defective registration statement; the Ninth Circuit’s judgment was vacated and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §11(a)’s phrase “such security” permits suits by purchasers of shares not traceable to the challenged registration statement | "Such security" can include unregistered shares that bear a sufficient relationship to the registered offering (e.g., unregistered shares sold only because the registration existed) | "Such security" means securities issued pursuant to the specific registration statement; plaintiff must trace purchases to that registration | §11(a) requires the plaintiff to plead and prove purchase of securities traceable to the allegedly defective registration statement; case vacated and remanded |
Key Cases Cited
- Gustafson v. Alloyd Co., 513 U.S. 561 (1995) (describes 1933 Act as narrower and focused on new offerings)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975) (distinguishes scope of 1933 and 1934 Acts)
- Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) (explains strict liability under §11 and scienter requirement under §10b–5)
- Barnes v. Osofsky, 373 F.2d 269 (2d Cir. 1967) (early circuit decision adopting the traceability requirement for §11 claims)
- In re Ariad Pharmaceuticals, 842 F.3d 744 (1st Cir. 2016) (circuit precedent holding §11 claims require traceability)
- Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir. 2003) (same)
- Lee v. Ernst & Young, LLP, 294 F.3d 969 (8th Cir. 2002) (same)
- Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000) (same)
- Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076 (9th Cir. 1999) (prior Ninth Circuit decision consistent with traceability rule)