29 F.4th 611
9th Cir.2022Background:
- Twitter markets a Mobile App Promotion (MAP) advertising product that uses user device/data; users could opt out of data-sharing beginning in 2017.
- In May and August 2019 Twitter disclosed inadvertent data-sharing with advertisers; the August Help Center post stated Twitter had “fixed these issues.”
- In fact Twitter had stopped data-sharing for MAP (reducing MAP revenue) and later discovered software bugs that affected MAP; Twitter disclosed the bugs and a $25 million revenue shortfall in its October 24, 2019 earnings release.
- Investors sued (class action covering July 26–Oct 23, 2019) alleging Section 10(b)/Rule 10b-5 securities fraud and Section 20(a) control-person liability against Twitter and two executives, claiming July statements were false/misleading for not disclosing the MAP problems.
- The district court dismissed the complaint for failure to plead falsity and scienter (leave to amend granted but no amended complaint filed); the Ninth Circuit entertained the appeal after the district court later entered a final dismissal.
- The Ninth Circuit affirmed, holding Twitter’s statements were not false or misleading, plaintiffs failed to plead knowledge/timing of the bugs, and forward-looking statements fell within the PSLRA safe harbor; Section 20(a) claims therefore failed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Twitter’s July 2019 statements about MAP were materially false or misleading | July statements implied MAP was on track and thus were false because Twitter had known about software bugs that were hurting MAP revenue | Statements were qualified, vague, and not objectively verifiable; they did not affirmatively mislead investors | Held: Not false/misleading—statements were nonactionable puffery/forward-looking with qualifiers |
| Whether Twitter had an affirmative duty to disclose the MAP software bugs in real time | Twitter’s omissions turned its public statements into misrepresentations that required disclosure | Securities law does not impose a duty to disclose all internal developments; disclosure required only to avoid making other statements misleading | Held: No duty to provide real-time updates; omission not actionable absent making other statements misleading |
| Whether plaintiffs plausibly alleged Twitter knew of the bugs and their revenue impact in July (scienter/falsity by timing) | Temporal proximity and a confidential informant’s timeline support inference that defendants knew months earlier and that bugs depressed July revenue | Complaint lacks particularized facts showing defendants’ July knowledge; later disclosures do not prove earlier knowledge | Held: Plaintiffs failed to plead with particularity that defendants knew of bugs or revenue impact in July |
| Whether Section 20(a) control-person claims survive | Executives exercised control and are liable based on the Section 10(b) allegations | Control-person liability is derivative on a primary Section 10(b) violation | Held: Dismissed—no primary violation pleaded, so Section 20(a) fails |
Key Cases Cited
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (no affirmative duty to disclose all adverse information; disclosure required only to avoid misleading the market)
- Apollo Group v. Oregon Pub. Emps. Ret. Fund, 774 F.3d 598 (9th Cir. 2014) (distinguishing nonactionable puffery from verifiable misstatements)
- Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988 (9th Cir. 2018) (context matters in assessing whether statements are misleading)
- Vantive Corp. v. In re Vantive Corp. Sec. Litig., 283 F.3d 1079 (9th Cir. 2002) (incomplete statements are not actionable absent a duty to disclose)
- Yourish v. Cal. Amplifier, 191 F.3d 983 (9th Cir. 1999) (temporal proximity alone insufficient to plead fraud with particularity)
- WMX Techs., Inc. v. Miller, 104 F.3d 1133 (9th Cir. 1997) (orders dismissing with leave to amend are generally not appealable)
- Floyd v. American Honda Motor Co., 966 F.3d 1027 (9th Cir. 2020) (a subsequent final order cures a premature notice of appeal)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (Section 20(a) control-person liability is derivative of a primary securities law violation)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim on its face)