624 F.Supp.3d 352
S.D.N.Y.2022Background:
- On April 23, 2018 Gridsum issued a press release saying PwC had notified the company that the 2016 audit report "should no longer be relied upon" and described ongoing Audit Committee investigations. Plaintiffs allege the release omitted that PwC said it could not "rely upon the representations of management."
- Plaintiffs are a putative class of Gridsum ADS holders suing under Section 10(b) and Section 20(a) of the Exchange Act based on alleged misstatements/omissions in the April 2018 release and other disclosures.
- Individual Defendants: Guosheng Qi (co‑founder, CEO, Board chair, dominant voting control via Class A shares), Michael Peng Zhang (VP corp. development; former CFO/co‑CFO), and Ravi Sarathy (CFO; former co‑CFO).
- Plaintiffs allege the Individual Defendants "participated in the preparation and/or issuance" of the press release and thus were its "makers" under Janus; defendants move to dismiss for failure to plead any of them as the statement-maker.
- The Court finds Qi had "ultimate authority" and therefore was a "maker" of the press release (denying dismissal as to Qi), but holds the pleadings fail to show Zhang or Sarathy had such authority (granting dismissal as to them with leave to amend).
- The Court also rejects application of the group-pleading doctrine post-Janus, requiring plaintiffs to plead facts showing each individual had ultimate authority over the statement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Individual Defendants were "makers" of the April 2018 press release under Janus | The Individual Defs (Qi, Zhang, Sarathy) participated in preparing/issuing the release and their positions gave them control over content | Only a person with "ultimate authority" over content/communication is a maker; participation, title, or preparing/publishing is insufficient | Qi: made the release (pleaded indicia of ultimate authority). Zhang & Sarathy: not pleaded as makers; dismissal as to them granted with leave to amend |
| Whether an officer's title or role (e.g., co‑CFO) or inclusion of a quote/reference in the release makes that officer a maker | Reference to "Co‑Chief Financial Officer" and co‑CFO status show control and attribution to Zhang/Sarathy | Title or description in the release, without specific attribution or other indicia of control, is insufficient to show ultimate authority | Title/reference alone insufficient; plaintiffs did not identify who the co‑CFO reference meant or plead ultimate authority for Zhang or Sarathy |
| Whether signing the Form 6‑K that attached the press release makes the signer a "maker" | Zhang signed the Form 6‑K; that signing shows he made/authorized the press release | Form 6‑K is a ministerial cover filing; signing it is not signing/approving the attached press release | Signing the Form 6‑K alone is insufficient to establish maker status |
| Whether the group‑pleading doctrine can attribute company statements to multiple insiders post‑Janus | Group pleading should allow attributing the release to the corporate insiders collectively | Janus requires ultimate authority; group pleading presumes participation not control and is incompatible with Janus and the PSLRA | Group‑pleading doctrine no longer viable to establish individual liability; plaintiffs must plead facts showing each individual's ultimate authority |
Key Cases Cited
- Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (maker is person with ultimate authority over the statement)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (scienter inference standard for securities claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for legal conclusions vs. factual allegations)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (particularity requirements for fraud pleading in securities suits)
- In re Banco Bradesco S.A. Securities Litig., 277 F. Supp. 3d 600 (S.D.N.Y. 2017) (rejection of group‑pleading doctrine post‑Janus)
- Pacific Investment Management Co. v. Mayer Brown LLP, 603 F.3d 144 (2d Cir. 2010) (identification of secondary actors insufficient to attribute statements to them)