By Rodney F. Tonkovic, J.D.
A district court found that a complaint adequately pleaded that omissions in Uber's IPO documents created an impression of a state of affairs materially different from what actually existed. Uber admitted that it had made missteps in the past concerning its business model and passenger safety but asserted that it was heading down a new path. The court found that the complaint adequately pleaded that the company omitted facts showing that, on the contrary, the company was, in large part, continuing down the same old path. Uber's motion to dismiss was accordingly denied (Boston Retirement System v. Uber Technologies, Inc., August 7, 2020, Seeborg, R.).
Uber IPO. Ride-sharing giant Uber Technologies, Inc. conducted an IPO on May 10, 2019. The company sold 180 million shares of common stock at $45 per share, generating nearly $8 billion in proceeds. The plaintiff in this action bought Uber common stock in the IPO from an underwriter and pursuant to offering documents filed with the SEC. After the IPO, Uber's share price declined, reaching an all-time low of $25.99 on November 14, 2019. The purchaser then brought this action alleging violations of the Securities Act.
Omissions. The purchaser alleged that Uber's registration statement omitted material facts about the legality of Uber's business model, its passenger safety record, and its financial condition. Uber countered that each of these three categories was adequately disclosed, and the court agreed that the disclosures were well beyond boilerplate. Given the facts alleged, however, the court also concluded that the offering documents created an impression of a state of affairs that was materially different from what actually existed. Specifically, Uber represented that while it had faced trouble in the past, it was on "a new path forward." Despite this optimistic impression, the purchaser plausibly alleged that Uber was still using its old "playbook," continuing, for example to view pay fines for violating local laws as a cost of doing business and intentionally delaying layoffs and restructuring to mislead the markets. Thus, the court said, what was disclosed was not enough to render what was not disclosed not misleading.
Uber then argued that it had received enough unfavorable press coverage leading up to the IPO to make the public aware of the allegedly omitted facts. This truth-on-the market defense was unavailing because even if it applies to Section 11 claims over IPOs, where the stock price has been set privately, it is not available at the motion to dismiss stage, due to its intensely fact-specific nature. Moreover, the court continued, investors are generally not required to look beyond the documents at issue, and there was no real basis for the contention that the form of the information determined that it was "known" to the market.
Misstatements. Finally, Uber contended that the alleged misstatements were not actionable for a variety of reasons, but the court disagreed. Taken in context, the statements were not mere puffery. That is, Uber's proclamations of "a new day" were actionable when the speaker knew that remnants of the "old day," such as launching in markets where Uber was clearly illegal, remained. In addition, the bespeaks caution doctrine did not offer any protection at this point because the purchaser plausibly pleaded that Uber's predictions about its future were misleading given the defendants' knowledge at the time. Finally, the alleged misstatements were not inactionable opinions because given the defendants' knowledge, there was no factual basis for Uber to state that it was complying with the law, keeping its passengers safe, or performing well financially.
The case is No. 19-cv-06361.