Page 1
Ninth Circuit:
Fraud Action Against Uber, Founder, Properly Dismissed
It’s Not Enough to Plead That Conduct Was Concealed and, Once Scandals Erupted, Value of Shares Plummeted, Opinion Says; What Conduct, in Particular, Caused Decline Must Be Pinpointed
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday affirmed the dismissal with prejudice of a putative class action against Uber Technologies, Inc. and its founder and former CEO Travis Kalanick, holding that the complaint alleging that the company failed to disclose its shoddy business practice, thus hiding the risk to investors, did not state a claim for fraud.
“Typically, to establish loss causation, a plaintiff must show that the defendants’ alleged misstatements artificially inflated the price of stock and that, once the market learned of the deception, the value of the stock declined,” Circuit Judge Ronald M. Gould wrote.
Plaintiff Irving Firemen’s Relief & Retirement Fund had merely pled that Uber, by concealing the conduct that eventually erupted in scandals, had caused an inflation in value, he said, not that the uncovering of wrongdoing “caused the fraud-induced inflation in the stock’s price to be reduced or eliminated.”
Uber Scandals
Those scandals—which led to Kalanick’s resignation—included use of software called “Hell” to garner information on its rival, Lyft, by creating fake accounts for supposed drivers; a suit by Waymo, a Google affiliate, for alleged theft of trade secrets relating to self-driving cars; and a Uber program called “Greyball” which collected data on government officials in areas where Uber’s operations were barred or curtailed. Other scandals related to sexual harassment claims; a determination by a South Korean court that Uber had breached its national transport law; a U.S. Department of Justice probe into possible criminality in its Uber foreign practices; allegations of “widespread” bribery in Asia; and reports of a data breach affecting 57 million riders and drivers.
“As an apparent result of these cascading scandals, from fall 2016 to February 28, 2018, several funds holding stakes in Uber wrote down the value of their Uber holdings, which were not yet being publicly traded,” Gould noted.
Yet, he stressed, the causation element was missing. He explained:
“Even assuming without deciding (1) that Uber and Kalanick made actionable misstatements and (2) that the news articles, the Waymo lawsuit, and the government investigations cited by Irving revealed the truth to the market, still the claims fail because Irving did not adequately and with particularity allege that these revelations caused the resulting drop in Uber’s valuation.”
Particularization Needed
The circuit judge elaborated:
“Irving’s loss causation theory lumps together more than 60 alleged misstatements, winch Irving associates with at least eight purported corporate scandals that took place throughout the course of a year, and Irving concludes that the disclosure of these scandals resulted in a year-long decline in Uber’s valuation. But Irving” s allegations fail to link Uber s reduced valuation to any particular scandal or misstatement.”
Irving argued that the cumulative effect of the scandals that erupted in early 2017 should be viewed as the certain cause of the 30 percent drop that year in the value of Uber’s shares. Gould responded:
“At this stage of the proceedings, we do not dispute Irving’s allegation that Uber’s apparent valuation decreased over the course of the year. But the issue before us more precisely centers on Irving’s failure to plead with particularity and distinguish among the various misstatements and revelations that allegedly caused that decrease. Irving’s allegations of a general decline in valuation in response to multiple alleged scandals do nothing to alleviate this problem.”
The opinion affirms a judgment of District Court Judge Haywood S. Gilliam Jr of the Northern District of California.
The case is Irving Firemen’s Relief Fund v. Uber Technologies Inc., 19-16667.
Copyright 2021, Metropolitan News Company