For investors, 2024 may be more memorable for what the Supreme Court did not do rather than what it did. In cases involving tech giants Meta and Nvidia, the Supreme Court went so far as to actually hear the parties’ arguments before dismissing both appeals as improvidently granted—dismissing the case not on the merits, but rather the appeal on the basis that it should not have been heard. In doing so, it may have given class action plaintiffs some welcome relief.
META
The decision underlying the Meta appeal arose from a securities class action case in which investors argued that Facebook, Meta’s predecessor company, fraudulently inflated share prices by issuing misleading statements about the risk that user data could be stolen and misused. In March of 2018, a scandal erupted over news that a British political consulting firm had allegedly improperly harvested personal data from millions of unknowing Facebook users. In the following months, the public learned of allegations that Facebook had known of this conduct for years and had failed to inform affected users. In re Facebook, Inc. Sec. Litig., 84 F.4th 844, 850–51 (9th Cir.), opinion amended and superseded on denial of reh’g, 87 F.4th 934 (9th Cir. 2023), cert. granted in part sub nom. Facebook, Inc. v. Amalgamated Bank, 144 S. Ct. 2629 (2024), and cert. dismissed as improvidently granted sub nom. Facebook, Inc. v. Amalgamated Bank, 604 U.S. 4 (2024).
The Meta plaintiffs argued that revelations about the breach eventually caused two 2018 price drops that cost the company—and its investors—more than $200 billion. The essence of their claim was that the company’s risk factor disclosures in its filings with the SEC had referred only to hypothetical risks to the company of an unauthorized user data disclosure, when in fact those risks had already materialized. Id.
Although the case was dismissed at the trial court level, the Ninth Circuit revived the claims on appeal, holding that “[t]he problem is that Facebook represented the risk of improper access to or disclosure of Facebook user data as purely hypothetical when that exact risk had already transpired.” Id. at 859.
In asking the Supreme Court to take up the appeal—to grant a writ of certiorari—Meta argued to the Supreme Court that the Ninth Circuit decision was wrong, and that the Supreme Court should review the question of whether risk disclosures are false or misleading when they do not disclose that a risk has materialized in the past, even if that past event presents no known risk of ongoing or future business harm. See Facebook, Inc. v. Amalgamated Bank, cert. granted, No. 23-980 (June 10, 2024).
Although the Court held a lively oral argument on November 6 during which both sides fielded skeptical questioning from certain justices, on November 22, 2024, the Court issued a single-line order stating only that “the writ of certiorari is dismissed as improvidently granted.” While this cryptic decision left unclear how the Court would have resolved the question before it, the practical effect of the dismissal was to leave intact the decision of the Ninth Circuit, which was decidedly investor-friendly.
NVIDIA
Less than a month later, the Court similarly walked back another hotly anticipated matter before it, this one involving graphics-processing unit (“GPU”) maker Nvidia. Plaintiff investors in the case alleged that the company had materially understated the extent to which demand for Nvidia’s GPUs was driven by the highly volatile cryptocurrency mining industry, and that the company’s CEO had known of the misrepresentations because he received internal reports reflecting the truth.
Plaintiffs’ allegations regarding the CEO’s scienter (i.e., a legally measurable knowledge of wrongdoing) turned on allegations by confidential witnesses that were alleged in the complaint. Those confidential witnesses stated, among other things, that the CEO had detailed reports prepared for him on crypto demand and closely monitored sales data; however, the complaint did not specify in detail what was contained in those reports. E. Ohman J:or Fonder AB v. Nvidia Corp., 81 F.4th 918, 923 (9th Cir. 2023), cert. granted sub nom. Nvidia Corp. v. Ohman J., 144 S. Ct. 2655 (2024), and cert. dismissed as improvidently granted, No. 23-970, 2024 WL 5058572 (U.S. Dec. 11, 2024).
The plaintiffs in the case also relied on the opinion of an expert to make certain allegations about the availability of revenue data to NVIDIA’s CEO, and the extent to which NVIDIA’s graphics processing units were purchased by the volatile cryptocurrency mining industry.
While the district court had dismissed the case with prejudice in part because it had rejected plaintiffs’ scienter allegations, the Ninth Circuit partially reversed, holding that plaintiffs had adequately alleged scienter as to the company’s CEO on the basis of the CEO’s access to the demand reports.
The Supreme Court granted certiorari to address whether plaintiffs seeking to allege scienter under the Private Securities Litigation Reform Act (“PSLRA“) based upon allegations about internal company documents, in this case reports prepared for a company’s CEO, must plead with particularity the contents of those documents, and whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact. Id.
Once again, however, the Court blinked, issuing a pro forma order declaring that certiorari had been improvidently granted. This was not entirely a surprise, as some justices had questioned during oral argument why the case presented issues appropriate for review, but this again amounted to a victory for plaintiffs.
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While these two victories may come as form over substance, there is also no obvious warning signs that the Supreme Court will have an appetite any time soon to address these same issues raised and then dismissed. U.S. investors can, at least for the time being, breath a sigh of relief.