In Re Snap Inc. Securities Litigation

BRIEF

C.D. Cal.February 28, 2018

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 KESSLER TOPAZ MELTZER & CHECK, LLP JENNIFER L. JOOST (Bar No. 296164) jjoost@ktmc.com RUPA NATH COOK (Bar No. 296130) rcook@ktmc.com One Sansome Street, Suite 1850 San Francisco, CA 94104 Telephone: (415) 400-3000 Facsimile: (415) 400-3001 -and- SHARAN NIRMUL (Pro Hac Vice) snirmul@ktmc.com NATHAN HASIUK (Pro Hac Vice) nhasiuk@ktmc.com 280 King of Prussia Road Radnor, PA 19087 Telephone: (610) 667-7706 Facsimile: (610) 667-7056 Attorneys for Plaintiffs Thomas DiBiase and David Steinberg, and Lead Counsel for the Putative Class UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION IN RE SNAP INC. SECURITIES LITIGATION Case No. 2:17-cv-03679-SVW-AGR CLASS ACTION MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING ON THE MOTION TO DISMISS Date: March 12, 2018 Time: 1:30 p.m. Courtroom: 10A Judge: Hon. Stephen V. Wilson This Document Relates to: All Actions Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 1 of 15 Page ID #:1418 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -i- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ......................................................................... 1 ARGUMENT ...................................................................................................... 1 A. Damages Are Not an Element of a Section 11 Claim; “Lack of Damages” is An Affirmative Defense ........................................................................ 1 B. Plaintiffs Have Adequately Alleged Section 11 Damages ....................... 3 Defining the Terms of Section 11(e) .............................................. 4 “Amount Paid for the Security” ........................................... 4 “Time Such Suit Was Brought” ........................................... 4 The Effect of Class Period Sales .......................................... 6 The CAC Adequately Alleges Damages Because the “Value” of the Stock at the Time of Suit Was Below the Purchase “Price” .......... 6 The CAC Adequately Alleges Damages Even if the “Price” of the Stock at the Time Suit Was Brought Is Dispositive ....................... 9 CONCLUSION ................................................................................................. 10 Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 2 of 15 Page ID #:1419 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -ii- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Cases Page(s) Adair v. Kaye Kotts Assocs., 1998 WL 142353 (S.D.N.Y. Mar. 27, 1998) ........................................................... 3 In re AOL Time Warner, Inc. Sec. & “ERISA” Litig., 381 F. Supp. 2d 192 (S.D.N.Y. 2004) ................................................................ 4, 10 Beecher v. Able, 435 F. Supp. 397 (S.D.N.Y. 1975) ................................................................... 6, 7, 8 In re Broderbund/Learning Co. Sec. Litig., 294 F.3d 1201 (9th Cir. 2002) .................................................................................. 8 Campton v. Ignite Rest. Grp. Inc., 2014 WL 61199 (S.D. Tex. Jan. 7, 2014) ................................................................ 8 Cent. Laborers’ Pension Fund v. Sirva, Inc., 2006 WL 2787520 (N.D. Ill. Sept. 22, 2006) .......................................................... 5 In re Constar Int’l Inc. Sec. Litig., 585 F.3d 774 (3rd Cir. 2009) .................................................................................... 2 In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d 1132 (C.D. Cal. 2008) ........................................................ 1, 2, 3, 9 In re Fortune Sys. Sec. Litig., 680 F. Supp. 1360 (N.D. Cal. 1987) ........................................................................ 8 Grossman v. Waste Mgmt., Inc., 589 F. Supp. 395 (N.D. Ill. 1984) ............................................................................ 8 Herman & Maclean v. Huddleston, 459 U.S. 375, 382 (1983) ......................................................................................... 1 I.N.S. v. Cardoza-Fonseca, 480 U.S. 421 (1987) ................................................................................................. 7 In re IPO Sec. Litig., 241 F.Supp.2d 281, 351 n.80 (S.D.N.Y. 2003) ................................................ 3, 4, 8 In re LendingClub Secs. Litig., 2017 WL 4750629, at *12 n.4 (N.D. Cal. Oct. 20, 2017) ........................................ 8 Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 3 of 15 Page ID #:1420 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -iii- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044, 1048-49 (2d Cir. 1995).................................................................. 7, 9 Merzin v. Provident Fin. Grp. Inc., 311 F. Supp. 2d 674 (S.D. Ohio 2004) ..................................................................... 9 NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012) ..................................................................................... 8 Pierce v. Morris, 2006 WL 2370343 (N.D. Tex. Aug. 16, 2006) ........................................................ 9 In re SemGroup Energy Partners, L.P., 729 F. Supp. 2d 1276 (N.D. Okla. 2010) ............................................................. 2, 3 In re Wash. Mut., Inc. Sec., Derivative & ERISA Litig., 2010 WL 4272567 (W.D. Wash. Oct. 12, 2010) ..................................................... 9 In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994) .................................................................................... 8 Statutes 15 U.S.C. §77k(e) .............................................................................................. 3, 4, 6, 7 Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 4 of 15 Page ID #:1421 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -1- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PRELIMINARY STATEMENT1 Plaintiffs respectfully submit this supplemental briefing in accordance with the Court’s February 20, 2018 Order. ECF No. 84 at 1. As an initial matter, Plaintiffs addressed Defendants’ arguments concerning damages under Section 11 in their opposition to the Underwriters’ Motion to Dismiss (ECF No. 78) at 22:5-25:2. Therein, Plaintiffs explained that Defendants’ assertion of a “lack of damages” under Section 11 is an affirmative defense subject to an exceptionally high threshold at the pleading stage, which Defendants had failed to meet. 22:6-11 & n.13. Section 11(e) of the Securities Act, in part, measures damages as the difference between the “price” at which the plaintiff acquires the security and the “value” of the security at the time of suit. The CAC adequately alleges that the offering price of Snap’s common stock did not reflect its value because this price was inflated as a result of the material misrepresentations and omissions in the Offering Documents. Id. at 22:12-24:6. As of the date that Plaintiffs filed their CAC, November 1, 2017, the value of Snap’s stock had been revealed. Id. That other plaintiffs had filed earlier complaints when Snap’s stock was trading at different “prices” is not relevant to Plaintiffs’ damages theory pled in the amended complaint. Id. at 24:7-25:2. The Court’s February 20, 2018 Order raises additional issues not raised by Defendants’ motions to dismiss and Plaintiffs appreciate the opportunity to more fulsomely address Section 11 damages and answer the Court’s specific questions. ARGUMENT A. Damages Are Not an Element of a Section 11 Claim; “Lack of Damages” is An Affirmative Defense As set forth in Plaintiffs’ opposition briefing, “[d]amages are not an element” of a Section 11 claim. In re Countrywide Fin. Corp. Sec. Litig., 588 F. Supp. 2d 1132, 1168 n.40 (C.D. Cal. 2008), citing Herman & Maclean v. Huddleston, 459 U.S. 375, 1 Unless otherwise noted: (i) all capitalized terms have the same meaning ascribed to them in Plaintiffs’ Memorandum of Points and Authorities in Opposition to the Underwriters’ Motion to Dismiss (ECF No. 78); (ii) all emphasis is added; and (iii) all internal citations and quotations have been omitted. Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 5 of 15 Page ID #:1422 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -2- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 382 (1983). Indeed, “[u]nder §11 and §12(a)(2), damages are presumed at the pleading stage.” In re SemGroup Energy Partners, L.P., 729 F. Supp. 2d 1276, 1305 (N.D. Okla. 2010); In re Constar Int’l Inc. Sec. Litig., 585 F.3d 774, 785 (3rd Cir. 2009) (same). As such, Plaintiffs need only allege that they suffered the “type of injury contemplated by the statute.” Countrywide, 588 F. Supp. 2d at 1168. A complaint withstands a motion to dismiss if it alleges: (i) that the plaintiff “purchased the relevant securities”; and (ii) “facts creating the reasonable inference that the value of the securities on the presumptive damages date—that is, either the value at the time plaintiff sold the securities; or the value at the time of suit, if the plaintiff still holds the securities—is less than the purchase price.” Id. at 1169-70. The CAC satisfies this standard. Specifically, the CAC alleges that Plaintiffs purchased the relevant securities based on the Offering Documents (¶¶27, 305), and that “[a]s the information concealed by the Securities Act Defendants’ misstatements and omissions was gradually disclosed to the market, the disclosure of this new information revealed the true value of Snap common stock, causing the trading price of Snap common stock to decline, thereby damaging Plaintiffs and the Class” (¶336). See also ¶¶335-38, 391. Indeed, the CAC alleges that, at the time the first complaint in this case was filed (ECF No. 1), the majority of the revelatory disclosures had not yet been made to the public. See ¶337(c)-(e). Plaintiffs even “went further” by “provid[ing] a schedule that identified their securities’ purchase and sale dates, together with exact prices.” Countrywide, 588 F. Supp. 2d at 1170 n.43; see DiBiase Certification, ECF No. 19-1 at Ex. A; Steinberg Certification ECF No. 72. “The statute, the Ninth Circuit, and the Supreme Court do not require more.” Countrywide, 588 F. Supp. 2d at 1170. In response to these well-pled allegations which must be taken as true, Defendants asserted in their motion to dismiss, in the barest of conclusory sentences, what amounts to an affirmative defense—that Plaintiffs’ Section 11 claims fail for a “lack of damages.” As the Court aptly identifies (ECF No. 84 at 2, Question No. 2(b)), the questions raised by Defendants’ affirmative defense are inappropriate at the motion Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 6 of 15 Page ID #:1423 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -3- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 to dismiss stage, prior to the development of the factual record, and without expert analysis on the measure of Plaintiffs’ damages. As explained in In re IPO Sec. Litig.: Defendants also argue that anyone who held securities that traded above their offering price on the date of the lawsuit should be precluded from suing under Section 11. While such Plaintiffs may indeed be unable to prove damages, that is not an appropriate question at this stage. Section 11(e) sets the measure of damages for a plaintiff still holding her securities at the “value” of those securities at the time of suit. “Value,” however, is not necessarily equal to “price,” and the determination of value is a fact- intensive inquiry. It would be inappropriate to resolve this question at the motion to dismiss stage. 241 F. Supp. 2d 281, 351 n.80 (S.D.N.Y. 2003); see also SemGroup, 729 F. Supp. 2d at 1305 (“How much damage – if any – plaintiff suffered as a result of the purchases, the actual tracing of the purchases to specific defendants, and applicability of potential affirmative defenses are fact-intensive issues, the resolution of which is not appropriate at this stage.”). Accordingly, Defendants’ damages-based arguments at this stage are premature. See ECF No. 84 at 2, Question No. 2(b). Even if the Court were inclined to consider these arguments, as with any affirmative defense, Defendants bear the burden of conclusively demonstrating “that plaintiffs cannot have suffered a decline in value of their securities” from the face of the complaint. Countrywide, 588 F. Supp. 2d at 1170; 15 U.S.C. §77k(e) (setting forth the elements of the negative causation affirmative defense); Adair v. Kaye Kotts Assocs., 1998 WL 142353, at *8 (S.D.N.Y. Mar. 27, 1998) (Sotomayor, J.) (requiring the defendants to “conclusively establish that plaintiffs’ damages are de minimus”). Defendants have not met their burden to conclusively establish that Plaintiffs do not conceivably have damages under Section 11. Nor can they, as discussed below. B. Plaintiffs Have Adequately Alleged Section 11 Damages Under Section 11(e), damages are measured according to one of three formulas: the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and: (1) the value thereof as of the time such suit was brought, or (2) the price at which such security shall have been disposed of in the market before suit, or Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 7 of 15 Page ID #:1424 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -4- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (3) the price at which such security shall have been disposed of after suit but before judgment if such damages shall be less than the damages representing the difference between the amount paid for the security (not exceeding the price at which the security was offered to the public) and the value thereof as of the time such suit was brought. 15 U.S.C. §77k(e). As stated below, the plain language of Section 11(e) demonstrates that Plaintiffs have pled cognizable damages under any construction of the statute. Defining the Terms of Section 11(e) “Amount Paid for the Security” For purposes of calculating Section 11 damages, the “amount paid for the security” can never exceed “the price at which the security was offered to the public.” 15 U.S.C. §77k(e). That is, “an investor who bought above the offering price must nonetheless use the offering price as the starting point for damages calculations.” IPO, 241 F. Supp. 2d at 348. The CAC alleges that each Plaintiff purchased his shares “pursuant to the Registration Statement” and that no Plaintiff purchased at a price lower than the “the price at which the security was offered to the public,” or the IPO price of $17. See ¶¶27, 305, 315-21, 325; DiBiase Certification, ECF No. 19-1 at Ex. A; Steinberg Certification, ECF No. 72. Accordingly, the appropriate “offering price” for calculating damages is $17. See ECF No. 84 at 2, Question No. 1; 15 U.S.C. §77k(e). “Time Such Suit Was Brought” Section 11(e) provides for damages to be calculated based on the difference between the price at the time of the offering and (i) the “value” of the security “as of the time such suit was brought”; (ii) if one sells the security before suit, price at the time of sale; or (iii) if one sells the security after suit, the price at which the security is sold, if such price is greater than the “value” at the time suit was brought. The latter serves as a limitation on damages. Courts use the date on which a particular defendant was added to the lawsuit as the operative date by which to determine when “suit was brought” for purposes of Section 11 damages calculations. See In re AOL Time Warner, Inc. Sec. & “ERISA” Litig., 381 F. Supp. 2d 192, 246 (S.D.N.Y. 2004) (using “the date Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 8 of 15 Page ID #:1425 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -5- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the underwriter defendants were added to this lawsuit” to calculate §11 damages).2 Here, in addition to the CAC, two earlier complaints were filed in this Action before the appointment of the Lead Plaintiff. Defendants contend that the “price” of Snap’s shares on the date of the first-filed complaint (ECF No. 1) is the only relevant date for calculating damages. Setting aside their misconstruing of the statutory language, which refers to “value” of the stock as of the time suit is brought and not “price,” this argument ignores the fact that Plaintiffs’ claims as alleged in the CAC were brought against different Defendants at different times, each of which triggers a new suit date under Section 11(e). The first-filed complaint in this action, Erickson v. Snap Inc., et al., Case No. 17-cv-03679, (ECF No. 1) (“Erickson complaint”), was filed on May 16, 2017 and named Snap, Spiegel, and Vollero as Defendants. Id. at ¶¶16-18. The second-filed complaint in this action was in Gupta v. Snap Inc., et al., Case No. 17-cv-05054 (ECF No. 1) (“Gupta complaint”), filed on July 10, 2017. The Gupta complaint added claims under Section 11 and named each of the underwriters who participated in Snap’s IPO, including each of the Underwriter Defendants named in the CAC. Id. at ¶¶26-51. The CAC (ECF No. 67) was filed on November 1, 2017. The CAC added new Defendants—Defendant Murphy and the Director Defendants—who had not previously been named in any prior complaint. ¶¶307-13. Thus, assuming each of the initial complaints filed in this action are relevant for assessing damages in this case (see §II.B.2, infra), it is the value of Snap’s stock on the three dates when suit was brought against each set of Defendants—May 16, 2017 (for Snap, Spiegel, and Vollero), July 10, 2017 (for the Underwriter Defendants), and November 1, 2017 (for Murphy and the Director Defendants) that would be probative 2 Indeed, applying the relation-back doctrine to allow a later-added defendant to relate back to an earlier-filed complaint to defeat a plaintiffs’ Section 11 claim “would defeat its purpose.” Cent. Laborers’ Pension Fund v. Sirva, Inc., 2006 WL 2787520, at *10 (N.D. Ill. Sept. 22, 2006) (“[T]he Court has not found[] any case in which the relation- back doctrine was used to bar claims.”). Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 9 of 15 Page ID #:1426 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -6- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 of damages. See ECF No. 84 at 2, Question Nos. 1 and 2. Consolidation of the cases has no effect, as it is not a factor addressed by the statute. See 15 U.S.C. §77k(e); Beecher v. Able, 435 F. Supp. 397, 409 (S.D.N.Y. 1975) (“Section 11’s damage formulae are explicit, comprehensive and hence, exclusive.”); ECF No. 84 at 2, Question No. 2. The Effect of Class Period Sales Under Section 11(e), the statutory formula used for the calculation of damages depends on whether the security has been retained (15 U.S.C. §77k(e)(1)), disposed of before suit (15 U.S.C. §77k(e)(2)), or disposed of after suit but before judgment (15 U.S.C. §77k(e)(3)). As reflected in Plaintiff Steinberg’s Certification, Plaintiff Steinberg purchased his shares of Snap common stock in the IPO on March 2, 2017, and disposed of them on August 11, 2017, after the filing of both the Erickson and Gupta complaints, but before the filing of the CAC. ECF No. 72. Accordingly, damages for Plaintiff Steinberg are to be calculated using the formula set forth in 15 U.S.C. §77k(e)(3). Similarly, Lead Plaintiff DiBiase purchased all of his shares of Snap common stock on March 27, 2017 and has retained over 93% of these shares. ECF No. 19-1 at Exhibit A. Accordingly, for those shares Plaintiff DiBiase has retained, damages are to be calculated using the formula set forth in 15 U.S.C. §77k(e)(1).3 The CAC Adequately Alleges Damages Because the “Value” of the Stock at the Time of Suit Was Below the Purchase “Price” Damages under Section 11(e)(1) and (3) are calculated based on the difference between the “amount paid” for the security and the “value thereof” at the time suit was brought. The CAC adequately alleges damages under this formula by alleging that the offering price of Snap’s common stock was artificially inflated by Defendants’ misrepresentations and omissions in the Offering Documents, and that the value of the 3 Plaintiff DiBiase sold the remaining 7% of the shares he purchased following the IPO prior to the first complaint date. Any damages associated with the sale of those shares only would be calculated using the formula set forth in 15 U.S.C. §77k(e)(2). Because the sale price for those shares was higher than the IPO price of $17, the damages associated with 7% of the shares DiBiase purchased in the IPO would be zero. ECF No. 84 at 2, Question No. 2(b). Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 10 of 15 Page ID #:1427 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -7- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 stock was not fully revealed at the time each initial complaint was filed, but was revealed by the time the CAC was filed. See ¶¶335-338. Thus, the CAC plausibly alleges that the “value” of Snap common stock on the date each suit was brought (May 16, 2017, July 10, 2017, and November 1, 2017) was less than the “price” at which Snap common stock was offered during the IPO, causing Plaintiffs’ damages under Section 11. See 15 U.S.C. §77k(e)(1) and (3). Defendants have not challenged the adequacy of these allegations. Cf., Mem. at 25; Snap Reply at 12. Instead, Defendants assert that Plaintiffs have no damages based on an interpretation of the word “value” in Section 11(e)(1) that is neither supported by the language of the statute itself nor the case law interpreting it. Indeed, to credit Defendants’ argument would be to accept that “value” always equals “price.” The plain language of Section 11(e), however, demonstrates the opposite—as it uses the distinct terms and phrases, “amount paid for the security,” “price,” and “value.” As the court in McMahan & Co. v. Wherehouse Entm’t, Inc. explained, “Congress’ use of the term ‘value,’ as distinguished from the terms ‘amount paid’ and ‘price’ indicates that, under certain circumstances, the market price may not adequately reflect the security’s value.” 65 F.3d 1044, 1048-49 (2d Cir. 1995); accord Beecher, 435 F. Supp. at 404-05 (“the conclusion that ‘value’ is not synonymous with ‘market price’ seems clearly dictated by the plain language of Section 11(e) in which both ‘price’ (sometimes ‘amount paid’) and ‘value’ are used, apparently deliberately, to connote different concepts”). This is consistent with the canons of statutory construction, which presume, in relevant part, “that Congress acts intentionally and purposely in the disparate inclusion or exclusion” of particular language, I.N.S. v. Cardoza-Fonseca, 480 U.S. 421, 432 (1987)—here, the use of the word “value” instead of “price.” Moreover, while the market price of a security serves as “a good starting point” and is often used to calculate damages, McMahan, 65 F.3d at 1049, as set forth in Plaintiffs’ opposition briefing, courts across the country recognize that this use of a Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 11 of 15 Page ID #:1428 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -8- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 security’s “price” in calculating damages under Section 11(e) is not dispositive. See, e.g., In re Fortune Sys. Sec. Litig., 680 F. Supp. 1360, 1370 (N.D. Cal. 1987); NECA- IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 165-66 (2d Cir. 2012) (“under § 11, the key is not . . . market price; the key is value”); Grossman v. Waste Mgmt., Inc., 589 F. Supp. 395, 416 (N.D. Ill. 1984) (“The market price of a stock is not necessarily a reliable indication of the stock’s value, as illustrated by the situation in which a fraud on the market has occurred.”); Beecher, 435 F. Supp. at 404-05 (“realistic value may be something other than market price, where the public is either misinformed or uninformed about important factors relating to the defendant-offeror’s well being”); IPO, 241 F. Supp. 2d at 351 n.80 (“‘value’, however, is not necessarily equal to ‘price.’”); Campton v. Ignite Rest. Grp. Inc., 2014 WL 61199, at *5, 7 (S.D. Tex. Jan. 7, 2014) (holding that where plaintiffs alleged that new information revealed after initial complaint was filed relating to the misstatements in the offering materials, “plaintiffs had alleged sufficient facts to plausibly show that the value of their securities at the time of suit was less than the offering price”). In this case, the relevant truth about the misstatements and omissions in the Offering Documents had not been revealed at the time the initial complaints were filed (see ¶337(c)-(e)) and, accordingly, the price could not have reflected the value of the stock on those dates. Nor can Defendants support the proposition that “value at the time suit was brought” always equals the “price” of the security on the date the lawsuit was filed. As the Court recognizes, there are “no Ninth Circuit cases directly addressing the[se] questions.” ECF No. 84 at 2. Rather, and as set forth in Plaintiffs’ opposition, the only two Ninth Circuit opinions touching on the “value” versus “price” debate (In re Broderbund/Learning Co. Sec. Litig., 294 F.3d 1201, 1204 (9th Cir. 2002); In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1421 (9th Cir. 1994)) “each found that plaintiffs had failed to prove loss for reasons entirely unrelated to whether Section 11 damages were measured by stock price or some alternative value, and stated that damages can be measured by stock price on the day suit is filed only in passing.” In re Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 12 of 15 Page ID #:1429 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -9- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 LendingClub Sec. Litig., 2017 WL 4750629, at *12 n.4 (N.D. Cal. Oct. 20, 2017). Defendants’ cited authorities, which purport to rely on these Ninth Circuit opinions for the proposition that price at the time of the initial complaint always controls, are not controlling and directly contradict the weight of the case law. See In re Wash. Mut., Inc. Sec., Derivative & ERISA Litig., 2010 WL 4272567 (W.D. Wash. Oct. 12, 2010); Pierce v. Morris, 2006 WL 2370343 (N.D. Tex. Aug. 16, 2006). Thus, as supported by the plain language of the statute and an abundance of case law, the CAC adequately alleges that the “value” of Snap common stock was lower than its IPO “price” on each of the three dates on which “suit was brought” in this action. Changes in Snap stock price during the Class Period would only serve as a metric in economic analysis to determine the true “value” thereof. See ECF No. 84 at 2, Question 3; McMahan, 65 F.3d at 1049 (“the district court, in applying the statutory damages formula, should begin with the market price to determine the true value...”). The CAC Adequately Alleges Damages Even if the “Price” of the Stock at the Time Suit Was Brought Is Dispositive Even if, under Defendants’ theory, the stock price at the time suit was brought is dispositive of the question of damages (it is not), there would still be cognizable damages against each of the Section 11 Defendants. Assuming arguendo that “value” always equals “price,” as Defendants contend, the Erickson complaint could not be the date when suit was brought because it is facially defective for lack of Article III standing. See Countrywide, 588 F. Supp. 2d at 1167-68 (“a complaint [is] deficient [for lack of standing] under § 11 when it fails to plead facts demonstrating that [the plaintiff] suffered the particular type of injury contemplated by the statute”). Under established case law, a complaint that is facially defective for lack of standing cannot be determinative of the date when “suit was brought” under §11(e). See Merzin v. Provident Fin. Grp. Inc., 311 F. Supp. 2d 674, 686 (S.D. Ohio 2004) (“It would not comport with the interests of justice to allow the [] Plaintiffs to relate back to a Complaint which they did not file, and for which no other party had standing to bring a Section 11 claim.”). Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 13 of 15 Page ID #:1430 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -10- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Accordingly, the July 10, 2017 Gupta complaint—which added claims under Section 11 against the each of the Underwriter Defendants named in the CAC (¶¶26- 51)—is the first-filed complaint for which standing exists and that could be used as the operative date for the calculation of damages with respect to Snap, Spiegel, and Vollero, and the Underwriter Defendants. See AOL, 381 F. Supp. 2d at 246 (using “the date the underwriter defendants were added to this lawsuit” as the operative date by which to calculate damages under Section 11). Moreover, as discussed above, the CAC filed on November 1, 2017—which added Murphy and the Director Defendants for the first time (¶¶307-13)—is the operative date for purposes of calculating damages as to these Defendants. AOL, 381 F. Supp. 2d at 246. Defendants do not dispute that Snap’s stock price was significantly below its IPO price on the date of the filing of the CAC. Thus, even if the Court were to accept that “value” and “price” as used in Section 11(e) are always synonymous, Plaintiffs have adequately alleged statutory damages under both of the operative complaints in this case—the Gupta complaint and the CAC. CONCLUSION Accordingly, Defendants’ “lack of damages” affirmative defense fails. DATED: February 28, 2018 Respectfully submitted, KESSLER TOPAZ MELTZER & CHECK, LLP /s/ Sharan Nirmul SHARAN NIRMUL (Pro Hac Vice) snirmul@ktmc.com NATHAN HASIUK (Pro Hac Vice) nhasiuk@ktmc.com 280 King of Prussia Road Radnor, PA 19087 Telephone: (610) 667-7706 Facsimile: (267) 948-2512 Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 14 of 15 Page ID #:1431 MEMORANDUM OF POINTS AND AUTHORITIES IN RESPONSE TO THE COURT’S FEBRUARY 20, 2018 ORDER FOR ADDITIONAL BRIEFING -11- CASE NO. 2:17-CV-03679-SVW-AGR 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - and – JENNIFER L. JOOST (Bar No. 296164) jjoost@ktmc.com RUPA NATH COOK (Bar No. 296130) rcook@ktmc.com One Sansome Street, Suite 1850 San Francisco, CA 94104 Telephone: (415) 400-3000 Facsimile: (415) 400-3001 Attorneys for Lead Plaintiff Thomas DiBiase and David Steinberg, and Lead Counsel for the Putative Class ROSMAN & GERMAIN LLP DANIEL L. GERMAIN (Bar No. 143334) Germain@lalawyer.com 16311 Ventura Boulevard, Suite 1200 Encino, CA 91436 Telephone: (818) 788 0877 Facsimile: (818) 788-0885 Liaison Counsel for the Putative Class Case 2:17-cv-03679-SVW-AGR Document 85 Filed 02/28/18 Page 15 of 15 Page ID #:1432