In
Litigation Background
The underlying action arose from
Slack moved to dismiss the complaint, arguing that only individuals who hold shares issued pursuant to a false or misleading registration statement can bring a claim under Sections 11 and 12. Slack argued that plaintiff had failed to allege that he purchased shares traceable to the allegedly misleading registration statement and, therefore, could not bring claims under these sections of the 1933 Act.
The
The Court first considered the statute's text, in particular the language authorizing an individual to sue for a material misstatement or omission in a registration statement when he or she has acquired "such security." The Court determined that Section 11(a)'s language and grammar, read against the backdrop of the statute's context of focusing on particular securities and limiting damages, indicated that Section 11(a) was intended to be construed narrowly and applies only to a security registered under a particular registration statement alleged to contain a materially misleading statement or omission.
The Court further noted that, with the exception of the
The Court also rejected plaintiff's contention that a broader reading of Section 11 would better fulfill the purpose of the 1933 Act by expanding liability for misstatements and omissions. The Court acknowledged that the 1933 Act is "limited in scope" and imposes strict liability on issuers for both intentional and negligent misstatements and omissions in a registration statement.4 By contrast, the Securities Exchange Act of 1934 permits claims — including Section 10(b) and Rule 10b-5 claims — involving any sale of a security but requires a plaintiff to prove scienter. In the Court's view, the designs of these statutes represent a "balanced liability regime" that allows a narrower set of claims with a lesser standard of proof to proceed under the 1933 Act and a broader set of claims with a higher standard of proof to proceed under the 1934 Act.
Finally, in light of its holding on plaintiff's Section 11 claims, the Court declined to adjudicate the merits of plaintiff's Section 12 claim and, in vacating and remanding to the
Looking Ahead
The Court's decision reinforces a long line of lower court decisions holding that Section 11(a) claims must arise out of securities purchases traceable to a specific, allegedly defective registration statement. The Court declined to allow plaintiffs in direct listings to circumvent this requirement and refused to create an exception that would have potentially broadened the scope of Section 11 liability significantly.
Footnotes
1. 598 U.S. ___ (2023).
2. Pirani v.
3. See, e.g., In re
4. Herman & MacLean v. Huddleston,
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
1177 Avenue Of The Americas
Tel: 2127159100
Fax: 2127158000
E-mail: Pmanuele@kramerlevin.com
URL: www.kramerlevin.com
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source