(Reuters) - Can the 9th U.S. Circuit Court of Appeals finally rescue the social media company Snap from a securities class action by investors in its 2017 initial public offering?
In November, U.S. District Judge Stephen Wilson of Los Angeles certified a class of shareholders suing Snap over alleged misrepresentations and omissions in its IPO. (Snap, I should note, denies any wrongdoing and recently announced that the government has ended an investigation of shareholders’ allegations without bringing a case against the company.)
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The path to Judge Wilson’s class certification decision was strewn with boulders. As you may recall, the originally-appointed lead plaintiff asked to withdraw from the case for medical reasons in late 2018, right around the time that lead counsel from Kessler Topaz Meltzer & Check first moved to certify the Snap investor class. Kessler proposed swapping in new lead plaintiffs, but Judge Wilson denied class certification and re-opened the process of picking a lead plaintiff.
After another hot lead plaintiff contest, the judge ultimately selected a new investor group represented by Kessler Topaz, even though none of the shareholders in that group had filed individual complaints or moved to head the case in the original lead plaintiff competition back in 2017. Kessler Topaz filed a new motion to certify the class last June.
The motion was opposed by investors who had filed a competing securities class action in California state court. They argued that investors in the federal court case couldn’t prove damages because Snap shares were actually trading above their IPO price when the first complaint was filed in federal court. The state plaintiffs advised Judge Wilson to defer to their later-filed case, which presented a more solid damages theory.
Snap’s lawyers at Wilson Sonsini Goodrich & Rosati also opposed class certification, arguing, among other things, that the U.S. Supreme Court’s 2018 decision in China Agritech v. Resh doomed the certification motion. In China Agritech, the Supreme Court barred the filing of successive class actions asserting the same allegations, holding that if a court has denied class certification and the statute of limitations has run out, plaintiffs can’t file a new class action. Snap’s lawyers said China Agritech fit the facts of the Snap case: Judge Wilson denied Kessler Topaz’s original motion for class certification in 2018, and none of the new lead plaintiffs brought claims within the one-year statute of limitations for Securities Act suits. So under China Agritech, Wilson Sonsini argued, the class action was dead.
Judge Wilson disagreed, highlighting the very strange facts of the Snap case. He pointed out that he only denied class certification in 2018 in order to re-open the lead plaintiff selection process, not because he rejected the merits of the motion. And in China Agritech, the judge said, the Supreme Court addressed the filing of a new class action, but in the Snap case, the new lead plaintiffs sought to certify a class in an existing case.
Judge Wilson agreed that in China Agritech, the Supreme Court categorically barred successive class actions filed after the denial of class certification and the expiration of the statute of limitations. But he said that because the new lead plaintiffs in the Snap case were simply stepping in for an investor who had asserted the same claims within the statute of limitations, “these circumstances raise none of the concerns regarding resuscitation of litigation or ‘endless tolling of a statute of limitations’ that animated the (Supreme) Court’s decision in China Agritech.”
Last week, Snap brought in Paul Clement of Kirkland & Ellis to petition the 9th Circuit to grant interlocutory review of Judge Wilson’s class certification decision. And this week, the U.S. Chamber weighed in with an amicus brief filed by Catherine Stetson at Hogan Lovells. That’s some serious appellate firepower blasting away at Judge Wilson’s ruling.
Essentially, the briefs argue that the trial judge made a fatal mistake by trying to distinguish the Snap case from China Agritech. “The court contradicted China Agritech’s straightforward holding,” Clement wrote in Snap’s petition. “And to reach that result, it flipped China Agritech on its head.” Judge Wilson had cited language in a separate opinion by Justice Sonia Sotomayor, who proposed tolling the statute of limitations in instances when a prospective lead plaintiff turns out to be deficient. Snap’s petition to the 9th Circuit pointed out that the rest of the Supreme Court justices specifically rejected Justice Sotomayor’s proposed exception. Judge Wilson, Snap argued, based class certification on a theory the Supreme Court expressly renounced.
The Chamber’s brief warned the 9th Circuit that if it allows trial courts to carve out exceptions to China Agritech, it will blur the Supreme Court’s bright-line rule. “If the district court’s ruling holds, similar proceeds will slide quickly and inexorably back to the pre-China Agritech status quo: Defendants will face extended liability of indefinite duration, increasing both the uncertainty of potentially enormous legal risk and the attendant pressures to settle even otherwise-time-barred claims,” the Chamber said.
You might think that the facts of the Snap case are so unusual that the Supreme Court’s China Agritech rule is in no danger from Judge Wilson’s interpretation. But according to the Chamber, other plaintiffs’ lawyers are busily plotting ways to undermine the prohibition on successive class actions. The amicus brief cited recent decisions from the 1st and 3rd Circuits that pushed back against such attempts, arguing that Judge Wilson’s assertion of an exception to the China Agritech rule is “an important and recurring question of class-action practice that this court should answer now.”
I emailed Snap class counsel Sharan Nirmul of Kessler Topaz to ask about the petition for interlocutory appeals but didn’t hear back.
The views expressed in this article are not those of Reuters News.