Facebook: Set Your Status to “Improvidently Granted”

Many securities practitioners have been suffering from low-grade anxiety for the better part of the past year. The cause of this anxiety relates to a pair of cases rising from the Ninth Circuit—Facebook and Nvidia—in which the defendants initially won dismissals but then lost on appeal. The defendants subsequently petitioned the Supreme Court for certiorari, successfully. The Supreme Court grants about 1 percent of all petitions for certiorari. For both petitions to be granted and, no less, on the heels Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257 (2024), many thought the Supreme Court was positioned to hand down some consequential rulings. For better or worse, this may not be the case.

In re Facebook, Inc., 87 F.4th 934 (9th Cir. 2023)

The Facebook case involved a class of plaintiff shareholders suing Facebook for failing to disclose the risk of data breaches arising from the Cambridge Analytica scandal. The district court initially dismissed but the Ninth Circuit reversed.

In March, Facebook petitioned the Supreme Court for certiorari. The petition flagged a three-way circuit split over when and what an issuer must say when discussing factors that could cause future harm to the business. Facebook framed the issue as follows: Are risk disclosures 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?

In June, the Supreme Court granted the petition. The briefing that followed was extensive. In addition to the ordinary opening and response briefs filed by the parties, a bevy of industry participants, academics and regulatory agencies filed amici curiae briefs. The U.S. Securities and Exchange Commission (SEC) and Department of Justice (DOJ) were among those that weighed in.

E. Ohman J v. NVIDIA Corp., 81 F.4th 918 (9th Cir. 2023)

Nvidia followed a similar trajectory. The plaintiff shareholders sued Nvidia for concealing the company’s exposure to crypto. Importantly, the plaintiffs buttressed their claims with an expert analysis that, as defendants argued, reverse engineered the contents of an internal report that allegedly contradicted public statements made to shareholders. The district court initially dismissed but the Ninth Circuit reversed.

In March 2023, Nvidia filed its petition for certiorari. The petition presented two questions generally asking for clarification on whether a plaintiff can adequately plead falsity by relying on an expert opinion without having access to internal corporate documents. Four amici curiae briefs followed before the court even granted certiorari in June 2023. From there, another 13 amici curiae briefs were filed. The authors included a litany of professionals and academics. The SEC and DOJ once again also filed a brief.

Current Status

Without question, Facebook and Nvidia garnered a heightened level of interest from the securities litigation bar. Amici curiae briefs are not always appreciated, especially when filed in droves. Judge Posner, for one, has referred to the vast majority of them as “abuse[s]” used by “allies” only to “extend[] the length of the litigant’s brief.” Ryan v. Commodity Futures Trading Comm'n, 125 F.3d 1062, 1063 (7th Cir. 1997). The outpouring of support for and against the appeals in both cases therefore was likely driven by the perception that the Supreme Court was interested in and willing to hand down some consequential rulings.

This perception may turn out to be unfounded. The court held oral argument in both cases. In Facebook, the justices posed some fiery hypotheticals in an effort to suss out when an issuer might need to disclose certain risks. The justices appeared engaged and ready to issue a ruling potentially altering the case law on cautionary language and forward-looking statements. However, on November 22, 2024, the Supreme Court dismissed the writ of certiorari as “improvidently granted.” The Supreme Court will dismiss a writ of certiorari as “improvidently granted” when it decides that certiorari should not have been granted in the first place, essentially admitting that it made a mistake when initially deciding to take the case.

This leaves the bar waiting for what will come out of Nvidia. During the hearing, the justices appeared unsatisfied with what they were being asked to decide and questioned whether they should be intervening in the case. Another dismissal would bring a surprise ending to what already has been an unlikely chain of events. The bar will just have to wait and see.