On December 21, 2021, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal with prejudice of a putative securities fraud class action brought against Sidley client Flex Ltd. and four of its officers. The case concerned allegations arising out of the wind-down of Flex’s relationship with Nike and the automated manufacture of athletic shoes.
Plaintiff filed an amended complaint in November 2018 after the company’s stock price dropped 35% when Flex announced the termination of a production contract with Nike to make shoes in Mexico. The plaintiffs filed a total of four complaints, the first two of which the plaintiff voluntarily amended and the latter two of which the district court dismissed. The lead plaintiff alleged that Flex and its officers made false and misleading statements about its project with Nike and, thus, violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.
On December 10, 2020, Judge Lucy H. Koh of the United States District Court for the Northern District of California granted Sidley’s motion to dismiss the complaint in its entirety and with prejudice, finding that the lawsuit failed to explain how any allegedly fraudulent public statements about the company’s production contract with Nike in Mexico were untrue or misleading when the statements were made.
The plaintiffs appealed to the Ninth Circuit, which affirmed the dismissal. The Ninth Circuit held, among other things, that four of the lead plaintiff’s confidential witnesses did not meet the Zucco test for reliability, that none of the allegations adequately pleaded falsity, and that Flex’s statements related to its profitability projections were “forward looking,” satisfying the PSLRA “safe harbor” provision.
Sara Brody argued the appeal and led the team, which included primary brief writer Nicole Ryan; David R. Carpenter; managing associate Stephen Chang; and associate Sarah Gallo.