Slack Technologies v. Pirani

by Supreme Court of the United States

Note: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

SLACK TECHNOLOGIES, LLC, FKA SLACK TECHNOLOGIES, INC., ET AL. v. PIRANI
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
No. 22–200. Argued April 17, 2023—Decided June 1, 2023

This case arises from a public offering of securities governed by the Securities Act of 1933, and the issue presented is what a public buyer must allege to state a claim under §11 of the Act. The 1933 Act requires a company to register the securities it intends to offer to the public with the Securities and Exchange Commission. See, e.g., 15 U. S. C. §§77b(a)(8), 77e; see also §77d. As part of that process, a company must prepare a registration statement that includes detailed information about the firm’s business and financial health so prospective buyers may fairly assess whether to invest. See, e.g., §§77f, 77g, 77aa. The law imposes strict liability on issuing companies when their registration statements contain material misstatements or misleading omissions. In this case, Slack Technologies—a technology company that offers a platform for instant messaging—conducted a direct listing to sell its shares to the public on the New York Stock Exchange in 2019. As part of that process, Slack filed a registration statement for a specified number of registered shares it intended to offer in its direct listing. Under the direct listing process, holders of preexisting unregistered shares in Slack were free to sell them to the public right away. Slack’s direct listing offered for purchase 118 million registered shares and 165 million unregistered shares. Fiyyaz Pirani bought 30,000 Slack shares on the day Slack went public, and later bought 220,000 additional shares. When the stock price dropped, Mr. Pirani filed a class-action lawsuit against Slack alleging, as relevant here, that Slack had violated §11 of the 1933 Act by filing a materially misleading registration statement. Slack moved to dismiss, arguing that the complaint failed to state a claim under §11 because Mr. Pirani had not alleged that he purchased shares traceable to the allegedly misleading registration statement, leaving open the possibility that he purchased shares not registered by means of the registration statement. The district court denied the motion to dismiss but certified its ruling for interlocutory appeal. The Ninth Circuit accepted the appeal and a divided panel affirmed.

Held: Section 11 of the 1933 Act requires a plaintiff to plead and prove that he purchased securities registered under a materially misleading registration statement. The relevant language of §11(a) authorizes an individual to sue for a material misstatement or omission in a registration statement when the individual has acquired “such security.” Slack argues the term “such security” refers to a security issued pursuant to the allegedly misleading registration statement; Mr. Pirani says that the term may encompass a security not registered under an allegedly misleading registration statement. While the word “such” usually refers to something that has already been described, there is no clear referent in §11(a) defining what “such security” means. As a result, the Court must ascertain the statute’s critical referent “from the context or circumstances.”

Context provides several clues. First, the statute imposes liability for false statements or misleading omissions in “the registration statement.” §77k (emphasis added). The statute uses the definite article to reference the particular registration statement alleged to be misleading, and in this way seems to suggest the plaintiff must “acquir[e] such security” under that document’s terms. Ibid. In addition, the statute repeatedly uses the word “such” to narrow the law’s focus—for example, referring to “such part” of the registration statement that contains a misstatement or misleading omission—suggesting that when it comes to “such security,” the law speaks to a security registered under the particular registration statement alleged to contain a falsehood or misleading omission. Section 6 of the statute indicates that a registration statement is “effective” for “only … the securities specified therein,” which is also hard to square with Mr. Pirani’s reading. Damages caps in the statute also make less sense with Mr. Pirani’s account of the statute. Collectively, these contextual clues persuade the Court that Slack’s reading of the law is the better one. While direct listings like the one here are new, the Court’s conclusion is not. The majority of courts have for years held that §11(a) liability extends only to shares that are traceable to an allegedly defective registration.

Resisting this conclusion, Mr. Pirani argues that the Court should read the phrase “such security” to include not only securities registered under a defective registration statement but also other securities that bear some sort of minimal relationship to a defective registration statement. Mr. Pirani contends that but for the existence of Slack’s registration statement for the registered shares, its unregistered shares would not have been eligible for sale to the public. But Mr. Pirani does not explain what the limits of his rule would be, how the Court might derive them from §11, or how any of this can be squared with the various contextual clues identified which suggest that liability runs with registered shares alone. Mr. Pirani argues that if Congress wanted liability under §11(a) to attach only to securities issued pursuant to a particular registration statement, it could have borrowed language from §5 to achieve that result. On its own terms, that argument also shows that Congress could have written §11(a) to explain more clearly that liability attaches to “any security” or “any security” bearing some specified relationship to a registration statement. Finally, Mr. Pirani argues that adopting a broader reading of “such security” would expand liability for falsehoods and misleading omissions and thus better accomplish the purpose of the 1933 Act. The Court cannot endorse that sort of reasoning. Nor is Mr. Pirani’s account of the law’s purpose altogether obvious; an alternate inference in the opposite direction is at least equally plausible. In any event, the Court’s function is to discern and apply existing law. The Court concludes that the better reading of §11 requires a plaintiff to plead and prove that he purchased shares traceable to the allegedly defective registration statement, and remands for the Ninth Circuit to consider that question in the first instance. Pp. 5-10.

13 F. 4th 940, vacated and remanded.

Gorsuch, J., delivered the opinion for a unanimous Court.

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