On June 23, 2025, Judge Araceli Martínez-Olguín of the Northern District of California granted a motion to dismiss a consolidated securities class action brought against a footwear and apparel company (the "Company") and certain of its officers, directors, and underwriters. Shnayder v. Allbirds, Inc., No. 23-cv-01811 (N.D. Cal. June 23, 2025). Plaintiffs asserted claims under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that defendants made false or misleading statements in connection with the Company's initial public offering ("IPO") and in subsequent public disclosures. The Court dismissed the Securities Act claims for lack of statutory standing, holding that plaintiffs did not sufficiently allege their shares were directly traceable to the IPO, and also dismissed the Exchange Act claims, holding that plaintiffs failed to adequately plead scienter.
Plaintiffs alleged defendants made false or misleading statements and omissions related to the Company's (i) investment in new product offerings, (ii) expansion of its retail store fleet, and (iii) commitment to its brand awareness.
The Court first dismissed the Securities Act claims, holding that plaintiffs failed to sufficiently allege statutory standing in light of the Supreme Court's decision in Slack Technologies, LLC v. Pirani. Plaintiffs alleged that they purchased Company stock "pursuant and/or traceable to" the IPO registration statement, claiming that the Company issued shares in a single offering under one registration statement. The Court held that was "[n]ot so" because the registration statement provided that employees could sell a certain amount of their shares beginning on the first day of trading of the IPO shares, thus commingling IPO shares with pre-existing shares. The Court thus held that plaintiffs "may not rely on a cursory allegation that their stock is 'traceable'" to the IPO registration statement, but granted leave to amend if plaintiffs could "in good faith add allegations that their shares are directly traceable" to the registration statement.
The Court next dismissed the Exchange Act claims, holding that plaintiffs failed to sufficiently allege a strong inference of scienter. In so holding, the Court rejected plaintiffs' allegations based on the "core operations" theory. The Court found that even if defendants were very "hands on and controlling" such that "they were aware of the major swifts in a strategy that ended up failing, that is not enough." The Court similarly found unpersuasive allegations regarding defendants' acknowledgement of the missteps, stating that it "does not support an inference that they acted with intent to defraud" and that management "simply may have been confident that they could overcome the problems or merely underestimated the severity of such problems." The Court further found plaintiffs' reliance on alleged confidential witness statements was "misplaced," noting that allegations "that executives were mismanaging [the Company], that they were presented with data showing their anticipated path forward would lead to failure, or that they were making mistakes by reducing spending on brand marketing and core products in favor of other approaches do not, without more, plausibly suggest that [defendants] adopted employees' views and moved forward believing that failure would be the inevitable end result of continuing down the path employees were cautioning against." The Court also found that allegations about "personnel changes, unaccompanied by additional allegations of wrongdoing, are insufficient." Finally, the Court found plaintiffs' allegations regarding stock sales by two defendants to be insufficient where there were no alleged sales by the third individual defendant, and the allegations concerning defendants' compensation did not plausibly suggest a significant enough correlation between financial results and compensation to support a strong inference of scienter. Accordingly, taking the allegations as a whole, the Court held that plaintiffs failed to sufficiently plead a strong inference of scienter and dismissed the Exchange Act claims with leave to amend.
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