Wang v. Zymergen Inc.

Background

Biao Wang is the lead plaintiff in a proposed class action alleging securities fraud related to Zymergen Inc.’s April 2021 initial public offering. Wang alleges that Zymergen’s registration statement made false statements or omitted important facts about the company’s business projections and product pipeline.

After Zymergen disclosed problems with its commercial product pipeline, its expected revenue, and its chief executive officer’s departure, its stock price fell from $26.58 per share to $8.25 per share the next day. Zymergen later announced layoffs, discontinued a product, and disclosed an investigation by the Securities and Exchange Commission. The opinion also states that Zymergen later merged into Ginkgo Bioworks Holdings, Inc. and filed for Chapter 11 bankruptcy.

The case includes claims under Sections 11 and 15 of the Securities Act. The relevant defendants include funds associated with DCVC, True Ventures, and SoftBank, as well as their management companies. In an earlier order, the court denied motions to dismiss the Section 11 claim and granted them as to the Section 15 claim, with leave to amend. After Wang received permission to file a second amended complaint, the fund defendants argued that the claims against them were barred by the statute of limitations.

The court previously rejected that defense in the relevant part of the case. It held that claims against the funds related back to the earlier complaint because the funds remained parties when the court had not entered a final judgment as to them. It also held that Wang had plausibly alleged that claims against the management companies could relate back under Federal Rule of Civil Procedure 15(c)(1)(C), which applies to certain claims added by amendment. The court granted DCVC’s motion in part as to some claims involving alleged control of Mr. Ocko and respondeat superior liability, with leave to amend, and otherwise denied the motions to dismiss by DCVC, SoftBank, and True Ventures.

Request for Immediate Appeal

The defendants asked the court to certify its earlier order for interlocutory appeal under 28 U.S.C. § 1292(b). An interlocutory appeal is an appeal before the case has ended in a final judgment. Certification requires a controlling legal question, substantial disagreement about the answer to that question, and a finding that an immediate appeal may materially advance the end of the litigation.

The defendants proposed two questions:

1. Whether the timeliness of claims against a previously dismissed defendant should be evaluated under Rule 15(c)(1)(B), concerning claims arising from the same conduct, transaction, or occurrence, or under Rule 15(c)(1)(C), concerning a party brought into the case by amendment. 2. Whether Rule 15(c)(1)(C) permits claims against a newly added defendant to relate back to an earlier complaint when the earlier complaint’s failure to name that defendant was a mistake.

Analysis

The court agreed that the first question was a pure question of law. But it concluded that an immediate appeal would have only a minimal effect on the case because the litigation would continue against Zymergen, other defendants, the management companies, and board members associated with the funds even if the funds prevailed on appeal.

The court also found no substantial ground for disagreement about the first question. According to the opinion, every federal circuit court that had considered the issue had adopted the same general position as this court: a dismissal that is not a final judgment does not end the action as to the affected party under Rule 54(b). The defendants identified two district court decisions, but the court found that those decisions did not address the specific interaction between Rule 15(c)(1)(B), Rule 15(c)(1)(C), and Rule 54(b).

The court further concluded that an appeal on the first question would not materially advance the litigation. The claims against the funds overlapped with claims against other defendants, and the management companies and related individuals would remain in the case. The court stated that judicial efficiency would be better served by litigating the claims together and allowing an appeal after a final judgment against the funds, if one were entered.

The court rejected certification of the second question for a separate reason. In their motions to dismiss, the defendants had accepted that Rule 15(c)(1)(C) applied to newly added defendants. They argued instead that Wang had not satisfied the rule’s requirements. Because the defendants had not previously argued that the rule could never apply under the asserted mistake theory, the court held that certification of that question was improper.

Disposition

Judge P. Casey Pitts denied defendants’ motion to certify the earlier order for interlocutory appeal. The opinion does not resolve the underlying securities-fraud claims in this order.