Stephens v. Maplebear Inc.

Background

Maplebear Inc., which the court called Instacart because it does business under that name, operates an online grocery-ordering platform. After Instacart’s stock performed poorly following its September 2023 initial public offering, investors sued Instacart, certain officers and directors, and the underwriters.

The amended complaint asserted Securities Act claims under Sections 11 and 15 against Instacart, its underwriters, and certain individual officers and directors. It also asserted Exchange Act claims under Sections 10(b) and 20(a) against Instacart, Fidji Simo, and Nick Giovanni. Plaintiffs alleged two categories of misleading statements: statements about the strength of Instacart’s brand and statements about its financial forecasts and growth.

Pleading standards

The court considered a motion to dismiss for failure to state a claim. It generally had to assume that well-pleaded factual allegations were true, but it did not have to accept conclusory allegations or unreasonable inferences.

Because the Securities Act claims relied on essentially the same allegations and challenged nearly the same statements as the Exchange Act claims, the court applied the heightened fraud-pleading requirements of Federal Rule of Civil Procedure 9(b) to the Securities Act claims as well. For the Exchange Act fraud claims, the Private Securities Litigation Reform Act also required a strong inference that defendants acted with scienter, meaning knowledge of falsity or reckless disregard for the truth.

False or misleading statements

The court held that plaintiffs had not adequately pleaded falsity. For the brand-related statements, plaintiffs relied largely on allegations from a confidential witness who monitored brand-awareness studies during 2021 and 2022 and concluded that an advertising campaign had failed. The court held that these allegations did not show the state of Instacart’s brand when the challenged statements were made at the September 2023 initial public offering. The complaint did not provide contemporaneous allegations about brand-awareness trends in 2023 or the weeks before the offering.

The court also held that plaintiffs had not shown that the challenged growth and forecasting statements were actionable. Many statements were general observations, backward-looking descriptions, explanations of business needs, or descriptions of seasonality rather than forecasts. The statements that estimates might be inaccurate did not imply that Instacart had used a sophisticated forecasting process. The court found that the statements predicting that pandemic-era growth would not recur and that certain effects might continue were basic observations, not detailed forecasts implying a misleading forecasting process. A statement predicting a 10% to 18% compound annual growth rate was made before the proposed class period and therefore was not actionable in this case.

The court separately concluded that certain brand and marketing statements were opinions because they used terms such as “believe.” Plaintiffs relied on an omission theory, but the court held that they had not explained why Instacart’s optimism was misleading or adequately alleged what investigation executives did or did not conduct before the offering.

The court also held that many brand and marketing statements were nonactionable puffery. Puffery means vague, optimistic language that cannot be objectively verified. Examples included describing Instacart as a leading grocery technology company, discussing a significant opportunity for growth, and calling the company stronger than it had been in 2021. The court stated that plaintiffs had not adequately alleged that Instacart’s brand was performing poorly or that the statements created a misleading impression about its forecasting process.

Forward-looking statements

The court held that the “bespeaks caution” doctrine protected almost all of the challenged forward-looking statements. That doctrine can protect predictions when they include meaningful warnings directly related to the alleged risk of deception. Instacart’s offering materials warned that its market estimates and growth forecasts could be inaccurate, were based on uncertain assumptions, and should not be treated as indicators of future growth. The materials also warned that failure to maintain or enhance the brand and increase market acceptance could harm the business.

The court did not apply that protection to the statement made at the initial public offering roadshow because the record did not indicate that the prospectus’s cautionary language was provided there. The court nevertheless found that the roadshow statement was outside the proposed class period.

Scienter and loss causation

The court held that plaintiffs had not pleaded a strong inference of scienter for the brand and marketing statements. The confidential witness’s reports to management occurred well before the offering, and the witness left the company about six months before it. The court also rejected generalized arguments based on management’s access to information. Stock sales identified by plaintiffs were nondiscretionary sales to cover tax obligations, which the court held did not support scienter. Plaintiffs made no meaningful argument that they had established scienter for the forecasting statements.

For the Section 10(b) claims, the court held that plaintiffs had not pleaded loss causation, meaning a connection between the alleged misstatement and the claimed loss. Plaintiffs attributed their losses to a stock-price decline between September 22 and October 2, 2023, but the complaint did not connect that decline to disclosures about poor brand performance or forecasting. The analyst reports instead cited competition, slower online-grocery growth, structural barriers to adoption, and the risk that customers would choose companies offering more services or better value.

The court declined to dismiss the Section 11 claims based on negative causation. Negative causation is an affirmative defense asserting that something other than the alleged misstatement caused the loss. The court held that the allegations did not establish that defense on the face of the complaint, but the Section 11 claims still failed because plaintiffs had not adequately pleaded the required primary securities-law violation.

Secondary-liability claims and disposition

Sections 20(a) and 15 impose secondary liability that depends on a primary violation under Sections 10(b) and 11, respectively. Because plaintiffs failed to plead the primary claims, the court held that the Section 20(a) and 15 claims also failed.

Judge Edward J. Davila granted defendants’ motion to dismiss all claims. The court allowed plaintiffs to file an amended complaint addressing the identified deficiencies within 30 days of the order. It also ordered the parties to file a stipulated schedule or joint statement with competing schedules within 14 days.