In re Eventbrite, Inc. Securities Litigation

Background

This putative class action was brought by Michael Gomes, Melvin Pastores, Mohit Uppal, and Bruce Bones, who purchased Eventbrite securities during the company’s September 2018 initial public offering. The complaint asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, Sections 11 and 15 of the Securities Act of 1933, and Item 303 of Securities and Exchange Commission Regulation S-K.

The plaintiffs alleged that Eventbrite and the individual and underwriter defendants made misleading statements and concealed known risks concerning Eventbrite’s 2017 acquisition of Ticketfly. They alleged that Eventbrite’s platform lacked important Ticketfly features, that customer migration was difficult, and that the integration created material risks for the company. The complaint identified seven allegedly misleading statements in Eventbrite’s registration statement, annual report, shareholder materials, and earnings calls.

Rule 12(b)(6) Standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the complaint failed to satisfy the heightened pleading requirements for securities-fraud claims. The court explained that the complaint had to state a plausible claim and, under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act, identify each misleading statement, explain specifically why it was false or misleading when made, and plead particular facts supporting a strong inference of the required wrongful state of mind.

The court also took judicial notice of, and considered under the incorporation-by-reference doctrine, publicly available documents that the complaint repeatedly cited, including Eventbrite’s registration statement, annual report, shareholder letters, earnings-call transcripts, and analyst reports. The court stated that these materials had to be considered in context and that judicial notice could not be used to contradict a well-pleaded fact merely to create a factual dispute.

Section 10(b) and Rule 10b-5 Claims

The court held that the plaintiffs failed to plead falsity for all seven challenged statements.

For Statements 1 and 2, which described Eventbrite’s ability to integrate and migrate creators from acquired platforms, the court found that the statements did not promise that Eventbrite would incorporate particular Ticketfly features. The plaintiffs did not identify which key features Eventbrite could not integrate, did not provide specific facts showing how the alleged costs and timing caused material adverse effects, and did not provide a contemporaneous benchmark showing that the integration was delayed. The court also noted that Eventbrite had disclosed risks involving customer migration, integration difficulties, and failure to timely integrate acquired companies.

For Statements 3 and 5, concerning Eventbrite Music, the court found that the statements did not mention Ticketfly or claim that Eventbrite Music was superior or comparable to Ticketfly. The plaintiffs therefore failed to connect their allegations about Ticketfly’s features to the substance of those statements.

For Statement 4, concerning typical customer losses during migration, the court found that the plaintiffs did not plead particular facts showing atypical or material customer losses at the relevant point in the migration process. Allegations about one former employee’s difficulty migrating customers did not provide enough context or measurable information.

For Statement 6, concerning reasons customers might not migrate after an acquisition, the court found that the statement did not misleadingly deny customer dissatisfaction. The statement acknowledged a mix of reasons and said there was no single overwhelming factor. The plaintiffs also failed to plead sufficient facts showing why or how customers were dissatisfied with Eventbrite’s platform.

For Statement 7, concerning delivering the “full power” of Eventbrite and Ticketfly to music venues and promoters, the court found that the statement was vague corporate optimism, or “puffery,” rather than an objectively verifiable representation on which a reasonable investor would rely.

Because the falsity allegations failed, the court did not address the defendants’ separate arguments concerning scienter, meaning the required wrongful state of mind, or loss causation, meaning the connection between the alleged misstatement and the investors’ losses. The court granted the motion to dismiss the Section 10(b) and Rule 10b-5 claims.

Section 11 Claim

The plaintiffs challenged Statement 1 under Section 11, which concerns material misrepresentations or omissions in a registration statement. The court held that the Section 11 claim was based on the same alleged fraudulent course of conduct as the Exchange Act claims and therefore “sounded in fraud,” making Rule 9(b)’s particularity requirement applicable. Because Statement 1 was not pleaded with sufficient particularity, the court granted the motion to dismiss the Section 11 claim.

Item 303 Claim

Item 303 requires disclosure of known trends or uncertainties reasonably expected to have a material effect on a company’s financial condition or results. The plaintiffs alleged that Eventbrite had to disclose the problems with the Ticketfly migration.

The court held that Eventbrite had disclosed the relevant risks. The registration statement warned that customers of acquired companies might not migrate or might reduce their usage, that Eventbrite had experienced customer losses during integrations, and that migration success could be affected by product development, operational support, and other business practices. The court found that the disclosure specifically identified Ticketfly and adequately addressed the risks at issue. It granted the motion to dismiss the Item 303 claim.

Sections 15 and 20(a) Claims

The court explained that the Section 15 Securities Act claim and Section 20(a) Exchange Act claim depended on an underlying primary securities-law violation. Because the plaintiffs’ primary securities claims failed, the court held that the Section 15 and Section 20(a) claims also failed.

Disposition

The court granted defendants’ motion to dismiss the plaintiffs’ complaint in its entirety, with leave to amend. The court stated that the plaintiffs could file an amended complaint by June 24, 2020, to allege more particular facts supporting their theory of falsity. It stated that failure to amend, or failure to cure the deficiencies identified in the order, would result in dismissal with prejudice. The plaintiffs could not add new claims or parties without the court’s permission or the parties’ stipulation.