Wang v. Zymergen Inc.

Background

Biao Wang, the lead plaintiff, moved for leave to file a second amended class-action complaint. The operative complaint included a claim under Section 11 of the Securities Act against Zymergen Inc., individual defendants, and underwriter defendants. It also included a claim under Section 15 against individual defendants and groups of controlling stockholders associated with SoftBank, DCVC, and True Ventures.

The court had dismissed the Section 15 claim on November 29, 2022, because the complaint did not sufficiently allege that the controlling stockholders acted together. The dismissal allowed amendment and specifically contemplated that plaintiffs could later seek leave to amend if discovery produced additional relevant information. Plaintiffs did not amend within the initial 28-day period. The court later set December 21, 2023, as the deadline to amend pleadings, and Wang filed his motion by that deadline.

The proposed second amended complaint would replead the Section 15 claims against the three groups of controlling stockholders and add claims against investment management companies for the three groups of funds. The underwriter defendants did not oppose the motion. Individual defendants opposed it, and the controlling stockholders moved to intervene for the limited purpose of opposing the request to amend. The court granted those intervention motions and considered their opposition briefs.

Legal standard

Under Federal Rule of Civil Procedure 15, a party generally needs the opposing party’s written consent or the court’s permission to amend a pleading after the period for amendment as a matter of course. The rule directs courts to grant permission freely when justice requires. The court considered undue delay, bad faith or an improper motive, repeated failure to correct deficiencies, undue prejudice, and futility. Prejudice to the opposing party carries the most weight.

Analysis

The court concluded that the opposing parties had not shown the delay, bad faith, or prejudice necessary to deny leave under Rule 15. Wang’s counsel reported that plaintiffs had received more than 1.6 million pages of discovery, including substantial productions after June 6, 2023, and November 23, 2023. The court found no indication that Wang unreasonably delayed seeking amendment in December 2023, particularly because discovery was ongoing and the court’s earlier order had contemplated a later effort to reassert the Section 15 claims.

The court also rejected the argument that the need for another motion to dismiss constituted the relevant type of delay. Some opposing parties suggested that Wang sought to add defendants to increase leverage or improve the chance of financial recovery. The court said that considering potential defendants’ ability to pay was permissible and found no indication of bad faith.

The opposing parties identified the cost of briefing a motion to dismiss, the need to review existing discovery, the time remaining before the discovery cutoff, and the fact that a class had already been certified. The court held that defending against new claims, reviewing discovery, and addressing hypothetical discovery problems did not establish undue prejudice. It also noted that the parties could later seek to modify the schedule for good cause if specific discovery problems arose.

The defendants also challenged the merits of the proposed claims and argued that amendment would be futile. The court did not decide those merits arguments. It stated that they would be better addressed through a fully briefed motion to dismiss the second amended complaint.

Disposition

Judge P. Casey Pitts granted Wang’s motion for leave to amend. The proposed second amended class-action complaint was deemed filed as of February 26, 2024, and Wang was ordered to refile it as a separate public-docket entry within seven days. The court vacated the February 29 hearing and case-management conference. The parties were ordered to meet and confer and file an updated joint case-management statement by March 29, 2024, addressing the case schedule, possible motions to dismiss, and discovery deadlines.