Mehedi v. View, Inc. f/k/a CF Finance Acquisition Corp. II

Background

This was a proposed securities-fraud class action against View, Inc., individuals connected to View and CF Finance Acquisition Corp. II, and entities related to CF II. View manufactures smart-building products, including smart glass panels. View became publicly traded through a merger with CF II on March 8, 2021.

The second amended complaint alleged that defendants made materially false or misleading statements about warranty accruals and related financial information. After View announced in August 2021 that its Audit Committee had begun investigating the adequacy of the company’s warranty accrual, View’s stock price fell. In November 2021, View announced that previously reported warranty-related liabilities and costs had been materially misstated. View later reported larger warranty-related accruals and filed restated financial information.

The plaintiffs asserted four claims: a claim under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5; a claim under Section 14(a) and Rule 14a-9 concerning proxy materials; and two control-person claims under Section 20(a) connected to those underlying claims. Stadium Capital was the lead plaintiff. The second amended complaint also named David Sherman as a plaintiff.

Judicial Notice

The court granted defendants’ request to take judicial notice of View Exhibits 1 through 16 and granted plaintiffs’ request concerning their Exhibit 1. The court also granted plaintiffs’ request concerning a supplemental exhibit containing a derivative complaint, but denied the request to consider factual contents of that exhibit, including the alleged contents of a due-diligence presentation.

Section 10(b) Claim

A securities-fraud claim under Section 10(b) requires, among other things, a material misstatement or omission, the required wrongful state of mind, reliance, economic loss, and loss causation. Loss causation means a causal connection between the alleged misstatement and the plaintiff’s loss.

The court addressed loss causation rather than defendants’ arguments about the required state of mind. Stadium Capital owned View stock when View announced the investigation in August 2021, but sold all of its shares by September 24, 2021. View did not announce that its warranty-related liabilities had been materially misstated until November 9, 2021.

The court concluded that Stadium Capital could not attribute its losses to the August investigation announcement because it sold its shares before the underlying truth was revealed. The court held that Stadium Capital therefore was not injured by the alleged misrepresentations, lacked standing to pursue the Section 10(b) claim, and never had standing to bring it. The court granted defendants’ motions to dismiss that claim and found it unnecessary to address defendants’ scienter arguments.

Section 14(a) Claim

The court reached the same standing conclusion for the proxy-related Section 14(a) claim. Stadium Capital held 80,000 CF II shares on the January 27, 2021 record date for the merger vote, but sold those shares on March 9, 2021, before the alleged misstatements were revealed. Although Stadium Capital later purchased View stock, those purchases occurred after the proxy solicitation and therefore could not have been harmed by the proxy statement.

The court held that Stadium Capital did not have and never had standing for the Section 14(a) claim. It therefore granted defendants’ motions to dismiss that claim without addressing arguments concerning transaction causation, negligence, solicitation, or Delaware-law exculpation.

Section 20(a) Claims

Section 20(a) claims require an underlying primary violation of the securities laws. Because Stadium Capital lacked standing to pursue the Section 10(b) and Section 14(a) claims, the court held that it also lacked standing to pursue the related Section 20(a) claims. The court granted defendants’ motions to dismiss the Section 20(a) claims.

Adding David Sherman

The court considered whether Sherman could be added to cure Stadium Capital’s lack of standing. The opinion states that Sherman purchased 1,000 shares of then-CF II stock on January 22, 2021, and that the records reviewed by the court did not show him selling those shares during the class period.

The court held that the issue was not whether adding a plaintiff generally would bypass the Private Securities Litigation Reform Act’s lead-plaintiff requirements. Instead, the controlling issue was that Stadium Capital, the existing lead plaintiff, never had standing and was never a member of the class it purported to represent. Relying on Ninth Circuit precedent, the court held that a new plaintiff could not be added to save an action when the sole named plaintiff never had standing. The court also held that the prior leave to amend allowed amendment of the claims but did not authorize adding another plaintiff, and that amendment or intervention could not cure Stadium Capital’s lack of standing.

Disposition

The court dismissed the case because Stadium Capital lacked standing to pursue any of the claims and Sherman could not be added to cure that defect. Judge Beth Labson Freeman ordered the following: