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

Background

This proposed class action concerns alleged securities fraud by View, Inc. and individuals connected to View’s Securities and Exchange Commission filings. The plaintiffs alleged that public filings between November 20, 2020, and May 17, 2021, materially misrepresented and understated warranty accruals related to View’s smart panels.

Stadium Capital LLC was appointed lead plaintiff. In the second amended complaint, the plaintiffs brought claims under Sections 14(a) and 10(b) of the Securities Exchange Act, along with related Section 20(a) claims, and sought to add David Sherman as a named plaintiff.

On April 9, 2024, the court dismissed the second amended complaint without leave to amend. It found that Stadium Capital lacked Article III standing because it sold its shares before the alleged truth about the warranty accrual was revealed. The court also concluded that Sherman could not be added because Stadium Capital did not have, and never had, standing to pursue the claims.

Motion and parties’ arguments

Stadium Capital and Sherman moved to alter or amend the judgment under Federal Rule of Civil Procedure 59(e) and for relief from the judgment under Rule 60(b). They argued that the court had committed clear error or acted through mistake or inadvertence by confusing constitutional standing with what the plaintiffs described as statutory standing. More specifically, they argued that loss causation is a merits issue requiring dismissal for failure to state a claim, not a basis for finding that Stadium Capital lacked Article III standing.

The defendants argued that the motion was procedurally improper because the plaintiffs had not raised these arguments in their opposition to the earlier motions to dismiss. The defendants also argued that the earlier dismissal order was legally correct.

Court’s analysis

The court rejected the plaintiffs’ terminology to the extent they called the issue “statutory standing.” It explained that statutory standing concerns whether a statute authorizes a plaintiff to bring a particular claim. The court had not decided whether Stadium Capital was within the class of plaintiffs authorized to sue under the Securities Exchange Act.

The court instead treated the plaintiffs’ argument as asserting that loss causation and Article III standing require different analyses. It reaffirmed that a facial challenge to standing is evaluated under the pleading standard used for a motion to dismiss. Thus, the court had not erred by applying the relevant pleading standard when assessing standing.

But the court agreed with the plaintiffs that loss causation requires a more demanding analysis than the “fairly traceable” causation requirement for Article III standing. Loss causation involves proximate cause, while Article III standing requires a plausible connection between the alleged injury and the defendants’ conduct without requiring proof of proximate cause.

The court concluded that its earlier dismissal order clearly erred, or resulted from mistake or inadvertence, because it analyzed whether the plaintiffs adequately alleged loss causation but did not separately determine whether Stadium Capital had Article III standing.

Article III standing

The second amended complaint alleged that Stadium Capital held 80,000 shares of CF II stock on January 27, 2021, the record date for voting on the proposed merger. It also alleged that Stadium Capital purchased additional shares before August 16, 2021; that View announced an investigation into the adequacy of its previously disclosed warranty accrual on August 16; and that View’s stock price fell more than 24 percent the next day.

Although Stadium Capital sold all its shares on September 24, 2021, before View’s November 9, 2021, announcement that its warranty accruals were materially misstated, the court held that the allegations were sufficient at the pleading stage to show an injury fairly traceable to the August 16 announcement. The court therefore found that Stadium Capital had Article III standing to pursue its Section 10(b) and Section 14(a) claims.

The court did not decide whether the August 16 announcement was a corrective or partial corrective disclosure for purposes of loss causation. It also did not decide whether losses on shares purchased after the January 27 record date were caused by misrepresentations in the merger proxy. The court described those as proximate-cause questions that could determine whether Stadium Capital ultimately stated a claim.

Disposition

The court granted Stadium Capital and Sherman’s motion to alter or amend the judgment under Rule 59(e) and for reconsideration under Rule 60(b). It vacated the judgment at ECF No. 201 and stated that it would issue an amended order addressing the defendants’ other arguments for dismissal. The opinion does not itself state the final disposition of those remaining dismissal arguments or the securities-fraud claims.