Brown v. Opera Limited

Background

Lilian Lau and Leon M. Brown, who purchased American Depository Shares of Opera Limited, brought a proposed class action against Opera, individual directors and officers, and the financial institutions that underwrote Opera’s initial public offering. They alleged that the defendants made material misstatements or omissions concerning Opera’s browser market share, user growth, and entry into the financial-technology market.

The complaint asserted claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 11 of the Securities Act, and control-person claims under Sections 15 and 20(a). The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Market-share allegations

The plaintiffs alleged that Opera’s market share declined even though its IPO materials described its browsers as market leaders and reported increases in monthly active users. The court held that the plaintiffs did not adequately plead a disclosure violation under Item 303 of Regulation S-K because Opera’s revenue and net income increased, and declining market share did not necessarily indicate a likely decline in revenue in rapidly growing markets.

The court also noted that the challenged statements referred investors to StatCounter, where the market-share data was publicly available. It held that the market-leader and growth statements were general corporate optimism, or “puffery,” and that the more specific statements were not materially misleading because investors were directed to the underlying data. The court treated the statements made during analyst calls about nearly 50% market share in Nigeria as potentially factually inaccurate, but held that the plaintiffs did not adequately plead the required fraudulent intent, known as scienter.

Fintech allegations

The plaintiffs alleged that Opera had entered, or planned imminently to enter, the fintech market through its relationship with Opay and should have disclosed that development in its IPO materials. The court held that the plaintiffs did not plausibly allege that Opay was Opera’s subsidiary or that Opera itself had entered the fintech business before its IPO. Opera had disclosed its minority interest in Opay, loans to Opay, a services agreement, and its expectation that it would continue investing in Opay.

The court further held that the plaintiffs did not adequately allege a duty to disclose future fintech plans. Opera acquired OKash after the IPO, and the court stated that later events could not have been disclosed in the IPO materials. The court also concluded that Opera disclosed relevant risks in its later secondary-offering materials, including risks involving regulation and Google Play’s possible failure to provide services.

Section 10(b) claims

The court held that the Section 10(b) and Rule 10b-5 claims failed for several reasons. Apart from the possible factual dispute concerning the analyst-call statements, the plaintiffs did not adequately plead a material misstatement or omission. For the analyst-call statements, the plaintiffs did not plead particular facts supporting a strong inference that the speaker acted knowingly or recklessly.

The court also rejected the plaintiffs’ reliance on other litigation involving Opera’s chief executive officer. Because that other case had not been decided on the merits, its unproven allegations did not support scienter here. The court likewise held that related-party transactions did not establish a motive to commit fraud because the plaintiffs did not allege a specific connection between the alleged fraud and a concrete personal benefit to the defendants.

The court separately held that the plaintiffs did not adequately plead loss causation—the required connection between the alleged misconduct and their economic loss. The Hindenburg Research report cited and analyzed publicly available StatCounter information, and Opera had directed investors to that information. The report therefore could not serve as a corrective disclosure revealing previously undisclosed facts. The court reached the same conclusion concerning the fintech allegations because Opera had disclosed its acquisition of OKash before the report was published.

Section 11 claims

The court held that the Section 11 claims failed because the plaintiffs had not adequately alleged material misstatements or omissions, and because the claims were untimely and the alleged misstatements could not have caused the claimed losses. The IPO statements were made in June and July 2018, while the action was filed in January 2020. Because the statements referred investors to StatCounter, the court held that a reasonably diligent plaintiff should have discovered the alleged market-share problem when the statements were made or soon afterward.

The court also held that Lau lacked standing to pursue the Section 11 claims. Lau purchased Opera shares in November 2019 and did not allege that those shares could be traced to the IPO or secondary offering. The court stated that Brown’s standing was not disputed and that the ruling concerning Lau did not affect Brown’s standing.

Control-person claims and disposition

The court dismissed the Section 15 and Section 20(a) control-person claims because those claims require an underlying violation, and the plaintiffs’ Section 10(b) and Section 11 claims failed.

The court granted the defendants’ motion to dismiss. It allowed the plaintiffs to file a Second Amended Complaint by April 16, 2021, and directed the clerk to close the docket entry for the motion. The opinion does not state that the dismissal was with or without prejudice.