In re 360 DigiTech, Inc. Securities Litigation

Background

Defendant 360 DigiTech, Inc. (called “Digitech” in the order), the only defendant to appear to date, moved to dismiss the amended consolidated class-action complaint. The plaintiffs moved to strike certain exhibits submitted with Digitech’s dismissal motion. The court held oral argument on July 25, 2022.

The opinion describes Digitech as a Chinese company that trades in the United States through American depositary shares and provides financial services to borrowers and lenders, partly through a downloadable application. The plaintiffs alleged that Digitech made a series of misrepresentations about its compliance with regulations governing collection of user data.

Court’s reasoning

The court considered the dismissal motion under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim. It found the allegations insufficient because the alleged misrepresentations were either “puffery,” meaning vague promotional statements, or were not pleaded with enough detail to show what was false.

The court stated that the plaintiffs had not alleged that Digitech’s practices violated Chinese law in effect before May 1, 2021, identified which specific laws applied before that date, or described the specific acts or practices that violated those laws. The court also noted that Chinese data-collection laws and regulations were continually changing before and during the class period, with enforcement becoming increasingly strict. It concluded that Digitech adequately disclosed that regulatory landscape and its related risks, so a reasonable investor could not have been misled.

The court said it had not ruled on other issues raised in the briefs. It commented, however, that the pleading needed more information about scienter, the requirement to allege with particularity that defendants acted knowingly or recklessly, especially as to the individual defendants. It also said the plaintiffs would need to plead loss causation adequately by distinguishing the alleged loss from general market fluctuations affecting the industry or the broader market.

Rulings and next steps

The court granted the motion to strike docket entries 47-5, 47-9 through 47-12, and 47-16 through 47-23, for the reasons stated at oral argument. It explained that, when deciding a Rule 12(b)(6) motion, the court generally may not consider documents outside the pleadings.

Judge Alvin K. Hellerstein granted the motion to strike and granted the motion to dismiss. The plaintiffs were granted leave to replead, with any amended complaint due by September 26, 2022. The Clerk was directed to terminate ECF Nos. 45 and 50. The order does not state that the dismissal was with prejudice or without prejudice.