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Curry v. Yelp Inc.

United States Court of Appeals, Ninth Circuit

November 21, 2017

Joseph Curry, Individually and on Behalf of All Others Similarly Situated; City of Miami Fire Fighters' and Police Officers' Retirement Trust, Plaintiffs-Appellants,
v.
Yelp Inc.; Jeremy Stoppelman; Robert J. Krolik; Geoffrey Donaker, Defendants-Appellees, and Mary Adams, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
v.
Dru L. Pio, Movant.

          Argued and Submitted September 11, 2017 San Francisco, California

         Appeal from the United States District Court for the Northern District of California D.C. No. 3:14-cv-03547-JST Jon S. Tigar, District Judge, Presiding

          Andrew S. Love (argued), Kenneth J. Black, Shawn A. Williams, and Susan K. Alexander, Robbins Geller Rudman & Dowd LLP, San Francisco, California; Stephen H. Cypen, Cypen & Cypen, Miami Beach, Florida; for Plaintiffs-Appellants.

          Gilbert R. Serota (argued) and Daniel M. Pastor, Arnold & Porter LLP, San Francisco, California, for Defendants-Appellees.

          Before: Ronald M. Gould and Paul J. Watford, Circuit Judges, and W. Louis Sands, [*] District Judge.

         SUMMARY[**]

         Securities Fraud

         The panel affirmed the district court's dismissal, for failure to state a claim, of a securities fraud action brought against Yelp, Inc., and other defendants, alleging the falsity of statements regarding the independence and authenticity of posted Yelp reviews.

         The panel held that the plaintiffs did not adequately plead loss causation because the disclosure of consumer complaints, without more, did not form a sufficient basis for a viable loss causation theory. The panel also held that allegations of suspicious insider sales of stock without allegations of historical trading data did not create a strong inference of scienter. The panel affirmed the district court's dismissal with prejudice because amendment of the complaint as to loss causation would be futile.

          OPINION

          GOULD, Circuit Judge.

         Plaintiffs Joseph Curry, individually and on behalf of all others similarly situated, and Miami Fire Fighters' and Police Officers' Retirement Trust appeal the district court's dismissal with prejudice of Plaintiffs' securities fraud complaint for failure to state a claim. Plaintiffs argue that the district court erred by holding that they did not adequately plead falsity, materiality, loss causation, and scienter. Plaintiffs further argue that the district court erred by dismissing their control person claim and by denying them leave to amend. We hold that the disclosure of consumer complaints, without more, in the circumstances of this case did not form a sufficient basis for a viable loss causation theory. We further hold that allegations of suspicious insider sales of stock without allegations of historical trading data did not, in the circumstances here, create a strong inference of scienter. We affirm the district court's dismissal of the complaint based on the elements of loss causation and scienter that were not sufficiently pled. We need not reach and do not reach Plaintiffs' arguments regarding materiality and falsity. We also affirm the district court's dismissal of the complaint with prejudice because amendment of the complaint as to loss causation would be futile under current precedent.

         I

         Yelp Inc. ("Yelp") is a publicly traded company that generates revenue by selling advertising to businesses on its website. During the period from October 29, 2013 to April 3, 2014 (the "Class Period") Defendants[1] consistently stated that the reviews generated on Yelp's website were "firsthand" and "authentic" information from contributors about local businesses. On April 2, 2014, pursuant to a Wall Street Journal ("WSJ") Freedom of Information Act request, the Federal Trade Commission ("FTC") disclosed more than 2, 000 complaints from businesses claiming that Yelp had manipulated reviews of their services. Some complaints alleged that Yelp salespersons would remove good reviews or promote bad reviews when businesses did not agree to advertise with them. Other complaints reported that bad reviews were suppressed for companies that advertised with Yelp. That afternoon, after the market had closed, the WSJ released an article citing the FTC's disclosure and noting that Yelp's stock had declined 6% after the FTC made its disclosure of these complaints.

         A

         Plaintiffs sued Defendants alleging that Yelp's statements regarding the independence and authenticity of posted reviews were materially false; that Defendants knew the statements were false; and that the revelation of their falsity through FTC disclosures and news articles caused a drop in Plaintiffs' stock value. The district court consolidated two cases ...


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