Weston Family Partnership Lllp v. Twitter, Inc. ( 2022 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
WESTON FAMILY PARTNERSHIP No. 20-17465
LLLP; THE TWITTER INVESTOR
GROUP, D.C. No.
Plaintiffs-Appellants, 4:19-cv-07149-
YGR
and
KHAN M. HASAN; KHAFRE OPINION
BARCLIFT,
Plaintiffs,
v.
TWITTER, INC.; JACK DORSEY; NED
SEGAL,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Yvonne Gonzalez Rogers, District Judge, Presiding
Argued and Submitted November 10, 2021
Pasadena, California
Filed March 23, 2022
2 WESTON FAMILY PARTNERSHIP V. TWITTER
Before: Daniel P. Collins and Kenneth K. Lee, Circuit
Judges, and Jill A. Otake, * District Judge.
Opinion by Judge Lee
SUMMARY **
Securities Fraud
The panel affirmed the district court’s dismissal of a
securities fraud lawsuit under §§ 10(b) and 20(a) of the
Securities Exchange Act and Rule 10b-5, alleging that
Twitter, Inc., misled investors by hiding the scope of
software bugs that hampered its advertisement
customization.
Twitter shares users’ cell phone location data with
companies that pay more for ads tailored to certain users, but
it permits users to opt out of such data-sharing. In May 2019,
Twitter announced that it had discovered software bugs that
caused sharing of cell phone location data of its users, but it
told its users that it had fixed the problems. In August 2019,
Twitter announced that it had again accidentally shared user
data with advertisers, even for those who had opted out, but
it had “fixed these issues.” Twitter had not resolved the
software bugs, but instead had stopped sharing user data
altogether for its Mobile App Promotion advertising
*
The Honorable Jill A. Otake, United States District Judge for the
District of Hawaii, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WESTON FAMILY PARTNERSHIP V. TWITTER 3
program, resulting in a drop in revenue. In October 2019,
Twitter disclosed the software bugs and reported a revenue
shortfall, and its share price dropped.
The panel held that it had jurisdiction because plaintiffs
appealed a non-final order dismissing with leave to amend,
but the district court ultimately issued a final order and thus
cured the premature notice of appeal under Federal Rule of
Appellate Procedure 4(a)(2).
The panel held that plaintiffs’ complaint failed to state a
claim under § 10(b) because Twitter’s statements were not
false or materially misleading. The panel held that the
securities laws do not require real-time business updates or
complete disclosure of all material information whenever a
company speaks on a particular topic. To the contrary, a
company can speak selectively about its business so long as
its statements do not paint a misleading picture. The panel
held that Twitter’s statements about its advertising program
were not false or misleading because they were qualified and
factually true, and the company had no duty to disclose more
than it did under federal securities law. Specifically,
securities laws did not require Twitter to provide real-time
updates about the progress of its Mobile App Promotion
program. Further, plaintiffs did not plausibly or with
particularity allege that the software bugs disclosed in
August had materialized and affected revenue in July. In
addition, Twitter’s July 2019 statements fell within the
Exchange Act’s safe harbor provision for forward-looking
statements.
4 WESTON FAMILY PARTNERSHIP V. TWITTER
COUNSEL
Tamar Weinrib (argued) and Jeremy A. Lieberman,
Pomerantz LLP, New York, New York; Jeffrey P. Campisi,
Robert N. Kaplan, and Jason A. Uris, Kaplan Fox &
Kilsheimer LLP, New York, New York; Laurence D. King
and Mario M. Choi, Kaplan Fox & Kilsheimer LLP,
Oakland, California; Shannon L. Hopkins and Andrew E.
Lencyk, Levi & Korinsky LLP, Stamford, Connecticut; for
Plaintiffs-Appellants.
Susan E. Engel (argued), Andrew B. Clubok, and Matthew
Peters, Latham & Watkins LLP, Washington, D.C.;
Michele D. Johnson, Latham & Watkins LLP, Costa Mesa,
California; Elizabeth L. Deeley and Nicholas Rosellini,
Latham & Watkins LLP, San Francisco, California; for
Defendants-Appellees.
OPINION
LEE, Circuit Judge:
Every day, millions of people use Twitter to share and
read news, offer (often horrendous) hot takes, and fire off
mean tweets. Twitter, in turn, mines the personal data of its
users to better target advertisements. In August 2019,
Twitter revealed that it had inadvertently shared with
advertisers the personal data of users who had opted out of
data-sharing, but it reassured its users that it had “fixed these
issues.” A few months later during its quarterly earnings
announcement, Twitter disclosed that software bugs had
hampered its advertisement customization and that it had
suffered a $25 million revenue shortfall. The plaintiffs then
filed this securities fraud lawsuit, alleging that Twitter had
WESTON FAMILY PARTNERSHIP V. TWITTER 5
misled investors by hiding the scope of its software bugs
when it touted its latest advertisement initiative.
Securities laws, however, do not require real-time
business updates or complete disclosure of all material
information whenever a company speaks on a particular
topic. To the contrary, a company can speak selectively
about its business so long as its statements do not paint a
misleading picture. Twitter’s statements about its
advertising program were not false or misleading because
they were qualified and factually true. The company had no
duty to disclose any more than it did under federal securities
law. We thus affirm the district court’s dismissal of the
lawsuit.
BACKGROUND 1
Twitter operates a social media platform that allows
people to share short 280-character messages to the public.
Like most social media outlets, Twitter does not charge its
users but rather earns money through advertising. Twitter
shares certain user data—e.g., cell phone location data—
with companies that pay more for ads tailored to certain
users. But because of privacy concerns, Twitter has
permitted users to opt out of such data-sharing since 2017.
At issue is Twitter’s Mobile App Promotion (“MAP”)
product, which allows advertisers to prompt users to
download their apps onto their phones or tablets. MAP is
most effective when an advertiser knows information about
the user’s device settings, such as its operating system or
1
These facts come from the Consolidated Class Action Complaint
and are accepted as true for this appeal. See Nguyen v. Endologix, Inc.,
962 F.3d 405, 408 (9th Cir. 2020).
6 WESTON FAMILY PARTNERSHIP V. TWITTER
which apps the user has already downloaded. Twitter has
highlighted MAP as an important driver of Twitter’s future
revenue growth, and has invested in an improved, next
generation MAP product.
Despite its earlier pledge to allow user opt-outs, Twitter
announced in a May 13, 2019 blog post that it had discovered
software bugs that caused sharing of cell phone location data
of its users. Twitter, however, told its users that it had fixed
the problems. Then about three months later on August 6,
Twitter announced in a tweet that it had again accidentally
shared user data with advertisers, even for those who had
opted out. The accompanying web post stated:
At Twitter, we want to give you control over
your data, including when we share that
data. . . . [W]e recently found issues where
our setting choices may not have worked as
intended. . . .
We fixed these issues on August 5, 2019.
We know you will want to know if you were
personally affected, and how many people in
total were involved. . . .
What is there for you to do? Aside from
checking your settings, we don’t believe
there is anything for you to do.
When Twitter said that it had “fixed these issues,” it did
not mean resolving the software bugs, which proved to be
difficult. Rather, Twitter had stopped sharing user data for
its MAP advertising program altogether. This meant no data-
sharing for all users and thus also less revenue from MAP.
Twitter did not disclose these facts at that time. And
WESTON FAMILY PARTNERSHIP V. TWITTER 7
according to the complaint, Jack Dorsey, Twitter’s Chief
Executive Officer, and Ned Segal, its Chief Financial
Officer, had access to the company’s key performance
metrics, including Cost Per Ad Engagement, which
allegedly would have flagged this brewing problem with
MAP.
Finally, about 11 weeks later on October 24, Twitter in
its quarterly earnings report disclosed the software bugs
hampering MAP and reported a $25 million revenue
shortfall. In response to this news, some analysts
downgraded the stock and the share price dropped over 20%.
Within five days of this announcement, Khan Hasan, an
individual investor, filed a putative class action on behalf of
all persons who bought Twitter’s stock between July 26,
2019 and October 23, 2019 against Twitter and its two top
executives, Dorsey and Segal. Under the Private Securities
Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-
4, the district court consolidated it with another similar
action, and named the Weston Family Partnership, LLP and
the Twitter Investor Group as co-lead plaintiffs and counsel
for the class. Plaintiffs then filed a consolidated class action
complaint. The complaint alleged violations of Section 10(b)
of the Securities and Exchange Act of 1934, 15 U.S.C.
§ 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. It also
included a claim against Dorsey and Segal for control person
liability under Section 20(a) of the Exchange Act, 15 U.S.C.
§ 78t.
Plaintiffs allege that these statements were false or
materially misleading:
(1) Twitter’s July 26, 2019 shareholder letter and July
31, 2019 Form 10-Q stated the company is
“continuing [its] work to increase the stability,
8 WESTON FAMILY PARTNERSHIP V. TWITTER
performance, and flexibility of [its] ads platform and
[MAP],” but that it is “not there yet” and that this
work will “take place over multiple quarters, with a
gradual impact on revenue.” Segal added that the
company is “still in the middle of that work” [relating
to MAP improvements], and that it is “still at the
state where [he] believe[s] that you would see its
impact be gradual in nature.” Plaintiffs allege that
these statements are false because the defendants did
not disclose the software bugs allegedly plaguing
MAP then and suggested that MAP was on track.
(2) The Form 10-Q also contained warnings that the
company’s products and services “may contain
undetected software errors, which could harm [its]
business and operating results.” Plaintiffs claim that
this statement is misleading because Twitter
supposedly knew by this time that “software errors”
would—not just “may”—harm the bottom line.
(3) Because of the allegedly false or misleading
statements in the 10-Q filing, Twitter’s Sarbanes-
Oxley (SOX) certifications signed by Dorsey and
Segal were also false or misleading.
(4) On August 6, 2019, the company issued a tweet that
stated: “We recently discovered and fixed issues
related to your settings choices for the way we
deliver personalized ads, and when we share certain
data with trusted management and advertising
partners,” and Twitter’s Help Center claimed that it
“fixed these issues on August 5, 2019.” Plaintiffs
assert that this statement misleadingly suggested
Twitter had solved the software bugs, not just the
privacy leak.
WESTON FAMILY PARTNERSHIP V. TWITTER 9
(5) On September 4, 2019 at an investor conference,
Segal stated that the company’s “MAP work is
ongoing” and that Twitter “continued to sell the
existing MAP product.” Plaintiffs again claim that
Twitter failed to disclose the scope of the software
bugs hindering MAP.
(6) At the same conference, Segal stated that “Asia . . .
has tended to be more MAP-focused historically.”
This statement, according to Plaintiffs, glossed over
MAP’s software bugs.
The defendants filed a Rule 12(b)(6) motion to dismiss,
arguing that Plaintiffs failed to (1) allege statements that are
materially false or misleading, or are otherwise actionable;
(2) establish a strong inference of scienter; and (3) establish
loss causation. The district court granted the motion on the
first two grounds, but it did not address loss causation. And
because the Section 20(a) control liability claim relies on the
same allegations as the Section 10(b) claim, the district court
also dismissed it. The district court granted leave to amend,
but Plaintiffs did not file an amended complaint and instead
filed the notice of appeal. Then several days later, the district
court sua sponte considered the claims dismissed and closed
the case.
STANDARD OF REVIEW
We review de novo a district court’s dismissal of a
complaint under Federal Rule of Civil Procedure 12(b)(6).
See Reese v. Malone, 747 F.3d 557, 567 (9th Cir. 2014). The
court may consider all materials incorporated into the
complaint by reference, as well as evidence properly subject
to judicial notice. See Metzler Inv. GMBH v. Corinthian
Colls., Inc., 540 F.3d 1049, 1061 (9th Cir. 2008) (citation
omitted). When assessing the adequacy of a complaint, we
10 WESTON FAMILY PARTNERSHIP V. TWITTER
accept all factual allegations as true and view them in the
light most favorable to the plaintiff. Id. (citation omitted).
We can affirm the dismissal of a complaint on any grounds
supported by the record. See Salameh v. Tarsadia Hotel,
726 F.3d 1124, 1129 (9th Cir. 2013).
Under Rule 12(b)(6), a complaint should be dismissed if
it fails to include “enough facts to state a claim to relief that
is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). A complaint’s claims are
plausible when the pleaded facts “allow[] the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Actions for securities fraud brought under the
Exchange Act face “more demanding pleading
requirements” set out in Rule 9(b) and the PSLRA, which
are detailed below. In re Rigel Pharms., Inc. Sec. Litig.,
697 F.3d 869, 876 (9th Cir. 2012).
ANALYSIS
I. We Have Appellate Jurisdiction Because the District
Court Ultimately Issued a Final Order.
To start, the defendants argue that this court lacks
jurisdiction to hear this appeal because Plaintiffs appealed a
non-final order.
28 U.S.C. § 1291 provides that the “courts of appeals . . .
shall have jurisdiction of appeals from all final decisions of
the district courts of the United States.” A decision is “final”
under § 1291 if it “(1) is a full adjudication of the issues, and
(2) clearly evidences the judge’s intention that it be the
court’s final act in the matter.” Disabled Rts. Action Comm.
v. Las Vegas Events, Inc., 375 F.3d 861, 870 (9th Cir. 2004)
(citation omitted). So typically, orders dismissing claims
WESTON FAMILY PARTNERSHIP V. TWITTER 11
with leave to amend are considered not final and thus not
appealable as of right. See WMX Techs., Inc. v. Miller,
104 F.3d 1133, 1136 (9th Cir. 1997).
But that does not end our analysis. Citing Rule 4(a)(2) of
the Federal Rules of Appellate Procedure, 2 we have
recognized that “[w]hether Plaintiffs’ notice of appeal was
premature or not, the final disposition of the case by the
district court cures any timeliness defects of their appeal.”
Floyd v. Am. Honda Motor Co., 966 F.3d 1027, 1032 (9th
Cir. 2020). In Floyd, the district court filed its final order of
dismissal two weeks after the plaintiff’s notice of appeal and
six weeks after the order dismissing the claims. Id. at 1031.
Stating that there is “no penalty for filing a premature notice
of appeal,” the court held that it had jurisdiction to review
the appeal because the district court effectively cured the
premature notice of appeal when it later issued a final order.
Id. at 1032 (quoting Orr v. Plumb, 884 F.3d 923, 931 (9th
Cir. 2018)); accord Hall v. N. Am. Van Lines, Inc., 476 F.3d
683, 686 (9th Cir. 2007) (considering a premature appeal to
have been taken from the judgment entered subsequent to a
notice to appeal). See also Fed. R. App. P. 4(a)(2) advisory
committee’s note to 1979 amendments (explaining that it
was “designed to avoid the loss of the right to appeal by
filing the notice of appeal prematurely”).
This case is analogous to Floyd and Hall. Plaintiffs filed
a premature notice of appeal because the district court had
given leave to amend when it dismissed the complaint. If we
heard the case just after the notice of appeal had been filed,
we would not have had appellate jurisdiction because the
2
“A notice of appeal filed after the court announces a decision or
order—but before the entry of the judgment or order—is treated as filed
on the date of and after the entry.” Fed. R. App. P. 4(a)(2).
12 WESTON FAMILY PARTNERSHIP V. TWITTER
order was not final. But the district court within a few days
issued a final order, thus vesting this court with appellate
jurisdiction.
The defendants rest their argument on WMX Techs. v.
Miller, 104 F.3d 1133 (9th Cir. 1997). In that case, WMX
sought appellate review of an order in which the district
court dismissed some of its claims with leave to amend. Id.
at 1134. We dismissed for lack of appellate jurisdiction
because “a plaintiff, who has been given leave to amend,
may not file a notice of appeal simply because he does not
choose to file an amended complaint. A further district court
determination must be obtained.” Id. at 1136. That last
sentence is key: unlike here, the district court in that case had
not received a “further district court determination”—a final
order dismissing the case—by the time we heard the appeal.
So the district court never cured the premature appeal under
Rule 4(a)(2). In our case, the district court issued a final
order dismissing the case, giving us jurisdiction to hear the
appeal. Id. at 1136–37 (“[W]hen a district court expressly
grants leave to amend, it is plain that the order is not
final. . . . [and] [a] final judgment must be obtained before
the case becomes appealable.”).
II. The Complaint Fails to State a Claim Under Section
10(b) Because Twitter’s Statements Are Not False or
Materially Misleading.
Section 10(b) of the Exchange Act makes it unlawful:
To use or employ, in connection with the
purchase or sale of any security registered on
a national securities exchange . . . any
manipulative or deceptive device or
contrivance in contravention of such rules
and regulations as the [SEC] may prescribe
WESTON FAMILY PARTNERSHIP V. TWITTER 13
as necessary or appropriate in the public
interest or for the protection of investors.
15 U.S.C. § 78j(b). The SEC, in turn, issued Rule 10b-5,
which declares it unlawful:
(a) To employ any device, scheme, or artifice
to defraud,
(b) To make any untrue statement of a
material fact or to omit to state a material fact
necessary in order to make the statements
made, in the light of the circumstances under
which they were made, not misleading, or
(c) To engage in any act, practice, or course
of business which operates or would operate
as a fraud or deceit upon any person,
in connection with the purchase or sale of any
security.
17 C.F.R. § 240.10b-5.
To state a claim under Section 10(b) of the Exchange Act
and Rule 10b-5, the complaint must plausibly allege: “(1) a
material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation
or omission and the purchase or sale of a security;
(4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation. Halliburton Co. v.
Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014) (citations
omitted).
For a statement to be false or misleading, it must
“directly contradict what the defendant knew at that time” or
14 WESTON FAMILY PARTNERSHIP V. TWITTER
“omit[] material information.” Khoja v. Orexigen
Therapeutics, Inc., 899 F.3d 988, 1008–09 (9th Cir. 2018);
see also 15 U.S.C. § 78u-4(b)(1)(A)–(B).
Plaintiffs must also overcome several hurdles to
successfully plead a claim under Section 10(b). First, under
the PSLRA’s particularity requirements and Federal Rule of
Civil Procedure 9(b), allegations of “fraud must be
accompanied by the who, what, when, where, and how of the
misconduct charged.” Kearns v. Ford Motor Co., 567 F.3d
1120, 1124 (9th Cir. 2009) (cleaned up); see also 15 U.S.C.
§ 78u-4(b)(1). Second, an allegedly misleading statement
must be “capable of objective verification.” Or. Pub. Emps.
Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir.
2014). For example, “puffing”—expressing an opinion
rather than a knowingly false statement of fact—is not
misleading. Id.; see also Lloyd v. CVB Fin. Corp., 811 F.3d
1200, 1206–07 (9th Cir. 2016). Third, a statement is not
actionable just because it is incomplete. In re Vantive Corp.
Sec. Litig., 283 F.3d 1079, 1085 (9th Cir. 2002). Section
10(b) and Rule 10b-5(b) “do not create an affirmative duty
to disclose any and all material information. Disclosure is
required . . . only when necessary ‘to make . . . statements
made, in the light of the circumstances under which they
were made, not misleading.’” Matrixx Initiatives, Inc. v.
Siracusano, 563 U.S. 27, 44 (2011) (quoting 17 C.F.R.
§ 240.10b-5(b)). Finally, even if a statement is objectively
false or misleading, the PSLRA provides a “safe harbor” for
forward-looking statements if such statements are either
identified as forward-looking and accompanied by a
meaningful cautionary statement, or if the plaintiff fails to
show that the statement was made with actual knowledge
that it was false or misleading. See 15 U.S.C. § 78u-5(c)(1);
see also In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th
Cir. 2010).
WESTON FAMILY PARTNERSHIP V. TWITTER 15
A. Securities laws do not require Twitter to provide
real-time updates about the progress of its MAP
program.
Plaintiffs suggest that Twitter—when faced with a
setback in dealing with software bugs plaguing its MAP
program—had a legal duty to disclose it to the investing
public. Not so. While society may have become accustomed
to being instantly in the loop about the latest news (thanks in
part to Twitter), our securities laws do not impose a similar
requirement. Section 10(b) and Rule 10b-5 “do not create an
affirmative duty to disclose any and all material
information.” Matrixx, 563 U.S. at 44.
Put another way, companies do not have an obligation to
offer an instantaneous update of every internal development,
especially when it involves the oft-tortuous path of product
development. See Vantive, 283 F.3d at 1085 (“If the
challenged statement is not false or misleading, it does not
become actionable merely because it is incomplete.”).
Indeed, to do so would inject instability into the securities
market, as stocks may wildly gyrate based on even fleeting
developments. A company must disclose a negative internal
development only if its omission would make other
statements materially misleading. Matrixx, 563 U.S. at 45(“Even with respect to information that a reasonable investor
might consider material, companies can control what they
have to disclose under these provisions by controlling what
they say to the market.”).
Plaintiffs argue that Twitter’s failure to disclose the
software bugs’ impact on MAP in July 2019 was materially
misleading because its prior statements had allegedly left a
“misimpression” that the work to improve MAP was “on
track.” But a closer examination of the statements reveals a
much more qualified and less definitive characterization of
16 WESTON FAMILY PARTNERSHIP V. TWITTER
the MAP program. For example, the July 2019 shareholder
letter and 10-Q stated that Twitter is “continuing [its] work
to increase the stability, performance, and flexibility of [its]
ads platform and [MAP] . . . but we’re not there yet.”
Similarly, the CFO explained that the company is “still in the
middle of that work” relating to MAP. And later in
September of that same year, the CFO again reiterated that
the “MAP work is ongoing.”
None of these statements suggests that Twitter’s MAP
program was “on track.” Rather, they suggest a vaguely
optimistic assessment that MAP, like almost all product
developments, has had its ups and downs, even as the
company continues to make progress. 3 Perhaps if Twitter
had set a specific deadline or revenue impact for MAP, its
somewhat optimistic statements could seem like an implied
affirmation of that target. 4 But Twitter never made such
specific or unqualified guidance. And with no such
guidance, Twitter’s statements are so imprecise and
noncommittal that they are incapable of objective
verification. See Apollo, 774 F.3d at 606 (distinguishing
non-actionable vague puffery from statements capable of
objective verification); In re Cutera Sec. Litig., 610 F.3d
3Even in everyday conversation, such phrases do not reflect that
everything is on track without a hitch. Suppose someone is building an
item of IKEA furniture and a spouse asks about its status. A response
such as “I’m in the middle of it but I’m not there yet,” “I’m continuing
it,” or “It’s ongoing” does not misleadingly suggest that the person has
not suffered setbacks (e.g., finding a mysterious extra screw) in building
that piece of furniture.
Even then, an express statement of the company being “on track”
4
to meet a target would likely be protected as a forward-looking statement
under the safe harbor provision of the PSLRA. Wochos v. Tesla, Inc.,
985 F.3d 1180, 1192 (9th Cir. 2021).
WESTON FAMILY PARTNERSHIP V. TWITTER 17
at 1111 (“[M]ildly optimistic, subjective assessment hardly
amounts to a securities violation.”). Nor can it be said that
the company “tout[ed] positive information to the market”
such that it “[became] bound to do so in a manner that
wouldn’t mislead investors, including disclosing adverse
information that cuts against the positive information.”
Khoja, 899 F.3d at 1009.
In short, Twitter had no legal duty to disclose
immediately the software bugs in its MAP program,
especially given that its earlier statements about MAP’s
progress were qualified and vague.
B. Plaintiffs have not plausibly or with particularity
alleged that the software bugs disclosed in August
had materialized and affected revenue in July.
Because Twitter disclosed “issues” about its legacy
MAP product on August 6, 2019, the defendants must have
known about those issues in July, according to Plaintiffs.
Plaintiffs thus argue that it is reasonable to infer that the
defendants must have taken steps to address those issues in
July (which decreased revenue in July), and that the
defendants’ challenged statements were therefore false and
misleading. But it is simply not enough to assume or
implausibly infer that the defendants must have known about
these issues in July based on later facts or developments. Yet
Plaintiffs repeatedly rely on future statements to leap to that
conclusion.
For example, the complaint alleges that the defendants
misled investors in their July 2019 shareholder letter and 10-
Q filing when they asserted that they are “continuing [their]
work to increase the stability, performance and scale of
[their] ads platform and [MAP] . . . . but we’re not there yet.”
According to Plaintiffs, these statements created the
18 WESTON FAMILY PARTNERSHIP V. TWITTER
“misimpression that [d]efendants’ work to improve MAP
was on track[] and would lead to increased revenue,” even
as the company struggled to fix the software bugs in the
MAP program. They similarly allege that Twitter’s risk
warning in its July 2019 10-Q filing that its “product and
services may contain undetected software errors, which
could harm our business and operating results,” was
misleading because the risk had materialized by then.
Plaintiffs’ falsity allegations thus presume that the
defendants knew (i) in July 2019 about the software bugs in
its legacy MAP product and (ii) that those bugs have caused
a delay the development of the next generation MAP. But
the complaint does not plausibly allege either.
First, Plaintiffs do not adequately allege that the
defendants knew of the software bugs as of July 2019 when
they discussed MAP’s progress. Plaintiffs hitch their wagon
on Twitter’s August 6, 2019 statement that it “recently
discovered” the issues to leap to the conclusion that it knew
about them in July 2019. But nothing in the complaint
suggests that the company knew of the bugs in July 2019.
And this court has held that, without more, temporal
proximity alone does not satisfy the particularity
requirements of Rule 9(b). See Yourish v. Cal. Amplifier,
191 F.3d 983, 997 (9th Cir. 1999). So Plaintiffs have not
adequately alleged that Twitter even knew about these
software bugs when it discussed MAP’s progress in July
2019.
Plaintiffs argue that “the only plausible inference” from
the timeline is that Twitter must have discovered the
software bugs in July 2019 because these types of bugs,
according to their confidential informant, take three to six
months to fix. Put differently, Plaintiffs assume that
Twitter’s August 6, 2019 tweet and blog post—which
WESTON FAMILY PARTNERSHIP V. TWITTER 19
announced the discovery and the fix of the data-sharing
privacy issues—was referring to the fix of the software bugs,
and not just a halt to the data-sharing.
But Twitter’s August 6 Help Center blog post said no
such thing. The context makes clear that Twitter had “fixed”
the inadvertent data-sharing; there is no mention of software
bugs, let alone ridding of them. See Retail Wholesale &
Dep’t Store Union Local 338 Ret. Fund v. Hewlett-Packard
Co., 845 F.3d 1268, 1278 (9th Cir. 2017) (“[A] duty to
provide information exists only where statements were made
which were misleading in light of the context surrounding
the statements.” (emphasis added)). The blog post starts off
by noting that Twitter wants “to give you control over your
data” but that it had “recently found issues” of inadvertent
data-sharing. The post then states: “We fixed these issues on
August 5, 2019. We know you will want to know if you were
personally affected . . . . What is there to do? Aside from
checking your settings, we don’t believe there is anything for
you to do.” These statements address Twitter users’
concerns about their privacy, and thus the “fix” related to
privacy leaks, not software bugs that are not even mentioned
in the blog post. In short, an ordinary investor would not read
Twitter’s Help Center blog post as saying that Twitter had
remediated the software issues.
Second, even if Twitter knew of the software bugs in
July 2019, Plaintiffs’ theory of deception makes sense only
if those software bugs in the legacy MAP program delayed
the new version of MAP. In support of that assumption,
Plaintiffs can marshal only Segal’s statement that “[t]he
biggest impact from a resourcing perspective when things
like [the software bugs] come up is that we—people, we end
shifting, or people are spending their time sometimes where
we work on remediation when we may have preferred to
20 WESTON FAMILY PARTNERSHIP V. TWITTER
work on other things.” But that statement says nothing about
the software bugs supposedly delaying the next generation
MAP. To the contrary, the complaint acknowledges that as
of February 2020—after Twitter disclosed the bugs in legacy
MAP and continued to work on them—the company made
progress on the next generation MAP. At one point in their
brief, Plaintiffs veer from their allegations in their complaint,
and make the new bold claim that Twitter’s efforts on the
next generation MAP “stopped cold” because of the privacy
bugs in legacy MAP. But the complaint contains no such
allegations, let alone provides sufficient particularity to
support them. 5
In sum, Plaintiffs have failed to plausibly allege falsity
based on their theory that the software issues had
materialized and impacted revenue in July.
C. Twitter’s July 2019 statements fall within the safe
harbor provision.
Plaintiffs’ challenge of Twitter’s July 2019 statements in
its shareholder letter and 10-Q fails for another reason: They
were identified as forward-looking statements and fall
5
For similar reasons, Segal’s September 4, 2019 statement that
Twitter “continued to sell the existing MAP product” is not actionable.
In context, Segal was explaining that the company continued to sell the
legacy product while working on the next generation product. Segal was
not touting the sales of the legacy MAP product or characterizing how
the legacy MAP was performing. Thus, omitting information about the
effect of the bug did not “affirmatively create an impression of a state of
affairs that differs in a material way from the one that actually exists.”
Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002).
Plaintiffs also argue Segal misled investors when he said that “Asia . . .
has tended to be more MAP-focused historically,” even though MAP
was struggling in Asia. But this is a statement about historical patterns
that is uncontradicted by any of the plaintiffs’ allegations.
WESTON FAMILY PARTNERSHIP V. TWITTER 21
within the safe harbor of the Exchange Act. 15 U.S.C. § 78u-
5(c)(1); see also Police Ret. Sys. of St. Louis v. Intuitive
Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014)
(“[C]lassic growth and revenue projections[] . . . are
forward-looking on their face.”). These forward-looking
statements in the shareholder letter and 10-Q were
accompanied by very detailed meaningful cautionary
language that “identif[ied] important factors that could cause
actual results to differ materially from those in the forward-
looking statement[s].” 15 U.S.C. § 78u-5(c)(1)(A)(i). 6
III. The District Court Properly Dismissed the
Section 20(a) Claims.
Under Section 20(a) of the Exchange Act, “certain
‘controlling’ individuals [are] also liable for violations of
section 10(b) and its underlying regulations.” Zucco
Partners, 552 F.3d at 990 (citing 15 U.S.C. § 78t(a)).
Because a Section 20(a) claim is derivative, “a defendant
employee of a corporation who has violated the securities
laws will be jointly and severally liable to the plaintiff, as
long as the plaintiff demonstrates ‘a primary violation of
federal securities law’ and that ‘the defendant exercised
actual power or control over the primary violator.’” Id.
(citation omitted). But, as shown above, Plaintiffs did not
adequately plead a primary violation of Section 10(b) or
Because Twitter’s statements made in the Form 10-Q and the risk
6
warnings were not misleading or were protected under the safe harbor
provision, the SOX certifications likewise cannot be actionable. Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1004 (9th Cir. 2009).
22 WESTON FAMILY PARTNERSHIP V. TWITTER
Rule 10b-5 by any defendant. Thus, control person liability
under Section 20(a) cannot survive. 7
CONCLUSION
The district court’s order granting the defendants’
motion to dismiss is AFFIRMED.
7
Because we hold that the complaint did not adequately allege
falsity, we need not address scienter or loss causation.