The U.S. Supreme Court – in a short, concise, unanimous opinion – has ruled that to assert Section 11 claims against Slack in connection with the company’s June 2019 direct listing, the plaintiff must plead and prove that he purchased shares pursuant to Slack’s allegedly misleading registration statement. Slack had offered both registered and unregistered shares in the direct listing. Even though the plaintiff had not alleged that the shares he purchased were registered shares, the Ninth Circuit had allowed the plaintiff’s claims to stand. The Supreme Court vacated the Ninth Circuit’s order and remanded the case to the district court. At a minimum, the Supreme Court’s ruling means Section 11 plaintiffs must plead that their shares are traceable to the offering. The practical implication of the Court’s ruling may be that the companies conducting direct listings cannot be sued under Section 11. A copy of the Court’s June 1, 2023, opinion can be found here.


Slack is a business software company. The company went public in June 2019 through a direct listing of its shares rather than through a traditional IPO. In connection with the listing, the company filed a registration statement registering 118 million shares which were offered simultaneously with 165 million unregistered shares.

In September 2019, a plaintiff shareholder filed a securities class action lawsuit against the company and certain of its directors and officers alleging misrepresentations in connection with the company’s June 2019 share listing. The defendants moved to dismiss the plaintiff’s complaint, alleging that the plaintiff could not establish standing to bring his claims under the ’33 Act because he could not show that he purchased shares pursuant to the company’s registration statement. In making this argument, the defendants relied on the language found in Sections 11 and 12(a) of the ’33 Act specifying that liability claims under those sections may be brought by a person acquiring “such security” – their argument is that this phrase refers to a security registered pursuant to a registration statement.

In an April 21, 2020 order, Northern District of California Judge Susan Illston denied the defendants’ motion to dismiss (here), despite Slack’s argument that the plaintiff could not trace the purchase of his shares to the registration statement. The district court certified Slack’s request for an interlocutory appeal.

The Ninth Circuit’s Opinion

On September 21, 2021, the Ninth Circuit, in a 2-1 opinion written by Judge Jane A. Rastani, affirmed the district court, holding that in connection with Slack’s direct listing both the registered and unregistered shares were sufficiently traceable to the registration statement and therefore that the plaintiff had standing to bring the ’33 Act claims. An important component of the appellate court’s ruling was its view that in light of its remedial purposes, the statute should be construed broadly in order to effectuate its purposes; a narrower reading, the appellate court said, would undermine the availability of the remedy in the event of a direct listing. 

Judge Eric Miller dissented from the majority opinion based on his view that the majority opinion conflicted with the reading adopted by every other court to take up the standing question. He said further that the statutory language at issue did not support standing to bring ’33 liability claims based on the purchases of shares that cannot be traced to the registration statement, and that if this results in a policy problem, it was up to Congress to address the issue.

Slack petitioned the U.S. Supreme Court for a writ of certiorari. In December 2022, the Supreme Court granted the writ, and heard oral argument in the case in April 2023.

The Supreme Court’s Opinion

In a short June 1, 2023, opinion written by Justice Neil Gorsuch for a unanimous Court, the U.S. Supreme Court vacated the Ninth Circuit’s opinion and remanded the case to the district court for the plaintiff to attempt to plead and show that the shares he purchased are traceable to the registration statement.

In reaching its conclusion, the Court addressed the meaning of the phrase “such security” in Section 11. Slack had argued that “such security” refers only to a security issued pursuant to the allegedly misleading registration statement. The Court said that “contextual clues” – statutory context and language – “persuade us that Slack’s reading of the law is the better one.” Moreover, the Court said, “every court of appeals to consider the issue has reached the same conclusion,” that is, that to support a Section 11 claim, a plaintiff’s securities “must be traceable to the particular registration statement alleged to be false or misleading.”

The plaintiff had argued that the phrase “such security” also includes, in addition to shares traceable to the registration statement, other securities that bear some relationship to the registration statement, contending that but for the registration statement, none of the securities (including both the registered and unregistered securities) would have been available for purchase. The Court said this argument failed to show how it was derived from Section 11 and could not be squared with the “contextual clues.”

The Court also rejected the plaintiff’s argument that the more expansive reading of “such security” he urged the Court to adopt would better accomplish the remedial purpose of the’33 Act. The Court said it “could not endorse this line of reasoning,” saying it could not “assume any result consistent with one party’s accord of a statute’s purpose must be the law.”

Congress, the Court said, remains free to revise the securities laws, adding that “our only function lies in discerning and applying the law as we found it.” The “better reading” of the provision at issue “requires a plaintiff to plead and prove that he purchased shares traceable to the allegedly defective registration statement.”


The Court’s ruling here basically preserves the status quo; it upholds the long-standing principle, endorsed by numerous courts of appeals, that in order to have standing, a Section 11 plaintiff must be able to show that his or her shares are traceable to the allegedly misleading registration statement. However, the ruling does seem to create a situation where purchasers in a direct offering in which both registered and unregistered securities are made available for sale will, as a practical matter, have no remedy under Section 11 for misrepresentations in the registration statement.

Indeed, the Skadden law firm labeled its June 1, 2023 memo about the U.S. Supreme Court’s opinion in Slack SCOTUS Bars Section 11 Claims Based on Direct Listing” (here), adding in the text of the memo that  “the Court held that Section 11 liability does not apply to directly listed shares.”

While the Court’s decision clearly is important and represents a win for the defense side, the opinion’s practical effect may be limited by the fact that direct listings are still relatively rare; there have been less than a dozen and a half such offerings in total. At a minimum, the Skadden law firm memo notes, the Supreme Court “shut the door on an effort to significantly expand liability under Section 11.”

Interestingly, the Court’s opinion speaks only to Section 11; the plaintiff had also asserted claims under Section 12(a)(2), and indeed, as noted here, much of the discussion at oral argument had focused on Section 12(a)(2). While it is generally assumed that Section 12 claims rise of fall with Section 11 claims, Justice Kavanaugh expressly raised at oral argument the possibility that the case should be remanded to the district court to permit the court to focus on Section 12. That may well be what will happen next when the case returns to the district court. However, it could also be that the Court’s resolution of the Section 11 issues takes care of Section 12 as well; that certainly will be what Slack will argue on remand.

When the Court had first agreed to take up the Slack case, I had thought that the Court’s resolution of the case might provide some insight into the implications of the Court’s conservative lineup (generally viewed as representing a 6-3 majority) for business related cases. In the end, the Court’s unanimous resolution of the case negates any possible implications arising from the court’s lineup. Here, even the supposedly more liberal justices drew back from the more expansive reading of the statute that the plaintiffs’ urged.

I had also hoped that the Court’s consideration of the standing issues might provide some insight into the “tracing” debate, or at least provide some guidelines around the sometimes-bewildering discussion of tracing issues. However, while the Court did say that plaintiff’s shares must be traceable to the registration statement for a Section 11 plaintiff to have standing, the Court had little to say about what is required to establish the requisite tracing. Alas, the tracing debate will likely continue – perhaps in this case, on remand to the district court.

Burkhard Fassbach

Among important recent developments in digital currency is the increasing governmental move toward Central Bank Digital Currency (CBDC) and other forms of digital currency. In the following guest post, Burkhard Fassbach takes a detailed look at the rapidly evolving world of CBDCs and what their advent may mean for the D&O insurance industry. Burkhard is a D&O lawyer in private practice in Germany I would like to thank Burkhard for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Burkhard’s article.

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One of the most topical and potentially most significant recent developments had been the release of several different language-based generative artificial intelligence tools, such as ChatGPT and Google’s Bard. The advent of these tools, their ease of use, and their responsiveness has led to observers and commentators to question whether these tools could drive significant changes in the economy and labor force – among other things, for example, whether these tools might have significant implications for the practice of law. My own experience (discussed here) is that while these tools are interesting, they are no substitute for the research and writing of an experienced lawyer. A recent case, involving an experienced New York lawyer who relied on ChatGPT generated content in a legal brief in a client’s case, demonstrates the dangers involved for anyone who relies on ChatGPT as a substitute for legal research. The case was described in a May 27, 2023, New York Times article entitled “Here’s What Happens When Your Lawyer Uses ChatGPT” (here).

Continue Reading AI is Not Quite Ready to Replace the Lawyers

As I have chronicled on this blog (most recently, here), a wave of litigation has followed in the wake of the SPAC boom in late 2020 and early 2021. Since January 1, 2021, over 60 SPAC-related securities class actions have been filed, and there has also been a number of Delaware state court breach of fiduciary duty lawsuits, as well. Although many of these suits have only just been filed and therefore have not yet been subjected to judicial scrutiny, there have been several dismissal motion rulings in a number of these cases. A May 2023 memo from the Jones Day law firm entitled “SPAC Litigation: A Review of Recent Developments” (here) reviews the state of play in the various judicial rulings so far in the SPAC-related cases.  As the memo notes, “many high-profile suits have recently survived motions to dismiss (at least in part), and at least one has been resolved through a significant settlement.”

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ESG has for some time now been a hot button issue for companies. More recently, an anti-ESG backlash has emerged, further complicating the ESG environment for companies and sometimes putting them in a “damned-if-you-do-and damned-if-you-don’t” dilemma. How are companies to navigate these complicated conditions? In a May 23, 2023 post on the Harvard Law School Forum on Corporate Governance entitled “Navigating the Current ESG Landscape: Recommendations for the Board and Management” (here), veteran and respected corporate attorney Martin Lipton of the Wachtell, Lipton law firm provides guidance for companies as they navigate these difficult circumstances and describes the principles companies should follow in trying to make their way on these issues.

Continue Reading Navigating the Challenging ESG Landscape

After California’s legislature enacted legislation requiring greater diversity on corporations with corporate offices in California in 2020, the legislation was almost immediately the subject of a court challenge. Now, in a May 15, 2023, ruling, a California federal district court has held that the statute is facially unconstitutional under the Equal Protection Clause and in light of precedent of the U.S. Supreme Court. As discussed below, the court’s decision follows an earlier ruling by a California State court that previously struck down the statute. A copy of the court’s May 15, 2023, opinion can be found here.

Continue Reading Federal Court Strikes Down California Board Diversity Statute

In the latest edition of its annual report, the Sidley Austin law firm takes a detailed look at important securities litigation developments in 2022 relating to life sciences companies. The report includes not only a review of life sciences companies’ securities litigation class action filings trends but also examines life sciences companies’ track record in the courts, both with respect to motions to dismiss in the district courts and on appeal. The law firm’s report, entitled “Securities Class Actions in the Life Sciences Sector: 2022 Annual Survey” can be found here. A May 17, 2023 blog post summarizing the report can be found here.

Continue Reading A Detailed Look at the 2022 Securities Litigation Against Life Sciences Companies

One of the significant contributing factors to the total number of securities class action lawsuit filings in 2022 was the number of SPAC-related securities suits filed during the year. However, while there were a significant number of SPAC-related suits filed in 2022, the number of SPAC-related suit filings declined as the year progressed, to the point that it was not clear whether the phenomenon would continue into 2023. As it has turned out, the plaintiffs’ lawyers have continued to file SPAC-related suits this year. In the latest example, on May 12, 2023, a plaintiff shareholder filed a securities suit against energy storage services provider Stem, Inc., which merged with a SPAC in April 2021. This latest filing shows that the SPAC-related suits continue to be filed and that the suits continue to be a factor in the total overall number of securities suit filings.

Continue Reading Energy Services Company Hit with SPAC-Related Securities Suit
John Orr, Lawrence Fine, and Angus Duncan

In the following guest post, John Orr, Lawrence Fine, and Angus Duncan summarize the findings from the latest WTW Directors’ and Officers’ Liability Survey. John is WTW’s D&O Liability Product Leader; Larry is WTW’s Management Liability Coverage Leader; and Angus Duncan is a Global D&O Coverage Specialist for WTW. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the author’s article.

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Mark Sutton
Leah Barratt

In the following guest post, Mark Sutton and Leah Barratt take a look at the proposed Economic Crime and Corporate Transparency Bill, a piece of legislation currently pending in the U.K. Mark is a Partner and Leah is a Senior Associate in the Clyde & Co. law firm. A version of the article previously was published on the Clyde & Co. website. I would like to thank Mark and Leah for allowing me to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to readers of this blog. Please contact me directly if you would like to submit a guest post. Here is Mark and Leah’s article.

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