Since the initial outbreak of COVID-19 in the U.S. in March 2020, there have been scores of COVID-related securities suit filed. However, as the pandemic itself progressed, the nature of the lawsuits being filed also changed. Over time, the plaintiffs’ lawyers began targeting companies that had initially prospered at the outset of the pandemic, but whose fortunes flagged as circumstances changed. The prototypical example of a COVID-19-related securities suit involving a company that experienced this particular sequence of events is the lawsuit filed against exercise equipment company Peloton, whose equipment sold briskly at the outset of the pandemic but whose sales slackened as government shutdown orders lapsed and people began returning to work. However, in a March 30, 2023 order (here), the court granted the defendants’ motion to dismiss in the Peloton case, albeit without prejudice, in a decision that does not bode well in these kinds of change-of-fortune pandemic-related securities suits.


At the outset of the pandemic, at stay-at-home orders kicked in and as work from home became the standard arrangement, demand for Peloton’s products increased significantly. The demand was so significant that the company initially had difficulty ramping up to meet the order flow. However, by early 2021, the demand began to wane as vaccines became more widely available and as people were able to resume more traditional exercise activity.

In their complaint, the plaintiffs allege that the defendants “hid the true nature” of the declining demand. As investors and analysts began to question whether the company could sustain its explosive success, the defendants, the complaint alleges continued to assure the public that demand remained strong. The complaint alleges that by early 2021, company management knew that demand was declining, and that the company was experiencing rising inventory levels. The complaint alleges that when defendants learned that demand was declining, the defendants sold their shares of Peloton stock at inflated prices.

On November 4, 2021, Peloton announced its results for the fiscal year. It revised its guidance downward and also disclosed that 91% of its inventory on hand remained unsold. The complaint alleges that this disclosure contradicted defendants’ representations from the preceding months and that this information “shocked the market.” The company’s share price dropped by 35%.

On November 28, 2021, as discussed here, the plaintiff filed a securities class action lawsuit. The defendants moved to dismiss contending that the complaint failed to state a claim because all of the challenged statements were true; that the statements were protected by the PSLRA’s safe harbor for forward looking statements; or that the statements were non-actionable puffery. The defendants also contended that the plaintiffs had failed to sufficiently allege scienter and loss causation.

The March 30, 2023, Order

In a detailed March 30, 2023, order, Southern District of New York Judge Andrew L. Carter, Jr. granted the defendants’ motion to dismiss, with leave for the plaintiff to amend.

In granting the motion, Judge Carter first held that several of the statements on which the plaintiff sought to rely were protected forward looking statements that were accompanied by meaningful cautionary language. Judge Carter found that, far from being “boiler-plate” as the plaintiff contended, the company’s warnings were “both specific and realistic about the precise risk factors face by Peloton as a company – namely that the relaxation of the COVID protocols closures that had promoted the Company’s growth could hamper its future subscriber growth.” The warning, Judge Carter said, “specifically detail how the COVID-19 pandemic could potentially affect Peloton’s business.”

Judge Carter also held that several of the other statements on which the plaintiff sought to rely were “inactionable corporate puffery.” Statements such as 2022 “is going to be a fantastic year,” or that “we see momentum in the foreseeable future,” are “textbook cases of corporate optimism and therefore inactionable as a matter of law.”

Finally, and most importantly, Judge Carter found that the plaintiff “has not pleaded that the challenged statements were actually false.” In making this ruling, Judge Carter noted that a violation of Rule 10b-5 cannot occur unless an alleged material misstatement was false at the time it was made, and noted further that a statement believed to be true when made, but later shown to be false, is insufficient.

Judge Carter said with respect to the plaintiff’s allegations that the defendants “were concealing an actual decrease in overall demand … are not borne out by the totality of the facts alleged and need not be credited.” Further, Judge Carter said that “Defendants explicitly told the public that demand for Peloton’s products would be returning to pre-COVID levels after the surge in demand it had seen during COVID.”

Judge Carter said that because defendants “did in fact disclose to the investing public that the Company knew that the rapid increase in demand for Peloton’s products could not be sustained at COVID levels, and a full review of defendants’ public disclosures would have given the investing public the information it needed to make an informed decision about Peloton stock, Defendants [sic] have not pleaded the actual falsity of Defendants’ statements.” The plaintiff, Judge Carter said, “fail to allege sufficient fact to show any actionable misrepresentation or omissions by Defendants.”

Because he concluded that the defendants had not pleaded an actionable misrepresentation or omission, Judge Carter did not reach the question whether plaintiff had adequately pled scienter. However, he did extend to plaintiffs’ leave to seek to file an amended complaint.


By my count, since the initial outbreak of COVID-19 in the U.S. in March 2020, there have been as many as 66 COVID-related securities lawsuits filed. At the outset, the lawsuits fell into one of three categories: lawsuits against companies that experience a COVID outbreak in their facilities (such as cruise ship lines or private prison systems) ; lawsuits against companies that hoped to profit from the outbreak (such as diagnostic testing companies and vaccine development companies); and lawsuits against companies that experience disruption in their operations or financial performance because of the pandemic (such as private hospital systems or real estate development companies).

As the pandemic progressed, a fourth category emerged, involving companies, such as Peloton, whose fortunes soared initially but whose performance flagged as the pandemic progressed. There have been several recent examples of new lawsuits involving these fourth-category kinds of allegations — for example, the securities suit recently filed against Target (discussed here), and the lawsuit filed a couple of weeks ago against Stanley Black & Decker (discussed here).

As I have detailed on this site (for example, here), the cases falling in the first three categories (other than with respect to cases filed against companies that claimed they were going to be able to develop a COVID vaccine but who failed to do so) have generally not fared particularly well. Other than with respect to the vaccine companies, the motions to dismiss generally have been granted.

The fourth-category cases generally were filed later than the cases in the other three categories, so up until now, the sufficiency of the allegations had not yet been tested. The motion to dismiss ruling in the Peloton case is the first decision concerning one of the fourth category cases. If the Peloton decision is any guide, the fourth category cases seem unlikely to fare any better than the cases in the first three categories.

I think it is particularly significant that Judge Carter concluded that the plaintiffs had not sufficiently pled falsity, and that in doing so, he stressed the importance that in order to sustain a claim, an allegedly misleading statement must have been false at the time it was made. The fact is that all companies, like Peloton, were struggling to figure out how the pandemic was going to unfold and how it was going to affect their business. Judge Carter’s willingness to look only at the state of affairs in existence at the time the allegedly misleading statements were made suggests that companies will not be held liable for statements that diverge from what ultimately happened as long as they were based on what the companies knew at the time when they made the statements.

One final note about Judge Carter’s decision. His opinion is just the latest example of the importance for companies to be sure to accompany their public statements are accompanied by meaningful precautionary disclosure. In that regard, it is noteworthy that Judge Carter emphasized that Peloton’s disclosures were not mere boilerplate but rather were both specific and realistic. Judge Carter’s opinion in this regard underscores the importance for companies seeking to avoid the unwanted attention of plaintiffs’ lawyers, or to make themselves better able to defend themselves if they do get sued, of developing disciplined disclosure practices that emphasize meaningful precautionary disclosure as a standard part of their disclosure routines.

UPDATE: Following the publication of the above blog post, an alert reader brought my attention to the March 10, 2023 Northern District of California decision in the ContextLogic case. As the reader correctly pointed out, the ContextLogic case is a “fourth category” COVID-related securities class action lawsuit, in that the gist of the allegation is that in connection with the company’s IPO, the defendants allegedly failed to disclose that the uptick in customer traffic on the company’s e-commerce website Wish that the company had experienced in the early stages of the pandemic was not sustainable. In granted the defendants motion to dismiss, the Court held, among other things, that the company’s statements either were truthful at the time or were accompanied by meaningful cautionary disclosure that specifically addressed the possibility that the COVID-related uptick.

This decision is interesting to me not only because of the Court’s decision but also I was not tracking this case on my tally of COVID-related cases. The omission of this case was not only an oversight on my part, but it also means that the running tally I have been maintaining was inaccurate and needs to be corrected by the addition of the ContextLogic/Wish case to the tally. As a result of the addition, my running tally will be increased by a count of one.

Special thanks to the loyal reader for calling my attention to the case and to the March 10 decision.