In my recent round-up of the top trends in the world of directors’ and officers’ insurance and liability, I noted that, even though we are now well into the fifth year since the initial outbreak of COVID-19 in the U.S., COVID-related securities suits continue to be filed. In the latest example of this kind of lawsuit, last week a plaintiff investor filed a securities class action lawsuit against customer contact data firm ZoomInfo Technologies, alleging that after COVID-related demand inflated the company’s results during the pandemic, the company allegedly strained to conceal subsequent declining demand from investors. A copy of the September 4, 2024, complaint can be found here.

Background

ZoomInfo is a software and data company that provides customer contact and business information to its clients. ZoomInfo sells access to its platform through subscription contracts with terms ranging from one year to three years. ZoomInfo completed an initial public offering in June 2020.

The complaint alleges that due to favorable market dynamics created by the COVID-19 pandemic, ZoomInfo experienced growth in 2020 and 2021, as social distancing restrictions made traditional sales and marketing activities unavailable. As its clients turned to digital sales and marketing, ZoomInfo’s revenues grew. The company reported “record” financial results during the pandemic, causing the company’s share price to rise, after which company insiders allegedly sold significant amounts of their personal holdings in company stock.

The complaint alleges that as the pandemic evolved and as clients sought to reduce their use of the company’s services, ZoomInfo allegedly “utilized manipulative and coercive auto-renewal policies” and other measures to try to “prevent a mass exodus of clients,” which had the unfortunate effect of damaging customer relations. The “tactics” also created a “hidden demand cliff” as clients’ contract periods eventually expired. The complaint alleges that the defendants “continued to make false and misleading statements to investors and engaged in business tactics designed to conceal the full truth from investors.”

Ultimately, the complaint alleges, the company had to report several quarters of deteriorating financial results and declining customer metrics, and had to take various charges that further weighed on the results. The complaint alleges that due to these “serial disclosures,” the company’s share price declined a total of 90%.

The Complaint

On September 4, 2024, a plaintiff shareholder filed a securities class action lawsuit in the Western District of Washington against ZoomInfo and certain of its executives. The complaint purports to be filed on behalf of a class of investors who purchased the company’s shares between November 10, 2020, and August 5, 2024.

The Complaint alleges that during the class period, the defendants misrepresented or failed to disclose: “(a) that ZoomInfo’s financial and operational results during the Class Period had been temporarily inflated by the ephemeral effects of the COVID-19 pandemic, which had pulled forward demand for the Company’s database of digital contact information; (b) that material portions of ZoomInfo’s existing customer base were attempting to either substantially reduce their use of the Company’s produce or abandon it altogether; (c) that ZoomInfo had used manipulative and coercive auto-renew policies and threats of litigation to force customers into remaining with the Company for an additional contractual term even though such customers did not want to; (d) that ZoomInfo’s coercive customer retention tactics had materially damaged the Company’s customer relationships, client franchise, and competitive advantages, and created a hidden demand cliff for customer contract renewal in future periods; and (e) that as a result of (a)-(d) above, ZoomInfo’s reported revenues, operating income, and customer retention metrics were materially overstated.”

The complaint alleges that the defendants violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.

Discussion

It has been a continuing wonder to me as COVID-related lawsuits have continued to come in, long after governmental shutdown orders have expired and long after life has basically returned to normal. The fact is that the pandemic was far more disruptive to companies’ operations and financial results than initially may have appeared to be the case, and the disruptive effect from the pandemic continue to reverberate through the economy. And as a result of these continuing reverberations, COVID-related lawsuits continue to be filed.

According to data on the Stanford Law School Securities Class Action Litigation Clearinghouse website (here), and with the addition of this latest lawsuit, there have now been a total of 79 COVID-related securities class action lawsuits filed since the initial COVID outbreak, including fourteen YTD in 2024 alone. The COVID related- lawsuits continue to be a significant factor in the total number of securities class action lawsuit filings. By year end, the COVID-related suits are likely to be a significant part of the total number of securities suit filings this year. At this point, it certainly seems likely that we will continue to see more COVID-related lawsuit filings in the months ahead.