At the outset of the current U.S. Supreme Court term, corporate and securities law observers and commentators were excited that the Court had agreed to take up two securities law cases that had significant potential to provide insights about securities lawsuit pleading standards and processes. However, as noted here, in November, the court dismissed the Facebook Cambridge Analytica case, one of the two cases the Court was to take up this term. Now, in a terse, one-line December 11, 2024, order, the Court dismissed the Nvidia case, the second of the two cases it had agreed to take up, meaning that instead of addressing two securities law cases this term, it will now not consider any securities cases. A copy of the Court’s December 11, 2024, order can be found here.

Background

Nvidia made GPUs intended for gaming applications. In or about 2017, cryptocurrency companies began using its GPUs for crypto mining operations. Sales of its GPUs reached record levels in 2017 and most of 2018 and the company told investors it was working hard to meet demand. However, when the company learned of excess supply of certain of its GPUs in certain distribution channels, it disclosed the excess supply of the GPUs, its share price declined, and plaintiff shareholders filed securities class action lawsuits against the company and certain of its directors and officers.

In their complaint, the plaintiff shareholders alleged that Jensen Huang, the company’s CEO, knowingly understated the extent to which demand for certain of the company’s GPUs was being driven by cryptocurrency miners (as opposed to demand from gamers). In their complaint, the plaintiffs did not, for example, cite internal documents reflecting GPU demand by crypto miners as opposed to gamers; rather, plaintiffs relied on an expert witness to analyze public data about activities of the crypto mining companies, using assumptions about the amount of computing power needed to facilitate the disclosed activities, and from that estimating the number of GPUs needed for the activity and what percentage of those GPUs would have been NVIDIA’s. From this “chain of assumptions,” the expert purported to determine what percentage of NVIDIA’s revenue was derived from crypto miners, the basis on which the plaintiffs alleged that the company’s actual dependence on crypto miners differed from the company’s disclosures. 

The District Court granted the defendants motion to dismiss. However, the Ninth Circuit, in a split opinion, written over the dissent of Judge Gabriel Sanchez affirmed in part and reversed in part the lower court’s dismissal.

NVIDIA filed a petition for a writ of certiorari to the U.S. Supreme Court. In their petition, NVIDIA said that the case presents two questions:

1. Whether plaintiffs seeking to allege scienter under the PSLRA based on allegations about internal company documents must plead with particularity the contents of those documents.

2. Whether plaintiffs can satisfy the PSLRA’s falsity requirement by relying on an expert opinion to substitute for particularized allegations of fact.

In a June 17, 2024, order, the Court granted the company’s petition for a writ of certiorari. The case, which was docketed for the current U.S. Supreme Court term, had been fully briefed, and indeed, on November 13, 2024, the Court heard oral argument. According to press reports of the argument, the Court seemed very skeptical, and several individual justices seemingly were questioning why the case was before the court. Indeed, as reported here, Justice Elena Kegan said, with respect to the Nvidia case, that “it becomes less and less clear why we took this case” rather than simply allowing the Ninth Circuit’s decision to stand.

Then on December 11, 2024, the U.S. Supreme Court entered an order dismissing the case on the grounds that the writ of certiorari was improvidently granted. As usual when this happens, the Court provided no explanation for the dismissal. A dismissal on these grounds means that the Court has decided that it should not have agreed to review the case. A dismissal of this type typically occurs when the Court realizes, upon further examination, that the case does not meet the criteria for Supreme Court review or that there was some procedural or substantive issue that makes the case unsuitable for their consideration. (More background on a dismissal on this ground can be found here.)

Discussion

The practical effect of the Supreme Court’s dismissal is that the Ninth Circuit’s ruling in the case will stand, meaning that the appellate court’s overturning of part of the district court’s dismissal of the case is operative, and the portion of the case that the Ninth Circuit revived by overturning the district court’s dismissal will now go back to the district court for further proceedings.

The Supreme Court’s dismissal of the case also means that the Court now will not weigh in on the interesting and important issues that the case presented. The question of what a plaintiff relying on internal documents in support of a securities law claim must plead is a recurring one. The question of the extent to which a plaintiff can rely on expert witness testimony to support the sufficiency of a securities law claim also is recurring. The lower courts must now deal with these questions without Supreme Court guidance on the issue, and in that regard must deal with the split in the circuit on these issues that Nvidia has cited in support of its petition for the writ of certiorari.

The split in the circuits, usually of such significant concern to the Supreme Court, is a particularly noteworthy concern with respect to these questions; Nvidia had argued in its petition for the writ that the positions of the Second and Ninth Circuits on these issues diverge, meaning that, with diverging positions in the two Circuits with the greatest volume of securities litigation activity, resulting in potentially diverging case outcomes.

Based on the media reports of oral arguments in this case, it appears that the Court was skeptical of the pleading standard for which Nvidia argued, expressing concern that requirements that Nvidia urged could raise impossible barriers for claimants at the pleading stage. Some justices also questioned how the expert witness’s report could be questioned at the motion to dismiss stage of the proceedings.

In any event, it is now the case that in a Supreme Court term in which it looked as if the Court would be weighing in on the pleading standards in securities suits in two different cases, the Court will now not be saying anything on U.S. securities law issues this term. You would also think that the court might be more restrained in agreeing to take up further securities law cases, at least in the near term.

Kind of feels like showing up for a wedding ceremony, with everyone all dressed up and the witnesses gathered and the music playing, and instead of nuptials, the guests are treated to an abrupt and unexpected announcement that the wedding has been cancelled.