Supreme Court sets standard for class action lawsuits by shareholders | Carr Maloney PC

(Co-author: Mac McCullough)

On June 17, 2024, the U.S. Supreme Court granted Nvidia’s appeal of the Ninth Circuit’s decision to reinstate a shareholder class action lawsuit against the company. The Supreme Court will consider the appropriate standard of action for a claim for fraudulent statements or omissions under Section 10(b) of the Securities Exchange Act of 1934, the Private Securities Litigation Reform Act (“PSLRA”).

Nvidia is an artificial intelligence chipmaker and Nvidia chips have become popular for crypto mining (the complicated process of securing cryptocurrencies). The class action lawsuit alleged that Nvidia misled investors about the share of its revenue coming from crypto activities. The lawsuit was originally filed in 2018, but U.S. District Judge Haywood Gilliam Jr. dismissed it in 2021. The Ninth Circuit reinstated the case, finding that the plaintiffs sufficiently alleged that Nvidia’s CEO “made false or misleading statements and did so knowingly or recklessly.”

The PSLRA created a high standard for securities class actions, requiring plaintiffs to prove fraudulent intent and falsehood to survive motions to dismiss. The Ninth Circuit reversed the dismissal for failure to state a claim, ruling that plaintiffs could prove fraudulent intent by pointing to internal documents they had not seen and using experts to prove that the company’s statements were false. Nvidia argued that such evidence was outside the scope of the complaint and inconsistent with the established standard of pleading.

The Supreme Court will likely clarify the PSLRA’s standards and rules and resolve disagreements among district courts. The decision could have significant implications for filing requirements in securities class actions. If standards are lowered, cases will be more likely to survive early motions to dismiss. Nvidia is concerned that if the Ninth Circuit’s decision stands, it would enable “abusive and speculative litigation.”

The Supreme Court will hear arguments in the case during its next term, which begins in October.

(1) Mac McCullough is a legal intern at Carr Maloney PC and a law student at George Washington University.