City of Coral Springs Police Officers' Ret. Plan v. Farfetch Ltd.

565 F.Supp.3d 478

CITY OF CORAL SPRINGS POLICE OFFICERS’ RETIREMENT PLAN, Plaintiff,

v.FARFETCH LIMITED, et al., Defendant.

19-cv-8720 (AJN)

United States District Court, S.D. New York.

Signed September 30, 2021

Naumon A. Amjed, Kessler Topaz Meltzer and Check LLP, Radnor, PA, for Plaintiff.

Jason Craig Hegt, Jeff G. Hammel, Latham & Watkins, New York, NY, for Defendants Farfetch Limited, Jose Neves, Elliot Jordan, Frederic Court, Dana Evan, Jonathan Kamaluddin, Richard Liu, Dame Natalie Massenet, Jonathan Newhouse, Daniel Rimer, Michael Risman, David Rosenblatt.

Todd G. Cosenza, Willkie Farr & Gallagher LLP, New York, NY, for Defendants Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Allen & Company LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Wells Fargo Securities, LLC, Cowen and Company, LLC, BNP Paribas Securities Corp.

MEMORANDUM OPINION & ORDER

ALISON J. NATHAN, District Judge:

Plaintiffs, who purchased Defendant Farfetch's stock following its initial public offering in 2018, bring claims against the company, its executives, and the financial institutions that served as underwriters to the IPO for making materially false statements and omissions in violation of securities laws. Defendants move to dismiss Plaintiffs’ complaint for failure to state a claim. For the reasons that follow, Defendants’ motion is GRANTED.

I. BACKGROUND

A. Factual Summary

The following facts are drawn from Plaintiffs’ Consolidated Amended Complaint and accepted as true for the purposes of this motion. Dkt. No. 39. Farfetch is a technology company based in London that focuses on the sale of luxury fashion and other luxury goods. Id. ¶ 2. According to Farfetch's executives, Defendant José Neves (CEO), Defendant Andrew Robb (COO), and Defendant Elliot Jordan (CFO), Farfetch is not a traditional fashion retailer but has a unique business model. Id. They claim that Farfetch is a third-party marketplace platform that connects luxury goods suppliers to consumers on its website, and that Farfetch's revenue comes from the high commissions it receives on each sale. Essentially, Defendants have touted Farfetch as the Uber or Amazon of luxury fashion. After its founding in 2008, Farfetch became a very successful startup and was valued at $1 billion in 2015 after a round of private funding. Id. ¶ 33. Farfetch also acquired Browns, a first-party luxury fashion retailer, in 2015. Id. ¶ 34.

In late 2017 and early 2018, Farfetch prepared to take the company public. Farfetch filed preliminary paperwork with the Securities and Exchange Commission and hosted a two-week IPO roadshow, where the executives visited multiple cities to make marketing presentations to potential investors. Id. ¶¶ 40–42. The company received lots of favorable press coverage regarding its business model during this time, which was attractive to investors for a number of reasons. First, it had the potential to be a pioneer in the relatively untapped submarket of online luxury fashion. While e-commerce generally has exploded in the past few decades, including online clothing sales, experts explain that the luxury market has lagged behind because many of the sellers are boutiques that have struggled to make the online shopping experience as "alluring" as shopping in a luxury store. Id. ¶¶ 26–28. Additionally, Farfetch's departure from the traditional, first-party retailer model meant that Farfetch carries very little inventory and low capital expenditures, and thus incurs very little financial risk. Id. ¶¶ 30–35.

Farfetch filed its prospectus and registration document (collectively, "offering materials") with the SEC on September 24, 2018. Id. ¶ 64; Dkt. No. 56-2. Defendants Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Allen & Company LLC, UBS Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Wells Fargo Securities LLC, Cowen and Company LLC, and BNP Paribas Securities Corp., served as underwriters to the IPO. Dkt. No. 56-2 at 173. As relevant here, Farfetch made various representations in these offering documents. First, Farfetch touted its innovative third-party platform marketplace and distinguished itself from the inferior first-party sales model. Consol. Am. Compl. ¶ 66. Second, Farfetch disclosed how it had divided the operating segments of its business for accounting purposes. Id. ¶ 69. Third, Fartetch explained that it created various "key performance indicators" that Farfetch claimed best represented its economic value. Id. ¶ 71. Fourth, Farfetch explained its "growth strategies" and stated that it did not have any current plans for future acquisitions. Id. ¶¶ 71, 78

The IPO was highly successful. Farfetch stock began trading on the New York Stock Exchange on September 21, 2018 at $27.00 per share, which was significantly higher than the initial target price of $15-$17 per share, and peaked at $30.60 per share, before closing at $28.45 per share. Id. ¶¶ 65–67, 80. The IPO raised over $1 billion and Farfetch's total valuation following the IPO was over $8 billion. Id. ¶ 80.

After the IPO, Farfetch performed well financially for the year 2018 and analysts continued to react positively to news of Farfetch's steady growth. The only exception was when Farfetch announced acquisitions of Stadium Goods and Toplife in late 2018 and early 2019, both traditional first-party retailers, for which analysts had tepid reviews. Id. ¶ 101.

Starting in March and May of 2019, Defendants Neves, Robb, and Jordan began to sell some of their shares. Id. ¶ 185. They had been precluded from doing so until that time by lock-up agreements that were executed as part of the IPO. Id. ¶ 187. Each entered into a 10b5-1 trading plan with the SEC which scheduled a series of trades that would be executed so long as Farfetch stock did not fall below a minimum price. Id. ¶ 188. Dkt. Nos. 56-27–56-30. From March to August 2019, Defendant executives collectively made approximately $46.8 to $68 million in Farfetch stock sales. Id. ¶ 185.

On August 8, 2019, the company's momentum slowed. Farfetch issued two press release and held its second quarter earnings call that contained two important disclosures. Id. ¶ 165. First, Farfetch disclosed that it had acquired New Guards Group, a first-party sales entity, for nearly $675 million. Id. ¶ 166. Farfetch also disclosed its second quarter 2019 financial results, which were quite poor. Farfetch suffered a loss of $89.6 million, as opposed to $17.6 million in the prior-year period. Id. ¶¶ 168, 170. Farfetch also announced a lowered guidance for future projections: instead of the 41% year-over-year Platform GMV growth previously projected, Farfetch announced that they projected a 30-35% growth for third quarter 2019 and a 37-40% for the fully year 2019. Id. ¶ 169. Analysts and investors reacted extremely negatively to the news and Farfetch's stock price fell by 45% in 24 hours. Id. ¶ 173.

B. Procedural History

Following the plummet of Fafetch's stock price in August of 2019, stockholders filed suit against Farfetch in this Court. In Omdahl v. Farfetch Limited, et al., No. 1:19-cv-08657-AJN (S.D.N.Y. Sept. 17, 2019), Plaintiff Jeff Omdahl brought claims on behalf of himself and a class of others similarly situated under the Securities Act, and in City of Coral Springs Police Officers’ Retirement Plan v. Farfetch Limited, et al. , No. 1:19-cv-08720-AJN (S.D.N.Y. Sept. 19, 2019), Plaintiff City of Coral Springs brought claims on behalf of itself and a class of others similarly situated under the Securities Act and the Exchange Act for Farfetch Class A ordinary shares. On June 10, 2020, the Court consolidated these cases and appointed Plaintiffs IAM National Pension Fund and Oklahoma Pension and Retirement System as lead Plaintiffs and their law firms as lead counsel. Dkt. No. 31.

Plaintiffs filed their Consolidated Amended Complaint on August 11, 2020, bringing claims against Defendant Farfetch, Officer Defendants, and Defendant Underwriters for violations of both the Securities Act and Exchange Act on behalf of a class of similarly situated individuals who purchased Farfetch stock at any point from its IPO launch on September 20, 2018 through the date of the alleged disclosures on August 8, 2019. Dkt. No. 39. In sum, Plaintiffs allege that Defendants made various materially false and misleading statements or omissions to the public and in their offering materials. Id.

Defendants jointly filed a motion to dismiss Plaintiffs’ complaint on October 23, 2020, arguing that Plaintiffs had failed to state a claim for relief under either the Securities Act or the Exchange Act. Dkt. Nos. 55–59. Plaintiffs filed an opposition and Defendants filed a reply. Dkt. Nos. 63–66.

II. LEGAL STANDARD

To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted, a plaintiff's complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief," that "give[s] the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). For purposes of the motion to dismiss, all of the "factual allegations contained in the complaint" must be "accept[ed] as true." Id. at 572, 127 S.Ct. 1955. Though these allegations need not be "detailed," they must "state a claim to relief that is plausible on its face." Id. at 555, 570, 127 S.Ct. 1955. A complaint is facially plausible "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

In securities fraud cases, the Private Securities Litigation Reform Act ("PSLRA") requires a complaint to "specify each statement [or omission] alleged to have been misleading, the reason or reasons why the statement [or omission] is misleading, and,...