Kwok Kong v. Fluidigm Corp.

KWOK KONG, Plaintiff-Appellant, and REENA SAINT JERMAIN, Plaintiff, v. FLUIDIGM CORPORATION; et al., Defendants-Appellees

No. 22-15396

United States Court of Appeals, Ninth Circuit

February 21, 2023

NOT FOR PUBLICATION

Argued and Submitted February 6, 2023 San Francisco, California

Appeal from the United States District Court No. 4:20-cv-06617-PJH for the Northern District of California Phyllis J. Hamilton District Judge, Presiding

Before: BYBEE and BUMATAY, Circuit Judges, and BENNETT ^[**] Senior District Judge.

MEMORANDUM ^[*]

In this putative class action, Plaintiff-Appellant Kwok Kong brings securities fraud claims against a lab equipment manufacturer and two of its executive officers based on several financial projections made to investors throughout fiscal year 2019. In the operative Second Amended Complaint ("SAC") Kong alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, which prohibit material misrepresentations or omissions in relation to the purchase or sale of corporate securities. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. The district court dismissed the SAC, finding that the Appellees' challenged statements were not materially misleading, and that Kong failed to plead a strong inference of scienter. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

Defendant-Appellee Fluidigm Corporation, Inc. ("Fluidigm") manufactures microfluidics and mass cytometry equipment. Fluidigm's mass cytometry enterprise expanded between 2018 and 2019, and its stock price nearly doubled during this timeframe. However, Fluidigm's mass cytometry sales declined sharply during the second half of 2019, resulting in a substantial drop in the company's stock price. According to the SAC, Fluidigm and its top executives received internal reports in October and November 2018 projecting that this decline would occur. Kong alleges that Fluidigm CEO Christopher Linthwaite and CFO Vikram Jog (the "Individual Defendants") concealed these projections and made several statements on quarterly revenue calls that misled investors to believe that the company's mass cytometry pipeline would remain profitable and continue to grow.

Section 10(b) of the Securities Exchange Act of 1934 proscribes the use of "any manipulative or deceptive device" in violation of "such rules and regulations as the [Securities and Exchange] Commission may prescribe." 15 U.S.C. § 78j(b). Implementing this directive, SEC Rule 10b-5 prohibits material misrepresentations and omissions "in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5. To state a claim under these provisions, a securities fraud plaintiff must allege, as relevant here, "a material misrepresentation or omission by the defendant," and scienter. Macomb Cnty. Emp. Retirement Sys. v. Align Tech., Inc., 39 F.4th 1092, 1096 (9th Cir. 2022) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014)). We hold that Kong's claim falls short at the first hurdle, as none of the statements challenged in the SAC constitute material misrepresentations or omissions that may sustain a securities fraud claim. Accordingly, we affirm on the first issue and need not reach the question of scienter.

First, Kong challenges revenue and growth forecasts that are shielded by the safe harbor provision of the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-5. "The PSLRA's safe harbor provision exempts from liability forward-looking statements accompanied by [meaningful] cautionary language." In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 798 (9th Cir. 2017). Many of the statements at issue "are classic growth and revenue projections, which are forwardlooking on their face." Police Retirement Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014). During investment calls in Q1, Q2, and Q3 2019, the Individual Defendants made statements such as: "We have certainly strong growth throughout the back half of the year in general;" "[w]e see no reason why the trend lines won't continue to revert back towards the norm;" and "we think Q4, given what's setting up right now, is going to be a very strong cycle for placements of instruments and order placements." These statements assess "how various future events will play out"-they do not describe "specific, concrete circumstances that have already occurred." Wochos v. Tesla, Inc., 985 F.3d 1180, 1192 (9th Cir. 2021) (emphasis in original). Additionally, these comments were accompanied by meaningful cautionary language in Fluidigm's SEC filings and analyst calls, which warned investors of the potential for increased competition and market fluctuations.

Second while some statements fall outside the safe harbor, most constitute puffery that is not actionable as a matter of law. Ordinarily, "'vague statements of optimism like good, well-regarded, or other feel good monikers,' are not actionable because 'professional investors, and most amateur investors as well, know how to devalue the optimism of corporate executives.'" Intuitive Surgical, 759 F.3d at 1060 (quoting In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010)). Throughout Q1 and Q2 2019, the Individual Defendants lauded Fluidigm's mass cytometry enterprise, assuring investors that "[m]ass cytometry adoption is robust" and "thriving;" that "the mass cytometry portfolio has done outstanding;" that ...