Court Opinion

ID: 9398847
Source: CourtListenerOpinion
Date Created: 2023-06-01 15:02:20.120446+00
Date Added: 2024-06-11T17:19:36.976055
License: Public Domain

(Slip Opinion)              OCTOBER TERM, 2022                                       1

                                       Syllabus

         NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
       being done in connection with this case, at the time the opinion is issued.
       The syllabus constitutes no part of the opinion of the Court but has been
       prepared by the Reporter of Decisions for the convenience of the reader.
       See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

                                       Syllabus

          SLACK TECHNOLOGIES, LLC, FKA SLACK
           TECHNOLOGIES, INC., ET AL. v. PIRANI

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                  THE NINTH CIRCUIT

       No. 22–200.      Argued April 17, 2023—Decided June 1, 2023
This case arises from a public offering of securities governed by the Se-
  curities Act of 1933, and the issue presented is what a public buyer
  must allege to state a claim under §11 of the Act. The 1933 Act re-
  quires a company to register the securities it intends to offer to the
  public with the Securities and Exchange Commission. See, e.g., 15
  U. S. C. §§77b(a)(8), 77e; see also §77d. As part of that process, a com-
  pany must prepare a registration statement that includes detailed in-
  formation about the firm’s business and financial health so prospective
  buyers may fairly assess whether to invest. See, e.g., §§77f, 77g, 77aa.
  The law imposes strict liability on issuing companies when their reg-
  istration statements contain material misstatements or misleading
  omissions. In this case, Slack Technologies—a technology company
  that offers a platform for instant messaging—conducted a direct listing
  to sell its shares to the public on the New York Stock Exchange in 2019.
  As part of that process, Slack filed a registration statement for a spec-
  ified number of registered shares it intended to offer in its direct list-
  ing. Under the direct listing process, holders of preexisting unregis-
  tered shares in Slack were free to sell them to the public right away.
  Slack’s direct listing offered for purchase 118 million registered shares
  and 165 million unregistered shares. Fiyyaz Pirani bought 30,000
  Slack shares on the day Slack went public, and later bought 220,000
  additional shares. When the stock price dropped, Mr. Pirani filed a
  class-action lawsuit against Slack alleging, as relevant here, that
  Slack had violated §11 of the 1933 Act by filing a materially misleading
  registration statement. Slack moved to dismiss, arguing that the com-
  plaint failed to state a claim under §11 because Mr. Pirani had not
  alleged that he purchased shares traceable to the allegedly misleading
2               SLACK TECHNOLOGIES, LLC v. PIRANI

                                  Syllabus

    registration statement, leaving open the possibility that he purchased
    shares not registered by means of the registration statement. The dis-
    trict court denied the motion to dismiss but certified its ruling for in-
    terlocutory appeal. The Ninth Circuit accepted the appeal and a di-
    vided panel affirmed.
Held: Section 11 of the 1933 Act requires a plaintiff to plead and prove
 that he purchased securities registered under a materially misleading
 registration statement. The relevant language of §11(a) authorizes an
 individual to sue for a material misstatement or omission in a regis-
 tration statement when the individual has acquired “such security.”
 Slack argues the term “such security” refers to a security issued pur-
 suant to the allegedly misleading registration statement; Mr. Pirani
 says that the term may encompass a security not registered under an
 allegedly misleading registration statement. While the word “such”
 usually refers to something that has already been described, there is
 no clear referent in §11(a) defining what “such security” means. As a
 result, the Court must ascertain the statute’s critical referent “from
 the context or circumstances.”
    Context provides several clues. First, the statute imposes liability
 for false statements or misleading omissions in “the registration state-
 ment.” §77k (emphasis added). The statute uses the definite article
 to reference the particular registration statement alleged to be mis-
 leading, and in this way seems to suggest the plaintiff must “acquir[e]
 such security” under that document’s terms. Ibid. In addition, the
 statute repeatedly uses the word “such” to narrow the law’s focus—for
 example, referring to “such part” of the registration statement that
 contains a misstatement or misleading omission—suggesting that
 when it comes to “such security,” the law speaks to a security regis-
 tered under the particular registration statement alleged to contain a
 falsehood or misleading omission. Section 6 of the statute indicates
 that a registration statement is “effective” for “only . . . the securities
 specified therein,” which is also hard to square with Mr. Pirani’s read-
 ing. Damages caps in the statute also make less sense with Mr. Pi-
 rani’s account of the statute. Collectively, these contextual clues per-
 suade the Court that Slack’s reading of the law is the better one. While
 direct listings like the one here are new, the Court’s conclusion is not.
 The majority of courts have for years held that §11(a) liability extends
 only to shares that are traceable to an allegedly defective registration.
    Resisting this conclusion, Mr. Pirani argues that the Court should
 read the phrase “such security” to include not only securities registered
 under a defective registration statement but also other securities that
 bear some sort of minimal relationship to a defective registration state-
 ment. Mr. Pirani contends that but for the existence of Slack’s regis-
 tration statement for the registered shares, its unregistered shares
                     Cite as: 598 U. S. ____ (2023)                      3

                                Syllabus

  would not have been eligible for sale to the public. But Mr. Pirani does
  not explain what the limits of his rule would be, how the Court might
  derive them from §11, or how any of this can be squared with the var-
  ious contextual clues identified which suggest that liability runs with
  registered shares alone. Mr. Pirani argues that if Congress wanted
  liability under §11(a) to attach only to securities issued pursuant to a
  particular registration statement, it could have borrowed language
  from §5 to achieve that result. On its own terms, that argument also
  shows that Congress could have written §11(a) to explain more clearly
  that liability attaches to “any security” or “any security” bearing some
  specified relationship to a registration statement. Finally, Mr. Pirani
  argues that adopting a broader reading of “such security” would ex-
  pand liability for falsehoods and misleading omissions and thus better
  accomplish the purpose of the 1933 Act. The Court cannot endorse
  that sort of reasoning. Nor is Mr. Pirani’s account of the law’s purpose
  altogether obvious; an alternate inference in the opposite direction is
  at least equally plausible. In any event, the Court’s function is to dis-
  cern and apply existing law. The Court concludes that the better read-
  ing of §11 requires a plaintiff to plead and prove that he purchased
  shares traceable to the allegedly defective registration statement, and
  remands for the Ninth Circuit to consider that question in the first
  instance. Pp. 5-10.
13 F. 4th 940, vacated and remanded.

  GORSUCH, J., delivered the opinion for a unanimous Court.
                        Cite as: 598 U. S. ____ (2023)                              1

                             Opinion of the Court

     NOTICE: This opinion is subject to formal revision before publication in the
     United States Reports. Readers are requested to notify the Reporter of
     Decisions, Supreme Court of the United States, Washington, D. C. 20543,
     pio@supremecourt.gov, of any typographical or other formal errors.

SUPREME COURT OF THE UNITED STATES
                                   _________________

                                   No. 22–200
                                   _________________

   SLACK TECHNOLOGIES, LLC, FKA SLACK TECH-
      NOLOGIES, INC., ET AL., PETITIONERS v.
                 FIYYAZ PIRANI
 ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
            APPEALS FOR THE NINTH CIRCUIT
                                 [June 1, 2023]

   JUSTICE GORSUCH delivered the opinion of the Court.
   This case concerns the meaning of one provision of the
federal securities laws. For many years, lower federal
courts have held that liability under §11 of the Securities
Act of 1933 attaches only when a buyer can trace the shares
he has purchased to a false or misleading registration state-
ment. Recently, the Ninth Circuit parted ways with these
decisions, holding that a plaintiff may sometimes recover
under §11 even when the shares he owns are not traceable
to a defective registration statement. The question we face
is which of these approaches best conforms to the statute’s
terms.
                                I
  Together, the Securities Act of 1933, 48 Stat. 74, 15
U. S. C. §77a et seq., and the Securities Exchange Act of
1934, 48 Stat. 881, 15 U. S. C. §78a et seq., form the back-
bone of American securities law. The first is “ ‘narrower’ ”
and focused “ ‘primarily’ ” on the regulation of new offerings.
Gustafson v. Alloyd Co., 513 U. S. 561, 572 (1995) (quoting
Blue Chip Stamps v. Manor Drug Stores, 421 U. S. 723, 752
2           SLACK TECHNOLOGIES, LLC v. PIRANI

                      Opinion of the Court

(1975)). Generally speaking, the 1933 Act requires a com-
pany to register the securities it intends to offer to the pub-
lic with the Securities and Exchange Commission (SEC).
See, e.g., 15 U. S. C. §§77b(a)(8), 77e; see also §77d. As part
of that process, a company must prepare a registration
statement that includes detailed information about the
firm’s business and financial health so prospective buyers
may fairly assess whether to invest. See, e.g., §§77f, 77g,
77aa. The law imposes strict liability on issuing companies
when their registration statements contain material mis-
statements or misleading omissions. §77k; see also Herman
& MacLean v. Huddleston, 459 U. S. 375, 380 (1983).
   The 1934 Act sweeps more broadly. Among other things,
it requires publicly traded companies to provide ongoing
disclosures and regulates trading on secondary markets.
See, e.g., §§78m, 78o; T. Hazen, Federal Securities Law 99–
102 (4th ed. 2022) (Hazen). This law’s main liability provi-
sion sweeps more broadly too. It allows suits in connection
with the purchase or sale of “any security,” whether regis-
tered or not. §78j(b); see also 17 CFR §240.10b–5 (2022);
Herman & MacLean, 459 U. S., at 382. But to prevail under
this provision, a plaintiff must prove that any material mis-
leading statement or omission was made “with scienter, i.e.,
with intent to deceive, manipulate, or defraud.” Id., at 382.
   This case arises from a public offering governed by the
1933 Act. Typically, when a company goes public it issues
new shares pursuant to a registration statement. That reg-
istration statement is filed with the SEC and made availa-
ble to the public. Investment banks underwrite the offer-
ing, usually by buying these new registered shares at a
negotiated price and then selling them to investors at a
higher price. In this way, underwriters often carry the risk
of loss should they fail to sell the shares at a profit. See 1
L. Loss, J. Seligman, & T. Paredes, Securities Regulation
738–748 (6th ed. 2019); Hazen 32–33.
   Of course, a company’s early investors and employees
                   Cite as: 598 U. S. ____ (2023)               3

                       Opinion of the Court

may own preexisting shares. Often, too, these shares are
not subject to registration requirements. See, e.g., 15
U. S. C. §77d(a)(2) (exempting, among other things, trans-
actions “not involving any public offering”); 17 CFR
§230.144(a)(3)(i) (recognizing as exempt certain securities
“acquired directly . . . from the issuer . . . in a transaction or
chain of transactions not involving any public offering”);
Hazen 60–61. To prevent the stock price from falling once
public trading begins, underwriters may require insiders to
consent to a “lockup agreement”—a commitment to hold
their unregistered shares for a period of time before selling
them on the new public market. See 1 J. Bartlett, Equity
Finance: Venture Capital, Buyouts, Restructurings and Re-
organizations §14.8, p. 333 (2d ed. 1995).
   Initial public offerings (IPOs) are an effective way of rais-
ing capital, but they also have drawbacks. Among other
things, they can involve significant transaction costs. Nor
is raising capital the only reason firms might wish to go
public; some may simply wish to afford their shareholders
(whether investors, employees, or others) the convenience
of being able to sell their existing shares on a public ex-
change. See 73 Fed. Reg. 54442 (2008). Several years ago,
a number of companies approached the New York Stock Ex-
change (NYSE) about the possibility of selling shares pub-
licly on that exchange without an IPO. Ibid. Ultimately,
the NYSE proposed rules to facilitate and regulate these
“direct listings,” which the SEC approved with modifica-
tions. 83 Fed. Reg. 5650 (2018).
   Slack is a technology company that offers a platform for
instant messaging. It conducted a direct listing on the
NYSE in 2019. Pirani v. Slack Technologies, Inc., 13 F. 4th
940, 944, 947 (CA9 2021). As part of that process, Slack
filed a registration statement for a specified number of reg-
istered shares it intended to offer in its direct listing. Pi-
rani v. Slack Technologies, Inc., 445 F. Supp. 3d 367, 373
(ND Cal. 2020). But because Slack employed a direct listing
4           SLACK TECHNOLOGIES, LLC v. PIRANI

                      Opinion of the Court

rather than an IPO, there was no underwriter and no
lockup agreement. 13 F. 4th, at 951 (Miller, J., dissenting).
Accordingly, holders of preexisting unregistered shares
were free to sell them to the public right away. See ibid.
All told, Slack’s direct listing offered for purchase 118 mil-
lion registered shares and 165 million unregistered shares.
   Fiyyaz Pirani bought 30,000 Slack shares on the day
Slack went public. He bought 220,000 additional shares
over the next few months. When the stock price later
dropped, Mr. Pirani filed a class-action lawsuit against
Slack. In that suit, he alleged that Slack had violated §§11
and 12 of the 1933 Act by filing a materially misleading reg-
istration statement. Ibid.
   Slack moved to dismiss the complaint for failure to state
a claim. Sections 11 and 12, Slack argued, authorize suit
only for those who hold shares issued pursuant to a false or
misleading registration statement. And this feature of the
law, the company said, was dispositive in this case because
Mr. Pirani had not alleged that he purchased shares trace-
able to the allegedly misleading registration statement.
For all anyone could tell, he may have purchased unregis-
tered shares unconnected to the registration statement and
its representations about the firm’s business and financial
health. Of course, Slack would go on to acknowledge that
the 1934 Act allows investors to recover for fraud in the sale
of unregistered shares upon proof of scienter. But, the com-
pany emphasized, Mr. Pirani had not sought to sue under
that law.
   Ultimately, the district court denied the motion to dis-
miss but certified its ruling for interlocutory appeal. 445
F. Supp. 3d, at 381, 384–385. The Ninth Circuit accepted
the appeal and a divided panel affirmed. 13 F. 4th, at 945,
950. In dissent, Judge Miller argued that §§11 and 12 of
the 1933 Act require a plaintiff to plead and prove that he
purchased securities registered under a materially mislead-
ing registration statement, something Mr. Pirani had not
                       Cite as: 598 U. S. ____ (2023)                         5

                            Opinion of the Court

done. Id., at 951–952. Judge Miller pointed out that a long
line of lower court cases have interpreted §11 as applying
only to shares purchased pursuant to a registration state-
ment. Id., at 952. Because the Ninth Circuit’s decision cre-
ated a split of authority in the courts of appeals about §11’s
scope, we granted certiorari. 598 U. S. ___ (2022).1
                            II
  We begin with the relevant language of §11(a) of the 1933
Act. It provides:
        “In case any part of the registration statement, when
     such part became effective, contained an untrue state-
     ment of a material fact or omitted to state a material
     fact required to be stated therein or necessary to make
     the statements therein not misleading, any person ac-
     quiring such security (unless it is proved that at the
     time of such acquisition he knew of such untruth or
     omission) may, either at law or in equity, in any court
     of competent jurisdiction, sue [certain enumerated par-
     ties].” 15 U. S. C. §77k(a).
The statute authorizes an individual to sue for a material
misstatement or omission in a registration statement when
he has acquired “such security.” The question we face is
what this means. Does the term “such security” refer to a
security issued pursuant to the allegedly misleading regis-
tration statement? Or can the term also sometimes encom-
pass a security that was not issued pursuant to the alleg-
edly misleading registration statement? Slack advances
the first interpretation; Mr. Pirani defends the second.
——————
  1 The parties have litigated this case on the premise that Slack was not

required to register all of the shares sold in its direct listing. For the first
time before this Court, Mr. Pirani challenges that premise, suggesting
that it was incumbent on Slack to register all the securities sold in its
direct listings on the NYSE. Brief for Respondent 11–12, n. 7. As he
acknowledges, however, this issue is not properly presented for decision,
ibid., and so we do not pass upon it.
6           SLACK TECHNOLOGIES, LLC v. PIRANI

                     Opinion of the Court

   Immediately, we face a bit of a challenge. The word
“such” usually refers to something that has already been
“described” or that is “implied or intelligible from the con-
text or circumstances.” Concise Oxford Dictionary of Cur-
rent English 1218 (1931); see also Webster’s New Interna-
tional Dictionary 2518 (2d ed. 1954). But there is no clear
referent in §11(a) telling us what “such security” means. As
a result, we must ascertain the statute’s critical referent
“from the context or circumstances.”
   As it turns out, context provides several clues. For one
thing, the statute imposes liability for false statements or
misleading omissions in “the registration statement.” §77k
(emphasis added). Not just a registration statement or any
registration statement. The statute uses the definite article
to reference the particular registration statement alleged to
be misleading, and in this way seems to suggest the plain-
tiff must “acquir[e] such security” under that document’s
terms. Ibid.
   For another thing, the statute repeatedly uses the word
“such” to narrow the law’s focus. The statute directs us to
“such part” of the registration statement that contains a
misstatement or misleading omission. It speaks of “such
acquisition” when a person has acquired securities pursu-
ant to the registration statement. And it points to “such
untruth or omission” found in the registration statement.
Each time, the law trains our view on particular things or
statements. All of which suggests that, when it comes to
“such security,” the law speaks to a security registered un-
der the particular registration statement alleged to contain
a falsehood or misleading omission.
   Other provisions in the 1933 Act follow suit. Under §5,
for example, “[u]nless a registration statement is in effect
as to a security,” it is unlawful “to sell such security.”
§77e(a). Here, the term “such security” clearly refers to
shares subject to registration. Meanwhile, §6 provides that
a “registration statement shall be deemed effective only as
                      Cite as: 598 U. S. ____ (2023)                     7

                          Opinion of the Court

to the securities specified therein as proposed to be offered.”
§77f(a). It’s an instruction that would seem hard to square
with Mr. Pirani’s broader reading of §11(a)—after all,
adopting that reading would give the registration state-
ment effect (in the sense of creating liability) for securities
that are not “specified” in the registration statement “as
proposed to be offered.”
   Beyond these clues lies still another. Section 11(e) caps
damages against an underwriter in a §11 suit to the “total
price at which the securities underwritten by him and dis-
tributed to the public were offered to the public.” §77k(e).
This provision thus ties the maximum available recovery to
the value of the registered shares alone. It’s another fea-
ture that makes little sense on Mr. Pirani’s account, for if
§11(a) liability extended beyond registered shares presum-
ably available damages would too. See Barnes v. Osofsky,
373 F. 2d 269, 272 (CA2 1967); Brief for SEC as Amicus Cu-
riae in Barnes v. Osofsky, No. 30867 etc. (CA2), pp. 4–5.
   Collectively, these contextual clues persuade us that
Slack’s reading of the law is the better one. Nor is anything
we say here particularly novel. For while direct listings are
new, the question how far §11(a) liability extends is not.
More than half a century ago, Judge Friendly addressed the
question in an opinion for the Second Circuit in Barnes and
concluded that “the narrower reading” we adopt today is the
more “natural” one. 373 F. 2d, at 271, 273. Since Barnes,
every court of appeals to consider the issue has reached the
same conclusion: To bring a claim under §11, the securities
held by the plaintiff must be traceable to the particular reg-
istration statement alleged to be false or misleading.2 Until

——————
  2 See, e.g., In re Ariad Pharmaceuticals, Inc. Securities Litigation, 842

F. 3d 744, 755–756 (CA1 2016); Rosenzweig v. Azurix Corp., 332 F. 3d
854, 873 (CA5 2003); Lee v. Ernst & Young, LLP, 294 F. 3d 969, 976–977
(CA8 2002); Joseph v. Wiles, 223 F. 3d 1155, 1159 (CA10 2000), abrogated
on other grounds, California Public Employees’ Retirement System v.
8            SLACK TECHNOLOGIES, LLC v. PIRANI

                        Opinion of the Court

this decision, even the Ninth Circuit seemed to take the
same view. Hertzberg v. Dignity Partners, Inc., 191 F. 3d
1076, 1080, and n. 4 (1999).
   Resisting this conclusion, Mr. Pirani argues that we
should read the phrase “such security” to include not only
securities traceable to a defective registration statement.
We should also read the phrase to include other securities
that bear some sort of minimal relationship to a defective
registration statement. And, he argues, a reading like that
would allow his case to proceed because, but for the exist-
ence of Slack’s registration statement for the registered
shares, its unregistered shares would not have been eligible
for sale to the public. Brief for Respondent 22–23. Beyond
assuring us that the rule he proposes would save his case,
however, Mr. Pirani does not offer much more. He does not
explain what the limits of his rule would be, how we might
derive them from §11, or how any of this can be squared
with the various contextual clues we have encountered sug-
gesting that liability runs with registered shares alone.
   Perhaps the closest Mr. Pirani comes to answering these
questions comes when he directs us to §5. If Congress
wanted liability under §11(a) to attach only to securities is-
sued pursuant to a particular registration statement, he ob-
serves, it could have simply borrowed similar language
from §5. That provision, he stresses, speaks of “any security
with respect to which a registration statement has been
filed.” §77e(b)(1). But even taken on its own terms, this
argument does not prove much. If Mr. Pirani’s example
shows that Congress could have written §11(a) to explain
more clearly that liability attaches only to securities issued
pursuant to a particular registration statement, it also
shows that Congress could have written §11(a) to explain
more clearly that liability attaches to “any security” or “any
——————
ANZ Securities, Inc., 582 U. S. 497 (2017); APA Excelsior III L. P. v.
Premiere Technologies, Inc., 476 F. 3d 1261, 1271 (CA11 2007).
                  Cite as: 598 U. S. ____ (2023)             9

                      Opinion of the Court

security” bearing some specified relationship to a registra-
tion statement. That Congress could have been clearer, no
one disputes. But none of this proves it adopted anything
like the rule Mr. Pirani proposes.
   Finally, Mr. Pirani argues from policy and purpose.
Adopting a broader reading of “such security” would, he
says, expand liability for falsehoods and misleading omis-
sions and thus better accomplish the purpose of the 1933
Act. We cannot endorse this line of reasoning. This Court
does not “presume . . . that any result consistent with [one
party’s] account of the statute’s overarching goal must be
the law.” Henson v. Santander Consumer USA Inc., 582
U. S. 79, 89 (2017). Nor, for that matter, is Mr. Pirani’s ac-
count of the law’s purpose altogether obvious. As we have
seen, the 1933 Act is “limited in scope.” Herman & Mac-
Lean, 459 U. S., at 382. Its main liability provision imposes
strict liability on issuers for material falsehoods or mislead-
ing omissions in the registration statement. Ibid. Mean-
while, the 1934 Act requires ongoing disclosures for publicly
traded companies and its main liability provision allows
suits involving any sale of a security but only on proof of
scienter. Ibid.; Hazen 99–100. Given this design, it seems
equally possible that Congress sought a balanced liability
regime that allows a narrow class of claims to proceed on
lesser proof but requires a higher standard of proof to sus-
tain a broader set of claims.
                              III
   Naturally, Congress remains free to revise the securities
laws at any time, whether to address the rise of direct list-
ings or any other development. Our only function lies in
discerning and applying the law as we find it. And because
we think the better reading of the particular provision be-
fore us requires a plaintiff to plead and prove that he pur-
chased shares traceable to the allegedly defective registra-
tion statement, we vacate the Ninth Circuit’s judgment
10            SLACK TECHNOLOGIES, LLC v. PIRANI

                          Opinion of the Court

holding otherwise. Whether Mr. Pirani’s pleadings can sat-
isfy §11(a) as properly construed, we leave for that court to
decide in the first instance on remand.3

                                                       It is so ordered.

——————
   3 As we noted at the outset, the parties do not just spar over the best

interpretation of §11 and its application to this case. They do the same
when it comes to §12. See Part I, supra. But we have no need to reach
the merits of that particular dispute. The Ninth Circuit said that its
decision to permit Mr. Pirani’s §12 claim to proceed “follow[ed] from” its
analysis of his §11 claim. 13 F. 4th 940, 949 (2021). And because we find
that court’s §11 analysis flawed, we think the best course is to vacate its
judgment with respect to Mr. Pirani’s §12 claim as well for reconsidera-
tion in the light of our holding today about the meaning of §11. In doing
so, we express no views about the proper interpretation of §12 or its ap-
plication to this case. Nor do we endorse the Ninth Circuit’s apparent
belief that §11 and §12 necessarily travel together, but instead caution
that the two provisions contain distinct language that warrants careful
consideration.