Court Opinion

ID: 5125351
Source: CourtListenerOpinion
Date Created: 2021-11-11 21:01:19.732276+00
Date Added: 2024-06-11T08:22:50.017030
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

FIYYAZ PIRANI,                          No. 20-16419
                  Plaintiff-Appellee,
                                           D.C. No.
                 v.                     3:19-cv-05857-
                                              SI
SLACK TECHNOLOGIES, INC.;
STEWART BUTTERFIELD; ALLEN
SHIM; BRANDON ZELL; ANDREW                OPINION
BRACCIA; EDITH COOPER; SARAH
FRIAR; JOHN O’FARRELL; CHAMATH
PALIHAPITIYA; GRAHAM SMITH;
SOCIAL+CAPITAL PARTNERSHIP GP II
L.P.; SOCIAL+CAPITAL PARTNERSHIP
GP II LTD.; SOCIAL+CAPITAL
PARTNERSHIP GP III L.P.;
SOCIAL+CAPITAL PARTNERSHIP GP
III LTD.; SOCIAL+CAPITAL
PARTNERSHIP OPPORTUNITIES FUND
GP L.P.; SOCIAL+CAPITAL
PARTNERSHIP OPPORTUNITIES FUND
GP LTD.; ACCEL GROWTH FUND IV
ASSOCIATES L.L.C.; ACCEL GROWTH
FUND INVESTORS 2016 L.L.C.;
ACCEL LEADERS FUND ASSOCIATES
L.L.C.; ACCEL LEADERS FUND
INVESTORS 2016 L.L.C.; ACCEL X
ASSOCIATES L.L.C.; ACCEL
INVESTORS 2009 L.L.C.; ACCEL XI
ASSOCIATES L.L.C.; ACCEL
2               PIRANI V. SLACK TECHNOLOGIES

 INVESTORS 2013 L.L.C.; ACCEL
 GROWTH FUND III ASSOCIATES
 L.L.C.; AH EQUITY PARTNERS I
 L.L.C.; A16Z SEED-III LLC,
              Defendants-Appellants.

         Appeal from the United States District Court
           for the Northern District of California
           Susan Illston, District Judge, Presiding

             Argued and Submitted May 13, 2021
                  San Francisco, California

                    Filed September 20, 2021

    Before: Sidney R. Thomas, Chief Judge, Eric D. Miller,
          Circuit Judge, and Jane A. Restani, * Judge.

                   Opinion by Judge Restani;
                    Dissent by Judge Miller

     *
       The Honorable Jane A. Restani, Judge for the United States Court
of International Trade, sitting by designation.
                PIRANI V. SLACK TECHNOLOGIES                         3

                          SUMMARY **

                          Securities Law

    The panel affirmed the district court’s order denying in
part a motion to dismiss and ruling that Fiyyaz Pirani had
standing to sue Slack Technologies, Inc., and individual
defendants under §§ 11 and 12(a)(2) of the Securities Act of
1933 based on shares issued under a new rule from the New
York Stock Exchange allowing companies to make shares
available to the public through a direct listing.

     Pirani alleged that Slack’s registration statement was
inaccurate and misleading under §§ 11 and 12(a)(2).
Sections 11 and 12 refer to “such security,” meaning a
security issued under a specific registration statement. The
panel held that, even though Pirani could not determine if he
had purchased registered or unregistered shares in a direct
listing, he had standing to bring a claim under §§ 11 and 12
because his shares could not be purchased without the
issuance of Slack’s registration statement, thus demarking
these shares, whether registered or unregistered, as “such
security” under §§ 11 and 12.

    The panel held that because standing existed for Pirani’s
§ 11 claim against Slack, standing also existed for a
dependent § 15 claim against controlling persons. The panel
concluded that statutory standing existed under §§ 11 and
15, and under § 12(a)(1) to the extent it paralleled § 11.

    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4             PIRANI V. SLACK TECHNOLOGIES

    Dissenting, Judge Miller wrote that he would reverse the
district court’s order and remand with instructions to grant
the motion to dismiss in full because Pirani could not prove
that his shares were issued under the registration statement
that he said was inaccurate, and he therefore lacked statutory
standing.

                        COUNSEL

Michael D. Celio (argued), Gibson Dunn & Crutcher LLP,
Palo Alto, California; Theodore J. Boutrous Jr. and Daniel
R. Adler, Gibson Dunn & Crutcher LLP, Los Angeles,
California; Matthew S. Kahn, Michael J. Kahn, and Avery
E. Masters, Gibson Dunn & Crutcher LLP, San Francisco,
California; Jason H. Hilborn, Gibson Dunn & Crutcher LLP,
Washington, D.C.; for Defendants-Appellants.

Lawrence P. Eagel (argued), W. Scott Holleman, and David
J. Stone, Bragar Eagel & Squire P.C., New York, New York;
Melissa A. Fortunato and Marion C. Passmore, Bragar Eagel
& Squire P.C., San Francisco, California; for Plaintiff-
Appellee.

Jennifer J. Schulp, Ilya Shapiro, and Sam Spiegelman, Cato
Institute, Washington, D.C., for Amicus Curiae The Cato
Institute.

Gavin M. Masuda and Morgan E. Whitworth, Latham &
Watkins LLP, San Francisco, California; Andrew B. Clubok,
Latham & Watkins LLP, Washington, D.C.; Gregory
Mortenson, Latham & Watkins LLP, New York, New York;
Ira D. Hammerman and Kevin M. Carroll, Securities
Industry and Financial Markets Association, Washington,
D.C.; Jeffrey E. Farrah, National Venture Capital
             PIRANI V. SLACK TECHNOLOGIES                  5

Association, Washington, D.C.; Daryl Joseffer and Tara S.
Morrissey, U.S. Chamber Litigation Center, Washington,
D.C.; for Amici Curiae Securities Industry and Financial
Markets Association, Chamber of Commerce of the United
States of America, and National Venture Capital
Association.

                        OPINION

RESTANI, Judge:

    This case involves an interlocutory appeal from a dispute
between Plaintiff-Appellee Fiyyaz Pirani (Pirani) and
Defendants-Appellants Slack Technologies, Inc. (Slack)
regarding whether Pirani had standing to sue under
Section 11 and Section 12(a)(2) of the Securities Act of
1933, 15 U.S.C. §§ 77k(a), 77l(a)(2), based on shares issued
under a new rule from the New York Stock Exchange
(NYSE) that allows companies to make shares available to
the public through a direct listing. See Order Granting
Accelerated Approval of NYSE Proposed Rule Change
Relating to Listing of Companies, Exchange Act Release
No. 34-82627, 83 Fed. Reg. 5650, 5653–54 (Feb. 2, 2018)
(“SEC Approval 2018”). Slack challenges the district
court’s ruling that Pirani had standing to sue under Section
11 and Section 12(a)(2) even though Pirani could not
determine if he had purchased registered or unregistered
shares in the direct listing. We conclude that Pirani had
standing to bring a claim under Section 11 and Section
12(a)(2) because Pirani’s shares could not be purchased
without the issuance of Slack’s registration statement, thus
demarking these shares, whether registered or unregistered,
as “such security” under Sections 11 and 12 of the Securities
Act. We do not resolve the issue of whether Pirani has
6             PIRANI V. SLACK TECHNOLOGIES

sufficiently alleged the other elements of Section 12 liability.
The decision of the district court is affirmed.

                      BACKGROUND

    Typically, large companies who want to list their stock
on a public exchange for the first time do so in a firm
commitment underwritten initial public offering (IPO). In
an IPO listing, a company issues new shares under a
registration statement that registers those shares with the
Securities and Exchange Commission (SEC). 15 U.S.C.
§ 77e(c). An investment bank then helps the company
market these shares and, if necessary, commits to purchasing
the new shares at a pre-determined price. Because the bank
wants to ensure that the stock price remains stable, it
typically insists on a lock-up period, a months-long period
during which existing shareholders may not sell their
unregistered shares. See 24 William M. Prifti et al.,
Securities: Public and Private Offerings § 4:7 (2d ed. 2021).
If someone purchases a share of the company’s stock during
the lock-up period, the shares are necessarily registered
because no unregistered shares can be sold during that
period. This period, however, is not required by law. In
addition, companies can make subsequent offerings of
registered shares tied to new or updated registration
statements. See In re Century Aluminum Co. Sec. Litig.,
729 F.3d 1104, 1106 (9th Cir. 2013) (involving a company
issuing a prospectus supplement in connection with a
secondary offering of the company’s stock).

    In 2018, the NYSE introduced a rule, later approved by
the SEC, that allows companies to go public (i.e. sell their
shares on a national exchange) through a Selling Shareholder
Direct Floor Listing (direct listing). See SEC Approval
2018, 83 Fed. Reg. at 5653–54; NYSE Listed Company
Manual – Section 102.01B Footnote E, NEW YORK STOCK
                PIRANI V. SLACK TECHNOLOGIES                           7

EXCHANGE (Aug. 26, 2020), https://nyseguide.srorules.com/
listed-company-manual (“NYSE, Section 102.01B, Footnote
E”). Unlike in an IPO, in a direct listing the company does
not issue any new shares and instead files a registration
statement “solely for the purpose of allowing existing
shareholders to sell their shares” on the exchange. 1 SEC
Approval 2018, 83 Fed. Reg. at 5651; NYSE, Section
102.01B, Footnote E. The company must register its pre-
existing shares before they can be sold to the public unless
the shares fall within one of the registration exceptions
enumerated in SEC Rule 144. 17 C.F.R. § 230.144.
Another important distinction between an IPO and a direct
listing is that a direct listing allows a company to list
“without a related underwritten offering” from a bank.
NYSE, Section 102.01B, Footnote E. Shares made available
by a direct listing are sold directly to the public and not
through a bank. See id. Therefore, there is no lock-up
agreement restricting the sale of unregistered shares. Thus,
from the first day of a direct listing, both unregistered and
registered shares may be available to the public.

     On June 20, 2019, Slack went public through a direct
listing, releasing 118 million registered shares and
165 million unregistered shares into the public market for
purchase. Pirani purchased 30,000 Slack shares that day and
went on to purchase another 220,000 shares over several
months. The initial offering price for Slack shares was

    1
       In 2020, the NYSE amended its rule to create a second type of
direct listing, a Primary Direct Floor Listing, which allowed a company
itself to sell shares to the public instead of or in addition to existing
shareholders selling their shares. See NYSE, Section 102.01B, Footnote
E; see also Order Approving a Proposed Rule Change To Modify the
Provisions Relating to Direct Listings, Exchange Act Release No. 34-
90768, 85 Fed. Reg. 85,807, 85,808 n.15 (Dec. 22, 2020).
8               PIRANI V. SLACK TECHNOLOGIES

$38.50. Over the next few months, Slack experienced
multiple service disruptions that caused the share price to
drop below $25. On September 19, 2019, Pirani brought a
class action lawsuit against Slack, as well as its officers,
directors, and venture capital fund investors, on behalf of
himself and all other persons and entities who acquired Slack
stock pursuant and/or traceable to the Company’s
registration statement and prospectus issued in the direct
listing.

    Pirani brought claims against Slack for violations of
Section 11, Section 12(a)(2), and Section 15(a) of the
Securities Act of 1933. Pirani alleges that Slack’s
registration statement was inaccurate and misleading
because it did not alert prospective shareholders to the
generous terms of Slack’s service agreements, which
obligated Slack to pay out a significant amount of service
credits to customers whenever the service was disrupted,
even if the customers did not experience the disruption. Nor
did it disclose, according to Pirani, that these service
disruptions were frequent in part because Slack guaranteed
99.99% uptime. 2 Finally, Pirani alleges that the statement
downplayed the competition Slack was facing from
Microsoft Teams at the time of its direct listing. Slack
challenges whether Pirani has statutory standing to sue under
Section 11 and Section 12(a)(2) because he cannot prove that
his shares were registered under the allegedly misleading
registration statement.

    2
      Uptime refers to the time when a computer service is available to
users without disruptions. Slack guarantees that 99.99% of the time,
users will experience no service disruptions.
               PIRANI V. SLACK TECHNOLOGIES                       9

                 PROCEDURAL HISTORY

    On January 21, 2020, Slack moved to dismiss the class
action for failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6). On April 21, 2020, the district court
granted the motion in part and denied the motion in part.

    The district court held that Pirani had standing under
Section 11 because he could show that the securities he
purchased, even if unregistered, were “of the same nature”
as those issued pursuant to the registration statement. The
district court adopted a broad reading of “such security”
within Section 11 to account for the difficulty of
distinguishing between registered and unregistered shares
when both are sold simultaneously in a direct listing. The
district court concluded that Pirani had standing to sue under
Section 11 even though he did not know whether the shares
he purchased were registered or unregistered.

    The district court also held that Pirani had standing under
Section 12(a)(2) to sue the individual defendants. 3 As with
Section 11, the district court read Section 12(a)(2)’s
requirement that the plaintiff purchase “such security” from
a defendant who “offers or sells a security . . . by means of a
prospectus,” 15 U.S.C. § 77l(a)(2), to include registered or
unregistered securities offered in the direct listing. The
district court also held that Pirani had pled sufficient facts to
support that the individual defendants had solicited Pirani’s
purchase of Slack shares by preparing and signing the

    3
       The individual defendants are: Stewart Butterfield (Chief
Executive Officer of Slack), Allen Shim (Chief Financial Officer of
Slack), Brandon Zell (Chief Accounting Officer of Slack), and Andrew
Braccia, Edith Cooper, Sarah Friar, John O’Farrell, Chamath
Palihapitiya, and Graham Smith (Directors of Slack’s Board).
10              PIRANI V. SLACK TECHNOLOGIES

offering materials while they were financially motivated to
encourage sales of Slack shares. The district court dismissed
the Section 12(a)(2) claim against Slack because Slack had
not issued any new shares in the offering.

   Finally, because Pirani had stated a claim against Slack
under Section 11, the district court ruled that he had standing
under Section 15 to sue the individual and venture capital
defendants 4 for secondary liability.

     On June 5, 2020, at the Defendants’ request, the district
court certified its April 21, 2020, order (regarding the motion
to dismiss), for interlocutory appeal “because the question of
whether shareholders can establish standing under Sections
11 and 12(a)(2) in connection with a direct listing is one of
first impression on which fair-minded jurists might
disagree.” On July 23, 2020, we granted Slack’s petition for
permission to appeal pursuant to 28 U.S.C. § 1292(b).

         JURISDICTION & STANDARD OF REVIEW

    We granted Slack’s petition for interlocutory appeal on
July 23, 2020, and thereby have jurisdiction under 28 U.S.C.
§ 1292(b) over the entire order. See Yamaha Motor Corp.,
U.S.A. v. Calhoun, 516 U.S. 199, 205 (1996) (holding “the
appellate court may address any issue fairly included within
the certified order”).

   We review a district court’s decision to grant or deny a
motion to dismiss under Rule 12(b)(6) de novo. See
Dougherty v. City of Covina, 654 F.3d 892, 897 (9th Cir.

     4
      The venture capital defendants are three venture capital firms and
the board members that they appointed to Slack’s Board of Directors:
Accel and Andrew Braccia, Andreessen Horowitz and John O’Farrell,
and Social+Capital and Chamath Palihapitiya.
              PIRANI V. SLACK TECHNOLOGIES                  11

2011); Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076,
1079 (9th Cir. 1999). In deciding a motion to dismiss, “[t]he
facts alleged in a complaint are to be taken as true and must
‘plausibly give rise to an entitlement to relief.’” Dougherty,
654 F.3d at 897 (quoting Ashcroft v. Iqbal, 556 U.S. 662,
679 (2009)). A complaint must “state a claim to relief that
is plausible on its face[.]” Iqbal, 556 U.S. at 678 (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
Id.

                       DISCUSSION

I. Section 11 Standing

   Section 11 of the Securities Act of 1933 states:

       In case any part of the registration statement,
       when such part became effective, contained
       an untrue statement of a material fact or
       omitted to state a material fact required to be
       stated therein or necessary to make the
       statements therein not mis-leading, any
       person acquiring such security . . . may,
       either at law or in equity, in any court of
       competent jurisdiction, sue—(1) every
       person who signed the registration statement
       ....

15 U.S.C. § 77k(a) (emphasis added). The meaning that has
been applied in this circuit is that “such security” in Section
11 means a security issued under a specific registration
statement, not some later or earlier statement. See
Hertzberg, 191 F.3d at 1080 (holding that “such security”
under Section 11 “means that the person must have
12            PIRANI V. SLACK TECHNOLOGIES

purchased a security issued under that, rather than some
other, registration statement”); Century Aluminum, 729 F.3d
at 1106 (holding that “[p]laintiffs need not have purchased
shares in the offering made under the misleading registration
statement . . . [purchasers in the aftermarket] have standing
to sue provided they can trace their shares back to the
relevant offering”). Past cases in this and other circuits have
dealt with successive registrations, whereby a company
issues a secondary offering to the public such that there are
multiple registration statements under which a share may be
registered, and other tracing challenges stemming from an
IPO. See e.g., Century Aluminum, 729 F.3d at 1106; Lee v.
Ernst & Young, LLP, 294 F.3d 969, 972 (8th Cir. 2002);
Krim v. pcOrder.com, Inc., 402 F.3d 489, 491, 496–97 (5th
Cir. 2005). In those cases, the court has interpreted “any
person acquiring such security” in Section 11 to mean “that
the person must have purchased a security issued under that,
rather than some other, registration statement.” Hertzberg,
191 F.3d at 1080. When “all the stock ever publicly issued
by [a company] was sold in the single offering at issue . . . .
[t]he difficulties of tracing stock to a particular offering
present in some cases are [] not present.” Id. at 1082.

    The district court is correct that this is a case of first
impression. The issue before the court today is: what does
“such security” mean under Section 11 in the context of a
direct listing, where only one registration statement exists,
and where registered and unregistered securities are offered
to the public at the same time, based on the existence of that
one registration statement? The words of a statute do not
morph because of the facts to which they are applied. See
Clark v. Martinez, 543 U.S. 371, 382 (2005). Thus, we do
not adopt, as the district court did, the broad meaning of
Section 11 that Judge Friendly rejected in Barnes v. Osofsky,
373 F.2d 269, 271, 273 (2d Cir. 1967). Instead, to answer
              PIRANI V. SLACK TECHNOLOGIES                    13

this question we look directly to the text of Section 11 and
the words “such security.”

    Slack was listed for the first time on the NYSE via a
direct listing. The SEC declared Slack’s registration
effective on June 7, 2019, and Slack began selling shares on
June 20, 2019. Per the NYSE rule, a company must file a
registration statement in order to engage in a direct listing.
See NYSE, Section 102.01B, Footnote E (allowing a
company to “list their common equity securities on the
Exchange at the time of effectiveness of a registration
statement filed solely for the purpose of allowing existing
shareholders to sell their shares”) (emphasis added); see also
SEC Approval 2018, 83 Fed. Reg. at 5651. The SEC
interprets this reference to a registration statement in the rule
as an effective registration statement filed pursuant to the
Securities Act of 1933. See Order Approving a Proposed
Rule Change To Modify the Provisions Relating to Direct
Listings, Exchange Act Release No. 34-90768, 85 Fed. Reg.
85,807, 85,808 n.15 (Dec. 22, 2020) (“SEC Approval
2020”). As indicated, in contrast to an IPO, in a direct listing
there is no bank-imposed lock-up period during which
unregistered shares are kept out of the market. Instead, at
the time of the effectiveness of the registration statement,
both registered and unregistered shares are immediately sold
to the public on the exchange. See NYSE, Section 102.01B,
Footnote E. Thus, in a direct listing, the same registration
statement makes it possible to sell both registered and
unregistered shares to the public.

    Slack’s unregistered shares sold in a direct listing are
“such securities” within the meaning of Section 11 because
their public sale cannot occur without the only operative
registration in existence. Any person who acquired Slack
14               PIRANI V. SLACK TECHNOLOGIES

shares through its direct listing could do so only because of
the effectiveness of its registration statement.

    Because this case involves only one registration
statement, it does not present the traceability problem
identified by this court in cases with successive registrations.
See Hertzberg, 191 F.3d at 1082; Century Aluminum,
729 F.3d at 1106 (“When all of a company’s shares have
been issued in a single offering under the same registration
statement, this ‘tracing’ requirement generally poses no
obstacle.”). 5 All of Slack’s shares sold in this direct listing,
whether labeled as registered or unregistered, can be traced
to that one registration.

    The legislative history of Section 11 supports this
interpretation. The Securities Act of 1933 was motivated in
part by the stock market crash of 1929, with a goal of
“throw[ing] upon originators of securities a duty of

     5
       Counsel for Slack raised for the first time in oral argument that
Slack issued two registration statements in its direct listing, a Form S-1
(the traditional registration statement) and a Form S-8 (registering sales
of shares to employees through their compensation packages). Both
forms went into effect on the same day. The record before this court
does not include the Form S-8. Rather, counsel pointed the court to the
page in the S-1 that references the S-8. In any case, the court takes
judicial notice of Slack’s Form S-8, filed June 7, 2019, and available at
https://sec.report/Document/0001628280-19-007750/. Dreiling v. Am.
Express Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006) (SEC filings subject
to judicial notice). In addition, the S-8 explicitly incorporates the S-1 by
reference, meaning that any allegedly misleading statements in the S-1
are necessarily present in the S-8, and that these two forms are part of
the same registration package. Finally, to the extent that Slack is arguing
that Pirani’s shares could have been registered under a different
registration statement (presenting the same exact traceability conundrum
as in past cases), this factual scenario is not present here and is
speculative.
              PIRANI V. SLACK TECHNOLOGIES                    15

competence as well as innocence which the history of recent
spectacular failures overwhelmingly justifies.” H.R. Rep.
No. 73-85, at 9 (1933) (Conf. Rep.). The House Conference
Report explained that “[f]undamentally, [Sections 11 and
12] entitle the buyer of securities sold upon a registration
statement including an untrue statement or omission of
material fact, to sue for recovery. . . ” Id. (emphasis added).
The drafters noted “it is the essence of fairness to insist upon
the assumption of responsibility for the making of these
statements” when the “connection between the statements
made and the purchase of the security is clear[.]” Id. at 10.
Here, both the registered and unregistered Slack shares sold
in the direct listing were sold “upon a registration statement”
because they could only be sold to the public at the time of
the effectiveness of the statement. See NYSE, Section
102.01B, Footnote E. The connection between the purchase
of the security and the registration statement is clear.

    Slack argues that past cases in this circuit and others limit
the meaning of “such security” in Section 11 to only
registered shares. Slack asks that the court apply Section 11
to direct listings in the same way it has in cases with
successive registration statements, requiring plaintiffs to
prove purchase of registered shares pursuant to a particular
registration statement. See Century Aluminum, 729 F.3d at
1106; Barnes, 373 F.2d at 273; Lee, 294 F.3d at 976. To
interpret Section 11 in this way would undermine this
section of the securities law.

    In a direct listing, registered and unregistered shares are
released to the public at once. There is no lock-up period in
which a purchaser can know if they purchased a registered
or unregistered share. Thus, interpreting Section 11 to apply
only to registered shares in a direct listing context would
essentially eliminate Section 11 liability for misleading or
16              PIRANI V. SLACK TECHNOLOGIES

false statements made in a registration statement in a direct
listing for both registered and unregistered shares. While
there may be business-related reasons for why a company
would choose to list using a traditional IPO (including
having the IPO-related services of an investment bank), from
a liability standpoint it is unclear why any company, even
one acting in good faith, would choose to go public through
a traditional IPO if it could avoid any risk of Section 11
liability by choosing a direct listing. 6 Moreover, companies
would be incentivized to file overly optimistic registration
statements accompanying their direct listings in order to
increase their share price, knowing that they would face no
shareholder liability under Section 11 for any arguably false
or misleading statements. 7 This interpretation of Section 11
would create a loophole large enough to undermine the
purpose of Section 11 as it has been understood since its
inception. 8

     6
      This is particularly true now that the NYSE rule has been amended
to allow a company to sell its own shares and raise capital through a
Primary Direct Floor Listing. See supra note 2.
     7
        The court notes that some SEC commissioners also voiced
concerns about the Primary Direct Floor Listing rule. See Allison H.
Lee, Caroline A. Crenshaw, Statement on Primary Direct Listings,
SECURITIES AND EXCHANGE COMMISSION (Dec. 23, 2020), https://www.
sec.gov/news/public-statement/lee-crenshaw-listings-2020-12-23 (notin
g that the “NYSE has not met its burden to show that [] the proposed rule
change is consistent with the Exchange Act”). Given the dearth of law
on the subject, and the opportunity for manipulation, see supra note 6,
the concern might be well-taken.
     8
      The SEC must approve changes to NYSE rules to confirm that they
are consistent with Section 6(b)(5) of the Exchange Act including
ensuring that the rules “are designed to prevent fraudulent and
manipulative acts and practices[.]” 15 U.S.C. § 78f(b)(5); see SEC
                 PIRANI V. SLACK TECHNOLOGIES                          17

    As indicated, most importantly, interpreting Section 11
in this way would contravene the text of the statute. Slack’s
shares offered in its direct listing, whether registered or
unregistered, were sold to the public when “the registration
statement . . . became effective,” thereby making any
purchaser of Slack’s shares in this direct listing a “person
acquiring such security” under Section 11. 15 U.S.C.
§ 77k(a). Pirani has pled facts sufficient to establish
statutory standing under Section 11 and the court affirms the
district court’s denial of Slack’s motion to dismiss with
respect to Pirani’s Section 11 claim.

II. Standing under Section 12

    Section 12(a)(2) of the Securities Act of 1933 provides
that:

         Any person who . . . offers or sells a security
         . . . by the use of any means or instrument of
         transportation or communication in interstate
         commerce or of the mails, by means of a
         prospectus or oral communication, which
         includes an untrue statement of material fact
         or omits to state a material fact necessary in
         order to make the statements , . . . shall be
         liable . . . to the person purchasing such

Approval 2020, 85 Fed. Reg. 85,810. In its order approving the NYSE’s
direct listing rule, the SEC noted that while the direct listing rule “may
present tracing challenges,” it did not “expect any such tracing
challenges . . . to be of such magnitude as to render the proposal
inconsistent with the Act.” Id. at 85,816. In fact, the SEC cited the
district court opinion in this case to demonstrate how the judge-made
traceability doctrine might evolve, and as evidence that there was no
“precedent to date in the direct listing context which prohibits plaintiffs
from pursuing Section 11 claims.” Id. at 85,816 & n.112.
18             PIRANI V. SLACK TECHNOLOGIES

        security from him, who may sue either at law
        or in equity in any court of competent
        jurisdiction, to recover the consideration paid
        for such security with interest thereon, less
        the amount of any income received thereon,
        upon the tender of such security, or for
        damages if he no longer owns the security.

15 U.S.C. § 77l(a)(2) (emphasis added). Under Section
12(a)(2), liability falls on a person who “offers or sells a
security” to the public by means of a false or misleading
prospectus or oral communication. See Pinter v. Dahl,
486 U.S. 622, 641–47 (1988). The Supreme Court has
determined that “the word ‘prospectus’ is a term of art
referring to a document that describes a public offering of
securities by an issuer or controlling shareholder.” See
Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 584 (1994); see
also Century Aluminum, 729 F.3d at 1106 (noting that a
“prospectus. . . is treated as part of the company's
registration statement for purposes of § 11”).

    For the purposes of our analysis, Section 12 liability
(resulting from a false prospectus) is consistent with Section
11 liability (resulting from a false registration statement).
15 U.S.C. §§ 77k, 77l; see Hertzberg, 191 F.3d at 1081
(“Section 12 . . . permits suit against a seller of a security by
prospectus”). It follows from the analysis of “such security”
in Section 11, that the shares at issue in Slack’s direct listing,
registered and unregistered, were sold “by means of a
prospectus” because the prospectus was a part of the offering
materials (i.e. the registration statement and prospectus) that
permitted the shares to be sold to the public. As previously
determined, neither the registered nor unregistered shares
would be available on the exchange without the filing of the
offering materials. See NYSE, Section 102.01B, Footnote E.
              PIRANI V. SLACK TECHNOLOGIES                   19

Thus, Pirani has satisfied part of the statutory standing
analysis under Section 12(a)(2) because all of Slack’s shares
in this direct listing were sold “by means of a prospectus.”

    Section 12 also includes an express privity requirement
between the seller and the purchaser that is not present in
Section 11. See Hertzberg, 191 F.3d at 1081 (noting that the
text of Section 12 “‘the person purchasing such security
from him,’ thus specif[ies] that a plaintiff must have
purchased the security directly from the issuer of the
prospectus”). Slack raises this issue in its briefing to the
court, challenging Pirani’s standing under Section 12(a)(2),
asserting that none of the individual defendants are statutory
sellers within the meaning of Section 12. Pirani does not
challenge the district court’s dismissal of his Section
12(a)(2) claim against Slack. On an interlocutory appeal, the
court may reach any issues fairly raised in the certified
district court order. See Yamaha Motor, 516 U.S. at 205
(holding “the appellate court may address any issue fairly
included within the certified order”). This particular aspect
of standing under Section 12(a)(2), however, does not appear
to have motivated the district court’s certification for
interlocutory appeal and does not raise a novel issue or
“involve[] a controlling question of law as to which there is
substantial ground for difference of opinion[.]” 28 U.S.C.
§ 1292(b). The dispute is heavily fact dependent and we
decline to address it at this juncture.

III.   Section 15 Claims

    Section 15 of the Securities Act of 1933 provides that
“[e]very person who . . . controls any person liable under
sections [Section 11 and 12] of this title, shall also be liable
jointly and severally with and to the same extent as such
controlled person to any person to whom such controlled
person is liable[.]” 15 U.S.C. § 77o(a). Because standing
20               PIRANI V. SLACK TECHNOLOGIES

exists for Pirani’s Section 11 claim against Slack, standing
exists for the dependent Section 15 claim against controlling
persons.     15 U.S.C. § 77o(a).       The district court’s
determination that Pirani has pled sufficient facts to
plausibly allege that the individual defendants and the
venture capital defendants 9 are controlling persons under
Section 15 is not challenged before us. 10

                          CONCLUSION

    For the reasons stated above, we affirm the district
court’s partial denial of Slack’s motion to dismiss. Statutory
standing exists under Sections 11 and 15, and under Section
12(a)(2) to the extent it parallels Section 11. AFFIRMED.

     The individual defendants do not argue that they are not controlling
     9

persons.
     10
        The SEC defines control to be “the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract, or otherwise.” 17 C.F.R. § 230.405. “The standards for
liability as a controlling person under § 15 are not materially different
from the standards for determining controlling person liability under
§ 20(a).” Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568 n.4 (9th
Cir. 1990). Under Section 20(a) (and therefore under Section 15)
whether a party is a controlling person “is an intensely factual question.”
Paracor Finance, Inc. v. General Elec. Capital Corp., 96 F.3d 1151,
1161 (9th Cir. 1996) (citation omitted).
              PIRANI V. SLACK TECHNOLOGIES                 21

MILLER, Circuit Judge, dissenting:

    This case involves the application of sections 11 and 12
of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77l, to a
direct listing of shares on a stock exchange. Although the
factual setting of the case may be novel, the legal issues it
presents are not. The interpretation of sections 11 and 12 has
been settled for decades, and applying that interpretation, I
would reverse the district court’s order and remand with
instructions to grant the motion to dismiss in full.

    In a traditional initial public offering (IPO), a company
seeking to go public files a registration statement and then
sells shares issued under that registration statement.
Typically, the investment bank underwriting the offering
insists on what is known as a “lock-up period,” during which
existing shareholders—such as the company’s employees or
its early investors, who may hold shares that were issued
under an exemption to the registration requirement—may
not sell their unregistered shares. Anyone purchasing shares
on the stock exchange during the lock-up period can
therefore be certain that the shares were issued under the
registration statement.

    In this case, Slack Technologies, Inc., went public
through a direct listing, with no underwriters and no lock-up
period. It did not issue any new shares; it simply filed a
registration statement so that the shares already held by
employees and early investors could begin to be traded
publicly on the New York Stock Exchange. On the first day
of the offering, 118 million registered shares and 165 million
unregistered shares were available for purchase on the
exchange, and Fiyyaz Pirani purchased 30,000 shares. He
now asserts that the registration statement contained material
omissions. But because brokers generally do not keep track
of which shares were issued when, Pirani cannot prove that
22            PIRANI V. SLACK TECHNOLOGIES

his shares were issued under the registration statement that
he says was inaccurate.

    That failure of proof is significant and, as I will explain,
outcome-determinative. Sections 11 and 12 impose strict
liability for any “untrue statement of a material fact or
[omission of] a material fact” in a “registration statement” or
“prospectus,” respectively. 15 U.S.C. §§ 77k(a), 77l(a)(2).
Strict liability is strong medicine, so the statute tempers it by
limiting the class of plaintiffs who can sue. Section 11
provides statutory standing only to “any person acquiring
such security,” id. § 77k(a), while section 12 similarly
provides standing only “to the person purchasing such
security,” id. § 77l(a). In that respect, both provisions are
unlike section 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. § 78j, which allows a broad class of plaintiffs to
sue for false statements in connection with the sale of a
security, but only if the defendant acted with scienter. See
Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308,
318–19 (2007).

    I begin with section 11. As noted, that provision allows
a suit only by a “person acquiring such security.” 15 U.S.C.
§ 77k(a). Because the phrase “such security” has no
antecedent in section 11, the statute is ambiguous as to what
sort of security a plaintiff must acquire to have standing.

    More than 50 years ago, the Second Circuit resolved that
ambiguity in a landmark decision authored by Judge
Friendly. Barnes v. Osofsky, 373 F.2d 269 (2d Cir. 1967). In
Barnes, the defendants had conducted a secondary
offering—that is, the company’s stock was already publicly
traded under a previously filed registration statement, and
the company filed a new registration statement so that it
could sell more stock. Id. at 270. The plaintiffs purchased
shares during the secondary offering, and they sought to
              PIRANI V. SLACK TECHNOLOGIES                 23

bring a section 11 action based on inaccuracies in the new
registration statement. Id. The Second Circuit held that they
could not do so because they could not prove that the shares
they purchased had been issued under the new registration
statement rather than the earlier one. Id. at 271–72. In
reaching that conclusion, the court noted that the phrase “any
person acquiring such security” lent itself to both a
“narrower reading—‘acquiring a security issued pursuant to
the registration statement’” and “a broader one—‘acquiring
a security of the same nature as that issued pursuant to the
registration statement,’” and it adopted the narrower reading,
which it described as a “more natural” interpretation of the
text. Id.

    Until today, every court of appeals to consider the issue,
including ours, has done the same. See Plumbers’ Union
Local No. 12 Pension Fund v. Nomura Asset Acceptance
Corp., 632 F.3d 762, 768 & n.5 (1st Cir. 2011); Rosenzweig
v. Azurix Corp., 332 F.3d 854, 873 (5th Cir. 2003); Lee v.
Ernst & Young, LLP, 294 F.3d 969, 975–78 (8th Cir. 2002);
Hertzberg v. Dignity Partners, Inc., 191 F.3d 1076, 1080
(9th Cir. 1999); Joseph v. Wiles, 223 F.3d 1155, 1159–60
(10th Cir. 2000), abrogated on other grounds by California
Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc., 137 S. Ct. 2042
(2017); APA Excelsior III L.P. v. Premiere Techs., Inc.,
476 F.3d 1261, 1271 (11th Cir. 2007). In Hertzberg, we held
that “such security” requires the plaintiff to “have purchased
a security issued under that, rather than some other,
registration statement.” 191 F.3d at 1080. And in In re
Century Aluminum Co. Securities Litigation, 729 F.3d 1104,
1106 (9th Cir. 2013), we reiterated that “such security”
means that the shares were “issued under the allegedly false
or misleading registration statement.”
24            PIRANI V. SLACK TECHNOLOGIES

    That principle ought to resolve this case. Because Pirani
cannot show that the shares he purchased “were issued under
the allegedly false or misleading registration statement,” he
lacks statutory standing to bring a section 11 claim. Century
Aluminum, 729 F.3d at 1106. (The same reasoning also
forecloses Pirani’s claim under section 15, 15 U.S.C. § 77o,
which is derivative of his section 11 claim.)

    But the court declines to follow our precedent. In this, it
follows the district court, which believed that the issue
presented here “appears to be one of first impression”
because prior section 11 cases arose in the context of
successive registrations in IPO listings, while this case
involves a direct listing. But nothing in the reasoning of the
cases suggests that the distinction should matter. In cases
involving successive registrations, we did not invent a
requirement that a plaintiff’s shares must have been issued
under the registration statement because we thought it
seemed like a good idea; we interpreted the statutory text to
impose that requirement. The Supreme Court has reminded
us that a statute is not “a chameleon, its meaning subject to
change” based on the varying facts of different cases. Clark
v. Martinez, 543 U.S. 371, 382 (2005). If “such security”
means that plaintiffs must have purchased shares “issued
under the allegedly false or misleading registration
statement” in successive-registration cases, Century
Aluminum, 729 F.3d at 1106, then that is also what it means
in direct-listing cases.

    The court says that it is not adopting “the broad meaning
of Section 11 that Judge Friendly rejected.” But neither is it
adopting the narrow reading that Judge Friendly accepted, or
else it would have to reverse the district court. So what does
“such security” mean? The court says that it “look[s] directly
to the text of Section 11 and the words ‘such security’” to
              PIRANI V. SLACK TECHNOLOGIES                   25

determine what “such security” means in the context of a
direct listing. But the court never analyzes the text. Instead,
it turns to the rules of the New York Stock Exchange.
Because those rules did not allow Slack to sell its
unregistered shares until the registration statement was filed,
the court concludes that “such security” in section 11 must
encompass any security whose “public sale cannot occur
without the only operative registration in existence.” That
definition has no basis in the statutory text, which, as
construed in Barnes, gives standing only to those “acquiring
a security issued pursuant to the registration statement.” 373
F.2d at 271. And although the court asserts that “[a]ll of
Slack’s shares sold in this direct listing, whether labeled as
registered or unregistered, can be traced to that one
registration,” it does not suggest that all of the shares were
issued under that registration statement. It cannot do so,
given that most of the shares that began trading on the day
of the listing had been issued well before the registration
statement was filed.

    Nor does the legislative history support the court’s
interpretation. To the contrary, the House Report explains
that section 11 “entitle[s] the buyer of securities sold upon a
registration statement . . . to sue for recovery.” H.R. Rep.
No. 73-85, at 9 (1933) (emphasis added). As the Second
Circuit recognized, the phrase “securities sold upon a
registration statement” plainly refers to registered securities.
Barnes, 373 F.2d at 273. It does not refer to unregistered
securities, even if those securities must wait until a
registration statement becomes effective before they can be
sold on an exchange.

    What appears to be driving today’s decision is not the
text or history of section 11 but instead the court’s concern
that it would be bad policy for a section 11 action to be
26            PIRANI V. SLACK TECHNOLOGIES

unavailable when a company goes public through a direct
listing. That policy concern is neither new nor particularly
concerning. The plaintiffs in Barnes made precisely the
same point about section 11 liability for secondary offerings,
where, as they pointed out, it would be “impossible to
determine whether previously traded shares are old or new.”
373 F.2d at 272. The court acknowledged the point but
concluded that it did not compel a broader interpretation of
section 11 when such a “reading would be inconsistent with
the over-all statutory scheme.” Id. After all, in that context,
as in this one, a company that can avoid strict liability under
section 11 for inadvertent omissions or misleading
statements in its registration statement will remain subject to
liability under section 10(b) of the Securities Exchange Act
for materially false statements made with scienter. See
Herman & MacLean v. Huddleston, 459 U.S. 375, 382
(1983).

    More importantly, whatever the merit of the policy
considerations, they are no basis for changing the settled
interpretation of the statutory text. If we “alter our statutory
interpretations from case to case, Congress [has] less reason
to exercise its responsibility to correct statutes that are
thought to be unwise or unfair.” Neal v. United States, 516
U.S. 284, 296 (1996). Instead, “[t]he place to make new
legislation, or address unwanted consequences of old
legislation, lies in Congress.” Bostock v. Clayton Cnty.,
140 S. Ct. 1731, 1753 (2020).

    For similar reasons, I also would hold that Pirani lacks
standing under section 12. Section 12(a)(2) provides that any
person who “offers or sells a security . . . by means of a
prospectus” can be held liable for any untrue statements or
omissions of material fact in the prospectus. 15 U.S.C.
              PIRANI V. SLACK TECHNOLOGIES                   27

§ 77l(a)(2). Just like section 11, section 12 limits standing to
those who have “purchas[ed] such security.” Id. § 77l(a).

    We have not previously considered whether the phrase
“purchasing such security” in section 12 requires plaintiffs
to show that they purchased shares issued under the
registration statement they are challenging. But the text of
the statute resolves that question. Section 12 differs from
section 11 because “such security” in section 12 has a clear
antecedent: It is a security “offer[ed] or s[old] . . . by means
of a prospectus.” 15 U.S.C. § 77l(a)(2). “Prospectus,” in
turn, “is a term of art referring to a document that describes
a public offering of securities by an issuer or controlling
shareholder.” Gustafson v. Alloyd Co., 513 U.S. 561, 584
(1995). The unambiguous meaning of a security offered or
sold “by means of a prospectus” is therefore a registered
security sold in a public offering.

     The court concludes otherwise because, as with section
11, it bases its interpretation on the rules of the New York
Stock Exchange instead of the text that Congress enacted. In
the court’s view, securities sold “by means of a prospectus”
include unregistered shares in a direct listing because those
shares cannot be sold publicly until a registration statement
is filed. But for a security to be offered or sold “by means of
a prospectus,” the registration statement must be the means
through which the security is offered to the public. That is
true only of registered securities. Even if the filing of the
registration statement determines when an unregistered
security can be offered to the public in a direct listing, the
registration statement does not apply to the unregistered
security and therefore is not the means through which it is
offered or sold. Because the text of section 12 requires a
plaintiff to have purchased a registered security to have
standing, Pirani may not bring a section 12 claim.
28            PIRANI V. SLACK TECHNOLOGIES

    “[N]o amount of policy-talk can overcome a plain
statutory command.” Niz-Chavez v. Garland, 141 S. Ct.
1474, 1486 (2021). Both sections 11 and 12 require a
plaintiff to show that he purchased a security issued under
the registration statement he is challenging. Whether or not
that is good policy in the context of a direct listing, our role
is to interpret statutes as they are—not to shape them into
what we wish they could be. See Bostock, 140 S. Ct. at 1738.
Because Pirani cannot show that he purchased a registered
security, I would hold that he lacks standing to bring claims
under sections 11, 12, or 15 of the Securities Act.