(Article from Securities Law Alert, February 2021)
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On January 26, 2021, the Ninth Circuit affirmed the dismissal with prejudice of a putative securities fraud class action alleging that a car company and two of its officers misled investors about the company’s progress in building production capacity for its first mass-market electric vehicle. Wochos v. Tesla, 2021 WL 246210 (9th Cir. 2021) (Collins, J.). The court held that none of the 15 statements at issue were actionable as they were protected as forward-looking statements under the Private Securities Litigation Reform Act (“PSLRA”), or to the limited extent that they were not so protected plaintiffs failed to adequately plead falsity.
Plaintiffs in this case alleged that the company announced production goals for its new vehicle for “the end of 2017 that it knew it would not be able to achieve, and it repeatedly reaffirmed that it was on track to reach those targets, even as the end-of-the-year deadline drew closer and as delays grew increasingly significant.”
Unadorned “On Track” Statements Are Forward-Looking Statements
Discussing the relevant standard, the court noted that “the PSLRA carves out a safe harbor for forward-looking statements by adding § 21E to the Securities Exchange Act.” After reviewing the company’s statements, the court found that the company’s “goal to produce 5,000 vehicles per week is unquestionably a forward-looking statement under § 21E, because it is a plan or objective of management for future operations, and this plan or objective relates to the products of [the company].” The court further found that “[the company’s] various statements that it was on track to achieve this goal and that there are no issues that would prevent [the company] from achieving the goal are likewise forward-looking statements.” The court reasoned that “[b]ecause any announced objective for future operations necessarily reflects an implicit assertion that the goal is achievable based on current circumstances, an unadorned statement that a company is on track to achieve an announced objective, or a simple statement that a company knows of no issues that would make a goal impossible to achieve, are merely alternative ways of declaring or reaffirming the objective itself.” The court pointed out that “[t]he statutory safe harbor would cease to exist if it could be defeated simply by showing that a statement has the sort of features that are inherent in any forward-looking statement.”
Assumptions Underlying or Relating to a Declared Goal Are Forward-Looking Statements
The court then explained that the issue “is whether [p]laintiffs have sufficiently pleaded that any of the challenged May statements went beyond the mere declaration of the year-end goal in a way that include[d] a non-forward-looking statement.” The court then reiterated “that it is not enough to plead that a challenged statement rests on subsidiary premises about how various future events will play out over the timeframe defined by the forward-looking statement.” Citing the safe harbor, the court explained that “such statements of the assumptions underlying or relating to a declared objective are also deemed to be forward-looking statements.” The court determined that “[t]his reasoning precludes [p]laintiffs’ theory that [the company’s] year-end goal rested on scheduling assumptions that [the company] knew it was unlikely to meet.” The court concluded that “[a]ny such schedule about how future production would play out on the way toward the announced goal is simply a set of the assumptions about future events on which that goal is based.” The court continued, stating that “[l]ike the goal itself, such projected timelines are forward-looking statements.”