The Supreme Court on Dec. 11 dismissed Nvidia’s appeal of a lower court ruling that allowed shareholders to sue the company for alleged securities fraud.
This new court opinion, in which the justices declined to rule on the merits and instead did an about-face on their June 17 decision to hear the case, means that the lawsuit can move forward.
The ruling was made after the nation’s highest court heard oral argument in the case last month. It leaves in place a decision from last year by the U.S. Court of Appeals for the Ninth Circuit that gave a green light to the shareholders’ lawsuit.
Investors sued the Silicon Valley artificial intelligence chipmaker, alleging that the company misrepresented how dependent it was on revenue from volatile cryptocurrency mining before a market setback in 2018. The company argued that the legal complaint filed against it lacked the legally required specificity to move forward.
Shareholders claimed that Nvidia CEO Jensen Huang made public statements that contradicted the company’s own internal reports. The shareholders’ lawsuit was led by E. Ohman J:or Fonder AB, an investment management firm in Stockholm.
U.S. District Judge Haywood Gilliam dismissed the lawsuit in 2020, holding that shareholders failed to support their claim that the company had made false statements.
The Ninth Circuit reinstated the legal action in August 2023.
That court held that the plaintiffs had adequately alleged that the company’s CEO made “false or misleading statements and did so knowingly or recklessly,” and it permitted the case to go ahead.
Nvidia had urged the Supreme Court in its petition to reverse the Ninth Circuit, arguing that otherwise the circuit court decision “threatens to turn the Nation’s largest circuit into a haven for abusive securities litigation.”
The new Supreme Court decision took the form of a one-sentence, unsigned order stating that the “writ of certiorari is dismissed as improvidently granted.”
A writ of certiorari is a court order that allows the justices to move forward with hearing an appeal.
A court may dismiss a case as “improvidently granted” when it later decides that it should not have agreed in the first place to hear the case at all.
The court did not explain its reasoning. No justices dissented.
Justices Expressed Reservations About Hearing Case
The justices seemed to struggle with Nvidia’s argument during the oral hearing on Nov. 13.
Nvidia attorney Neal Katyal said the Ninth Circuit’s ruling “creates an easy roadmap for plaintiffs to evade” the federal Private Securities Litigation Reform Act of 1955 (PSLRA).
Congress passed the law to curb abuses in class action lawsuits related to securities.
To discourage litigants from engaging in fishing expeditions during the discovery process whenever a company’s stock falls in value, the statute ratcheted up the pleadings standards for securities fraud complaints.
A pleading is a written statement filed in a legal proceeding that explains a claim, defense, or other position. Such a document is often filed early in the process before the case goes to trial.
“When a stock price drops, all they have to do is find an expert with numbers that contradict a company’s public statements, then allege the company keeps records that executives look at, and then argue those records would have matched the hired expert’s numbers,” Katyal said.
The legal complaint against Huang “merely surmises that Huang reviewed internal reports showing a higher quantum of crypto purchases than what he disclosed, yet it never alleges the contents of those reports.”
Several justices questioned how the Supreme Court should deal with the appeal, saying that instead of focusing on a legal issue, the parties seemed to be asking the court to decide facts in the case, which is something the high court normally doesn’t do.
Justice Sonia Sotomayor said Katyal was asking the court to perform “pure error correction.”
Justice Elena Kagan told the attorney, “You’re asking us to engage in a kind of analysis that we are not very good at and weren’t expecting when we took this case.”
Justice Brett Kavanaugh told the shareholders’ attorney, Deepak Gupta, that the Ninth Circuit decision may have drawn up a “blueprint” for going around the strict pleadings requirements of the PSLRA.
U.S. Department of Justice attorney Colleen Sinzdak argued in favor of affirming the Ninth Circuit, which she said would “simply reiterate a few basic principles that flow from the plain text of the PSLRA.”
Meanwhile, Gupta hailed the new ruling.
“This is a win for corporate accountability,” he told The Epoch Times.
“When corporations mislead shareholders, they undermine trust in our markets. Ensuring that investors can seek justice is essential to preserving fairness and transparency.
“The Supreme Court ruled this morning that it never should have granted Nvidia’s petition. The corporate Supreme Court bar, supported by the U.S. Chamber and its allies, often tries to gin up nonexistent legal issues in an effort to curtail class actions.
“We hope the Court will think twice the next time a corporation uses the same playbook.”
The Epoch Times reached out for comment to Katyal, the Justice Department, and the U.S. Chamber of Commerce but received no replies by publication time.
This article appeared Dec. 11, 2024, in The Epoch Times.