Hogan Lovells Publications | Quarterly Corporate and M&A Decisions Update | February 2021

2020 Q4 Decisions Update

In re Uber Technologies, Inc. Securities Litigation, No. GCG-19-579544 (Cal. Super. Ct. Nov. 16, 2020)

Summary

In 2018, the U.S. Supreme Court ruled in Cyan Inc. v. Beaver County Employees Retirement Fund that state and federal courts have concurrent jurisdiction over claims brought under the Securities Act of 1933. That decision led to a significant increase in securities class action lawsuits filed in state courts.. In response to the Cyan ruling, numerous corporations added a provision to their certificate of incorporation or charter requiring that any claims brought under the Securities Act be brought exclusively in federal court. If enforced, these provisions could limit or prevent plaintiffs from bringing securities class actions in state court under Cyan. In re Uber joins a growing list of cases in which these clauses have been tested and found to be enforceable.

The plaintiffs in Uber brought Securities Act claims in California state court against Uber and certain officers, directors, and underwriters involved in Uber’s IPO, alleging that Uber’s offering documents omitted material facts necessary to make other statements not misleading. The plaintiffs filed similar claims in federal court, but violated the forum selection clause in Uber’s charter by also bringing suit in state court. The charter provided that federal court “shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.”

The court found that Uber’s forum selection clause was enforceable and dismissed the complaint in its entirety, including with respect to the underwriter defendants, who were not parties to the charter. The court found that the forum selection clause did not violate the Securities Act’s bar on removal to federal court, and did not violate Cyan because Cyan dealt with jurisdiction rather than the enforceability of a contractual forum selection clause. The court also found that the forum selection clause was not substantively unconscionable or otherwise unenforceable because Uber’s stockholders were on notice of the terms of Uber’s charter when they purchased Uber’s stock, and that enforcing the forum selection clause was therefore within a reasonable buyer’s expectations. The court agreed with the plaintiffs that the forum selection clause, which was located deep within Uber’s governing documents, was procedurally unconscionable, but this finding was insufficient to invalidate the clause because the court found it was not substantively unconscionable, including because the clause did not eliminate or otherwise limit the plaintiffs’ substantive rights under the Securities Act and only affected the forum in which those claims could be brought. Finally, the court dismissed the plaintiffs’ claims against the underwriter defendants involved in Uber’s IPO on the grounds that Uber’s forum selection clause was broadly drafted to cover “any complaint” arising under the Securities Act.

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