WLF Urges Ninth Circuit to Uphold Limits on Section 11 Damages in Freshworks IPO Case

Strategic Insights -

In a significant development in securities litigation, the Washington Legal Foundation (WLF) has joined forces with the U.S. Chamber of Commerce and the Securities Industry and Financial Markets Association to urge the U.S. Court of Appeals for the Ninth Circuit to affirm the dismissal of a securities class action against Freshworks Inc. The WLF's amicus brief, supported by pro bono lawyers from Wilmer Cutler Pickering Hale & Dorr LLP, argues that Section 11 of the Securities Act of 1933 limits damages to losses below the IPO price caused by registration statement defects, precluding recovery for price drops above the offering price.

Key Takeaways:

  • The WLF amicus brief argues that Section 11(e) of the Securities Act of 1933 limits damages to the difference between the IPO price and the sale price, and its negative-causation defense, bar recovery for losses above the IPO price.
  • The U.S. District Court for the Northern District of California had previously dismissed the Section 11 claim, finding that the plaintiff's stock losses were not caused by any alleged omissions in the IPO registration.
  • The WLF brief contends that permitting the broader reading of Section 11 would inflate settlement costs, discourage IPOs, and disrupt the Securities Act's balanced framework, harming capital markets.
  • The case stems from a class-action lawsuit brought by Mohan R. Sundaram against Freshworks Inc. following a November 2021 earnings report.
  • The amicus brief was prepared with the support of Mark Fleming, Timothy Perla, and Mark Hanin of Wilmer Cutler Pickering Hale & Dorr LLP.

Statistics:

  • The case involves a class-action lawsuit brought by Mohan R. Sundaram against Freshworks Inc.
  • The U.S. District Court for the Northern District of California had previously dismissed the Section 11 claim on November [202X].
  • The WLF's amicus brief argues that permitting the broader reading of Section 11 would lead to increased settlement costs, potentially causing the costs to rise by [X] million dollars per year.

Sources:

  • Washington Legal Foundation's news release, October 30, [Category: Law/Legal]
  • Wilmer Cutler Pickering Hale & Dorr LLP's website
  • Securities Act of 1933, Section 11(e)