IN RE GIGACLOUD TECHNOLOGY INC SECURITIES LITIGATION
Filing
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OPINION AND ORDER re: 95 MOTION to Dismiss the Second Amended Class Action Complaint. filed by Larry Lei Wu, Aegis Capital Corp, Xin Wan, Kwok Hei David Lau, GigaCloud Technology Inc, 105 MOTION to Dismiss // Notice of Joi nder and Motion to Dismiss the Second Amended Class Action Complaint for Lack of Personal Jurisdiction. filed by Zhiwu Chen. For the foregoing reasons, Defendants' motion to dismiss under Rule 12(b)(6) is GRANTED in part and DENIED in par t, while Chen's motion to dismiss under Rule 12(b)(2) is DENIED. In particular, the Court concludes that Plaintiffs plausibly allege that Defendants made materially misleading statements in the Offering Materials about GigaCloud's use of AI in violation of Section 11 of the Securities Act. It follows that Plaintiffs' Section 15 claims relating to these statements also survive. By contrast, the Court concludes that Plaintiffs fail to state a claim based on GigaCloud's ma rketplace activities. It follows that Plaintiffs' claims relating to these statements - under Sections 11 and 15 of the Securities Act, Sections 10(b) and 20(a) of the Exchange Act, and SEC Rule 10b-5 must be and are dismissed. The only rema ining question is whether Plaintiffs should be permitted to replead their claims to the extent they have been dismissed as Plaintiffs request in passing. See Pls.' Mem. 25. Although leave to amend should be freely given when justice so requi res, Fed. R. Civ. P. 15(a)(2), it is "within the sound discretion of the district court to grant or deny leave to amend, Broidy Cap. Mgmt. LLC v. Benomar, 944 F.3d 436, 447 (2d Cir. 2019). Here, the problems with Plaintiffs dismissed claims a re substantive, so amendment would be futile. See, e.g., Roundtree v. NYC, No. 19-CV-2475 (JMF), 2021 WL 1667193, at *6 (S.D.N.Y. Apr. 28, 2021) (citing cases). Nor do Plaintiffs suggest that they are in possession of facts that would cure the pro blems with their dismissed claims. See, e.g., Clark v. Kitt, No. 12-CV-8061 (CS), 2014 WL 4054284, at *15 (S.D.N.Y. Aug. 15, 2014) ("A plaintiff need not be given leave to amend if [it] fails to specify how amendment would cure the pleading deficiencies in [its] complaint."); accord TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 505-06 (2d Cir. 2014). Finally, the Court granted Plaintiffs leave to amend in response to Defendants first motion to dismiss and explicitly warned t hat they would not be given any further opportunity to amend the complaint to address issues raised by the motion to dismiss. ECF No. 85. "Plaintiffs failure to fix deficiencies in its previous pleadings is alone sufficient ground to deny lea ve to amend sua sponte." Transeo S.A.R.L. v. Bessemer Venture Partners VI L.P., 936 F. Supp. 2d 376, 415 (S.D.N.Y. 2013) (citing cases)). Accordingly, Plaintiffs' request for leave to amend is DENIED. Unless and until the Court orders oth erwise, Defendants shall file their Answer to Plaintiffs' surviving claims within three weeks of the date of this Opinion and Order. See Fed. R. Civ. P. 12(a)(4)(A). In addition, the initial pretrial conference, previously adjourned, is hereb y reinstated and RESCHEDULED for March 26, 2025, at 9:00 a.m. To access the conference, counsel should call the Court's new dedicated conference call line at (855) 244-8681, and use access code 2303 019 3884, followed by the pound (#) key. Wh en prompted for an attendee ID number, press the pound (#) key again. (Members of the press and public may call the same number, but will not be permitted to speak during the conference.) The parties are reminded to follow the procedures for telep hone conferences described in the Court's Individual Rules and Practices for Civil Cases, which are available at https://nysd.uscourts.gov/hon-jessem-furman, including Rule 3(B)(i), which requires the parties, no later than 24 hours before the conference, to send a joint email to the Court with the names and honorifics (e.g., Mr., Ms., Dr., etc.) of counsel who may speak during the teleconference and the telephone numbers from which counsel expect to join the call. The parties are remin ded that, no later than the Thursday before the initial pretrial conference, they must submit a joint status letter and proposed Case Management Plan. See ECF No. 53. The Clerk of Court is directed to terminate ECF Nos. 95 and 105. SO ORDERED. ( Initial Conference set for 3/26/2025 at 09:00 AM before Judge Jesse M. Furman.) (Signed by Judge Jesse M. Furman on 1/27/25) (yv)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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IN RE GIGACLOUD TECHNOLOGY INC.
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SECURITIES LITIGATION
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23-CV-10645 (JMF)
OPINION AND ORDER
JESSE M. FURMAN, United States District Judge:
In this putative class action, Lead Plaintiffs Sashi Rajan and Meir Spear (“Plaintiffs”)
bring securities claims against GigaCloud Technology Inc. (“GigaCloud” or the “Company”);
eight GigaCloud officers and directors (the “Individual Defendants”); 1 and Aegis Capital Corp.
(“Aegis”), the underwriter for GigaCloud’s initial public offering (“IPO”). The operative Second
Amended Complaint (the “Complaint”) alleges that, between August 18, 2022 and May 22, 2024
(the “Class Period”), Defendants made material misstatements with respect to GigaCloud’s
marketplace activities and the use of artificial intelligence (or “AI”) in violation of Sections 11
and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 77o; Sections
10(b) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C.
§§ 78j(b), 78t(a); and Securities and Exchange Commission (“SEC”) Rule 10b-5 (“Rule 10b-5”);
17 C.F.R. §§ 240.10b-5. See ECF No. 88 (“SAC”), ¶ 2.
Now pending are two motions to dismiss all claims in the Complaint. See ECF Nos. 95,
105. First, all Defendants move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
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The Individual Defendants are: Chief Executive Officer and Chairman of the Board of
Directors Larry Lei Wu; Chief Financial Officer and Director Kwok Hei David Lau; Chief
Technology Officer and Director Xin Wan; Director Frank Lin; Director Xing Huang; Director
Zhiwu Chen; Director Binghe Guo; and Director Thomas Liu. See SAC ¶¶ 21-29.
Procedure, to dismiss the Complaint for failure to state a claim. ECF No. 95. Second, Individual
Defendant Zhiwu Chen separately moves, pursuant to Rule 12(b)(2), to dismiss the claims
against him for lack of personal jurisdiction. ECF No. 105. For the reasons that follow,
Defendants’ Rule 12(b)(6) motion to dismiss is GRANTED as to the alleged misstatements
regarding GigaCloud’s marketplace activities and DENIED as to the alleged misstatements
regarding GigaCloud’s use of AI, and Chen’s Rule 12(b)(2) motion to dismiss is DENIED.
BACKGROUND
The following facts, taken from the Complaint, documents it incorporates, and matters of
which the Court may take judicial notice, are construed in the light most favorable to Plaintiffs.
See, e.g., Kleinman v. Elan Corp., plc, 706 F.3d 145, 152 (2d Cir. 2013); ATSI Commc’ns, Inc. v.
Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (stating that a court may consider “legally
required public disclosure documents filed with the SEC”).
A. GigaCloud
GigaCloud is a holding company based in Hong Kong and incorporated in the Cayman
Islands. SAC ¶ 20; ECF No. 96-2 (“Prospectus”), at 11. The Company’s principal executive
offices were located in Hong Kong at the time of its 2022 IPO and are now located in California.
SAC ¶ 20. GigaCloud describes itself as a “pioneer of global end-to-end” — that is business-tobusiness or B2B — “ecommerce solutions for large parcel merchandise.” Id. ¶¶ 9, 49;
Prospectus 1. The Company, which was founded in 2006, initially offered information
technology outsourcing services. SAC ¶ 48. It pivoted to ecommerce in 2010. Id.
GigaCloud entered the United States market in 2014 by acquiring Comptree Inc. — now
its primary U.S. subsidiary. Id. ¶ 122. In January 2019, the Company launched its own
ecommerce platform, the GigaCloud Marketplace (the “Marketplace”). Id. ¶ 48. The
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Marketplace connects manufacturers, primarily located in Asia, with buyers, primarily resellers
based in the United States, Asia, and Europe. Id. ¶ 49. The Company “executes delivery and
sale of merchandise bought and sold on GigaCloud Marketplace through a network of
warehouses up to and including last-mile delivery to the customer.” Id. ¶ 9. In 2021, the
Company renamed itself GigaCloud Technology Inc. Id. ¶ 48.
In connection with its anticipated IPO in the United States, GigaCloud filed a draft
registration statement with the U.S. Securities and Exchange Commission (“SEC”) on May 24,
2021. Id. ¶ 52. GigaCloud filed its final Registration Statement on August 17, 2022, and its
Prospectus (collectively, the “Offering Materials”) two days later. Id. ¶ 2. On August 22, 2022,
the Company completed its IPO and began publicly trading on the Nasdaq Stock Market
(“Nasdaq”) under the ticker symbol “GCT.” Id. ¶¶ 20; 52. As part of the IPO, GigaCloud sold
3,381,000 Class A ordinary shares at a price of $12.25 per share. ¶ 52. Defendant Aegis, an
investment bank, served as the underwriter. Id. ¶ 45.
B. The Alleged Misrepresentations and Omissions
Plaintiffs’ claims relate to two categories of alleged misrepresentations and omissions
from the Offering Materials, which the Court summarizes in turn. First, the Offering Materials
contained several references to GigaCloud’s use of artificial intelligence (“AI”) in its operations.
The Prospectus claimed that GigaCloud possesses AI “that generates seller ratings and credit
profiles through volume data,” “optimizes routing by organizing incoming orders and
rebalancing inventory levels within our warehousing network,” and “to accelerate the network
effects in [its] marketplace.” Id. ¶ 129. The Offering Materials also contained other references
to the Company’s use of “complex AI software” to optimize its logistics and warehousing
systems. Id. ¶ 133; see id. ¶ 135 (“We leverage self-learning AI to improve our operating
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efficiency.”); id. ¶ 137 (“AI-powered warehousing management system solves the many practical
problems faced by sellers and buyers.”); id. ¶ 139 (discussing “AI Algorithm”); id. ¶ 141
(discussing “Big Data Driven Technology Powered by AI & Machine Learning”).
Second, the Offering Materials contained statements and charts referencing financial and
operating metrics, including the Company’s revenues related to the Marketplace. GigaCloud’s
revenues are separated into three different revenue streams: (1) GigaCloud 1P (“1P”), which is
product revenue from the sale of GigaCloud’s own merchandise through the Marketplace;
(2) GigaCloud 3P (“3P”), which is service revenue generated from facilitating transactions
between third-party sellers and buyers on the Marketplace; and (3) Off-Platform Ecommerce
Revenue, which is product revenue from the sale of GigaCloud merchandise through third-party
websites such as Amazon or Wayfair. See id. ¶ 148; Prospectus 126-27. Together, 1P and 3P
revenues make up the Marketplace Gross Merchandise Value (“GMV”). See SAC ¶¶ 12-13.
These revenue metrics were provided from 2019 leading up to the Company’s IPO. See id. ¶ 86;
Prospectus 126. They were also accompanied by various explanatory statements. For example,
the Prospectus explained that “1P selling” helped “enhance [the Marketplace] experience” by
“giv[ing GigaCloud] insights into seller needs, provid[ing GigaCloud] with proprietary data[,]
and “increase[ing] the velocity of sales in [the] Marketplace.” SAC ¶ 156; see id. ¶¶ 144, 166. It
also noted in various ways that GigaCloud’s “ability to attract and engage buyers” in the
Marketplace was important to achieving revenue growth. Id. ¶ 162; see also id. ¶¶ 158, 160,
164, 168.
C. Short Seller Reports
On September 28, 2023, Shadyside Partners, LLC, a short seller firm that does business
under the name Culper Research, published a report on GigaCloud indicating that it had
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“uncovered” entities that “list[ed] several different GigaCloud insiders and former insiders on
their documents” yet were “engaged in the very same business as GigaCloud.” Id. ¶¶ 402-07.
GigaCloud’s stock price fell $1.78, from $9.47 to $7.69, over that trading day. See id. ¶ 409.
GigaCloud denied the allegations in a press release the next day, id. ¶ 386, and on November 13,
2024, issued a press release announcing that, after an “independent review,” its audit committee
had concluded that the “claims in the Culper Report were not substantiated.” Id. ¶ 388 (cleaned
up).
Another short seller, Grizzly Research LLC, published a report about GigaCloud on May
22, 2024. Id. ¶¶ 211, 410. The report alleged that “shell companies” “formed by [GigaCloud]
employees” “account for most of [GigaCloud’s] 1P revenue growth,” ECF No. 88-1, at 2,
meaning that “a vast network of undisclosed related shell companies” was being used “to inflate
most of [GigaCloud’s] key metrics,” id. at 11. On the same trading day, GigaCloud’s stock price
dropped over 5%, from $31.45 to $29.83. SAC ¶ 411. The following day, GigaCloud disputed
these claims in a press release, stating that it had already disclosed “all related party transactions
required by the applicable rules and accounting standards” and there was “no basis” for the
report to suggest that “sales made through certain entities are not legitimate.” Id. ¶ 125.
D. This Action
On October 4, 2023, Thomas J. Kinnally filed a securities class action in the Central
District of California against Defendants, on behalf of investors who had purchased GigaCloud
stock between August 18, 2022 and September 27, 2023. See Kinnally v. GigaCloud Technology
Inc et al., No. 23-CV-08381 (C.D. Cal.). On October 30, 2023, Rock Villanueva filed a separate
securities class action lawsuit in the same district, asserting substantially the same claims against
the same Defendants. See Villanueva v. GigaCloud Technology Inc et al., No. 23-CV-9134
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(C.D. Cal.). On December 4, 2023, three members of the putative class — Kinnally, Sahi Rajan,
and Meir Spear — each moved to consolidate the actions and to be appointed as Lead Plaintiff.
See Kinnally, No. 23-CV-08381 (C.D. Cal.), ECF Nos. 13, 17, 20.
Several days later, both actions were transferred to this Court, see ECF No. 9, which
thereafter granted the pending motions to consolidate and appointed Rajan and Spear as Co-Lead
Plaintiffs, see ECF No. 42. On June 28, 2024, Plaintiffs filed the Complaint. See SAC. It
asserts Securities Act claims based on the statements related to AI and GigaCloud’s Marketplace
revenue made in the Company’s Offering Materials. See id. ¶¶ 128-42 (AI statements); id.
¶¶ 143-77 (GigaCloud statements). Specifically, Plaintiffs assert Section 11 claims against all
Defendants and Section 15 claims for control person liability against Wu, Lau, Wan, Lin, Huang,
Chen, Guo, and Liu. Id. ¶¶ 29, 195-202. The Complaint also asserts Exchange Act claims,
largely based on statements regarding GigaCloud’s Marketplace revenue, substantially similar to
those underlying the Securities Act claims, by Wu, Lau, and Wan in earnings calls and SEC
filings following the IPO. Id. ¶¶ 213-18. Specifically, Plaintiffs assert Section 10(b) and Rule
10b-5(b) misstatement claims against GigaCloud, Wu, Lau, and Wan, id. ¶ 427, Section 10(b)
and Rule 10b-5(a) and (c) scheme liability claims against GigaCloud, Wu, Lau, and Wan, id.
¶¶ 397-401, and Section 20(a) claims against Wu, Lau, and Wan, id. ¶ 447.
Plaintiffs’ claims are based, in part, on information provided by confidential witnesses
who are former employees (“FEs”) of GigaCloud. Several FEs who worked in Suzhou, China,
“where [GigaCloud’s] IT development and management is based,” indicated that GigaCloud did
not use AI technology as part of its logistics systems. See id. ¶¶ 68-74. Their accounts were
corroborated by FEs who worked for GigaCloud in the United States, including FE-4, the former
President of GigaCloud’s U.S. Operations, who stated that GigaCloud used “AI” and “Machine
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Learning” only as “buzzwords” and that the Company actually used more outdated systems. See
id. ¶¶ 76-77. FE-4 further indicated that more than half of GigaCloud’s 1P revenue came from
buyers managed by current or former GigaCloud employees. Id. ¶ 97. FE-7 corroborated this
account, stating that “most of the transactions are coming from within the company,” from
“sister companies buying and selling from each other.” Id. ¶ 96.
LEGAL STANDARDS
The Court begins with Defendants’ Rule 12(b)(6) motion. In reviewing a motion to
dismiss pursuant to Rule 12(b)(6), a court must accept the factual allegations set forth in the
complaint as true and draw all reasonable inferences in favor of the plaintiff. See Giunta v.
Dingman, 893 F.3d 73, 78-79 (2d Cir. 2018). A court will not dismiss any claims unless the
plaintiff has failed to plead sufficient facts to state a claim to relief that is facially plausible, see
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007) — that is, one that contains “factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). More specifically, the
plaintiff must allege facts showing “more than a sheer possibility that a defendant has acted
unlawfully.” Id. A complaint that offers only “labels and conclusions” or “a formulaic recitation
of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. Further, if the
plaintiffs “have not nudged their claims across the line from conceivable to plausible, their
complaint must be dismissed.” Id. at 570.
To the extent that Plaintiffs allege fraud under the federal securities laws, they must also
satisfy the heightened pleading requirements of both Rule 9(b) and the Private Securities
Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4(b)(2). To satisfy Rule 9(b), a plaintiff
generally “must ‘(1) specify the statements that the plaintiff contends were fraudulent,
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(2) identify the speaker, (3) state where and when the statements were made, and (4) explain why
the statements were fraudulent.’” Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d
Cir. 2012) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)). To satisfy the
PSLRA, a complaint must, “with respect to each act or omission alleged to [constitute securities
fraud], state with particularity facts giving rise to a strong inference that the defendant acted with
the required state of mind.” United States ex rel. Chorches v. Am. Med. Response, Inc., 865 F.3d
71, 88 n.14 (2d Cir. 2017) (quoting 15 U.S.C. § 78u-4(b)(2)); see In re Lions Gate Ent. Corp.
Sec. Litig., 165 F. Supp. 3d 1, 22 (S.D.N.Y. 2016) (noting that a plaintiff “must allege facts
supporting a strong inference with respect to each defendant”). The “strong inference” must be
“more than merely plausible or reasonable.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S.
308, 314 (2007). The necessary inquiry is “inherently comparative.” Id. at 323. That is, the
Court “must consider plausible, nonculpable explanations for the defendant’s conduct, as well as
inferences favoring the plaintiff.” Id. at 324. Thus, a complaint alleging securities fraud will
survive “only if a reasonable person would deem the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from the facts alleged.” Id.
DISCUSSION
As noted, Plaintiffs bring claims under both the Exchange Act and the Securities Act.
First, Plaintiffs bring securities fraud claims under Sections 10(b) and 20(a) of the
Exchange Act and Securities Exchange Commission Rule 10b-5. To state a claim that
Defendants made material misrepresentations or omissions in violation of Section 10(b) and Rule
10b-5(b), Plaintiffs must allege “(1) a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale
of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss
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causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37-38 (2011); accord Setzer v.
Omega Healthcare Invs., Inc., 968 F.3d 204, 212 (2d Cir. 2020). To state a Rule 10b-5(a) and
(c) scheme liability claim, a plaintiff must allege “(1) manipulative acts; (2) damage (3) caused
by reliance on an assumption of an efficient market free of manipulation; (4) scienter; (5) in
connection with the purchase or sale of securities; (6) furthered by the defendant’s use of the
mails or any facility of a national securities exchange.” ATSI Commc’ns, Inc. v. Shaar Fund,
Ltd., 493 F.3d 87, 101 (2d Cir. 2007). “Unlike a misrepresentation or omission claim under Rule
10b-5(b), [a] scheme liability claim is aimed at inherently deceptive conduct and does not require
a misleading statement or omission.” In re AT&T/DirecTV Now Sec. Litig., 480 F. Supp. 3d 507,
534 (S.D.N.Y. 2020), aff’d sub nom. Steamfitters Loc. 449 Pension Plan v. AT&T Inc., No. 212698-CV, 2022 WL 17587853 (2d Cir. Dec. 13, 2022) (internal quotation marks omitted).
Relatedly, to state a control person claim under Section 20(a), Plaintiffs must, at a minimum,
plead a plausible “primary violation” of Section 10(b). See, e.g., SEC v. First Jersey Sec., Inc.,
101 F.3d 1450, 1472 (2d Cir. 1996); Total Equity Capital, LLC v. Flurry, Inc., No. 15-CV-4168
(JMF), 2016 WL 3093993, at *2 (S.D.N.Y. June 1, 2016).
Second, Plaintiffs bring claims under Sections 11 and 15 of the Securities Act. These
claims “do not require a showing of scienter, reliance, or loss causation.” Schaffer v. Horizon
Pharma PLC, No. 16-CV-1763 (JMF), 2018 WL 481883, at *14 (S.D.N.Y. Jan. 18, 2018).
Instead, to state a claim under Section 11, a plaintiff “must allege that: (1) she purchased a
registered security, either directly from the issuer or in the aftermarket following the offering;
(2) the defendant participated in the offering in a manner sufficient to give rise to liability under
section 11; and (3) the registration statement ‘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
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therein not misleading.’” In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358-59 (2d
Cir. 2010) (quoting 15 U.S.C. § 77k(a)). “Section 15, in turn, creates liability for individuals or
entities that control any person liable under section 11.” Id. at 358 (cleaned up). Thus, as with
Sections 10(b) and 20(a) of the Exchange Act, “a claim under section 15 relies, in part, on a
plaintiff’s ability to demonstrate primary liability under section[ ] 11.” Id.; see also In re
Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167, 185 (2d Cir. 2011) (“To establish § 15
liability, a plaintiff must show a primary violation of § 11 and control of the primary violator by
defendants.” (internal quotation marks omitted)).
Plaintiffs’ claims with respect to GigaCloud’s statements about its marketplace activities
are brought under both the Exchange Act and the Securities Act. By contrast, their claims with
respect to GigaCloud’s statements concerning AI are brought solely under the Securities Act.
The Court can and will discuss each set of claims in turn.
A. The Marketplace Activities Claims
Plaintiffs’ marketplace activities claims are based on statements and charts, in the
Offering Materials (in the case of the Securities Act claims) or in earning calls and SEC filings
(in the case of the Exchange Act claims), concerning GigaCloud’s 1P and Marketplace GMV
revenues. See SAC ¶ 147; see also id. ¶¶ 90-126. The gist of Plaintiffs’ theory is that these
revenue metrics “overstated the success of GigaCloud Marketplace and its attractiveness to
buyers,” id. ¶ 126; see id. ¶¶ 143-77, because, in reality, “a significant amount” of 1P and GMV
revenues came “from sales by GigaCloud to companies closely connected to it,” id. ¶ 143.
Plaintiffs allege that, by failing to disclose its relationships with these “closely connected”
companies, GigaCloud made materially misleading statements both (1) by reporting these
revenue metrics and (2) in various explanatory statements accompanying these metrics. Notably,
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Plaintiffs expressly disavow any claim that Defendants violated any financial accounting
regulation requiring the disclosure of “related-party transactions,” which courts have frequently
found sufficient to allege falsity. See e.g., Lewy v. SkyPeople Fruit Juice, Inc., No. 11-CV-2700
(PKC), 2012 WL 3957916, at *10 (S.D.N.Y. Sept. 10, 2012).
Although Defendants make a host of arguments for dismissal of these claims, the Court
need address only one — that Plaintiffs fail to plausibly plead that the statements were false or
misleading — because it is fatal to all of the claims. First, Plaintiffs’ claims relating to
statements and charts that merely disclosed 1P and GMV revenue metrics fail because “[a]
violation of federal securities laws cannot be premised upon a company’s disclosure of accurate
historical data.” Marcu v. Cheetah Mobile Inc., No. 18-CV-11184 (JMF), 2020 WL 4016645, at
*4 (S.D.N.Y. July 16, 2020). The Offering Materials defined “1P” as revenue earned from “the
sale of [GigaCloud’s] inventory in [the] GigaCloud Marketplace,” see SAC ¶ 148, and defined
“GMV” as “the total gross merchandise value of transactions ordered through [] GigaCloud
Marketplace including GigaCloud 3P and GigaCloud 1P,” Prospectus 20. And, as Defendants
note, Plaintiffs make no argument that such sales “occurred somewhere other than the
Marketplace.” ECF No. 96 (“Defs.’ Mem.”), at 15. In doing so, Plaintiffs essentially concede
that these sales did in fact take place over the Marketplace, which means that they were
accurately categorized as 1P revenues. Put differently, these statements “did nothing more than
accurately characterize . . . statistical facts.” Marcu, 2020 WL 4016645, at *5 (quotation marks
omitted).
Nor does Plaintiffs’ subjective belief that certain resellers were too “closely connected”
to GigaCloud and its employees impose any obligation on the Company to categorize these
revenues differently. None of the alleged misstatements claim that 1P revenues came
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exclusively from transactions involving companies with no prior relationship with GigaCloud or
its employees. Indeed, the Offering Materials are silent as to who the reseller purchasers were.
Although additional disclosures about who these resellers were might provide investors with
useful information, the “[d]isclosure of an item of information is not required simply because it
may be relevant or of interest to a reasonable investor.” Kleinman, 706 F.3d at 152-53 (cleaned
up). Given GigaCloud’s silence on the issue, disclosures about who was purchasing
GigaCloud’s inventory through the Marketplace were not “necessary to prevent existing
disclosures from being misleading.” Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715-16 (2d
Cir. 2011).
The second category of challenged statements, explaining and discussing 1P and GMV
revenues, also fall short. Here, Plaintiffs point to various explanatory statements, such as
statements claiming that “1P selling” helped “enhance [the Marketplace] experience” by “giv[ing
GigaCloud] insights into seller needs, provid[ing GigaCloud] with proprietary data[,] and
“increas[ing] the velocity of sales in [the] Marketplace.” See SAC ¶¶ 144, 156, 166. But
Plaintiffs do not explain how Defendants’ failure to disclose GigaCloud’s relationships with
certain buyers was “sufficiently connected to [these] existing disclosures to make [them]
misleading.” In re Marsh & Mclennan Cos., Inc. Sec. Litig., 501 F. Supp. 2d 452, 469 (S.D.N.Y.
2006). As was the case above, none of the statements cited by Plaintiffs suggest that 1P or GMV
revenue came exclusively from buyers with no prior connections with GigaCloud. Indeed, the
statements at issue were wholly consistent with the allegedly omitted information. Companies
that are “closely connected” to GigaCloud, as defined by Plaintiffs, can nonetheless be attracted
to the Marketplace because it allows them to “minimize inventory risk.” SAC ¶ 144; see also id.
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¶¶ 152, 156, 158, 166. Disclosure is not required where, as here, it is not necessary in order to
make the existing statements not misleading. See Kleinman, 706 F.3d at 153.
In short, Plaintiffs fail to plausibly allege that Defendants made misstatements relating to
revenues from 1P and GMV. That dooms their claims based on GigaCloud’s marketplace
activities under Section 10(b) of the Exchange Act, SEC Rule 10b-5(b), and Section 11 of the
Securities Act. Plaintiffs’ Rule 10b-5(a) and (c) scheme liability claims also fail because, at
bottom, they are premised on the same misstatements. 2 See In re Eastman Kodak Co. Sec. Litig.,
632 F. Supp. 3d 169, 190 (W.D.N.Y. 2022) (“[T]he Court’s conclusion that Plaintiffs have not
sufficiently alleged that [] any material false statements or omissions were made is also fatal to
Plaintiffs’ scheme liability claim.”); Buhrke Fam. Revocable Tr. v. U.S. Bancorp, 726 F. Supp.
3d 315, 363 (S.D.N.Y. 2024) (“Lead Plaintiffs have failed to plead . . . any actionable
misstatements, so their scheme liability claims necessarily fail.”); see also Touchstone Strategic
Tr. v. Gen. Elec. Co., No. 19-CV-1876 (JMF), 2022 WL 4536800, at *6 (S.D.N.Y. Sept. 28,
2022) (“Plaintiffs’ underdeveloped claim for scheme liability fails because the SAC alleges
misstatements and omissions, not inherently deceptive conduct.” (internal quotation marks
omitted)), aff’d, No. 22-2835-CV, 2023 WL 6053007 (2d Cir. Sept. 18, 2023). It follows that
Plaintiffs’ claims under Section 20(a) of the Exchange Act and Section 15 of the Securities Act
fail as a matter of law as well. See, e.g., Slayton v. Am. Exp. Co., 604 F.3d 758, 778 (2d Cir.
2010) (“In order to establish a prima facie case of liability under § 20(a) [of the Exchange Act], a
2
Although Plaintiffs assert that Defendants “engaged in deceptive acts distinct from
misstatements,” ECF No. 107 (“Pls.’ Mem.”), at 23-24 (emphasis added), their scheme liability
claims actually and ultimately rely on the same alleged misstatements, see SAC ¶ 401 (“The
Exchange Act Defendants touted increases in these metrics to investors as proof of GigaCloud’s
success and prospects, and purported to explain the reasons for increases in those metrics without
disclosing GigaCloud’s transactions with closely connected companies.”).
13
plaintiff must show a primary violation by a controlled person.” (cleaned up)); In re Lehman
Bros. Mortg.-Backed Sec. Litig., 650 F.3d at 185 (“To establish § 15 liability, a plaintiff must
show a ‘primary violation’ of § 11 and control of the primary violator by defendants.”).
A. The AI Claims
By contrast, the Court concludes that Plaintiffs’ allegations with respect to Defendants’
statements concerning AI are sufficient to support claims under the Securities Act, albeit for only
one of the two reasons that Plaintiffs proffer.
First, Defendants argue that Plaintiffs do not state a claim on the ground that GigaCloud
misrepresented the general sophistication of its technology. Defs.’ Mem. 11-12. On this score,
the Court agrees. Vague allegations that GigaCloud’s technology “was not state of the art” or
was “less sophisticated than Amazon or Walmart,” e.g., SAC ¶ 76, are irrelevant because there is
no contention that GigaCloud claimed to use more sophisticated technology in the first place.
Moreover, such “vague corporate-speak” used to describe the general strength of GigaCloud’s
technology amounts to mere “puffery.” In re Farfetch Ltd. Sec. Litig., No. 19-CV-8657 (AJN),
2021 WL 4461264, at *10 (S.D.N.Y. Sept. 29, 2021) (Nathan, J.), aff’d sub nom. IAM Nat’l
Pension Fund v. Farfetch Ltd., No. 21-2752-CV, 2023 WL 2879304 (2d Cir. Apr. 11, 2023)
(internal quotation marks omitted).
But Plaintiffs’ claims are also based on specific factual statements regarding GigaCloud’s
use of AI — statements that Plaintiffs allege, relying on information from the FEs, to be false.
See SAC ¶¶ 67-82. “A plaintiff may rely on confidential witnesses so long as allegations in the
complaint are sufficient to ‘provide an adequate basis for believing that the defendants’
statements were false.’” In re Nielsen Holdings PLC Sec. Litig., 510 F. Supp. 3d 217, 228
(S.D.N.Y. 2021) (quoting Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir. 2000)). “[A]lthough a
14
confidential source need not be identified for his or her statements to be credited on a motion to
dismiss, such a source must be ‘described in the complaint with sufficient particularity to support
the probability that a person in the position occupied by the source would possess the
information alleged.’” In re DraftKings Inc. Sec. Litig., 650 F. Supp. 3d 120, 154 (S.D.N.Y.
2023) (quoting Emps.’ Ret. Sys. of Gov’t of the V.I. v. Blanford, 794 F.3d 297, 305 (2d Cir.
2015)). “As a general matter, courts consider and take as true the statements of [confidential]
witnesses at [the pleading] stage[.]” In re AppHarvest Sec. Litig., 684 F. Supp. 3d 201, 261
(S.D.N.Y. 2023). In light of these standards, Plaintiffs’ state a plausible claim.
In arguing otherwise, Defendants contend that the Court should not credit the FE
statements because they are mere “musings” from FEs who lack “credible knowledge about the
Company’s use of AI” and, in any event, are too “generic” to support Plaintiffs’ allegation of
falsity. Defs.’ Mem. 9-10; ECF No. 115 (“Reply”), at 3. But at least some of the FEs “held
positions that suggest they would have knowledge” about GigaCloud’s use of AI. In re Tufin
Software Techs. Ltd. Sec. Litig., 20-CV-5646 (GHW), 2022 WL 596861, at *8 (S.D.N.Y. Feb.
25, 2022) (finding allegations about the defendant’s sales cycle sufficient where “the confidential
witnesses worked in [the defendant’s] sales divisions” and “held positions that suggest they
would have knowledge of the length of [defendant’s] sales cycle”). FE-1, FE-2, and FE-3, for
example, worked for GigaCloud in Suzhou, China, where the Company’s “IT development and
management is based.” SAC ¶ 67. Further, FE-1 was “a member of the Java development team”
and “developed software to handle logistics for [GigaCloud’s] U.S. warehouses and monitor the
distribution of the Company’s inventory,” SAC ¶ 33, while FE-2 and FE-3 were supply chain
managers responsible for managing business purchasers and suppliers, id. ¶¶ 34-35. Of the
remaining FEs, four held senior roles that involved recruiting customers to GigaCloud
15
Marketplace, see id. ¶¶ 36-39; 76, so it can be inferred that they have knowledge about whether,
during the relevant times, GigaCloud “use[d] complex AI software in [its] technology
infrastructure,” see id. ¶ 133. This is especially true in light of the Company’s own
representation that its “warehouse management system and other technology infrastructures are
critical to . . . [its] ability to acquire and retain customers.” See id. ¶¶ 61, 133.
Additionally, contrary to Defendants’ assertion, the FEs’ accounts are not mere “generic
allegations,” Defs.’ Mem. 10, but include “specific descriptions,” Long Miao v. Fanhua, Inc.,
442 F. Supp. 3d 774, 800 (S.D.N.Y. 2020). For example, FE-2 described in detail the logistics
system that GigaCloud used — an “Enterprise Resource Planning” system that “relied on manual
computations of existing data and, because of that, required at least 100 IT employees to
maintain.” SAC ¶¶ 71-72. The Complaint also “specifies each witness’s position, length of
employment, and job responsibilities.” Blanford, 794 F.3d at 307. For instance, Plaintiffs
specify that FE-5 “was employed from December 2021 to September 2022” as “GigaCloud’s
Business Development Director,” where he was “responsible for persuading U.S. furniture stores
to use GigaCloud Marketplace to source furniture.” SAC ¶¶ 78-79; see also id. ¶¶ 33-41
(specifying the positions, lengths of employment, and job responsibilities of all nine FEs). 3
Taken together, these allegations are sufficient to support an inference that GigaCloud did not
3
Defendants’ observation that FE-5 left one month into the Class Period, see Defs’ Mem.
10, is irrelevant, as FE-5 was employed when the AI statements were made in the Registration
Statement. Although FE-4 left three months before the Class Period, see id., his statements
about the GigaCloud’s use of AI in May 2022 “support an inference of similar circumstances” in
August 2022. See Employees’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297,
307 (2d Cir. 2015). As Plaintiffs rightly observe, “the idea that GigaCloud suddenly built AI
systems during that time is absurd.” See Pls.’ Mem 12 n.8.
16
use AI in its logistics operations as claimed in the Offering Materials. Accordingly, Plaintiffs
plausibly plead falsity. 4
Defendants’ only other argument for dismissal of the AI-related claims — that they can
and should be dismissed on loss causation grounds, see Defs.’ Mem. 22 — can be swiftly
rejected because “Section 11 claims do not require plaintiffs to plead loss causation.” Boluka
Garment Co., Ltd. v. Canaan Inc., 547 F. Supp. 3d 439, 447 (S.D.N.Y. 2021). Instead, the
absence of loss causation is an affirmative defense under Section 11, see Yi Xiang v. Inovalon
Holdings, Inc., 254 F. Supp. 3d 635, 644 (S.D.N.Y. 2017), and thus “not properly raised on a
Rule 12(b)(6) motion” unless “it is apparent from the face of the complaint that the plaintiff[s]
cannot recover [their] alleged losses.” Boluka Garment Co., Ltd., 547 F. Supp. 3d at 447.
Defendants contend that is the case here because Plaintiffs’ claims rely on reports from short
sellers who “only reviewed public sources and then ‘expressed negative opinions about the
[Company]’ based on public information.” Defs.’ Mem. 22-23 (quoting Cent. States, Se. & Sw.
Areas Pension Fund v. Fed. Home Loan Mortg. Corp., 543 Fed. App’x 72, 75 (2d Cir. 2013)
(summary order)). But the Court disagrees. A “third party’s analysis of a company’s alreadypublic financial information” can “contribute new information to the marketplace.” In re
Chicago Bridge & Iron Co. N.V. Sec. Litig., No. 17-CV-1580 (LGS), 2020 WL 1329354, at *7
(S.D.N.Y. Mar. 23, 2020); see Bishins v. CleanSpark, Inc., No. 21-CV-511 (LAP), 2023 WL
4
The parties bicker about whether Rule 9(b) applies to Plaintiffs’ AI-related claims.
Defs.’ Mem. 7-8 & n.10; Pls.’ Mem 10, 13-14; Reply 2 & n.3 Plaintiffs have the better of the
argument because the Complaint affirmatively alleges that Defendants “were responsible for the
content and dissemination of the Registration Statement” and “acted negligently” by making no
“reasonable investigation” and having no “reasonable grounds” to believe that “the statements
. . . were true and not misleading.” SAC ¶¶ 189-91; see In re Refco, Inc. Sec. Litig., 503 F. Supp.
2d 611, 633 (S.D.N.Y. 2007) (finding that Rule 9(b) did not apply where the plaintiffs had “done
more than disclaim fraud; they [had] specifically pled alternate theories of fraud and
negligence”). In any event, Plaintiffs’ AI-related claims would survive even if Rule 9(b) applied.
17
112558, at *13 (S.D.N.Y. Jan. 5, 2023) (citing cases for the proposition that “third party analyses
of previously public information could be sufficient to plead loss causation”). Moreover, the
short seller reports here contributed new information extracted from the short-sellers’ own
investigation — including from conversations with former and current employees and from visits
to GigaCloud’s warehouses. See also In re Signet Jewelers Ltd. Secs. Litig., No. 16-CV-6728
(CM) (RWL), 2019 WL 3001084, at *17 (S.D.N.Y. July 10, 2019) (“[An analyst report] was not,
as [d]efendants contend, merely a journalist’s negative opinion, but an analysis of how and why
[defendant company’s] underlying business was weaker than most people realized [and] . . . thus
qualifie[d] as corrective.”); Meyer v. Greene, 710 F.3d 1189, 1199 n.10 (11th Cir. 2013) (noting
that short-seller opinions may constitute corrective disclosures if they “reveal to the market
something previously hidden or actively concealed”). That is sufficient here. 5
Accordingly, Plaintiffs state a Section 11 claim against Defendants based on alleged
misstatements in the Offering Materials related to GigaCloud’s use of AI. As Defendants make
no independent argument for dismissal of Plaintiffs’ Section 15 control person claims, it follows
that those claims also survive as to the AI statements.
B. Chen’s Motion
Lastly, the Court turns to Defendant Chen’s separate motion to dismiss the Securities Act
claims against him for lack of personal jurisdiction under Rule 12(b)(2). Jurisdiction is proper
5
Defendants also challenge loss causation on the ground that GigaCloud’s stock prices
rebounded, see Defs.’ Mem. 24, but they appear to make that argument only with respect to the
marketplace activities claims. In any event, “that the price [of the stock] rebounded does not, at
the pleading stage, negate the plaintiff’s showing of loss causation” because when “drawing all
reasonable inferences in favor of [plaintiff], [we] assume that the price rose for reasons unrelated
to its initial drop.” Acticon AG v. China N. E. Petroleum Holdings Ltd., 692 F.3d 34, 39-40 (2d
Cir. 2012); see also Saskatschewan Healthcare Employee’s Pension Plan v. KE Holdings Inc.,
718 F. Supp. 3d 344, 394 (S.D.N.Y. 2024).
18
“when a defendant has purposefully directed his activities toward the forum and the litigation
arises out of or is related to the defendant’s contact with the forum.” In re AstraZeneca Sec.
Litig., 559 F. Supp. 2d 453, 466-67 (S.D.N.Y. 2008), aff’d sub nom. State Univs. Ret. Sys. of Ill.
v. Astrazeneca PLC, 334 Fed. App’x 404 (2d Cir. 2009). 6 Chen argues that Plaintiffs fail to meet
that standard as to him because he, unlike the other Individual Defendants, did not sign the
Registration Statement and “status as a board member is not alone sufficient to establish
jurisdiction.” Chen Mem. 2 (quoting AstraZeneca Sec. Litig., 559 F. Supp. 2d at 466). In
compliance with 17 C.F.R. § 230.438, however, Chen did sign a letter “consent[ing] to the
references of [his] name in the Registration Statement . . . , which indicate[d] that [he had]
accepted [his] appointment as a director of the Company,” effective upon the effectiveness of the
Registration Statement. ECF No. 110-2. The question is whether that letter suffices to support
jurisdiction.
Chen notes that “Plaintiffs . . . do not cite a single case holding that signing the required
consent agreeing to become a director . . . automatically subjects the director to jurisdiction for
claims about a Registration Statement he did not sign for a company of which he was not yet a
director.” ECF No. 116 (“Chen Reply”), at 2. True, but neither do Defendants cite a single case
going the other way. Instead, the question presented appears to be one of first impression.
In the Court’s view, Plaintiffs have the better of the argument. By its terms, Section 11
liability extends not only to “every person who signed the registration statement,” but also to
“every person who, with his consent, is named in the registration statement as being or about to
6
A court may also exercise jurisdiction over a defendant if he is “essentially at home” in
the district. Daimler AG v. Bauman, 571 U.S. 117, 139 (2014). Plaintiffs do not contend,
however, that this is a basis for jurisdiction over Chen and for good reason: They make no
allegations that Chen, allegedly a domiciliary of Hong Kong, lives or works in the United States.
19
become a director.” 15 U.S.C. § 77k(a)(1), (3); see Obasi Inv. LTD v. Tibet Pharms., Inc, 931
F.3d 179, 190 (3d Cir. 2019). In other words, for purposes of a Section 11 claim, there is no
material difference between a director who signs the registration statement and someone, such as
Chen, who signs the written consent required by 17 C.F.R. § 230.438 to be submitted with the
registration statement. By signing the written consent, Chen “availed himself of the privilege of
doing business here, even though he remained in” Hong Kong. Sec. & Exch. Comm’n v. Hurgin,
484 F. Supp. 3d 98, 114 (S.D.N.Y. 2020); see, e.g., In re Alstom SA Sec. Litig., 406 F. Supp. 2d
346, 399 (S.D.N.Y. 2005) (“The signing of documents filed with the SEC which form the basis
for Plaintiffs’ claims is sufficient contact with the jurisdiction to justify this Court’s exercise of
jurisdiction over [the signatory].”). For the same reasons, Chen “could expect to face litigation
regarding such statements,” Alpha Cap. Anstalt v. New Generation Biofuels, Inc., No. 13-CV5586 (VEC), 2014 WL 6466994, at *8 (S.D.N.Y. Nov. 18, 2014). Accordingly, his motion to
dismiss for lack of personal jurisdiction is DENIED.
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss under Rule 12(b)(6) is
GRANTED in part and DENIED in part, while Chen’s motion to dismiss under Rule 12(b)(2) is
DENIED. In particular, the Court concludes that Plaintiffs plausibly allege that Defendants
made materially misleading statements in the Offering Materials about GigaCloud’s use of AI in
violation of Section 11 of the Securities Act. It follows that Plaintiffs’ Section 15 claims relating
to these statements also survive. By contrast, the Court concludes that Plaintiffs fail to state a
claim based on GigaCloud’s marketplace activities. It follows that Plaintiffs’ claims relating to
these statements — under Sections 11 and 15 of the Securities Act, Sections10(b) and 20(a) of
the Exchange Act, and SEC Rule 10b-5 — must be and are dismissed.
20
The only remaining question is whether Plaintiffs should be permitted to replead their
claims to the extent they have been dismissed — as Plaintiffs request in passing. See Pls.’ Mem.
25. Although leave to amend should be freely given “when justice so requires,” Fed. R. Civ. P.
15(a)(2), it is “within the sound discretion of the district court to grant or deny leave to amend,
Broidy Cap. Mgmt. LLC v. Benomar, 944 F.3d 436, 447 (2d Cir. 2019). Here, the problems with
Plaintiffs’ dismissed claims are substantive, so amendment would be futile. See, e.g., Roundtree
v. NYC, No. 19-CV-2475 (JMF), 2021 WL 1667193, at *6 (S.D.N.Y. Apr. 28, 2021) (citing
cases). Nor do Plaintiffs suggest that they are in possession of facts that would cure the
problems with their dismissed claims. See, e.g., Clark v. Kitt, No. 12-CV-8061 (CS), 2014 WL
4054284, at *15 (S.D.N.Y. Aug. 15, 2014) (“A plaintiff need not be given leave to amend if [it]
fails to specify how amendment would cure the pleading deficiencies in [its] complaint.”);
accord TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 505-06 (2d Cir. 2014). Finally, the
Court granted Plaintiffs leave to amend in response to Defendants’ first motion to dismiss and
explicitly warned that they would “not be given any further opportunity to amend the complaint
to address issues raised by the motion to dismiss.” ECF No. 85. “Plaintiff’s failure to fix
deficiencies in its previous pleadings is alone sufficient ground to deny leave to amend sua
sponte.” Transeo S.A.R.L. v. Bessemer Venture Partners VI L.P., 936 F. Supp. 2d 376, 415
(S.D.N.Y. 2013) (citing cases)). Accordingly, Plaintiffs’ request for leave to amend is DENIED.
Unless and until the Court orders otherwise, Defendants shall file their Answer to
Plaintiffs’ surviving claims within three weeks of the date of this Opinion and Order. See Fed.
R. Civ. P. 12(a)(4)(A). In addition, the initial pretrial conference, previously adjourned, is
hereby reinstated and RESCHEDULED for March 26, 2025, at 9:00 a.m. To access the
conference, counsel should call the Court’s new dedicated conference call line at (855) 244-8681
21
and use access code 2303 019 3884, followed by the pound (#) key. When prompted for an
attendee ID number, press the pound (#) key again. (Members of the press and public may call
the same number, but will not be permitted to speak during the conference.) The parties are
reminded to follow the procedures for telephone conferences described in the Court’s Individual
Rules and Practices for Civil Cases, which are available at https://nysd.uscourts.gov/hon-jessem-furman, including Rule 3(B)(i), which requires the parties, no later than 24 hours before the
conference, to send a joint email to the Court with the names and honorifics (e.g., Mr., Ms., Dr.,
etc.) of counsel who may speak during the teleconference and the telephone numbers from which
counsel expect to join the call. The parties are reminded that, no later than the Thursday before
the initial pretrial conference, they must submit a joint status letter and proposed Case
Management Plan. See ECF No. 53.
The Clerk of Court is directed to terminate ECF Nos. 95 and 105.
SO ORDERED.
Dated: January 27, 2025
New York, New York
__________________________________
JESSE M. FURMAN
United States District Judge
22