Puffery Not Actionable Under Securities Laws

On May 15, 2020, Justice Ostrager of the New York County Commercial Division issued a decision in Matter of Sundial Growers Inc. Sec. Litig., 2020 NY Slip Op. 50579(U), holding that puffery is not actionable under the federal securities laws, explaining:

Expressions of puffery and corporate optimism are not actionable under the securities laws. This is especially true where the allegedly fraudulent statements about future performance were accompanied with adequate cautionary language, and not stated as guarantees further, a firm has no duty to update such vague statements of optimism or expressions of opinion in light of changed circumstances.

Puffery encompasses statements that are too general to cause a reasonable investor to rely upon them, and thus cannot have misled a reasonable investor. They are statements that lack the sort of definite positive projections that might require later correction. Here, the terms "high quality" and "premium" are clear examples of puffery because they are general and not subject to verification. At most, "high quality" and "premium" are statements of opinion, which are also not actionable. To be actionable, the opinion statements must be (i) false and (ii) not honestly believed when made.

In opposition to the motion to dismiss, plaintiff argues that the above statements cannot be considered puffery or opinions because they misrepresented current facts. However, plaintiff ignores the full sentence in many instances which begin with "we believe", "we intend","will result" and other opinion-based, or forward-looking language. Courts have repeatedly held that statements concerning a company's business potential are inactionable as a matter of law.

Importantly, plaintiff also ignores the robust 35-page risk disclosure section of the Offering Documents. The crux of plaintiff's Complaint is that there were quality issues in Sundial's product since 2018, chiefly, the shipment that was sent to Zenabis was deficient and contained mold and foreign objects. However, this exact type of risk was disclosed in the Offering Documents. . . .

Based on the context of the alleged misrepresentations, their general nature, and their placement amongst robust risk disclosures, the Court finds that the documentary evidence here, the Prospectus itself, utterly refutes plaintiff's first and second causes of action for violations of Section 11 and Section 12(a)(2) of the Securities Act.

(Internal quotations and citations omitted).

We have substantial experience in litigation regarding securities, both in state and federal court. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client need help regarding a claim related to stocks, bonds or other financial instruments.