California Appellate Court Affirms Decision To Dismiss Putative Securities Class Action Against Hair Implantation Company Because Of Federal Forum Provision

• Published date: 17 May 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On April 28, 2022, the First Appellate District Court of Appeals for the State of California affirmed the dismissal of putative securities class action against a hair transplant technology company (the 'Company') alleging violations of the Securities Act of 1933 (the '1933 Act'). Wong v. Restoration Robotics, Inc., A161489 (Cal. Ct. App. Apr. 28, 2022). Plaintiff initiated the action in California state court, alleging that the offering documents for the Company's 2017 initial public offering ('IPO') contained materially false and misleading statements in violation of the 1933 Act. The trial court dismissed the complaint on the basis of a federal forum provision ('FFP') in the Company's certificate of incorporation. The Court affirmed, holding that the FFP was enforceable and that the trial court would only have jurisdiction if the Company consented to a different forum, which it had not.

The Company manufactures a robotic system used in a type of hair transplant procedure. The Company filed its Form S-1 Registration Statement with the SEC on September 1, 2017, and it was declared effective on October 11, 2017. The Company amended the Registration Statement on September 18, 2017, adding an 'Exclusive Forum' provision which provided that unless the Company consents in writing, federal district court shall be the exclusive forum for any cause of action arising under the 1933 Act, and that any shareholder shall be deemed to have notice.

Plaintiff shareholder filed a putative class action complaint against the Company in May 2018 in California state court, alleging that 'the registration statement was inaccurate and misleading, contained untrue statements of material fact, and failed to disclose material facts, in violation of sections 11, 12(a)(2), and 15 of the 1933 Act.' Plaintiff pointed to a 50% drop in the sales price of the Company's stock since its IPO and alleged that the registration statement 'mischaracterized the company's liquidity and capital needs, and failed to disclose that substantial engineering and programming work was required before the implantation technology would be commercially viable.' The trial court initially denied the Company's motion to dismiss based on the FFP, relying on a Delaware Chancery Court decision holding that FFPs were facially invalid under Delaware law, but granted the Company's renewed motion to dismiss after the Delaware Supreme Court overturned the Chancery Court's decision and held that FFPs are not contrary to...