Southern District Of Florida Dismisses Suit Against French Content Moderation Company And Previews Acceptable Amended Complaint

Shearman & Sterling LLP


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On May 22, 2024, Judge Cecilia M. Altonoga of the United States District Court for the Southern District of Florida granted a motion to dismiss a putative shareholder action asserting claims...
United States Corporate/Commercial Law
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On May 22, 2024, Judge Cecilia M. Altonoga of the United States District Court for the Southern District of Florida granted a motion to dismiss a putative shareholder action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against a French company that provides outsourced content-moderation services for social media platforms (the "Company") and certain of its former executives (the "Individual Defendants"). City of Warren Gen. Emps.' Ret. Sys. v. Teleperformance SE, No. 23-cv-24580 (S.D. Fla. May 22, 2024). The complaint alleged that defendants made false and misleading statements about the treatment and training of the Company's content moderators and the Company's plan to exit the "highly egregious portion" of the content-moderation business. Judge Altonoga dismissed the complaint without prejudice, holding that plaintiffs did not adequately plead as a threshold matter that they purchased the Company's shares within the United States and that plaintiffs had engaged in improper "puzzle pleading" in violation of Federal Rule of Civil Procedure 8(a)(1). Nevertheless, construing the complaint generously and relying on the parties' briefing to organize the alleged misstatements, the Court identified several alleged misstatements that would be actionable, as pled, in an amended complaint with the noted deficiencies cured.

The Company is a Paris-based digital-business services company that provides, among other things, content moderation services for social media companies. The Company's shares trade on the Paris Stock Exchange, while its American Depository Receipts ("ADRs") are traded over-the-counter ("OTC") in the United States.

In August 2022, an investigative piece reported that the Company's content moderators allegedly were required to review "sexually exploitative images of children" as part of their training, and that this training had adverse and sometimes serious negative effects on moderators' mental health. Moreover, the Company allegedly failed to vet these moderators during the hiring process or to provide adequate mental health support to its employees. In response, the Company conducted an internal audit, the results of which, the Company announced, allegedly demonstrated that the exposé was unfounded. But a second article published in October 2022 that allegedly confirmed the initial reporting. The Company continued to double-down on its internal audit, announcing that an independent third party had reviewed the results and found no inconsistencies.

The Court held that plaintiffs' failure to allege a domestic transaction warranted dismissal without prejudice of all claims. It found significant that plaintiffs alleged the Company's ADRs traded on the OTC market, but failed to allege that plaintiffs themselves purchased these ADRs. This, the Court ruled, failed to enable a plausible inference that plaintiffs satisfy the domestic-transaction requirement of the Exchange Act. The Court further held that the prolixity and disorganized structure of plaintiffs' complaint did not abide by Rule 8(a)(1)'s requirement that a pleading contain a short and plain statement of the claim. Instead, the complaint identified approximately 40 statements and quotes allegedly attributable to defendants and a laundry list of specific reasons why these statements were allegedly false, while neglecting to make clear what portion of each quotation constitutes a false representation or which statement links up with which issues in the laundry list. This, too, the Court found warranted dismissal of the complaint without prejudice. Having dismissed plaintiffs' Section 10(b) claim, the Court also dismissed without prejudice plaintiffs' Section 20(a) claim for lack of a predicate offense.

However, noting both that the complaint's deficiencies are easily curable and that the parties had expended considerable effort in their briefs to untangle the confusion caused by plaintiffs' puzzle-pleading approach, the Court considered defendants' remaining arguments in favor of dismissal, namely, that the complaint failed to allege (1) a single actionable misstatement or omission and (2) that defendants acted with scienter. The Court disagreed.

The Court held that the alleged misstatements and omissions proffered by plaintiffs amounted to mere corporate puffery. However, the Court concluded that plaintiffs had adequately identified two categories of misstatements, which, as alleged, qualify as actionable under Section 10(b): (1) the Company's assurances regarding the well-being of its content moderators, which were belied by the specific and widespread issues with employee support services and training reported in the two investigative pieces; and (2) the Company's statements about the results of the audit, which also were belied by reporting and statements of confidential witnesses who worked at the Company as content moderators during the relevant period.

The Court next considered whether plaintiffs' allegations enabled a strong inference of scienter. It answered that question affirmatively. The Court found significant that plaintiffs alleged the Company's content-moderation business allegedly was a critical driver of the Company's growth, that the Company continuously repeated the alleged misstatements, that certain Individual Defendants downplayed or dodged questions about the Company's content moderation practices when confronted, and that the Columbian government was investigating the Company's labor practices. The Court concluded that, considered holistically, these allegations sufficed to show the alleged misstatements were made with scienter.

The Court granted plaintiffs leave to amend and directed them to file an amended complaint curing the noted deficiencies in accordance with the Court's dismissal order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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