Securities And Exchange Act Claims Against TaskUs, Inc. Survive Motion To Dismiss

Recently, the Southern District of New York affirmed that repeated assertions conveying a false impression—i.e., a positive workplace culture backed by “low attrition” and Glassdoor ratings—were actionable.  Although the analysis was not in favor of Plaintiffs in this case, the District Court tacitly supported the “core operations” doctrine for examining scienter; the Second Circuit has still not issued a decision on whether the “core operations” doctrine is applicable post-PSLRA.  On January 5, 2024, a motion to dismiss a securities class action was granted in part and denied in part.  The securities class action complaint was filed on February 23, 2022 against TaskUs, Inc. and other defendants for claims under Sections 11, 12(a)(2), and 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act.  Lozada v. TaskUs, Inc., No. 22 Civ. 1479 (JPC), 2024 BL 4121, 2024 US Dist Lexis 2910 (S.D.N.Y. Jan. 05, 2024) (Cronan, J.).  

TaskUs, Inc. is a business process outsourcing company which provides personnel support to third parties and content moderation on social media.  Id. at *3.  Allegedly, TaskUs, Inc. touted a “low attrition,” which was only low in a specific context that some statements did not disclose or clarify.  Id. at *13-15.  TaskUs, Inc also allegedly inflated its Glassdoor rating by instituting a policy requiring new employees to submit a Glassdoor review within seven days of employment.  Id. at *15-19.

Under Section 11, Plaintiffs sufficiently pled that some statements made about the company’s employment retention rate—its “low attrition” and its Glassdoor rating—were false and/or misleading.  Id. at *13-19 (statements about low attrition for employees of “more than 180 days” were not actionable).  Notably, regarding Defendants’ argument that the information about its Glassdoor rating was public, the Court stated, “The fact that someone, after embarking on substantial effort, could figure out that most of the company's ratings came from new employees does not mean that such information had been digested—and thus had become known—by the public.” Id. at *16.  Although touting about workplace quality may be puffery, “[b]y repeatedly emphasizing the company's Glassdoor rating, the company conveyed to potential investors that the rating accurately reflected the company's positive workplace culture[,]” and statements about “differentiated culture” and “focus on culture” paired with the disclosure on Glassdoor rating were actionable.  Id. at *18-19.

Similarly, some statements made by the Defendants were found actionable under Section 10(b).  Id. at *25-26.  Plaintiffs’ arguments for scienter via motive and opportunity were insufficient.  Id. at *26-28.  However, the Court did find sufficient pleading for scienter via conscious misbehavior or recklessness as to Defendants’ statements about “low attrition” but not the Glassdoor ratings.  Id. at *30-33.  Notable, regarding Plaintiffs’ argument that Defendants had access to the Glassdoor policy, the Court found the new employee policy was not a part of the core operations, and as such, Plaintiffs could not know Defendants were aware of said policy.  Lozada, 2024 BL 4121 at *32; Stratte-McClure v. Morgan Stanley, 784 F. Supp. 2d 373, 389 (S.D.N.Y. 2011) aff'd, 776 F.3d 94 (2d Cir. 2015), and aff'd, 598 F. App'x 25 (2d Cir. 2015) ("While officers cannot be imputed with knowledge about all transactions which occur at a corporation, they do have a duty to familiarize themselves with the core operations of the Company.").  Then, loss causation was found in relation to events for “low attrition” statements.  Id. at *33-35.

As limited by the Court’s decision on the above Sections 11 of the Securities Act and 10(b) of the Exchange Act, the Court found Sections 15 of the Securities Act and 20(a) and 20A of the Exchange Act sufficiently pled.  Id. at *35-36. However, the Court dismissed all counts against individual defendant Weir as lacking scienter.  Id. at *29-30.  The Court also dismissed Section 12(a)(2) claims as insufficient because the Plaintiffs did not purchase directly in the IPO and certain defendants were not statutory sellers.  Id. at *19-20.  To remedy deficiencies, the Court granted Plaintiffs leave to amend the complaint.  Id. at *36.