We secured dismissal of a putative securities class action filed in the Southern District of New York

On March 7, 2025, Davis Polk secured dismissal of a securities class action filed against its client Tuya, Inc. and other defendants in the Southern District of New York.

Tuya, which provides a platform for internet-of-things (IoT) devices such as smart lightbulbs and thermostats, went public in a March 2021 IPO.

The lawsuit, filed as a putative class action in 2022, alleged that Tuya’s IPO registration statement was materially misleading because it did not disclose that certain of Tuya’s third-party customers were then engaged in a scheme to generate fake reviews on Amazon. The plaintiffs claimed those customers were later banned from selling on Amazon, which harmed Tuya’s business.

Last year, Judge John P. Cronan denied Tuya’s motion to dismiss, sending the case toward discovery. The Davis Polk team, however, instead moved promptly for judgment on the pleadings, focusing on issues that the court had declined to consider on the original motion. This effected a stay of discovery in the case.

After a lengthy oral argument last month, Judge Cronan granted the motion in full, dismissing the case in its entirety.

The court’s decision is an important opinion clarifying when omissions in IPO registration statements are actionable, as well as the scope of a company’s duty to disclose information that is not in its possession. The court explained that “when a private securities action alleges liability predicated on an issuer’s failure to disclose that its success may partly be based on corporate misconduct, a court must determine whether anything that the issuer said actually implied that the misconduct was not occurring.” Moreover, where the “undisclosed misconduct is committed not by the issuer itself, but by independent third parties” – as was the case in the lawsuit filed against Tuya – “this inquiry compels a court to consider whether a reasonable investor would understand the issuer’s statements as implicitly vouching for the propriety of those third parties’ independent operations.” The court concluded that no reasonable investor would have understood the statements at issue as “vouching” for the propriety of practices employed by Tuya’s customers. Because Tuya had no means of uncovering the fake review scheme without “dedicating a substantial portion of its operations or finances to investigating thousands of its customers for potential violations of countless applicable policies—or exploiting information leaked through a data breach of dubious propriety,” adopting the plaintiffs’ theory of liability would “encourage less transparency by issuers, not more,” the court said.

The Davis Polk litigation team included partners Edmund Polubinski (who argued the motion) and Mari Grace, counsel Jonathan K. Chang and Yuan Zheng, associates Marie Killmond, James C. Butler and Henry Hawkins and former associates Mark Qin and Christopher Johnson. Members of the Davis Polk team are based in the New York, Northern California, Washington DC and Hong Kong offices.

Copy link to share post