Skip to content

Matter of Sea Ltd. Sec. Litig., 2024 NY Slip Op 02895 [227 AD3d 595]

May 28, 2024

Appellate Division, First Department

[*1]

In the Matter of Sea Limited Securities Litigation. City of Taylor Police and Fire Retirement System et al., Appellants,

v

Sea Limited et al., Respondents.

Robbins Geller Rudman & Dowd LLP, Melville (Joseph Russello of counsel), for appellants.

Allen Overy Shearman & Sterling US LLP, New York (Adam S. Hakki of counsel), for Sea Limited and others, respondents.

Paul Hastings LLP, New York (Molly F. Wolfe and Jennifer Conn of counsel), for Goldman Sachs (Asia) L.L.C. and others, respondents.

Order, Supreme Court, New York County (Andrew Borrok, J.), entered May 16, 2023, which, to the extent appealed from as limited by the briefs, granted defendants’ motion to dismiss the complaint insofar as it alleged that Sea Limited failed to disclose the risk that Free Fire, an on-line game, would be banned in India, and denied plaintiffs’ motion pursuant to CPLR 306-b for an extension to serve Tencent Holdings Limited in China (Tencent), as moot, unanimously reversed, on the law, with costs, the complaint reinstated insofar as it alleged a failure to disclose the above-mentioned risk, and the matter remanded for further proceedings, including a determination of plaintiffs’ motion for an extension pursuant to CPLR 306-b.

Following border skirmishes with China, India enacted a series of bans against app-based companies that had connections to China and/or Chinese companies. The fact, inter alia, that the corporate defendant has Tencent, a large Chinese company, as a major stockholder with a member on the board, means that defendants could not establish as a matter of law that omitting information about the India bans was not reasonably likely to have a material effect on the company’s business ( Silverstrand Invs. v AMAG Pharms., Inc. , 707 F3d 95, 102-103 [1st Cir 2013], cert denied 571 US 941 [2013]; see also Macquarie Infrastructure Corp. v Moab Partners, L.P. , 601 US 257, 265 [2024] [“failure to disclose information required by Item 303 can support a Rule 10b—5(b) claim only if the omission renders affirmative statements made misleading”]).

While defendants have advanced substantial arguments in favor of their reading of the Indian government’s motivations and actions, plaintiffs were entitled to have all reasonable inferences drawn in their favor ( see Christine Asia Co. Ltd. v Yun Ma , 718 Fed Appx 20, 23 [2d Cir 2017]).

Defendants are correct that if through publicly available information or otherwise plaintiffs knew of the omitted facts, they could not state a claim. However, the record of what, how and when information was available, is not sufficient to resolve the issue at the pleading phase.

While defendants did make disclosures of the general risk of a regulatory ban in certain countries, and detailed disclosures of those risks in Taiwan, it did not make a specific mention of the risk of a ban in India. However, reviewing the disclosures as a whole, we cannot say they are sufficient as a matter of law. Concur—Singh, J.P., Kennedy, Rodriguez, Pitt-Burke, Michael, JJ..