Gibson Dunn | Federal Court Issues First Decision Dismissing Pandemic-Related Securities Class Action Lawsuit

February 1, 2021

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A California federal court made the country’s first ruling in a securities class lawsuit over the COVID-19 pandemic, dismissing the case on the grounds that the issuer could not have foreseen the extent of the pandemic in early January 2020. The decision to use Berg versus Velocity Financial, Inc.,[1] Offers issuers hope that their public statements made before or in the early days of the pandemic will be protected from lawsuit in the event that they have failed to predict the COVID-19 crisis and its impact on the issuer’s business.

COVID-19 securities lawsuits

The COVID-19 pandemic and the resulting “coronavirus crash” triggered a number of event-related securities lawsuits. The first wave of pandemic-related securities lawsuits began in the spring of 2020 and was primarily aimed at companies in the travel and healthcare industries directly affected by the ongoing public health crisis.[2] Several of these lawsuits focused on allegations that the issuer’s defendants downplayed the impact of COVID-19 on their business and / or withheld incidents of COVID-19 outbreaks at their offices.

Despite a relatively steady recovery in the stock markets in summer and autumn 2020, pandemic-related securities lawsuits continued to be filed.[3] The target audience is defendants in a wider range of industries less directly affected by COVID-19, including software.[4] Financial services,[5] and energy industry.[6] In those cases, it was alleged that companies failed to disclose the impact COVID-19 had on their financial performance and misrepresented their ability to weather the storm. Pandemic-related securities lawsuits have grown so numerous that the Chamber’s US Chamber of Legal Reforms and the Chamber’s Center for Capital Markets Competitiveness filed a petition with the US Securities and Exchange Commission calling on the SEC , “Act immediately to place reasonable limits on securities. COVID-19 pandemic litigation. “[7]

Berg v Velocity Financial, Inc.

Berg includes claims against Velocity Financial, Inc. (“Velocity”), a real estate finance company specializing in small commercial and residential real estate lending. After Velocity went public in January 2020, the value of its shares fell rapidly. Plaintiff filed an alleged class action lawsuit against securities in July 2020, accusing Velocity of misrepresenting or failing to disclose material facts in its offering documents relating to: (i) the Company’s “disciplined” underwriting process; (ii) the growth of non-performing and short-term interest-free loans in its investment portfolio; (iii) a “substantial and permanent” market for real estate investors; and (iv) risks to its business, including those related to the pandemic.

On January 25, 2021, the court granted Velocity’s motion to dismiss, determining that the fraud allegations were based on information that was either not available or contradicted by Velocity’s offering at the time of Velocity’s IPO. With regard to COVID-19 in particular, the court justified its decision by saying that Velocity could not have foreseen the extent of the pandemic in early January 2020. However, we found that Velocity’s bidding documents had warned investors that Velocity’s business could be adversely affected by “changes in national, regional or local economic conditions or certain industry segments”, including those caused by “force majeure” and the disclosure of which the Court of Justice covered the pandemic. Similarly, we found that Velocity could not have foreseen that the rate of its non-performing loans would increase as it did, and in particular that the extent of the increase was unpredictable due to the pandemic, when the company submitted its bid materials in January 2020.


The COVID-19 crisis continues to create disruption and uncertainty in the economy, and companies can rest assured that plaintiffs’ attorneys will continue to monitor the filing of securities and stock price performance for potential claims – unfounded or otherwise. Companies can take some comfort that courts, beginning with the Berg decision and possibly further, are taking a sensible and pragmatic approach to realizing the unprecedented nature of the COVID-19 pandemic and rejecting cases based on that decision The extent of the crisis is not anticipated at an early stage. The Berg decision also shows that in the early days of the COVID-19 pandemic, apparently generic risk information, which in particular did not cause any COVID-19 risks, was sufficient. And public corporations will no doubt hope the ruling will provide a roadmap for other courts to dismiss similar securities complaints based on failure to predict the scale or economic impact of the COVID-19 crisis.


[1] No. 20 Civ. 6780, 2021 WL 268250 (CD Cal. January 25, 2021).

[2] See e.g. B. Douglas v Norwegian Cruise Lines, 20-cv-21107 (SD Fla. March 12, 2020); Service Lamp Corp. Profit Sharing Plan v Carnival Corp., 20-cv-22202 (SD Fla. May 27, 2020); McDermid v. Inovio Pharm. Inc., 20-1402 (ED Pa. March 12, 2020); Yannes v SCWorx Corp., 20-cv-03349 (SDNY, April 29, 2020).

[3] See e.g. B. Tang v Eastman Kodak Company, No. 20-cv-10462 (DNJ, Aug 13, 2020); City of Riviera Beach Gen. Emps. Ret. Sys. v. Royal Caribbean Cruises LTD, No. 20-cv-24111 (SD Fla. October 7, 2020).

[4] See Arbitrage Fund versus ForescoutTechs., No. 20-cv-03819 (ND Cal. June 10, 2020).

[5] See SEC v Wallach, No. 20-cv-06756 (ND Cal. September 29, 2020).

[6] See Hessel v. Portland Gen. Elec. Co., No. 20-cv-01523 (D. Or. September 3, 2020).

[7] Tom Quaadman & Harold Kim, Petition for the drafting of rules on COVID-19-related litigation (October 30, 2020), .

The following Gibson Dunn attorneys helped prepare this customer update: Brian M. Lutz, Jennifer Conn, Avi Weitzman, Michael Nadler, Dillon M. Westfall, Tyler Andrew Hammond, and Maxwell Peck.

Gibson Dunn attorneys are available to answer any questions you may have about these developments. Please contact the Gibson Dunn attorney you typically work with, a member of the Securities Litigation Practice Group, or the following authors:

Brian M. Lutz – San Francisco / New York (+1 415-393-8379 / +1 212-351-3881,
Jennifer L. Conn – New York (+1 212-351-4086,
Avi Weitzman – New York (+1 212-351-2465,

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Brian M. Lutz – Co-Chairman, San Francisco / New York (+1 415-393-8379 / +1 212-351-3881,
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Jefferson Bell – New York (+1 212-351-2395,
Matthew L. Biben – New York (+1 212-351-6300,
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