No. A148840.

POPE TRADING, LLC, Plaintiff and Appellant, v. TWITTER, INC., Defendant and Respondent.

Court of Appeals of California, First District, Division Four.


California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.115



Pope Trading, LLC (Pope Trading) contends that Twitter, Inc. (Twitter) is liable for losses that Pope Trading sustained while trading Twitter stock on April 28, 2015, after news of Twitter's unfavorable quarterly earnings was disclosed to the public. Pope Trading's theory of liability is that Twitter made a negligent misrepresentation of fact by announcing that financial information about its quarterly earnings would be released after the close of the trading day on April 28, 2015, when it did not take reasonable steps to prevent an early release of that information. The trial court sustained Twitter's demurrer without leave to amend. We affirm the judgment.


A. The Complaint

Pope Trading alleged the following material facts: On the morning of April 28, 2015, Twitter told investors that it would release financial information for the first quarter of fiscal year 2015 (Q1 2015) after the close of stock trading on April 28, 2015. Twitter made this announcement via a tweet posted at 10:08 a.m. ET, which stated: "Twitter Q1'15 earnings today after market close. Listen to our call at 2pm PT via @ twitterIR or investor.twitterinc.com. #TWTReanrings." Relying on this announcement, Pope Trading purchased a large amount of Twitter stock on April 28, with the intention of selling it prior to the close of trading, before the release of Twitter's Q1 2015 financial results. However, a company that Twitter hired to release its financial information to the public, Shareholder.com, Inc. (Shareholder.com), "prematurely released Twitter's Q1 2015 financial results at 3:07 pm, during regular stock market trading hours." (Italics omitted.) Specifically, Shareholder.com loaded Twitter's data onto its investor relations portal, where it was accessed by another company, Selerity, Inc., which specializes in "obtaining real-time corporate intelligence." Selerity then disseminated information about Twitter's performance to its "Wall Street clients . . . before tweeting the financial results to the public at large."

Pope Trading further alleged that there have been numerous past instances in which companies' financial results have been prematurely released due to "human error," and listed several examples in its complaint. According to Pope Trading, these past events "put Twitter on notice of the potential for early release of its financial report for the first quarter of 2015, but Twitter failed to take appropriate actions to safeguard against such an eventuality." Because the "leaked financial data" was not favorable, the value of Twitter stock went down and Pope Trading was not able to sell it for a price it expected to receive. As a result of the premature release of Twitter's financial data and concomitant decline in Twitter's stock value before Pope Trading could execute its planned trades, Pope Trading "suffered damages of $1,741,335.21 in less than an hour."

The complaint incorporated these factual allegations into a cause of action for negligent misrepresentation. Pope Trading alleged that Twitter's decision to make an announcement regarding the timing of the release of its financial information triggered a "duty of due care to speak accurately and to convey the full truth"; Twitter knew or should have known that investors would rely on its representation; Pope Trading reasonably relied on Twitter's statement because Twitter had unique and superior knowledge of that subject; Twitter failed to safeguard adequately against the premature release of its financial data; and Pope Trading was substantially harmed by Twitter's "negligent misrepresentation" because the premature release prevented Pope Trading from executing its plan to sell Twitter stock before its value was affected by the release of Q1 2015 financial results.

B. The Demurrer Ruling

Twitter demurred to the complaint on three grounds: (1) negligent misrepresentation cannot be based on a statement about a future action; (2) Twitter did not owe Pope Trading a legal duty of care; and (3) Pope Trading failed to allege facts to establish justifiable reliance. The trial court held a hearing, took the matter under submission in order to review the pertinent cases, and then filed an order sustaining Twitter's demurrer without leave to amend.

The court reasoned as follows: The gravamen of the complaint is that Twitter's promise about when its Q1 2015 financial results would be released was a false statement because Twitter lacked the internal controls to prevent an early release. However, California law does not recognize a cause of action for a negligent false promise. (Citing Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159 (Tarmann).) Rather, a statement about what a speaker intends to do in the future can form the basis of a fraud claim only when the statement is intentionally false. Thus, Pope Trading failed to state facts constituting a cause of action for negligent misrepresentation.

The court granted the demurrer without leave to amend because it found that there was no factual dispute or ambiguity regarding the nature of the claim, but rather that liability did not exist under the substantive law. (Citing Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436.)


"We review an order sustaining a demurrer de novo to determine whether the complaint states facts sufficient to constitute a cause of action. [Citations.] We construe the complaint `liberally . . . with a view to substantial justice between the parties' [citation] and treat it `"`as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.'"' [Citations.]" (Rufini v. CitiMortgage, Inc. (2014) 227 Cal.App.4th 299, 303-304.)

"The elements of negligent misrepresentation are (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage. . . ." (Apollo Capital Fund LLC v. Roth Capital Partners, LLC ( 2007) 158 Cal.App.4th 226, 243 (Apollo Capital); see also Shamsian v. Atlantic Richfield Co. (2003) 107 Cal.App.4th 967, 983 (Shamsian).)

Negligent misrepresentation and intentional fraud are both forms of deceit, with similar but not identical elements. (Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 403; see Civ. Code, §§ 1710, subd. (2), 1572, subd. (2).) "In contrast to [intentional] fraud, negligent misrepresentation does not require knowledge of falsity. A defendant who makes false statements `"honestly believing that they are true, but without reasonable ground for such belief, . . . may be liable for negligent misrepresentation. . . ." [Citations.]' [Citation.] However, a positive assertion is required; an omission or an implied assertion or representation is not sufficient. [Citations.]" (Apollo Capital, supra, 158 Cal.App.4th at p. 243; see also Residential Capital v. Cal-Western Conveyance Corp. (2003) 108 Cal.App.4th 807, 827-828 (Residential Capital).)

Furthermore, in order to satisfy the first element of a negligent misrepresentation claim, the false statement must be about a past or existing fact. (Shamsian, supra, 107 Cal.App.4th at p. 983; Tarmann, supra, 2 Cal.App.4th at p. 158.) With exceptions, this requirement also applies to claims for intentional fraud. (5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, §§ 774-781, pp. 1123-1132; see, e.g., Richard P. v. Vista Del Mar Child Care Service (1980) 106 Cal.App.3d 860, 864.) The reason for this requirement is that "predictions about future events, or statements about future action by some third party, are deemed opinions, and not actionable fraud. [Citations.]" (Witkin, supra, Torts, § 774, p. 1124.)

Applying these settled principles, we conclude that the demurrer was properly sustained because the complaint allegations do not satisfy the first element of a cause of action for negligent misrepresentation. Twitter's announcement that its financial information would be released after the close of the trading day was not a positive assertion about a past or existing fact. Rather, it was a statement to the public about a future action, i.e. the anticipated release of Twitter's Q1 2015 financials.

On appeal, Pope Trading makes three alternative arguments about why Twitter's announcement should be construed as an actionable misrepresentation of fact. We will separately address these flawed assertions.

First, Pope Trading argues that the Twitter announcement is actionable even though it was about a future event because it constituted a false promise that Twitter's financials would be publicly available only after the close of trading.

"`Promissory fraud' is a subspecies of the action for fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations.]" (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638; see also Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 776.) In cases of false promise fraud, representations about what may happen in the future may be actionable because the speaker's statement about what he or she intends to do relates to an existing state of mind and thus can be fairly characterized as a representation of fact. (Witkin, supra, Torts, § 781, p. 1131.)

However, this exception does not apply in the present case because Pope Trading attempted to allege a cause of action for negligent misrepresentation as opposed to intentional fraud. "Although a false promise to perform in the future can support an intentional misrepresentation claim, it does not support a claim for negligent misrepresentation. [Citation]." (Stockton Mortgage, Inc. v. Tope (2014) 233 Cal.App.4th 437, 458, italics omitted (Stockton Mortgage); Tarmann, supra, 2 Cal.App.4th at pp. 158-159.) A deceit action based on a false promise is by definition a "type of intentional misrepresentation," and thus cannot be the basis for imposing liability based on negligence. (Tarmann, supra, 2 Cal.App.4th at p. 159, italics omitted.) "Simply put, making a promise with an honest but unreasonable intent to perform is wholly different from making one with no intent to perform and, therefore, does not constitutes a false promise." (Ibid.)

As noted, the trial court cited Tarmann, supra, 2 Cal.App.4th 153, as support for its conclusion that Twitter's announcement was not an actionable false promise under California law. On appeal, Pope Trading contends that "Tarmann and its progeny" are inapposite because those cases involved "speculative and contingent forward-looking promises," while the promise at issue in this case pertained to "the already-underway stock market trading day." However, this attempted distinction about the subject matter of the alleged promise misses the mark because the flaw in Pope Trading's cause of action is legal, not factual.1 Under California law, a negligent false promise is not actionable deceit. (Tarmann, supra, 2 Cal.App.4th at p. 159.)

Pope Trading's second argument is a variant of the first; it contends that Twitter's announcement is actionable because it was about an existing fact. Under this theory, Pope Trading "did not allege a promise about an event in the future (e.g., a promise to announce stock market results weeks later). Instead, [Pope Trading] alleged a misstatement about the existing trading day." (Italics omitted.)

By offering a parenthetical example about a promise to announce stock results "weeks later," Pope Trading intimates that an event cannot be a future event if it happens on the same day. Clearly though, Twitter's announcement was about a future event notwithstanding the fact that the event was expected to occur later that same day. Further, Pope Trading's construction of the announcement as a statement about the existing trading day ignores the words that were actually used. Twitter's announcement pertained to the future release of its own financial information. It did not make any representation about the existing nature of the stock trade industry.

In its reply brief, Pope Trading refines this argument by stating that "Twitter's statement should be read as a promise that the already underway trading day would be devoid of news about Twitter's earnings," which would make it "a statement about an existing, ongoing event, not a promise about the future." However, as noted at the outset of our discussion, a cause of action for negligent misrepresentation must be based on a "positive assertion" of fact. (Apollo Capital, supra, 158 Cal.App.4th at p. 243.) "`Parties cannot read something into a neutral statement in order to justify a claim for negligent misrepresentation. The tort requires a "positive assertion[.]" [Citation.] "An `implied' assertion or representation is not enough. [Citation.]"' [Citation.]" (Residential Capital, supra, 108 Cal.App.4th at p. 828.) The only positive assertion in the Twitter announcement pertained to the timing of the future release of financial information. It did not make a positive assertion about the already underway trading day.

Pope Trading's final argument is that Twitter's statement should be analyzed as an opinion made by someone with superior knowledge or special information, which can give rise to liability under California law.

"`Under certain circumstances, expressions of professional opinion are treated as representations of fact. When a statement, although in the form of an opinion, is "not a casual expression of belief" but "a deliberate affirmation of the matters stated," it may be regarded as a positive assertion of fact. [Citation.] Moreover, when a party possesses or holds itself out as possessing superior knowledge or special information or expertise regarding the subject matter and a plaintiff is so situated that it may reasonably rely on such supposed knowledge, information, or expertise, the defendant's representation may be treated as one of material fact. [Citations.]" (Public Employees' Retirement System v. Moody's Investors Service, Inc. (2014) 226 Cal.App.4th 643, 662-663 (Moody's); see also Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells (2000) 86 Cal.App.4th 303, 308 (Neu-Visions).)

As the trial court observed, Pope Trading fails to cite any authority applying this expert opinion rule to a statement about a future event. Indeed, in both cases cited above, the professional opinions that supported negligent misrepresentation claims pertained to a past or existing fact. (Moody's, supra, 226 Cal.App.4th at p. 664; Neu-Visions, supra, 86 Cal.App.4th at pp. 309-310.) These cases did not involve allegedly false promises. For reasons we have already explained, a broken promise cannot constitute deceit absent wrongful intent. (Tarmann, supra, 2 Cal.App.4th at p. 159; Stockton Mortgage, supra, 233 Cal.App.4th at p. 458.)

In light of our conclusions, we do not address the parties' arguments about possible alternative grounds for sustaining the demurrer. As the trial court found, Twitter's announcement does not constitute a material misrepresentation of fact for purposes of alleging a cause of action for negligent misrepresentation. Furthermore, because this defect cannot be cured by an amendment, the trial court did not err by sustaining the demurrer without leave to amend.


The judgment is affirmed.

REARDON, J. and STREETER, J., concurs.


1. Disputing Pope Trading's premise that a statement about the existing state of the stock market can be anything other than speculative, Twitter requests that this court take judicial notice of (1) a warning by the Securities and Exchange Commission that "day trading" is an inherently risky practice; and (2) a New York Stock Exchange rule authorizing early closure of the market in cases of emergency. We deny the request for judicial notice because this material is not relevant to the dispositive issue in this case. (See Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 569 [only relevant material may be judicially noticed].)


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