NEW YORK (Legal Newsline) - A federal judge has explained his reasoning for letting a proposed class action lawsuit against Olo, Inc., proceed.
Shareholders sued Olo, a company that designs online ordering systems for restaurants, and Olo asked federal judge Jed Rakoff in February to toss the case. It said it repeatedly warned investors that any one of its more than 600 customers could stop or decrease usage of its modules.
Suits allege that in August of 2021, Olo reported its "active locations" to demonstrate its business growth as having approximately 15,000 Subway locations, which caused its stock price to "soar" above $45 per share before falling.
Rakoff issued a two-page order in April rejecting the motion to dismiss, adding he would provide why in a later order. He issued it on July 25, writing the plaintiff adequately alleged Olo made misleading statements about its number of active locations.
"Of course, apportioning the reduction in the market value of Olo's stock to each particular revelation made on Aug. 11, 2022, may prove to be a difficult and fact-intensive enterprise," Rakoff wrote.
"On this motion to dismiss, however, the precise issue before the Court is whether the (First Amended Complaint) plausibly alleges that any of the loss that followed those revelations is attributable to Olo's misstatements.
"The FAC alleges that Olo had to reduce its revenue guidance for FY 2022 because it could not project that it would add as many active locations as it previously expected - and Olo's number of active locations, in turn, had to be revised because Olo had inflated them earlier."
The litigation, which is led by the firm Scott + Scott, seeks compensation for investors like lead plaintiff Steamship Trade Association - International Longshoreman's Association.
The plaintiffs claim Olo misled investors and omitted material facts about the company's success by citing Subway locations that were set to end their relationship with Olo.
Olo countered by claiming Subway generated only a few million dollars of its 2021 revenue of $150 million. The company receives a fee on online transactions from other large chains like Jimmy John's, Jack in the Box and Panda Express.
Though plaintiffs say the company was aware its Subway agreement was in peril and should have disclosed it to shareholders earlier, Olo said securities laws do not require disclosure of ongoing customer discussions "that could potentially sabotage an evolving business relationship before the outcome of those discussions was certain."
Lawsuits said Olo's misleading of the investing public led to the inflated price of the company's stock and that Olo "engaged in a scheme to deceive the market." The plaintiff alleges Olo's actions caused it to purchase Olo stock at artificially inflated prices since the stock price fell to $12.99 per share on Aug. 11 and fell to $8.26 per share on Aug. 12.