New York’s Appellate Division, First Department recently affirmed dismissal, with prejudice, of a securities class action lawsuit against Chinese electric vehicle manufacturer NIO, Inc. The suit, captioned Donlon v. NIO, Inc., alleged NIO misled investors regarding its ES8 model. NIO largely precluded the suit by relying on detailed disclosures under the Securities Act of 1933.

Securities Act of 1933

The Securities Act imposes liability when public documents filed during a securities offering contain material misstatements or omissions in registration statements, prospectuses, and oral communications (emphasis added). Plaintiffs had to allege (1) there were quality or design problems at the time of an initial public offering (“IPO”) and (2) defendants’ representations, taken together and in context, would have misled a reasonable investor.


NIO’s IPO was in September 2018. The plaintiffs claimed that in 2017 and 2018, NIO vehicles were defective due to faulty door seals, water leaks, and electrical system defects, among other things. However, the plaintiffs failed to allege those issues persisted at the time of the IPO. Further, while NIO’s CEO publicly acknowledged manufacturing issues existed in 2019, the Court found those issues involved everyday minutiae and not serious issues that would have been material to a reasonable investor at the time of the IPO.

Specific, Robust Disclosures

The plaintiffs’ suit ultimately stalled and crashed when the Court found, as a matter of law, that NIO made specific, robust disclosures, particularly regarding the possibility of battery fires and product recalls, that precluded the Securities Act claims. The Court also dismissed claims of alleged misrepresentations regarding Chinese government subsidies, as NIO’s prospectus the Securities Act requires, again, expressly detailed information regarding the subsidies.

Notably, the First Department also affirmed dismissal of the plaintiffs’ claims for control person liability, which imposes personal liability against individuals who control an entity that violates the Securities Act. As the plaintiffs’ primary allegations failed, derivative liability failed, too.


This decision offers important takeaways. When preparing publicly-filed documents and making public statements in connection with an IPO and public company generally, it is critical for an entity to provide a complete picture as to the company’s viability, known weaknesses, risks, and related information an investor may attempt to seize upon to commence a lawsuit. NIO evidently had a host of problems with its ES8 model, as is the case with many electronic vehicles. Yet its detailed disclosure of those problems helped insulate it from liability and obtain dismissal, albeit after significant litigation.

Overall, Donlon illustrates the importance of “full disclosure”—or, to quote the First Department, “specific, robust disclosures”—in connection with IPO filings and investor risk management. Entities considering an IPO and those acting on their behalf must be careful to avoid the scenario where rueful investors claim they are misled by the failure to disclose known shortcomings.

Read the full decision here.

If you have any questions about the matters in this Legal Alert or any other legal issues, please contact Brendan Hall or the Harris Beach attorney with whom you usually work.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale, and White Plains, as well as New Haven, Connecticut, Newark, New Jersey, and Washington, D.C.

A special thanks to Philip G. Spellane, Esq. for his guidance in preparing this Legal Alert.