Case 3:19-cv-03589-CRB Document 100 Filed 07/21/20 Page 1 of 34
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`IN RE PIVOTAL SECURITIES
`LITIGATION
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`Master File No. 3:19-cv-03589-CRB
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`ORDER GRANTING MOTION TO
`DISMISS
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`This consolidated class action alleges violations of the Securities Act of 1933 (“the
`Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) against
`Pivotal Software, Inc. (“Pivotal”). Purchasers of Pivotal’s securities argue that they are
`entitled to damages caused by Pivotal’s alleged false and misleading statements about its
`financial and business condition. Pending before this Court is Pivotal’s motion to dismiss
`Plaintiffs’ Consolidated Amended Class Action Complaint (“CAC”). Because Plaintiffs
`fail to plausibly allege that any statement was false or misleading, and for other reasons
`explained below, the Court GRANTS Pivotal’s motion to dismiss.
`I.
`BACKGROUND
`A.
`Parties
`Defendant Pivotal is a San Francisco-based information technology and software
`company founded in 2013. CAC (dkt. 75) ¶ 4. Pivotal provides a cloud-native application
`platform, Pivotal Cloud Foundry (“PCF”), and strategic services. Id. Pivotal’s platform
`enables software developers to accelerate and streamline their processes for modernizing
`cloud-based applications. Id. Pivotal’s consulting services assist companies in developing
`software and adapting to cloud computing. Id. ¶ 31. Pivotal generates most of its revenue
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`from the sale of time-based PCF subscriptions. Id. ¶ 5; MTD (dkt. 80) at 1. Pivotal’s
`flagship product is Pivotal Application Service (“PAS”), and in February 2018, Pivotal
`made its new product, Pivotal Container Service (“PKS”) commercially available. CAC ¶
`5; MTD at 1. PKS allows customers to “more easily deploy and operate Kubernetes,” an
`open-source system designed for managing containerized workloads and services. CAC ¶
`5.
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`At all relevant times, Defendant Robert Mee (“Mee”) served as Pivotal’s Chief
`Executive Officer, and Defendant Cynthia Gaylor (“Gaylor”) served as Pivotal’s Chief
`Financial Officer. Id. ¶ 32. Defendants Mee and Gaylor possessed the power and
`authority to control the contents of Pivotal’s Securities and Exchange Commission
`(“SEC”) filings, press releases, and other market communications. Id. ¶ 35.
`Defendants Paul Martiz, Egon Durban, William Green, Marcy Klevorn, Khozema
`Shipchandler, and Michael S. Dell each signed the Registration Statement, solicited the
`investing public to purchase securities issued pursuant thereto, hired and assisted the
`underwriters, and planned and contributed to the initial public offering (“IPO”) and
`Registration Statement. Id. ¶¶ 36–43.
`Defendants Morgan Stanley & Co. LLC; Goldman Sachs & Co. LLC; Citigroup
`Global Markets Inc.; Merrill Lynch, Pierce, Fenner & Smith Inc.; Barclays Capital Inc.;
`Credit Suisse Securities (USA) LLC; RBC Capital Markets, LLC; UBS Securities LLC;
`Wells Fargo Securities LLC; KeyBanc Capital Markets Inc.; William Blair & Company,
`L.L.C.; Mischler Financial Group, Inc.; Samuel A. Ramirez & Co., Inc.; Siebert Cisneros
`Shank & Co., LLC; and Williams Capital Group, L.P. (“Underwriter Defendants”) are
`financial services companies that acted as underwriters for Pivotal’s IPO, helping to draft
`the Registration Statement and solicit investors to purchase securities issued pursuant
`thereto.1 Id. ¶¶ 44–59. Representatives for the Underwriter Defendants allegedly
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`1. The Underwriter Defendants have moved to join Pivotal’s motion to dismiss the CAC, and
`Pivotal’s reply to the opposition. See generally Mot. for Joinder (dkt. 88); Notice of Joinder (dkt.
`93). The motions for joinder are GRANTED.
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`Case 3:19-cv-03589-CRB Document 100 Filed 07/21/20 Page 3 of 34
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`conducted a “due diligence” investigation into Pivotal’s operations and financial prospects,
`met with Pivotal executives for “drafting sessions,” and caused the Registration Statement
`to be filed with the SEC. Id. ¶ 59.
`The Plaintiff class consists of all persons and entities, other than the defendants,
`who purchased or otherwise acquired (1) Pivotal’s common stock traceable to the
`registration statement and prospectus issued in connection with Pivotal’s April 2018 IPO,
`and/or (2) Pivotal securities between April 20, 2018 and June 4, 2019 (the “Class Period”).
`Id. ¶ 3. The Lead Plaintiffs in this matter are the Oklahoma City Employee Retirement
`System and the Police Retirement System of St. Louis (“Plaintiffs”). Id. ¶ 1.
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`B.
`Factual Background
`On December 15, 2017, Pivotal filed a confidential draft registration statement on
`Form S-1. Id. ¶ 75. On or about April 18, 2018, Pivotal filed a final amendment to the
`registration statement, which registered over 37 million shares of Pivotal common stock
`for public sale. Id. ¶ 79. The SEC declared the registration statement effective on April
`19, 2018. Id. On or about April 20, 2018, Pivotal filed the final prospectus for the IPO.
`Id. ¶ 80.
`On April 24, 2018, Pivotal completed the IPO, which, upon the Underwriter
`Defendants exercising their full overallotment option to purchase additional shares, issued
`a total of 42,550,000 shares priced to the public at $15 per share and generated more than
`$638 million for Pivotal. Id. ¶ 81. Pivotal’s 200-page registration statement included an
`overview of its products, business operations, financial results, and almost forty pages of
`risk disclosures. MTD at 1 (citing Webb Decl. Ex. 1 at 16–50). The registration statement
`promoted Pivotal’s “leading” and “turnkey cloud-native platform,” claiming it
`“combine[d] the latest innovations from open-source projects . . . .” and integrated PCF
`with Kubernetes. CAC ¶ 8. The registration statement also emphasized “the Company’s
`sales and customer success model.” Id. The CAC alleges that the registration statement
`and prospectus made false and/or misleading statements regarding Pivotal’s business for
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`Case 3:19-cv-03589-CRB Document 100 Filed 07/21/20 Page 4 of 34
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`failing to disclose material information. Id. ¶¶ 9, 148–62.
`During the Class Period, Pivotal “repeatedly touted the superiority and adoption of
`its products.” Id. ¶ 15. The CAC alleges that statements made during the Class Period
`were materially false and/or misleading because Pivotal Defendants failed to disclose
`“among other things, that Pivotal was facing major problems with its sales execution and a
`complex technology landscape resulting in lengthening sales cycles and diminished
`growth, as well as the industry’s sentiment [having] shifted away from Pivotal’s principal
`product, which was incompatible with Kubernetes, the industry-standard platform.” Id. ¶
`16. These purportedly misleading statements were made in connection with a January
`2019 conference and Pivotal’s quarterly earnings reports and calls on four dates:
`June 12, 2018, September 12, 2018, December 11, 2018, and March 14, 2019. Id. ¶¶ 227–
`33, 239–48, 254–59, 264–66, 268–80.
`On June 4, 2019, Pivotal reported its financial results for the first quarter of fiscal
`year 2020. CAC ¶ 18. Defendant Mee advised investors that Pivotal “closed fewer deals
`than . . . expected in Q1 due to sales execution and a complex technology landscape that is
`lengthening [Pivotal’s] sales cycle.” Id. Pivotal lowered its going-forward fiscal year
`2020 revenue guidance from $798–806 million to $756–767 million. Id. ¶ 19; MTD at 3.
`The next day, Pivotal’s stock price fell $7.65 per share, or more than 40 percent, from
`$18.54 per share to $10.89 per share. Id. ¶ 20. Following the news, analysts called the
`quarter a “train wreck” and characterized Pivotal’s operating results as “disastrous” and a
`“cause for concern.” Id. ¶ 21. On August 22, 2019, Pivotal announced a proposed merger
`with VMware at $15 per share; the merger closed at the end of 2019. Id. ¶ 21; MTD at 3.
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`C.
`Procedural Background
`In November 2019, this Court consolidated three related securities class actions
`against Pivotal, and appointed Oklahoma as Lead Plaintiff. See generally Order Granting
`Consolidation and Appointing Lead Plaintiff and Lead Counsel (dkt. 63).
`Plaintiffs subsequently filed the CAC on February 11, 2020. See generally CAC.
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`On March 27, 2020, Pivotal filed a motion to dismiss the CAC, see generally MTD, a
`declaration in support of the motion that attached twenty-one documents, some of which
`were incorporated in the CAC by reference, see generally Webb Decl. (dkt. 81), and a
`request for the Court to consider these documents and to take judicial notice of Pivotal’s
`SEC filings. See generally Request for Judicial Notice (dkt. 83). Plaintiffs oppose
`Pivotal’s motion to dismiss. See generally Opp’n (dkt. 90). Pivotal filed a reply to
`Plaintiffs’ opposition. See generally Reply (dkt. 91). The Court also held a motion
`hearing on July 17, 2020. See Motion Hearing (dkt. 95).
`II.
`LEGAL STANDARD
`Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed
`for failure to state a claim upon which relief may be granted. Fed. R. Civ. P. 12(b).
`Dismissal may be based on either “the lack of a cognizable legal theory or the absence of
`sufficient facts alleged under a cognizable legal theory.” Godecke v. Kinetic Concepts,
`Inc., 937 F.3d 1201, 1208 (9th Cir. 2019). The Court is “not bound to accept as true a
`legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286
`(1986) (citation omitted); see Clegg v. Cult Awareness Network, 18 F.3d 752, 754–55
`(9th Cir. 1994). Rather, a complaint must plead “enough facts to state a claim to relief that
`is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 697 (2009) (citing Bell Atlantic
`Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible “when the plaintiff
`pleads factual content that allows the court to draw the reasonable inference that the
`defendant is liable for the misconduct alleged.” Id. When evaluating a motion to dismiss,
`the Court “must presume all factual allegations of the complaint to be true and draw all
`reasonable inferences in favor of the nonmoving party.” Usher v. City of Los Angeles,
`828 F.2d 556, 561 (9th Cir. 1987). “Courts must consider the complaint in its entirety, as
`well as other sources courts ordinarily examine when ruling on Rule
`12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by
`reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor
`Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
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`If a court does dismiss a complaint for failure to state a claim, the Federal Rules of
`Civil Procedure state that the court should freely give leave to amend “when justice so
`requires.” Fed. R. Civ. P. 15(a)(2); see Sonoma Cty. Ass’n of Retired Emps. v. Sonoma
`Cty., 708 F.3d 1109, 1117 (9th Cir. 2013). A court nevertheless has discretion to deny
`leave to amend due to “undue delay, bad faith or dilatory motive on the part of the movant,
`repeated failure to cure deficiencies by amendments previously allowed, undue prejudice
`to the opposing party by virtue of allowance of the amendment, [and] futility of
`amendment.” Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532 (9th Cir.2008)
`(citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
`III. DISCUSSION
`First, the Court considers Pivotal’s request for judicial notice and incorporation by
`reference. Second, the Court addresses Plaintiffs’ claims concerning Pivotal’s registration
`statement and prospectus, analyzing the allegations under Sections 11, 12(a)(2), and 15 of
`the Securities Act. Third, the Court examines Plaintiffs’ claims regarding the various
`statements made during the Class Period, evaluating the allegations under Sections 10(b)
`and 20(a) of the Exchange Act.
`A.
`Judicial Notice and Incorporation by Reference
`Pivotal attaches twenty-one documents (Exhibits 1–21) to the Declaration of Robert
`L. Cortez Webb and cites to a subset of these in its motion to dismiss. See generally Webb
`Decl.; MTD. Pivotal has asked the Court to consider documents under the incorporation-
`by-reference doctrine and to take judicial notice of other documents. Request for Judicial
`Notice at 1. Plaintiffs do not oppose Pivotal’s request, but they maintain that “these
`documents only may be considered for their existence—not for the truth of the matters
`asserted therein or for matters that are disputed.” Opp’n at 5 n.8.
`In reviewing a motion to dismiss, a district court is usually limited to the allegations
`in the complaint. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.
`2001). “A court may, however, consider certain materials—documents attached to the
`complaint, documents incorporated by reference in the complaint, or matters of judicial
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`notice—without converting the motion to dismiss into a motion for summary judgment.”
`United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
`Courts may take judicial notice of facts that are “not subject to reasonable dispute”
`because they (1) are “generally known within the trial court’s territorial jurisdiction,” or
`(2) “can be accurately and readily determined from sources whose accuracy cannot
`reasonably be questioned.” Fed. R. Evid. 201(b). Matters of public record may be
`judicially noticed, but disputed facts contained in those records may not. Khoja v.
`Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018).
`The incorporation-by-reference doctrine “treats certain documents as though they
`are part of the complaint itself.” Id. at 1002. Documents are subject to incorporation by
`reference if the Plaintiffs refer to them “extensively” or they form the basis of the
`complaint. Id. Unlike documents subject to judicial notice, courts may properly assume
`the truth of documents incorporated by reference. Id. at 1003. But “it is improper to
`assume the truth of an incorporated document if such assumptions only serve to dispute
`facts stated in a well-pleaded complaint.” Id.
`Exhibit 1 is Pivotal’s registration statement, Exhibits 2, 5, and 12 are Pivotal’s SEC
`filings, and Exhibits 15 through 19 are transcripts of earnings calls and corporate
`presentations, all of which, according to the CAC, allegedly contain materially false or
`misleading statements. Request for Judicial Notice at 3; see, e.g., CAC ¶¶ 8, 15, 68–69,
`269, 287–88. Because these documents form the basis of Plaintiffs’ complaint, they are
`subject to incorporation by reference. See Khoja, 899 F.3d at 1005 (documents containing
`alleged misrepresentations and corrective disclosures form the basis of a Section 10(b)
`claim and are subject to incorporation by reference). Similarly, Exhibit 20 is the transcript
`of the June 4, 2019 earnings call, which the CAC repeatedly references to illustrate “the
`materialization of previously undisclosed risks.” CAC ¶¶ 172 n.36, 291 n.44; see also
`id. ¶¶ 176–81, 296–304, 317. It is likewise subject to incorporation by reference. See
`Khoja, 899 F.3d at 1005.
`Exhibit 21 is an analyst report that the CAC identifies to define “the cloud” and to
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`demonstrate the positive analyst coverage following Pivotal’s IPO. CAC ¶¶ 60, 164. It
`does not satisfy the incorporation-by-reference doctrine’s requirements, as the report is not
`referenced extensively in, nor does it form the basis of, the complaint. See Khoja,
`899 F.3d at 1003–04. While Plaintiffs do not oppose judicial notice of the analyst report
`for the limited purpose of recognizing its existence, the report is not relevant to the Court’s
`analysis. Opp’n at 5 n.8. The Court thus declines to take judicial notice of Exhibit 21.
`See Wochos v. Tesla, Inc., No. 17-CV-05828-CRB, 2019 WL 1332395, at *2 (N.D. Cal.
`Mar. 25, 2019).
`Exhibits 3, 4, 6–8 (Pivotal’s 10-Q forms filed with the SEC) and Exhibits 9–11, 13,
`14 (Pivotal’s 8-K forms filed with the SEC) are not cited in the CAC. See Request for
`Judicial Notice at 4. These documents are not subject to incorporation by reference. See
`Khoja, 899 F.3d at 1006 (SEC filings that were not extensively referenced in the complaint
`not subject to incorporation by reference). Nonetheless, the SEC filings are publicly-filed
`documents whose accuracy cannot reasonably be questioned and are therefore subject to
`judicial notice. Wochos, No. 17-cv-05828-CRB, 2019 WL 1332395, at *2. The Court
`therefore takes judicial notice of Pivotal’s SEC filings for the sole purpose of determining
`what representations Pivotal made to the market. The Court does not take notice of the
`truth of any facts asserted in these documents.
`B.
`Securities Act Claims
`Plaintiffs bring claims under Sections 11, 12(a)(2), and 15 of the Securities Act.
`CAC ¶¶ 183, 198, 209. The Court first considers Plaintiffs’ §§ 11 and 12(a)(2) claims
`together and then addresses the control-person claim under § 15.
`1.
`Sections 11 and 12(a)(2) Claims
`For Plaintiffs to state a claim under Section 11 of the Securities Act, they must
`plausibly allege that the registration statement “contained an untrue statement of material
`fact” or “omitted to state a material fact . . . necessary to make the statements therein not
`misleading.” 15 U.S.C. § 77k(a). For the former, a statement must be both (1) false and
`(2) material to investors. See In re Rigel Pharm., Inc. Sec. Lit., 697 F.3d 869, 880 n.8 (9th
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`Cir. 2012). For the latter, it is not enough that the registration statement omitted relevant
`facts, or even material facts. See Rigel, 697 F.3d at 880 n.8 (citing Matrixx Initiatives v.
`Siracusano, 563 U.S. 27, 38 (2011)); Brody v. Transitional Hospitals Corp., 280 F.3d 997,
`1006 (9th Cir 2002). Instead an omission “must affirmatively create an impression of a
`state of affairs that differs in a material way from the one that actually exists” to be
`actionable. Brody, 280 F.3d at 1006.
`The same standard applies for pleading a violation of Section 12(a)(2). See
`15 U.S.C. § 77l (imposing liability where a prospectus or communication “includes an
`untrue statement of a material fact” or “omits to state a material fact necessary in order to
`make the statements, in the light of the circumstances under which they were made, not
`misleading”).
`Pivotal moves to dismiss the §§ 11 and 12(a)(2) claims on the grounds that the
`CAC fails to plausibly allege a false or materially misleading statement because
`(a) Plaintiffs did not establish contemporaneous falsity, (b) many of the statements are not
`actionable, and (c) SEC Regulation S-K did not impose a duty to disclose. MTD at 5–12.
`Pivotal also argues that the heightened pleading standards of Rule 9(b) apply here
`because Plaintiffs’ Securities Act claims only make “nominal efforts to disclaim
`allegations of fraud” yet Plaintiffs employ “the exact same factual allegations” to support
`their 10(b) claims under the Exchange Act. Id. at 4–5. Additionally, Pivotal asserts that
`Plaintiffs do not have standing to pursue a § 12(a)(2) claim because Lead Plaintiff
`Oklahoma “purchased [its shares] in the secondary market, not the IPO,” thereby
`precluding Section 12(a)(2) standing. Id. at 15. The Court need not address whether the
`Securities Act claims sound in fraud or whether Plaintiffs have standing to pursue a
`§ 12(a)(2) claim because the claims fail regardless.
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`a.
`Plaintiffs Fail to Establish Falsity
`Plaintiffs allege that Pivotal’s registration statement contained several affirmative
`misrepresentations. See, e.g., CAC ¶¶ 148, 167. To support these claims, Plaintiffs
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`provide statements from Confidential Witnesses (“CWs”), former Pivotal employees,
`describing Pivotal’s internal business state before the IPO and throughout the Class
`Period.2 Id. ¶¶ 97–129. However, throughout its 103-page complaint, Plaintiffs fail to
`plead sufficient factual content to allow a reasonable inference that Pivotal’s statements
`were false or misleading when made in violation of §§ 11 and 12(a)(2). The Court first
`addresses statements about Pivotal’s products, then statements about Pivotal’s competition,
`and finally statements within Pivotal’s risk disclosures.
`i.
`Statements Regarding Pivotal’s Product Offerings
`Specifically, Plaintiffs challenge portions of Pivotal’s registration statement
`asserting that its products offer “a built-in advanced container networking and security
`engine,” “combin[ing] the latest innovations from open-source projects such as application
`containers,” and “integrat[ing] PCF with leading open-source projects such as
`Kubernetes.” Id. ¶ 150. Plaintiffs argue that these statements were false and misleading
`because “in fact, Pivotal’s primary software offering, PAS, was outdated and did not
`incorporate Kubernetes” and Pivotal’s sales strategy did not include “the sale of PKS as a
`standalone product.” Opp’n at 3. Pivotal accurately points out that the PCF platform
`contained several components, which included both PAS and PKS, and only the former did
`not incorporate Kubernetes at the time. Reply at 4; CAC ¶ 63. Even taking as true the
`assertion that Pivotal’s strategy prevented the individual sale of PKS, this does not render
`Pivotal’s statements false. There is no untruth or misleading omission here.
`ii.
`Statements Regarding Pivotal’s Competition
`Plaintiffs also take issue with Pivotal’s characterization of one competitive strength
`as “Blue-Chip customer adoption,” as well as the company’s statements that it “work[s]
`closely with large public cloud providers, including Google and Microsoft, to bring
`[Pivotal’s] customers’ workloads to their cloud infrastructure.” CAC ¶ 150, 152.
`
`
`2. Underwriter Defendants also noted at the motion hearing that it is “wholly implausible” that
`anything in June 2019 indicates the falsity of Pivotal’s IPO registration statement 14 months
`before.
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`Plaintiffs allege that these statements were false and misleading because “rather than
`engaging in partnerships and joint selling opportunities, Pivotal was increasingly
`competing for enterprise clients with its cloud partners, Amazon Web Services, Microsoft
`Azure, and Google Cloud, as well as competing with its sister company, VMware.” Id.
`¶ 166(d). However, a statement from Plaintiffs’ own CW-1 rejects a portion of this claim,
`see id. ¶ 122 (“PKS was jointly sold by Pivotal and VMWare”), and Pivotal disclosed in its
`registration statement that it operated in a “highly competitive industry,” specifying the
`company “currently or in the future may compete” with Amazon Web Services, Google
`Cloud Platform, and Microsoft Azure, among others. MTD at 7; Webb Decl. Ex. 1 at 19.
`The CAC does not provide any further factual assertions to plausibly allege that these
`statements were false or misleading.
`iii.
`Pivotal’s Risk Disclosures
`A majority of the challenged statements within the registration statement challenge
`the use of words like “if,” “may,” “could” and “possible” in its “Risk Factors” section.
`CAC ¶¶ 153, 155–61. Plaintiffs allege that these conditionals were misleading because
`“these ‘risks’ had already materialized at the time of the IPO.” Id. ¶ 166; see also id.
`¶ 154.
`The Ninth Circuit has noted that “risk factors” are not actionable without further
`factual allegations indicating that the risks had already “come to fruition.” Siracusano v.
`Matrixx Initiatives, Inc., 585 F.3d 1167, 1181 (9th Cir. 2009) (citation omitted), aff’d, 563
`U.S. 27. Although this Court has held that risk factors may be actionable when combined
`with other statements that create plausible deceit, see, e.g., In re Volkswagen “Clean
`Diesel” Mktg., Sales Practices, & Prod. Liab. Litig., No. MDL 2672 CRB (JSC), 2017 WL
`3058563, at *7 (N.D. Cal. July 19, 2017), that is not the case here.
`Plaintiffs allege that Pivotal’s risk factor disclosures amounted to framing risks as
`hypotheticals rather than current and past realities, in violation of securities regulations.
`See CAC ¶¶ 154, 166. For example, Plaintiffs allege that Pivotal failed to disclose that its
`sales cycles were “elongating” and lengthening” before the IPO. See CAC ¶ 166.
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`However, only one CW statement mentions Pivotal’s sales cycles, and these allegations do
`not indicate that there was anything inconsistent with the challenged disclosure regarding
`Pivotal’s “long sales cycles.” Id. ¶ 110 (“larger companies took more time to pursue and
`complete and led to an elongated sales cycle”); MTD App’x B at 1. Defendants likewise
`pointed out at the hearing that Plaintiffs fail to plead the falsity of the risk language
`regarding Pivotal’s competition. The remaining challenged risk disclosures fail for the
`same reason: the CAC does not provide anything beyond conclusory assertions that the
`risks “had already materialized.” See CAC ¶¶ 154, 166; see also id. ¶¶ 25–147.
`
`b.
`Expressions of Corporate Optimism Are Not Actionable
`Plaintiffs challenge many statements, both in the registration statement and during
`
`the Class Period, that Pivotal Defendants argue constituted corporate optimism. See MTD
`at 10–11 (citing to App’x A, CAC ¶¶ 149, 150, 152). Multiple courts have held that such
`statements are not actionable. See, e.g., In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th
`Cir. 2010) (defendants’ statement that “we believe our employee relations are good” was
`not actionable, even though many employees were leaving the company, because “[w]hen
`valuing corporations . . . investors do not rely on vague statements of optimism like
`‘good,’ ‘well-regarded,’ or other feel good monikers”). General optimistic statements
`when taken in context may nevertheless form a basis for a securities fraud claim when
`those statements “address specific aspects of a company’s operation that the speaker
`knows to be performing poorly,” but the facts here do not lead to this conclusion. See
`In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1143 (9th Cir. 2017); see also
`Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th Cir. 1996) (telling investors FDA approval
`was “going fine” when the company knew approval would never come was materially
`misleading); Fecht v. Price Co., 70 F.3d 1078, 1081 (9th Cir. 1995) (saying the company
`“anticipates a continuation of its accelerated expansion schedule” when the expansion
`already failed was misleading).
`Statements classifying Pivotal’s PAS offering as providing a “cutting-edge,”
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`“leading,” and “turnkey cloud-native platform” and naming “viral adoption together with
`C-level focus” as a competitive strength are not actionable because they are vague
`assessments that “represent the ‘feel good’ speak that characterizes ‘non-actionable
`puffing.’” Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1060
`(9th Cir. 2014) (citing Cutera, 610 F.3d at 1111); CAC ¶ 150. The same applies to
`Pivotal’s statements that the company has the “ability to innovate and rapidly respond to
`customer needs and changing open-source software standards” and that its software
`addresses the “rapidly growing market” for public cloud workloads. CAC ¶ 149–51. That
`Pivotal made these statements in a registration statement is insignificant: they were still
`puffery. See Greenberg v. Sunrun, 233 F. Supp. 3d 764, 775 (N.D. Cal. 2017).
`
`c.
`Regulation S-K Does Not Impose a Duty to Disclose
`Plaintiffs also contend that Pivotal violated §§ 11 and 12(a)(2) because the
`registration statement—allegedly in violation of SEC Regulation S-K Items 303 and 503
`(which is actually Item 105, as discussed below)—failed to disclose that Pivotal was
`experiencing “deferred sales, lengthening sales cycles and diminished growth in new
`customers,” disadvantages due to competition, and a “disjointed product mix,” which
`included primary offerings that were “increasing[ly] obsole[te].” See CAC ¶¶ 9–11; 148–
`67.
`
`“Allegations which state a claim under Item 303(a) of Regulation S-K also
`sufficiently state a claim under Sections 11 and 12(a)(2).” Steckman v. Hart Brewing,
`Inc., 143 F.3d 1293, 1296 (9th Cir. 1998). Under Item 303, issuers must “[d]escribe any
`known trends or uncertainties that have had or that the registrant reasonably expects will
`have a material favorable or unfavorable impact on net sales or revenues or income from
`continuing operations.” 17 C.F.R. § 229.303(a)(3)(ii).
`Taking all of Plaintiffs’ allegations as true, the CAC fails to state a claim under Item
`303 for which relief can be granted. Pivotal argues that Plaintiffs fail to meet the first
`prong of this test because the CAC does not show that any trend or uncertainty was
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`“known” to management. MTD at 9. Plaintiffs respond that it is sufficient to plead that
`Pivotal Defendants acted negligently. Opp’n at 7 (citing In re Daou Sys., Inc., 411 F.3d
`1006, 1027 (9th Cir. 2005)). However, an Item 303 claim must i