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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 1 of 24
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`
`
`
`JORDAN ETH (CA SBN 121617)
`JEth@mofo.com
`MARK R.S. FOSTER (CA SBN 223682)
`MFoster@mofo.com
`ROBERT L. CORTEZ WEBB (CA SBN 274742)
`RWebb@mofo.com
`KAREN LEUNG (CA SBN 323029)
`KLeung@mofo.com
`MORRISON & FOERSTER LLP
`425 Market Street
`San Francisco, California 94105-2482
`Telephone: 415.268.7000
`Facsimile: 415.268.7522
`Attorneys for Defendants Pivotal Software, Inc.,
`Cynthia Gaylor, Egon Durban, Khozema Z. Shipchandler,
`Marcy S. Klevorn, Michael Dell, Paul Maritz, Robert Mee, and
`William D. Green
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`
`
`
`IN RE PIVOTAL SECURITIES
`LITIGATION
`
`
`
`
`
`
`
`
`
`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
`
`
`
`Master File No. 3:19-cv-03589-CRB
`PIVOTAL DEFENDANTS’ NOTICE
`OF MOTION AND MOTION TO
`DISMISS CONSOLIDATED
`AMENDED CLASS ACTION
`COMPLAINT; MEMORANDUM OF
`POINTS AND AUTHORITIES
`
`
` July 17, 2020
`Date:
` 10:00 a.m.
`Time:
`Judge: Hon. Charles R. Breyer
`Courtroom: 6—17th Floor
`
`
`
`
`MASTER FILE NO.: 3:19-cv-03589-CRB
`
`

`

`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 2 of 24
`
`
`
`NOTICE OF MOTION AND MOTION
`TO ALL PARTIES AND THEIR COUNSEL OF RECORD:
`PLEASE TAKE NOTICE that on July 17, 2020, at 10:00 a.m. (see ECF 79), or as soon
`thereafter as the matter may be heard, in the Courtroom of the Honorable Charles R. Breyer,
`located at 450 Golden Gate Avenue, San Francisco, CA 94102, Courtroom 6, 17th Floor, Pivotal
`Software, Inc. (“Pivotal”), Cynthia Gaylor, Egon Durban, Khozema Z. Shipchandler,
`Marcy S. Klevorn, Michael Dell, Paul Maritz, Robert Mee, and William D. Green (together with
`Pivotal, the “Pivotal Defendants”) will, and hereby do, move pursuant to Federal Rules of Civil
`Procedure 8, 9(b), and 12(b)(6) to dismiss the Consolidated Amended Complaint for Violations of
`the Federal Securities Laws (the “Complaint”) filed by Lead Plaintiffs Oklahoma City Employee
`Retirement System (“Oklahoma City”) and Police Retirement System of St. Louis on
`February 11, 2020.
`This Motion is based on this Notice, the accompanying Memorandum of Points and
`Authorities, the Defendants’ Request for Consideration and Judicial Notice, the Declaration of
`Robert L. Cortez Webb (“Webb Decl.”) and exhibits attached thereto (“Ex. __”), and such other
`argument and materials as may be presented before this Motion is taken under submission.
`
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`MASTER FILE NO.: 3:19-cv-03589-CRB
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`

`

`
`
`I.
`
`II.
`III.
`
`IV.
`
`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 3 of 24
`
`TABLE OF CONTENTS
`
`
`Page
`SUMMARY OF ARGUMENT ........................................................................................ vii 
`BACKGROUND ................................................................................................................ 1 
`A.
`Pivotal’s Growing Business During the Class Period ............................................. 1 
`B.
`Plaintiffs’ Securities Fraud Allegations .................................................................. 3 
`PLAINTIFFS MUST MEET HEIGHTENED PLEADING STANDARDS. ..................... 4 
`PLAINTIFFS FAIL TO PLEAD A MATERIALLY MISLEADING
`STATEMENT. .................................................................................................................... 5 
`A.
`Plaintiffs Fail to Show Any Challenged Statement Was False When Made. ......... 5 
`B.
`Regulation S-K Did Not Impose a Duty to Disclose. ............................................. 8 
`C.
`Plaintiffs Fail to Show the Falsity of the Opinion Statements. ............................... 9 
`D.
`Many of the Challenged Statements Are Not Actionable. .................................... 10 
`1.
`Expressions of optimism are not actionable.............................................. 10 
`2.
`The forward-looking statements are not actionable. ................................. 11 
`PLAINTIFFS FAIL TO PLEAD A “STRONG INFERENCE” OF SCIENTER. ............ 12 
`A.
`The CW Allegations Do Not Support Any Inference of Scienter. ........................ 12 
`B.
`The Core Operations Theory Does Not Apply. .................................................... 14 
`C.
`Plaintiffs Do Not Offer a Cogent and Compelling Theory of Fraud. ................... 14 
`PLAINTIFFS’ SECTION 12(a)(2) CLAIM FAILS FOR ANOTHER REASON. .......... 15 
`V.
`PLAINTIFFS’ CONTROL-PERSON CLAIMS FAIL. .................................................... 15 
`VI.
`VII. CONCLUSION ................................................................................................................. 15 
`
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 4 of 24
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`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`Brody v. Transitional Hosps. Corp.,
`280 F.3d 997 (9th Cir. 2002) .......................................................................................................8
`
`City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
`856 F.3d 605 (9th Cir. 2017) ...............................................................................................10, 13
`
`City of Sunrise Firefighters’ Pension Fund v. Oracle Corp.,
`No. 18-cv-04844-BLF, 2019 WL 6877195 (N.D. Cal. Dec. 17, 2019) ..........................8, 11, 13
`
`Coble v. Broadvision,
`2002 WL 31093589 (N.D. Cal. Sept. 11, 2002) .......................................................................14
`
`In re Convergent Techs. Sec. Lit.,
`948 F.2d 507 (9th Cir. 1991) .......................................................................................................6
`
`In re Cutera Sec. Litig.,
`610 F.3d 1103 (9th Cir. 2010) ...................................................................................................11
`
`In re Foundry Networks, Inc.,
`2002 WL 32354617 (N.D. Cal. June 6, 2002) ..........................................................................10
`
`In re Fusion-io, Inc. Sec. Litig.,
`No. 13-CV-05368-LHK, 2015 WL 661869 (N.D. Cal. Feb. 12, 2015) ......................................7
`
`Greenberg v. Sunrun Inc.,
`233 F. Supp. 3d 764 (N.D. Cal. 2017) ..................................................................................4, 11
`
`Hertzberg v. Dignity Partners, Inc.,
`191 F.3d 1076 (9th Cir. 1999) ...................................................................................................15
`
`In re LeapFrog Enterprises, Inc. Sec. Litig.,
`527 F. Supp. 2d 1033 (N.D. Cal. 2007) ....................................................................................10
`
`In re Lexar Media, Inc. Sec. Litig.,
`2005 WL 1566534 (N.D. Cal. July 5, 2005) .......................................................................14, 15
`
`In re McKesson HBOC Secs. Litig.,
`126 F. Supp. 2d 1248 (N.D. Cal. 2000) ....................................................................................15
`
`Metzler Inv. GmbH v. Corinthian Colls.,
`540 F.3d 1049 (9th Cir. 2008) ...........................................................................................5, 8, 14
`
`Norfolk Cty. Ret. Sys. v. Solazyme, Inc.,
`No. 15-cv-02938-HSG, 2016 WL 7475555 (N.D. Cal. Dec. 29, 2016) ...............................5, 15
`
`
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 5 of 24
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`Nurlybayev v. ZTO Express (Cayman) Inc.,
`2019 WL 3219451 (S.D.N.Y. Jul. 17, 2019) ..............................................................................9
`
`Omnicare Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund,
`575 U.S. 175 (2015) ..............................................................................................................4, 10
`
`Or. Pub. Emps. Ret. Fund v. Apollo Grp.,
`774 F.3d 598 (9th Cir. 2014) .....................................................................................................13
`
`Pinter v. Dahl,
`486 U.S. 622 (1988) ..................................................................................................................15
`
`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`759 F.3d 1051 (9th Cir. 2014) .......................................................................................11, 13, 14
`
`In re Read-Rite Corp.,
`335 F.3d 843 (9th Cir. 2003) .......................................................................................................5
`
`In re Rigel Pharm. Sec. Litig.,
`697 F.3d 869 (9th Cir. 2012) ...........................................................................................4, 14, 15
`
`Ronconi v. Larkin,
`253 F.3d 423 (9th Cir. 2001) .................................................................................................5, 13
`
`Rubke v. Capitol Bancorp Ltd.,
`551 F.3d 1156 (9th Cir. 2009) .................................................................................................4, 5
`
`In re Splash Tech. Holdings Inc. Sec. Litig.,
`160 F. Supp. 2d 1059 (N.D. Cal. 2001) ....................................................................................11
`
`In re Stac Elecs. Sec. Litig.,
`89 F.3d 1399 (9th Cir. 1996) .....................................................................................................12
`
`Steckman v. Hart Brewing, Inc.,
`143 F.3d 1293 (9th Cir. 1998) .....................................................................................................9
`
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) ..................................................................................................................12
`
`In re Vantive Corp. Sec. Litig.,
`283 F.3d 1079 (9th Cir. 2002) .................................................................................... vii, 6, 7, 13
`
`Webb v. Solarcity Corp.,
`884 F.3d 844 (9th Cir. 2018) .....................................................................................................14
`
`Zeid v. Kimberley,
`930 F. Supp. 431 (N.D. Cal. 1996) ...........................................................................................10
`
`Zucco Partners, LLC v. Digimarc Corp.,
`552 F.3d 981 (9th Cir. 2009) ...............................................................................................12, 13
`
`
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`
`
`Statutes
`
`15 U.S.C. § 78u-5(c)(1) ..................................................................................................................11
`
`Other Authorities
`
`17 C.F.R. § 229.105 ........................................................................................................................10
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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 7 of 24
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`
`
`ISSUES TO BE DECIDED
`Material falsity. Whether Plaintiffs’ claims under §§ 11 and 12(a)(2) of the
`1.
`Securities Act of 1933 (the “’33 Act”) and § 10(b) of the Securities Exchange Act of 1934 (the
`“’34 Act”) should be dismissed: (a) where Plaintiffs have not plausibly alleged, much less
`pleaded particularized facts showing, that any challenged statements were materially false when
`made; and (b) for the additional reason that several categories of challenged statements are not
`actionable as a matter of law, including subjective expressions of enthusiasm and forward-looking
`statements, accompanied by meaningful cautionary language.
`Scienter. Whether the § 10(b) claim should be dismissed on the additional,
`2.
`independent ground that Plaintiffs have failed to plead particularized facts giving rise to a “strong
`inference” that any Defendant made any challenged statement with an intent to deceive.
`No solicitation. Whether Plaintiffs’ § 12(a)(2) claim should be dismissed on the
`3.
`additional, independent ground that Plaintiffs have failed to allege any Defendant (a) directly
`passed title to Oklahoma City or (b) solicited Oklahoma City’s stock purchase while motivated by
`personal financial interest.
`Control-person liability. Whether Plaintiffs’ control-person claims under § 15 of
`4.
`the ’33 Act and § 20(a) of the ’34 Act should be dismissed given Plaintiffs’ failure to plead a
`predicate violation of the securities laws; and whether Plaintiffs’ claim under § 15 against
`Defendant Michael Dell should be dismissed for the additional reason that Plaintiffs fail to show
`that he exercised a significant degree of operational control over Pivotal.
`
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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 8 of 24
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`SUMMARY OF ARGUMENT
`Although the names change, fraud-by-hindsight claims like this are always the same.
`Plaintiffs start with disappointing news at the story’s end and say defendants knew it all along.
`Here, the end of the story begins on June 4, 2019, when Pivotal Software announced its first
`quarter results. As it had done every single quarter since its IPO in April 2018, Pivotal met its
`guidance and reported a growing number of customers and higher year-over-year revenue.
`Growth, however, was decelerating. Pivotal lowered its go-forward FY20 guidance, given
`“lengthening sales cycles,” and “complexity in the technology landscape.” After a stock drop,
`Plaintiffs sued, claiming Defendants knew the disappointing news from the get-go, in April 2018.
`Plaintiffs claim that Pivotal’s public statements from its April 2018 IPO until June 2019
`were all misleading for the same reason: Pivotal allegedly failed to disclose that it “was already
`experiencing lengthening sales cycles and diminished growth” as a result of “increased
`competition” and its “disjointed” product mix. From its IPO on, however, Pivotal repeatedly
`disclosed that it operated in a “highly competitive industry” and warned that its “sales cycles can
`be long” and “vary seasonally.” Nobody was misled.
`Plaintiffs try to prop up their claims with the vague accounts of seven former low-level
`employees who disparage Pivotal’s products and recycle timeless gripes about software sales.
`They opine that Pivotal’s products were “obsolete” and lacked “key features,” and say there were
`“concerns about competition.” These and similarly vague allegations are akin to those rejected in
`In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1085-89 (9th Cir. 2002), where a software
`company was sued following disappointing guidance and accused of concealing that its products
`were at a “competitive disadvantage,” resulting in “sales cycles . . . ‘lengthening substantially.’”
`The Ninth Circuit ruled that the “vagueness” of the allegations “needs no elaboration.” Id. at
`1089. It was nothing but “fraud by hindsight.” Id. at 1084-85. Just like this case.
`As in Vantive and other cases cited herein, Plaintiffs’ conclusory and vague allegations
`fail to show any statement was misleading. The allegations also fail to give rise to a “strong
`inference” of scienter, an independent ground to dismiss Plaintiffs’ § 10(b) claim. Plaintiffs
`allege no stock sales or other motive. Plaintiffs offer no coherent theory. This case is baseless.
`
`
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`Case 3:19-cv-03589-CRB Document 80 Filed 03/27/20 Page 9 of 24
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`
`
`I.
`
`BACKGROUND
`A.
`Pivotal’s Growing Business During the Class Period
`Pivotal Software is a San Francisco-based software company with 3,000 employees.
`(¶ 31; Ex. 5 at 10.)1 The Individual Defendants are Pivotal’s former CEO Robert Mee, its former
`CFO, Cynthia Gaylor (the “Executive Defendants”), and six Pivotal directors: Paul Maritz, Egon
`Durban, William Green, Marcy Klevorn, Khozema Shipchandler, and Michael Dell (the “Director
`Defendants”). (¶¶ 32-41.)
`Pivotal provides a “cloud-native” software platform called Pivotal Cloud Foundry
`(“PCF”). (¶ 4.) PCF enables its customers to streamline and accelerate their processes for
`developing and modernizing cloud applications. (¶ 4.) Pivotal generates most of its revenue
`from the sale of time-based subscriptions. (¶ 5.) Pivotal’s flagship product is Pivotal Application
`Service (“PAS”), which enables customers to operate custom software securely and at scale. (¶ 5;
`Ex. 1 at 100.) In February 2018, Pivotal made its new product, Pivotal Container Service
`(“PKS”), commercially available. (¶ 11.) PKS is a container management platform that allows
`customers to more easily deploy and operate Kubernetes, an open-source system similar to PAS,
`but designed for managing containerized workloads and services. (¶ 5.)
`On April 19, 2018, Pivotal launched its initial public offering (“IPO”), which was
`completed April 24. (¶¶ 75-82.) Pivotal offered 42,550,000 of its shares at $15 per share. (¶ 81.)
`Pivotal’s 200-page registration statement included a detailed overview of its products, business
`operations, financial results, and almost 40 pages of risk disclosures. (Ex. 1 at 16-50.)
`At the time of its IPO, Pivotal reported that its FY18 revenues were approximately
`$509 million, up from approximately $416 million, in 2017. (Ex. 1 at 2, 72.) Beyond tracking
`revenue, Pivotal advised investors of certain “key metrics” that it used to measure performance,
`formulate financial projections, and help monitor its business. These included customer count,
`and its dollar-based net expansion rate (“NER”), an indicator of customers’ expanded use of and
`demand for Pivotal’s platform. (Id. at 66.) Pivotal reported having 319 customers, up from 275
`
`
`1 Unless otherwise noted, references to “¶ __” are to the Complaint’s paragraphs, and references
`to “Ex.__” are to the exhibits attached to Robert L. Cortez Webb’s Declaration.
`
`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
`
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`MASTER FILE NO.: 3:19-cv-03589-CRB
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`
`
`in 2017, and an NER rate of 163% and 158% at the end of FY17 and FY18, respectively. (Id.)
`Pivotal predicted that NER would “continue to fluctuate and decline over time as we scale our
`business” and in light of other factors. (Id.) Pivotal warned that its financial results were subject
`to fluctuation given a variety of factors, including “long” and “unpredictable” “sales cycles,”
`which were described as “vary[ing] seasonally” and being “out of [Pivotal’s] control”; and the
`impact of operating in a “highly competitive industry.” (Id. at 18-22.) Pivotal repeated
`disclosure of these business risks throughout the Class Period. (See Appendix B (collecting
`relevant cautions).)
`After its IPO and throughout the Class Period, Pivotal continued to perform well. It
`increased the number of its customers and reported steady, strong NER rates. Its revenue also
`increased (albeit at decelerating rates consistent with disclosed scaling expectations) and it met or
`exceeded its revenue guidance every quarter as shown in Figures 1 and 2 (Webb Decl. ¶¶ 23-25):
`
`
`
`Fig. 2: Pivotal’s Reported Revenue Guidance And Actual Revenue
`
`
`
`2Q19
`1Q19
`[8/3/18]
`[5/4/18]
`Not given $157-159
`
`3Q19
`[11/2/18]
`$163-165
`
`4Q19
`[2/1/19]
`$169-171
`
`1Q20
`[5/3/19]
`$183-185
`
`2Q20
`[8/2/19]
`$185-189
`
`$ in millions
`[quarter ended]
`Revenue
`Guidance from
`prior quarter
`Reported Revenue $155.7
`
`$164.4
`
`$168.1
`
`$169.2
`
`$185.7
`
`$193.0
`
`Pivotal also achieved good results with its remaining performance obligations (“RPO”), a
`metric that tracked all contracted revenue (i.e., billed and unbilled) (Ex. 15 at 7.) Pivotal’s RPO
`
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`performed well, growing year-over-year during the Class Period as before. It was $475 million in
`FY17; $820 million in FY18; and $990 million in FY19. (Ex. 1 at F-15, Ex. 5 at 70.)2
`On June 4, 2019, Pivotal announced 1Q20 results. Pivotal’s RPO was up 10% year-over-
`year, a lower growth rate than in earlier periods. (Ex. 20 at 7.) Pivotal explained that it had
`begun “seeing lengthening in the sales cycles,” which was attributable to “a lot of complexity in
`the technology landscape.” (Id. at 8.) Pivotal lowered its going-forward FY20 revenue guidance
`range from $798-806 million to $756-767 million; the revision nevertheless represented 16%
`year-over-year growth. (Id. at 7.) The next day, Pivotal’s stock price declined to $10.89 per
`share from $18.54. (¶ 20.)
`On August 22, 2019, Pivotal announced a proposed merger with VMware at $15 per
`share, the same price as the IPO. (¶¶ 12, 23.) The merger closed at the end of 2019. (¶ 23.)
`Stockholders who purchased in the IPO and held their shares through the merger broke even.
`On September 4, 2019, Pivotal announced its 2Q20 results: subscription revenue
`increased (beating guidance), as did its customer base. (Fig. 1 & 2 supra.)
`B.
`Plaintiffs’ Securities Fraud Allegations
`Two weeks after Pivotal announced its 1Q20 results, this litigation commenced,
`purportedly on behalf of a class of persons who purchased Pivotal stock in the IPO and between
`April 20, 2018, and June 4, 2019 (the “Class Period”). Plaintiffs assert two claims under the ’34
`Act: a fraud claim under § 10(b) against Pivotal and the Executive Defendants; and a control-
`person claim under § 20(a) against the Executive Defendants. (¶¶ 322-337.) Plaintiffs also assert
`three claims under the ’33 Act on behalf of persons who purchased stock traceable to the IPO: a
`claim under § 11 against all Defendants (including the underwriters of Pivotal’s IPO); a claim
`under § 12(a)(2) against Pivotal, the Director Defendants, and the Executive Defendants; and a
`control-person claim against the Executive Defendants and Michael Dell. (¶¶ 183-214.)
`Plaintiffs challenge 62 statements made to investors between April 19, 2018, and June 4,
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`2 Pivotal repeatedly disclosed RPO’s expected variability and seasonality. (Ex. 15 at 7; Ex. 16 at
`7; Ex. 19 at 7.) Plaintiffs ignore the year-over-year growth rate and instead focus on the less
`relevant, seasonal, quarter-over-quarter changes. (¶ 295.)
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`2019, including 18 statements in Pivotal’s IPO registration statement and in connection with
`Pivotal’s quarterly earnings reports on four dates: June 12, 2018, September 12, 2018, December
`11, 2018, and March 14, 2019. The Complaint identifies the challenged statements using bold
`italicized typeface. (¶¶ 148 n.33, 226.) Appendix A to this brief collects all of the statements for
`ease of reference. The crux of Plaintiffs’ case is that Pivotal allegedly failed to disclose
`“increasing competition,” “lengthening sales cycles,” and a “disjointed” product mix, consisting
`of an allegedly “obsolete” and “antiquated” PAS offering and a PKS offering that had “a number
`of undisclosed drawbacks.” (¶¶ 9-11, 14, 17, 166, 238, 253, 263, 267.)
`Plaintiffs offer nothing to support their claims aside from vague and conclusory
`allegations drawn from a handful of confidential witnesses (the “CWs”). (¶¶ 97-129.) The CWs
`include five former low-level sales representatives (CWs 2, 3, 5, 6, 7), one former executive
`assistant (CW4), and a former accountant (CW1). (¶¶ 97-99.) No CWs allegedly reported to any
`Defendant. (Id.) Instead, they were, at best, 2 to 4 reporting levels removed from the Executive
`Defendants and even further removed from the Director Defendants.
`II.
`PLAINTIFFS MUST MEET HEIGHTENED PLEADING STANDARDS.
`To state a claim under §§ 10(b), 11, and 12(a)(2), Plaintiffs must plead a material
`misrepresentation or omission. In re Rigel Pharm. Sec. Litig., 697 F.3d 869, 876, 885 & n.14 (9th
`Cir. 2012); Greenberg v. Sunrun Inc., 233 F. Supp. 3d 764, 772 (N.D. Cal. 2017).
`The falsity allegations must meet several pleading requirements, including Rule 8’s
`plausibility test, which requires more than “conclusory” and speculative allegations. Omnicare
`Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 194 (2015).
`Challenged statements must be reviewed “fairly and in context” of other disclosures, including
`“any other hedges, disclaimers, or qualifications.” Id. at 1332-33.
`Plaintiffs also must satisfy Rule 9(b)’s particularity requirements. Rigel, 697 F.3d at 885.
`This is so even where, as here (¶¶ 7, 184, 199), a complaint makes “nominal efforts to disclaim
`allegations of fraud with respect to its section 11 claims.” Id. Where “a complaint employs the
`exact same factual allegations to allege violations of [§] 11 as it uses to allege fraudulent conduct
`under [§] 10(b) . . . [the court] can assume that it sounds in fraud.” Rubke v. Capitol Bancorp
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`Ltd., 551 F.3d 1156, 1161 (9th Cir. 2009). That is the case here, as the allegations for the ’33 Act
`and ’34 Act claims are nearly identical. (Compare ¶¶ 9-11, 166 with ¶¶ 17, 238.)3
`For the § 10(b) claim, Plaintiffs must also “specify each statement alleged to have been
`misleading, the reason or reasons why the statement is misleading” and particularized facts giving
`rise to a “strong inference of scienter.” Metzler Inv. GmbH v. Corinthian Colls., 540 F.3d 1049,
`1066, 1070 (9th Cir. 2008). This required specificity “prevents a plaintiff from skirting dismissal
`by filing a complaint laden with vague allegations of deception.” Id. at 1061.
`III.
`PLAINTIFFS FAIL TO PLEAD A MATERIALLY MISLEADING STATEMENT.
`Under Rule 8, Plaintiffs fail to plausibly allege that any statement was misleading, much
`less plead “contemporaneous statements or conditions” showing the “misleading nature of the
`statements when made.” Ronconi v. Larkin, 253 F.3d 423, 432 (9th Cir. 2001). The alleged facts
`must be “necessarily inconsistent” with challenged statements. In re Read-Rite Corp., 335 F.3d
`843, 848 (9th Cir. 2003); Rubke, 551 F.3d at 1161 (affirming dismissal of ’33 Act and ’34 Act
`claims). This requires pleading “contemporaneous facts that would establish a contradiction
`between the alleged materially misleading statements and reality.” Norfolk Cty. Ret. Sys. v.
`Solazyme, Inc., No. 15-cv-02938-HSG, 2016 WL 7475555, at *3 (N.D. Cal. Dec. 29, 2016).
`A.
`Plaintiffs Fail to Show Any Challenged Statement Was False When Made.
`Plaintiffs claim that all 62 challenged statements made at “the time of the IPO” and
`throughout the 14-month Class Period are false for the same conclusory reason: Plaintiffs allege
`that Pivotal failed to disclose that it “was already experiencing lengthening sales cycles and
`diminished growth in new customers as a result of increased competition as customers and
`industry sentiment shifted away from Pivotal’s principal, yet outdated, PAS offering because it
`was incompatible with the industry-standard Kubernetes platform.” (Compare ¶ 166 with ¶¶ 238,
`253, 263, 267, 289.) Pivotal also allegedly failed to disclose its “disjointed” product mix that
`included an “increasingly obsolete” PAS offering, and a new PKS offering that had “limitations”
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`3 Indeed, the start of Plaintiffs’ Class Period for the § 10(b) claim coincides with the IPO’s
`completion on April 24, 2018 (¶¶ 14, 80, 81), even though the first statement challenged under
`the § 10(b) claim is not made until June 12, 2018 (¶ 227), two months after the IPO.
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`and “undisclosed drawbacks,” including a lack of unspecified “automation features.” (Id.)
`The Ninth Circuit affirmed dismissal of similar claims in In re Vantive Corp. Sec. Litig.,
`283 F.3d 1079 (9th Cir. 2002). There, the plaintiffs alleged that Vantive, a software company,
`misled its investors during a 15-month class period by repeatedly “stating that its sales-cycle was
`‘holding steady at three to six months.’” Id. at 1086. The Ninth Circuit held that it “hardly need
`elaborate on the inadequacy of these generalized allegations.” Id. Fatally, the plaintiffs “fail[ed]
`to allege any facts to indicate why this statement would have been misleading at the several
`points at which it was alleged to have been made.” Id. The complaint there gave “no indication
`of what it means for a sales cycle to lengthen ‘substantially,’” or when during the class period the
`alleged “lengthening” occurred. Id.
`As in Vantive, Plaintiffs here “give no indication of what they mean” by their allegations
`that Pivotal was “already experiencing lengthening sales cycles” at the time of the IPO and
`throughout the Class Period. (¶¶ 166, 238, 253, 263, 267, 289.) “Lengthening” to what from
`what? Plaintiffs nowhere allege “what the actual length of the cycle” was at any time. Vantive,
`283 F.3d at 1086. Unlike in Vantive, Pivotal is not alleged to have specified its sales-cycles
`duration; and the strong financial metrics that Pivotal did report during the Class Period (which
`Plaintiffs do not challenge) tell a contrary story. (See Figs. 1 & 2.) Plus, Plaintiffs’ allegation
`ignores that in the Registration Statement and thereafter throughout the Class Period, Pivotal
`repeatedly warned that its “sales cycles can be long, unpredictable and vary seasonally.”
`(Appendix B.) Analysts got the message. (See Ex. 21 at 7.) Pivotal cannot be liable because the
`risks it warned of later occurred. See, e.g., In re Convergent Techs. Sec. Lit., 948 F.2d 507, 515
`(9th Cir. 1991) (holding that “[n]o investor, in the face of substantive [risk] disclosures, could
`reasonably conclude that [a company] had surmounted all obstacles” described).
`Equally flawed are Plaintiffs’ claims regarding “increased competition” and allegedly
`“disjointed product” consisting of an “increasingly obsolete” PAS offering, and “limited PKS add
`on.” (¶¶ 166, 238, 253, 263, 267, 289.) Here again, Plaintiffs do not allege anything objective
`about Pivotal’s competition or what Plaintiffs mean by competition having “increased,” let alone
`anything inconsistent with Pivotal’s disclosures in its Registration Statement and throughout the
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`PIVOTAL DEFENDANTS’ MOTION TO DISMISS
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`Class Period that Pivotal op