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`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 1 of 31
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`DEAN S. KRISTY (CSB No. 157646)
`dkristy@fenwick.com
`JENNIFER C. BRETAN (CSB No. 233475)
`jbretan@fenwick.com
`KATHERINE A. MARSHALL (CSB No. 327042)
`kmarshall@fenwick.com
`SOFIA RITALA (CSB No. 342253)
`sritala@fenwick.com
`FENWICK & WEST LLP
`555 California Street, 12th Floor
`San Francisco, CA 94104
`Telephone:
`415.875.2300
`Facsimile:
`415.281.1350
`
`FELIX S. LEE (CSB No. 197084)
`flee@fenwick.com
`FENWICK & WEST LLP
`801 California Street
`Mountain View, CA 94041
`Telephone: 650.988.8500
`Facsimile: 650.938.5200
`
`Attorneys for Defendants DocuSign, Inc., Daniel
`D. Springer, Michael J. Sheridan, Cynthia Gaylor,
`and Loren Alhadeff
`
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`
`RICHARD R. WESTON, Individually and on
`Behalf of All Others Similarly Situated,
`
`Plaintiff,
`
`v.
`
`DOCUSIGN, INC., DANIEL D. SPRINGER,
`MICHAEL J. SHERIDAN, CYNTHIA
`GAYLOR, and LOREN ALHADEFF,
`
`Defendants.
`
` Case No.: 3:22-cv-00824-WHO
`
`NOTICE OF MOTION AND
`MOTION TO DISMISS AMENDED
`COMPLAINT; MEMORANDUM OF
`POINTS AND AUTHORITIES IN
`SUPPORT THEREOF
`
`Date: January 25, 2023
`Time: 2:00 p.m.
`Dept.: Courtroom 2, 17th Floor
`Judge: Hon. William H. Orrick
`
`Date Action Filed: February 8, 2022
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`NOTICE OF MOT. AND MOT. TO DISMISS AC
`AND MPA IN SUPPORT
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`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 2 of 31
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`TABLE OF CONTENTS
`
`
`
`
`
`
`
`III.
`IV.
`
`NOTICE OF MOTION AND MOTION TO DISMISS ............................................................. 1
`ISSUES TO BE DECIDED...................................................................................................... 1
`I.
`INTRODUCTION ........................................................................................................ 1
`II.
`STATEMENT OF FACTS............................................................................................ 4
`A.
`DocuSign And Its Business ............................................................................... 4
`B.
`Events Of The Class Period............................................................................... 5
`1.
`DocuSign Exceeds Expectations Throughout FY 21 ............................... 5
`2.
`DocuSign Continues To Exceed All Expectations In Q1 22 And Q2 22 ... 6
`3.
`DocuSign Posts Strong Q3 22 Results, But Billings Growth Slows ......... 7
`The Litigation ................................................................................................... 7
`C.
`PLAINTIFFS’ CLAIM IS SUBJECT TO STRICT PLEADING REQUIREMENTS ....... 8
`PLAINTIFFS FAIL TO PLEAD A FALSE OR MISLEADING STATEMENT.............. 9
`A.
`Forward-Looking Statements About Growth And Demand Are Inactionable....... 9
`B.
`Statements Regarding Customer Retention And Demand Are Not Actionable ... 13
`1.
`No Facts Show Statements About Customer Demand Were False ......... 14
`2.
`Customer Demand Statements Are Inactionable ................................... 15
`Statements Regarding CLM Are Not Actionable .............................................. 16
`C.
`Statements Regarding Competition Are Not Actionable ................................... 17
`D.
`PLAINTIFFS FAIL TO PLEAD A STRONG INFERENCE OF SCIENTER................ 17
`A.
`The Confidential Witness Allegations Offer Nothing To Establish Scienter ...... 18
`1.
`The CWs Lack Personal Knowledge .................................................... 18
`2.
`Nothing The CWs Offer Is Indicative Of Fraud .................................... 20
`Defendants’ Stock Sales Fail To Establish Scienter .......................................... 21
`B.
`Plaintiffs’ Remaining Allegations Do Not Establish Scienter ............................ 22
`C.
`PLAINTIFFS FAIL TO PLEAD LOSS CAUSATION................................................. 24
`VI.
`VII. CONCLUSION .......................................................................................................... 25
`
`V.
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`NOTICE OF MOT. AND MOT. TO DISMISS AC
`AND MPA IN SUPPORT
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`ATTORNEYS AT LAW
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`FENWICK & WEST LLP
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`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 3 of 31
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`
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`TABLE OF AUTHORITIES
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` PAGE(S)
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`1
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`SAN FRANCISCO
`ATTORNEYS AT LAW
`
`FENWICK & WEST LLP
`
`CASES
`
`Bodri v. GoPro, Inc.,
`252 F. Supp. 3d 912 (N.D. Cal. 2017)............................................................................... 13
`Brodsky v. Yahoo! Inc.,
`592 F. Supp. 2d 1192 (N.D. Cal. 2008) ............................................................................. 19
`Brody v. Transitional Hosps. Corp.,
`280 F.3d 997 (9th Cir. 2002) .............................................................................................. 9
`Browning v. Amyris, Inc.,
`2014 WL 1285175 (N.D. Cal. Mar. 24, 2014) ..............................................................13, 23
`Cement Masons & Plasterers Joint Pension Tr. v. Equinix, Inc.,
`2012 WL 6044787 (N.D. Cal. Dec. 5, 2012) ................................................................20, 24
`City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
`2013 WL 6441843 (N.D. Cal. Dec. 9, 2013), aff’d, 856 F.3d 605 (9th Cir. 2017) ..........22, 23
`City of Royal Oak Ret. Sys. v. Juniper Networks, Inc.,
`880 F. Supp. 2d 1045 (N.D. Cal. 2012) ..........................................................................9, 25
`City of Sunrise Firefighters’ Pension Fund v. Oracle Corp.,
`527 F. Supp. 3d 1151 (N.D. Cal. 2021) ............................................................................. 11
`Dura Pharms., Inc. v. Broudo,
`544 U.S. 336 (2005)....................................................................................................24, 25
`Elec. Workers Pension Fund v. HP, Inc.,
`2021 WL 1056549 (N.D. Cal. Mar. 19, 2021) ................................................................... 22
`In re Accuray Sec. Litig.,
`757 F. Supp. 2d 936 (N.D. Cal. 2010)..........................................................................19, 21
`In re Apple Computer, Inc.,
`243 F. Supp. 2d 1012 (N.D. Cal. 2002), aff’d, 127 F. App’x 296 (9th Cir. 2005) ................ 18
`In re Autodesk, Inc. Sec. Litig.,
`132 F. Supp. 2d 833 (N.D. Cal. 2000)............................................................................... 15
`In re Bare Escentuals, Inc. Sec. Litig.,
`745 F. Supp. 2d 1052 (N.D. Cal. 2010) ............................................................................. 20
`In re Century Alum. Co. Sec. Litig.,
`729 F.3d 1104 (9th Cir. 2013) .......................................................................................... 25
`In re Cutera Sec. Litig.,
`610 F.3d 1103 (9th Cir. 2010) .....................................................................................10, 11
`In re Daou Sys., Inc.,
`411 F.3d 1006 (9th Cir. 2005) .......................................................................................... 13
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`NOTICE OF MOT. AND MOT. TO DISMISS AC
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` PAGE(S)
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`TABLE OF AUTHORITIES
`(Cont’d)
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`CASES
`
`In re Dot Hill Sys. Corp. Sec. Litig.,
`2009 WL 734296 (S.D. Cal. Mar. 18, 2009)...................................................................... 15
`In re Dot Hill Sys. Corp. Sec. Litig.,
`594 F. Supp. 2d 1150 (S.D. Cal. 2008) ............................................................................. 18
`In re Downey Sec. Litig.,
`2009 WL 2767670 (C.D. Cal. Aug. 21, 2009) ................................................................... 21
`In re Fusion-io, Inc. Sec. Litig.,
`2015 WL 661869 (N.D. Cal. Feb. 12, 2015)...................................................................... 16
`In re JDS Uniphase Corp. Sec. Litig.,
`2003 WL 26615705 (N.D. Cal. Nov. 3, 2003) ................................................................... 14
`In re Leapfrog Enters., Inc. Sec. Litig.,
`527 F. Supp. 2d 1033 (N.D. Cal. 2007) ........................................................................11, 16
`In re Rackable Sys., Inc. Sec. Litig.,
`2010 WL 3447857 (N.D. Cal. Aug. 27, 2010) ................................................................... 24
`In re Silicon Graphics Inc. Sec. Litig.,
`183 F.3d 970 (9th Cir. 1999) , abrogated on other grounds by South Ferry
`L.P., No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008) ........................................................ 22
`In re Silicon Image, Inc. Sec. Litig.,
`2007 WL 2778414 (N.D. Cal. Sept. 21, 2007), aff’d, 325 F. App’x 560 (9th Cir. 2009) ...... 19
`In re SolarCity Corp. Sec. Litig.,
`274 F. Supp. 3d 972 (N.D. Cal. 2017)............................................................................... 11
`In re Taleo Corp. Sec. Litig.,
`2010 WL 597987 (N.D. Cal. Feb. 17, 2010)...................................................................... 22
`In re Tibco Software, Inc.,
`2006 WL 1469654 (N.D. Cal. May 25, 2006) ................................................................... 11
`In re U.S. Aggregates, Inc. Sec. Litig.,
`235 F. Supp. 2d 1063 (N.D. Cal. 2002) ............................................................................. 20
`In re Vantive Corp. Sec. Litig.,
`283 F.3d 1079 (9th Cir. 2002), abrogated on other grounds by South Ferry
`L.P., No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008) ....................................................... 22
`In re VeriFone Sec. Litig.,
`784 F. Supp. 1471 (N.D. Cal. 1992), aff’d, 11 F.3d 865 (9th Cir. 1993) ........................14, 16
`In re Zumiez Inc. Sec. Litig.,
`2009 WL 901934 (W.D. Wash. Mar. 30, 2009) ................................................................. 17
`
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`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 5 of 31
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`TABLE OF AUTHORITIES
`(Cont’d)
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` PAGE(S)
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`CASES
`Kipling v. Flex Ltd.,
`2020 WL 2793463 (N.D. Cal. May 29, 2020) ................................................................... 18
`Kovtun v. VIVUS, Inc.,
`2012 WL 4477647 (N.D. Cal. Sept. 27, 2012), aff’d, 591 F. App’x 592 (9th Cir. 2015) ...... 15
`Loos v. Immersion Corp.,
`762 F.3d 880 (9th Cir. 2014) .........................................................................................9, 24
`McCasland v. FormFactor, Inc.,
`2008 WL 2951275 (N.D. Cal July 25, 2008) ..................................................................... 20
`McGovney v. Aerohive Networks,
`367 F. Supp. 3d 1038 (N.D. Cal. 2019) ............................................................................. 18
`Metzler Inv. GMBH v. Corinthian Colls., Inc.,
`540 F.3d 1049 (9th Cir. 2008) .......................................................................................8, 24
`Mineworkers’ Pension Scheme v. First Solar, Inc.,
`881 F.3d 750 (9th Cir. 2018) ............................................................................................ 24
`Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
`774 F.3d 598 (9th Cir. 2014) .............................................................................................. 8
`Park v. GoPro, Inc.,
`2019 WL 1231175 (N.D. Cal. Mar. 15, 2019) ..................................................................... 9
`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`2012 WL 1868874 (N.D. Cal. May 22, 2012), aff’d, 759 F.3d 1051 (9th Cir. 2014) ........... 19
`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`759 F.3d 1051 (9th Cir. 2014) ....................................................................................passim
`Ronconi v. Larkin,
`253 F.3d 423 (9th Cir. 2001) .......................................................................................13, 22
`Steckman v. Hart Brewing, Inc.,
`1996 WL 881659 (S.D. Cal. Dec. 24, 1996), aff’d, 143 F.3d 1293 (9th Cir. 1998) ............. 19
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2008)......................................................................................................9, 17
`Webb v. SolarCity Corp.,
`884 F.3d 844 (9th Cir. 2018) .........................................................................................9, 17
`Wochos v. Tesla, Inc.,
`985 F.3d 1180 (9th Cir. 2021) .......................................................................................... 15
`Wozniak v. Align Tech., Inc.,
`2011 WL 2269418 (N.D. Cal. June 8, 2011) ................................................................22, 23
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`ATTORNEYS AT LAW
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`FENWICK & WEST LLP
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`NOTICE OF MOT. AND MOT. TO DISMISS AC
`AND MPA IN SUPPORT
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`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 6 of 31
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`TABLE OF AUTHORITIES
`(Cont’d)
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`CASES
`Zack v. Allied Waste Indus., Inc.,
`2005 WL 3501414 (D. Ariz. Dec. 15, 2005), aff’d, 275 F. App’x 722 (9th Cir. 2008)......... 22
`Zucco Partners v. Digimarc,
`
`552 F.3d 981 (9th Cir. 2009) .......................................................................... 15, 18, 20, 23
`
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` PAGE(S)
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`STATUTES & RULES
`15 U.S.C. § 78u-4(a)(3)(B)(v) .................................................................................................. 8
`15 U.S.C. § 78u-4(b)(1)(B) .................................................................................................... 10
`15 U.S.C. § 78u-5(c)(1)(A) ...................................................................................................... 9
`15 U.S.C. § 78u-5(c)(1)(B) ...................................................................................................... 9
`15 U.S.C. § 78u-5(i)(1)(D)..................................................................................................... 10
`Federal Rules of Civil Procedure
` Rule 9(b) .......................................................................................................................1, 8
` Rule 12(b)(6) .................................................................................................................... 1
`Private Securities Litigation Reform Act of 1995 (“PSLRA”) ...........................................passim
`Securities Exchange Act of 1934
`
`Section 10(b) .................................................................................................................... 1
` Section 20(a) ..................................................................................................................... 1
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`NOTICE OF MOTION AND MOTION TO DISMISS
`PLEASE TAKE NOTICE that on January 25, 2023, at 2:00 p.m., before the Honorable
`William H. Orrick of the United States District Court for the Northern District of California,
`DocuSign, Inc. (“DocuSign” or the “Company”), Daniel D. Springer, Michael J. Sheridan,
`Cynthia Gaylor, and Loren Alhadeff move to dismiss plaintiffs’ Amended Complaint (the “AC”).
`Defendants move pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6) and the Private Securities
`Litigation Reform Act of 1995 (“PSLRA”) for failure to state a claim under Sections 10(b) and
`20(a) of the Securities Exchange Act of 1934. This motion is based on the Memorandum of
`Points and Authorities below, defendants’ Request for Judicial Notice, the Declaration of Jennifer
`C. Bretan and exhibits1, arguments of counsel, and any other matters properly before the Court.
`ISSUES TO BE DECIDED
`Should the Section 10(b) claim be dismissed where plaintiffs fail to plead
`1.
`particularized facts (i) showing the existence of any actionable statement, including as to forward-
`looking statements covered by the PSLRA’s safe harbor, (ii) raising a strong inference of scienter,
`and (iii) demonstrating loss causation?
`2.
`Should the Section 20(a) control person claim be dismissed where plaintiffs fail to
`plead a primary violation of Section 10(b)?
`INTRODUCTION
`I.
`By filing a 171-page, 446-paragraph AC, plaintiffs must mistakenly believe that sheer
`volume compensates for the lack of substantive content necessary to plead a claim under the
`federal securities laws. Pointless repetition and unfounded conclusions are no substitute for
`particularized facts establishing that defendants misstated the impact of the Covid-19 pandemic
`on DocuSign’s business and prospects, and did so knowingly. If anything, when DocuSign’s
`actual disclosures and actual record-setting performance through the evolving (and highly
`uncertain) pandemic period are considered, it is abundantly clear that plaintiffs have not and
`cannot plead a fraud claim under Section 10(b).
`The Company developed the world’s leading electronic signature product, DocuSign
`
`1 Unless otherwise noted, references to Exhibits (“Ex.”) are to the Bretan Declaration.
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`eSignature, which brought about a paradigm shift in how agreements are signed, enabling
`document execution from almost anywhere at any time. eSignature allows organizations to do
`business faster and more flexibly, with less risk and lower costs. As a result, and well before the
`onset of the global pandemic in early 2020, DocuSign had already enjoyed considerable growth,
`as organizations increasingly realized the benefits of digital signatures. By January 31, 2020 (the
`end of FY 20), just prior to the onset of the pandemic and claimed class period, the Company had
`revenues of $974 million, billings of $1.1 billion, and over 585,000 customers.2
`The pandemic accelerated that digital transformation. The need for and benefits of
`DocuSign’s offerings, especially eSignature, were undeniable. So, while the pandemic brought
`with it unprecedented uncertainties, the Company beat its guidance, exceeding expectations for
`six straight quarters after the onset of Covid-19. By any measure, performance was astounding:
`annual revenues soared to $2.1 billion in FY 22 (ended Jan. 31, 2022), billings hit $2.4 billion, its
`customer count more than doubled to 1.24 million (with over 1 billion users), and its publicly
`reported net dollar retention rate (“NDR” – business from new and existing customers net of
`those that left) ranged from 119% to 125% each quarter (well above historic norms).
`Even as its business grew and accelerated, at all times DocuSign’s disclosures about the
`risks and uncertainties raised by the pandemic were direct and appropriately cautionary. It did
`not downplay, but readily acknowledged, that “tailwinds” brought on by Covid-19 accelerated its
`business, generating urgent customer demand early on. Among other things, the Company also
`made clear that the pandemic’s effect on its business, and that of its customers, was “highly
`uncertain” and subject to “future developments” including vaccine timelines, new variants, travel
`restrictions and the like; indicated that the “new normal” was unknown; advised that quarterly
`billings were highly variable and should be viewed on a four-quarter trailing basis; and expressly
`warned that the high growth rates it was experiencing would not continue as the pandemic abated.
`Put simply, anyone reading these straightforward disclosures would understand that the
`business was subject to numerous risks and uncertainties, and that while DocuSign expected to
`continue to grow as customers experienced the value of digital transformation, it was never
`
`2 DocuSign’s fiscal year ends January 31 each year (e.g., FY 20 ended January 31, 2020).
`
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`expected to do so at the same rate as it had during the peak of the pandemic. Plaintiffs ignore all
`of these cautionary disclosures, never once mentioning the “Covid-19” update or extensive risk
`factors in DocuSign’s SEC filings on Forms 10-Q and 10-K in the class period.
`This suit was filed just days after the Company reported results on December 2, 2021 for
`the third quarter of fiscal 2022. DocuSign again exceeded its revenue guidance, added 59,000
`new customers, and reported NDR of 121%. But (for the first and only time) the Company
`reported a billings guidance miss ($565.2 million, or 3.4% off a range of $585-597 million),
`which still represented 28% growth. The Company was candid about the miss, explaining that
`after six quarters of accelerated growth it saw customers return to more normalized buying
`patterns. As the Company explained, “the market dynamics were markedly different from what
`we experienced in the first half of the year,” and as it moved through the quarter “we saw demand
`slow and the urgency of customers’ buying patterns temper. While we had expected an eventual
`step-down from the peak levels of growth achieved during the height of the pandemic, the
`environment shifted more quickly than we anticipated.” Although the Company again exceeded
`its revenue and billings guidance thereafter (including a record $670 million in Q4 22 billings), it
`projected growth at a lower rate in its earnings announcements on March 10 and June 9, 2022.
`Working backwards from a single miss on billings guidance in a single quarter during a
`global pandemic and forward-looking guidance for FY 23 that was “disappointing,” the AC
`alleges that the Company engaged in securities fraud reaching back to the very outset of the
`pandemic (when it first reported results on June 4, 2020) and through June 9, 2022. The AC,
`however, does not come close to pleading the specific facts needed to state a claim.
`No falsity. While suggesting that DocuSign’s guidance, or statements about anticipated
`demand, were unreasonable from the get-go because of the pandemic, DocuSign exceeded its
`guidance on every occasion but one. The only quarter in which it missed billings guidance was
`later in the pandemic, reflecting a change in growth rate about which the Company had already
`warned. Such forward-looking statements are fully protected by the PSLRA’s safe harbor where,
`as here, they are accompanied by meaningful cautionary language. The AC makes no effort to
`address the cautionary language, much less show that it was not meaningful. Similarly, the AC’s
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`Case No.: 3:22-cv-00824-WHO
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`SAN FRANCISCO
`ATTORNEYS AT LAW
`
`FENWICK & WEST LLP
`
`

`

`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 10 of 31
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`effort to paint the Company’s belief that customers who embrace digital “do not go back to pen
`and paper” as securities fraud falls flat. The statements are also within the safe harbor, but even if
`they could be construed otherwise, no facts whatsoever suggest that DocuSign’s customers were
`“going back” to “pen and paper.” Not only are such statements inactionable corporate optimism,
`the actual facts show nothing to the contrary: DocuSign’s revenues, billings, and customer count
`grew throughout the alleged class period, and NDR remained high. Equally lacking are facts
`showing anything the Company said about its CLM (contract lifecycle management) suite or
`competition (with Adobe) was false. Those claims are little more than conclusory afterthoughts.
`No scienter. Plaintiffs also cannot plead specific facts giving rise to the strong, cogent
`and compelling inference of scienter the law requires. The pandemic brought about never-before-
`seen challenges and uncertainties for DocuSign and its customers alike. While the Company’s
`performance was nothing short of remarkable, it also warned of risks, and just did not anticipate
`how quickly customer priorities would change as the pandemic abated. A failure to predict how
`an unprecedented pandemic will unfold is hardly a fraud. While plaintiffs trot out various
`“confidential witnesses” (“CWs”), none establish a knowing fraud by any defendant – all
`plaintiffs have left are bare conclusions, speculation, and hindsight.
`No loss causation. Loss causation is also lacking. Claimed “corrective disclosures” on
`December 2, 2021, March 10, 2022 or June 9, 2022 revealed no “fraud,” much less admitted any
`prior misstatements about purported customer defections, CLM, or competition with Adobe. Nor
`do they speak to conditions reaching back to June 2020 and throughout the six quarters of
`staggering performance. While the market may have reacted negatively to the Company’s
`guidance (or the one quarter billings miss), changed expectations do not reveal fraud.
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`
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`II.
`
`STATEMENT OF FACTS
`DocuSign And Its Business
`A.
`DocuSign pioneered electronic agreements, enabling contracts to be signed anywhere at
`any time. AC ¶ 3; Ex. 22 at 5. Its eSignature product is the world’s pre-eminent tool for
`electronic signatures, enjoying “first-mover” advantage and a market share of about 70%, more
`than three times its biggest competitor, Adobe. AC ¶ 4; Ex. 7 at 9. DocuSign’s Agreement Cloud
`
`NOTICE OF MOT. AND MOT. TO DISMISS AC
`AND MPA IN SUPPORT
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`4
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`Case No.: 3:22-cv-00824-WHO
`
`SAN FRANCISCO
`ATTORNEYS AT LAW
`
`FENWICK & WEST LLP
`
`

`

`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 11 of 31
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`includes applications to automate pre- and post-signature processes. This includes CLM, which
`automates workflows across the agreement process, to allow larger organizations flexibility to
`generate, negotiate and act on complex agreements. AC ¶ 6; Ex. 22 at 8.
`In addition to DocuSign, the AC names: Daniel Springer, its CEO from January 2017 until
`his resignation on June 21, 2022, and a continuing member of the Board; Michael Sheridan, who
`was CFO until September 2020, and then President of DocuSign’s international business until his
`retirement in December 2021; Cynthia Gaylor, who succeeded Mr. Sheridan as CFO in
`September 2020; and Loren Alhadeff, who served as Chief Revenue Officer until March 2022
`and is now Chief Operating Officer of the Worldwide Field Organization. See AC ¶¶ 43-46.3
`Events Of The Class Period
`B.
`DocuSign Exceeds Expectations Throughout FY 21
`1.
`When DocuSign announced Q1 21 results on June 4, 2020 (the first day of the class
`period), by any measure the Company’s performance was spectacular. Revenues grew every
`quarter, from $297M in Q1, to $342M in Q2, to $383M in Q3, to $431M in Q4. Exs. 3, 8, 15, 20.
`Total revenues for the fiscal year were $1.5 billion, a 49% increase from the prior year. Id.
`Billings were equally impressive, growing from $342M to $406M to $440M to $535M. Id. For
`the year, billings were $1.7 billion, up 56% year over year. Id. Each vastly exceeded guidance,
`which analysts cited in the AC characterized as “prudently conservative” under the leadership of
`a “visionary management team.”4 Exs. 7 at 1; 11 at 1. DocuSign’s customers by year end grew
`to 892,000, up 52%, and its NDR ranged from 119-123% (indicating recurring customer revenue
`increased even after customer churn). Ex. 21 at 2, 4. Gross margins were steady at 79%. Id.
`The Company readily acknowledged that Covid-19 had been a catalyst for growth, as
`customers urgently migrated to digital agreements while the pandemic surged. Throughout the
`year, DocuSign described the vast uncertainties the pandemic imposed on its business, including
`highly uncertain future events (e.g., the duration, speed and severity of the virus), which made it
`
`3 After initially intending to resign, Mr. Alhadeff is continuing as an officer. See AC ¶ 46.
`4 To aid the Court, Ex. 1 is a chart comparing DocuSign’s actual results to guidance throughout
`the class period, as well as additional publicly disclosed data (NDR and gross margins). As that
`chart demonstrates, plaintiffs’ allegations of a declining business, that customers were “leaving in
`droves,” or that demand was shrinking are nothing but empty (blatantly erroneous) conclusions.
`
`NOTICE OF MOT. AND MOT. TO DISMISS AC
`AND MPA IN SUPPORT
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`5
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`Case No.: 3:22-cv-00824-WHO
`
`SAN FRANCISCO
`ATTORNEYS AT LAW
`
`FENWICK & WEST LLP
`
`

`

`Case 3:22-cv-00824-WHO Document 68 Filed 09/16/22 Page 12 of 31
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`difficult to predict future results. See e.g., Exs. 5 at 23, 37-38; 10 at 26-27, 42-43; 17 at 26-27,
`44-45. The Company warned that the rate of growth it experienced during peak periods would
`not continue, that it expected results to fluctuate, and that it was unclear what the “new normal”
`would look like once the pandemic abated. Id. DocuSign explicitly said it had “no way of
`knowing how much of this growth will be permanent as the Covid-19 pandemic lessens in
`severity and businesses return to a more normalized, at-person work environment, nor whether
`demand for our products will remain strong.” Ex. 22 at 21. These and other risks were all
`detailed in the Company’s earnings calls throughout the year, and in both the “Covid-19 Update”
`and extensive “risk factors” sections of its Forms 10-Q and 10-K. Exs. 5 at 23, 37 ; 6 at 7-8; 9 at
`10; 14 at 2; 10 at 26-27, 42-48; 16 at 15; 17 at 26-27, 44-45, 50; 22 at 3, 16-21, 41-42.
`
`DocuSign Continues To Exceed All Expectations In Q1 22 And Q2 22
`2.
`The Company’s performance during Q1 and Q2 of FY 22 was equally impressive. As
`announced on June 3 and September 2, 2021, DocuSign again exceeded expectations, with
`revenues of $469M in Q1 (up 58%) and $512M (up 50%) in Q2. Exs. 24, 29. Billings also beat
`guidance, coming in at $527M (up 54%) and $595M (up 47%), respectively. Id. DocuSign
`added 161,000 new customers (to 1,053,000), and its NDR hit record levels: 125% in Q1 and
`124% in Q2. Exs. 25 at 4; 30 at 4. Gross margins increased to 81% (Q1) and 82% (Q2). Id.
`The Company emphasized that its business benefitted from pandemic tailwinds and again
`cautioned that growth rates would not continue at these peak levels. Indeed, the Company stated
`that “the demand we’re seeing now is good, but it’s certainly not as strong as what we’re seeing
`in Q1 and Q2 of last year.” Ex. 32 at 2; see Exs. 27 at 2; 30 at 5. It again indicated that its billings
`would have quarterly fluctuations, and encouraged investors to consider a rolling four quarter
`average rather than one data point. Ex. 32 at 2; see Ex. 27 at 2. And while its eSignature business
`soared because it was prioritized by customers, the Company indicated that CLM (which was
`more complex and had longer implementation times) was “dramatically different” and had
`“slowed way down.” Ex. 25 at 7.
`The Company’s Forms 10-Q warned of the high level of uncertainty the pandemic was
`having on DocuSign’s business, in both the “Covid-19 Update” and “risk factor