Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 1 of 22
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`IRON WORKERS LOCAL 580 JOINT
`FUNDS, et al.,
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`Case No. 18-cv-07669-HSG
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`Plaintiffs,
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`v.
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`NVIDIA CORPORATION, et al.,
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`Defendants.
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`ORDER GRANTING MOTION TO
`DISMISS AND DENYING MOTION TO
`STRIKE
`
`Re: Dkt. Nos. 152, 154
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`This is a consolidated securities class action brought by Plaintiffs E. Öhman J:or Fonder
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`and Stichting Pensionenonds PGB (collectively, “Plaintiffs”) against Defendant NVIDIA
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`Corporation (“NVIDIA” or “the Company”) and Jensen Huang, co-founder and Chief Executive
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`Officer, Colette Kress, Chief Financial Officer and Executive Vice President, and Jeff Fisher,
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`Senior Vice President (collectively with NVIDIA, “Defendants”). In their initial complaint,
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`Plaintiffs alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
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`(the “Exchange Act”) and Rule 10b-5 promulgated thereunder. Dkt. No. 113 (Consolidated Class
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`Action Complaint or “CCAC”) ¶¶ 147–48. The Court dismissed the CCAC with leave to amend.
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`Iron Workers Local 580 Joint Funds v. NVIDIA Corp., 2020 WL 1244936 (N.D. Cal. Mar. 16,
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`2020) (“Order”). Plaintiffs filed an amended complaint that reasserts the same claims. Dkt. No.
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`149 (First Amended Complaint or “FAC”).
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`Now pending before the Court is Defendants’ motion to dismiss the FAC. Dkt. Nos. 152
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`(“Mot.”), 159 (“Opp.”), 163 (“Reply”). Also pending before the Court is Defendants’ motion to
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`strike allegations in the FAC. Dkt. Nos. 154, 161, 165. For the following reasons, the Court
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`GRANTS Defendants’ motion to dismiss and DENIES Defendants’ motion to strike.
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 2 of 22
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`I. BACKGROUND
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`Plaintiffs bring this securities action individually and “on behalf of all others who
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`purchased or otherwise acquired common stock of NVIDIA Corporation” between May 10, 2017,
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`and November 14, 2018, inclusive (the “Class Period”). FAC at 1. The following facts are taken
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`from the FAC and judicially noticeable documents.
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`A. Graphic Processing Units
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`NVIDIA “is a multinational technology company” that produces graphic processing units
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`(“GPUs”), types of processors that are used in rendering computer graphics. FAC ¶ 1. NVIDIA’s
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`GPU business is reported by market platforms, two of which are at issue in this case. Id. ¶ 39.
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`The first platform is chips designed for videogames—the Gaming platform—comprised primarily
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`of the “GeForce” GPU product line. Id. ¶¶ 39–40. Original Equipment Manufacturer & IP
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`(“OEM”) is a second platform for chips designed for devices such as tablets and phones. Id. The
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`gaming platform is NVIDIA’s largest market: “[i]n every quarter of the Class Period, [g]aming
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`revenues exceeded those of the four other segments combined.” Id. ¶ 40. Generally, NVIDIA
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`does not sell GPUs directly to the end users, but rather to device manufacturers, referred to as
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`“partners,” that incorporate the GPUs into graphic or video cards. Id. ¶ 42.
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`Beginning in 2017, prices in the cryptocurrency market began to climb, creating a demand
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`for GPUs processing power. Id. ¶¶ 52, 62. Generally, cryptocurrencies refer to digital tokens
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`exchanged peer-to-peer through transactions facilitated by the Internet. Id. ¶¶ 44, 47. These
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`transactions are secured by modern cryptology and are reported on a “decentralized, immutable
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`ledger.” Id. ¶ 45. To maintain the integrity of this ledger, transactions must be verified by
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`network participants “by first consolidating and encrypting the data of a group of transactions
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`using a cryptographic technique of ‘hashing’—applying an algorithm to convert a string of text
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`into an inscrutable, random sequence of numbers and letters.” Id. ¶ 46. Users then compete to
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`solve a “mathematical puzzle through laborious trial-and-error work performed by their
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`computers” in order to verify transactions and receive a prize of the network’s token—a process
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`referred to as “crypto-mining,” or simply “mining.” Id. ¶¶ 46–47. This verification process
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`requires significant processing power. Because the mining process has essentially become a
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 3 of 22
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`computational race, miners turned to “GPUs, which could execute the computationally intensive
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`work of crypto-mining hundreds of times faster” than CPUs in home computers. Id. ¶ 52. Due to
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`the significant hardware costs, as well as electricity costs to run and cool the machines, crypto-
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`mining is only profitable when prices for cryptocurrencies are above a certain level. Id. ¶¶ 54–55.
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`Thus, “[b]ecause cryptocurrency prices have swung wildly over their short history,” this has also
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`led to a relatively volatile demand market for mining hardware, including GPUs. Id. ¶ 55.
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`In 2013, Advanced Micro Devices, Inc. (“AMD”), NVIDIA’s primary GPU competitor,
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`experienced this volatility when prices for Bitcoin, used on the most popular cryptocurrency
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`network, skyrocketed. Id. ¶¶ 57–58. AMD’s GPUs were in heavy demand during this time, “with
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`processors that usually sold for $200-300 per unit selling for $600-800 at the height of the
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`bubble.” Id. ¶ 57. However, when prices for Bitcoin later dropped more than 70%, so too did
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`demand for AMD GPUs—“a problem compounded by miners dumping their AMD GPUs on the
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`secondary market at steep discounts.” Id. ¶ 58. “AMD revenues suffered as its crypto-related
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`sales evaporated.” Id.
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`In 2016, the price of Bitcoin again rallied, and many new currencies entered the market.
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`Although Bitcoin miners moved away from GPUs to application specific integrated circuits
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`(“ASICs”), miners for these new currencies still relied on GPUs. Id. ¶¶ 56 n.4, 59. The Ethereum
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`network, “[t]he most significant” of the new cryptocurrency networks, also saw its cryptocurrency,
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`Ether, rise in price: it “temporarily peaked at over $400 per token in June [2017] . . . [and s]everal
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`months later, in January 2018, Ether topped $1,400 per token, an increase of more than 13,000%
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`in a single year.” Id. ¶ 60. “During this run up in GPU-mined cryptocurrency prices, miners
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`turned to NVIDIA— specifically, its enormously popular line of GeForce Gaming GPUs—and
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`began to purchase GeForce GPUs in droves.” Id. ¶ 61. In May 2017, NVIDIA launched a special
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`GPU designed specifically for cryptocurrency mining (“Crypto SKU”). Id. ¶ 6. Revenues from
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`Crypto SKU sales were reported in NVIDIA’s OEM segment, not the Gaming segment. Id.
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`Plaintiffs allege that “[l]aunching the Crypto SKU and reporting its sales in the OEM segment thus
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`allowed Defendants to claim that any mining-related revenues were cordoned off in OEM,
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`creating the impression that NVIDIA’s crown jewel Gaming business was insulated from crypto-
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 4 of 22
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`related volatility (and the crash in demand that would follow the cryptocurrency markets’
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`inevitable bust).” Id.
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`B.
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`Summary of Alleged False and Misleading Statements
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`“Throughout the Class Period, NVIDIA reported skyrocketing revenues in its core Gaming
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`segment.” Id. ¶ 63. Plaintiffs allege that “investors and analysts alike questioned whether those
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`revenues truly derived from GeForce GPU sales to gamers or, rather, were from sales of GeForce
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`GPUs to cryptocurrency miners, whose demand was at risk of disappearing if the economics of
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`mining turned negative.” Id. ¶ 64. Plaintiffs allege that three general representations in
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`Defendants’ responses to these questions were materially false and misleading “and concealed
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`from investors the enormous risk to NVIDIA’s financial results posed by the Company’s outsized
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`exposure to crypto-mining:”
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`First, Defendants represented to investors that revenues from sales of
`its products to cryptocurrency miners were insignificant overall.
`Second, Defendants asserted that NVIDIA’s soaring Gaming
`revenues
`indeed
`resulted
`from
`sales
`“for gaming”—not
`cryptocurrency mining. And third, Defendants represented that
`NVIDIA’s cryptocurrency-related revenues were contained primarily
`in the Company’s OEM reporting segment, when in fact, almost two-
`thirds of such revenue came from GeForce sales recorded in its
`Gaming segment.
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`Id. ¶ 62 (emphasis omitted). When the purported truth was revealed, NVIDIA’s stock price fell
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`and the putative class members suffered financial losses. See id. ¶¶ 16–18. For example, on
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`November 15, 2018, NVIDIA cut its revenue guidance for the fiscal fourth quarter, allegedly
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`“[a]ttributing the reversal to a ‘sharp falloff in crypto demand’ . . ., and it became fully apparent to
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`the market that, contrary to Defendants’ earlier representations, NVIDIA’s revenues were unduly
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`dependent on cryptocurrency mining.” Id. ¶ 18. Following these alleged disclosures, NVIDIA
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`stock price “plummeted 28.5% over two trading sessions, from a close of $202.39 per share on
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`November 15, 2018, to close at $144.70 per share on November 19, 2018.” Id. ¶ 171.
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`i. Overall revenues from miners were insignificant
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`On August 12, 2017, VentureBeat published an article that included a transcript of an
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`interview with Defendant Huang. FAC ¶ 183. The interviewer asked if Defendant Huang “sa[id]
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`a hallelujah for cryptocurrency?” Id. Huang responded: “No? Cryptocurrency is around. But it
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 5 of 22
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`represented only a couple hundred million dollars, maybe $150 million or so. There’s still crypto
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`mining to go . . . [i]t comes and goes. It’ll come again . . . [w]e’re not opposed to it. But our core
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`business is elsewhere.” Dkt. 153-5, Ex. D at 3; see also FAC ¶ 183. Defendant Huang responded
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`similarly in another VentureBeat article published on November 10, 2017, noting that
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`cryptocurrency “is small but not zero. For us it is small because our overall GPU business is so
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`large.” Dkt. No. 153-12, Ex. M at 3; see also FAC ¶ 196. Defendant Huang again noted that
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`“crypto was a real part of our business this past quarter, even though small, overall,” in an article
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`published by Barron’s on February 9, 2018. Dkt. No. 153-19, Ex. T at 1; see also FAC ¶ 207. On
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`March 26, 2018, in an article published by TechCrunch, Defendant Huang was reported to have
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`said that “he still attributes crypto’s demands as a small percentage of NVIDIA’s overall
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`business.” Dkt. No. 153-23, Ex. X at 4; see also FAC ¶ 210.
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`On March 29, 2018, Defendant Huang appeared on the CNBC show Mad Money. FAC
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`¶ 213. When asked about the growth of cryptocurrency risks, Defendant Huang stated that “our
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`core growth drivers come from video games. It comes from professional graphics visualization
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`. . . [and] from our data center business, which is now a multi-billion dollar business doubling each
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`year, as well as in several years our autonomous vehicle business. So, those are our primary
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`growth drivers. . . . Cryptocurrency just gave it that extra bit of juice that caused all of our GPUs
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`to be in such great demand.” Dkt. No. 153-22, Ex. Y at 3; see also FAC ¶ 213.
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`ii.
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`Soaring gaming revenues resulted from sales “for gaming”
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`On May 10, 2017, NVIDIA held its 2017 Annual Investor Day in which Defendants
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`Huang, Kress, and Fisher participated. FAC ¶ 176. While presenting the “Gaming” portion,
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`Defendant Fisher said that “[t]he fundamentals of PC gaming . . . are also strong. What’s driving
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`PC gaming, eSports, competitive gaming AAA gaming [and] notebook gaming, all those
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`fundamentals remain strong.” Dkt. No. 153-2, Ex. A at 7; see also FAC ¶ 176.
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`On August 23, 2017, NVIDIA filed its Form 10-Q for the quarterly period ended July 30,
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`2017 (“Q2’17 10-Q”) with the Securities and Exchange Commission (“SEC”), signed by
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`Defendants Huang and Kress. FAC ¶ 187. The Management’s Discussion and Analysis of
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`Financial Condition and Results of Operations section discussed the GPU business. Specifically,
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 6 of 22
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`the Q2’17 10-Q stated:
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`GPU business revenue increased by 52% in the first half of fiscal year
`2018 compared to the first half of fiscal year 2017. This increase was
`due primarily to increased revenue from sales of GeForce GPU
`products for gaming, which increased over 30%, reflecting continued
`strong demand for our Pascal-based GPU products . . . Revenue from
`GeForce GPU products for mainstream PC OEMs increased by over
`90% due primarily to strong demand for GPU products targeted for
`use in cryptocurrency mining.
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`Dkt. No. 153-7, Ex. G at 27. NVIDIA’s Form 10-Q for the quarterly period ended October 29,
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`2017 (“Q3’17 10-Q”) similarly stated that “GPU business revenue increased by 31% . . . due
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`primarily to increased revenue from sales of GeForce GPU products for gaming, which increased
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`over 10%.” Dkt. No. 153-13, Ex. N at 26; see also FAC ¶ 200.
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`On November 29, 2017, Defendant Kress represented NVIDIA at the Credit Suisse
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`Technology, Media and Telecom Conference. FAC ¶ 203. A Credit Suisse analyst asked: “I think
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`[the October quarter] was the first time that you had mentioned cryptocurrency as being partly
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`driven by – that’s partly driving the gaming side of the business. If you look at it historically, it’s
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`been in the OEM business. I think it was down almost 50% sequentially in the OEM portion, did
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`you say that some of that crypto demand was made up for in gaming. Can you quantify that?”
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`Dkt. No. 153-14, Ex. O at 13. Defendant Kress responded:
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`In Q2 is when we started to create boards specifically for
`cryptocurrency that we classify in our OEM business. Now keep in
`mind, what that means is these are boards that can be done for
`compute, okay, meaning they do not have any graphics capabilities so
`they can’t be used for overall gaming. And the reason we did this is
`we wanted to make sure that we supplied the overall cards that we
`needed to our gamers, because that is our very important strategic
`importance that we did. However, in certain times, if there is not the
`overall availability and/or if price of Ethereum reaches high levels,
`there’s a fairly good return on investment by buying a high-end card.
`There could be a good return on investment that says, “I could
`actually buy a higher-end game. I can actually do gaming and mining
`at the same time if I was doing that.” So you’re correct, there
`probably is some residual amount or some small amount in terms of
`that, and that’s not something that we can visibly see, we can visibly
`count in [indiscernible] there. We do believe the majority does reside
`in terms of our overall crypto card, which is the size of about $150
`million in Q2 and met our expectations in terms of Q3, that we
`thought it would be more residual and most probably closer to
`[indiscernible].
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`Id.; see also FAC ¶¶ 203–04.
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 7 of 22
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`iii. Cryptocurrency-related revenues were primarily reported in the OEM
`segment
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`On August 10, 2017, NVIDIA held its second-quarter fiscal year 2018 earnings call. FAC
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`¶ 179. A Goldman Sachs analyst asked, “So Q2 revenue came in roughly about $250 million
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`above your guide. Can you confirm what some of the drivers were to the upside relative to your
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`guidance? Was it all cryptocurrency or was it a combination of multiple things?” Dkt. No. 153-4,
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`Ex. C at 7. Defendant Huang responded:
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`[T]he $250 million, you could see in our – what we categorized under
`the OEM SKUs, basically the cryptocurrency SKUs. And that, if you
`reverse-engineered it out, I think, is approximately $150 million. And
`I – and we serve the vast – I would say, the large majority of the
`cryptocurrency demand out of that specialized products. There’re still
`small miners that buy GeForces here and there, and that probably also
`increased the demand of GeForces.
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`Id. Similarly, in Defendant Huang’s statement in the August 12, 2017 interview with
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`VentureBeat, he noted that cryptocurrency represented about $150 million in revenues, the same
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`amount he referenced as being within the OEM segment during the second-quarter fiscal year
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`2018 earnings call. See Dkt. No. 153-5, Ex. D at 3; see also FAC ¶ 183.
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`On September 6, 2017, Defendant Kress spoke at the Citi Global Technology Conference.
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`FAC ¶ 190. When asked “what steps has NVIDIA taken to avoid cannibalization of core gaming
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`market from these cards,” Defendant Kress responded:
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`Cryptocurrency has been a very interesting market dynamics over the
`last couple of years. I think you’ll remember 2 years ago, when the
`Bitcoin mining market came, it was probably one of the shortest-lived
`cryptocurrency time periods because that moved to the overall
`compute moving to custom ASICs. That wasn’t a market that we
`particularly paid any attention to or were even a participant in terms
`of that. But the newest cryptocurrency market took quite a leap ahead
`in our second quarter that we just finished to where we had planned
`cryptocurrency cards that would be available to miners and
`exclusively for miners. So what we mean by that is we did not enable
`the capabilities for graphics with those cards. You’ll see those cards
`in our OEM business not in our overall gaming business, and those
`were available throughout most of Q2. But there was very, very
`strong demand for mining as the overall price of Ethereum, one of the
`most popular cryptocurrencies, was very, very high. And so what you
`had seen in some of those shortages is there was a possibility in terms
`of some of the gaming cards that they might have bought as well. But
`we covered most of cryptocurrency with our cryptocards that we had
`developed and that was probably about $150 million in our quarter.
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 8 of 22
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`Dkt. No. 153-8, Ex. H at 9–10.1
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`On November 9, 2017, Defendants Huang and Kress hosted NVIDIA’s third-quarter fiscal
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`year 2018 earnings call. FAC ¶ 193. When asked to “quantify how much crypto was in the
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`October quarter,” Defendant Kress responded: “So in our results, in the OEM results, our specific
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`crypto [boards] equated to about $70 million of revenue, which is the comparable to the $150
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`million that we saw last quarter.” Dkt. No. 153-9, Ex. J at 11; see also FAC ¶ 193.
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`
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`Outside of the three categories of statements detailed above, Plaintiffs also allege that one
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`of Defendant Huang’s answers during the second-quarter fiscal 2019 earnings call on August 16,
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`2018, was materially false and misleading. FAC ¶ 216. When asked about the channel inventory,
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`Huang responded, “We’re expecting the channel inventory to work itself out. We are the masters
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`at managing our channel, and we understand the channel very well . . . we have plenty of
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`opportunities as the – as we go back to the back-to-school and the gaming cycle to manage the
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`inventory, so we feel pretty good about that.” Dkt. No. 153-26, Ex. AA at 11. Plaintiffs allege
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`that these statements were materially false and misleading because “(i) throughout the Class
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`Period, the overwhelming majority of NVIDIA’s cryptocurrency-related revenues . . . was made
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`through the Gaming segment” and “(ii) the Company had a massive glut of unsold GeForce GPUs
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`that NVIDIA had amassed to satisfy the anticipated demand, which no longer existed, from
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`crypto- miners.” FAC ¶ 217.
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`II. REQUEST FOR JUDICIAL NOTICE
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`A. Legal Standard
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`In Khoja v. Orexigen Therapeutics, the Ninth Circuit clarified the judicial notice rule and
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`incorporation by reference doctrine. 899 F.3d 988 (9th Cir. 2018). Under Federal Rule of
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`Evidence 201, a court may take judicial notice of a fact “not subject to reasonable dispute because
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`it … can be accurately and readily determined from sources whose accuracy cannot reasonably be
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`questioned.” Fed. R. Evid. 201(b)(2). Accordingly, a court may take “judicial notice of matters of
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`public record,” but “cannot take judicial notice of disputed facts contained in such public records.”
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`1 Defendant Kress provided a similar response on the November 29, 2017 call with Credit Suisse.
`See Dkt. No. 153-14, Ex. O at 13; see also FAC ¶ 203.
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`Khoja, 899 F.3d at 999 (citation and quotations omitted). The Ninth Circuit has clarified that if a
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`court takes judicial notice of a document, it must specify what facts it judicially noticed from the
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`document. Id. Separately, the incorporation by reference doctrine is a judicially-created doctrine
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`that allows a court to consider certain documents as though they were part of the complaint itself.
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`Id. at 1002. This is to prevent plaintiffs from cherry-picking certain portions of documents that
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`support their claims, while omitting portions that weaken their claims. Id. However, it is
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`improper to consider documents “only to resolve factual disputes against the plaintiff’s well-pled
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`allegations in the complaint.” Id. at 1014.
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`B. Analysis
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`Defendants request that the Court take judicial notice of or consider incorporated by
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`reference the following 35 documents: 15 items as to which the Court previously granted judicial
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`notice, 13 items as to which the Court previously denied Defendants’ request as moot, and 7 new
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`items first alleged in the FAC. Dkt. No. 153 at 1, 15–16; Dkt. No. 153-1 (“Kirby Decl.”), Exs. 2–
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`36. Plaintiffs object to Defendants’ request as to at least 14 of the 35 documents. See generally
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`Dkt. No. 160.
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`Defendants re-attach exhibits as to which the Court previously granted judicial notice:
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`Exhibits A, C, D, G, H, J, M, N, O, T, X, Y, AA, BB. Dkt. No. 153 at 2. The Court previously
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`granted judicial notice as to these exhibits “for the purpose of determining what was disclosed to
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`the market.” Order at *5. Plaintiffs do not object to the Court considering these exhibits for that
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`limited purpose. Dkt. No. 160 at 1 n.2. Accordingly, because “the plaintiff refers extensively to
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`the document[s] [and] the document[s] form[ ] the basis of the plaintiff’s claim,” the Court
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`GRANTS judicial notice of these exhibits for the purpose of determining what was disclosed to
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`the market. See Khoja, 899 F.3d at 1002 (quoting United States v. Ritchie, 342 F.3d 903, 907 (9th
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`Cir. 2003)). The Court also GRANTS judicial notice on the same basis as to the following
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`documents newly referenced in the FAC: Exhibits HH (Jon Peddie Research Report), II (NVIDIA
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`Presentation – Citigroup Conference), JJ (NVIDIA Earnings Call –2Q 2016), KK (NVIDIA
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`Presentation – Credit Suisse Conference), and LL (NVIDIA Presentation – Morgan Stanley
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 10 of 22
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`Conference).2 The Court will also consider Exhibit MM, the internal company 2017 presentation
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`drafted by members of NVIDIA’s China market team. Given that Plaintiffs include images of
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`select slides in the FAC and rely on this presentation for various allegations, see FAC ¶¶ 11, 14,
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`119–26, 226, the Court finds it incorporated by reference, and GRANTS the request as to Exhibit
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`MM on this basis. Defendants also request that the Court deem Exhibit NN, a NVIDIA-produced
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`video, incorporated by reference, but it is not clear whether Exhibit NN is the same video
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`referenced in the FAC. See Dkt. No. 160 at 3. Given this uncertainty, the Court DENIES the
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`request to incorporate by reference Exhibit NN. Additionally, the Court GRANTS Defendants’
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`request for judicial notice as to Exhibit FF because “stock price is public information capable of
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`accurate and ready determination by resort to sources whose accuracy cannot reasonably be
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`questioned.” See Order at *6. Lastly, Defendants’ Exhibits B, E, K, L, P, Q, R, S, U, V, W, Z,
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`and DD are not specifically referenced in the CCAC or relevant to the Court’s analysis.
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`Therefore, Defendants’ request as to those exhibits is DENIED AS MOOT.
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`III. MOTION TO STRIKE
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`A. Legal Standard
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`Under Federal Rule of Civil Procedure 12(f), a “court may strike from a pleading an
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`insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Motions to
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`strike “should be denied unless the matter has no logical connection to the controversy at
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`issue and may prejudice one or more of the parties to the suit.” Hatamian v. Advanced Micro
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`Devices, Inc., No. 14-CV-00226-YGR, 2015 WL 511175, at *1 (N.D. Cal. Feb. 6, 2015) (citing
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`Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382 (1990)). “In the
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`absence of such prejudice, courts have denied Rule 12(f) motions ‘even though the offending
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`matter literally [was] within one or more of the categories set forth in Rule 12(f).’ ” Id. “With a
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`motion to strike, just as with a motion to dismiss, the court should view the pleading in the light
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`most favorable to the nonmoving party.” Taylor v. Shutterfly, Inc., No. 18-CV-00266-BLF, 2020
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`2 Though Plaintiffs contend that Exhibits II (transcript of presentation at Citigroup 2007
`conference) and JJ (transcript of August 2015 earnings call) are not referenced in the FAC, Dkt.
`No. 160 at 2, Plaintiffs do cite statements from these exhibits. See FAC ¶¶ 10, 43, 243.
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 11 of 22
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`WL 1307043, at *4 (N.D. Cal. Mar. 19, 2020).
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`B. Analysis
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`In the FAC Plaintiffs attribute several allegations to FE-5, a newly identified confidential
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`witness. See generally FAC. But Defendants indicate that FE-5 has signed a declaration
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`disavowing key statements attributed to him in the FAC. Dkt. 154-2 (“FE-5 Decl.”). In his
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`declaration, FE-5 states that “several” of the statements attributed to him are “untrue and
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`inaccurate” and that he “certainly did not make them.” FE-5 Decl. ¶ 5. FE-5 details why a few
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`key statements are false and states that he would have corrected any inaccuracies if Plaintiffs had
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`allowed him to review the statements. Id. at ¶¶ 12–13. FE-5 notes that NVIDIA attorneys assured
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`him that “even if [he] chose to say nothing further, NVIDIA would respect [his] privacy and not
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`retaliate in any way.” Id. at ¶ 14. Defendants argue that these discredited factual allegations are
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`“unreliable and immaterial” and should thus be stricken. Dkt. 154 at 3.
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`As an initial matter, Plaintiffs contend that the Court cannot consider FE-5’s recanting
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`declaration, which Defendants produced prior to the commencement of discovery. Citing Campo
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`v. Sears Holdings Corp., 371 F. App’x. 212, 216–17 & n.4 (2d Cir. 2010), Defendants maintain
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`that “extrinsic evidence may be considered at this stage for the limited purpose of assessing
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`reliability of CW allegations.” Dkt. 165 at 3. In Campo, the Second Circuit found no error in the
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`district court’s consideration of deposition testimony at the motion to dismiss stage “for the
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`limited purpose of determining whether the confidential witnesses acknowledged the statements
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`attributed to them in the complaint.” 371 F. App’x. at 216 n.4. In response, Plaintiffs point to the
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`decision of a district court in this circuit stating that “while a district judge is considering a motion
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`to dismiss, there is a strong argument that defendants should never be submitting recanting
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`declarations, and that courts should be striking any such declarations sight unseen.” See Union
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`Asset Mgmt. Holding AG v. Sandisk LLC, 227 F. Supp. 3d 1098, 1101 (N.D. Cal. 2017). The crux
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`of the parties’ disagreement thus revolves around the appropriateness of resolving this issue at the
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`motion to dismiss stage.
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`The Court agrees with Plaintiffs that it is improper to resolve factual disputes concerning
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`FE-5’s account at this stage. The Court finds Hatamian v. Advanced Micro Devices, Inc., 2015
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`Case 4:18-cv-07669-HSG Document 174 Filed 03/02/21 Page 12 of 22
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`WL 511175 (N.D. Cal. Feb. 6, 2015) (“AMD”) persuasive. In AMD, the court considered a
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`motion to strike the accounts of two confidential witnesses in a securities class action complaint.
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`The defendants had filed declarations in which the confidential witnesses recanted or disclaimed
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`certain statements attributed to them. Id. at *1. But because the allegations sought to be stricken
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`“pertain[ed] directly” to the element of scienter, the court determined that those allegations did
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`“not fall within the[] categories for which striking is permissible.” Id. Concerning the defendants’
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`argument that certain allegations were false, the court noted that the declarations did not establish
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`that those allegations were “irrefutably false,” and found that discovery would allow the
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`“opportunity to explore” such questions. Id. at *3.
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`Here, the allegations sought to be stricken may bear on the litigation because Plaintiffs cite
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`these statements in support of their scienter arguments. Accordingly, the allegations attributed to
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`PE-5 “do not fall within the[] categories for which striking is permissible.” See id. at *1.
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`Defendants maintain that FE-5’s declaration does not raise a factual dispute like the one in AMD,
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`where the defendants asked the court to strike allegations as “false.” Dkt. 165 at 9. Instead,
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`Defendants contend that the truth of FE-5’s allegations is “immaterial to whether” these
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`allegations are “sufficiently reliable.” Id. But, as Plaintiffs note, there plainly are factual disputes
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`concerning whether FE-5 provided some of the information attributed to him and the reasons for
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`FE-5’s disavowals. Dkt. 161 at 13. The Court thus DENIES Defendants’ motion to strike.
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`IV. MOTION TO DISMISS
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`A. Legal Standard
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`i. Rule 12(b)(6) Standard
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`Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain
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`statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A
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`defendant may move to dismiss a complaint for failing to state a claim upon which relief can be
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`granted under Federal Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is
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`appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to supp