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`COOLEY LLP
`PATRICK E. GIBBS (183174)
`(pgibbs@cooley.com)
`JESSICA VALENZUELA SANTAMARIA (220934)
`(jvs@cooley.com)
`TIJANA M. BRIEN (286590)
`(tbrien@cooley.com)
`JENNA C. BAILEY (319302)
`(jbailey@cooley.com)
`3175 Hanover Street
`Palo Alto, California 94304-1130
`Telephone:
`+1 650 843 5000
`Facsimile:
`+1 650 849 7400
`
`CRAIG E. TENBROECK (287848)
`(ctenbroeck@cooley.com)
`4401 Eastgate Mall
`San Diego, California 92121
`Telephone:
`+1 858 550 6000
`Facsimile:
`+1 858 550 6420
`Attorneys for Defendants
`Zoom Video Communications, Inc. and Eric S. Yuan
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`
`
`In re ZOOM SECURITIES LITIGATION
`
`This Document Relates To:
`ALL ACTIONS.
`
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`Case No.: 3:20-cv-02353-JD
`DEFENDANTS’ NOTICE OF MOTION AND
`MOTION FOR LEAVE OF COURT TO FILE
`MOTION FOR PARTIAL RECONSIDERATION
`OF MOTION TO DISMISS ORDER
`JUDGE: Hon. James Donato
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 2 of 16
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`TABLE OF CONTENTS
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`Page
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`NOTICE OF MOTION AND MOTION ........................................................................................ 1
`MEMORANDUM OF POINTS AND AUTHORITIES ................................................................ 1
`I.
`INTRODUCTION .............................................................................................................. 1
`II.
`FACTUAL BACKGROUND ............................................................................................. 3
`A.
`Zoom’s Business and Product Offerings................................................................. 3
`B.
`Allegations in the Complaint .................................................................................. 3
`C.
`Defendants’ Motion to Dismiss the Complaint ....................................................... 5
`D.
`The Court’s Ruling on Defendants’ Motion to Dismiss ......................................... 5
`LEGAL STANDARD ......................................................................................................... 6
`III.
`IV. ARGUMENT ...................................................................................................................... 6
`A.
`Plaintiff’s Own Allegations Undermine the Order’s Conclusion That
`Plaintiff Adequately Pleaded that Statement No. 1 Was False or Misleading ........ 7
`The Order’s Scienter Analysis Fails to Consider Key Factual Distinctions
`That Negate any Inference of Scienter, and Instead Support an Inference of
`Good Faith ............................................................................................................... 9
`Defendants Exercised Reasonable Diligence in Moving for Leave to Seek
`Reconsideration. .................................................................................................... 11
`CONCLUSION ................................................................................................................. 12
`
`B.
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`C.
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`V.
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
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`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 3 of 16
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`TABLE OF AUTHORITIES
`
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`Page(s)
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`
`
`Cases
`
`Amarel v. Connell,
`102 F.3d 1494 (9th Cir. 1996) ................................................................................................... 6
`
`In re Apple Inc. Sec. Litig.,
`2020 WL 6482014 (N.D. Cal. Nov. 4, 2020) .......................................................................... 11
`
`Brown v. Wal-Mart Store, Inc.,
`2018 WL 1993434 (N.D. Cal. Apr. 27, 2018) .......................................................................... 6
`
`Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co.,
`571 F.3d 873 (9th Cir. 2009) ..................................................................................................... 7
`
`Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
`774 F.3d 598 (9th Cir. 2014) ..................................................................................................... 7
`
`Sheet Metal Workers Nat'l Pension Fund v. Bayer Aktiengesellschaft,
`2021 WL 4864421 (N.D. Cal. Oct. 19, 2021) ......................................................................... 11
`
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) ................................................................................................................ 11
`
`In re Verifone Holdings, Inc. Sec. Litig.,
`704 F.3d 694 (9th Cir. 2012) ................................................................................................... 11
`
`Wochos v. Tesla,
`985 F.3d 1180 (9th Cir. 2021) ................................................................................................... 9
`
`Woods v. August,
`2018 WL 5841311 (N.D. Cal. Nov. 8, 2018) (J. Orrick) ........................................................ 12
`
`Yourish v. Cal. Amplifier,
`191 F.3d 983 (9th Cir. 1999) ................................................................................................... 11
`
`Zagami v. Cellceutix Corp.,
`2016 WL 3199531 (S.D.N.Y. June 8, 2016) ............................................................................. 9
`
`Zucco Partners, LLC v. Digimarc Corp.,
`552 F.3d 981 (9th Cir. 2009) ................................................................................................... 11
`
`Statutes
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`15 U.S.C. § 78u–4(b)(2) .................................................................................................................. 2
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 4 of 16
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`TABLE OF AUTHORITIES
`(continued)
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`Civ. L.R.
`7-9 ............................................................................................................................. 1, 6, 11, 12
`7-9(b) ....................................................................................................................................... 12
`7-9(b)(3) ................................................................................................................................ 2, 6
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`Page(s)
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`Other Authorities
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`Federal Rule of Civil Procedure 54(b) ........................................................................................ 1, 6
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`FIRM NAME
`ATTORNEYS AT LAW
`OFFICE ADDRESS
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` DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 5 of 16
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`NOTICE OF MOTION AND MOTION
`TO PLAINTIFF AND HIS ATTORNEYS OF RECORD: PLEASE TAKE NOTICE
`THAT, on a date to be determined by this Court, Defendants Zoom Video Communications, Inc.
`(“Zoom” or the “Company”) and Eric S. Yuan (collectively, “Defendants”) will and hereby do
`move this Court, pursuant to Federal Rule of Civil Procedure 54(b) and Civil Local Rule 7-9, for
`leave to file a motion for partial reconsideration of this Court’s Order granting and denying in part
`Defendants’ Motion to Dismiss (Dkt. No. 86) (the “Order”).1 This Motion is based on this Notice
`of Motion and Motion, the accompanying Memorandum of Points and Authorities, the pleadings
`and papers on file in this action, and such other matters as may be presented to the Court at the
`hearing or otherwise.
`
`I.
`
`MEMORANDUM OF POINTS AND AUTHORITIES
`INTRODUCTION
`Defendants respectfully submit that this case presents an extraordinary instance that
`warrants reconsideration of an interlocutory order. With fourteen out of fifteen alleged
`misstatements dismissed, this entire action survives solely based on a single sentence in the general
`“Technology and Infrastructure” section of Zoom’s Prospectus, stating that Zoom “offer[s] robust
`security capabilities, including end-to-end encryption . . . .” (“Statement No. 1”). Order at 1
`(emphasis in original). Plaintiff claims that statement was false because Zoom allegedly did not
`offer end-to-end encryption in connection with its video-conferencing solution, Zoom Meetings.
`But Plaintiff’s own Complaint refutes that Statement No. 1 was false or misleading, since Plaintiff
`also alleges that Zoom did offer end-to-end encryption (as he defines it) as to another part of its
`communications platform: Zoom’s out-of-meeting messaging solution, Zoom Chat.2 See Dkt. No.
`63 (Complaint (“Compp.”) at ¶ 47(a) (“Defendants knew the meaning of end-to-end encryption;
`and, in fact, they used the term accurately in other contexts, including in describing Zoom’s end-
`
`1 In the interest of streamlining the Court’s review, should the Court grant leave to file such a
`motion, Defendants concurrently submit the accompanying memorandum of points and authorities
`as the basis for their motion for reconsideration. However, should Plaintiff file an opposition to
`the motion for reconsideration, Defendants would request the opportunity to file a reply.
`2 Defendants have focused this motion for reconsideration on only two elements of the remaining
`Section 10(b) claim: falsity and scienter, either of which is dispositive, even though the factual
`issues raised herein apply with equal force to the Order on loss causation.
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
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`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`to-end chat encryption in the Company’s security white papers.”).
` Statement No. 1 did not say that every single one of Zoom’s products or features offered
`end-to-end encryption, nor did it specifically say that Zoom Meetings offered “end-to-end”
`encryption (as Plaintiff suggests). Indeed, at one point in the Complaint, Plaintiff characterizes
`Statement No. 1 not as limited to the Zoom Meetings solution, but rather as speaking to “the robust
`security capabilities of the Company’s offerings” (plural), “including Zoom Meetings.” Compl. ¶
`27. Plaintiff’s allegation, elsewhere in the Complaint, that Zoom Meetings did not offer end-to-
`end encryption thus does not render Statement No. 1 false.
`The Court’s February 16, 2022 Order did not consider certain key material facts (all of
`which were presented in Defendants’ briefing) in evaluating Plaintiff’s incongruous allegations: (i)
`Zoom offers several products in addition to Meetings, (ii) Plaintiff only alleges that Zoom misled
`investors about end-to-end encryption of Zoom Meetings, and (iii) Plaintiff alleges that Zoom
`accurately described one of its products (Zoom Chat) as offering “end-to-end” encryption.
`Reconsideration of the Order is thus proper here. See Civ. L.R. 7-9(b)(3)
`The Court should revisit the Order’s scienter finding for similar reasons. The Order held
`that Plaintiff adequately pleaded scienter based on two April 1, 2020 blog posts (the “April 2020
`Blog Posts” or “Blog Posts”). From these Blog Posts, the Order infers that Mr. Yuan must have
`always known that Statement No. 1 was false. But the Order overlooks two key issues. First, these
`Blog Posts were published in response to press criticism in March 2020 of certain Zoom Meetings
`marketing materials directed at users, after Zoom’s user base had vastly expanded and changed in
`composition due to the COVID-19 pandemic. The Blog Posts are entirely unrelated—and make
`no reference—to the general statement to investors about end-to-end encryption capabilities made
`over a year earlier in the 2019 Prospectus. Second, the Blog Posts likewise referred exclusively to
`Zoom Meetings, about which the press criticism had focused. As such, they do not support an
`inference that Mr. Yuan intended to mislead investors through Statement No. 1, which referred
`only to Zoom’s “Technology and Infrastructure” —much less the required “strong inference.” 15
`U.S.C. § 78u–4(b)(2).
`For these reasons, Defendants respectfully request that the Court grant leave and reconsider
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`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 7 of 16
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`its Order as to Statement No. 1.
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`II.
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`FACTUAL BACKGROUND
`Zoom’s Business and Product Offerings
`A.
`Zoom is a leading digital communications platform that offers a suite of products designed
`to facilitate “frictionless video, voice, chat and content sharing” among users. Compl. at ¶¶ 4–5.
`Zoom’s products include Zoom Meetings, Zoom Chat, Zoom Conference Room Connector, Zoom
`Phone, Zoom Video Webinars, Zoom for Developers, and Zoom App Marketplace. Id. at ¶ 5 n. 2.
`Zoom conducted an initial public offering (“IPO”) and filed its Registration Statement and
`Prospectus (the “Prospectus”) on April 18, 2019. Id. at ¶ 5. Following the IPO, the onset of the
`COVID-19 pandemic sparked a dramatic expansion in the use of Zoom’s products beyond its
`traditional large business and enterprise customers, to now include millions of individual users who
`were initially not as familiar with Zoom’s products and offerings. Id. at ¶ 5, Dkt. 78 (Defendants’
`Motion to Dismiss (“Defs.’ Mot. To Dismiss”) at 2 (citing Ex. 18 at 3).
`
`Allegations in the Complaint
`B.
`Plaintiff Adam Butt (“Plaintiff”) filed his Consolidated Class Action Complaint on
`December 23, 2020. See generally Compl. The Complaint challenged fifteen statements regarding
`Zoom’s encryption and privacy practices, nearly all of which were made in Zoom’s user-facing
`documents such as user guides, user-support articles, and blog posts. Id. Plaintiff challenged only
`one statement directed at investors: a snippet from Zoom’s Prospectus under the heading “Our
`Technology and Infrastructure” that stated, “[s]ecurity and disaster recovery. We offer robust
`security capabilities, including end-to-end encryption, secure login, administrative controls and
`role-based access controls.” Id. at ¶ 27. Plaintiff alleged that this statement about Zoom’s general
`“offerings” was false because, according to Plaintiff, “Zoom Meetings were not secured with end-
`to-end encryption.” Compl. at ¶ 9(a); see also id. at ¶ 6 (“Zoom falsely asserted, among other
`things, that communications using Zoom Meetings could be secured with end-to-end encryption.”).
`The Complaint alleged that the type of encryption offered for Zoom Meetings did not
`qualify as “end-to-end” under what Plaintiff claims is the “known and accepted” definition of the
`term. Id. at ¶¶ 8 n.4, 9(a), 34(a), 47(a), 72. But the Complaint, at its core, does not allege that any
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`of Zoom’s other products were falsely described as offering “end-to-end encryption.” In fact,
`Plaintiff alleged that Zoom “accurately” described the encryption for one of Zoom’s other products,
`Zoom’s out-of-meeting messaging platform Zoom Chat;3 stating in the Complaint that
`“[d]efendants knew the meaning of end-to-end encryption; and, in fact, they used the term
`accurately in other contexts, including in describing Zoom’s end-to-end chat encryption in the
`Company’s security white papers.” Id. at ¶ 47(a).
`In support of both falsity and scienter, the Complaint relied heavily upon two April 1, 2020
`Blog Posts published nearly a year after the Prospectus: one attributed to Zoom’s Chief Executive
`Officer Eric Yuan titled “A Message to Our Users,” and another attributed to Zoom’s Chief Product
`Officer, Oded Gal. Id. at ¶¶ 62–63; see also Defs.’ Mot. To Dismiss, Ex. 16. According to Plaintiff,
`these Blog Posts were published in response to a March 31, 2020 article challenging whether Zoom
`Meetings’ encryption was truly “end-to-end” under the allegedly “known and accepted” certain
`definitions of the term. Id. at ¶¶ 13, 56. The April 2020 Blog Posts explained how Zoom was using
`the term “end-to-end encryption” for Zoom Meetings. Defs.’ Mot. To Dismiss, Ex. 16. These Blog
`Posts, however, in no way contradicted Zoom’s statement in its Prospectus, which referred to end-
`to-end encryption as part of Zoom’s overall “technology and infrastructure” and which Plaintiff did
`not allege related solely to Zoom Meetings. See Compl., ¶ 27 (emphasis added) (alleging that
`Statement No. 1 referred to “the Company’s offerings, including Zoom Meetings”). The Blog
`Posts did not refer to the encryption for Zoom Chat, or any other Zoom products, at all. Nor did
`they reference the Prospectus or call into question any contents in the Prospectus. In fact, the
`Complaint concedes that the purported “admissions” contained in the April 2020 Blog Posts were
`expressly limited to Zoom’s use of end-to-end encryption with respect to Zoom Meetings. Id. at
`¶ 13 (“April 1, 2020: Defendants published a blog post admitting that Zoom Meetings were not
`end-to-end encrypted and apologizing for ‘incorrectly suggesting that Zoom meetings were capable
`of using end-to-end encryption.’”).
`
`3 For avoidance of doubt, Zoom Chat as discussed herein, does not refer to the feature of Zoom
`Meetings that allows users to send messages to other users during a video meeting. Rather, Zoom
`Chat is a separate messaging platform that allows users or groups of users to send messages, share
`files, and otherwise collaborate outside the context of a Zoom Meeting. See Defs.’ Mot. To
`Dismiss, Ex. 4 at 2.
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 9 of 16
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`Defendants’ Motion to Dismiss the Complaint
`C.
`Defendants moved to dismiss the Complaint on May 20, 2021. Defs.’ Mot. To Dismiss.
`Defendants argued that all fifteen statements should be dismissed for failure to adequately plead
`falsity, scienter, and loss causation. As to the encryption statements, including Statement No. 1,
`Defendants argued that the statements were not false or misleading because Plaintiff had failed to
`allege that his preferred definition of “end-to-end encryption,” where the cryptographic key could
`not be maintained by Zoom’s servers, was the only possible definition of the term. Defs.’ Mot. To
`Dismiss at 5–7. Defendants also argued that even if “end-to-end encryption” could only be used in
`the way that Plaintiff defined it, certain challenged statements – including “Zoom’s statements in
`its Prospectus and blog posts that it offered ‘end-to-end encryption’ as part of its ‘technology and
`infrastructure’” – would still be true under Plaintiff’s own allegations. Id. at 7; Dkt. 82 (Defendants’
`Reply Brief (“Defs.’ Reply Brief”)) at 2–3. As to scienter, Defendants argued that the April 2020
`Blog Posts could not establish scienter because they did not “establish the falsity of an earlier
`statement.” Defs.’ Mot. To Dismiss at 11. The Blog Post attributed to Mr. Yuan made clear that
`he and Zoom lacked any intent to deceive, explicitly stating that “we never intended to deceive any
`of our customers.” Id.; Defs.’ Reply Brief at 7–8. Defendants also argued that even if Mr. Yuan
`or Zoom had acknowledged some user confusion around end-to-end encryption, months to years
`after making such statements, this did not establish that Defendants either intended to mislead
`shareholders or knew that the challenged statements were false when made. Id.
`
`The Court’s Ruling on Defendants’ Motion to Dismiss
`D.
`On February 16, 2022, the Court issued its order on Defendants’ Motion to Dismiss. See
`generally Order. The Order dismissed fourteen out of fifteen alleged misstatements, including all
`claims against Zoom’s Chief Financial Officer Kelly Steckelberg, and Plaintiff’s Section 20(a)
`claim. Id. at 2, 8. The Order allowed Statement No. 1 to survive, holding that falsity, scienter, and
`loss causation had been adequately alleged. Id. at 4. The Order held that Statement No. 1 was
`adequately alleged to be false and/or misleading because Plaintiff had “identified defendants’
`express acknowledgment that they had ‘incorrectly suggest[ed] that Zoom meetings were capable
`of using end-to-end encryption,’ and they had used the term ‘end-to-end encryption’ differently
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
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`from ‘the commonly accepted definition.’” Id. at 5. As to scienter, the Order similarly relied on
`this alleged “acknowledgment” to hold that, coupled with Mr. Yuan’s engineering experience, there
`was “no factual basis here to believe that Yuan’s understanding of the term ‘end-to-end encryption’
`may have changed in a relevant way from the time he made the challenged representation in April
`2019” to the time of the “acknowledgement.” Id. at 6. Finally, the Order held that Plaintiff’s loss
`causation arguments – specifically his reliance on a March 31, 2020 Intercept article and the April
`2020 Blog Posts – “g[a]ve the defendant ‘notice of plaintiffs’ loss causation theory’” and were
`therefore sufficient. Id. at 7.
`
`III. LEGAL STANDARD
`The Court possesses inherent authority to reconsider its interlocutory orders at any point
`before it enters a final judgment. Fed. R. Civ. P. 54(b); Amarel v. Connell, 102 F.3d 1494, 1515
`(9th Cir. 1996). A motion for reconsideration may be filed only with leave of court. See Civ. L.R.
`7-9(a). Leave to move for reconsideration is proper, among other grounds, upon a showing of a
`“manifest failure by the Court to consider material facts or dispositive legal arguments which were
`presented to the Court before such interlocutory order.” Civ. L.R. 7-9(b)(3); see also Brown v. Wal-
`Mart Store, Inc., 2018 WL 1993434, at *2 (N.D. Cal. Apr. 27, 2018). The movant may petition the
`court for leave to file a motion for reconsideration anytime “before the entry of judgment,” so long
`as the movant “show[s] reasonable diligence in bringing the motion.” Id. 7-9(a), (b). These factors
`are satisfied here.
`
`IV. ARGUMENT
`The Order’s denial of Defendants’ motion to dismiss as to Statement No. 1 should be
`reconsidered because the Order does not address Plaintiff’s inconsistent allegations about end-to-
`end encryption, which are fatal to his claim. The sole statement remaining is a quote in the
`“Technology and Infrastructure” section of Zoom’s Prospectus to investors: “Security and disaster
`recovery. We offer robust security capabilities, including end-to-end encryption . . . .” Order at
`4 (emphasis in original). As to that statement (like the other dismissed statements), Plaintiff has
`not pleaded the elements of Section 10(b) and the circumstances constituting the alleged fraud “with
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
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`Case 3:20-cv-02353-JD Document 90 Filed 03/14/22 Page 11 of 16
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`particularity,” as is required. See Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 605
`(9th Cir. 2014).
`Plaintiff summarily alleged that Defendants made “false and misleading statements and
`omissions concerning . . . the ability to use AES 256-bit end-to-end encryption, available in its
`main product offering Zoom Meetings,” but he did not allege that such encryption was lacking in
`Zoom’s other products (and, in fact, alleged just the opposite). Order at 1 (quoting Compl. ¶ 3)
`(emphasis added). The Order did not analyze, however, Plaintiff’s allegations about the encryption
`capabilities of Zoom’s Chat product, how Plaintiff failed to plead with particularity that the
`challenged statement in the Prospectus was only about Zoom Meetings’ encryption, or how
`Plaintiffs’ allegations about Zoom Chat rendered the challenged statement about Zoom’s general
`encryption capabilities not false or misleading. As such, the Order failed to consider material facts
`and justifies reconsideration. Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571
`F.3d 873, 880 (9th Cir. 2009).
`
`A.
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`Plaintiff’s Own Allegations Undermine the Order’s Conclusion That Plaintiff
`Adequately Pleaded that Statement No. 1 Was False or Misleading
`
`The Court should reconsider its ruling that Plaintiff adequately pleaded falsity as to
`Statement No. 1 because Plaintiff’s own allegations are inconsistent with any plausible inference
`of falsity.4 The Order held that “Plaintiff has satisfied the falsity element for Statement No. 1 by
`alleging that defendants represented that Zoom offered ‘end-to-end encryption’ when in fact it did
`not.” Order at 4. Statement No. 1, however, was a snippet from Zoom’s general “Technology and
`Infrastructure” section. As the Complaint explained, Zoom offered a “suite” of products in addition
`to Zoom Meetings. Compl. at ¶ 5. But Plaintiff did not plead that Statement No. 1 addressed only
`the encryption of Zoom Meetings. See Compl. ¶ 27 (alleging that Zoom “falsely touted end-to-end
`encryption as a key aspect of the robust security capabilities of the Company’s offerings, including
`Zoom Meetings”). Even if Plaintiff adequately alleged that Zoom Meetings were not end-to-end
`
`4 To be clear, Defendants do not seek reconsideration based on the Order’s rejection of the argument
`that the term “end-to-end encryption” is subject to differing definitions. This motion is based on
`Plaintiff failing to allege with particularity that Statement No. 1 was only about Zoom Meetings,
`and Plaintiff’s allegation that some of Zoom’s products were end-to-end encrypted even under
`Plaintiff’s definition.
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`7
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`encrypted in the way he defined the term, this was insufficient to render Statement No. 1 false,
`because Plaintiff would have to allege with particularity that Zoom did not offer end-to-end
`encryption on any of its products at the time the statement was made.
`Plaintiff does not do so. Instead, Plaintiff alleges only that “Zoom Meetings were not in
`fact secured with end-to-end encryption.” Id. at ¶ 47(a) (emphasis altered from original); id. ¶ 6
`(“…Zoom falsely asserted, among other things, that communications using Zoom Meetings could
`be secured with end-to-end encryption”) (emphasis added); id. ¶ 9(a) (alleging that Defendants
`failed to disclose the fact that “Zoom Meetings were not secured with end-to-end encryption”)
`(emphasis added); id. ¶34(a) (“Zoom Meetings were not in fact secured with end-to-end
`encryption.”) (emphasis added); id. ¶47(a) (same). And in fact, Plaintiff alleged that “Defendants
`. . . used the term [end-to-end encryption] accurately in other contexts, including in describing
`Zoom’s end-to-end chat encryption in the Company’s security white papers.” Id. at ¶ 47(a)
`(emphasis added). In other words, the Complaint alleges that Zoom offered end-to-end encryption
`in at least one of its products—an incongruity that Defendants pointed out in their briefing on the
`motion to dismiss. See, e.g., Defs.’ Mot. To Dismiss at 7 n.5 (“Plaintiff does not dispute that some
`of Zoom’s features (such as chat) offered E2E in the way Plaintiff defines it. . . . As a result, Zoom’s
`statements in its Prospectus . . . that it offered ‘end-to-end encryption’ as part of its ‘technology and
`infrastructure’ are true even accepting Plaintiff’s use of that term”); Defs.’ Reply Brief at 2–3
`(“Plaintiff admits that some of Zoom’s features offered E2EE in the way he defines it”).
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`Having alleged that Zoom did offer end-to-end encryption on its platform, the Complaint is
`devoid of any allegation (let alone particularized allegations) showing how Zoom’s statement about
`its general end-to-end encryption capabilities was false. The Complaint alleges only in conclusory
`fashion that Statement No. 1 “touted end-to-end encryption as a key aspect of the robust security
`capabilities of the Company’s offerings, including Zoom Meetings.” Compl. ¶ 27. But this is
`inconsistent with the separate allegation that Zoom Chat was accurately described as end-to-end
`encrypted. And Statement No. 1 itself does not refer to Zoom Meetings at all; nor does Plaintiff
`allege that it could be read to only refer to Zoom Meetings.
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`DEFS.’ MOT. FOR LEAVE TO FILE MOT.
`FOR PARTIAL RECONSIDERATION
`3:20-CV-02353-JD
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`As Defendants’ motion to dismiss briefing noted, Statement No. 1 did not suggest that every
`single one of Zoom’s products and services had end-to-end encryption, and thus did not create a
`misleading impression as to the encryption of Zoom Meetings specifically. See Defs.’ Reply Brief
`at 2–3 (“[T]he sole statement challenged in Zoom’s Prospectus, that Zoom offered ‘end-to-end
`encryption’ as part of its general ‘technology and infrastructure’ would not be false, because it does
`not suggest that all Zoom products offered E2EE in all circumstances.”). To use a basic analogy,
`if a car maker “touted” to investors that it offered a range of vehicle features, including four-wheel
`drive, that statement would be false only if none of its vehicles had four-wheel drive. Here, Plaintiff
`has alleged that at least one of the car maker’s vehicles was equipped with four-wheel drive, and
`by extension, the car maker’s claim would not be false—nor would it create a misleading
`impression that all of the car maker’s vehicles, for example a sedan, would have four-wheel drive.
`See Zagami v. Cellceutix Corp., 2016 WL 3199531, at *10 (S.D.N.Y. June 8, 2016) (drug
`manufacturer’s statement that a drug had “Gram negative coverage” was not false, despite a later
`disclosure that the drug covered only “some, but not all, Gram-negative bacteria” because that
`disclosure did “not preclude [the drug] having some degree of Gram-negative coverage”); Wochos
`v. Tesla, 985 F.3d 1180, 1196 (9th Cir. 2021) (agreeing with district court that Tesla’s statement
`that it was making “great progress” on battery production could “be an actionable false statement
`only if . . . Tesla had been ‘making no progress at all’”). Plaintiff’s imprecise allegations regarding
`Zoom’s “offerings”—and inconsistent allegations about Zoom’s statements regarding end-to-end
`encryption—do not meet the PSLRA’s heightened pleading standard to plead falsity with
`particularity. Accordingly, Defendants respectfully request the Court reconsider its Order.
`
`The Order’s Scienter Analysis Fails to Consider Key Factual Distinctions That
`Negate any Inference of Scienter, and Instead Support an Inference of Good
`Faith
`The Order’s holding that Plaintiff adequately pleaded scienter is similarly flawed. In
`finding that the Complaint adequately plea