Case 1:18-cv-12330-ADB Document 72 Filed 10/07/20 Page 1 of 35
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MASSACHUSETTS
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`MEMORANDUM AND ORDER ON MOTION TO DISMISS
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`BURROUGHS, D.J.
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`Lead Plaintiffs Larry Pollock1 and Robert Daub and named Plaintiff Benjamin Wasson
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`(“Plaintiffs”) bring this shareholder class action on behalf of the former shareholders of
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`LogMeIn, Inc. (“LogMeIn” or the “Company”) against LogMeIn and its President, Chief
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`Financial Officer, and Vice President of Investor Relations (the “Individual Defendants,” and
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`together with LogMeIn, “Defendants”) for violating federal securities laws in connection with
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`the acquisition of GetGo, Inc. (“GetGo”) and the transition of former GetGo customers from
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`monthly to annual billing plans.
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`1 Larry Pollock passed away on January 31, 2019. [ECF No. 53]. Plaintiffs have stated their
`intent to file a motion to substitute an appropriate party. [Id. at 1].
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`Civil Action No. 18-cv-12330-ADB
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`BENJAMIN WASSON, Individually and on
`Behalf of All Others Similarly Situated,
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`Plaintiff,
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`v.
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`LOGMEIN, INC., WILLIAM R. WAGNER,
`EDWARD K. HERDIECH, and ROBERT
`BRADLEY,
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`Defendants.
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`Case 1:18-cv-12330-ADB Document 72 Filed 10/07/20 Page 2 of 35
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`Presently before the Court is Defendants’ motion to dismiss. [ECF No. 55]. For the
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`reasons discussed below, the motion to dismiss, [ECF No. 55], is GRANTED. Plaintiffs may
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`amend the complaint within twenty-one days.
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`I.
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`FACTS AS ALLEGED
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`For purposes of this motion to dismiss, the Court, as it must, “accept[s] as true all
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`well-pleaded facts alleged in the complaint and draw[s] all reasonable inferences therefrom in
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`the pleader’s favor.” A.G. ex rel. Maddox v. Elsevier, Inc., 732 F.3d 77, 80 (1st Cir. 2013)
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`(quoting Santiago v. P.R., 655 F.3d 61, 72 (1st Cir. 2011)).
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`LogMeIn is a Boston-based provider of cloud-based software services used by mobile
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`professionals to work remotely and IT service providers to manage computers and servers. [ECF
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`No. 54 ¶¶ 3, 31]. The Company generates revenue primarily from subscription fees paid by
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`individual consumers and small- and medium-sized businesses. [Id. ¶ 31]. The Company is
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`organized in three segments: (1) Communications and Collaboration (“C&C”), (2) Identity and
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`Access Management (“IAM”), and (3) Customer Engagement and Support (“CES”). [Id. ¶ 3].
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`The Individual Defendants are LogMeIn’s President and CEO William Wagner, CFO Edward
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`Herdiech, and Vice President of Investor Relations Robert Bradley. [ECF No. 54 ¶¶ 27–29].
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`On July 26, 2016, LogMeIn announced that it was acquiring GetGo—a subsidiary of
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`LogMeIn’s largest competitor, Citrix Inc.—and GetGo’s “GoTo” family of products, including
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`GoToMeeting, GoToWebinar, GoToTraining, GoToMyPC, GoToAssist, Grasshopper, and
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`OpenVoice. [ECF No. 54 ¶ 34]. Collectively, the “GoTo” family of products generated about
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`twice as much revenue as LogMeIn’s similar products. [Id. ¶ 165]. While LogMeIn traditionally
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`focused on individual consumers and small businesses, the GetGo acquisition allowed LogMeIn
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`to enter the enterprise market. [Id. ¶ 36]. Once combined, LogMeIn and GetGo were expected
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`to have more than two million customers and annual revenues exceeding $1 billion. [Id. ¶ 34].
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`Prior to the merger, the vast majority of LogMeIn subscribers had annual contracts and
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`roughly 55–65% of these subscribers paid up front for the entire year with a credit card. [ECF
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`No. 54 ¶ 42]. Additionally, a LogMeIn customer’s annual subscription would automatically
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`renew for the next year unless the customer specifically terminated it prior to the end of the
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`subscription period. [Id.]. The majority of GetGo’s customers were invoiced monthly, could
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`cancel at any time by providing 30 days’ notice, and did not pay by credit card. [Id.]. GetGo’s
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`customers could also “terminate for convenience” (i.e., terminate a contract without providing
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`notice if they paid a fee). [Id. ¶ 44]. When LogMeIn announced the acquisition, it indicated that
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`it intended to transition GetGo’s customers to the LogMeIn billing model (i.e., annual
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`subscriptions whereby customers paid in advance for an entire year by credit card). [Id.
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`¶¶ 45–46, 165]. Analysts viewed this transition as a positive development because LogMeIn’s
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`billing model generally did a better job of converting revenue into free cash flow (i.e., cash
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`available to service debt and pay dividends) than did GetGo’s model. [Id. ¶ 46].
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`On December 13, 2016, in an SEC filing, LogMeIn disclosed that “integration of the
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`GoTo Business . . . may present significant challenges.” [ECF No. 57-2 at 3]. LogMeIn warned
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`investors that “customers’ renewal rates may decline or fluctuate because of several factors,
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`including their satisfaction or dissatisfaction with [LogMeIn’s] services, the prices of
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`[LogMeIn’s] services, the prices of services offered by [LogMeIn’s] competitors or reductions in
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`[LogMeIn’s] customers’ spending levels.” [Id. at 13]. LogMeIn further explained that its
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`“ability to renew existing customers” could affect its operating results, with the potential to cause
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`its stock price to “decline substantially.” [Id. at 9]. In particular, LogMeIn noted that small and
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`medium business customers were “challenging” “to retain in a cost-effective manner” and thus
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`“have high churn rates in part because of the scale of their businesses and the ease of switching
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`services . . . .” [Id. at 14]. Finally, LogMeIn explained that “integrati[on] [of] operations could
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`cause an interruption of, or loss of momentum in, the activities of the GoTo Business or
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`[LogMeIn’s] business.” [Id. at 4]. LogMeIn noted that its projections “may not be able to
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`accurately predict future trends in customer renewals . . . .” [Id. at 13].
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`LogMeIn’s acquisition of GetGo closed on January 31, 2017. [ECF No. 54 ¶ 37]. Most
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`of the newly-acquired GoTo products became part of the C&C segment but GoToMyPC became
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`part of the IAM segment and GoToAssist became part of the CES segment. [Id. ¶ 41].
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`On February 28, 2017, Wagner discussed the merger during LogMeIn’s earnings call.
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`[ECF No. 54 ¶ 37]. He explained:
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`Our products are targeting markets with a combined addressable opportunity
`approaching $30 billion, growing in aggregate at 9% per year. And we are a
`company with the scale, leadership position, resources, and employee base needed
`to realize the potential of these markets. Over the long-term, we believe this will
`translate to a compelling financial profile consisting of 10% compounded annual
`growth rate, 40% adjusted EBITDA margins, and 30% cash flow margin. . . . I am
`pleased to report that our Board of Directors has approved a three-year capital
`return plan intended to return approximately 75% of the Company’s free cash flow
`to shareholders over that time. That’s up to $700 million in a three-year period
`returned through a combination of share repurchases and dividends.
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`[Id. ¶¶ 37–38]. Wagner noted that the Company was hoping to avoid being “disruptive and
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`generat[ing] any kind of disruptive customer experience, so that is something [it was] being
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`cautious of as [it] develop[ed] these product strategies.” [Id. ¶ 39].
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`In mid-2017, LogMeIn began transitioning GetGo’s customers from monthly to annual
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`subscriptions. [ECF No. 54 ¶¶ 45, 55–58, 60, 102, 108]. On July 28, 2017, the company filed its
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`Quarterly Report on Form 10-Q. [Id. ¶ 153]. It noted that “[w]e may not realize the anticipated
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`cost synergies and growth opportunities from the Merger” because the Company’s success
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`“depends on the successful integration of the GoTo Business and even if we are able to integrate
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`the GoTo Business successfully, we cannot predict with certainty if or when the cost synergies,
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`growth opportunities and benefits will occur, or the extent to which they will actually be
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`achieved.” [Id.]. LogMeIn explained that “[t]he integration of the GoTo Business present[ed]
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`significant challenges.” [Id. ¶ 155]. Specifically, the company disclosed that if it were “unable
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`to retain [its] existing customers, [its] revenue and results of operations would be adversely
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`affected.” [Id. ¶ 157].
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`The transition did not go particularly smoothly. At points prior to May 2017, Wagner
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`attended monthly meetings with the Company’s senior executives to discuss decreased revenues
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`resulting from former GetGo customers taking their business elsewhere when faced with price
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`increases and annual contracts. [ECF No. 54 ¶¶ 120–21]. In September 2017, LogMeIn’s own
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`internal data analytics allegedly revealed that its new business and quarterly retentions were net
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`zero because the company was losing as many customers as it was gaining. [Id. ¶¶ 97–99].
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`In October 2017, as part of a conference call with investors and analysts, Wagner
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`explained that the Company had “made very good progress driving the migration of former
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`GoTo customers from monthly to annual payments.” [ECF No. 54 ¶ 62]. In December 2017,
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`Wagner informed analysts that “converting people from monthly to annual payments . . . ha[d]
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`somewhat of a dampening effect on retention.” [Id. ¶ 72]. Still, he remained “optimistic that
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`[LogMeIn] [could] improve that in the relative near term . . . .” [Id.]. In the first quarter of 2018,
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`LogMeIn’s reported retention rate remained at 75%, consistent with its retention rates before the
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`GetGo acquisition. [Id. ¶ 80]. According to Plaintiffs, LogMeIn’s reported retention rates were
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`misleading because they did not reflect the fact that LogMeIn knew in advance that certain
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`customers would be cancelling their contracts at the end of the annual term. [Id. ¶¶ 97, 146].
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`On July 26, 2018, the Company announced its 2018 Q2 results and held an earnings call
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`to discuss them. [ECF No. 54 ¶ 238]. Among other things, the Company announced that its
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`2018 Q2 renewal rate in the C&C segment had declined by 3.5%. [Id.]. Wagner said that the
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`Company
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`started converting a lot of those customers late in the second quarter last year. So
`a lot of those customers now, for the first time, they came up on to their renewal,
`and we—they were coming up last year for the renewal late in the quarter. They
`get a notice like, time to renew and here’s your terms, and they didn’t have a lot of
`time to think about it and they renewed. Now they’ve come back. They’ve been
`there for a full year. They know the terms. They know their renewal is coming up,
`and I think it just gave them more time. In the second half of the quarter, again, is
`where we first started lapping those customers. That’s why we were—we wanted
`to adjust guidance down and make sure that we have a plan in place to eliminate
`that friction.
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`[ECF No. 54 ¶ 90]. As further explanation, Herdiech noted that though the C&C segment was
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`experiencing declining renewal rates, the Company’s overall renewal rate remained constant
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`because of increased retention in its IAM business. [Id. ¶ 86].
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`Wagner also informed shareholders during that call that though LogMeIn had wanted to
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`move all GetGo customers to an annual payment plan, it was ultimately allowing legacy
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`customers to remain on monthly payment plans. [ECF No. 54 ¶ 82]. To encourage those legacy
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`customers to transition to an annual subscription, however, LogMeIn removed the “termination
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`for convenience” clause that allowed customers to cancel their subscriptions upon thirty days’
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`notice and required certain larger customers to sign new purchase orders, with different,
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`Company-friendly terms, rather than having their terms automatically renew. [Id. ¶¶ 82, 87]. It
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`also converted subscriptions for which it had a credit card on file to annual subscriptions. [Id.
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`¶ 109]. Customers who were automatically converted but then paid only their usual monthly fee
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`would have their service “shut off” because they had not paid the entire annual fee. [Id. ¶ 138].
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`Wagner admitted that “[a]ggressively moving customers from monthly to annual payments,
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`changing business terms and conditions and barriers we created to the auto-renewal process all
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`contributed to friction for our customers and made us harder to do business with.” [Id. ¶ 85].
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`The day after the Company’s July 26, 2018 disclosures, its share price declined 25.47%. [Id.
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`¶ 239].
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`The complaint relies on five confidential witnesses (the “CWs”), who varied in their
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`seniority with the Company and their areas of expertise. [ECF No. 54 ¶¶ 100–40]. The common
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`theme espoused by the CWs is that LogMeIn management bungled the transition and lost
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`customers as a result. See, e.g., [id. ¶ 105 (describing a LogMeIn policy as “inconvenient to
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`customers, a waste of time and a horrible way to do business”); id. ¶ 115 (stating that “the
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`merger of GoTo with LogMeIn happened quickly, without a plan and the integration was done
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`terribly”); id. ¶ 136 (noting that “customers were not happy with a number of changes made by
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`LogMeIn right after the merger”)].
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`Confidential Witness One (“CW1”) was an Account Executive who started at Citrix and
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`continued at LogMeIn. [ECF No. 54 ¶ 100]. In the second half of 2017, while the Company was
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`transitioning customers, CW1 informed the Director of Renewals that customers were not happy
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`about the switch from monthly to annual billing. [ECF No. 54 ¶ 104]. The Director responded
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`that “customer losses were expected as a result of these changes.” [Id.].
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`Confidential Witness Two (“CW2”) worked in a dedicated email team that was part of
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`LogMeIn’s customer care department. [ECF No. 54 ¶ 107]. According to CW2, many of the
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`emails notifying customers about the transition from monthly to annual subscriptions bounced
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`back, so that the customer was unaware of the transition until they were charged the full annual
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`amount up front. [Id. ¶ 109]. CW2 also said that LogMeIn raised prices, even for those
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`contracts where the customer had been told that the price would not change, which resulted in
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`cancellations. [Id. ¶ 112].
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`Confidential Witness Three (“CW3”), a Sales Director, reported that LogMeIn
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`immediately began charging customers up front via credit card, even if they had previously been
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`invoiced. [ECF No. 54 ¶¶ 113, 117]. CW3 stated that LogMeIn was aware of decreased renewal
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`rates before he left the company in May 2017 and that the rates were frequently discussed at
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`monthly meetings, which were attended by Wagner. [Id. ¶ 120].
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`Confidential Witness Four (“CW4”) worked as a Vice President of Customer Success.
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`[ECF No. 54 ¶ 122]. He objected to the implementation of certain practices at LogMeIn,
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`including eliminating the “termination for convenience” clause and transitioning customers to
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`annual contracts. [Id. ¶ 123]. He says that LogMeIn executives were warned that the practices
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`would result in decreased retention rates. [Id. ¶ 127].
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`Confidential Witness Five (“CW5”), a Senior Account Executive, said that transition
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`emails were sent to customers’ IT departments rather than their billing departments. [ECF No.
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`54 ¶¶ 131, 137]. Within sixty day of the GetGo acquisition, he began receiving calls from
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`customers who were “screaming and yelling” about the transition. [Id. ¶ 137]. He also had
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`customers who had their services “shut off” when they paid their regular monthly fee instead of
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`the new annual fee. [Id. ¶ 138].
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`II.
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`PROCEDURAL HISTORY
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`Plaintiffs filed their complaint on August 20, 2018 in the Central District of California.
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`[ECF No. 1]. The case was then transferred to the District of Massachusetts, [ECF No. 35], and
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`assigned to this Court on November 16, 2018, [ECF No. 40]. Plaintiffs filed their amended
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`complaint on March 1, 2019. [ECF No. 54]. In this operative complaint, Plaintiffs claim that
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`Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”)
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`and that the Individual Defendants violated Section 20(a) of the Exchange Act by making
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`fraudulent misrepresentations and omissions to shareholders regarding the process and effects of
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`converting GetGo customers to the LogMeIn billing model. [ECF No. 54 ¶¶ 271–88]
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`On April 30, 2019, Defendants filed the instant motion to dismiss. [ECF No. 55].
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`Plaintiffs opposed on June 28, 2019, [ECF No. 64], after the Court granted an extension of time,
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`[ECF No. 63]. Defendants replied on July 29, 2019. [ECF No. 65].
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`III.
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`LEGAL STANDARD
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`“Section 10(b) of the Securities Exchange Act of 1934 forbids the ‘use or employ, in
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`connection with the purchase or sale of any security . . . , [of] any manipulative or deceptive
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`device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe
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`as necessary or appropriate in the public interest or for the protection of investors.’” Tellabs,
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`Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 318 (2007) (alterations in original) (quoting
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`15 U.S.C. § 78j(b)). In turn, SEC Rule 10b-5 implements § 10(b) by declaring it unlawful, “in
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`connection with the purchase or sale of any security,”
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`(a) To employ any device, scheme, or artifice to defraud,
`(b) To make any untrue statement of a material fact or to omit to state a material
`fact necessary in order to make the statements made, in light of the circumstances
`under which they were made, not misleading, or
`(c) To engage in any act, practice, or course of business which operates or would
`operate as a fraud or deceit upon any person.
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`17 C.F.R. § 240.10b-5. Therefore,
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`[t]o survive a motion to dismiss under Rule 12(b)(6), a complaint alleging securities
`fraud under section 10(b) of the Exchange Act and Securities and Exchange
`Commission Rule 10b-5 must plead six elements: ‘(1) a material misrepresentation
`or omission; (2) scienter, or a wrongful state of mind; (3) a connection with the
`purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss
`causation.’
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`Kader v. Sarepta Therapeutics, Inc., 887 F.3d 48, 56 (1st Cir. 2018) (quoting ACA Fin. Guar.
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`Corp. v. Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008)).2
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`To survive a motion to dismiss, the complaint must contain “enough facts to state a claim
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`to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
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`Further, because this case involves claims of securities fraud, Plaintiff must additionally satisfy
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`the Federal Rule of Civil Procedure 9(b) standard for alleging fraud with particularity and
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`comply with the heightened pleading requirements imposed by the Private Securities Litigation
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`Reform Act (the “PSLRA”). See Advest, Inc., 512 F.3d at 58. The PSLRA “requires plaintiffs’
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`complaint to ‘specify each statement alleged to have been misleading [and] the reason or reasons
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`why the statement is misleading.’” Id. (alteration in original) (quoting 15 U.S.C. § 78u-4(b)(1)).
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`If a plaintiff’s allegation regarding the statement or omission “is made on information and belief,
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`2 “Claims brought under section 20(a) of the [Securities Exchange] Act, 15 U.S.C. § 78t(a), are
`derivative of 10b-5 claims.” Hill v. Gozani, 638 F.3d 40, 53 (1st Cir. 2011). Section 20(a)
`provides that once a company has been found to have violated the Exchange Act’s substantive
`provisions, “[e]very person who, directly or indirectly, controls” the company “shall also be
`liable jointly and severally with and to the same extent as [the company] . . . unless the
`controlling person acted in good faith and did not directly or indirectly induce the act or acts
`constituting the violation or cause of action.” 15 U.S.C. § 78t(a). Here, Plaintiffs allege Section
`20(a) claims against the Individual Defendants on the grounds that “[b]y virtue of their
`high-level positions, and their ownership and contractual rights, participation in and/or
`awareness of [LogMeIn]’s operations and/or intimate knowledge of the false financial statements
`filed by [LogMeIn] with the SEC and disseminated to the investing public,” they “had the power
`to influence and control and did influence and control . . . the decision-making of [LogMeIn],
`including the content and dissemination of the various statements” which Plaintiffs claim were
`false and misleading. [ECF No. 54 ¶ 286]. Plaintiffs further allege that the Individual
`Defendants “had the ability to prevent the issuance of the statements or cause the statements to
`be corrected” and did not. [Id.]. Accordingly, to plead a viable Section 20(a) claim against the
`Individual Defendants, Plaintiffs must first plead an actionable claim under Section 10(b) of the
`Exchange Act and Rule 10b-5. See Winters v. Stemberg, 529 F. Supp. 2d 237, 247 (D. Mass.
`2008) (quoting In re Focus Enhancements, Inc. Sec. Litig., 309 F. Supp. 2d 134, 157 (D. Mass.
`2001)).
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`the complaint shall state with particularity all facts on which that belief is formed.” Id. (quoting
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`15 U.S.C. § 78u–4(b)(1)).
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`Finally, the PSLRA provides “safe harbor” provisions that “sharply limit liability of
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`companies and their management for certain ‘forward-looking statements,’ . . . when such
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`statements are accompanied by appropriate cautionary language.” In re Smith & Wesson
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`Holding Corp. Sec. Litig., 669 F.3d 68, 71 n.3 (1st Cir. 2012); see 15 U.S.C. § 78u-5.3 “[T]he
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`definition of a forward looking statement includes ‘a statement of the plans and objectives of
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`management for future operations, including plans or objectives relating to the products or
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`services of the issuer.’” Meyer v. Biopure Corp., 221 F. Supp. 2d 195, 203 (D. Mass. 2002)
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`(quoting 15 U.S.C. § 78u-5(i)(1)(B)); see Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1324
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`(11th Cir. 2019) (“A forward-looking statement is what it sounds like—a prediction, projection,
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`or plan.”). “On any motion to dismiss based upon subsection (c)(1), the court shall consider any
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`statement cited in the complaint and any cautionary statement accompanying the
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`forward-looking statement, which are not subject to material dispute, cited by the defendant.”
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`15 U.S.C. § 78u-5(e).
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`3 The safe harbor provides that
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`in any private action arising under this chapter that is based on an untrue statement
`of a material fact . . . , a person . . . shall not be liable with respect to any
`forward-looking statement, whether written or oral, if and to the extent that . . . the
`forward-looking statement is . . . identified as a forward-looking statement, and is
`accompanied by meaningful cautionary statements identifying important factors
`that could cause actual results to differ materially from those in the forward-looking
`statement . . . .
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`15 U.S.C. § 78u-5(c)(1)(A)(i).
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`IV.
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`DISCUSSION
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`Plaintiffs allege securities fraud in violation of both Section 10(b), see 15 U.S.C. § 78j(b),
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`and Section 20(a) of the Exchange Act. Defendants assert that the complaint should be
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`dismissed because it (1) fails to allege that any statement was false or misleading, and (2) fails to
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`plead scienter. [ECF No. 56 at 7–8].
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`A.
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`Count One: Violation of § 10(b) of the Securities Exchange Act of 1934
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`In order to bring a claim under Section 10(b) of the Exchange Act, a plaintiff must allege
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`facts that, if true, establish (1) a material misrepresentation or omission; (2) scienter; (3) a
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`connection between the misrepresentation or omission and the purchase or sale of a security;
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`(4) reliance upon that misrepresentation or omission; (5) economic loss; and (6) loss causation.
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`Ganem v. InVivo Therapeutics Holdings Corp., 845 F.3d 447, 454 (1st Cir. 2017). Only the first
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`two elements are at issue here.
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`For a statement to be a material misrepresentation or omission, Plaintiffs must show “that
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`defendants made a materially false or misleading statement or omitted to state a material fact
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`necessary to make a statement not misleading . . . .” Geffon v. Micrion Corp., 249 F.3d 29, 34
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`(1st Cir. 2001). When bringing a claim “of securities fraud, [p]laintiffs must additionally satisfy
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`the Fed. R. Civ. P. 9(b) standard for alleging fraud with particularity, and comply with the
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`heightened pleading requirements imposed by the [PSLRA].” Kader v. Sarepta Therapeutics,
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`Inc., No. 14-cv-14318, 2016 U.S. Dist. LEXIS 46025, at *40 (D. Mass. Apr. 5, 2016). Plaintiffs
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`must therefore provide “[each specific] statement alleged to have been misleading [and] the
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`reason or reasons why the statement is misleading” and “with respect to each [alleged] act or
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`omission . . . state with particularity [the] facts giving rise to a strong inference that the defendant
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`acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(1), (2). The complaint must
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`include the “who, what, when, where, and how of the alleged fraud.” SEC v. Spivak, 194 F.
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`Supp. 3d 145, 151 (D. Mass. 2016) (quoting United States ex rel. Ge v. Takeda Pharm. Co., 737
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`F.3d 116, 123 (1st Cir. 2013)).
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`Allegedly fraudulent statements are set forth in forty-five paragraphs of the complaint.
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`See [ECF No. 54 ¶¶ 141, 143, 145, 147, 149, 151, 153, 155, 157, 159, 161, 163, 165, 167, 169,
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`171, 173, 175, 177, 179, 181, 183, 185, 187, 189, 191, 193, 195, 197, 199, 201, 203, 205, 207,
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`209, 211, 213, 215, 217, 219, 221, 223, 225, 227, 229]. The statements include, among others,
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`that LogMeIn expected the GetGo acquisition to be worth roughly $90 million in the first year,
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`that Wagner was encouraged by the early results of transitioning customers to an annual
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`subscription, and Herdiech’s report that the company’s overall gross renewal rate remained
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`consistent at around 75%. [Id. ¶¶ 141, 143, 145]. Defendants argue that Plaintiffs have not pled
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`with particularly that any statement by the Defendants was materially false or misleading. [ECF
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`No. 55 at 1].
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`In their complaint, Plaintiffs use the same basic template, with minor modifications, to
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`explain why each statement was materially false or misleading. Compare [ECF No. 54 ¶ 142],
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`with [id. ¶ 212], and [id. ¶ 214]. The thrust of Plaintiff’s argument is that the statements were
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`materially false or misleading because they failed to disclose that LogMeIn (1) was aggressively
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`transitioning GoTo customers from monthly billing to annual prepaid billing without adequate
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`notice, (2) was removing “termination for convenience” provisions from customer contracts,
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`(3) was increasing prices, (4) was forcing customers to sign new purchase orders rather than
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`auto-renewing their contracts, (5) knew that it would experience a significant amount of
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`customer churn (i.e., customers failing to renew) in the second quarter of 2018 because
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`customers had decided to cancel ahead of their renewal dates, and (6) was experiencing “strong
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`Case 1:18-cv-12330-ADB Document 72 Filed 10/07/20 Page 14 of 35
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`renewals in the IAM segment [that] masked the decline in renewals in the [C&C] segment.” [Id.
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`¶¶ 142, 214].
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`Defendants argue that this method of pleading is inappropriate “puzzle pleading” that
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`requires the Court to figure out why various statements were false. [ECF No. 56 at 12–13].
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`This, however, misrepresents the complaint, which sets forth background facts concerning what
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`Defendants were doing during the time of the relevant class allegations that elucidate the
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`allegations of falsity. See generally [ECF No. 54]. The complaint asserts that Defendants were
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`being hyperaggressive with their customers, engaging in coercive and misleading practices to
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`force legacy GoTo customers to change to annual subscriptions, and then provides a list of
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`statements that were allegedly false or misleading, given that background set of allegations.
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`Defendants further argue that the complaint alleges “fraud by hindsight.” [ECF No. 56 at
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`16]. “A plaintiff may not plead ‘fraud by hindsight’; i.e., a complaint may not simply contrast a
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`defendant’s past optimism with less favorable actual results in support of a claim of securities
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`fraud.” Ganem, 845 F.3d at 457 (internal quotation marks and citation omitted) (quoting Advest,
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`Inc., 512 F.3d at 62). If the complaint simply alleged that Defendants said that the GoTo
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`acquisition would be profitable and then it proved untrue, the complaint would be insufficient.
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`In this case, however, Plaintiffs are not alleging that Defendants must have been aware that the
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`transition would be problematic because it eventually proved to be so. Rather, they claim that
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`Defendants knew that the transition was proving challenging throughout the class period based
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`on their own internal review of anticipated cancellations, yet failed to disclose that fact to
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`investors, as made evident by their eventual admission that retention rates had been declining for
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`the duration of the class period. Therefore, the complaint does not merely set out “fraud by
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`hindsight.”
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`Case 1:18-cv-12330-ADB Document 72 Filed 10/07/20 Page 15 of 35
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`1.
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`Material Misrepresentation or Omission: Even Taking Plaintiffs’
`Allegations as True, Some Statements Are Not Fraudulent
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`With respect to some of the allegedly fraudulent statements set forth in the complaint,
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`Plaintiffs do not allege any facts that would make those statements false or misleading. Many
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`statements fall into specific categories and the Court will discuss those statements together.
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`Other statements, however, do not fit neatly into categories. Because there is no obvious method
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`of organizing them, the Court will discuss those statements in chronological order.
`
`a.
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`Statements Regarding Gross Renewal Rates
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`On a LogMeIn earnings call on July 27, 2017, Herdiech reported that “[f]or the combined
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`company, our gross renewal rate across all products on an annualized dollar basis was
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`approximately 75%, consistent with prior quarters.” [ECF No. 54 ¶ 145]. Plaintiffs have not
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`argued that the gross renewal rate across all products was not approximately 75%. To the
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`contrary, they note that it was accurate for the Company overall. [Id. ¶ 86]. Plaintiffs’
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`contention that reporting the Company’s overall gross renewal rate was misleading because
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`Herdiech failed to simultaneously disclose that “a material number of customers had decided in
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`advance of the renewal date that they would not renew their subscriptions” and that, “as a result,
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`the Company would experience a material increase in customer churn when their annual pre-paid
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`contracts expired in Q2’18” fails. [Id. ¶ 146]. The statement, which explicitly refers to the
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`Company’s “gross renewal rate across all products” at a given point in time was accurate as
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`made and therefore, it cannot support a securities fraud claim. Because other statements
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`regarding the 75% gross renewal rate, [id. ¶¶ 151, 161, 187, 197, 215, 217, 225], were likewise
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`accurate, they too are not actionable.4
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`4 To the extent Plaintiffs argue that the statement in paragraph 151 is misleading because
`Herdiech stated that the GoTo products, as compared to the LogMeIn products, were “maybe . . .
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`Case 1:18-cv-12330-ADB Document 72 Filed 10/07/20 Page 16 of 35
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`b.
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`Statements Regarding Financial Projections
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`In some statements, Defendants were making projections about the Company’s
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`anticipated financial performance. For example, the complaint alleges that on the Company’s
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`earnings call on October 26, 2017, the Company “increased its GAAP revenue guidance for the
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`full year to a range of $987 million to $988 million” and “stated that it expected full year
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`EBITDA ‘in