throbber
Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 1
`FILED
`United States Court of Appeals
`Tenth Circuit
`
`August 23, 2022
`
`Christopher M. Wolpert
`Clerk of Court
`
`PUBLISH
`
`UNITED STATES COURT OF APPEALS
`
`FOR THE TENTH CIRCUIT
`_________________________________
`
`
`
`
`
`
`
`
`
`
`
`No. 21-4058
`
`INDIANA PUBLIC RETIREMENT
`SYSTEM, individually and on behalf of all
`others similarly situated; PUBLIC
`SCHOOL TEACHERS’ PENSION AND
`RETIREMENT FUND OF CHICAGO,
`individually and on behalf of all others
`similarly situated,
`
` Plaintiffs - Appellants,
`
`v.
`
`PLURALSIGHT, INC.; AARON
`SKONNARD; JAMES BUDGE; GARY
`CRITTENDEN; SCOTT DORSEY; ARNE
`DUNCAN; RYAN HINKLE; LEAH
`JOHNSON; TIMOTHY MAUDLIN;
`FREDERICK ONION; BRAD RENCHER;
`BONITA STEWART; KARENANN
`TERRELL; MORGAN STANLEY & CO;
`JP MORGAN SECURITIES,
`
` Defendants - Appellees.
`
`-----------------------------
`
`ROBERT J. JACKSON, JR.; LUIS A.
`AGUILAR; LYNN E. TURNER; DANIEL
`J. TAYLOR; JOSHUA MITTS; M. TODD
`HENDERSON; NEJAT SEYHUN; ALAN
`JAGOLINZER; STANLEY VELIOTIS;
`PHILLIP QUINN; BRADFORD LYNCH,
`
` Amicus Curiae.
`
`
`
`
`
`

`

`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 2
`
`_________________________________
`
`Appeal from the United States District Court
`for the District of Utah
`(D.C. No. 1:19-CV-00128-JNP-DBP)
`_________________________________
`
`Carol V. Gilden, Cohen Milstein Sellers & Toll, Chicago, Illinois (Joel P. Laitman,
`Steven J. Toll, Benjamin F. Jackson, and Norhan Bassiouny, Cohen, Milstein Sellers &
`Toll, New York, New York; and Keith M. Woodwell, Clyde Snow & Sessions, Salt Lake
`City, Utah, with her on the briefs) for Plaintiffs – Appellants.
`
`Gregory L. Watts, Wilson Sonsini Goodrich & Rosati, P.C., Seattle, Washington (John C.
`Roberts Jr., Wilson Sonsini Goodrich & Rosati, P.C., Seattle, Washington; Ignacio E.
`Salceda, Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California; Jason W. Hardin
`and Sarah C. Vaughn of Fabian VanCott, Salt Lake City, Utah, with him on the brief) for
`Defendants – Appellees.
`
`David W. Scofield, Peters | Scofield, Sandy, Utah, Jonathan A. Gardner, Carol C.
`Villegas, and Ross Kamhi, Labaton Sucharow LLP, New York, New York, and Jeremy
`A. Lieberman and Emma Gilmore, Pomerantz, LLP, New York, New York, filed an
`Amicus Curiae brief in support of Appellants.
`_________________________________
`
`Before ROSSMAN, KELLY, and MURPHY, Circuit Judges.
`_________________________________
`
`ROSSMAN, Circuit Judge.
`_________________________________
`
`Founded in 2004, Defendant Pluralsight is a software company offering a
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`cloud-based technology skills platform. Pluralsight sells subscriptions to its various
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`products and services, including a library of thousands of skills courses. Defendant
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`Aaron Skonnard is Pluralsight’s Chief Executive Officer. Defendant James Budge is
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`the Chief Financial Officer. Plaintiffs purchased Pluralsight stock between January
`
`16, 2019, and July 31, 2019.
`
`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 3
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`Beginning on January 16, 2019, Mr. Skonnard and Mr. Budge allegedly made
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`materially false and misleading statements about the size and productivity of
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`Pluralsight’s sales force, which Plaintiffs claim artificially inflated Pluralsight’s
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`stock price, including during a secondary public offering (“SPO”) in March 2019.
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`Pluralsight announced disappointing second-quarter earnings on July 31, 2019.
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`Defendants attributed the low earnings to a shortage of sales representatives earlier in
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`the year—but this explanation contradicted representations Pluralsight made in the
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`first quarter of 2019 about the size of its sales force. The day after the announcement,
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`Pluralsight’s stock dropped nearly 40%.
`
`Lead Plaintiffs Indiana Public Retirement System (“INPRS”) and Public
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`School Teachers’ Pension and Retirement Fund of Chicago (“CTPF”) brought claims
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`on behalf of a putative class of Pluralsight stock holders under the Securities
`
`Exchange Act of 1934 (“Exchange Act”), and the Securities Act of 1933 (“Securities
`
`Act”) in federal district court in Utah. Defendants moved to dismiss under Federal
`
`Rule of Civil Procedure 12(b)(6), contending Plaintiffs failed to adequately allege (1)
`
`any materially false or misleading statements or omissions and (2) that Defendants
`
`acted with the requisite scienter. The district court found one statement (of eighteen
`
`alleged) was materially false or misleading but dismissed Plaintiffs’ Exchange Act
`
`claims because the complaint failed to allege a strong inference of scienter. The
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`district court dismissed Plaintiffs’ Securities Act claims because none of the
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`statements in Pluralsight’s SPO documents were materially false or misleading. As
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`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 4
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`part of its analysis, the district court concluded Plaintiffs failed to plead a violation of
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`SEC Regulation S–K as the basis for a claim under either Act.
`
`This appeal asks us to decide whether the district court properly dismissed
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`Plaintiffs’ complaint. Exercising jurisdiction under 28 U.S.C. § 1291, and applying
`
`de novo review, we reverse and remand. We conclude the district court erred in
`
`dismissing Plaintiffs’ Exchange Act claims. Although the district court correctly
`
`determined that Plaintiffs sufficiently alleged only one materially false or misleading
`
`statement, the district court’s scienter determination was erroneous, as we will
`
`explain. We also conclude the district court relied on erroneous reasoning to dismiss
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`the alleged violation of Item 303 of SEC Regulation S–K, so we must remand for
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`further consideration of Plaintiffs’ Exchange Act and Securities Act claims based on
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`the alleged Item 303 violation, consistent with this opinion. We otherwise affirm the
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`district court’s dismissal of Plaintiffs’ Securities Act claims.
`
`I.
`
`Background
`
`A.
`
`Factual allegations1
`1.
`Pluralsight relied on “billings” growth to attract investors and
`Defendants assured investors they closely monitored the sales force
`data that drove billings.
`
`Pluralsight was not profitable, so it relied primarily on its quarterly “billings”
`
`growth to attract investors. It defined “billings” as “total revenue plus the change in
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`deferred revenue in the period.” Aplts. App. vol. 1 at 58. Quarterly billings generally
`
`
`1 The background facts derive from the well-pleaded allegations in the
`complaint.
`
`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 5
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`reflected amounts invoiced to customers that quarter, including subscription
`
`renewals, sales of additional products or services to existing customers, and sales to
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`new customers. “While revenue in a given quarter provided investors with a snapshot
`
`in time, billings were a crucial indicator of the future revenue and cash flow that the
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`Company would realize from deals that the sales representatives had executed in that
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`quarter.” Id. at 59. In Pluralsight’s SEC filings, earnings calls, and presentations to
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`investors, Defendants repeatedly stated that billings growth was Pluralsight’s “key
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`business metric” and a “key factor affecting [the company’s] long-term
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`performance.” Id.
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`Defendants also told investors and analysts that Pluralsight’s sales force—
`
`including both the number of its sales representatives and their productivity—was the
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`primary driver of Pluralsight’s billings growth. For example, in an August 2018
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`earnings call with analysts and investors, Mr. Budge attributed Pluralsight’s billings
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`growth to its “heavy” investment in “sales and marketing” and the “efficiencies” that
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`resulted from having more “tenured sales reps.” Id. at 62. During a meeting at
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`Pluralsight’s annual conference, Pluralsight Live, Mr. Budge told analysts and
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`investors that Pluralsight’s billings growth depended on the sales representative
`
`headcount and the ability of those representatives to meet their sales quotas. Mr.
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`Skonnard and Mr. Budge made similar comments attributing Pluralsight’s billings
`
`success to its sales force capacity in an earnings call with analysts and investors in
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`October 2018.
`
`
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`Defendants told investors they carefully monitored the data surrounding its
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`billings growth—Pluralsight’s “key business metric”—including the number of sales
`
`representatives, their productivity, and deals in the “pipeline.” Because they closely
`
`tracked this data, Defendants maintained they could reliably predict billings about six
`
`months in advance. As part of its internal planning and forecasting, Defendants
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`followed a sales representative’s progression from hiring through “ramping up to take
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`on a full sales quota.” Id. at 61. This “ramping up” process to become a quota-
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`bearing sales representative, Mr. Budge explained, took between six months and two
`
`years. Id. Defendants also used a “pipeline” to track the progression of potential
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`sales, from identifying a potential customer to closing a deal. The pipeline indicated
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`the number of potential deals, when Pluralsight expected the deals to close, and how
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`sales representatives were performing relative to their sales quotas. For example, in
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`the August 2018 earnings call, Mr. Budge explained that, to meet its quarterly
`
`billings “targets,” Pluralsight relied heavily on deals that took “5 to 6 months” to
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`progress through the pipeline. Id. at 63. And Pluralsight could reliably approximate
`
`quarterly billings growth about six months in advance.
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`Given Defendants’ assurances about how closely they tracked Pluralsight’s
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`“key business metric,” investors and analysts routinely incorporated Defendants’
`
`statements about the size and productivity of Pluralsight’s sales force into their
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`reports, basing their investment recommendations and decisions on these statements.
`
`For example, the day after Pluralsight’s August 2018 earnings call, a J.P. Morgan
`
`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 7
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`analyst report noted, “We believe the heavy investments undertaken by the company
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`last year to ramp up its sales force is starting to pay off.” Id. at 62-63.
`
`2.
`
`Throughout the class period, Defendants repeatedly touted the size
`and productivity of Pluralsight’s sales force.
`
`On January 16, 2019, Mr. Budge spoke at the annual Needham Growth
`
`Conference and highlighted the size and effectiveness of Pluralsight’s sales force.
`
`During a Q&A session with analysts and investors, Mr. Budge explained that over
`
`the last few years Pluralsight had only “about 80 quota-bearing reps and little
`
`infrastructure around our sales reps,” but he further stated, “[T]he aggregate quota-
`
`bearing reps went from about 80 at that time to today we have about 250.” Aplts.
`
`App. vol. 1 at 105-06. He also claimed Pluralsight was “starting to see some of the
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`efficiencies of [its] models,” that it “built out some of the infrastructure around sales
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`to scale,” and that the sales force was “killing it.” Id. at 106. Mr. Budge made similar
`
`representations about Pluralsight’s sales force in an earnings call on February 13,
`
`2019. Id. at 108 (“Total quota-bearing reps closing in at around 240 . . . more
`
`goodness from them.”).
`
`On February 21, 2019, Pluralsight filed its 2018 Form 10–K with the SEC,
`
`signed by Mr. Skonnard and Mr. Budge. The Form 10–K stated that Pluralsight had
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`“a large direct sales force to focus on business sales” and had “been able to drive
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`substantial increases in the productivity and effectiveness of [its] sales personnel.”
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`Id. at 69. The Form 10–K also contained a list of “risk factors”—several addressed
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`the possibility that deficiencies in the sales force could negatively affect Pluralsight’s
`
`
`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 8
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`business. One risk factor provided “there is no guarantee that [Pluralsight’s]
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`investments [in sales and marketing] will succeed.” Id. at 70. Another cautioned:
`
`If we are unable to hire, develop, and retain talented sales or marketing
`personnel, if our new sales or marketing personnel are unable to achieve
`desired productivity levels in a reasonable period of time, or if our sales
`and marketing programs are not effective, our ability to broaden our
`customer base and achieve broader market acceptance of our platform
`could be harmed.
`
`Id. In March 2019, these statements from the Form 10–K were included in documents
`
`filed with the SEC in Pluralsight’s SPO.
`
`On May 1, 2019, during an earnings call, Mr. Budge again discussed the size
`
`and expansion of Pluralsight’s sales force. He said, “we like where we are with our
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`sales reps” and “we’re on pace” to have “300-plus reps by the time we exit the year.”
`
`Id. at 77-78. Investors and analysts continued to consider these statements when
`
`making investment decisions and recommendations. Immediately after the earnings
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`call on May 1, 2019, for example, J.P. Morgan issued a report increasing its “price
`
`target” for Pluralsight stock, and SunTrust recommended Pluralsight as a “buy.” Id.
`
`at 79. In June, a SunTrust report highlighted for investors the “benefits still to accrue
`
`from [Pluralsight’s] sales capacity expansion”: “The company has expanded its sales
`
`capacity over a multi-year basis and we estimate total sales headcount to approximate
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`300 by the end of 2019. Several years of significant growth in sales headcount and
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`increasing productivity from tenured sales reps bodes very well for [business-to-
`
`business] billings activity this year.” Id.
`
`
`
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`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 9
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`3.
`
`Billings growth dropped off in the second quarter of 2019, and
`Defendants attributed the decline to a shortage of sales
`representatives.
`
`On July 31, 2019, following five consecutive quarters of greater than 40%
`
`billings growth year-over-year, Pluralsight announced that billings grew only 23% in
`
`the second quarter of 2019. Pluralsight’s Form 10–Q, filed on July 31, 2019, revealed
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`for the first time that Pluralsight had been “slower in hiring additional sales
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`representatives than planned for 2019.” Id. at 81.
`
`That same day, Mr. Skonnard and Mr. Budge elaborated on the disappointing
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`second-quarter returns during an earnings call. Mr. Budge explained, “We’re about
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`250 quota-bearing reps right now. And that’s about the number of bodies we wanted
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`to have at this time in the year, but they didn’t come into the year early enough . . . .
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`[W]e’re a few months behind there, that’s been the big impact.” Id. at 82. According
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`to Mr. Budge,
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`there were dozens of reps that we needed to bring on board at the end of
`last year, beginning into this year, so they would ramp and become fully
`productive in the second quarter. And there was for a number of reasons
`delays in bringing them on board until, kind of, early to mid second
`quarter.
`
`Id. Mr. Skonnard and Mr. Budge both told investors that, notwithstanding these
`
`delays, Pluralsight was “nearly caught up” on its sales capacity plan. Id. at 83. When
`
`an analyst asked, “[W]hy didn’t we hear this on last quarter’s call?” Mr. Budge
`
`stated, “Well, we were still hitting our numbers.” Id. (alteration in original).
`
`However, he acknowledged those “numbers” were driven not by the size of the sales
`
`
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`force but by “an accelerated productivity out of reps that was not sustainable in the
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`second quarter. We just needed more bodies to soak that up.” Id.
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`The next day, Pluralsight’s share price dropped nearly 40% from $30.69 to
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`$18.56.
`
`Six months later, at the Needham Growth Conference in January 2020, Mr.
`
`Budge explained in a Q&A that Pluralsight “came out of 2018 going into 2019 with
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`about 200 quota-bearing sales reps.” Id. at 87. “We came into the year with fewer
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`sales reps than we had planned – than we had hoped for.” Id. Mr. Budge explained,
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`“We just didn’t have enough reps.” Id.
`
`B.
`
`Procedural history
`
`Plaintiffs brought three claims under the Exchange Act on behalf of a putative
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`class of persons who purchased Pluralsight stock between January 16, 2019, and July
`
`31, 2019. Count I alleges Pluralsight, Mr. Skonnard, and Mr. Budge fraudulently or
`
`recklessly made eighteen materially false and misleading statements and omissions in
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`violation of section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule
`
`10b–5, 17 C.F.R. § 240.10b–5. In Count II, Plaintiffs allege Mr. Skonnard and Mr.
`
`Budge are liable under section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), which
`
`creates liability for certain “controlling persons” of entities who violate securities
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`laws. Count III alleges Mr. Skonnard and Mr. Budge engaged in insider trading in
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`violation of section 20A of the Exchange Act, 15 U.S.C. § 78t-1(a).
`
`Plaintiff INPRS also alleged three claims under the Securities Act on behalf of
`
`persons who purchased stock traceable to the SPO. The Securities Act claims are
`
`
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`brought against Pluralsight, Mr. Skonnard, and Mr. Budge; ten members of
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`Pluralsight’s board of directors who were signatories to the registration statement
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`filed with the SPO (“Signer Defendants”); and the co-lead underwriters for the SPO
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`(“Underwriter Defendants”) who prepared the SPO’s registration statement and
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`prospectus (collectively, “offering documents”). In Count IV, Plaintiffs allege all
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`defendants negligently made false and materially misleading statements in the
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`offering documents in violation of section 11 of the Securities Act, 15 U.S.C. § 77k.
`
`Count V claims Pluralsight and the Underwriter Defendants negligently made
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`materially false statements in the prospectus in violation of section 12(a)(2) of the
`
`Securities Act, 15 U.S.C. § 77l(a)(2). And finally, Count VI alleges the Signer
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`Defendants are liable as controlling persons under section 15 of the Securities Act, 15
`
`U.S.C. § 77o.
`
`Defendants moved to dismiss the complaint under Federal Rule of Civil
`
`Procedure 12(b)(6). The district court granted the motion.
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`As for the Exchange Act claims, the district court found Mr. Budge’s
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`statement on January 16, 2019, that “today we have about 250” quota-bearing sales
`
`representatives was materially false and misleading. Aplts. App. vol. 3 at 638-39.
`
`The district court concluded, however, that Plaintiffs failed to plead a “strong, cogent
`
`inference of scienter” as required by the Private Securities Litigation Reform Act of
`
`1995. Id. at 667. According to the district court, the remaining statements alleged
`
`were not materially false or misleading—rather, they were accurate statements of
`
`historical fact and/or nonactionable statements of corporate optimism and puffery.
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`The district court further determined Defendants’ offering documents did not violate
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`Item 303 of Regulation S–K, 17 C.F.R. § 229.303(b)(2)(ii), which requires disclosure
`
`of known trends reasonably likely to have a material impact on net sales; nor did they
`
`fail to disclose “risk factors” in violation of Item 105, 17 C.F.R. § 229.105.
`
`Accordingly, the district court dismissed Count I. Because the claims raised in
`
`Counts II and III required a predicate Exchange Act violation, i.e., the section 10(b)
`
`violation alleged in Count I, the district court dismissed those counts as well.
`
`The district court dismissed Plaintiffs’ Securities Act claims for substantially
`
`the same reasons—concluding as to Counts IV and V that the statements in the
`
`offering documents were not materially misleading and Defendants did not violate
`
`Regulation S–K. Count VI was dismissed for lack of a predicate Securities Act
`
`violation.
`
`Plaintiffs timely appealed.
`
`A.
`
`Standard of Review
`
`II. Discussion
`
`“Dismissals under Rule 12(b)(6) are reviewed de novo.” Nakkhumpun v.
`
`Taylor, 782 F.3d 1142, 1146 (10th Cir. 2015). “In conducting de novo review, we
`
`accept the well-pleaded allegations of the complaint and construe them in the light
`
`most favorable to the plaintiff.” Id. “We consider the complaint as a whole, along
`
`with the documents incorporated by reference into the complaint or publicly filed
`
`with the Securities and Exchange Commission.” Id.
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`B.
`
`Section 10(b) claim
`
`“Section 10(b) of the Securities Exchange Act and Rule 10b–5 promulgated
`
`thereunder ‘prohibit making any material misstatement or omission in connection
`
`with the purchase or sale of any security.’” Smallen v. W. Union Co., 950 F.3d 1297,
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`1304 (10th Cir. 2020) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S.
`
`258, 267 (2014)) (citing 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b–5). To establish a
`
`violation under section 10(b) and Rule 10b–5, a plaintiff must prove: “(1) a material
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`misrepresentation or omission by the defendant; (2) scienter; (3) a connection
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`between the misrepresentation or omission and the purchase or sale of a security;
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`(4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss
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`causation.” Halliburton Co., 573 U.S. at 267. Only the first two elements are at issue
`
`in this appeal.
`
`Under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), a
`
`heightened pleading standard applies to allegations of a material misrepresentation or
`
`omission and scienter. In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1333
`
`(10th Cir. 2012) (citing Pub. L. No. 104–67, 109 Stat. 737). “In order to overcome a
`
`motion to dismiss, a complaint must ‘specify each statement alleged to have been
`
`misleading, the reason or reasons why the statement is misleading, and, if an
`
`allegation regarding the statement or omission is made on information and belief, the
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`complaint shall state with particularity all facts on which that belief is formed.’” Id.
`
`(quoting 15 U.S.C. § 78u–4(b)(1)).
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`“Further, it is not enough for a plaintiff to allege generally that the defendant
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`acted with scienter, as permitted under Fed. R. Civ. P. 9(b).” Id. “The plaintiff must,
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`‘with respect to each act or omission alleged . . . state with particularity facts giving
`
`rise to a strong inference that the defendant acted with the required state of mind.’”
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`Id. (alteration in original) (quoting § 78u–4(b)(2)). Notwithstanding this heightened
`
`pleading standard, “courts must, as with any motion to dismiss for failure to plead a
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`claim on which relief can be granted, accept all factual allegations in the complaint as
`
`true.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
`
`1. Material Misrepresentations
`
`Plaintiffs identify eighteen statements by Defendants Pluralsight, Mr.
`
`Skonnard, and Mr. Budge that allegedly give rise to liability under section 10(b).
`
`Plaintiffs claim these statements were misrepresentations of material facts or were
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`misleading, given Defendants’ omission of material facts. The district court
`
`determined only one statement was materially false or misleading. We agree.
`
`To sufficiently plead falsity, the complaint must allege facts to “support a
`
`reasonable belief that the defendant’s statements identified by the plaintiff were false
`
`or misleading.” Hampton v. root9B Techs., Inc., 897 F.3d 1291, 1298 (10th Cir.
`
`2018) (citation omitted). We have identified factors relevant to determining whether
`
`falsity has been sufficiently pleaded under section 10(b):
`
`(1) the level of detail provided by the facts stated in a complaint; (2) the
`number of facts provided; (3) the coherence and plausibility of the facts
`when considered together; (4) whether the source of the plaintiff’s
`knowledge about a stated fact is disclosed; (5) the reliability of the
`
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`sources from which the facts were obtained; and (6) any other indicia of
`how strongly the facts support the conclusion that a reasonable person
`would believe that the defendant’s statements were misleading.
`
`Id. at 1298-99 (citation omitted).
`
`“[W]hen the claim is for omission of a material fact, the plaintiff must show
`
`the defendant had a duty to disclose the omitted information.” Emps.’ Ret. Sys. of R.I.
`
`v. Williams Cos., 889 F.3d 1153, 1162 (10th Cir. 2018). “[Section] 10(b) and Rule
`
`10b–5(b) do not create an affirmative duty to disclose any and all material
`
`information. Disclosure is required under these provisions only when necessary ‘to
`
`make . . . statements made, in the light of the circumstances under which they were
`
`made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44
`
`(2011) (second alteration in original) (quoting 17 C.F.R. § 240.10b–5(b)). “[I]f a
`
`defendant makes a statement on a particular issue, and that statement is false or later
`
`turns out to be false, the defendant may be under a duty to correct any misleading
`
`impression left by the statement.” Grossman v. Novell, Inc., 120 F.3d 1112, 1125
`
`(10th Cir. 1997).
`
`It is not enough for a defendant’s statement or omission to be false or
`
`misleading, it must also be material. Basic Inc. v. Levinson, 485 U.S. 224, 238
`
`(1988). “A statement or omission is only material if a reasonable investor would
`
`consider it important in determining whether to buy or sell stock.” Grossman, 120
`
`F.3d at 1119; see also Matrixx Initiatives, Inc., 563 U.S. at 38 (“[T]his materiality
`
`requirement is satisfied when there is ‘a substantial likelihood that the disclosure of
`
`the omitted fact would have been viewed by the reasonable investor as having
`15
`
`
`
`

`

`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 16
`
`significantly altered the “total mix” of information made available.’” (citation
`
`omitted)). “In this regard, we have distinguished between statements that are material
`
`and those that are ‘mere puffing . . . not capable of objective verification.’” Level 3,
`
`667 F.3d at 1339 (alteration in original) (citation omitted). “Vague, optimistic
`
`statements are not actionable because reasonable investors do not rely on them in
`
`making investment decisions.” Id. (citation omitted).
`
`Our decision in Level 3 is instructive on a critical legal principle at issue here:
`
`the distinction between material misstatements and mere puffery. There, plaintiff-
`
`shareholders sued defendants under section 10(b) for making allegedly false and
`
`misleading statements about the progress of integrating defendants’ recent
`
`telecommunications acquisitions. Id. at 1337-38. We found “general, forward-looking
`
`expressions of confidence in future integration progress” were not material
`
`misstatements; nor were “broad claims by defendants regarding integration efforts,”
`
`including: (1) the “integration of all the acquired companies is progressing well and
`
`we’re beginning to see the benefits of synergies from those transactions”; and (2) the
`
`“overall integration effort is tracking within expectations in this regard, and the
`
`overall customer experience is still positive.” Id. at 1340. Observing the difference
`
`between actionable misstatements and mere puffery, we explained, “These are all the
`
`‘kind of rosy affirmation[s] commonly heard from corporate managers and
`
`numbingly familiar to the marketplace—loosely optimistic statements that are so
`
`vague, so lacking in specificity . . . that no reasonable investor could find them
`
`
`
`16
`
`

`

`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 17
`
`important.’” Id. (alterations in original) (citation omitted). Such statements are “not
`
`capable of objective verification.” Id. at 1339 (citation omitted).
`
`But we also determined in Level 3 that several “particularly concrete”
`
`statements were “potentially actionable” because they “did cross the line from
`
`corporate optimism and puffery to objectively verifiable matters of fact”—namely,
`
`(1) the “majority” of the integration was complete, “ahead of plan” and “under
`
`budget”; (2) a “majority of the physical network interconnection are completed”;
`
`(3) the integration efforts were “85%, 90% done”; and (4) “[m]ost of the physical
`
`integration of WilTel is now complete.” Id. at 1340. Level 3 teaches that positive
`
`generalizations about a company’s performance will typically not give rise to liability
`
`under section 10(b); rather, to be actionable, the statements must be grounded in
`
`concrete metrics or other objectively verifiable data. Saying that a project is
`
`“progressing well” is likely not actionable, but saying it is “90% done” potentially is.
`
`With this applicable law in mind and guided by the standard of review for a
`
`motion to dismiss under Rule 12(b)(6), we turn to the alleged misstatements here.
`
`i.
`
`January 16, 2019, Needham Growth Conference (Statements
`1-4)2
`
`On January 16, 2019, Mr. Budge participated in a Q&A session with analysts
`
`and investors at the Needham Growth Conference. Plaintiffs allege Mr. Budge made
`
`
`2 Defendants prepared a chart of allegedly false or misleading statements from
`the complaint and attached it as an exhibit to their motion to dismiss. Although
`Defendants’ chart lists thirty statements, Plaintiffs clarified that only eighteen were
`alleged to be false or misleading. Plaintiffs and the district court adopted Defendants’
`numbering of the statements for reference, and the parties again refer to these
`17
`
`
`
`

`

`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 18
`
`four materially false and misleading statements and omitted material facts during this
`
`session, in violation of section 10(b).
`
`First, Plaintiffs point to Mr. Budge’s statement providing concrete information
`
`about Pluralsight’s growing sales force. He stated that in recent years Pluralsight only
`
`had “about 80 quota-bearing reps and little infrastructure around our sales reps. . . .
`
`[T]he aggregate quota-bearing sales reps went from about 80 at that time to today we
`
`have about 250.” Aplts. App. vol. 1 at 105-06. The complaint alleges, “Budge’s
`
`statement about the absolute quota-bearing sales representative headcount being
`
`‘about 250’ was false because Budge later admitted to investors that ‘[w]e came out
`
`of 2018 going into 2019 with about 200 quota-bearing sales reps.’” Id. at 106-07
`
`(alteration in original). In the district court, Defendants maintained this statement
`
`was not false when made, particularly since it was couched in approximating
`
`language.
`
`The district court concluded Plaintiffs sufficiently alleged Mr. Budge’s
`
`statement that “today we have about 250” quota-bearing sales representatives was
`
`materially false. The allegations of falsity were sufficient, the district court reasoned,
`
`given Mr. Budge’s later statement in January 2020 that Pluralsight had only 200
`
`quota-bearing sales representatives coming into 2019; and the false statement was
`
`
`statement numbers on appeal. We also refer to these statement numbers and include
`Defendants’ chart in an appendix for convenience. However, for purposes of our
`substantive analysis, we rely solely on the statements as alleged in the complaint.
`18
`
`
`
`

`

`Appellate Case: 21-4058 Document: 010110728523 Date Filed: 08/23/2022 Page: 19
`
`“material in light of how central Pluralsight’s sales force numbers were to its billings
`
`growth.” Aplts. App. vol. 3 at 639. We agree.
`
`The complaint alleges Mr. Budge stated on January 16, 2019, that “today we
`
`have about 250” quota-bearing sales representatives, but he later explained
`
`Pluralsight had only “about 200” quota-bearing sales representatives coming into
`
`2019. This allegation, which we accept as true, strongly suggests Pluralsight could
`
`not have had “about 250” quota-bearing sales representatives on January 16, 2019.
`
`This would have required Pluralsight to ramp up an additional 50 sales
`
`representative

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