Cement Masons & Plasterers Joint Pension Trust
Filing
40
ORDER by Judge Samuel Conti granting (29) Motion to Dismiss in case 3:11-cv-01016-SC (sclc1, COURT STAFF) (Filed on 3/2/2012)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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CEMENT MASONS & PLASTERERS
JOINT PENSION TRUST,
Individually and on Behalf of
All Others Similarly Situated,
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Plaintiffs,
United States District Court
For the Northern District of California
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v.
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EQUINIX, INC., STEPHEN M.
SMITH, and KEITH TAYLOR,
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Defendants.
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) Case No. 11-01016 SC
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) ORDER GRANTING MOTION TO
) DISMISS
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I.
INTRODUCTION
Plaintiffs Cement Masons & Plasterers Joint Pension Trust
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("Cement Masons") and the International Brotherhood of Electrical
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Workers Local 697 Pension Fund ("IBEW") (collectively,
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"Plaintiffs") bring this putative securities class action against
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Equinix, Inc. ("Equinix"), and Equinix's CEO, Stephen M. Smith
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("Smith"), and CFO, Keith D. Taylor ("Taylor") (collectively,
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"Defendants").
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was artificially inflated between July 29, 2010 and October 5, 2010
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("the Class Period") due to allegedly false and misleading
27
statements made by Defendants, and that Equinix's stock price
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plummeted over 33 percent when the falsity of these statements was
Plaintiffs assert that the price of Equinix stock
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revealed.
Now before the Court is Defendants' Motion to Dismiss
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Plaintiffs' First Amended Complaint ("FAC").
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The Motion is fully briefed.
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Pursuant to Civil Local Rule 7-1(b), the Court finds the motion
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suitable for determination without oral argument.
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set forth below, the Court GRANTS Defendants' Motion to Dismiss and
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DISMISSES the FAC WITH LEAVE TO AMEND.
ECF No. 29 ("MTD").
ECF Nos. 17 ("Opp'n"), 20 ("Reply").
For the reasons
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9
United States District Court
For the Northern District of California
10
II.
BACKGROUND
Equinix is a public corporation that provides carrier-neutral
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data centers and internet exchanges.
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Company connects businesses with partners and customers around the
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world through a global platform of high-performance data centers
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called International Business Exchanges ("IBXs").
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centers enable customers to safeguard their infrastructure, house
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their assets and applications closer to users, and collaborate with
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partners and customers.
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of its revenue through three offerings available to customers at
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its ninety-two IBX data centers: collocation services,
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interconnection services, managed IT services.
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services provide customers with shared, equipped facilities for
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their computer and data systems.
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Id.
ECF No. 26 ("FAC") ¶ 2.
Id.
The
IBX data
Equinix generates substantially all
Id. ¶ 4.
These
See id. ¶¶ 5-7.
Equinix acquired Switch and Data, one of its competitors,
Id. ¶ 8.
Equinix's overall
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during the second quarter of 2010.
25
financial results for that quarter were positive.
26
2010, the day before the commencement of the Class Period, the
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Company issued a press release announcing that it had posted its
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thirtieth consecutive quarter of sequential growth, reporting
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On July 28,
1
revenues of $296.1 million.
2
Equinix offered financial projections for the third quarter 2010
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("3Q10") and fiscal year 2010 ("FY10").
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forecasted 3Q10 revenue of $335 to $338 million and FY10 revenue of
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$1.225 to $1.235 billion (the "July 28 guidance").
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EBITDA1 for FY10 was expected to be between $535 and $540 million.
7
Id.
In the same release,
Id. ¶ 48.
Equinix
Id.
Adjusted
Also on July 28, 2010, Defendants made a number of statements
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Id. ¶¶ 8, 48.
concerning Equinix's pricing strategy and the integration of Switch
United States District Court
For the Northern District of California
10
and Data.
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about whether Equinix could maintain its firm pricing in the face
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of an increasingly competitive environment, Smith commented: "We're
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not going to go below a threshold," id. ¶ 36; and "[w]e're
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maintaining the discipline on the floors and ceilings we have on
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our pricing and the sales force is staying very, very disciplined
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on price," id. ¶ 51.
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exceptions to this stable pricing strategy: "[I]n certain markets
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we're going to get some pricing pressure on certain deals.
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a strategic deal and it's a magnetic deal for us, we'll get more
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aggressive."
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a positive assessment of the company's integration into Equinix.
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In the July 28, 2010 press release, Equinix stated: "The
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integration of Switch and Data is ahead of schedule."
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During the July 28, 2010 conference call, Smith stated: "The sales
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organizations have been completely integrated with full cost
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On a conference call, responding to investor questions
Smith conceded that there would be certain
Id. ¶ 51.
If it's
As to Switch and Data, Defendants offered
Id. ¶ 8.
Adjusted EBITDA is defined as income or loss from operations plus
depreciation, amortization, accretion, stock-based compensation
expense, restructuring charges, acquisition costs, and gains on
asset sales.
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synergies already achieved in the sales function."
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Taylor echoed this sentiment, stating: "We've got the sales forces
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cross-selling into both assets.
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. . . so the structure all the way up to the sales leader in North
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America has been in place for weeks now."
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Id. ¶ 50.
They're all part of one team today
Id.
Taylor spoke with investors again on September 15, 2010,
the stability of Equinix's pricing, Taylor affirmed: "[W]e're not
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going to trade price for volume"; id. ¶ 65; and "this is sort of a
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United States District Court
echoing many of the statements from July 28, 2010.
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For the Northern District of California
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consistent message you've heard from us previously, that pricing is
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stable, it's firm," id. ¶ 66.
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look into 2011 on our Q3 earnings call, I think it’s fair to assume
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that we are going to give out guidance.
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confidence in our ability to do that."
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Commenting on
Taylor also stated: "I think as we
We have a high degree of
Id. ¶ 65.
Equinix had less positive news to report on October 5, 2010,
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the last day of the Class Period.
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release that it now expected 3Q10 revenue of $328 to $330 million,
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a 2.2 percent reduction from the July 28 guidance, and FY10 revenue
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of 1.215 billion, a 1.2 percent reduction from the July 28
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guidance.
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same day, Smith stated that the downward revision was due to an
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"understatement of churn" (i.e., customer attrition), lower than
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expected revenues related to the company's Switch and Data assets,
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and customer discounts that were not fully contemplated when
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Equinix offered the July 28 guidance.
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explained:
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Id. ¶ 13.
Equinix announced in a press
In a conference call with investors on the
Id. ¶¶ 70-71.
Smith
[W]e just had an assumption that was missed in the
guidance. . . . Should've seen it in Q2. We caught it
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part way through. We wanted to see the September flash
so we'd make darn sure we knew what the heck we were
looking at. And that's why we decided to get that behind
us, looking at the September flash and getting it out to
you guys today.
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Id. ¶ 71.
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Smith also addressed Equinix's pricing strategy and the Switch
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and Data integration during the October 5, 2010 conference call.
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As to pricing, Smith stated: "[D]uring the second and third
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quarters, there were certain discounts and credit memos issued to a
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number of strategic customers."
Id. ¶ 70.
Smith elaborated that
United States District Court
For the Northern District of California
10
Equinix had adjusted prices "just over 10%" for two key "magnet"
11
customers, id. ¶ 73, explaining that "if a large customer is
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willing to commit long term in large volume, we are going to get
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flexible in our pricing with them."
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Switch and Data integration, Smith stated:
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Id. ¶ 74.
With respect to the
We are five months into our integration plan, and we've
been able to achieve cost synergy targets, resulting in a
7-point improvement to the Switch and Data adjusted
EBITDA margins. . . .
We still have work to do to
realign the combined sales organizations, but our
expectations are that we will see improvements in the
utilization of the former Switch and Data assets as we
exit 2010.
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Id. ¶ 71.
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Investors were apparently displeased with the October 5, 2010
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announcements.
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5 to $70.34 the next day, a one-day loss of over 33 percent of
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shareholder equity.
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Equinix's stock price fell from $106.09 on October
Id. ¶ 17.
Cement Masons, which had purchased Equinix stock during the
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Class Period, filed the instant action in federal court on March 4,
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2011.
ECF No. 1 ("Compl.").
IBEW, another Equinix stockholder
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1
that is represented by the same counsel as Cement Masons, was
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appointed as lead plaintiff on August 8, 2011.
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8, 2011 Order").
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asserts causes of action for: (1) violations of Section 10(b) of
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the Securities Exchange Act of 1934 ("the Exchange Act") and of
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United States Securities and Exchange Commission ("SEC") Rule 10b-
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5; and (2) violations of Section 20(a) of the Exchange Act.
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93-98.
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false and misleading statements concerning: (1) Equinix's financial
ECF No. 23 ("Aug.
The FAC was filed about six weeks later.
The FAC
FAC ¶¶
The crux of the FAC is that Defendants made a number of
United States District Court
For the Northern District of California
10
forecasts for 3Q10 and FY10; (2) Equinix's pricing strategy; (3)
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the integration of Switch and Data's sales force; and (4) Equinix's
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ability to provide accurate financial forecasts.2
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allege that these false and misleading statements artificially
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inflated Equinix's stock price and that, when the truth was finally
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revealed, Equinix's stock price plummeted.
Plaintiffs
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III. LEGAL STANDARD
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A.
Motion to Dismiss
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A motion to dismiss under Federal Rule of Civil Procedure
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12(b)(6) "tests the legal sufficiency of a claim."
21
Block, 250 F.3d 729, 732 (9th Cir. 2001).
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on the lack of a cognizable legal theory or the absence of
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sufficient facts alleged under a cognizable legal theory."
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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.
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1988).
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should assume their veracity and then determine whether they
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2
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Navarro v.
"Dismissal can be based
"When there are well-pleaded factual allegations, a court
The FAC also targets Defendants' statements concerning churn
rates, see, e.g., FAC ¶ 52, but Plaintiffs appear to have abandoned
those allegations in their opposition papers.
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plausibly give rise to an entitlement to relief."
Ashcroft v.
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Iqbal, 129 S. Ct. 1937, 1950 (2009).
3
court must accept as true all of the allegations contained in a
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complaint is inapplicable to legal conclusions.
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recitals of the elements of a cause of action, supported by mere
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conclusory statements, do not suffice."
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Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
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generally "limited to the complaint, materials incorporated into
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the complaint by reference, and matters of which the court may take
However, "the tenet that a
Threadbare
Id. (citing Bell Atl.
The court's review is
United States District Court
For the Northern District of California
10
judicial notice."
Metzler Inv. GMBH v. Corinthian Colls., Inc.,
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540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor
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Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
13
B.
Section 10(b)
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Section 10(b) of the Exchange Act makes it unlawful "[t]o use
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or employ, in connection with the purchase or sale of any security
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registered on a national securities exchange . . . any manipulative
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or deceptive device or contrivance in contravention of such rules
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and regulations as the [Securities and Exchange] Commission may
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prescribe . . . ."
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by the Commission is Rule 10b–5, which states that "[i]t shall be
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unlawful for any person . . . [t]o engage in any act, practice, or
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course of business which operates or would operate as a fraud or
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deceit upon any person, in connection with the purchase or sale of
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any security."
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five elements to establish a violation of Rule 10b–5.
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Specifically, Plaintiffs must demonstrate "(1) a material
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misrepresentation or omission of fact, (2) scienter, (3) a
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connection with the purchase or sale of a security, (4) transaction
15 U.S.C. § 78j(b).
One such rule prescribed
17 C.F.R. § 240.10b–5(c).
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Plaintiffs must plead
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and loss causation, and (5) economic loss."
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In re Daou Sys., 411
F.3d 1006, 1014 (9th Cir. 2005).
Plaintiffs must also meet the heightened pleading standards of
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Federal Rule of Civil Procedure 9(b) and the Private Securities
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Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4.
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PSLRA requires plaintiffs to "specify each statement alleged to
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have been misleading [and] the reason or reasons why the statement
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is misleading."
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complaint must "state with particularity facts giving rise to a
15 U.S.C. § 78u-4(b)(1).
The
Additionally, the
United States District Court
For the Northern District of California
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strong inference that the defendant acted with the required state
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of mind."
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establishing securities fraud is the knowing, intentional, or
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deliberately reckless disclosure of false or misleading statements.
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See Daou, 411 F.3d at 1014–15.
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scienter naturally results in a stricter standard for pleading
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falsity, because falsity and scienter in private securities fraud
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cases are generally strongly inferred from the same set of facts,
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and the two requirements may be combined into a unitary inquiry
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under the PSLRA."
Id. § 78u-4(b)(2).
The "required state of mind" for
"The stricter standard for pleading
Id. at 1015 (internal quotation marks omitted).
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IV.
DISCUSSION
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A.
Plaintiffs' Section 10(b) Claim
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The Court finds that Plaintiffs' Section 10(b) claim fails
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because Plaintiffs have not alleged any actionable statements.
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set forth below, Defendants' July 28 financial forecasts are
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protected by the PSLRA safe harbor for forward-looking statements.
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Defendants' statements regarding Equinix's pricing strategy and the
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Switch and Data integration are not actionable because Plaintiff
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As
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has failed to plead that the statements were false.
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statement regarding Equinix's ability to provide accurate financial
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guidance constitutes a non-actionable expression of corporate
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optimism.
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Defendants somehow violated a duty to correct the July 28 guidance.
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Additionally, Plaintiffs' theory of fraud is undermined by the fact
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that Smith and Taylor held onto their Equinix stock during the
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Class Period.
United States District Court
For the Northern District of California
10
The Court also rejects Plaintiffs' argument that
1.
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Taylor's
Financial Forecasts for 3Q10 and FY10
Plaintiffs allege that Defendants knew that Equinix would fail
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to meet its July 28 forecasts for 3Q10 and FY10 at the time the
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forecasts were made.
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percentage points on October 5, purportedly because of an
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understated churn rate, lower than expected revenues from Switch
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and Data assets, and a failure to account for customer discounts
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and settlements.
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actionable because they fall under the PSLRA safe harbor for
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forward-looking statements.
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These forecasts were revised by a few
The Court finds that these forecasts are not
The PSLRA defines a forward-looking statement as "a statement
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containing a projection of revenues, income (including income
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loss), earnings (including earnings loss) per share, capital
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expenditures, dividends, capital structure, or other financial
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items."
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the safe harbor if: (A) they are "identified as forward-looking"
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and " accompanied by meaningful cautionary statements identifying
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important factors that could cause actual results to differ
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materially from those in the forward-looking statement"; or (B) the
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plaintiff fails to prove the projections were made with "actual
15 U.S.C. § 78u-5(i)(1).
Such statements may fall within
9
1
knowledge" that they were false and misleading. Id. § 78u-
2
5(c)(1)(A)-(B).
3
the challenged statements are identified as forward-looking and
4
accompanied by meaningful cautionary language.
5
Litig., 610 F.3d 1103, 1113 (9th Cir. 2010).
Thus, a defendant's state of mind is irrelevant if
In re Cutera Sec.
To be meaningful, cautionary language "ought to be precise and
6
7
relate directly to the forward-looking statements at issue."
In re
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Copper Mt. Secs. Litig., 311 F. Supp. 2d 857, 882 (N.D. Cal. 2004).
9
However, "the PSLRA does not require a listing of all factors that
United States District Court
For the Northern District of California
10
might make the results different from those forecasted."
Id.
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(emphasis in the original).
12
specification of the particular factor that ultimately renders the
13
forward-looking statement incorrect."3
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Litig., No. C 07-4056 VRW, 2008 WL 5114325, at *16 (N.D. Cal. Dec.
15
4, 2008).
16
investor has been warned of risks of a significance similar to that
17
actually realized."
18
Cir. 1999).
Nor does "the law . . . require
In re Nuvelo, Inc. Secs.
Adequate cautionary language is provided "when an
Harris v. Ivax Corp., 182 F.3d 799, 807 (11th
Plaintiffs do not dispute that the July 28 revenue forecasts
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for 3Q10 and FY10 were forward-looking statements.
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However, they contend that the forecasts do not qualify for the
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PSLRA safe harbor because they were not accompanied by meaningful
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cautionary language.
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risk factors identified by the July 28 press release were
Id.
Opp'n at 23.
This argument lacks merit.
Among the
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26
27
28
3
Indeed, the report that accompanied the PSLRA specified that
"failure to include the particular factor that ultimately causes
the forward-looking statement not to come true will not mean that
the statement is not protected by the safe harbor." H.R. Conf.
Rep. 104-369, at 44 (1995), reprinted at 1995 U.S.C.C.A.N. 730,
743.
10
1
"unanticipated costs or difficulties relating to the integration of
2
companies we have acquired"; "competition from existing and new
3
competitors"; and "the loss or decline in business from our key
4
customers."
5
to further discussions of risk factors contained in its recent
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quarterly and annual reports filed with the SEC.
7
the outset of the July 28 investors conference call, listeners were
8
told that Equinix would be making forward-looking statements, and
9
were advised that risks could cause actual results to differ from
RJN Ex. 3.4
The press release also directed investors
Likewise, at
United States District Court
10
For the Northern District of California
FAC Ex. C at 2.
Id.
projections.
11
listeners to recent SEC filings for a fuller list of potential
12
risks and uncertainties.
13
page "Risk Factor" section, which discusses, among other things:
14
the risk of increased churn; the possibility of increased pricing
15
pressure from competitors; the risk that Equinix would be unable to
Id.
Again, the company referred
The cited 10-Q contains a sixteen-
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In support of their motion to dismiss Defendants filed a Request
for Judicial Notice ("RJN"), attaching seventeen exhibits. ECF No.
31 ("RJN"). Federal Rule of Evidence 201 permits a court to take
judicial notice of a fact "not subject to reasonable dispute in
that it is . . . capable of accurate and ready determination by
resort to sources whose accuracy cannot reasonably be questioned."
When ruling on a 12(b)(6) motion to dismiss a § 10(b) action,
courts must consider the complaint in its entirety, including
"documents incorporated into the complaint by reference, and
matters of which a court may take judicial notice." Tellabs, 551
U.S. at 322. Where a plaintiff fails to attach to the complaint
the documents upon which the complaint is premised, a defendant may
attach such documents in order to show that they do not support the
plaintiff's claim. In re Pac. Gateway Exch., Inc., 169 F. Supp. 2d
1160, 1164 (N.D. Cal. 2001). Additionally, a court may take
judicial notice of public filings, such as those made with the SEC.
Dreiling v. Am. Exp. Co., 458 F.3d 942, 946 n. 2 (9th Cir. 2006).
For the purposes of this Order, the Court takes judicial notice of
Exhibits 2, 3, 15, and 16 to the RJN.
11
1
"integrate acquired businesses"; and dependence on key "magnet
2
customers."
3
RJN Ex. 2 at 43-59.
Plaintiffs contend that the cautionary language in Equinix's
4
press release and SEC filings is insufficient since it "does not
5
warn or allude to the possibility that the Company would simply
6
ignore and fail to account for known customer discounts and
7
settlements that would severely and negatively impact the revenue
8
forecasts."
9
need not have warned of the exact risk that caused the company to
Opp'n at 23.
The Court disagrees.
First, Equinix
Nuvelo, 2008 WL 5114325, at *16.
Second, the
United States District Court
For the Northern District of California
10
miss its forecast.
11
cautionary language in Equinix's SEC filings did warn of the
12
possibility of pricing pressure and the dependence on magnet
13
customers, factors which purportedly caused Equinix to offer
14
discounts and settlements to its customers.
15
directly identified other risks that purportedly contributed to the
16
revision of the revenue forecasts, including understatement of
17
churn and lower than expected revenues from Switch and Data.
18
taken together, Equinix's cautionary language "warned of risks of a
19
significance similar to those actually realized."
20
at 807.
21
appear that Equinix's failure to account for customer discounts
22
"severely" impacted its revenue forecasts, since Equinix's July 28
23
forecasts were only off by a few percentage points.
24
The SEC filings also
Thus,
Ivax, 182 F.3d
Third, contrary to Plaintiffs' suggestion, it does not
Even if the July 28 forecasts were not accompanied by
25
meaningful cautionary language, Plaintiffs do not plead that
26
Defendants had actual knowledge that their forecasts could not be
27
achieved at the time they were made.
28
Plaintiffs argue that Smith must have known that Equinix could not
12
See Cutera, 610 F.3d at 1113.
1
meet its July 28 forecasts because he admitted that he approved and
2
was aware of the discounts offered to certain strategic customers
3
during 2Q10 and 3Q10.
4
The argument is unavailing.
5
Equinix's customer discounts as early as 2Q10, there is no
6
indication that he knew that the July 28 forecasts failed to
7
account for these discounts.
8
that he only learned of the defects in the forecasting model
9
"partway through" the third quarter.
Opp'n at 18 (citing FAC ¶¶ 36, 70-71, 73).
While Smith may have been aware of
Indeed, on October 5, Smith stated
FAC ¶ 71.
The plausibility
United States District Court
For the Northern District of California
10
of Smith's statement is strengthened by the fact that the July 28
11
forecasts were only a few percentage points off.
12
Plaintiffs further argue that Smith and Taylor must have known
13
that there was something wrong with the forecasts since Taylor
14
stated that management had "exceptional visibility" into Equinix's
15
financial model.
16
July 28: "This is our thirtieth consecutive quarter of revenue and
17
adjusted EBITDA growth and strong proof point of the exceptional
18
visibility we have into this - our financial model and the track
19
record of strong execution."
20
Taylor's statement is too vague to be actionable or support an
21
inference that Defendants had "actual knowledge" that Equinix could
22
not achieve its revenue forecasts.
23
Opp'n at 19.
Specifically, Taylor had boasted on
FAC ¶ 49.
The Court finds that
Accordingly, the Court finds that the July 28 forecasts fall
24
under the PSLRA safe harbor because they were identified as
25
forward-looking statements and accompanied by meaningful cautionary
26
language.
27
also fail for the independent reason that Plaintiffs have not
Plaintiffs' allegations regarding the July 28 forecasts
28
13
1
adequately pled that Defendants had actual knowledge that the
2
forecasts were incorrect at the time they were made.
2.
3
Equinix's Pricing Strategy
Plaintiffs allege that Defendants misled investors about
4
Defendants' July 28 and September 15 statements that Equinix's
7
pricing was "firm" and "stable," e.g., "we're maintaining the
8
discipline on the floors and ceilings we have on our pricing and
9
the sales force is staying very, very disciplined on price," FAC ¶
10
United States District Court
Equinix's pricing strategy.
6
For the Northern District of California
5
51; "pricing is holding firm," id. ¶ 54; "we're not going to trade
11
price for volume," id. ¶ 65; "pricing is stable, it's firm," id. ¶
12
66.
13
to Smith's October 5 statement that "during the second and third
14
quarters, there were certain discounts and credit memos issued to a
15
number of strategic customers."
16
Specifically, Plaintiffs point to
Plaintiffs allege that these statements were false, pointing
Id. ¶ 70.
Plaintiffs' allegations fail because Defendants maintained a
17
consistent position on pricing throughout the class period.
18
the July 28 conference call, Smith conceded: "there are certain
19
markets where certain pressure - pricing pressure [sic] and pricing
20
behaviors are going to change."
21
"[I]f it's a strategic customer[,] we might get a little more
22
aggressive [on pricing]."
23
statements, Equinix offered price discounts to a few strategic
24
customers during the second and third quarters of 2010.
25
Id. ¶ 51.
Id. ¶ 52.
During
Smith also stated:
Consistent with these
Id. ¶ 70.
Defendants argue Smith and Taylor's earlier statements
26
concerning price are too "vague, generalized, and unspecific" to be
27
actionable.
28
Equinix offered steep discounts to all of its customers while
MTD at 21.
That may be overstating things.
14
Had
1
Defendants represented that prices were "firm" and "stable,"
2
Plaintiffs might have a claim.
3
Equinix allegedly offered discounts to only a few key customers --
4
a strategy disclosed to investors at the beginning of the class
5
period -- and there is no indication that pricing varied for the
6
rest of Equinix's customer base.
But that is not the case here.
For these reasons, the Court finds that Plaintiffs have failed
7
8
to adequately plead the falsity of Defendants' statements
9
concerning Equinix's pricing strategy.
3.
United States District Court
For the Northern District of California
10
Switch and Data Integration
Likewise, Plaintiffs fail to adequately plead the falsity of
11
12
Defendants' statements concerning the integration of Switch and
13
Data.
14
three months prior to the class period.
15
28 conference call Smith said of the merger: "the sales
16
organizations have been completely integrated" and the integrated
17
sales organization "in North America has been in place for weeks
18
now."
19
to be false by admissions made by Smith on October 5.
20
Contrary to Plaintiffs' argument, the October 5 statements do not
21
constitute an admission that the Switch and Data sales force was
22
not completely integrated or that the integrated sales force was
23
not in place as of July 28.
24
statement merely indicates that revenue from Switch and Data assets
25
was lower than expected and that Equinix "ha[d] work to do" to
26
improve the performance of these assets.
27
///
28
///
Equinix acquired Switch and Data on April 30, 2010, about
FAC ¶ 50.
FAC ¶ 8.
During the July
Plaintiffs argue that these statements were shown
Opp'n at 15.
Read as a whole, the October 5
15
Id. ¶ 70.
4.
1
2
Defendants' Ability to Provide Accurate Forecasts
Plaintiffs also target Taylor's September 15 statement that
3
Defendants "ha[d] a high degree of confidence in [their] ability"
4
to offer guidance.
5
was materially false, as evidenced by the fact that Smith admitted
6
that Defendant knew "partway through" the third quarter that the
7
July 28 forecasts were false.
8
Taylor's September 15 statement cannot support a claim for
9
securities fraud since it constitutes a non-actionable expression
Id. ¶ 65.
Plaintiffs allege that the statement
Id. ¶ 71.
The Court finds that
See Cutera, 610 F.3d at 1111 ("A mildly
United States District Court
For the Northern District of California
10
of corporate optimism.
11
optimistic, subjective assessment hardly amounts to a securities
12
violation.").
13
15 statement was false.
14
few percentage points off, Defendants may have truthfully
15
maintained a high degree of confidence in their ability to offer
16
guidance.
17
5.
Further, Plaintiffs fail to show that the September
Since the July 28 forecasts were only a
Duty to Update
18
Though it is not clearly set forth in the FAC, Plaintiffs also
19
argue that Defendants had a duty to correct their July 28 forecasts
20
and that they violated this duty by waiting until October 5 to
21
offer new, corrected guidance.
22
once again point to Smith's statement that Defendants learned of
23
problems with the July 28 guidance "partway through" the quarter
24
and waited to correct this problem until they had reviewed "the
25
September flash."
26
argument fails for a number of reasons.
27
28
Opp'n at 16; FAC ¶ 32.
Opp'n at 16 (citing FAC ¶¶ 70-71).
Plaintiffs
This
First, the PSLRA does not impose a duty to update forwardlooking statements.
15 USCS § 78u-5(d).
16
Plaintiffs cite two cases
1
from this district referring to a duty to update or correct, In re
2
LDK Solar Sec. Litig., No. C 07-05182 WHA, 2008 WL 4369987, at *10
3
(N.D. Cal. Sep. 24, 2008); Coble v. Broadvision Inc., No. C 01-
4
01969 CRB, 2002 WL 31093589, at *7 (N.D. Cal Sep. 11, 2002).
5
at 16.
6
update in the context of forward-looking statements.
7
Opp'n
However, neither case specifically addresses the duty to
Second, even if a duty to update forward-looking statements
8
exists, it would be unreasonable to apply it in circumstances such
9
as this, where a forecast varies by only one or two percentage
United States District Court
For the Northern District of California
10
points.
11
position of having to constantly update the public about de minimis
12
changes in forecasts -- changes which are to be expected as more
13
current data becomes available.
14
To hold otherwise would place companies in the untenable
Third, Defendants did provide investors with an updated
15
forecast on October 5.
16
unreasonably delayed, but this conclusion does not follow from the
17
facts pled.
18
September flash" before notifying the public so as to ensure the
19
new forecast would be accurate.
20
that appears to be a reasonable precaution.
21
were dealing with inherently uncertain predictions and variances of
22
only a few percentage points.
23
6.
Plaintiffs argue that this update was
Smith stated that the company waited to review "the
In light of the circumstances,
After all, Defendants
Stock Sales
24
Plaintiffs' allegations of fraud are further undercut by the
25
fact that the FAC does not explain why Defendants would knowingly
26
overstate their forecasts by a few percentage points, only to
27
reveal the truth just ten weeks later.
28
that Smith, Taylor, or anyone else engaged in improper stock sales
17
Plaintiffs do not allege
1
or otherwise benefited from the alleged scheme to inflate Equinix's
2
stock price.
3
Equinix share during the class period and Smith only sold 5,275
4
shares pursuant to a pre-established Rule 10b5-1 plan.
5
RJN Exs. 15, 16.5
6
shares in the six months preceding the class period and 53,000
7
shares in the succeeding six months.
8
sold 13,000 shares in the six months prior to the class period, and
9
roughly 15,000 shares in the six months after the class period.
As Defendants point out, Taylor did not sell a single
MTD at 23;
By contrast, Smith disposed of about 34,000
RJN Ex. 16.
Likewise, Taylor
United States District Court
For the Northern District of California
10
RJN Ex. 15.
In other words, Smith and Taylor held on to Equinix
11
stock when its price was allegedly inflated and sold when it was
12
not.
While "the absence of a motive allegation is not fatal,"
13
14
Tellabs, 551 U.S. at 325, it may significantly undermine a
15
plaintiff's theory of fraud.
16
have not only failed to allege a motive but also an actionable
17
statement.
18
on a considerable drop in the price of Equinix stock, presumably
19
caused by Equinix's failure to meet its July 28 forecasts.
20
Plaintiffs' Section 10(b) allegations amount to little more than
In the instant action, Plaintiffs
Ultimately, Plaintiffs' theory of fraud is predicated
21
22
23
24
25
26
27
28
5
Plaintiffs object to RJN Exhibits 15 and 16, SEC Form 4's
describing Smith and Taylor's stock sales, on the grounds that they
are not referred to or relied upon by the FAC. ECF No. 33 ("RJN
Opp'n"). Plaintiffs' objections are OVERRULED. A court may
consider materials, even if they are not referenced in the
pleading, so long as they meet the requirements for judicial notice
set forth in Federal Rule of Evidence 201. Rosenbaum Cap. LLC v.
McNulty, 549 F. Supp. 2d 1185, 1189 (N.D. Cal. 2008). Plaintiffs
do not dispute that Smith and Taylor's Form 4's are "not subject to
reasonable dispute" and "capable of accurate and ready
determination by resort to sources whose accuracy cannot reasonably
be questioned." Fed. R. Ev. 201. Accordingly, the Court takes
judicial notice of them.
18
1
fraud by hindsight.
Accordingly, Plaintiffs' Section 10(b) claim
2
is DISMISSED.
3
B.
4
Absent an underlying violation of the Exchange Act, there can
Plaintiffs' Section 20(a) Claim
5
be no control person liability under Section 20(a).
6
Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1161 (9th Cir.
7
1996).
8
10(b), their control person claim is also DISMISSED.
9
v. Golden State Vinters, Inc., 471 F. Supp. 2d 998, 1027 (N.D. Cal.
United States District Court
For the Northern District of California
10
Paracor Fin.,
Because Plaintiffs have not pled a violation of Section
See Shurkin
2006), aff'd 303 Fed. Appx. 431 (9th Cir. 2008).
11
12
13
V.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants
14
Equinix, Inc., Stephen M. Smith, and Keith Taylor's Motion to
15
Dismiss.
16
and the International Brotherhood of Electrical Workers Local 697
17
Pension Fund's First Amended Complaint is DISMISSED WITH LEAVE TO
18
AMEND.
19
days of this Order.
20
this action with prejudice.
Plaintiffs Cement Masons & Plasterers Joint Pension Trust
Plaintiffs may file an amended complaint within thirty (30)
Failure to do so will result in dismissal of
21
22
IT IS SO ORDERED.
23
24
Dated: March 2, 2012
25
UNITED STATES DISTRICT JUDGE
26
27
28
19
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