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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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 10 CEMENT MASONS & PLASTERERS JOINT PENSION TRUST, Individually and on Behalf of All Others Similarly Situated, 11 Plaintiffs, United States District Court For the Northern District of California 9 v. 12 13 EQUINIX, INC., STEPHEN M. SMITH, and KEITH TAYLOR, 14 Defendants. 15 ) Case No. 11-01016 SC ) ) ORDER GRANTING MOTION TO ) DISMISS ) ) ) ) ) ) ) ) ) ) ) 16 17 18 I. INTRODUCTION Plaintiffs Cement Masons & Plasterers Joint Pension Trust 19 ("Cement Masons") and the International Brotherhood of Electrical 20 Workers Local 697 Pension Fund ("IBEW") (collectively, 21 "Plaintiffs") bring this putative securities class action against 22 Equinix, Inc. ("Equinix"), and Equinix's CEO, Stephen M. Smith 23 ("Smith"), and CFO, Keith D. Taylor ("Taylor") (collectively, 24 "Defendants"). 25 was artificially inflated between July 29, 2010 and October 5, 2010 26 ("the Class Period") due to allegedly false and misleading 27 statements made by Defendants, and that Equinix's stock price 28 plummeted over 33 percent when the falsity of these statements was Plaintiffs assert that the price of Equinix stock 1 revealed. Now before the Court is Defendants' Motion to Dismiss 2 Plaintiffs' First Amended Complaint ("FAC"). 3 The Motion is fully briefed. 4 Pursuant to Civil Local Rule 7-1(b), the Court finds the motion 5 suitable for determination without oral argument. 6 set forth below, the Court GRANTS Defendants' Motion to Dismiss and 7 DISMISSES the FAC WITH LEAVE TO AMEND. ECF No. 29 ("MTD"). ECF Nos. 17 ("Opp'n"), 20 ("Reply"). For the reasons 8 9 United States District Court For the Northern District of California 10 II. BACKGROUND Equinix is a public corporation that provides carrier-neutral 11 data centers and internet exchanges. 12 Company connects businesses with partners and customers around the 13 world through a global platform of high-performance data centers 14 called International Business Exchanges ("IBXs"). 15 centers enable customers to safeguard their infrastructure, house 16 their assets and applications closer to users, and collaborate with 17 partners and customers. 18 of its revenue through three offerings available to customers at 19 its ninety-two IBX data centers: collocation services, 20 interconnection services, managed IT services. 21 services provide customers with shared, equipped facilities for 22 their computer and data systems. 23 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 24 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 27 Company issued a press release announcing that it had posted its 28 thirtieth consecutive quarter of sequential growth, reporting 2 On July 28, 1 revenues of $296.1 million. 2 Equinix offered financial projections for the third quarter 2010 3 ("3Q10") and fiscal year 2010 ("FY10"). 4 forecasted 3Q10 revenue of $335 to $338 million and FY10 revenue of 5 $1.225 to $1.235 billion (the "July 28 guidance"). 6 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 8 9 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. 11 about whether Equinix could maintain its firm pricing in the face 12 of an increasingly competitive environment, Smith commented: "We're 13 not going to go below a threshold," id. ¶ 36; and "[w]e're 14 maintaining the discipline on the floors and ceilings we have on 15 our pricing and the sales force is staying very, very disciplined 16 on price," id. ¶ 51. 17 exceptions to this stable pricing strategy: "[I]n certain markets 18 we're going to get some pricing pressure on certain deals. 19 a strategic deal and it's a magnetic deal for us, we'll get more 20 aggressive." 21 a positive assessment of the company's integration into Equinix. 22 In the July 28, 2010 press release, Equinix stated: "The 23 integration of Switch and Data is ahead of schedule." 24 During the July 28, 2010 conference call, Smith stated: "The sales 25 organizations have been completely integrated with full cost 26 1 27 28 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. 3 1 synergies already achieved in the sales function." 2 Taylor echoed this sentiment, stating: "We've got the sales forces 3 cross-selling into both assets. 4 . . . so the structure all the way up to the sales leader in North 5 America has been in place for weeks now." 6 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 9 going to trade price for volume"; id. ¶ 65; and "this is sort of a 10 United States District Court echoing many of the statements from July 28, 2010. 8 For the Northern District of California 7 consistent message you've heard from us previously, that pricing is 11 stable, it's firm," id. ¶ 66. 12 look into 2011 on our Q3 earnings call, I think it’s fair to assume 13 that we are going to give out guidance. 14 confidence in our ability to do that." 15 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, 16 the last day of the Class Period. 17 release that it now expected 3Q10 revenue of $328 to $330 million, 18 a 2.2 percent reduction from the July 28 guidance, and FY10 revenue 19 of 1.215 billion, a 1.2 percent reduction from the July 28 20 guidance. 21 same day, Smith stated that the downward revision was due to an 22 "understatement of churn" (i.e., customer attrition), lower than 23 expected revenues related to the company's Switch and Data assets, 24 and customer discounts that were not fully contemplated when 25 Equinix offered the July 28 guidance. 26 explained: 27 28 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 4 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. 1 2 3 4 Id. ¶ 71. 5 Smith also addressed Equinix's pricing strategy and the Switch 6 and Data integration during the October 5, 2010 conference call. 7 As to pricing, Smith stated: "[D]uring the second and third 8 quarters, there were certain discounts and credit memos issued to a 9 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 12 willing to commit long term in large volume, we are going to get 13 flexible in our pricing with them." 14 Switch and Data integration, Smith stated: 15 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. 16 17 18 19 20 21 Id. ¶ 71. 22 Investors were apparently displeased with the October 5, 2010 23 announcements. 24 5 to $70.34 the next day, a one-day loss of over 33 percent of 25 shareholder equity. 26 Equinix's stock price fell from $106.09 on October Id. ¶ 17. Cement Masons, which had purchased Equinix stock during the 27 Class Period, filed the instant action in federal court on March 4, 28 2011. ECF No. 1 ("Compl."). IBEW, another Equinix stockholder 5 1 that is represented by the same counsel as Cement Masons, was 2 appointed as lead plaintiff on August 8, 2011. 3 8, 2011 Order"). 4 asserts causes of action for: (1) violations of Section 10(b) of 5 the Securities Exchange Act of 1934 ("the Exchange Act") and of 6 United States Securities and Exchange Commission ("SEC") Rule 10b- 7 5; and (2) violations of Section 20(a) of the Exchange Act. 8 93-98. 9 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) 11 the integration of Switch and Data's sales force; and (4) Equinix's 12 ability to provide accurate financial forecasts.2 13 allege that these false and misleading statements artificially 14 inflated Equinix's stock price and that, when the truth was finally 15 revealed, Equinix's stock price plummeted. Plaintiffs 16 17 III. LEGAL STANDARD 18 A. Motion to Dismiss 19 A motion to dismiss under Federal Rule of Civil Procedure 20 12(b)(6) "tests the legal sufficiency of a claim." 21 Block, 250 F.3d 729, 732 (9th Cir. 2001). 22 on the lack of a cognizable legal theory or the absence of 23 sufficient facts alleged under a cognizable legal theory." 24 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 25 1988). 26 should assume their veracity and then determine whether they 27 2 28 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. 6 1 plausibly give rise to an entitlement to relief." Ashcroft v. 2 Iqbal, 129 S. Ct. 1937, 1950 (2009). 3 court must accept as true all of the allegations contained in a 4 complaint is inapplicable to legal conclusions. 5 recitals of the elements of a cause of action, supported by mere 6 conclusory statements, do not suffice." 7 Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 8 generally "limited to the complaint, materials incorporated into 9 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., 11 540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor 12 Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)). 13 B. Section 10(b) 14 Section 10(b) of the Exchange Act makes it unlawful "[t]o use 15 or employ, in connection with the purchase or sale of any security 16 registered on a national securities exchange . . . any manipulative 17 or deceptive device or contrivance in contravention of such rules 18 and regulations as the [Securities and Exchange] Commission may 19 prescribe . . . ." 20 by the Commission is Rule 10b–5, which states that "[i]t shall be 21 unlawful for any person . . . [t]o engage in any act, practice, or 22 course of business which operates or would operate as a fraud or 23 deceit upon any person, in connection with the purchase or sale of 24 any security." 25 five elements to establish a violation of Rule 10b–5. 26 Specifically, Plaintiffs must demonstrate "(1) a material 27 misrepresentation or omission of fact, (2) scienter, (3) a 28 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). 7 Plaintiffs must plead 1 and loss causation, and (5) economic loss." 2 In re Daou Sys., 411 F.3d 1006, 1014 (9th Cir. 2005). Plaintiffs must also meet the heightened pleading standards of 3 4 Federal Rule of Civil Procedure 9(b) and the Private Securities 5 Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4. 6 PSLRA requires plaintiffs to "specify each statement alleged to 7 have been misleading [and] the reason or reasons why the statement 8 is misleading." 9 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 10 strong inference that the defendant acted with the required state 11 of mind." 12 establishing securities fraud is the knowing, intentional, or 13 deliberately reckless disclosure of false or misleading statements. 14 See Daou, 411 F.3d at 1014–15. 15 scienter naturally results in a stricter standard for pleading 16 falsity, because falsity and scienter in private securities fraud 17 cases are generally strongly inferred from the same set of facts, 18 and the two requirements may be combined into a unitary inquiry 19 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). 20 21 IV. DISCUSSION 22 A. Plaintiffs' Section 10(b) Claim 23 The Court finds that Plaintiffs' Section 10(b) claim fails 24 because Plaintiffs have not alleged any actionable statements. 25 set forth below, Defendants' July 28 financial forecasts are 26 protected by the PSLRA safe harbor for forward-looking statements. 27 Defendants' statements regarding Equinix's pricing strategy and the 28 Switch and Data integration are not actionable because Plaintiff 8 As 1 has failed to plead that the statements were false. 2 statement regarding Equinix's ability to provide accurate financial 3 guidance constitutes a non-actionable expression of corporate 4 optimism. 5 Defendants somehow violated a duty to correct the July 28 guidance. 6 Additionally, Plaintiffs' theory of fraud is undermined by the fact 7 that Smith and Taylor held onto their Equinix stock during the 8 Class Period. United States District Court For the Northern District of California 10 The Court also rejects Plaintiffs' argument that 1. 9 Taylor's Financial Forecasts for 3Q10 and FY10 Plaintiffs allege that Defendants knew that Equinix would fail 11 to meet its July 28 forecasts for 3Q10 and FY10 at the time the 12 forecasts were made. 13 percentage points on October 5, purportedly because of an 14 understated churn rate, lower than expected revenues from Switch 15 and Data assets, and a failure to account for customer discounts 16 and settlements. 17 actionable because they fall under the PSLRA safe harbor for 18 forward-looking statements. 19 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 20 containing a projection of revenues, income (including income 21 loss), earnings (including earnings loss) per share, capital 22 expenditures, dividends, capital structure, or other financial 23 items." 24 the safe harbor if: (A) they are "identified as forward-looking" 25 and " accompanied by meaningful cautionary statements identifying 26 important factors that could cause actual results to differ 27 materially from those in the forward-looking statement"; or (B) the 28 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 8 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. 11 (emphasis in the original). 12 specification of the particular factor that ultimately renders the 13 forward-looking statement incorrect."3 14 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 19 20 for 3Q10 and FY10 were forward-looking statements. 21 However, they contend that the forecasts do not qualify for the 22 PSLRA safe harbor because they were not accompanied by meaningful 23 cautionary language. 24 risk factors identified by the July 28 press release were Id. Opp'n at 23. This argument lacks merit. Among the 25 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 6 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- 16 17 18 19 20 21 22 23 24 25 26 27 28 4 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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