Cement Masons & Plasterers Joint Pension Trust
Filing
63
Order by Hon. Samuel Conti granting 47 Motion to Dismiss with Leave to Amend.(sclc2, COURT STAFF) (Filed on 12/5/2012)
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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
28
Plaintiffs assert that the price of Equinix stock
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plummeted over 33 percent when the falsity of these statements was
2
revealed.
3
Plaintiffs' First Amended Complaint ("FAC") focused on
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Defendants' statements concerning financial forecasts, Equinix's
5
pricing strategy, and the integration of the sales force of Switch
6
and Data, an Equinix competitor acquired by the company earlier in
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2010.
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amend, finding, among other things, that Defendants' financial
9
forecasts were non-actionable forward-looking statements.
On March 2, 2012, the Court dismissed the FAC with leave to
ECF No.
United States District Court
For the Northern District of California
10
40 ("Mar. 2 Order").1
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Complaint ("SAC"), the operative complaint in this action, on May
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2, 2012.
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target Defendants' financial forecasts.
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new allegations concerning Equinix's pricing strategy and the
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integration of the Switch and Data sales force.
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includes new factual allegations from confidential witnesses
17
("CWs") who allegedly have inside information concerning Equinix's
18
operations during the class period.
Plaintiffs then filed a Second Amended
ECF No. 44 ("SAC").
Unlike the FAC, the SAC does not
However, it does include
The SAC also
Now before the Court is Defendants' Motion to Dismiss the SAC.
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ECF No. 47 ("MTD").
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("Opp'n"), 52 ("Reply").2
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Court finds the motion suitable for determination without oral
23
argument.
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///
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The Motion is fully briefed.
ECF Nos. 50
Pursuant to Civil Local Rule 7-1(b), the
For the reasons set forth below, the Motion is GRANTED.
Cement Masons & Plasterers Joint Pension Trust v. Equinix Inc.,
2012 WL 685344, 2012 U.S. Dist. LEXIS 28094 (N.D. Cal. Mar. 2,
2012).
2
At the Court's request, the parties also submitted supplemental
briefing on the issue of loss causation. ECF Nos. 57 ("Defs.'
Supp. Br."), 58 ("Pls.' Supp. Br.").
2
1
II.
BACKGROUND
2
A.
Factual Background
3
The following facts are primarily taken from Plaintiffs' SAC,
4
the operative pleading in this action.
5
corporation that provides carrier-neutral data centers and internet
6
exchanges.
7
and customers around the world through a global platform of high-
8
performance data centers called International Business Exchanges
9
("IBXs").
SAC ¶ 2.
Id.
Equinix is a public
The Company connects businesses with partners
IBX data centers enable customers to safeguard
United States District Court
For the Northern District of California
10
their infrastructure, house their assets and applications closer to
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users, and collaborate with partners and customers.
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generates substantially all of its revenue through three offerings
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available to customers at its ninety-two IBX data centers:
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collocation services, interconnection services, managed IT
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services.
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equipped facilities for their computer and data systems.
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¶¶ 5-7.
18
Id. ¶ 4.
Id.
Equinix
These services provide customers with shared,
See id.
Equinix acquired Switch and Data, one of its competitors, in
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April 2010.
Id. ¶ 10.
In a May 7, 2010 conference call with
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investors, Smith said of the acquisition: "Our overriding goal [is]
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to drive an aggressive integration schedule to move towards a one
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company model, with full annualized synergies to be realized no
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later than mid-2011."
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the commencement of the class period, Equinix issued a press
25
release announcing its 2Q10 financial results.
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release stated: "The integration of Switch and Data is ahead of
27
schedule, and our expansions are providing us much needed capacity
Id. ¶ 75.
On July 28, 2010, the day before
28
3
Id. ¶ 101.
The
1
in many of our key markets, which positions us well for future
2
growth."
Id.
Also on July 28, 2010, Equinix held a conference call with
3
4
investors.
Id. ¶ 102.
5
Taylor further commented on the Switch and Data integration:
During that conference call, Smith and
6
[Smith:] Overall[,] the integration is proceeding very
well . . . . We are on track to achieve the $20 million
cost synergies previously outlined and have moved
aggressively towards this goal . . . . Shifting gears
to
revenue
synergies,
we've
established
a
strong
foundation
driving
revenue
across
the
integrated
platform. . . .
The sales organizations have been
completely integrated with full cost synergies already
achieved in the sales function.
So we now have sales
teams focused on revenue synergies by driving bookings
and grow key accounts.
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United States District Court
For the Northern District of California
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[Taylor:] We've got the sales forces cross selling into
both assets.
They're all part of one team today, the
organization is completely finished in sales, so the
structure all the way up to the sales leader in North
America has been in place for weeks now. Id.
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Id. (emphasis added).
Plaintiffs also point to allegedly false and misleading
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statements concerning the Switch and Data integration made on
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September 1 and 15, 2010.
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RBC Capital report:
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Taylor.
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Company appears to have the Switch & Data integration process in
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hand and ahead of schedule."
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made a presentation at an investors' conference, stating: "[T]he
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pipeline's as healthy as it's ever been.
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. . .
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the Equinix asset."
The September 1 statement comes from an
"We recently met with Equinix CFO Keith
Our discussion touched on the following topics: M&A: The
Id. ¶ 135.
On September 15, Taylor
Our close rates are good.
And we're cross-selling within the Switch and Data asset and
Id. ¶ 141.
28
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Plaintiffs allege that these statements regarding the
1
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integration of Switch and Data's sales force were false and
3
misleading.
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a conference call with investors on October 5, 2010, the last day
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of the class period:
In support, they point to statements made by Smith on
6
[R]evenues from our Swtich and Data assets were lower
than expected through the third quarter. . . .
We are
five months into our integration plan, and we've been
able to achieve cost synergy targets, resulting in a 7point improvement to the Switch and Data adjusted
We're also starting to see the
EBITDA[3] margins.
pipeline for these locations strengthen and convert into
bookings, with several notable wins in the third quarter.
We still have work to do to realign the combined sales
organizations, but our expectations are that we will see
improvement in the utilization of the former Switch and
Data assets as we exit 2010.
7
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United States District Court
For the Northern District of California
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Id. ¶ 148.
Next, Plaintiffs point to a number of statements from their
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CWs, all former Equinix employees who had worked for Switch and
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Data before it was acquired.
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marketing manager, states that Equinix shifted accounts away from
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former Switch and Data representatives and gave them to Equinix
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representatives, without consideration of which sales
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representative was most likely to win the deal.
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also states that, in response to this strategy, former Switch and
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Data representatives concealed their pipelines of potential deals
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from Equinix management.
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representative, and CW4, a former Equinix product manager, echoed
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CW3, stating that accounts were given to longstanding Equinix sales
CW3, a former Equinix senior
Id. ¶ 130.
Id. ¶ 129.
CW3
CW2, a former Equinix sales
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27
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3
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.
5
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representatives, even though former Switch and Data sales
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representatives were far more knowledgeable about how to sell space
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in former Switch and Data sales centers.
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CW1, Equinix's former director of channel marketing, former Switch
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and Data sales representatives told her that their efforts to
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assist longstanding Equinix sales representatives were rejected.
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Id. ¶ 133.
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weekly cross-selling reports -- reports which allegedly reflected
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that Equinix missed sales opportunities that would have resulted in
United States District Court
For the Northern District of California
10
Id. ¶ 130.
According to
CW1 also alleges that she entered these remarks in
millions of dollars of additional revenues.
Id.
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Plaintiffs also allege that Defendants made false and
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misleading statements concerning the stability of their pricing.
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Specifically, Plaintiffs allege that Defendants falsely stated that
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Equinix's pricing remained firm and misled investors who expressed
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concern that a more competitive landscape would force Equinix to
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offer more discounts.
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on statements made during the July 28 conference call.
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call, Taylor stated: "Overall North America pricing remains firm
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across both the organic and the Switch and Data footprint."
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102.
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Id. ¶¶ 103, 106.
Plaintiffs primarily focus
During that
Id. ¶
Also on that call, Smith stated:
And so in certain markets we're going to get some pricing
pressure on certain deals. If it's a strategic deal and
it's a magnet deal for us, we'll get more aggressive. If
it's not, we're going to let it go and whether it goes to
a competitive retail or a wholesale business, so be it.
We're maintaining the discipline on the floors and
ceilings we have on our pricing and the sales force is
staying very, very disciplined on price.
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26
Id. ¶ 105.
Smith later added: "So, yes there's pricing pressure
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there and yes we lots of times walk with it if it's a strategic
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6
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customer we might get a little more aggressive.
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about figuring out how to get into that space today, no, we don't
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really need to."
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Are we thinking
Id. ¶ 106.
Again, Plaintiffs also point to statements made by Defendants
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on September 1 and 15, 2010.
The September 1 RBC Capital report
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states: "Overall, we believe pricing remains largely stable across
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most markets/datacenters, and note that list pricing in some
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product areas has increased this year . . . .
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operators' increasing presence in smaller deals does not appear to
Meanwhile, wholesale
United States District Court
For the Northern District of California
10
be affecting Equinix'[s] overall pricing . . . ."
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September 15, Taylor stated: "Look, we can win on price if we want
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to win on price.
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not going to trade price for volume."
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point to Taylor's statements at a conference on September 22, 2010:
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"[T]his is sort of a consistent message you've heard from us
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previously, that pricing is stable, it's firm."
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Id. ¶ 135.
On
I think you've heard us say periodically we're
Id. ¶ 141.
Plaintiffs also
Id. ¶ 142.
Plaintiffs allege that later statements made by Defendants in
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October 2010 show that pricing was not stable during the class
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period.
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in a conference call with investors on October 5, 2010:
Specifically, Plaintiffs point to statements made by Smith
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During the second and third quarters, there were certain
discounts and credit memos issued to a number of
strategic
customers
in
exchange
for
longer-term
contracts. As we've discussed in the past, we have been
incenting our salesforce to extend the contract terms of
magnet customers, though this can result in a price
concession for some.
25
26
Id. ¶ 148.
Smith made similar statements in response to analysts'
27
questions on the call: "We historically have said we will not trade
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volume for price.
But these are strategic magnets.
7
There are
1
magnets that will go after, and we will adjust.
In this case, it's
2
just over 10 percent is the effect of the adjustment on their
3
existing pricing."
Id. ¶ 153.
Plaintiffs allege that the account of CW5, a former Equinix
4
5
regional director, also shows that Equinix's class-period
6
statements concerning pricing stability were false and misleading.
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According to CW5, prior to and during the Class Period, Equinix
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sales representatives were empowered to offer customers discounts
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of up to 10 percent without any supervisory approval.
Id. ¶ 125.
United States District Court
For the Northern District of California
10
CW5 also reports that she was responsible for reviewing and
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"regularly approved" discounts of between 10 and 30 percent.
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124.
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to rise above 30 percent with the approval of Equinix's finance
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director.
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installation charges prior to and during the class period.
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126.
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discounts.
Id. ¶
Further, CW5 reports that "it was not uncommon" for discounts
Id. ¶ 125.
Finally, CW5 reports that Equinix discounted
Id. ¶
Plaintiffs do not allege the size or frequency of these
On October 5, 2010, Equinix also stated that it would miss its
18
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July 28, 2010 revenue projections for 3Q10 and FY10 by 1.2 to 2.2
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percent.
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October 5 announcements.
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from $106.09 on October 5 to $70.34 the next day, a one-day loss of
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over 33 percent of shareholder equity.
Mar. 2 Order at 4.
Investors reacted negatively to the
Id. at 5.
Equinix's stock price fell
Id.
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B.
Procedural History
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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.
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that is represented by the same counsel as Cement Masons, was
ECF No. 1 ("Compl.").
IBEW, another Equinix stockholder
8
1
appointed as lead plaintiff on August 8, 2011.
ECF No. 23 ("Aug.
2
8, 2011 Order").
3
asserting causes of action for (1) violations of Section 10(b) of
4
the Securities Exchange Act of 1934 ("the Exchange Act") and of
5
United States Securities and Exchange Commission ("SEC") Rule 10b-
6
5; and (2) violations of Section 20(a) of the Exchange Act.
7
Order at 6.
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of false and misleading statements concerning: (1) Equinix's
9
financial forecasts for 3Q10 and FY10; (2) Equinix's pricing
The FAC was filed about six weeks later,
Mar. 2
The crux of the FAC was that Defendants made a number
United States District Court
For the Northern District of California
10
strategy; (3) the integration of Switch and Data's sales force; and
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(4) Equinix's ability to provide accurate financial forecasts.
12
The FAC did not include any of the CW allegations set forth above.
13
On March 4, 2012, the Court granted Defendants' motion to
Id.
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dismiss the FAC, but granted Plaintiffs leave to amend their
15
complaint.
16
forecasts were not actionable because they fell under the safe
17
harbor for forward looking statements set out in the Private
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Securities Litigation Reform Act ("PSLRA").
19
also found that Plaintiffs failed to adequately plead the falsity
20
of Defendants' statements concerning Equinix's pricing strategy and
21
the integration of the Switch and Data sales force.
22
Specifically, the Court held that "Defendants maintained a
23
consistent position on pricing throughout the class period" and
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that Defendants' "October 5 statements do not constitute an
25
admission that the Switch and Data sales force was not completely
26
integrated or that the integrated sales force was not in place as
27
of July 28."
Id. at 19.
The Court found that Equinix's financial
Id.
28
9
Id. at 13.
The Court
Id. at 15.
1
Plaintiffs filed their SAC on May 2, 2012.
Like the FAC, the
2
SAC asserts causes of action for violations of Sections 10(b) and
3
20(a) of the Exchange act and SEC Rule 10b-5 and alleges that
4
Defendants made false and misleading statements concerning the
5
integration of Switch and Data and Equinix's pricing strategy.
6
However, Plaintiffs no longer allege that the July 28, 2010
7
financial forecasts for 3Q10 and FY10 were actionably false.
8
10 n.2.
SAC ¶
On June 15, 2012, Defendants moved to dismiss the SAC.
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United States District Court
For the Northern District of California
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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
13
12(b)(6) "tests the legal sufficiency of a claim."
Navarro v.
14
Block, 250 F.3d 729, 732 (9th Cir. 2001).
15
on the lack of a cognizable legal theory or the absence of
16
sufficient facts alleged under a cognizable legal theory."
17
Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.
18
1988).
19
should assume their veracity and then determine whether they
20
plausibly give rise to an entitlement to relief."
21
Iqbal, 129 S. Ct. 1937, 1950 (2009).
22
court must accept as true all of the allegations contained in a
23
complaint is inapplicable to legal conclusions.
24
recitals of the elements of a cause of action, supported by mere
25
conclusory statements, do not suffice."
26
Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
27
generally "limited to the complaint, materials incorporated into
28
the complaint by reference, and matters of which the court may take
"Dismissal can be based
"When there are well-pleaded factual allegations, a court
10
Ashcroft v.
However, "the tenet that a
Threadbare
Id. (citing Bell Atl.
The court's review is
1
judicial notice."
Metzler Inv. GMBH v. Corinthian Colls., Inc.,
2
540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor
3
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
4
B.
Section 10(b)
5
Section 10(b) of the Exchange Act makes it unlawful "[t]o use
6
or employ, in connection with the purchase or sale of any security
7
registered on a national securities exchange . . . any manipulative
8
or deceptive device or contrivance in contravention of such rules
9
and regulations as the [SEC] may prescribe . . . ."
15 U.S.C. §
United States District Court
For the Northern District of California
10
78j(b).
11
states that "[i]t shall be unlawful for any person . . . [t]o
12
engage in any act, practice, or course of business which operates
13
or would operate as a fraud or deceit upon any person, in
14
connection with the purchase or sale of any security."
15
240.10b–5(c).
16
violation of Rule 10b–5.
17
"(1) a material misrepresentation or omission of fact, (2)
18
scienter, (3) a connection with the purchase or sale of a security,
19
(4) transaction and loss causation, and (5) economic loss."
20
Daou Sys., 411 F.3d 1006, 1014 (9th Cir. 2005).
21
One such rule prescribed by the SEC is Rule 10b–5, which
17 C.F.R. §
Plaintiffs must plead five elements to establish a
Specifically, Plaintiffs must demonstrate
In re
Plaintiffs must also meet the heightened pleading standards of
22
Federal Rule of Civil Procedure 9(b) and the PSLRA, 15 U.S.C. §
23
78u-4.
24
alleged to have been misleading [and] the reason or reasons why the
25
statement is misleading."
26
the complaint must "state with particularity facts giving rise to a
27
strong inference that the defendant acted with the required state
28
of mind."
The PSLRA requires plaintiffs to "specify each statement
15 U.S.C. § 78u-4(b)(1).
Id. § 78u-4(b)(2).
Additionally,
The "required state of mind" for
11
1
establishing securities fraud is the knowing, intentional, or
2
deliberately reckless disclosure of false or misleading statements.
3
See Daou, 411 F.3d at 1014–15.
4
scienter naturally results in a stricter standard for pleading
5
falsity, because falsity and scienter in private securities fraud
6
cases are generally strongly inferred from the same set of facts,
7
and the two requirements may be combined into a unitary inquiry
8
under the PSLRA."
"The stricter standard for pleading
Id. at 1015 (internal quotation marks omitted).
9
United States District Court
For the Northern District of California
10
11
IV.
DISCUSSION
A.
Plaintiffs' Section 10(b) Claim
1.
12
13
PSLRA Safe Harbor
Defendants first argue that the challenged July 28 statements
14
concerning the Switch and Data integration and Equinix's pricing
15
are insulated by the PLSRA safe harbor.
16
provides a safe harbor for "forward-looking statements," 15 U.S.C.
17
§ 78u-5(c), which includes "a statement containing a projection of
18
revenues, income (including income loss), [and] earnings (including
19
earnings loss) per share," id. § 78u-5(i)(1)(A), as well as "any
20
statement of the assumptions underlying or relating to" such
21
financial projections, id. § 78u-5(i)(1)(D).
22
that the challenged July 28 statements constitute assumptions
23
underlying or relating financial projections since they were made
24
in connection with Equinix's revenue and profitability forecasts.
25
MTD at 11.
26
not forward looking and are therefore ineligible for the safe
27
harbor.
28
527 F.3d 982, 990 (9th Cir. 2008)).
MTD at 11.
The PSLRA
Defendants reason
Plaintiffs respond that descriptions of the present are
Opp'n at 24 (citing Berson v. Applied Signal Tech., Inc.,
12
The Court agrees with Plaintiffs.
1
The challenged July 28
2
statements are not forward looking; they are descriptions of the
3
present.
4
completely integrated . . . ."), 105 ("We're maintaining the
5
discipline on the floors and ceilings we have on our pricing . . .
6
.").
7
because they were made on the same call that Equinix released its
8
financial projections for 3Q10 and FY10.
9
statements could be construed as assumptions underlying or relating
See, e.g., SAC ¶¶ 102 ("The sales organizations have been
These statements do not fall under the safe harbor merely
To the extent that these
United States District Court
For the Northern District of California
10
to Equinix's financial projections, they are not only that.
11
example, when Defendants told investors that they were not trading
12
price for volume, they were saying both that they were currently
13
maintaining discipline on price and that they had reason to believe
14
their pricing strategy would yield certain revenues in the future.
15
See Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 705
16
(7th Cir. 2008) ("The element of prediction in saying that sales
17
are 'still going strong' does not entitle [defendant] to a safe
18
harbor with regard to the statement's representation concerning
19
current sales.").
20
21
22
For
Accordingly, the Court rejects Defendants' argument that the
July 28 statements are not actionable under the PSLRA safe harbor.
2.
Statements Regarding Sales Force Integration
23
Defendants also argue that Plaintiffs have to failed to
24
adequately allege the falsity and scienter of the statements
25
regarding Equinix's sales force integration.
26
Defendants point out, the Ninth Circuit's decision in Ronconi v.
27
Larkin, 253 F.3d 423 (9th Cir. 2001), is instructive.
28
case, the plaintiffs targeted the defendants' statements that the
13
MTD at 12-17.
As
In that
1
consolidation of an acquired company's sales force had been
2
completed in January 1996.
3
plaintiffs contended that these statements were false because the
4
consolidation of the sales forces was plagued with problems,
5
resulting in inefficiencies and lack of revenue growth.
6
432.
7
statement by the defendants from April 1996: "revenue growth rates
8
. . . were significantly impacted by the termination of the
9
company's independent . . . distributor network at the end of the
Ronconi, 253 F.3d at 431.
The
Id. at
The plaintiffs pointed in particular to the following
United States District Court
For the Northern District of California
10
second quarter, and the transition to a newly integrated sales
11
force."
12
had failed to adequately allege falsity, reasoning: "The [April
13
1996] statement arguably implies that the consolidation of
14
marketing had not worked out as well and as rapidly as hoped.
15
statement does not support an inference that company insiders knew
16
or with deliberate recklessness disregarded that the problems would
17
be so substantial."
18
Id. at 431.
The Ninth Circuit found that the plaintiffs
The
Id.
Likewise, here, Plaintiffs have merely pled that Defendants
19
were initially optimistic about the integration of the Switch and
20
Data sales force, but later discovered that the integration did not
21
proceed as smoothly as they had hoped.
22
call, Smith stated:
23
integrated with full cost synergies already achieved in the sales
24
function.
25
by driving bookings and grow key accounts."
26
5, Smith remained positive about the cost synergies from the sales
27
force integration:
28
targets, resulting in a 7-point improvement to the Switch and Data
On the July 28 conference
"The sales organizations have been completely
So we now have sales teams focused on revenue synergies
SAC ¶ 102.
On October
"[W]e've been able to achieve cost synergy
14
1
adjusted EBITDA margins.
2
optimistic about revenue synergies: "[R]evenues from our Switch and
3
Data assets were lower than expected through the third quarter. . .
4
."
5
that the July 28 statements were false.
6
statements merely show that Equinix was unable to achieve the
7
revenue synergies that Equinix sales teams had been focused on in
8
July.
9
Id.
SAC ¶ 148.
However, he was less
The Court finds that the October 5 statements do not show
Rather, the October
Nor do the CW allegations establish the falsity of Defendants'
United States District Court
For the Northern District of California
10
statements concerning the integration of Switch and Data.
11
that the CW's accounts are reliable, they merely show that Equinix
12
favored their longstanding sales representatives over former Switch
13
and Data sales representatives and that this practice ultimately
14
hurt Equinix's integration and cross-selling efforts.
15
about this is inconsistent with Defendants' representations that
16
the sales force was integrated, that all of the sales
17
representatives were part of one team, that Equinix had recognized
18
"cost synergies," that Defendants expected to achieve revenue
19
synergies in 3Q10 and beyond, or that the sales force was cross
20
selling Equinix and Switch and Data products.
21
Assuming
Nothing
To the extent that Plaintiffs are alleging that Defendants
22
knew or should have known that their integration efforts would
23
encounter the problems identified by the CWs, they have failed to
24
adequately plead scienter.
25
Data representatives "concealed their pipelines of potential deals
26
from Equinix management."
27
have immediately discovered the practice and Plaintiffs do not
28
plead when it came to light.
According to CW3, former Switch and
SAC ¶ 130.
15
Thus, Defendants could not
1
CW1 states that she and her team issued weekly reports to
2
management that reflected that former Switch and Data's efforts to
3
assist long standing Equinix sales representatives were rejected
4
and that Equinix missed sales opportunities that would have
5
resulted in millions of dollars of additional revenues.
6
also insufficient to raise a strong inference of scienter.
7
initial matter, it is not clear that Defendants ever saw these
8
weekly reports.
9
specific contents of the reports, how they allegedly characterized
This is
As an
Even if they did, Plaintiffs have not pled the
United States District Court
For the Northern District of California
10
the problem, or when they were released.
Further, CW1's statement
11
that Equinix missed millions of dollars of sales opportunities
12
lacks the necessary context.
13
every potential opportunity into a sale and it is not clear from
14
CW1's account whether Equinix missed more sales opportunities than
15
usual during the class period.
Presumably, Equinix did not convert
For these reasons, the Court finds that Plaintiffs have not
16
17
met the heightened pleading standards of the PSLRA with respect to
18
their sales force integration allegations.
3.
19
Statements Regarding Pricing
The Court also finds that Plaintiffs have failed to adequately
20
21
allege the falsity of Defendants' statements concerning pricing.
22
In dismissing Plaintiffs' FAC, the Court held that Plaintiffs'
23
allegations showed that "Defendants maintained a consistent
24
position on pricing throughout the class period."
25
19.
26
Plaintiffs allege that, during the July 28 conference call, Smith
27
stated: "And so in certain markets we're going to get some pricing
28
pressure on certain deals.
Mar. 2 Order at
The same is true with respect to Plaintiffs' SAC.
Once again,
If it's a strategic deal and it's a
16
1
magnet deal for us, we'll get more aggressive."
SAC ¶ 105.
2
Defendants' later public statements are consistent with their
3
earlier position that they would "get more aggressive" on price for
4
magnet customers.
5
second and third quarters, there were certain discounts and credit
6
memos issued to a number of strategic customers in exchange for
7
longer-term contracts."
8
these discounts were "just over 10 percent."
On October 5, Smith stated that "[d]uring the
Id. ¶ 148.
Smith later indicated that
Id. ¶ 153.
Plaintiffs argue that securities analysts tied Equinix's stock
9
United States District Court
For the Northern District of California
10
price decline directly to the magnitude of discounts provided to
11
customers.
12
the following analyst statements: "The downgrade can primarily be
13
credited to greater-than-expected customer losses in North America
14
and price discounting to secure long-term contract renewals," id. ¶
15
177; "[Equinix] needed to cut prices by more than expected," id. ¶
16
168; "the magnitude of the discounts on large deals surprised us,"
17
id. ¶ 174; "pricing pressures . . . spooked investors," id. ¶ 175.
18
However, these statements merely indicate that investors and
19
analysts expected one thing and got another.
20
that they may offer discounts to attract magnet customers, and it
21
appears that those discounts were larger and more widespread than
22
investors expected.
23
investor expectations.4
Specifically, they point to
Defendants warned
Defendants cannot be held liable for thwarting
Plaintiffs also argue that CW5's account, which was not
24
25
Pls.' Supp. Br. at 4-5.
included in the FAC, further details the reason why Defendants'
26
27
28
4
Likewise, RBC Capital's expectations concerning Equinix's pricing
and integration efforts, as described at paragraph 135 of the SAC,
cannot be attributed to Defendants and, thus, do not support
Plaintiffs' allegations of fraud.
17
1
earlier pricing statements were false.
Opp'n at 9.
CW5, a former
2
Equinix Regional Director, states that Equinix sales
3
representatives were authorized to offer 10 percent discounts
4
without approval, that she regularly approved discounts of 10 to 30
5
percent, and that it was not uncommon for discounts to rise above
6
30 percent with the approval of higher management.
7
The SAC indicates that these discounts were never revealed to the
8
market.
9
not only admitted providing discounts to 'a number of customers,'
SAC ¶¶ 124-25.
See id. ¶ 19 n. 4. ("Plaintiffs now allege that Equinix
United States District Court
For the Northern District of California
10
but that the discounts actually provided were both wider and of far
11
wider magnitude than Equinix admitted on October 5, 2010.").
12
The Court finds that Plaintiffs have failed to adequately
13
allege loss causation with respect to CW5's statements.
To state a
14
claim under Section 10(b) of the Exchange Act, a plaintiff must
15
plead facts demonstrating loss causation, i.e., "a causal
16
connection between the material misrepresentation and the loss."
17
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342 (2005).
18
adequately plead loss causation, a plaintiff must allege, among
19
other things, a fraudulent statement that inflated the stock price
20
and a corrective disclosure that later revealed that the earlier
21
fraudulent statement was false and caused the stock price to drop.
22
See Metzler, 540 F.3d at 1062.
23
failed to allege a corrective disclosure.
24
no indication that the widespread discounting described by CW5 was
25
ever disclosed to the market.
26
by Plaintiffs occurred on October 5, and those disclosures merely
27
revealed that Equinix had offered 10 percent discounts to certain
28
"magnet customers."
To
In this case, Plaintiffs have
Specifically, there is
The only public disclosures alleged
See, e.g., ¶¶ 148, 153.
18
Because the
1
widespread discounting described by CW5 was never revealed to the
2
market, it could not have caused Equinix's stock price to drop on
3
October 6 or otherwise caused Plaintiffs' alleged loss.
Accordingly, the Court finds that Plaintiffs have failed to
4
5
adequately allege falsity and loss causation with respect to
6
Defendants' statements concerning pricing.
7
failed to adequately plead falsity and scienter with respect to
8
Defendants' statements concerning the Switch and Data integration,
9
Plaintiffs' Section 10(b) claims are DISMISSED.
As Plaintiffs have also
United States District Court
For the Northern District of California
10
B.
Plaintiffs' Section 20(a) Claim
11
Absent an underlying violation of the Exchange Act, there can
12
be no control person liability under Section 20(a).
Paracor Fin.,
13
Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1161 (9th Cir.
14
1996).
15
10(b), their control person claim is also DISMISSED.
16
v. Golden State Vinters, Inc., 471 F. Supp. 2d 998, 1027 (N.D. Cal.
17
2006), aff'd 303 Fed. Appx. 431 (9th Cir. 2008).
18
///
19
///
20
///
21
///
22
///
23
///
24
///
25
///
26
///
27
///
28
///
Because Plaintiffs have not pled a violation of Section
19
See Shurkin
1
2
IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants
3
Equinix, Inc., Stephen M. Smith, and Keith Taylor's Motion to
4
Dismiss.
5
and the International Brotherhood of Electrical Workers Local 697
6
Pension Fund's Second Amended Complaint is DISMISSED WITH LEAVE TO
7
AMEND.
8
days of this Order.
9
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
United States District Court
For the Northern District of California
10
11
IT IS SO ORDERED.
12
13
Dated: December 5, 2012
14
UNITED STATES DISTRICT JUDGE
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