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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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 Plaintiffs assert that the price of Equinix stock 1 plummeted over 33 percent when the falsity of these statements was 2 revealed. 3 Plaintiffs' First Amended Complaint ("FAC") focused on 4 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 7 2010. 8 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 11 Complaint ("SAC"), the operative complaint in this action, on May 12 2, 2012. 13 target Defendants' financial forecasts. 14 new allegations concerning Equinix's pricing strategy and the 15 integration of the Switch and Data sales force. 16 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. 19 20 ECF No. 47 ("MTD"). 21 ("Opp'n"), 52 ("Reply").2 22 Court finds the motion suitable for determination without oral 23 argument. 24 /// 25 1 26 27 28 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 11 users, and collaborate with partners and customers. 12 generates substantially all of its revenue through three offerings 13 available to customers at its ninety-two IBX data centers: 14 collocation services, interconnection services, managed IT 15 services. 16 equipped facilities for their computer and data systems. 17 ¶¶ 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 19 April 2010. Id. ¶ 10. In a May 7, 2010 conference call with 20 investors, Smith said of the acquisition: "Our overriding goal [is] 21 to drive an aggressive integration schedule to move towards a one 22 company model, with full annualized synergies to be realized no 23 later than mid-2011." 24 the commencement of the class period, Equinix issued a press 25 release announcing its 2Q10 financial results. 26 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. 7 8 9 United States District Court For the Northern District of California 10 11 12 [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. 13 14 15 16 Id. (emphasis added). Plaintiffs also point to allegedly false and misleading 17 18 statements concerning the Switch and Data integration made on 19 September 1 and 15, 2010. 20 RBC Capital report: 21 Taylor. 22 Company appears to have the Switch & Data integration process in 23 hand and ahead of schedule." 24 made a presentation at an investors' conference, stating: "[T]he 25 pipeline's as healthy as it's ever been. 26 . . . 27 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 4 Plaintiffs allege that these statements regarding the 1 2 integration of Switch and Data's sales force were false and 3 misleading. 4 a conference call with investors on October 5, 2010, the last day 5 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 8 9 United States District Court For the Northern District of California 10 11 12 13 Id. ¶ 148. Next, Plaintiffs point to a number of statements from their 14 15 CWs, all former Equinix employees who had worked for Switch and 16 Data before it was acquired. 17 marketing manager, states that Equinix shifted accounts away from 18 former Switch and Data representatives and gave them to Equinix 19 representatives, without consideration of which sales 20 representative was most likely to win the deal. 21 also states that, in response to this strategy, former Switch and 22 Data representatives concealed their pipelines of potential deals 23 from Equinix management. 24 representative, and CW4, a former Equinix product manager, echoed 25 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 26 27 28 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 1 representatives, even though former Switch and Data sales 2 representatives were far more knowledgeable about how to sell space 3 in former Switch and Data sales centers. 4 CW1, Equinix's former director of channel marketing, former Switch 5 and Data sales representatives told her that their efforts to 6 assist longstanding Equinix sales representatives were rejected. 7 Id. ¶ 133. 8 weekly cross-selling reports -- reports which allegedly reflected 9 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. 11 Plaintiffs also allege that Defendants made false and 12 misleading statements concerning the stability of their pricing. 13 Specifically, Plaintiffs allege that Defendants falsely stated that 14 Equinix's pricing remained firm and misled investors who expressed 15 concern that a more competitive landscape would force Equinix to 16 offer more discounts. 17 on statements made during the July 28 conference call. 18 call, Taylor stated: "Overall North America pricing remains firm 19 across both the organic and the Switch and Data footprint." 20 102. 21 22 23 24 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. 25 26 Id. ¶ 105. Smith later added: "So, yes there's pricing pressure 27 there and yes we lots of times walk with it if it's a strategic 28 6 1 customer we might get a little more aggressive. 2 about figuring out how to get into that space today, no, we don't 3 really need to." 4 Are we thinking Id. ¶ 106. Again, Plaintiffs also point to statements made by Defendants 5 on September 1 and 15, 2010. The September 1 RBC Capital report 6 states: "Overall, we believe pricing remains largely stable across 7 most markets/datacenters, and note that list pricing in some 8 product areas has increased this year . . . . 9 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 . . . ." 11 September 15, Taylor stated: "Look, we can win on price if we want 12 to win on price. 13 not going to trade price for volume." 14 point to Taylor's statements at a conference on September 22, 2010: 15 "[T]his is sort of a consistent message you've heard from us 16 previously, that pricing is stable, it's firm." 17 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 18 October 2010 show that pricing was not stable during the class 19 period. 20 in a conference call with investors on October 5, 2010: Specifically, Plaintiffs point to statements made by Smith 21 22 23 24 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 28 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. 7 According to CW5, prior to and during the Class Period, Equinix 8 sales representatives were empowered to offer customers discounts 9 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 11 "regularly approved" discounts of between 10 and 30 percent. 12 124. 13 to rise above 30 percent with the approval of Equinix's finance 14 director. 15 installation charges prior to and during the class period. 16 126. 17 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 19 July 28, 2010 revenue projections for 3Q10 and FY10 by 1.2 to 2.2 20 percent. 21 October 5 announcements. 22 from $106.09 on October 5 to $70.34 the next day, a one-day loss of 23 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. 24 B. Procedural History 25 Cement Masons, which had purchased Equinix stock during the 26 Class Period, filed the instant action in federal court on March 4, 27 2011. 28 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. 8 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 11 (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. 14 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 18 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 24 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. 9 United States District Court For the Northern District of California 10 III. LEGAL STANDARD 11 A. Motion to Dismiss 12 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 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20

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