Mazzaferro v. Aruba Networks Inc et al

Filing 89

ORDER by Judge Vince Chhabria granting 68 Motion to Dismiss with Leave to Amend (knm, COURT STAFF) (Filed on 8/1/2014)

1
2
3

UNITED STATES DISTRICT COURT

4

NORTHERN DISTRICT OF CALIFORNIA

5
6

PAUL MAZZAFERRO, et al.,

Case No. 13-cv-02342-VC

Plaintiffs,
7
v.

ORDER GRANTING MOTION TO
DISMISS WITH LEAVE TO AMEND

8
9

ARUBA NETWORKS INC, et al.,

Re: Docket No. 68

Defendants.
10

United States District Court
Northern District of California

11
12

The motion to dismiss is granted, because the complaint does not plead any actionable

13

misrepresentations by Aruba. Many of the challenged statements are non-actionable puffery. For

14

example, vague comments such as, "I feel like we are in the most superior position," "[w]e are

15

pleased with our continued momentum," and "we are very, very bullish," simply express corporate

16

optimism and cannot support a claim for securities fraud. See In re Cutera Sec. Litig., 610 F.3d

17

1103, 1111 (9th Cir. 2010).

18

The remaining statements are not actionable because the complaint does not plead facts to

19

support an inference that they were false or misleading when made. The complaint alleges that

20

Aruba's statements, including those about its win rate (e.g., the "win rate actually has not gone

21

down or in fact . . . increased modestly" and "our competitive rate remains high"), its gross

22

margins, (e.g., "we have very high gross margin business in those areas"), its market share (e.g.,

23

"we're gaining share"), and its competitive advantages over Cisco (e.g., "We feel very good about

24

our ClearPass platform and our ability to compete on differentiation" and the project pipeline has

25

"never been better"), were false or misleading because the company was actually struggling to

26

compete with Cisco. In support, the complaint includes statements from six confidential

27

witnesses. Even if one were to assume the allegations are sufficient to establish reliability and

28

personal knowledge of the confidential witnesses (which is questionable), the statements made by

the witnesses in the complaint would not, if true, demonstrate that Aruba's statements were false or

2

misleading. At most, the witnesses state that Cisco's bundling strategy "materially affected

3

Aruba's ability to win and hold accounts," and that Aruba lost one significant client in early 2013.

4

Am. Compl. ¶¶ 45-47. That Cisco's strategy "materially affected Aruba's ability to win and hold

5

accounts" does not necessarily mean Aruba was experiencing a net loss of clients or losing its

6

market share to Cisco; this vague assertion is not so inconsistent with the challenged statements as

7

to support an inference that they were false. See Ronconi v. Larkin, 253 F.3d 423, 434 (9th Cir.

8

2001). Similarly, the loss of one client is not equivalent to a decrease in market share, competitive

9

advantage, or revenue. The complaint does not allege how much of the company's business the

10

one client represented or other facts necessary to infer that losing this client would significantly

11
United States District Court
Northern District of California

1

impact the company's overall financial performance. There are also no specific allegations about

12

other clients being lost, the ratio of clients lost to clients added, how many projects were or were

13

not in the pipeline, or whether the company was actually losing revenue or market share.

14

The confidential witnesses' other statements, for example that Cisco was "a serious threat,"

15

"becoming extremely aggressive," and "increasingly targeting the Wi-Fi space and Aruba in

16

particular," only serve to show that Cisco was a serious competitor. Am. Compl. ¶¶ 42-45.

17

Aruba's awareness of or even concern regarding competition from Cisco, a well-known market

18

leader, does not indicate that Cisco was succeeding in taking Aruba's market share or that Aruba's

19

public statements regarding its growing market share were false. Moreover, Aruba disclosed it

20

was facing competition from Cisco -- both in its Form 10K and 10Q risk disclosures and during

21

earnings calls. For example, when asked about the company's ability to compete against Cisco,

22

Melkote responded in part, "so I think Cisco's always been formidable. They're formidable on a --

23

from a pricing perspective, they're aggressive there. And they obviously have a lot of other pieces

24

that they bring in to a customer . . . ." Am. Compl. ¶ 80.

25

Because the complaint fails to plead the underlying, predicate violation, the Section 20(a)

26

and 20A claims are also dismissed. Dismissal is with leave to amend. Any amended complaint

27

must be filed within 21 days. The motion to dismiss has put the plaintiffs on notice of all potential

28

defects in the complaint, including those not reached in this order, and therefore the Court assumes
2

1
2
3
4
5

that the amended complaint, if any, will represent the plaintiffs' last and best shot.
IT IS SO ORDERED.
Dated: August 1, 2014
______________________________________
VINCE CHHABRIA
United States District Judge

6
7
8
9
10

United States District Court
Northern District of California

11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
3