Newett v. Leapfrog Enterprises, Inc. et al

Filing 137

ORDER by Judge Edward M. Chen Denying 131 Defendants' Motion for Leave to File Motion for Reconsideration. (emcsec, COURT STAFF) (Filed on 8/10/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 9 IN RE LEAPFROG ENTERPRISE, INC. SECURITIES LITIGATION, ___________________________________/ This Document Relates to: 10 All Actions. ORDER DENYING DEFENDANTS’ MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION Docket No. 131 12 For the Northern District of California United States District Court 11 Case No. 15-cv-00347-EMC 13 Currently pending before the Court is Defendants‟ motion for leave to file a motion for 14 reconsideration. Having considered the parties‟ briefs and accompanying submissions, the Court 15 hereby DENIES Defendants‟ motion. 16 According to Defendants, they should be given leave to file a motion to reconsider because 17 “a material difference in . . . law exists from that which was presented to the Court before entry of 18 the interlocutory order for which reconsideration is sought.” Civ. L.R. 7-9(b)(1). More 19 specifically, Defendants point to the Ninth Circuit‟s recent opinion in City of Dearborn Heights 20 Act 345 Police & Fire Retirement System v. Align Technology, Inc., 856 F.3d 605 (9th Cir. 2017). 21 Align, however, is not – as Defendants claim – a change in the controlling law. Rather, 22 Align simply confirms that Omnicare, Inc. v. Laborers District Council Construction Industrial 23 Pension Fund, 135 S. Ct. 1318 (2015), is the governing law. The Court acknowledges that, in 24 Align, the Ninth Circuit stated the following: “[T]o the extent our current standard permits 25 plaintiffs to plead falsity by alleging that „there is no reasonable basis for the belief‟ under the 26 material misrepresentation theory of liability, it is „clearly irreconcilable‟ with Omnicare, and is 27 therefore overruled.‟” Align, 856 F.3d at 616. But that is just a statement confirming the law 28 under Omnicare. And even if Align could be considered something more, it simply means that, 1 for a material misrepresentation theory of liability, a plaintiff must plead not just objective falsity 2 but also subjective falsity, and that is what Lead Plaintiff did in the instant case. See, e.g., Docket 3 No. 117 (Order at 12-16) (discussing scienter and falsity for claims related to the long-lived asset 4 impairment). 5 To the extent Defendants argue that “Align changed the law in the way it applied the new 6 pleading standard,” Mot. at 4, the Court is still not persuaded. Nothing in Align makes a blanket 7 ruling that, in a securities fraud case related to accounting impairment, a plaintiff must make 8 allegations about the assumptions that the defendants used in the accounting analysis in order to 9 survive a motion to dismiss. Rather, it was the specific situation in Align that made allegations 10 about such assumptions important. In any event, even affording reconsideration on the merits, the Court finds that Align is 12 For the Northern District of California United States District Court 11 materially distinguishable from the instant case. In Align, the Ninth Circuit concluded that the 13 channel stuffing of the acquired company was not obvious to the management of the acquiring 14 company, especially because the channel stuffing concerned the acquired company and predated 15 the acquisition. Here, Lead Plaintiff has made a plausible claim of obviousness – i.e., that 16 Leapfrog management kept track of Leapfrog stock increases and decreases and thus undoubtedly 17 knew about the steep stock decline in 3Q, a key factor informing the long-lived asset analysis (at 18 least as claimed by Defendants by the time of 4Q). Also, in Align, missing allegations about the 19 assumptions the defendants used in conducting their goodwill analysis were crucial because not 20 only were there negative factors suggesting impairment, but also there were positive and 21 mitigating factors suggesting the opposite. In the instant case, there are no clear positive and 22 mitigating factors with respect to long lived assets – at least none identified by the parties. This 23 stands in contrast to goodwill analysis upon which this Court ruled where there were positive and 24 mitigating factors (i.e., the upcoming holiday season) leading this Court to find there was no 25 viable claim for securities fraud with respect thereto. 26 /// 27 /// 28 /// 2 1 2 3 Accordingly, Defendants‟ motion – whether construed as a motion for leave or a motion to reconsider – is denied. This order disposes of Docket No. 131. 4 5 IT IS SO ORDERED. 6 7 8 9 Dated: August 10, 2017 ______________________________________ EDWARD M. CHEN United States District Judge 10 12 For the Northern District of California United States District Court 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3

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