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)

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