York County on Behalf of the County of York Retirement Fund v. HP Inc. et al

Filing 80

ORDER GRANTING IN PART AND DENYING IN PART RENEWED MOTION TO DISMISS by Judge Jeffrey S. White granting in part and denying in part 69 Motion to Dismiss. Amended Pleadings due by 4/17/2024. Joint Case Management Statement due by 5/31/2024. Further Case Management Conference set for 6/7/2024 11:00 AM in Oakland, - Videoconference Only. (kkp, COURT STAFF) (Filed on 3/27/2024)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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YORK COUNTY ON BEHALF OF THE
COUNTY OF YORK RETIREMENT
FUND,
Plaintiff,

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United States District Court
Northern District of California

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v.

Case No. 20-cv-07835-JSW
ORDER GRANTING IN PART AND
DENYING IN PART RENEWED
MOTION TO DISMISS
Re: Dkt. No. 69

HP INC., et al.,
Defendants.

Now before the Court is the renewed motion to dismiss filed by Defendants HP Inc.

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(“HP”), Dion J. Weisler, Catherine A. Lesjak, Enrique Lores, and Richard Bailey (individually,

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“Individual Defendants”; collectively, “Defendants.”) The Court has considered the parties’

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papers, relevant legal authority, and the record in the case, and it finds this matter suitable for

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disposition without oral argument. See N.D. Civ. L.R. 7-1(b). The Court HEREBY GRANTS, IN

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PART, AND DENIES, IN PART, the motion to dismiss with leave to amend.

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BACKGROUND
HP maintains “Printing” and “Personal Systems” businesses. (Dkt. No. 37, Consolidated

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Complaint (“Consol. Compl.”), ¶ 24.) Within the Printing business is the “Supplies” business,

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which sells toner, ink cartridges, and related printing supplies. (Id. ¶ 25.) The Supplies business

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is “fundamental” to HP’s success and accounts for the majority of HP’s profits. (Id. ¶¶ 28-29.)

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Lead Plaintiff Maryland Electrical Industry Pension Fund (“Maryland Electrical”) is a

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former HP shareholder who alleges, on behalf of a purported class, that Defendants engaged in a

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fraudulent scheme to artificially inflate the value of HP common stock. (Id. ¶ 23.) The alleged

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scheme centered on the Supplies business.

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Prior to and during the Class Period, HP publicly assured its investors that the Supplies

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business was healthy and that any downward trends in profits and pricing were due to reasons

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outside of HP’s control, including “currency movements that have accelerated pricing pressures.”

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(Id. ¶ 43.) Defendants also reassured investors that channel inventory 1 was decreasing and was

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within or only “slightly above” HP’s targeted range. (Id. ¶¶ 118, 120.) Defendants allegedly

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reiterated these false or misleading statements on the following dates: November 5, 2015;

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November 24, 2015; December 16, 2015; February 24, 2016; March 1, 2016; March 3, 2016; May

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25, 2016; June 1, 2016; and June 3, 2016. (Id. ¶¶ 95-100, 102-107, 109-113, 115, 122-123, 126,

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128-130, 140.)
According to Maryland Electrical, Defendants knew that the Supplies business was in

United States District Court
Northern District of California

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reality not healthy at the time of the challenged representations. (Id. ¶ 5.) While publicly

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reassuring investors on the one hand, Defendants secretly engaged in a “pull-in” or “acceleration”

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scheme on the other. (Id.) The pull-in scheme consisted of “gray marketing,” which is “the

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practice of selling supplies to channel partners at steep discounts who then sold those supplies

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outside of their assigned territories and further down the inventory channel.” (Id.) The scheme

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also involved “accelerating, or pulling-in,” meaning that HP offered discounts to induce purchases

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of supplies that channel partners did not yet want or need. (Id. ¶¶ 5, 49.) For clarity, this Order

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refers to these combined business practices as the “acceleration scheme.”
The acceleration scheme was centered in HP’s Asia Pacific and Japan Region (“APJ”).

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(Id. ¶ 52.) HP sold Supplies products at steep discounts in APJ to known gray marketers who then

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sold the products in other regions. (Id.) HP then offered lower prices outside of APJ to compete

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with the HP products sold by gray marketers, resulting in channel stuffing in those regions and a

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domino effect of gray marketing in yet other regions. (Id. ¶ 54.) The result was lower prices,

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sales, and profits for HP around the world.
Maryland Electrical further alleges that Defendants intentionally concealed concerning

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information. For example, HP publicly reported only Tier 1 inventory, even though it internally

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As defined by the U.S. Securities and Exchange Commission (“SEC”), “channel inventory” in
this case “refers to inventory sold by HP to its distribution channel that has not yet been sold to
end users. Increasing channel inventory indicates that HP has sold more to its channel partners
than the channel is selling to end users.” (Dkt. No. 37-1, SEC Order, at 2 n.2.)
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tracked Tier 2 inventory. 2 (Id. ¶¶ 32, 60.) HP also allegedly made “simultaneous sell-in/sell-

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through deals,” by which it sold supplies to Tier 1 distributors that were instantly passed through

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to Tier 2 distributors. (Id. ¶ 59.) These sell-through deals concealed the amount of product in the

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Supplies channel inventory. Defendants knew that the Supplies business was suffering because

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then-CFO Lesjak received weekly reports regarding channel inventory levels, but they did not

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disclose that information with stakeholders. (Id. ¶ 31.)
As a result of these practices, according to Maryland Electrical, HP was required to clear

United States District Court
Northern District of California

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out $700 million in excess Supplies channel inventory. (Id. ¶ 66.) Maryland Electrical further

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claims that the value of HP common stock was artificially inflated by the misrepresentations and

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omissions, and that the value dropped upon partial disclosures of HP’s true Supplies performance.

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(Id. ¶¶ 199-208.) Maryland Electrical contends that it would not have purchased HP common

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stock at the price it paid if it had been aware of Defendants’ misrepresentations and omissions.

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(Id. ¶ 223.)
The SEC uncovered HP’s practices after a years-long investigation. On September 30,

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2020, the SEC issued an order detailing the above practices and accepting a settlement offer from

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HP for $6 million. (Dkt. No. 37-1, SEC Order.) Among the SEC’s findings were that HP’s

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channel inventory representations were “materially misleading.” (See id. at 10, ¶¶ 50-52.)

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Maryland Electrical contends that it became aware of Defendants’ scienter due to the SEC Order.

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The Individual Defendants were HP officers during the proposed Class Period. (See id. ¶¶

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17-20.) Weisler served as CEO and a member of HP’s Board of Directors during the Class Period.

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(Id. ¶ 17.) Lesjak was the CFO for HP and regularly attended Board meetings. (Id. ¶ 18.) Lores

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was the President of HP’s Imaging & Printing business during the Class Period, and now serves as

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President and CEO. (Id. ¶ 19.) Bailey was President of APJ during the Class Period. (Id. ¶ 20.)

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According to Plaintiffs, each of the Individual Defendants had the power and authority to control

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HP’s representations, and they knowingly made or permitted to be made false or materially

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misleading representations. (Id. ¶¶ 21-23.)

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“Tier 1” inventory is inventory held by partners to whom HP sells directly. “Tier 2” refers to
partners to whom Tier 1 distributors sell products but who are not end users.
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Based on these allegations, Maryland Electrical brings two claims for relief on behalf of

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itself and a putative class: (1) violation of Section 10(b) of the Securities Exchange Act of 1934

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(the “1934 Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, and (2) violation of

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Section 20 of the 1934 Act, 15 U.S.C. § 78t(a).

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United States District Court
Northern District of California

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The Court will address additional allegations as needed in its analysis.
PROCEDURAL HISTORY
York County filed the initial complaint in this action on November 5, 2020. (Dkt. No. 1.)

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Two months later, on January 4, 2021, Maryland Electrical moved as a class member to be

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appointed Lead Plaintiff pursuant to the Private Securities Litigation Reform Act (“PSLRA”), 15

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U.S.C. § 78u-4(a)(3)(B)(iii). (Dkt. No. 19.) The Court granted Maryland Electrical’s motion and

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appointed it Lead Plaintiff on February 11, 2021. (Dkt. No. 30.)

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Maryland Electrical filed the operative Consolidated Complaint on April 21, 2021. (Dkt.

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No. 37, Consol. Compl.) The Consolidated Complaint identifies Maryland Electrical, HP, and

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Individual Defendants as the parties. (Id. ¶¶ 15-23.) York County remains in the case caption, but

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it is not identified anywhere in the body of the Consolidated Complaint. (See id.)

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Defendants moved to dismiss the action as time-barred. (Dkt. No. 45.) Defendants also

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contended that Maryland Electrical lacks standing and that the Consolidated Complaint failed to

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state a claim under Rule 12(b)(6). (Id.) In their motion, Defendants referred to “Plaintiff” in the

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singular as Maryland Electrical. (Id.)

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Maryland Electrical opposed and referred to “Plaintiffs” in the plural. (Dkt. No. 50.) York

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County filed a separate declaration in support of Maryland Electrical’s opposition. (Dkt. No. 51.)

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In that declaration, York County stated that it understood it remained a party to the action and that

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it was willing to take on a more active role if need be. (Dkt. No. 52, ¶¶ 3-5.)

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The Court granted Defendants’ motion on the basis of the statute of limitations. (Dkt. No.

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58.) In finding the claims time-barred, the Court reasoned that all of the challenged

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representations “were publicly disclosed and premised upon publicly available information” prior

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to the limitations period. (Id. at 5.) The Court did not reach the remainder of Defendants’

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arguments, but it reasoned in a footnote that Maryland Electrical lacks standing because it sold its
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HP shares prior to the challenged representations. (Id. at 6 n.1.)
Both Maryland Electrical and York County appealed. (Dkt. No. 60.) The Court of

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Appeals for the Ninth Circuit reversed, finding that the Court had misapplied California’s

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discovery rule. York Cnty. on Behalf of Cnty. of York Ret. Fund v. HP, Inc., 65 F.4th 459, 463

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(9th Cir. 2023); (Dkt. No. 62, at 17.) The Ninth Circuit declined to rule on Maryland Electrical’s

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standing, the statute of repose, or the adequacy of the Consolidated Complaint, and it remanded to

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this Court to address those issues in the first instance. (Id. at 18.)
Upon remand, the Court granted Defendants’ motion to file a renewed motion to dismiss.

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(Dkt. No. 67.) The renewed motion is now before the Court. (Dkt. No. 69, Mot.)
ANALYSIS

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United States District Court
Northern District of California

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A.

Legal Standard Applicable to a Motion to Dismiss Securities Claims.
A motion to dismiss is proper under Rule 12(b)(6) where the pleadings fail to state a claim

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upon which relief can be granted. Fed. R. Civ. P. 8(a)(2). “[D]etailed factual allegations are not

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required” to survive a motion to dismiss if the complaint contains sufficient factual allegations to

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“state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

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(citing Bell Atl. v. Twombly, 550 U.S. 544, 570 (2007)). “Labels and conclusions[] and a

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formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

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“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to

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draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556

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U.S. at 678. If the allegations are insufficient to state a claim, a court should grant leave to amend

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unless amendment would be futile. Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990).

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Claims sounding in fraud or mistake are subject to heightened pleading requirements. A

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plaintiff bringing a securities fraud claim “must satisfy the dual pleading requirements of Federal

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Rule of Civil Procedure 9(b) and the PSLRA.” Prodanova v. H.C. Wainwright & Co., LLC, 993

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F.3d 1097, 1106 (9th Cir. 2021) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981,

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990 (9th Cir. 2009)). Federal Rule of Civil Procedure 9(b) requires plaintiffs to “state with

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particularity the circumstances regarding fraud or mistake.” Fed. R. Civ. Proc. 9(b). Thus,

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“[a]verments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the
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misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003)

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(quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). The PSLRA’s “exacting”

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standards requires “the complaint . . . [to] specify each statement alleged to have been misleading,

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[and] the reason or reasons why the statement is misleading,” and to “state with particularity facts

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giving rise to a strong inference that the defendant acted with the required state of mind.” In re

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Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1140 (9th Cir. 2017) (“Quality Systems”) (quoting

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Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007)); Schueneman v. Arena

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Pharms., Inc., 840 F.3d 698, 705 (9th Cir. 2016) (quoting Nat’l Elevator Indus. Pension Fund v.

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VeriFone Holdings, Inc., 704 F.3d 694, 701 (9th Cir. 2012)).
When a party moves to dismiss for failure to state a claim under Rule 12(b)(6), a District

United States District Court
Northern District of California

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Court generally accepts as true all well-pleaded material facts and draws all reasonable inferences

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in favor of the plaintiff. Faulkner v. ADT Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013).

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However, with regard to scienter under the PSLRA, a court must consider “competing inferences

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rationally drawn from the facts alleged. . . [A]n inference of scienter must be more than merely

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plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of

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nonfraudulent intent.” Tellabs, 551 U.S. at 314. “Falsity is subject to a particularity requirement

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and the reasonable inference standard of plausibility set out in Twombly and Iqbal, and scienter is

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subject to a particularity requirement and a strong inference standard of plausibility.” Glazer Cap.

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Mgmt., L.P. v. Forescout Techs., Inc., 63 F.4th 747, 766 (9th Cir. 2023) (emphasis in original).

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B.

Requests for Judicial Notice.
The Court “may judicially notice a fact that is not subject to reasonable dispute because it:

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(i) is generally known within the trial court's territorial jurisdiction; or (ii) can be accurately and

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readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid.

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201. District courts have discretion to take judicial notice or incorporate documents into the

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pleadings by reference without converting a motion to dismiss into a motion for summary

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judgment under Rule 12(d). Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir.

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2018).

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Defendants request judicial notice of ten exhibits, each of which are referenced multiple
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times throughout the Consolidated Complaint. (Dkt. No. 70.) These documents include HP’s

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SEC filings, transcripts of earning calls, and transcripts of investor presentations. Maryland

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Electrical does not oppose.
The Court concludes all of the documents are subject to judicial notice and that Maryland

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Electrical has incorporated some of those documents by reference into the Consolidated

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Complaint. By taking judicial notice, the Court does not assume the truth of any statements

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contained within the documents. The Court will indicate which, if any, noticed contents are relied

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on for the purposes of this Order.

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C.

United States District Court
Northern District of California

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Maryland Electrical Has Standing.
Defendants argue that Maryland Electrical lacks standing to challenge statements made in

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2016 given that it purchased and sold its HP common stock in 2015 only. Defendants rely on

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Lierboe v. State Farm Mutual Automobile Insurance Co. for the proposition that the entire case

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must be dismissed where the sole named plaintiff does not have a viable claim. See Lierboe, 350

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F.3d 1018, 1023 (9th Cir. 2003). Because the Court concludes below that Maryland Electrical has

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a viable claim, Defendants’ argument fails. See In re Volkswagen "Clean Diesel" Mktg., Sales

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Pracs., & Prod. Liab. Litig., No. MDL 2672 CRB, 2017 WL 3058563, at *4 (N.D. Cal. July 19,

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2017) (denying identical argument where lead plaintiff stated a claim).

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In Melendres v. Arpaio, the Ninth Circuit adopted the “class certification approach” to

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address “dissimilarities between the claims of named and unnamed plaintiffs.” 784 F.3d 1254,

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1261-62 (9th Cir. 2015). So long as the named plaintiff has a claim, it has standing to challenge

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the defendants’ common conduct relating to “the same type of relief or the same kind of injury” as

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unnamed class members. Id. at 1263. The named plaintiff’s adequacy and typicality is then tested

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at the class certification stage. Id. at 1262-63.

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Here, pursuant to Melendres, Maryland Electrical has standing because it purchased and

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sold HP common stock during the putative Class Period. Melendres, 784 F.3d at 1263.

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Defendants’ alleged misrepresentations and omissions were common to the period in which

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Maryland Electrical traded HP stock and in the remainder of the putative class period. Although

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Maryland Electrical could not pursue individual claims based upon Defendants’ representations in
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2016, whether Maryland Electrical can pursue class claims for those representations is a question

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of adequacy, not standing. See id.; see also In re Volkswagen, 2017 WL 3058563, at *4 (finding

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lead plaintiff had standing to represent “putative class members who purchased. . . bonds in

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different tranches or offerings” in which the lead plaintiff did not participate).

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D.

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Securities fraud claims are subject to both a statute of limitations and a statute of repose.

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28 U.S.C. section 1658(b) provides that “a private right of action that involves a claim of fraud,

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deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the

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securities laws. . . may be brought not later than the earlier of – (1) 2 years after the discovery of

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United States District Court
Northern District of California

The Action Was Timely.

the facts constituting the violation; or (2) 5 years after such violation.” 28 U.S.C. § 1658.
The Ninth Circuit has found that this action was brought within two years of discovery of

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the facts constituting the violation because it was filed within two years of the issuance of the SEC

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Order. York Cnty., 65 F.4th at 467-68. The Ninth Circuit instructed this Court to determine

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timeliness by first identifying the “critical date” – that is, the limitations period subtracted from

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the date of filing. Id. at 465-66. The Court can then determine what alleged conduct occurred

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before and after the critical date. Id. Here, the law of the case dictates that “the facts constituting

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the violation” were not discoverable until after the critical date.

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Defendants argue that the Consolidated Complaint is nevertheless untimely under Section

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1658(b)(2) because it was filed more than five years after the misstatements—beyond the statute

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of repose. In order to determine whether Maryland Electrical’s claims are timely under the statute

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of repose, the Court must disentangle a number of knotted threads.

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The first knot centers on the meaning of “be brought” in the context of a securities class

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action. See 28 U.S.C. § 1658. Defendants contend that the instant action was “brought” on April

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21, 2021, when Maryland Electrical filed the Consolidated Complaint as Lead Plaintiff. Maryland

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Electrical counters that the relevant date is instead November 5, 2020, when York County filed the

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initial complaint in this action.

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Finding, as the Court does, that the action was “brought” on November 5, 2020, the Court
must next confront the snag of whether York County’s November 5, 2020 complaint was itself
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timely under the statute of repose.
Finally, the Court must untangle the issue of whether Maryland Electrical’s otherwise

United States District Court
Northern District of California

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untimely amended complaint may relate back to York County’s timely prior complaint for any or

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all of the Defendants. In untying this last knot, the Court confronts the issues of whether York

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County remains a party to this case and whether York County’s party status matters for purposes

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of determining the timeliness of the action.

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Defendants argue that the action commenced on April 21, 2021 for purposes of

The Action Was “Brought” On November 5, 2020.

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determining the “critical date.” According to Defendants, because no class had been certified on

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the basis of York County’s original complaint, Maryland Electrical’s claims did not exist until it

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filed the Consolidated Complaint. Maryland Electrical counters that this argument is illogical,

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would pose practical difficulties, and defies precedent.
Federal Rule of Civil Procedure 3 provides that “[a] civil action is commenced by filing a

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complaint with the court.” Fed. R. Civ. Proc. 3. Rule 3 does not state that a civil action is

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commenced anew with each iteration of a complaint. Here, York County filed its original

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complaint with the Court on November 5, 2020, thereby initiating the action under Rule 3.
Nothing suggests that the parties are engaged in anything other than a continuous action

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initiated upon the filing of York County’s complaint. From the outset, HP anticipated an amended

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complaint would be filed as they “generally” are “in securities class actions like this one.” (Dkt.

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No. 11, at 1.) Maryland Electrical filed a motion to be appointed Lead Plaintiff in the action

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initiated by York County; it did not file a separate suit. HP did not file a renewed Certificate of

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Interested Entities pursuant to Rule 7.1 or Civil Local Rule 3-15 with its first filing after the filing

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of the Consolidated Complaint. The case caption and number remain the same. The document

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numbers run consecutively beginning with York County’s complaint. There is no indication from

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the text of the PSLRA that the appointment of a lead plaintiff other than the original filer creates a

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new action. 3

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The PSLRA directs courts to determine “the member or members of the purported plaintiff class.
. . most capable of adequately representing the interests of class members. . . .” 15 U.S.C. § 78u–
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United States District Court
Northern District of California

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In sum, by every measure and by the common understanding of the term “civil action,” this

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action was commenced on November 5, 2020. See California Pub. Employees' Ret. Sys. v. ANZ

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Sec., Inc., 582 U.S. 497, 514 (2017) (holding the term “action” must be given its “ordinary

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understanding”); see also Martin v. Altisource Residential Corp., No. CV 15-24, 2019 WL

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2762923, at *6 (D.V.I. July 2, 2019) (finding “[b]y any reasonable understanding, we are in the

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same action (or suit, or proceeding) that was brought in 2015, even though the Plaintiffs have

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changed.”)

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2.

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Defendants argue that the action was untimely when commenced. They claim that York

York County’s Original Complaint Was Timely.

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County solely alleged misrepresentations from September 2015, before the critical date of

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November 5, 2015. Maryland Electrical responds that Defendants waived this argument under

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Federal Rule of Civil Procedure 12(g)(2) by not raising it in their original motion to dismiss.

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Maryland Electrical asserts that HP’s November 5, 2015 8-K contained new misrepresentations

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and incorporated by reference prior misrepresentations from HP’s September 2015 10-Q.

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a.

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The Court Exercises Its Discretion to Consider the Timeliness of York
County’s Original Complaint.

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Rule 12(g)(2) proscribes successive Rule 12 motions which raise defenses not asserted in a

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prior motion and which were available to the moving party at the time of the prior motion. Fed. R.

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Civ. Proc. 12(g)(2). Rule 12(h)(2) provides that a defense of “failure to state a claim upon which

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relief can be granted” may be raised in a responsive pleading, a 12(c) motion, or at trial. Fed. R.

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Civ. Proc. 12(h)(2).

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Defendants contend that they raised the timeliness of York County’s original complaint in

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their original motion to dismiss. (See Dkt. No. 45, at 11 n.3.) However, Defendants did not

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expressly contend that the original complaint was untimely. Rather, in a footnote, they pointed

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out their position that the statements in the September 2015 10-Q were not incorporated by

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4(a)(3)(B)(i). In the event more than one putative class action has been filed “asserting
substantially the same claim or claims . . .the court shall appoint the most adequate plaintiff as
lead plaintiff for the consolidated actions. . .” Id. § (ii).
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United States District Court
Northern District of California

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reference into the November 2015 8-K. Even if the Court were to infer that Defendants intended

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this note to raise an argument regarding timeliness, “[a]rguments raised only in footnotes. . . are

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generally deemed waived.” Est. of Saunders v. C.I.R., 745 F.3d 953, 962 n.8 (9th Cir. 2014).

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Even so, declining to rule on Defendants’ contention at this time would unnecessarily

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cause further delays in this long-pending case. Because judicial economy may be impaired by

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applying Rule 12(g)(2) to avoid the merits of a successive 12(b)(6) motion, the Ninth Circuit has

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been “forgiving” when a District Court rules “on the merits of a late-filed Rule 12(b)(6) motion.”

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In re Apple iPhone Antitrust Litig., 846 F.3d 313, 318 (9th Cir. 2017), aff'd sub nom. Apple Inc. v.

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Pepper, 139 S. Ct. 1514, 203 L. Ed. 2d 802 (2019). Defendants could easily reassert the defense

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as a 12(c) motion after pleadings are closed. See id. Accordingly, in the interest of judicial

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efficiency, the Court addresses the merits of the argument.

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b.

The Original Complaint Was Filed Within the Statute of Repose.

York County filed its complaint on November 5, 2020, five years to the day after what it

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contends were misstatements in HP’s November 5, 2015 8-K. Defendants contend that the

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statements challenged by York County were in fact made in September 2015. Maryland Electrical

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responds that York County’s original complaint challenged new statements made in the November

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2015 8-K, and, further, that the September 2015 statements were incorporated by reference into

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the November 2015 8-K

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The November 2015 8-K instructed readers to consider the numbers “in conjunction with”

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the September 2015 10-Q. Defendants provide two cases from District Courts in New York for

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the proposition that the phrase “read in conjunction with” is insufficient to incorporate a prior

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statement by reference. The first, In re The Warnaco Grp., Inc. Sec. Litig. (II), 388 F. Supp. 2d

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307, 313 (S.D.N.Y. 2005), aff'd sub nom. Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147 (2d

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Cir. 2007), held that a referral to prior documents “‘for further information’ . . . is insufficient for

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incorporation by reference.” Id. at 313 n.2. The second, Markewich v. Adikes, 422 F. Supp. 1144,

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1147 (E.D.N.Y 1976), held that “a mere mention of the annual report” was insufficient to

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incorporate the report to the materials. Id. at 1147; see id. (discussing Dillon v. Berg’s holding

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that under Rule 14a-3(c) annual reports were not “soliciting material” when included with proxy
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soliciting material “except to the extent that the issuer specifically requests that it be treated as part

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of the proxy soliciting material or incorporates it into the proxy statement by reference.” 326 F.

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Supp. 1214, 1230 (D. Del.), aff’d, 453 F.2d 876 (3d Cir. 1971)).

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“for further information” and is more than “a mere mention.” In this situation, where clarity is

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wanting, the Court examines the instruction to “read in conjunction with” in the specific context in

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which it was made in order to determine its meaning. See, e.g., Knievel v. ESPN, 393 F.3d 1068,

8

1078 (9th Cir. 2005) (noting “we assess the meaning of the word in the context in which it was

9

used” in defamation case); Becerra v. Dr Pepper/Seven Up, Inc., 945 F.3d 1225, 1230 (9th Cir.

10
11
United States District Court
Northern District of California

The phrase “read in conjunction with” implies a greater level of integration than referral

2019) (assessing meaning of word “diet” in context in which it was used in false advertising case).
The November 5, 2015 8-K stated as follows:

12

14

The unaudited pro forma consolidated condensed financial statements and the
accompanying notes should be read in conjunction with. . . the unaudited consolidated
condensed financial statements and accompanying notes and ‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations” included in HP Inc.’s
Form 10-Q for the nine months ended July 31, 2015.

15

(Dkt. No. 71-2, Nov. 2015 8-K, at 99.2.) Unlike the September 2015 10-Q, the November 2015 8-

16

K did not contain analysis from HP’s management. (See id.; see also Dkt. No. 71-3, Sept. 2015

17

10-Q, at 66.) Reading this provision in context, and making all reasonable inferences in favor of

18

Maryland Electrical, the Court finds that the November 2015 8-K specifically directed

19

stockholders to review the Manager’s Discussion to provide an explanation for the numbers in the

20

unaudited pro forma financial statements and thereby incorporated those explanations by

21

reference.

13

22

Defendants next contend that, even if the September 2015 10-Q was incorporated by

23

reference into the November 2015 8-K, the statute of repose nevertheless bars suit after September

24

2020 because it “begins to run on the date of the first misrepresentation.” (Mot. at 13 (citing Betz

25

v. Trainer Wortham & Co., 829 F. Supp. 2d 860, 864 (N.D. Cal. 2011).) Defendants

26

misunderstand the rule stated in Betz, where the court denied summary judgment as to repeated

27

representations made within the repose period. Betz, 829 F. Supp. 2d at 865 (finding genuine

28

issue of material fact “with regard to trades that occurred after [critical date] and which were
12

1

connected to a specific misrepresentation[] that likewise fell within the repose period”).

2

Defendants likewise miscite Malhotra v. Equitable Life Assur. Soc'y of U.S., 364 F. Supp. 2d 299,

3

306 (E.D.N.Y. 2005). That case held that a continuing omission (as opposed to additional

4

affirmative misrepresentations) would not restart the statute of repose unless the omission was

5

“new or materially different.” Id.

United States District Court
Northern District of California

6

Both Betz and Malhotra apply the rule that “[e]ach false representation may constitute a

7

separate violation of § 10(b); the five-year period begins to run with respect to each violation

8

when it occurs. [citations] A plaintiff may not recover for reliance on representations made prior

9

to the five-year statute of limitations period under a theory of continuing wrong.” In re Juniper

10

Networks, Inc. Sec. Litig., 542 F. Supp. 2d 1037, 1051 (N.D. Cal. 2008). Here, the September

11

2015 statements were republished by Defendants on November 5, 2015 when they were

12

incorporated by reference into the November 2015 8-K. Defendants pointed to the September

13

2015 statements and expected York County to rely on them. Thus, the five-year period began

14

anew on November 5, 2015.

15
16
17

3.

Maryland Electrical’s Complaint Relates Back to the Original Complaint as
against All Original Defendants.

Defendants contend that the action is nevertheless untimely. Because York County filed

18

its complaint on the very last day of the repose period, any plaintiff seeking to join the action after

19

that date would be time-barred, according to Defendants. Here, Maryland Electrical did not

20

appear in the action until January 4, 2021, when it first moved to be appointed Lead Plaintiff.

21

According to Defendants, Maryland Electrical did not become a party until it filed the

22

Consolidated Complaint. Because Maryland Electrical is now the sole named plaintiff,

23

Defendants reason that the critical date should be measured from April 21, 2021, when the

24

Consolidated Complaint was filed.

25

Defendants rely on two decisions from the Second Circuit which they claim require a

26

finding that the date of the filing of the Consolidated Complaint should control: Police & Fire

27

Retirement System of the City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013) and

28

Dekalb County Pension Fund v. Transocean Ltd., 817 F.3d 393 (2d Cir. 2016). According to
13

United States District Court
Northern District of California

1

Defendants, these cases provide that in securities class actions the critical date must be measured

2

from the date the lead plaintiff filed an amended complaint.

3

IndyMac does not provide the conclusive answer that Defendants contend. First, as a

4

Second Circuit decision, IndyMac does not bind this Court. Second, IndyMac’s holding was

5

limited to a finding that, “absent circumstances that would render the newly asserted claims

6

independently timely, neither Federal Rule of Civil Procedure 24 nor the Rule 15(c) ‘relation

7

back’ doctrine permits members of a putative class, who are not named parties, to intervene in the

8

class action as named parties in order to revive claims that were dismissed from the class

9

complaint for want of jurisdiction.” Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS,

10

Inc., 721 F.3d 95, 101 (2d Cir. 2013). In that case, the district court had dismissed claims brought

11

by the lead plaintiff for which it lacked constitutional standing. Id. at 111. The appellants sought

12

to intervene to reinstate the dismissed claims after the statute of repose had passed. Id. Relying

13

on the rule that “if jurisdiction is lacking at the commencement of a suit, it cannot be aided by the

14

intervention of a plaintiff with a sufficient claim,” the Second Circuit found that the intervenors

15

could not “cure” the constitutional defect by joining the action after the statute of repose. Id. at

16

111 (quoting Disability Advocates, Inc. v. N.Y. Coal. For Quality Assisted Living, Inc., 675 F.3d

17

149, 160 (2d Cir. 2012)).

18

DeKalb presents a more closely analogous case to the one before this Court. In that case,

19

Bricklayers and Masons Local Union No. 5, Ohio Pension Fund (“Bricklayers”) timely brought a

20

putative class action under Section 14(a) for alleged misrepresentations in a proxy statement. 817

21

F.3d at 399. DeKalb filed a motion to become lead plaintiff within the 60-day period provided by

22

the PSLRA, but two months after the statute of repose had elapsed. Id. The District Court then

23

appointed “the DeKalb-Bricklayers Group” to represent the putative class. Id. The District Court

24

later dismissed the Bricklayers for lack of standing and dismissed DeKalb’s Section 14(a) claim as

25

time-barred. Id. at 400. The Second Circuit affirmed. Id. at 412. It found that DeKalb’s

26

amended consolidated complaint did not “relate back” to the Bricklayer’s timely complaint under

27

Federal Rule of Civil Procedure 17(a)(3) because there was no “understandable” or “honest”

28

mistake for DeKalb’s “tardy appearance,” and because the Bricklayers’ complaint “was a nullity”
14

1

due to its lack of standing. Id. The court further rejected “out of hand” DeKalb’s argument that

2

the 60-day period provided by the PSLRA tolls the statute of repose. Id. at 413.

United States District Court
Northern District of California

3

Maryland Electrical attempts to distinguish IndyMac and DeKalb on the basis that, in each

4

of those actions, the first-filing plaintiff’s complaint was dismissed for lack of standing, whereas

5

York County’s complaint was never dismissed. (Dkt. No. 74, Opp. at 9 n.6.) This argument

6

seems to comport with subsequent decisions from the Second Circuit. See, e.g., Klein on behalf of

7

Qlik Techs., Inc. v. Qlik Techs., Inc., 906 F.3d 215, 226-27 (2d Cir. 2018) (clarifying that there is

8

no “honest mistake” requirement under Rule 17(a)(3) and permitting substitution of plaintiff

9

whose claims would be time-barred if it initiated a separate action). Although York County’s

10

complaint was extinguished by the Consolidated Complaint, this Court did not make a ruling

11

dismissing York County for lack of Article III standing.

12

Further, Maryland Electrical’s argument better aligns with the statutory scheme created by

13

the PSLRA. Under Defendants’ reading of the statute of repose, a plaintiff bringing an action

14

subject to the PSLRA would need to file at least 90 days prior to the end of the repose period,

15

unless the filing plaintiff is found to be the most adequate plaintiff. See In re LexinFintech

16

Holdings Ltd. Sec. Litig., No. 3:20-CV-1562-SI, 2021 WL 5530949, at *18 (D. Or. Nov. 24, 2021)

17

(finding statute of repose did not bar claims where parties agreed appointment of filing plaintiff as

18

lead plaintiff would have raised no repose issue); see also 15 U.S.C. § 78u-4(a)(3)(B)(i)

19

(providing for maximum of 90 days between publication of notice of pending action and

20

appointment of lead plaintiff). This would give potential defendants a greater substantive right of

21

repose than that contemplated by the five-year statute.

22

Defendants would have had a right of repose from a new suit five years after making the

23

allegedly fraudulent statements. That right never vested because York County initiated the action

24

within the repose period. See Se. Pennsylvania Transportation Auth. v. Orrstown Fin. Servs. Inc.,

25

12 F.4th 337, 341 (3d Cir. 2021) (holding “the expiration of a repose period creates a vested right

26

to be free from liability only as against those plaintiffs who do not have a pending action under the

27

statute at that time. This is because statutes of repose create a deadline for filing actions, rather

28

than resolving them.”) (emphasis in original). The Consolidated Complaint did not add claims of
15

1

fraud for the first time, but rather adopted the allegations already within the original complaint. It

2

was nothing more than a continuation of the litigation already in progress.

United States District Court
Northern District of California

3

Moreover, Defendants, with the exception of Lores and Bailey, anticipated further

4

proceedings in the action after the original complaint was filed. See Hogan v. Pilgrim's Pride

5

Corp., 73 F.4th 1150, 1160-61 (10th Cir. 2023) (noting District Court authorized filing of

6

amended complaint and holding, “[s]o long as the case remained open, Defendants had no vested

7

right to repose.”). Rule 15(a) provides for amendments to pleadings as a matter of course, with

8

further leave to amend to be “freely given.” Fed. R. Civ. Proc. 15(a). The entry of a lead plaintiff

9

from the putative class was contemplated by the original complaint and the process set forth in 15

10

U.S.C. § 78u-4(a)(3). Defendants were well aware of the forthcoming entry of a lead plaintiff

11

plaintiff and requested to forego responding to the complaint until a lead plaintiff was appointed.

12

Defendants’ expectations were not disturbed.

13

Accordingly, the Court holds that amendments to a complaint brought in an action arising

14

under the 1934 Act by a lead plaintiff appointed after the statute of repose relate back to the date

15

of the original complaint under Rule 15(a) if: (1) the action was timely initiated; (2) by a plaintiff

16

with Article III standing; and (3) the fraud claims raised and defendants named in the amended

17

complaint were encompassed by the original complaint.

18

Here, York County timely filed the original complaint and had Article III standing to do so

19

because it purchased and sold HP stock after the date of the misrepresentations. (See Dkt. No. 1,

20

at 26.) Maryland Electrical brought identical claims in the Consolidated Complaint as against HP,

21

Weisler, and Lesjak. (See id. at ¶¶ 18-22; Consol. Compl., ¶¶ 73-74.) Maryland Electrical merely

22

added additional detail to the existing claims. (See generally, id.) Therefore, the Consolidated

23

Complaint relates back to the original complaint as against HP, Weisler, and Lesjak.

24

4.

25

Defendants argue that the claims against Lores and Bailey are untimely, even if timely as

Certain Claims Against Defendants Lores and Bailey Are Untimely.

26

to the remaining Defendants, because Lores and Bailey were not named as defendants in York

27

County’s original complaint. Plaintiffs point out that Defendants improperly make this argument

28

in a footnote, and that this particular statute of repose argument was waived under Rule 12(g)(2).
16

1
2

raised the statute of repose as a defense in their previous motion to dismiss. (See Dkt. No. 45, at

3

9-10.) All Defendants contended that April 21, 2021 was the relevant date on which the operative

4

complaint was filed. (Id.) Although Lores and Bailey now assert separately that April 21, 2021 is

5

the relevant date on which they were brought into this action, their argument does not differ from

6

that raised in the prior briefing. Accordingly, the Court will consider their position on the merits.

7

United States District Court
Northern District of California

Rule 12(g)(2) does not bar this defense. All Defendants, including Lores and Bailey,

“Where an amended pleading adds a new defendant to the action, the amended pleading

8

does not relate back to the filing of the original complaint unless the defendant ‘should have

9

known that, but for a mistake concerning identity, the action would have been brought against it.’”

10

In re Metro. Sec. Litig., 532 F. Supp. 2d 1260, 1282 (E.D. Wash. 2007) (quoting Louisiana–

11

Pacific Corp. v. ASARCO, Inc., 5 F.3d 431, 434 (9th Cir.1993)). Maryland Electrical does not

12

argue that York County omitted Lores and Bailey due to a mistake of identity, or that Lores and

13

Bailey were on notice of such a mistake.

14

The critical date for the claims against Lores and Bailey is thus April 21, 2016—five years

15

before Lores and Bailey were brought into the action as defendants. All statements made before

16

that date are outside of the statute of repose, and Lores and Bailey may not be held liable for them.

17

Maryland Electrical is ordered, should it choose to amend the Consolidated Complaint, to specify

18

which statements Lores and Bailey made or actions they took on or after the critical date.

19
20
21

5.

York County Is Not a Party to this Action, But Its Party Status Does Not
Change the Relation-Back Analysis.

The Ninth Circuit determined in Habelt v. iRhythm Technologies, Inc. that a plaintiff who

22

files the initial complaint in a securities putative class action is extinguished as a party if it takes

23

no action after a different plaintiff is selected as lead under the PSLRA and if the plaintiff’s

24

particular claims are not referenced in the operative complaint. 83 F.4th 1162, 1166 (9th Cir.

25

2023). After first disregarding the caption as determinative of the identity of the parties, the Ninth

26

Circuit examined the body of the complaint to determine whether the initial plaintiff remained a

27

party. Id. The court found that the allegations in the body “[made] clear” that the lead plaintiff

28

was the “sole plaintiff” because the initial plaintiff and his individual claims were not referenced.
17

1

Id.; see id. at 1169 (“[T]he majority appears to create a new rule that a litigant’s name must be

2

specifically listed in the body of the operative complaint to be considered a party, regardless of the

3

history of the litigation.”) (Bennett, J., dissenting). The majority on the panel reached this

4

conclusion over a dissent which pointed out that the consolidated complaint “encompass[ed] all

5

the factual allegations and legal claims raised in the original complaint” by the initial plaintiff. Id.

6

at 1169.

United States District Court
Northern District of California

7

Because Habelt was decided after the parties completed their briefing, the Court requested

8

additional briefing on the issue of the rule announced by Habelt and its impact on this action.

9

(Dkt. No. 77.) Defendants argue that the extinguishing of York County as a party requires a

10

finding that the Consolidated Complaint cannot relate back to York County’s complaint. (Dkt.

11

No. 78, at 4.) They reason that, if York County was extinguished, its filing was a nullity, much

12

like the original filings in IndyMac and DeKalb, which were dismissed for lack of standing. (Id.)

13

Maryland Electrical and York County urge that York County’s party status is not relevant to the

14

repose analysis. (Dkt. No. 78.) They ask the Court to follow the reasoning of the District Court in

15

In re NIO, Inc. Sec. Litig., No. 19CV1424NGGJRC, 2023 WL 5048615, at *4 n.3 (E.D.N.Y. Aug.

16

8, 2023) in finding that 28 U.S.C. § 1658 “deals with when the action was commenced, rather than

17

who the parties to the action were at its inception.” (Id.) Maryland Electrical and York County

18

also attempt to distinguish Habelt on the facts to support a finding that York County remains a

19

party: Unlike the plaintiff in Habelt, York County continued to participate in this litigation. (Id.)

20

Habelt mandates a finding that York County ceased to be a party to this action upon the

21

filing of the operative Consolidated Complaint by Maryland Electrical. Even though York County

22

continued to indicate its intent to participate in the litigation after the Consolidated Complaint was

23

filed, (see Dkt. No. 52), York County is not defined as a party in the Consolidated Complaint.

24

(Consol. Compl., ¶¶ 15-23.) Nor are its individual claims referenced. (See generally, id.)

25

Therefore, this Court is required to find that York County is not a party.

26

However, the Court agrees with Maryland Electrical that York County’s party status is

27

irrelevant to the repose analysis. Defendants do not provide, and the Court is unaware of, any

28

authority which states that extinguishing the original complaint renders it a “nullity” when it is
18

1

mooted by reason of an amended complaint.
The action is not barred by the statute of repose, except in part as to Lores and Bailey as

2
3

discussed above.

4

E.

5
6

United States District Court
Northern District of California

7

The Court Grants, In Part, and Denies, In Part, Defendants’ Motion On the Merits.
With standing and timeliness resolved, the Court turns to Defendants’ challenges to the

sufficiency of the allegations in the Consolidated Complaint.
Section 10(b) of the 1934 Act makes it unlawful for any person “[t]o use or employ, in

8

connection with the purchase or sale of any security registered on a national securities exchange. .

9

. any manipulation or deceptive device or contrivance in contravention of such rules and

10

regulations as the Commission may prescribe as necessary or appropriate in the public interest or

11

for the protection of investors.” 15 U.S.C. § 78j(b).

12

Rule 10b-5, promulgated pursuant to Section 10(b), proscribes “the use of any means or

13

instrumentality of interstate commerce. . ., (a) [t]o employ any device, scheme, or artifice to

14

defraud, (b) [t]o make any untrue statement of a material fact or to omit to state a material fact

15

necessary in order to make the statements made, in the light of the circumstances under which they

16

were made, not misleading, or (c) [t]o engage in any act, practice, or course of business which

17

operates or would operate as a fraud or deceit upon any person, in connection with the purchase or

18

sale of any security.” 17 C.F.R. § 240.10b-5(b). Maryland Electrical contends that Defendants

19

violated all three subsections of Rule 10b-5.

20

Defendants first argue that Lores and Bailey should be dismissed from the action because

21

Maryland Electrical does not specify any statements made by them and because Maryland

22

Electrical fails to plead a scheme liability theory. Defendants next claim that Maryland Electrical

23

failed to plead falsity, scienter, or loss causation with the particularity required for claims arising

24

under Section 10(b). They further contend that Maryland Electrical does not state a Section 20(a)

25

claim because it is derivative of the insufficient Section 10(b) claim.

26
27
28

1.

The Consolidated Complaint Alleges a Scheme Liability Claim Under Rule
10b-5(a) and (c) as to Bailey and HP, But Not as to the Remaining Defendants.

In order “to state a claim for securities fraud based on scheme liability, a plaintiff must
19

1

allege: (1) the defendant committed a deceptive or manipulative act in furtherance of the alleged

2

scheme; (2) scienter; (3) a connection between the alleged deceptive or manipulative act and the

3

purchase or sale of a security; (4) reliance upon the deceptive or manipulative act; (5) economic

4

loss; and (6) loss causation.” In re Galena Biopharma, Inc. Sec. Litig., 117 F. Supp. 3d 1145,

5

1193 (D. Or. 2015). To be individually liable, each defendant must have committed a deceptive or

6

manipulative act in furtherance of the scheme. Id. Rule 9(b) requires plaintiffs to allege the

7

“nature, purpose, and effect of the fraudulent conduct and the roles of the defendants.” Id.

8

(quoting In re Enron, 235 F. Supp. 2d 549, 580 (S.D. Tex. 2002).
Defendants assert that a scheme liability claim is not pleaded in the Consolidated

United States District Court
Northern District of California

9
10

Complaint. Defendants argue that Maryland Electrical’s Section 10(b) and Rule 10b-5 claim does

11

not mention scheme liability, and instead relates only to false statements. Defendants claim

12

without citation that the acceleration scheme “is entirely distinct from a scheme to defraud

13

investors.” (Mot. at 19.) Maryland Electrical responds that the acceleration scheme is the

14

“gravamen” of the Consolidated Complaint, and that it constitutes “deceptive or manipulative”

15

conduct under the 1934 Act.
Maryland Electrical’s “Count I for violation of §10(b) of the 1934 Act and Rule 10b-5”

16
17

does not epitomize artful pleading. The claim incorporates by reference all of the preceding

18

allegations in the Consolidated Complaint and recites the bare elements of Rule 10b-5. It does not

19

provide a clear explanation of which, if any, of the preceding 219 paragraphs are relevant to the

20

claim.

21

Nevertheless, it is apparent from the language of Count I and the conduct alleged in the

22

Consolidated Complaint that Maryland Electrical intended to plead a scheme liability claim

23

against all Defendants. Maryland Electrical describes the acceleration scheme at length and

24

claims repeatedly that the scheme was known to and approved by HP’s leadership. Specifically,

25

Bailey allegedly furthered the scheme by approving steep discounts and sales with known gray

26

market sub-distributors in order to artificially inflate sales numbers. (Id. ¶¶ 52, 55, 62, 152.)

27
28

However, it is unclear from the face of the Consolidated Complaint what conduct Weisler
and Lesjak engaged in to further the scheme beyond their alleged misstatements. It is also unclear
20

1

what Lores may have done to further the scheme beyond monitoring and failing to hold sales

2

personnel accountable for Supplies channel inventory levels. (Id. ¶¶ 64, 170.) Maryland

3

Electrical does not draw the Court’s attention to any additional, particularized allegations in the

4

Consolidated Complaint that would support individual liability for Weisler, Lesjak, or Lores.

5
6
7
8

United States District Court
Northern District of California

9

Accordingly, the Court dismisses Count I, without prejudice, as to Weisler, Lesjak, and
Lores, to the extend Count I relies upon a scheme liability theory.
2.

The Consolidated Complaint Alleges a Statement Liability Claim Under Rule
10b-5(b), but Not All Alleged Misrepresentations Are Actionable as Pleaded.

The elements of a Section 10(b) and Rule 10b-5(b) claim for misrepresentations are: “(1) a

10

material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between

11

the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the

12

misrepresentation or omission; (5) economic loss; and (6) loss causation.” Erica P. John Fund,

13

Inc. v. Halliburton Co., 563 U.S. 804, 809-810 (2011) (quoting Matrixx Initiatives, Inc. v.

14

Siracusano, 563 U.S. 27, 36 (2011)).

15

The PSLRA requires plaintiffs to plead “with particularity” the misleading statements or

16

omissions. 15 U.S.C.A. § 78u-4(b)(1). Plaintiffs must “specify each statement alleged to have

17

been misleading, [and] the reason or reasons why the statement is misleading.” Id. “In setting

18

forth the reasons why they contend that each challenged statement is misleading, securities

19

plaintiffs may rely on either an affirmative misrepresentation theory or an omission theory.”

20

Wochos v. Tesla, 985 F.3d 1180, 1188 (9th Cir. 2021). “Under Rule 10b-5, an affirmative

21

misrepresentation is an ‘untrue statement of a material fact,’ and a fraudulent omission is a failure

22

to ‘state a material fact necessary in order to make the statements made, in the light of the

23

circumstances under which they were made, not misleading.’” Id. (quoting 17 C.F.R. § 240.10b-

24

5(b)). “[A]n omission is material ‘when there is a substantial likelihood that the disclosure of the

25

omitted fact would have been viewed by the reasonable investor as having significantly altered the

26

total mix of information available.’ ” Matrixx, 563 U.S. at 38.

27
28

Defendants contend that Maryland Electrical fails to plead falsity with particularity
because (a) the supplies revenue statements are protected forward-looking statements; (b) the
21

1

supplies pricing and margins statements were not false or misleading; and (c) the supplies channel

2

inventory statements were not false or misleading. Maryland Electrical opposes.

3

a.

4
5

The Consolidated Complaint does not provide any misstatements or omissions made by

6

Lores and Bailey. Therefore, the motion is granted on the statement liability theory as to Lores

7

and Bailey.

8

b.

9

The Court Grants Defendants’ Motion as to the Supplies Revenue
Statements and Omissions.

Maryland Electrical contends that Weisler and Lesjak made misrepresentations that HP

10

United States District Court
Northern District of California

The Court Grants Defendants’ Motion Regarding Statement Liability
as to Lores and Bailey.

11

was “on track” to stabilize Supplies revenue by the end of 2017 on February 24, 2016, March 1,

12

2016, May 25, 2016, and June 1, 2016, even though Defendants knew that Supplies revenue was

13

not on track to stabilize absent significant inventory reduction. (Consol. Compl., ¶¶ 136, 140-43,

14

147.)
Defendants contend that the alleged misstatements relating to Supplies revenue are

15
16

forward-looking statements protected by the safe harbor statute, 15 U.S.C. § 78u-5. They claim

17

Maryland Electrical fails to plead Defendants had actual knowledge of the statements’ falsity and

18

that the statements were accompanied by meaningful cautionary language. Maryland Electrical

19

denies that the statements are forward-looking or accompanied by sufficient cautionary language.

20

Maryland Electrical also argues that Defendants were aware that the statements were false when

21

made.

22
23
24
25
26
27
28

i.

Most of the Challenged Statements Were Forward-Looking.

The safe harbor provision of the PSLRA insulates defendants from liability for forwardlooking statements if:
(A) the forward-looking statement is (i) identified as a forward-looking statement, and is
accompanied by meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the forward-looking
statement; or (ii) immaterial; or
(B) the plaintiff fails to prove that the forward-looking statement (i) if made by a natural
person, was made with actual knowledge by that person that the statement was false or
22

misleading; or (ii) if made by a business entity[,] was (I) made by or with the approval
of an executive officer of that entity; and (II) made or approved by such officer with
actual knowledge by that officer that the statement was false or misleading.

1
2
3

15 U.S.C. § 78u-5(c). A “forward-looking statement” includes “(A) a statement containing a

4

projection of revenues, income. . ., earnings. . ., capital expenditures, . . . or other financial items;

5

(B) a statement of the plans and objectives of management for future operations . . .; (C) a

6

statement of future economic performance, including any such statement contained in a discussion

7

and analysis of financial condition by the management or in the results of operations included

8

pursuant to the rules and regulations of the Commission; [and] (D) any statement of the

9

assumptions underlying or relating to any statement described in subparagraph (A), (B), or (C). . .

10

United States District Court
Northern District of California

11

.” Id. § 78u-5(i)(1).
A statement may be “mixed”; that is, a statement may contain both forward-looking or

12

non-forward-looking elements. Quality Systems, 865 F.3d at 1141. In the case of mixed

13

statements, a court separates out protected and unprotected elements of the statements. See id.

14

“[A] defendant may not transform non-forward-looking statements into forward-looking

15

statements that are protected by the safe harbor provisions of the PSLRA by combining non-

16

forward-looking statements about past or current facts with forward-looking statements about

17

projected revenues and earnings.” Id.

18

The safe harbor provision “‘is designed to protect companies and their officials’ when they

19

merely fall short of their ‘optimistic projections.’” Tesla, 985 F.3d at 1189 (quoting Quality

20

Systems, 865 F.3d at 1142). “[I]n order to establish that a challenged statement contains non-

21

forward-looking features. . . a plaintiff must plead sufficient facts to show that the statement goes

22

beyond the articulation of ‘plans,’ ‘objectives,’ and ‘assumptions’ and instead contains an express

23

or implied ‘concrete’ assertion concerning a specific ‘current or past fact.’” Id. at 1191-92

24

(emphasis in original). All but two of the challenged Supplies revenue statements are forward-

25

looking.

26

Predictions that Supplies revenue “will stabilize” are statements of the “objectives” of

27

management and of “future economic performance.” See 15 U.S.C. § 78u-5(i)(1). Maryland

28

Electrical contends that Defendants’ statements go “beyond the assertion of a future goal” by
23

1

stating that HP “hit certain intermediate benchmarks.” See Tesla, 985 F.3d at 1192 (explaining

2

that “on track” statements are forward-looking unless accompanied by present or past factual

3

statements, such as the goal “is achievable because production of relevant units actually rose 75%

4

over the last quarter or because the company has actually hit certain intermediate benchmarks.”).

5

Defendants’ statements that revenues were in line with a “model” or that “the model is predicting”

6

that Defendants would meet their end-of-year 2017 goal are not concrete representations that HP

7

had met intermediate benchmarks. Assumptions and future goals are necessarily baked into

8

predictive models.

United States District Court
Northern District of California

9

Only two of the challenged statements regarding the Supplies revenue were mixed with

10

non-forward-looking statements: “Let me also highlight that we made this progress [in printing]

11

while reducing hardware and supplies channel inventory globally. We are now within our targeted

12

ranges,” and, “Our supplies trajectory improved, but it was somewhat masked by the channel

13

inventory reductions that we had, supplies inventory is now back within the ranges globally and

14

that’s obviously where we wanted to be.” (Consol. Compl., ¶ 142.) These portions of the “on-

15

track” statements are not forward-looking, but instead relate to the status of the channel inventory

16

at the time the statements were made. They are thus not protected by the safe harbor. These two

17

statements are discussed in further detail below in Section E(2)(c).

18

ii.

19
20

The Forward-Looking Statements Were Not Accompanied by
Meaningful Cautionary Language.

The PSLRA protects forward-looking statements which are accompanied by meaningful

21

cautionary language. Emps. Teamsters Loc. Nos. 175 & 505 Pension Tr. Fund v. Clorox Co., 353

22

F.3d 1125, 1132 (9th Cir. 2004). A statement is accompanied by meaningful cautionary language

23

if it includes language “identifying important factors that could cause actual results to differ

24

materially from those in the forward-looking statement.” Id. at 1133 (quoting 15 U.S.C. § 77z-

25

2(c)(1)(A)(i)).

26

Vague and general disclosures may not be sufficient if the defendants are aware of specific

27

risks, and “[r]isk disclosures that speak entirely of as-yet-unrealized risks and contingencies and

28

do not alert the reader that some of these risks may already have come to fruition can mislead
24

1

reasonable investors.” In re Alphabet, Inc. Sec. Litig., 1 F.4th 687, 703 (9th Cir. 2021) (internal

2

quotations omitted). Maryland Electrical contends that the statements were not accompanied by

3

meaningful cautionary language, and that any warnings were insufficient and themselves

4

misleading. 4
The June 1, 2016 statement by Weisler did not include meaningful cautionary language.

United States District Court
Northern District of California

5
6

At the outset of Weisler’s statements at the Sanford C Bernstein Strategic Decisions Conference,

7

the interviewer stated: “And – oh, before we start, we do have – I want to direct your attention to

8

the safe harbor statements. I’m going to go through each word of these. So please bear with me.

9

No. I’m just kidding. Please be aware of the disclaimers in that statement.” (Dkt. No. 71-8, Ex.

10

8, at 1.) Neither the interviewer nor Weisler identified where the safe harbor statements were to

11

be found, and Weisler did not make any further cautionary comments.
Defendants included insufficient cautionary language with their remaining forward-looking

12
13

statements. In the February 24, 2016 earnings call, Diana Sroka, Head of Investor Relations for

14

HP, opened the call with the following warning:

15

As always, elements of this presentation are forward-looking and are based on our best
view of the world and our businesses as we see them today. For more detailed
information, please see disclaimers in the earnings materials relating to forward-looking
statements that involve risks, uncertainties, and assumptions. For a discussion of some
of these risks, uncertainties, and assumptions, please refer to HP’s SEC reports, including
our most recent Form 10-K. HP assumes no obligation and does not intend to update
any such forward-looking statements. We also note that the financial information
discussed on this call reflects estimates based on information available at this time and
could differ materially from the amounts ultimately reported in HP’s Form 10-Q for the
fiscal quarter ended January 31, 2016.

16
17
18
19
20
21

(Dkt. No. 71-5, Ex. 5, at 1.) Sroka repeated a nearly identical warning statement at the outset of the

22

May 25, 2016 earnings call, (Dkt. No. 71-6, Ex. 6, at 1), and, before the March 1, 2016 presentation,

23

an IP hardware analyst with Morgan Stanley repeated the warning. (Dkt. No. 71-7, Ex. 7, at 4.) The

24

reference to warnings in HP’s recent SEC filings sufficiently incorporates the warnings therein. See

25

Clorox Co., 353 F.3d at 1133 (incorporating content of Form 10-K and noting that “the PSLRA does

26
27
28

4

Maryland Electrical does not allege in the Consolidated Complaint that the risk statements were
themselves misleading. However, whether the risk statements were misleading is relevant for the
sufficiency analysis.
25

1

not require that the cautions physically accompany oral statements” if the oral statement “is

2

accompanied by an oral statement that additional information. . . is contained in a readily available

3

written document”).

4
5
6

HP argues that the following language in its September 2015 Form 10-K was meaningful
cautionary language under the PSLRA:
•

7
8
9

•

10

United States District Court
Northern District of California

11
12
13
14
15

•
•

“This Annual Report on Form 10-K. . . contains forward-looking statements that involve
risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the
assumptions prove incorrect, the results of HP Inc. . . . may differ materially from those
expressed or implied by such forward-looking statements and assumptions.” (Dkt. No.
71-1, Ex. 1, at 3.)
“Successfully managing the interaction of our direct and indirect channel efforts to reach
various potential customer segments for our products and services is a complex process.
. . [O]ur failure to implement the most advantageous balance in the delivery model for
our products and services could adversely affect our revenue and gross margins.” (Id. at
22.)
“Our financial results could be materially adversely affected due to distribution channel
conflicts or if the financial conditions of our channel partners were to weaken.” (Id.)
“If we have excess or obsolete inventory, we may have to reduce our prices and write
down inventory.” (Id. at 23.)

In support of their argument that the above warnings were “more than sufficient,”

16

Defendants cite Police Retirement System of St. Louis v. Intuitive Surgical, Inc. (“PRS”), 759 F.3d

17

1051 (9th Cir. 2014). In that case, the Ninth Circuit found that the defendant company’s

18

statements regarding growth and financial health were non-actionable “forward-looking

19

statements or garden variety corporate optimism.” Id. at 1055. The forward-looking statements in

20

that case were accompanied by the following disclaimer:

21
22
23
24

Before we begin, I would like to inform you that comments mentioned on today’s call
may be deemed to contain forward-looking statements. Actual results may differ
materially from those expressed or implied, as a result of certain risks and uncertainties.
These risks and uncertainties are described in detail in the company’s [SEC] filings.
Prospective investors are cautioned not to place undue reliance on such forward-looking
statements.

25

Id. at 1059. HP’s boilerplate language at the outset of its 10-K closely tracks that of PRS.

26

Compare Ex. 1, at 3 (“If the risks or uncertainties ever materialize or the assumptions prove

27

incorrect, the results. . .may differ materially”) with PRS, 759 F.3d at 1050 (“results may differ

28

materially. . . as a result of certain risks and uncertainties”).
26

United States District Court
Northern District of California

1

Yet, here, the cautionary language is not enough. The boilerplate cautionary statements in

2

PRS served as an effective warning regarding “classic growth and revenue projections,” along

3

with three assertions about the defendants’ rosy outlook for the future growth of the field

4

generally. Id. at 1058-59. Here, in contrast, the alleged misstatements and omissions related to

5

the Supplies revenue stabilizing by the end of 2017, which Maryland Electrical avers Defendants

6

knew was impossible without significant inventory reduction. Defendants’ boilerplate warning

7

and identification of suboptimal channel inventory as a potential future risk did not adequately

8

convey the risks posed by then-existing oversaturated inventory channels. See Alphabet, 1 F.4th at

9

703 (finding risk disclosures insufficient where Defendants warned security vulnerabilities could

10

pose risk but did not disclose existing security risk). The warning regarding channel inventory in

11

the abstract thus does not bring Defendants’ statements into the PSLRA’s safe harbor.

12

iii.

13

Maryland Electrical Does Not Adequately Alleges HP, Weisler,
and Lesjak Were Aware the Statements Were False When
Made.

14

Defendants claim that Maryland Electrical fails to plead facts showing they knew HP was

15

not “on track” to stabilize Supplies revenue by the end of 2017, particularly given that HP did

16

stabilize Supplies revenue in 2017. Maryland Electrical responds that Defendants had actual

17

knowledge and that the Supplies revenue stabilization in 2017 came only after “HP had

18

completely overhauled its sales model and took a $700 million Supplies inventory reduction.”

19

(Dkt. No. 74, Opp., at 23 n.19.)

20

Maryland Electrical does not point to any particular allegations to support that Weisler and

21

Lesjak had actual knowledge of the statements’ falsity when made. Accordingly, the forward-

22

looking Supplies revenue statements are protected by the PSLRA’s safe harbor.

23
24
25

c.

Plaintiffs Adequately Allege the Supplies Pricing and Margins
Statements and Omissions Were Misleading.

Maryland Electrical contends that Defendants misled shareholders by attributing declines

26

in Supplies pricing and margin to “a competitive pricing environment” and “unfavorable currency

27

impacts” caused by the weaker Japanese yen. (Consol. Compl., ¶¶ 43, 95, 98-100, 102, 105, 106,

28

109, 112-15.) Defendants HP, Weisler, and Lesjak repeated that competition in pricing and
27

1

currency headwinds were “driving” declines in various SEC filings and earnings calls through

2

June 3, 2016. (Id.)

3
4

that these statements were misleading. In particular, Defendants argue that Maryland Electrical

5

“invents” allegations that the undisclosed acceleration scheme was the primary driver of declining

6

margins. Citing their own exhibits, Defendants argue that the “undisputed facts” are that the

7

“primary factors” causing declining margins were “unfavorable currency impacts” and a

8

“competitive pricing environment,” and any excess channel inventory build-up existed only

9

because of HP’s transition from a “push” to a “pull” model for sales. (Mot. at 16.)

10

United States District Court
Northern District of California

Defendants argue that Maryland Electrical fails to plead particularized facts demonstrating

At this stage, Court must construe all well-pleaded facts in light of Maryland Electrical.

11

Maryland Electrical pleads that Defendants were forced to switch from a “push” to a “pull” model

12

of sales because HP had oversaturated its Supplies channel inventory to the point where some

13

partners would not “place orders at any price.” (Consol. Compl., ¶ 57.) Although Defendants

14

claim that Maryland Electrical speculates without foundation, Maryland Electrical properly relies

15

on the SEC Order and internal company emails to cross the line into plausibility. Defendants’

16

fact-based arguments are more appropriately tested with the benefit of discovery at a later stage.

17

Maryland Electrical alleges sufficient facts to support its position that Defendants’

18

repeated references to currency and competitive pricing as the primary causes of decline were

19

materially misleading to a reasonable investor. Currency rates and pricing decisions by

20

competitors are temporary problems outside of HP’s control. The acceleration scheme, in

21

contrast, was within Defendants’ control. By omitting the scheme, Defendants “hid the ball” and

22

misrepresented HP’s true health. See In re Atossa Genetics Inc Sec. Litig., 868 F.3d 784, 797 (9th

23

Cir. 2017) (holding that “though not literally false, the alleged omissions in [defendant’s] Form 8-

24

K filing were misleading.”).

25
26
27
28

d.

Maryland Electrical Pleads Sufficient Facts to Show that Some, but Not
All, Channel Inventory Statements and Omissions Were Misleading.

Maryland Electrical contends that Defendants misled shareholders when HP, Weisler, and
Lesjak represented that Supplies channel inventory was declining and “slightly above” or “within”
28

1

the target range and on the decline. (Consol. Compl., ¶¶ 120, 122-23, 125-26, 129-30, 142.)

2

Defendants claim that these “slightly above” range statements were consistent with HP’s reduction

3

of inventory. Defendants also claim that Maryland Electrical fails to plead facts showing that HP

4

had $250 million-$700 million in excess inventory at the time the statements were made, and thus

5

the allegations amount to “fraud by hindsight.” Defendants also contend that they had no

6

obligation to disclose Tier 2 inventory because HP lacked visibility into Tier 2.

7
8

United States District Court
Northern District of California

9

i.

The “Slightly Above” Range Statements Were Misleading.

Weisler and Lesjak reported that HP was “slightly above [its] target weeks of supply
range” on November 24, 2015, February 24, 2016, and March 1, 2016. (Consol. Compl., ¶¶ 120,

10

123, 126.) Along with those statements, they disclosed the need for “channel inventory

11

correction” to return to targeted ranges. (E.g., id. at ¶ 123 (“On the Supplies side, we are still

12

slightly above our targeted range, and so we do need some additional channel inventory correction

13

in Q2, but we will be through that by the end of the first half [of FY 16]”).) They also stated that

14

inventory was being “reduced,” for an overall impression that channel inventory may have been

15

too high but was trending in the right direction. (See id. ¶¶ 120, 122-23, 126.) According to

16

Maryland Electrical, these statements defied a known trend that Supplies channel inventory was

17

increasing due to the acceleration scheme. (Id. ¶ 85.)

18

The “slightly above” statements appear innocuous and consistent in isolation, but they

19

were misleading when considered in context with assurances that Supplies channel inventory was

20

trending in the right direction. Maryland Electrical plausibly alleges that, at the time, Supplies

21

channel inventory was increasing. Maryland Electrical further alleges that Defendants had

22

“robust” real-time knowledge of the increasing supplies channel inventory through weekly reports,

23

regular monitoring, and “thorough” Tier 2 inventory estimates. (See id. ¶¶ 64, 166, 182.)

24
25
26

Accordingly, the Court finds that Maryland Electrical has plausibly alleged the “slightly
above” range statements were misleading.
ii.

The “Within” Range Statements Were Not Misleading.

27

On May 25, 2016, Weisler and Lesjak informed investors on an earnings call that

28

“[S]upplies inventory is now back within the [target] ranges globally.” (Consol. Compl. ¶ 142;
29

1

see id. ¶¶ 129, 130.) The next month, HP announced it was transitioning to a new sales model and

2

would need to reduce channel inventory by an additional $450 million. (Id. ¶ 69.)

United States District Court
Northern District of California

3

As Defendants point out, Maryland Electrical does not allege that Lesjak’s June 21, 2016

4

statement that inventory was at “the right levels” for the push model was false. (Dkt. No. 71-9,

5

Ex. 9, at 6.) In that conference call, Lesjak explained that HP had “spent significant time

6

evaluating what [it] believe[d] those levels need to be to mitigate the market challenges,” which

7

resulted in a reduction in goal levels. (Id. at 3.) Maryland Electrical does not point to specific

8

allegations regarding whether HP’s target ranges were in fact not met. Although the Court does

9

not consider Lesjak’s statement for its truth, the statement illuminates a gap in the pleadings: were

10

the target ranges met, or is Maryland Electrical’s grievance that the target ranges were

11

unreasonable? The Court cannot determine this answer from the Consolidated Complaint.

12
13

iii.

The Tier 2 Omissions Were Misleading.

When Defendants discussed Supplies channel inventory with the public, they disclosed

14

information relating only to Tier 1, not Tier 2, channels. Plaintiffs claim this omission was

15

misleading because Defendants had actual knowledge that Tier 2 was oversaturated and were

16

actively engaged in an improper scheme to push Tier 1 inventory into Tier 2. Defendants claim

17

that they lacked visibility into Tier 2 and point to the SEC’s allegation that HP had “incomplete

18

data.” (SEC Order ¶ 15.)

19

Defendants reason that investors would not have benefited from incomplete data into

20

which HP lacked visibility, citing West v. eHealth, Inc., No. 3:15-CV-00360-JD, 2016 WL

21

948116, at *6 (N.D. Cal. Mar. 14, 2016). In that case, defendants stopped reporting conversion

22

rates (the rate at which “applicants . . . [became] premium-paying members”) because of increased

23

unpredictability. Id. at **4, 6. Plaintiffs alleged that the increased variability of conversion rates

24

necessarily meant prior reports of conversion rates lacked a reasonable basis, while also alleging

25

that defendants should have continued to report the rates. Id. at *6. The court disagreed, noting,

26

“from the context, it is clear that [defendant] was discussing the need to more fully understand the

27

reasons that the company had been struggling to collect commissions, not [defendant’s] lack of

28

ability to estimate the conversion rate altogether.” Id. In that context, where defendants did not
30

United States District Court
Northern District of California

1

understand the factors behind the numbers, it was “implausible that defendants could have avoided

2

misleading their investors by disclosing more information about a metric that defendants could not

3

accurately measure.” Id.

4

Context is everything. Maryland Electrical alleges that Defendants had robust insight into

5

Tier 2 channel inventories, whereas the plaintiffs in eHealth argued that defendants lacked insight

6

into the conversion rates. See id. Maryland Electrical contends that Defendants actively

7

monitored Tier 2 inventory, including through weekly reports, whereas the plaintiffs in eHealth

8

believed defendants had no basis for their estimates. (See Consol. Compl. ¶¶ 166, 170.) Per the

9

Consolidated Complaint, Defendants knowingly pushed sales managers to artificially depress Tier

10

1 inventory by pushing inventory into Tier 2, including through simultaneous sales to Tier 2

11

distributors and unreasonably high discounts. (See id. ¶¶ 32, 59, 60.) Although the SEC Order

12

states that HP lacked “meaningful insight into its overall channel health,” (SEC Order ¶ 48), other

13

allegations in the SEC Order indicate that HP estimated its Tier 2 inventory quarterly, (id. ¶ 15),

14

and that certain personnel within HP were aware of “unhealthy levels of stock” in Tier 2, (id. ¶¶

15

21, 48). The SEC further found that, because of the channel saturation in Tier 2, HP offered steep

16

discounts to Tier 1 partners in exchange for holding inventory. (Id. ¶ 32.) All of these pieces gave

17

Defendants a basis for the estimated Tier 2 inventory.

18

With this knowledge in hand, Defendants failed to disclose that commentary regarding

19

channel inventory levels included only Tier 1 analysis. (Id. ¶ 20.) This omission—and the

20

omission of Defendants’ well-supported insights into Tier 2—could have materially misled a

21

reasonable investor.

22
23

e.

The APJ Growth Statements and Omissions Were Not Misleading.

Maryland Electrical contends that Defendants made material misrepresentations by touting

24

revenue growth in APJ while revenue declined in every other region because (i) the growth was a

25

result of the acceleration scheme, and (ii) the APJ growth cannibalized revenue in other regions.

26

(Consol. Compl., ¶¶ 137-38, 144-45.) Maryland Electrical specifically challenges the following

27

statements:

28

•

By Weisler, on a February 24, 2016 earnings call: “[W]hile revenue continued to be
31

1
2
3
4

•

•

5
6

•

7
8

United States District Court
Northern District of California

9

challenged by market contraction in PCs and core printing, we delivered constant
currency revenue growth in APJ. . .” (Id. ¶ 137);
In the presentation accompanying the February 26, 2016 earnings call, a visual
highlighting that APJ revenue had increased 2% on a constant currency basis, compared
with year-over-year revenue declines of at least 6% in the other regions, (id. ¶ 138);
By Weisler, on a May 25, 2016 earnings call: “I am pleased with our second quarter
results. . . . Amid difficult market conditions, net revenue was in line with our
expectations, down 11% year-over-year as reported or down 5% in constant currency.
And in APJ for the second quarter in a row we delivered constant currency revenue
growth with strength in personal assistance across much of the region.” (Id. ¶ 144);
In the presentation accompanying the May 25, 2016 earnings call, a visual highlighting
that APJ revenue had increased 1% on a constant currency basis, compared with yearover-year revenue declines of at least 6% in the other regions, (id. ¶ 145).

Defendants claim that these statements are not misleading because “general descriptions of

10

historical results. . . do not represent anything about the causes of that performance.” (Mot. at 17

11

(quoting In re Apple Inc. Sec. Litig., No. 19-CV-02033-YGR, 2020 WL 2857397, at *10 (N.D.

12

Cal. June 2, 2020)). Defendants argue they were not required to list every reason for the growth.

13

Descriptions of general historical results are actionable where a speaker goes beyond

14

reporting the results to provide specific factors contributing to the numbers but omits “adverse

15

information that cuts against the positive information.” Apple, 2020 WL 2857397, at *11 (quoting

16

Khoja, 899 F.3d at 1009). In In re Plantronics, Inc. Sec. Litig., for example, the court found that

17

defendants’ failure to disclose its acceleration scheme was actionable where the defendants

18

attributed growth to an acquisition, new product releases, and organic growth. No. 19-CV-07481-

19

JST, 2022 WL 3653333, at **9-11 (N.D. Cal. Aug. 17, 2022).

20

Maryland Electrical fails to identify any misrepresentations attributing the growth in APJ

21

to a particular source. In the four representations it challenges, Defendants reported the APJ

22

region’s increased revenue, but did not provide reasons for the divergent growth. (See Consol.

23

Compl., ¶¶ 137-38, 144-45.) Accordingly, as pleaded, the statements are not actionable.

24
25
26

3.

The Allegations in the Consolidated Complaint Support a Strong Inference of
Scienter.

“A [securities] complaint will survive a motion to dismiss only if a reasonable person

27

would deem the inference of scienter cogent and at least as compelling as any opposing inference

28

one could draw from the facts alleged.” Prodanova, 993 F.3d at 1106 (quoting Tellabs, Inc. v.
32

1

Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007)) (internal marks omitted). “At least as

2

compelling” does not mean “more compelling than.” See Tellabs, 551 U.S. at 324 (“The inference

3

that the defendant acted with scienter need not be irrefutable . . . or even the most plausible of

4

competing inferences.”) (internal marks omitted).

United States District Court
Northern District of California

5

The Ninth Circuit has already determined that the Consolidated Complaint adequately

6

alleges scienter. York Cnty., 65 F.4th at 468. Under the law of the case doctrine and as binding

7

precedent, the Ninth Circuit’s determination controls. Grand Canyon Tr. v. Provencio, 26 F.4th

8

815, 821 (9th Cir. 2022). Defendants’ protests that the Ninth Circuit left the question for another

9

day contradict the text of the order, which expressly considered the competing inferences from the

10

SEC Order and found a strong inference of scienter. York Cnty., 65 F.4th at 468 (holding that “the

11

SEC’s decision not to charge a defendant with fraud does not hurt a plaintiff’s ability to plead a

12

strong inference of scienter” and that HP’s disclosures “contradicted its own internal data. . .

13

creat[ing] a strong inference that HP knowingly misled the public as to the state of the company.”)

14

(internal quotations omitted). Accordingly, Defendants’ motion is denied as to scienter.

15

4.

16

A securities plaintiff must allege that defendants proximately caused her damages via a

17

“short and plain statement” under Rule 8(a). Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347

18

(2005). Generally, the plaintiff must claim that the defendant company’s “share price fell

19

significantly after the truth became known.” Id. Here, Maryland Electrical alleges that, as a result

20

of partial disclosures and the public inventory reduction necessitated by the acceleration scheme,

21

HP stock prices declined. (Consol. Compl., ¶¶ 199-208.) Defendants contend these allegations

22

are not sufficient.

23

The Consolidated Complaint Adequately Alleges Loss Causation.

First, Defendants claim that Maryland Electrical fails to identify challenged statements that

24

were corrected by subsequent disclosures of the fraud. According to Defendants, it is

25

“impermissible” to “assume that every challenged statement was corrected” without specific

26

correcting disclosures. (Mot. at 25.) This is not the law. In Mineworkers' Pension Scheme v.

27

First Solar Inc., the Ninth Circuit held that the proximate cause inquiry is context dependent and

28

fact specific. 881 F.3d 750, 754 (9th Cir. 2018). The Court noted that “[a] plaintiff may. . . prove
33

1

loss causation by showing that the stock price fell upon the revelation of an earnings miss, even if

2

the market was unaware at the time that fraud had concealed the miss.” Id. Here, Maryland

3

Electrical claims that Defendants fraudulently misrepresented and omitted the Supplies channel

4

inventory, the largest source of income for HP. When Defendants announced inventory

5

corrections and revenue declines, stock prices dropped—even though the acceleration scheme was

6

not known at the time. This is sufficient.
Defendants next argue that an intervening event, not the alleged fraud, caused the declines.

United States District Court
Northern District of California

7
8

Defendants point to the transition from a “push” to a “pull” model as the source of the inventory

9

reductions, as opposed to the acceleration scheme. They contend that Maryland Electrical “alleges

10

no facts calling into question” this reasoning. (Mot. at 26.) Not so. Maryland Electrical alleges

11

that the change was implemented because of the need to correct oversaturated inventory channels

12

caused by the acceleration scheme. This allegation is plausible.

13

Finally, Defendants contend that inventory reduction could not have been the cause of

14

stock decline because the stock price did not decline after the May 2016 announcement. This

15

contention has no basis in the Consolidated Complaint. Defendants are free to challenge the stock

16

price changes after discovery, but they may not bring in extraneous and unsupported factual

17

allegations to support a motion to dismiss under Rule 12(b)(6).

18

F.

19

The Court Denies Defendants’ Motion to Dismiss the Section 20(a) Claim.
Defendants’ motion to dismiss the Section 20(a) claim is based entirely upon its contention

20

that Maryland Electrical failed to plead a violation of Section 10(b). Because the Court finds that

21

the Section 10(b) claim survives, in part, Defendants’ argument fails. The motion to dismiss the

22

Section 20(a) claim is thus denied.
CONCLUSION

23
24
25

For the seasons set forth above, the Court grants, in part, and denies, in part, Defendants’
renewed motion to dismiss, as follows:

26

•

Maryland Electrical has standing;

27

•

York County is no longer a party to this action;

28

•

The action is not barred by the statute of repose as to Defendants HP, Weisler, or
34

Lesjak;

1
2

•

statements prior to April 21, 2016;

3
4

•

•

Maryland Electrical’s statement liability claim under Section 10(b) and Rule 10b-5(b)

7

is dismissed as to the Supplies revenue statements and omissions, the “within range”

8

channel inventory statements and omissions, and the APJ growth statements and

9

omissions. Maryland Electrical stated a claim as to Defendants HP, Weisler, and
Lesjak for the remaining statements and omissions;

10
11
United States District Court
Northern District of California

Maryland Electrical alleges a scheme liability claim under Section 10(b) and Rule 10b5(a) and (c) against Bailey and HP, but not against the remaining Defendants;

5
6

The statute of repose shields Defendants Lores and Bailey from liability for actions or

•

Maryland Electrical’s statement liability claim under Section 10(b) and Rule 10b-5(b)
is dismissed as to Lores and Bailey;

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•

Maryland Electrical adequately alleges scienter and loss causation; and

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•

Defendants’ Motion to Dismiss Maryland Electrical’s Section 20(a) claim is denied
because the Section 10(b) claim survives, in part.

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Maryland Electrical may file an amended pleading, if it so chooses, by April 17, 2024.

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The Court HEREBY ORDERS the parties to appear for a Case Management Conference on June

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7, 2024. The parties shall submit an updated Joint Case Management Statement no later than May

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31, 2024.

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IT IS SO ORDERED.
Dated: March 27, 2024
______________________________________
JEFFREY S. WHITE
United States District Judge

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