Mehedi et al v. View, Inc. f/k/a CF Finance Acquisition Corp. II et al
Filing
168
ORDER GRANTING 135 , 137 , 139 , 141 , 146 MOTIONS TO DISMISS WITH LEAVE TO AMEND. Signed by Judge Beth Labson Freeman on 5/22/2023. (blflc2, COURT STAFF) (Filed on 5/22/2023)
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 1 of 43
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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SAN JOSE DIVISION
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ASIF MEHEDI, et al.,
Plaintiffs,
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v.
ORDER GRANTING MOTIONS TO
DISMISS WITH LEAVE TO AMEND
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VIEW, INC., et al.,
[Re: ECF Nos. 135, 137, 139, 141, 146]
Defendants.
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United States District Court
Northern District of California
Case No. 21-cv-06374-BLF
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This is a putative class action for securities fraud against View, Inc.1; current and former
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officers and directors of View and CF Finance Acquisition Corp. II (“CFII”); CF Finance
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Holdings II, LLC (CFII’s “Sponsor”); Cantor Fitzgerald & Co. (“CF&Co.”, CFII’s advisor);
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Cantor Fitzgerald, L.P. (“Cantor”, an affiliate of CFII, the Sponsor, and of Cantor, as well as the
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Sponsor’s sole member); CF Group Management, Inc. (“CFGM”, Cantor’s managing general
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partner); and PricewaterhouseCoopers LLP (“PWC”, View’s auditor since 2013) (collectively,
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“Defendants”). Lead Plaintiff Stadium Capital LLC has filed an Amended Complaint alleging
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violations of Sections 11, 12, and 15 of the Securities Act of 1933 (“Securities Act”) and Sections
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10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”). ECF No. 96
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(“AC”).
Defendants filed five motions to dismiss. ECF Nos. 135 (“View MTD”), 154 (“View
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Reply”); ECF Nos. 137 (“Prakash MTD”), 151 (“Prakash Reply”); ECF Nos. 139 (“LH MTD”);
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152 (“LH Reply”); ECF Nos. 146 (“CF MTD”), 150 (“CF Reply”); ECF Nos. 141 (“PWC MTD”),
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Defendant View’s Class A common stock trades on the Nasdaq exchange under the symbol
“VIEW” and its redeemable warrants trade on the Nasdaq exchange under the symbol “VIEWW.”
AC ¶ 23.
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153 (“PWC Reply”). Plaintiffs oppose the motions. ECF No. 149 (“Opp.”). For the reasons
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discussed at the April 20, 2023, motion hearing and further explained below, the Court GRANTS
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the motions to dismiss WITH LEAVE TO AMEND.
United States District Court
Northern District of California
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I.
BACKGROUND
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View is a technology company that manufactures smart building products, including a
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“smart” glass panel (“smart panels”) that adjusts in response to the sun. AC ¶ 3. On March 8,
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2021, View became a publicly traded company through a merger with CFII, a special purpose
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acquisition company (“SPAC”). Id. ¶¶ 5, 63. Plaintiff alleges that Defendants made material
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misrepresentations to investors in, among other filings with the SEC, View’s December 23, 2020
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De-SPAC Registration Statement, including the two amendments thereto (collectively the “De-
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SPAC Registration Statement”), concerning a materially misstated and understated warranty
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accrual related to Legacy View’s “smart panels.” Id. ¶¶ 3, 62, 81-90. The De-SPAC Registration
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Statement included PWC’s December 23, 2020 audit report on Legacy View, which stated that
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View’s financial statements were presented in conformity with Generally Accepted Accounting
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Principles (“GAAP”) and audited in conformity with PCAOB standards and Generally Accepted
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Accounting Standards (“GAAS”). Id. ¶¶ 50-54, 93. The materially false statements in the De-
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SPAC Registration Statement were replicated in the February 16, 2021 Proxy
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Statement/Prospectus (“Proxy”), and Defendants allegedly made additional false statements as
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they sought the vote of CFII shareholders in favor of the Business Combination. Id. ¶¶ 91-94.
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Plaintiff alleges that the De-SPAC Registration Statement and Proxy were jointly prepared by
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Legacy View and CFII. Id. ¶¶ 80, 92.
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On the heels of going public, View filed a March 12, 2021 Form 8-K, allegedly repeating
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the false statements in the De-SPAC Registration Statement and Proxy concerning the warranty
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accrual, as well as setting forth PWC’s March 12, 2021 audit opinion, which stated that View’s
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financial statements conformed to GAAP and were audited in conformity with PCAOB standards
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and GAAS. AC ¶¶ 95-101.
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In August 2021, five months after going public, the Company announced that its Audit
Committee “began an independent investigation concerning the adequacy of the company’s
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previously disclosed warranty accrual” and that View would not file its Form 10-Q for the second
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fiscal quarter of 2021 (“2Q21 10-Q”). AC ¶¶ 7, 117. The following day, View’s stock price fell
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$1.26, or over 24%, to close at $3.92. Id. ¶ 118. Defendant Prakash resigned as CFO of the
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Company, effective November 8, 2021. Id. ¶ 226. On February 24 2022, View announced that
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directors Hughes and Leppert had resigned on February 22, 2022. Id. ¶ 119. View acknowledged
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that:
[i]t is the Company’s understanding that [Hughes and Leppert]
believe that the Audit Committee’s remedial recommendations were
not fully implemented by the Board; they believe that the Board’s
determination of the responsibilities of Mr. Hughes as Executive
Chair was inconsistent with what the Board had previously decided.
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United States District Court
Northern District of California
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Id.
On March 7, 2022, View announced “its [12.31.21] cash balance of $281 million . . . with
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no substantial debt on the balance sheet. View expects to improve cash burn through 2022 on
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higher volumes and revenues combined with associated improvements in operational efficiencies.”
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AC ¶ 120. Then, only eight weeks later, on May 10, 2022, after the market closed, View revealed
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that in addition to being unable to file its March 31, 2022 Form 10-Q (“1Q22 10-Q”):
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. . . management anticipates that they will be disclosing substantial
doubt about the Company’s ability to continue as a going concern, as
the Company does not currently have adequate financial resources to
fund its forecasted operating costs and meet its obligations for at least
twelve months from the expected issuance date of the 2021 Annual
Report on Form 10-K.
Id. ¶ 122. Later that same day, at approximately 11:13 p.m. Pacific Time, View announced that:
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. . . its cash position [is] $201 million as of the end of Q1 2022 with
no substantial debt on its balance sheet. When the Company issues its
2021 financial statements, it anticipates that its reported cash outflow
from operations for the twelve months ended December 31, 2021,
ranged from $260 million to $270 million.
Id. ¶ 123. On this news, the Company’s share price fell $0.844, or over 62%, to close at $0.516
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per share on May 11, 2022, on unusually heavy trading volume. Id. ¶ 124.
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On May 31, 2022, View reported that its yet-to-be restated warranty-related accruals would
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be $53, $48, and $42 million as of December 31, 2019, 2020, and 2021 respectively. AC ¶¶ 12527
28. Ultimately, on June 15, 2022, View filed its December 31, 2021 Form 10-K (the “2021 10-
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K”), setting forth the Restatement and stating that the SEC was investigating the warranty accrual.
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Id. ¶ 15, 127.
United States District Court
Northern District of California
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Plaintiff filed suit against: View, Inc. (“View”), f/k/a CF Finance Acquisition Corp. II
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(“CFII”); current and former officers and directors of View and CFII (“CFII”); CF Finance
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Holdings II, LLC (“CF Holdings II,” CFII’s “Sponsor”); Cantor Fitzgerald & Co. (“CF&Co.”,
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CFII’s advisor); Cantor Fitzgerald, L.P. (“Cantor”, an affiliate of CFII, the Sponsor, and of Cantor,
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as well as the Sponsor’s sole member); CF Group Management, Inc. (“CFGM”, Cantor’s
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managing general partner); and PricewaterhouseCoopers LLP (“PWC”, View’s auditor since
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2013) (collectively, “Defendants”). The individual View Defendants include: Rao Mulpuri,
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View’s Chief Executive Officer at all relevant times; Vidul Prakash, View’s Chief Financial
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Officer at all relevant times; Tom Leppert, a director of View from September 2015 until February
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22, 2022; Harold Hughes, a director of View from June 2013 until February 22, 2022; Nigel
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Gormly, a director of View since August 2015; Toby Cosgrove, a director of View since March 8,
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2021; Lisa Picard, a director of View since March 8, 2021; Tom Cheung, a director of View since
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August 2019; Tom Patterson, a director of View from 2014 until on or around March 5, 2021; and
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Bill Veghte, a director of View from June 2019 until on or around March 5, 2021 (collectively,
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“Individual View Defendants” and collectively, with View, “View Defendants”). AC ¶¶ 24-35.
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The individual CF Defendants include: Howard Lutnick, CEO and chairman of the board of CFII;
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Paul Pion, CFO and a director of CFII; Alice Chan, CFO and a director CFII; Anshu Jain,
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President and a director of CFII; Robert J. Hochberg, a director of CFII; Charlotte S. Blechman, a
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director CFII (collectively, “Individual CF Defendants”). Id. ¶¶ 36-42. The entity CF Defendants
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include: CF Finance Holdings II, LLC (“Sponsor” or “CF Holdings II”); Cantor Fitzgerald & Co.
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(“CF&Co.”, CFII’s advisor); Cantor Fitzgerald, L.P. (“Cantor”, an affiliate of CFII, the Sponsor,
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and of Cantor, as well as the Sponsor’s sole member); and CF Group Management, Inc.
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(“CFGM”, Cantor’s managing general partner) (collectively, “Entity CF Defendants” and
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collectively, with Individual CF Defendants, “CF Defendants”). Id. ¶¶ 43-48.
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On February 8, 2022, the Court appointed Stadium Capital LLC as Lead Plaintiff. ECF
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No. 67. On July 15, 2022, Plaintiff filed the operative Amended Complaint. See AC. Plaintiff
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asserts eight claims:
Claim Section
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§ 14(a); Rule 14a-9
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§ 20(a)
Defendants
All Defendants except Prakash
Individual View Defendants, CF
Defendants
§ 11
All Defendants except Entity CF
Defendants, Prakash, Patterson, and
Veghte
§ 12(a)(2)
Entity CF Defendants
§ 15
CF Defendants
§ 10(b); Rule 10b-5(b)
View, Mulpuri, Prakash, and PWC
§ 10(b); Rule 10b-5(a), (c) View, Mulpuri, Prakash, and PWC
§ 20(a)
Mulpuri, Prakash, and CF Defendants
except Blechman and Hochberg
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United States District Court
Northern District of California
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179-95
196-205
206-15
266-72
273-81
282-86
In October 2022, Defendants filed motions to dismiss. There are five separate motions,
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AC ¶¶
130-71
172-78
each brought by a different Defendant or group of Defendants: (1) a motion to dismiss brought by
Defendants View, Mulpuri, Gormly, Cosgrove, Picard, Cheung, Patterson, and Veghte, see View
MTD; (2) a motion to dismiss brought by Defendant Prakash, see Prakash MTD; (3) a motion to
dismiss brought by Defendants Leppert and Hughes, see LH MTD; (4) a motion to dismiss
brought by Defendants Lutnick, Pion, Chan, Jain, Hochberg, Blechman, CF Holdings II, CF&Co.,
Cantor, and CFGM, see CF MTD; and (5) a motion to dismiss brought by Defendant PWC, see
PWC MTD. Plaintiff opposes all five motions. See Opp. The Court held a hearing on the
motions on April 20, 2023. See ECF No. 161.
II.
LEGAL STANDARD
A.
Rule 12(b)(6)
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation
Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d
729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts
as true all well-pled factual allegations and construes them in the light most favorable to the
plaintiff. Reese v. BP Expl. (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court
need not “accept as true allegations that contradict matters properly subject to judicial notice” or
“allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable
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inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (citation omitted).
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While a complaint need not contain detailed factual allegations, it “must contain sufficient factual
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matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
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556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A
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claim is facially plausible when it “allows the court to draw the reasonable inference that the
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defendant is liable for the misconduct alleged.” Id. On a motion to dismiss, the Court’s review is
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limited to the face of the complaint and matters judicially noticeable. MGIC Indem. Corp. v.
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Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578,
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581 (9th Cir. 1983).
United States District Court
Northern District of California
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In deciding whether to grant leave to amend, the Court must consider the factors set forth
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by the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the
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Ninth Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district
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court ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1)
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undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by
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amendment, (4) undue prejudice to the opposing party, or (5) futility of amendment. Eminence
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Capital, 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries
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the greatest weight.” Id. However, a strong showing with respect to one of the other factors may
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warrant denial of leave to amend. Id.
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B.
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In addition to the pleading standards discussed above, a plaintiff asserting a private
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securities fraud action must meet the heightened pleading requirements imposed by Federal Rule
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of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). In
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re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012). Rule 9(b) requires a
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plaintiff to “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b); see
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also In re VeriFone Holdings, 704 F.3d at 701. That is, “the complaint must allege specific facts
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regarding the fraudulent activity, such as the time, date, place, and content of the alleged
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fraudulent representation, how or why the representation was false or misleading, and in some
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cases, the identity of the person engaged in the fraud.” In re Bare Escentuals, Inc. Sec. Litig., 745
Rule 9(b) and the Private Securities Litigation Reform Act of 1995
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F. Supp. 2d 1052, 1065 (N.D. Cal. 2010).
Similarly, under the PSLRA “the complaint shall specify each statement alleged to have
United States District Court
Northern District of California
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been misleading, the reason or reasons why the statement is misleading, and, if an allegation
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regarding the statement or omission is made on information and belief, the complaint shall state
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with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). The PSLRA
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further requires that “in any private action arising under this chapter in which the plaintiff may
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recover money damages only on proof that the defendant acted with a particular state of mind, the
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complaint shall, with respect to each act or omission alleged to violate this chapter, state with
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particularity facts giving rise to a strong inference that the defendant acted with the required state
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of mind.” Id. § 78u-4(b)(2)(A). “To satisfy the requisite state of mind element, ‘a complaint must
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allege that the defendant[ ] made false or misleading statements either intentionally or with
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deliberate recklessness.’” In re VeriFone Holdings, 704 F.3d at 701 (alteration in original)
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(quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009)). The
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scienter allegations must give rise not only to a plausible inference of scienter, but to an inference
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of scienter that is “cogent and at least as compelling as any opposing inference of nonfraudulent
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intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007).
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III.
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REQUEST FOR JUDICIAL NOTICE
While the scope of review on a motion to dismiss is generally limited to the contents of the
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complaint, under Evidence Rule 201, courts may take judicial notice of facts that are “not subject
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to reasonable dispute.” F. R. Evid. 201(b). Courts have taken judicial notice of documents on
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which complaints necessarily rely, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001),
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publicly available financial documents such as SEC filings, Metzler Inv. GMBH v. Corinthian
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Colls., Inc., 540 F.3d 1049, 1064 n.7 (9th Cir. 2008), and publicly available articles or other news
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releases of which the market was aware, Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971,
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981 n.18 (9th Cir. 1999).
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All Defendants except Prakash request that the Court take judicial notice of fifteen exhibits
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in support of their motions to dismiss. See Declaration of Brian Boessenecker, ECF No. 136
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(“Boessenecker Decl.”) ¶ 1. The exhibits are (1) CFII’s Form S-1/A, filed with the SEC on
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United States District Court
Northern District of California
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August 18, 2020 (Boessenecker Decl. Ex. 1); (2) CFII’s Form S-4, filed with the SEC on
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December 23, 2020, referenced in AC ¶¶ 1, 36-41, 50, 56, 69-70, 72, 80-84, 91-92 (Boessenecker
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Decl. Ex. 2); (3) Exhibit 3.1 to CFII’s Form S-4, filed with the SEC on December 23, 2020, which
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contains CFII’s Amended and Restated Certificate of Incorporation dated August 26, 2020
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(“Boessenecker Decl. Ex. 3); (4) CFII’s Rule 424(b)(3) amended prospectus (“Proxy”), filed with
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the SEC on February 16, 2021, referenced in AC ¶¶ 1, 24, 26-33, 36-41, 43-46, 91-93, 130-171
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(Boessenecker Decl. Ex. 4); (5) View’s Form 8-K, filed with the SEC on March 8, 2021,
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referenced in AC ¶¶ 76, 94 (Boessenecker Decl. Ex. 5); (6) View’s Form 8-K, filed with the SEC
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on March 12, 2021, refenced in AC ¶¶ 25, 53, 95-101, 106 (Boessenecker Decl. Ex. 6); (7) View’s
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Form S-1, filed with the SEC on April 7, 2021, referenced in AC ¶¶ 24-30, 53, 102-06
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(Boessenecker Decl. Ex. 7); (8) the Financial Accounting Standards Board’s (“FASB”) publicly
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available Accounting Standards Codification (“ASC”) Section 460-10-25, which contains
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subsection 450-10-25-2 (Boessenecker Decl. Ex. 8); (9) the FASB’s publicly available ASC
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Section 450-20-25, which contains subsection 450-20-25-2 (Boessenecker Decl. Ex. 9); (10)
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Exhibit 99.1 to View’s Form 8-K, filed with the SEC on March 7, 2022, referenced in AC ¶¶ 10,
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120-21 (Boessenecker Decl. Ex. 10); (11) View’s Form 8-K, filed with the SEC on May 31, 2022,
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referenced in AC ¶¶ 14, 60, 125-26, 128 (Boessenecker Decl. Ex. 11); (12) View’s Form 10-K,
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filed with the SEC on June 15, 2022, referenced in AC ¶¶ 15, 58, 127-29, 233, 240 (Boessenecker
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Decl. Ex. 12); (13) a copy of a table of daily share price data for View (VIEW) from August 16,
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2021 to September 30, 2021, obtained from Yahoo! Finance (Boessenecker Decl. Ex. 13); (14)
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View’s Form 8-K, filed with the SEC on November 9, 2021 (Boessenecker Decl. Ex. 14); (15)
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View’s Request for Withdrawal of Registration Statement on Form S-1, filed with the SEC on
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March 2, 2022 (Boessenecker Decl. Ex. 15). Boessenecker Decl. ¶¶ 2-16.
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Plaintiff requests that the Court take judicial notice of six exhibits in support of its
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opposition to the motion to dismiss. Opp. at 1; Declaration of Kathleen Herkenhoff, ECF No.
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149-1 (“Herkenhoff Decl.”) ¶ 1. The exhibits are (1) View’s Form 8-K, filed with the SEC on
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March 12, 2021, referenced in AC ¶ 95 (Herkenhoff Decl. Ex. 1); (2) CFII’s Form S-4, filed with
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the SEC on December 23, 2020, referenced in AC ¶ 80 (Herkenhoff Decl. Ex. 2); (3) View’s Form
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10-Q, filed with the SEC on August 9, 2022 (Herkenhoff Decl. Ex. 3); (4) CFII’s Form S-1/A,
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filed with the SEC on August 18, 2020 (Herkenhoff Decl. Ex. 4); (5) CFII’s Rule 424(b)(3)
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amended prospectus (“Proxy”), filed with the SEC on February 16, 2021, referenced in AC ¶ 91
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(Herkenhoff Decl. Ex. 5); and (6) CFII’s Form 8-K, filed with the SEC on November 30, 2020,
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referenced in AC ¶¶ 77-78 (Herkenhoff Decl. Ex. 6). See Herkenhoff Decl. ¶¶ 2-7.
These documents are attached to or referenced in the complaint or are matters of public
United States District Court
Northern District of California
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record. Plaintiff does not object to the request for judicial notice made by all Defendants except
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Prakaash, and Defendants do not object to Plaintiff’s request for judicial notice. And the Court
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notes that the parties request judicial notice of some of the same documents. Accordingly, the
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Court takes notice of Exhibits 1-15 to the Boessenecker Declaration, see ECF No. 136, and
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Exhibits 1-6 to the Herkenhoff Declaration, see ECF No. 149. The Court does not take notice of
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the truth of any of the facts asserted in these documents.
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IV.
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DISCUSSION
Defendants move to dismiss each of Plaintiff’s eight claims. The Court addresses each
claim in turn.
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A.
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Defendants seek dismissal of Plaintiff’s Section 11 claim. Plaintiff brought a claim under
Section 11 Claim (Count 3)
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Section 11 against all Defendants except the Entity CF Defendants, Prakash, Patterson, and
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Veghte. AC ¶¶ 179-95. Section 11 of the Securities Act contains a private right of action for
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purchasers of a security if the issuer publishes a registration statement in connection with the
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security that “contain[s] an untrue statement of a material fact or omit[s] to state a material fact
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required to be stated therein or necessary to make the statements not misleading.” 15 U.S.C. §
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77k(a). “To prevail in such an action, a plaintiff must prove ‘(1) that the registration statement
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contained an omission or misrepresentation, and (2) that the omission or misrepresentation was
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material, that is, it would have misled a reasonable investor about the nature of his or her
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investment.’” Rubke v. Capitol Bancorp Ltd, 551 F.3d 1156, 1161 (9th Cir. 2009) (quoting In re
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Daou Sys., Inc., 411 F.3d 1006, 1027 (9th Cir. 2005)). “By definition, a plaintiff must show that a
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purported misstatement in a registration statement was misleading at the time the registration
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statement was issued.” In re: Resonant Inc. Sec. Litig., No. 15-CV-01970 SJO (PJWx), 2016 WL
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1737959, at *7 (C.D. Cal. Feb. 8, 2016). For example, “[a] claim under section 11 based on the
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omission of information must demonstrate that the omitted information existed at the time the
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registration statement became effective.” Rubke, 551 F.3d at 1164.
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United States District Court
Northern District of California
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Defendants make several arguments, which the Court will address in turn.
1. Statutory Standing
View Defendants and CF Defendants argue that the claim should be dismissed because
there is no traceability. View MTD at 13-15; LH MTD at 4; CF MTD at 5.
“Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, provides a cause of action to
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any person who buys a security issued under a materially false or misleading registration
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statement.” In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1106 (9th Cir. 2013).
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“Plaintiffs need not have purchased shares in the offering made under the misleading registration
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statement; those who purchased shares in the aftermarket have standing to sue provided they can
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trace their shares back to the relevant offering.” Id. (citing Hertzberg v. Dignity Partners, Inc.,
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191 F.3d 1076, 1080 (9th Cir. 1999); Lee v. Ernst & Young, LLP, 294 F.3d 969, 978 (8th Cir.
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2002)). “To have standing to bring a Section 11 claim, plaintiffs must be able to trace their shares
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back to an allegedly misleading registration statement.” In re Ubiquiti Networks, Inc. Sec. Litig.,
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33 F. Supp. 3d 1107, 1117 (N.D. Cal. 2014) (citing In re Century Aluminum, 729 F.3d at
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1106), rev'd in part on other grounds, No. 14-15962, 2016 WL 6156043 (9th Cir. Oct. 24, 2016).
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“Plaintiffs’ failure to plead the traceability of their shares means they lack statutory standing under
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§ 11, [and] failure to allege statutory standing results in failure to state a claim on which relief can
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be granted.” In re Century Aluminum, 729 F.3d at 1109 (emphasis in original).
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“When all of a company's shares have been issued in a single offering under the same
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registration statement, this ‘tracing’ requirement generally poses no obstacle.” In re Century
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Aluminum, 729 F.3d at 1106 (citing Hertzberg, 191 F.3d at 1082). “But when a company has
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issued shares under more than one registration statement, the plaintiff must prove that her shares
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were issued under the allegedly false or misleading registration statement, rather than some other
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registration statement.” Id. (citing Hertzberg, 191 F.3d at 1080 n.4). Here, shares had been issued
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under two different registration statements: the SPAC Registration Statement, which registered the
2
initial offering of the SPAC’s shares when it went public, and the De-SPAC Registration
3
Statement, which registered additional SPAC shares to be provided to Legacy View’s former
4
shareholders in connection with the merger. AC ¶¶ 64, 69. The Section 11 claim is based only on
5
the De-SPAC Registration Statement, not the SPAC Registration Statement. Id. ¶ 180. Therefore,
6
Plaintiff must “prove that the shares [it] purchased came from the pool of shares issued in the
7
secondary offering, rather than from the pool of previously issued shares.” See In re Century
8
Aluminum, 729 F.3d at 1106.
United States District Court
Northern District of California
9
A plaintiff could satisfy the above requirement in one of two ways. In re Century
10
Aluminum, 729 F.3d at 1106. First, a plaintiff could show it purchased the shares in the secondary
11
offering itself, which “would obviously eliminate any questions about the lineage of plaintiff[’s]
12
shares.” Id. Second, a plaintiff “could prove that their shares, although purchased in the
13
aftermarket, can be traced back to the secondary offering.” Id. As the Ninth Circuit recognized,
14
the second option “is easier said than done.” Id. This is because it would require a plaintiff to
15
trace the chain of title for their shares back to the secondary offering, “starting with their own
16
purchases and ending with someone who bought directly in the secondary offering.” Id. at 1106-
17
07. “Courts have long noted that tracing shares in this fashion is ‘often impossible,’ because
18
‘most trading is done through brokers who neither know nor care whether they are getting newly
19
registered or old shares,’ and ‘many brokerage houses do not identify specific shares with
20
particular accounts but instead treat the account as having an undivided interest in the house's
21
position.’” Id. at 1107 (quoting Barnes v. Osofsky, 373 F.2d 269, 271-72 (2d Cir. 1967)).
22
As in In re Century Aluminum, the question here is whether Plaintiff has alleged that its
23
shares are traceable to the secondary offering. “The level of factual specificity needed to satisfy
24
this pleading requirement will vary depending on the context.” In re Century Aluminum, 729 F.3d
25
at 1107. If all of the company’s shares were offered in one offering under a single registration
26
statement, then an allegation that the plaintiff’s shares are “directly traceable” to the offering may
27
be sufficient. Id. But “[w]hen a company has issued shares in multiple offerings under more than
28
one registration statement, . . . a greater level of factual specificity will be needed before a court
11
United States District Court
Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 12 of 43
1
can reasonably infer that shares purchased in the aftermarket are traceable to a particular offering.”
2
Id. And the Ninth Circuit recognized that “experience and common sense tell us that when a
3
company has offered shares under more than one registration statement, aftermarket purchasers
4
usually will not be able to trace their shares back to a particular offering.” Id. at 1107-08
5
(emphasis in original). As in that case, Plaintiff here must “allege facts from which [the Court]
6
can reasonably infer that [this] situation is different.” Id. at 1108.
7
Plaintiff alleges: “All investors who purchased or otherwise acquired the registered
8
securities after the Business Combination are traceable to the De-SPAC Registration Statement.”
9
AC ¶ 188. This allegation is clearly insufficient under In re Century Aluminum. See 729 F.3d at
10
1108. In that case, the Ninth Circuit stated that “the conclusory allegation that plaintiffs
11
‘purchased Century Aluminum common stock directly traceable to the Company's Secondary
12
Offering’ does not allow us to draw a reasonable inference about anything because it is devoid of
13
factual content.” Id. The allegation here is similarly conclusory. Plaintiff does not provide any
14
specific allegations tracing its purchase of shares to the De-SPAC Registration Statement.
15
Plaintiff therefore has not alleged statutory standing.
16
Plaintiff asserts that the allegations are sufficient. Opp. at 14-15. But as noted by certain
17
Defendants, the cases that Plaintiff relies on in arguing that its allegations were sufficient were
18
from before In re Century Aluminum. Opp. at 15 (citing In re SeeBeyond Techs. Corp. Sec. Litig.,
19
266 F. Supp. 2d 1150 (C.D. Cal. 2003); In re Immune Response Sec. Litig., 375 F. Supp. 2d 983
20
(S.D. Cal. 2005); In re Intrabiotics Pharms., Inc. Sec. Litig., No. C 04-02675, 2006 WL 708594
21
(N.D. Cal. Jan. 23, 2006)). The allegations are clearly insufficient under the more recent Ninth
22
Circuit case.
23
Plaintiff also argues that it can maintain Section 11 claims on behalf of other class
24
members who did purchase securities that were traceable to the De-SPAC Registration Statement.
25
Opp. at 15-16. But, as noted by Defendants, this argument is at odds with In re Century
26
Aluminum, in which the Ninth Circuit affirmed dismissal of the case where the lead plaintiffs had
27
not sufficiently alleged traceability. 729 F.3d at 1109-10. And again, as noted by Defendants, the
28
cases cited by Plaintiff in support of its argument pre-dated In re Century Aluminum and/or were
12
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 13 of 43
1
otherwise distinguishable. See Opp. at 15-16; In re Juniper Networks, Inc. Sec. Litig., 542 F.
2
Supp. 2d 1037, 1052 (N.D. Cal. 2008); In re VeriSign, Inc. Sec. Litig., No. C 02-2270-JW(PVT),
3
2005 WL 88969, at *4-5 (N.D. Cal. Jan. 13, 2005); NECA-IBEW Health & Welfare Fund v.
4
Goldman Sachs & Co., 693 F.3d 145, 149 (2d Cir. 2012)).
5
6
because it would be futile, as there is no way that Plaintiff could allege statutory standing. View
7
MTD at 13-15. Defendants assert that there were 50 million CFII securities registered under the
8
SPAC Registration Statement and that, given that volume, as well as the fact that shares are
9
usually held in “street name,” Plaintiff will not be able to allege that its shares are traceable to the
10
United States District Court
Northern District of California
Defendants argue that Plaintiff should not be given leave to amend the Section 11 claim
De-SPAC Registration Statement. Id. at 14.
11
Because this is the first motion to dismiss, the Court will grant Plaintiff an opportunity to
12
amend the Section 11 claim. But Plaintiff should only do so if it can properly allege traceability.
13
2. Loss Causation
14
View Defendants and CF Defendants also argue that Plaintiff has not alleged loss
15
causation for the Section 11 claim. View MTD at 15; CF MTD at 5. They argue that the absence
16
of loss causation is apparent from the face of the AC. View MTD at 15. Plaintiff argues that issue
17
is not proper to decide on a motion to dismiss. Opp. at 17.
18
A plaintiff need not allege loss causation for a Section 11 claim. In re Shoretel Inc., Sec.
19
Litig., No. C 08-00271 CRB, 2009 WL 248326, at *4 (N.D. Cal. Feb. 2, 2009). But the
20
defendants “may prove as an affirmative defense that plaintiffs’ loss, or some portion thereof, was
21
not caused by the alleged misstatements or omissions.” Id. Under the statute, “[i]f the defendant
22
proves that any portion or all of such damages represents other than the depreciation in value . . .
23
resulting from such part of the registration statement[] with respect to which his liability is being
24
asserted, . . . such portion or all of such damages shall not be recoverable.” Id. at *5 (quoting 15
25
U.S.C. § 77k(e)). It is “sometimes referred to as the ‘negative causation’ defense and courts have
26
characterized the defendant’s burden as ‘heavy.’” Id. (quoting In re Worlds of Wonder Sec. Litig.,
27
35 F.3d 1407, 1421-22 (9th Cir. 1994)). But “if the facts as alleged by plaintiffs, and documents
28
which the court may take judicial notice of, establish the affirmative defense as a matter of law
13
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 14 of 43
1
then the motion to dismiss may be granted” on this basis. Id. (collecting cases).
The De-SPAC Registration Statement was filed with the SEC on December 23, 2020. AC
2
3
¶ 80. CFII filed amendments to the De-SPAC Registration Statement on January 26, 2021 and
4
February 11, 2021. Id. ¶¶ 85, 89. As of December 23, 2020, Plaintiff owned 80,000 shares in
5
CFII. Id. ¶ 1, Sch. A. Plaintiff purchased 10,000 shares on February 4, 2021 and 10,000 shares on
6
February 5, 2021. Id. Plaintiff then sold 20,000 shares on February 25, 2021 and its additional
7
80,000 shares on March 9, 2021, such that Plaintiff had no remaining shares. Id. Plaintiff then
8
continued to buy and sell shares throughout 2021 and 2022. Id.
As stated above, the Court cannot determine which of the stock purchases were traceable
United States District Court
Northern District of California
9
10
to the De-SPAC Registration Statement. Because Plaintiff has not alleged that any specific
11
purchase was traceable to the De-SPAC Registration Statement, there can be no loss causation.
12
The facts establish the affirmative defense as a matter of law.
13
3. Due Diligence
Individual CF Defendants argue that the due diligence defense applies. CF MTD at 5-6.
14
15
They argue that the Section 11 claim should be dismissed because it is based on expertised
16
portions of the De-SPAC Registration Statement, and the AC does not allege that the CF
17
Defendants’ reliance on the PWC and View management accounting statements was unreasonable.
18
Id.
19
“Section 11 provides a due diligence defense.” In re Countrywide Fin. Corp. Sec. Litig.,
20
588 F. Supp. 2d 1132, 1174 (C.D. Cal. 2008) (citing 15 U.S.C. § 77k(b)(3)). “The defense is
21
calibrated to the objective reasonable person in each defendant’s position.” Id. at 1174-75 (citing
22
In re Software Toolworks Inc., 50 F.3d 615, 621 (9th Cir. 1994); Escott v. BarChris Const. Corp.,
23
283 F. Supp. 643 (S.D.N.Y. 1968)). While reasonableness is a fact issue not usually suited for a
24
motion to dismiss, a court may grant a motion to dismiss if a defendant has a due diligence
25
defense on the face of the complaint as a matter of law. Id. at 1175. The defense is available to
26
directors, officers, and underwriters. State Treasurer of Mich. v. Countrywide Fin. Corp., No.
27
CV-11-00809-MRP-MAN, 2011 WL 13220150, at *6 (C.D. Cal. Aug. 22, 2011) (citing In re
28
Worlds of Wonder, 35 F.3d at 1421). A party “may reasonably rely on auditors’ statements,
14
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 15 of 43
1
absent red flags that the [party was] in a position to see.” In re Countrywide Fin. Corp., 588 F.
2
Supp. 2d at 1175. A plaintiff must “adequately allege that [defendants’] reliance on [the auditor’s]
3
and [management’s] accounting related statements . . . was unreasonable.” Id. at 1182.
Plaintiff counters that the Court should not consider this affirmative defense on a motion to
4
5
dismiss. Opp. at 16-17. Plaintiff also seeks to distinguish this case from McKesson, Opp. at 16-
6
17, but Individual CF Defendants do not rely on that case in support of this argument, CF MTD at
7
5-6.
8
United States District Court
Northern District of California
9
The Court determines that the due diligence defense is appropriate to consider on a motion
to dismiss if it is established as a matter of law from the face of the complaint. See In re
10
Countrywide Fin. Corp., 588 F. Supp. 2d at 1174-75; see also Feyko v. Yuhe Int’l, Inc., No. CV
11
11-05511 DDP (PJWX), 2013 WL 816409, at *8-9 (C.D. Cal. Mar. 5, 2013). Here, Plaintiff has
12
not made any allegations indicating that it was unreasonable for the Individual CF Defendants to
13
rely on the statements of PWC or View. See AC. Nor does Plaintiff argue in its opposition that it
14
made any such allegations. See Opp. at 16-17. Plaintiff must plead red flags that the Individual
15
CF Defendants were in a position to see and that made it unreasonable to rely on the statements of
16
PWC and/or View. See In re Countrywide Fin. Corp., 588 F. Supp. 2d at 1174-75, 1181-82.
17
18
4. PWC
Defendant PWC argues that the Section 11 claim against it should be dismissed. PWC
19
MTD at 2-4. It argues that the Court should apply the framework laid out by the Supreme Court
20
in Omnicare and, under that framework, Plaintiff has failed to state a claim against it. Id.; see
21
Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 135 S. Ct.
22
1318 (2015).
23
24
25
26
27
28
As explained by the Ninth Circuit, Omnicare establishes three standards for pleading
falsity of opinion statements:
First, when a plaintiff relies on a theory of material misrepresentation,
the plaintiff must allege both that “the speaker did not hold the belief
she professed” and that the belief is objectively untrue. Second, when
a plaintiff relies on a theory that a statement of fact contained within
an opinion statement is materially misleading, the plaintiff must
allege that “the supporting fact [the speaker] supplied [is]
untrue.” Third, when a plaintiff relies on a theory of omission, the
15
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 16 of 43
1
2
plaintiff must allege “facts going to the basis for the issuer's opinion .
. . whose omission makes the opinion statement at issue misleading
to a reasonable person reading the statement fairly and in context.”
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 615-
3
16 (9th Cir. 2017) (alterations in original) (internal citations omitted) (quoting Omnicare, 135 S.
4
Ct. at 1327, 1332).
5
6
7
8
9
10
Plaintiff’s Section 11 claim against PWC is based on PWC’s Audit Report, dated
December 23, 2020 (“Audit Report”), which was incorporated by reference into the De-SPAC
Registration Statement with PWC’s consent. AC ¶ 185. Plaintiff alleges that the Audit Report
contains “misrepresentations and/or omission of material fact necessary to make the statements in
the De-SPAC Registration Statement not misleading.” Id. ¶ 186. Plaintiff specifically points to
PWC’s statements as to “its compliance with standards of the [Public Company Accounting
11
United States District Court
Northern District of California
Oversight Board] and [Generally Accepted Auditing Standards] in performing its audit and the
12
13
14
Company’s compliance with [Generally Accepted Auditing Principles].” Id. The Audit Report
was titled “Opinion on Financial Statements.” Id. ¶ 93. As alleged in the AC, in the Audit Report,
PWC stated, in the section labeled “Basis for Opinion”: “We conducted our audits of these
15
consolidated financial statements in accordance with the standards of the PCAOB and in
16
17
accordance with auditing standards generally accepted in the United States of America.” Id. And
the Report further stated: “In our opinion, the consolidated financial statements present fairly, in
18
all material respects, the financial position of the Company as of December 31, 2019 and 2018,
19
and the results of its operations and its cash flows for the years then ended in conformity with
20
21
accounting principle generally accepted in the United States of America.” Id. At the end, it states:
“We believe that our audits provide a reasonable basis for our opinion.” Id.
22
PWC argues that Plaintiff has failed to allege that these statements violate any of the three
23
prongs from the Omnicare framework: (1) Plaintiff has not alleged subjective falsity, (2) the Audit
24
Report does not include any embedded statements of fact, and (3) the Audit Report does not omit
25
any material facts. MTD at 3-4. Plaintiff argues that the statements about compliance with the
26
PCAOB, GAAS, and GAAP are statements of fact. Opp. at 18-21. Plaintiff also argues that PWC
27
omitted material facts about the true amount of the warranty accrual. Opp. at 19.
28
16
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 17 of 43
United States District Court
Northern District of California
1
First, the Court finds that Omnicare applies here. See Hunt v. Bloom Energy Corp., No.
2
19-cv-02935-HSG, 2021 WL 4461171, at *14-15 (N.D. Cal. Sept. 29, 2021); Johnson v. CBD
3
Energy Ltd., No. CV H-15-1668, 2016 WL 3654657, at *10 (S.D. Tex. July 6, 2016) (collecting
4
cases). As in Bloom Energy, it “matters under Omnicare that PWC’s audit report . . . [was]
5
explicitly identified as opinion[].” See Bloom Energy Corp., 2021 WL 4461171, at *14; accord
6
Querub v. Moore Stephens Hong Kong, 649 F. App’x 55, 58 (2d Cir. 2016) (“Audit reports,
7
labeled ‘opinions’ and involving considerable subjective judgment, are statements of opinion
8
subject to the Omnicare standard for Section 11 claims.”). The Audit Report here is titled
9
“Opinion on Financial Statements,” as it was in Bloom Energy. AC ¶ 93; Bloom Energy Corp.,
10
2021 WL 4461171, at *14. Similarly, the paragraph about compliance with the GAAP begins, “In
11
our opinion, . . . .” AC ¶ 93; Bloom Energy Corp., 2021 WL 4461171, at *14. The language
12
about the PCAOB and GAAS are in a paragraph titled “Basis for Opinion.” AC ¶ 93. And as
13
another court has recognized, “both GAAS and GAAP are a collection of broad standards that are
14
‘couched in rather general and in some cases inherently subjective terms . . . to which reasonable
15
professionals planning or conducting an audit reasonably and frequently could disagree.’”
16
Buttonwood Tree Value Partners, LP v. Sweeney, No. SACV 10-00537-CJC(MLGx), 2012 WL
17
2086607, at *2 (C.D. Cal. June 7, 2012) (quoting In re Lehman Bros. Sec. & Erisa Litig., 799 F.
18
Supp. 2d 258, 301 (S.D.N.Y. July 27, 2011)).
19
Plaintiff points the Court to a case in which the Western District of Washington stated that
20
a certification of compliance with the PCAOB “is a verifiable factual statement.” Opp. at 18; see
21
In re Wash. Mut., Inc. Sec., Deriv. & ERISA Litig., 694 F. Supp. 2d 1192, 1224 (W.D. Wash.
22
2009). But this case, decided before Omnicare, has been expressly rejected by other courts in the
23
Ninth Circuit. See, e.g., In re Silver Wheaton Corp. Sec. Litig., No. 2:15-cv-5146-CAS (JEMx),
24
2019 WL 1512269, at *12 (C.D. Cal. Mar. 25, 2019); Hufnagle v. Rino Int’l Corp., No. CV 10-
25
08695 DDP VBKx), 2013 WL 160223, at *2 (C.D. Cal. Jan. 14, 2013). The Court determines that
26
the Audit Opinion is a statement of opinion to which Omnicare applies.
27
Plaintiff appears to assert that PWC’s statements constitute “embedded statements of fact”
28
under Omnicare. Opp. at 17-21. But the Court agrees with other courts that have held that similar
17
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 18 of 43
1
statements about PCAOB, GAAS, and GAAP do not include any embedded statements of fact.
2
See Bloom Energy Corp., 2021 WL 4461171, at *15; Johnson, 2016 WL 3654657, at *12. In
3
Omnicare, the Supreme Court gave the following example as a statement with an embedded
4
statement of fact: “I believe our TVs have the highest resolution available because we use a
5
patented technology to which our competitors do not have access.” 135 S. Ct. at 1327. This is
6
clearly distinguishable. See Johnson, 2016 WL 3654657, at *12. The conclusion there “rested on
7
an underlying, verifiable fact: that the company uses a patented technology that its competitors do
8
not have access to.” Id. The statements challenged by Plaintiff do not incorporate any similar
9
factual statements. See id. The Court therefore rejects this argument.
United States District Court
Northern District of California
10
To plead falsity of an opinion under Omnicare, “the plaintiff must allege both that ‘the
11
speaker did not hold the belief she professed’ and that the belief is objectively untrue.” Dearborn
12
Heights, 856 F.3d at 615-16 (quoting Omnicare, 135 S. Ct. at 1327). Plaintiff has not alleged that
13
PWC did not sincerely believe the identified statements included in the Audit Report. See AC.
14
Therefore, Plaintiff’s Section 11 claim cannot proceed on this theory. See Bloom Energy Corp.,
15
2021 WL 4461171, at *15. Further, within the Section 11 claim, Plaintiff disclaims any
16
allegations of fraud. AC ¶ 179. This allegation would be inconsistent with any allegation that
17
PWC knew that its statements were false. See Johnson, 2016 WL 3654657, at *12; Omnicare,
18
135 S. Ct. at 1327.
19
Finally, PWC argues that it did not omit any material facts. PWC MTD at 4. Under
20
Omnicare, “when a plaintiff relies on a theory of omission, the plaintiff must allege ‘facts going to
21
the basis for the issuer's opinion . . . whose omission makes the opinion statement at issue
22
misleading to a reasonable person reading the statement fairly and in context.’” Dearborn
23
Heights, 856 F.3d at 616 (quoting Omnicare, 135 S. Ct. at 1332). Plaintiff alleges that the Audit
24
Report contains “omission of material fact necessary to make the statements in the De-SPAC
25
Registration Statement not misleading.” AC ¶ 186. Section 11 creates liability where the
26
registration statement “omits material facts about the issuer’s inquiry into or knowledge
27
concerning a statement of opinion” and “those facts conflict with what a reasonable investor
28
would take from the statement itself.” Omnicare, 135 S. Ct. at 1329. Here, Plaintiff has not
18
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 19 of 43
1
alleged that PWC omitted any material facts about its inquiry or knowledge. See AC.
2
The Court therefore GRANTS PWC’s motion to dismiss the Section 11 claim.
3
5. Conclusion
For the reasons stated above, the Section 11 claim is DISMISSED WITH LEAVE TO
4
5
AMEND.
6
B.
7
Plaintiff brought a claim under Section 12(a)(2) against the Entity CF Defendants. AC ¶¶
8
196-205. Entity CF Defendants seek dismissal of Plaintiff’s Section 12(a)(2) claim. See CF MTD
9
at 6-8.
10
United States District Court
Northern District of California
Section 12(a)(2) Claim (Count 4)
Section 12(a)(2) functions as the “sibling” to Section 11, allowing plaintiffs to bring suit
11
against parties who are statutory sellers of securities pursuant to misrepresentations in a
12
prospectus. Rieckborn v. Jefferies LLC, 81 F. Supp. 3d 902, 925 (N.D. Cal. 2015). “To plead a
13
claim under Section 12(a)(2), the plaintiff must allege that (1) the defendant is a statutory seller;
14
(2) the sale was effected by means of a prospectus or oral communication; and (3) the prospectus
15
or oral communication contained a material misstatement or omission.” Maine State Ret. Sys. v.
16
Countrywide Fin. Corp., No. 10-cv-00302, 2011 WL 4389689, at *8 (C.D. Cal. May 5,
17
2011) (citing 15 U.S.C. § 77l(a)(2)).
18
Entity CF Defendants assert that the claim should be dismissed because Plaintiff does not
19
have standing and the Entity CF Defendants are not statutory sellers. CF MTD at 6-8. The Court
20
will address each argument in turn.
21
22
23
24
1. Standing
Entity CF Defendants argue that Plaintiff does not have statutory standing to pursue a
claim under Section 12. CF MTD at 6-7.
“A plaintiff establishes standing to sue under Section 12 by showing she purchased its
25
shares in a public offering, as opposed to the secondary market.” In re Ubiquiti, 33 F. Supp. 3d at
26
1126 (citing Gustafson v. Alloyd Co., Inc., 513 U.S. 561, 577 (1995)). Here, Plaintiff has not
27
alleged that it purchased its shares in a public offering. See AC. Therefore, the Court will dismiss
28
the Section 12 claim for lack of statutory standing.
19
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 20 of 43
1
2. Statutory Sellers
Entity CF Defendants also argue that the Section 12 claim should be dismissed because
2
they are not statutory sellers. CF MTD at 7-8. Again, the Entity CF Defendants are CF Holdings
3
4
II (“Sponsor”); CF&Co.; Cantor; and CFGM.
“A ‘statutory seller’ is ‘one who either transferred title to the purchaser or successfully
5
solicited the purchase for financial gain.’” Rieckborn, 81 F. Supp. 3d at 925 (quoting Tsereteli v.
6
Residential Asset Securitization Tr. 2006-A8, 692 F. Supp. 2d 387, 391 (S.D.N.Y. 2010)); see also
7
Pinter v. Dahl, 486 U.S. 622, 643-44 n.21 (1988) (stating that § 12 “imposes liability on only the
8
buyer's immediate seller; remote purchasers are precluded from bringing actions against remote
9
sellers”). Entity CF Defendants argue they satisfy neither basis. CF MTD at 7-8. Plaintiff argues
10
that the Entity CF Defendants are statutory sellers on the latter basis—solicitation. Opp. at 21-22.
United States District Court
Northern District of California
11
As the Ninth Circuit has explained, to state a claim based on solicitation, “a plaintiff must
12
allege that the defendants did more than simply urge another to purchase a security; rather, the
13
plaintiff must show that the defendants solicited purchases of the securities for their own financial
14
gain.” In re Daou Sys., Inc., 411 F.3d 1006, 1029 (9th Cir. 2005), abrogated in part on other
15
grounds as recognized by Glazer Cap. Mgmt, L.P. v. Forescout Techs., Inc., 63 F.4th 747, 766
16
(9th Cir. 2023); see also In re Charles Schwab Corp. Sec. Litig., 257 F.R.D. 534, 549 (N.D. Cal.
17
18
2009) (finding that mere participation in a solicitation or sale does not suffice). Additionally, “the
defendant [must] be alleged to have had some ‘direct’ role in the solicitation of the plaintiff.” In
19
re Charles Schwab Corp., 257 F.R.D. at 549.
20
Entity CF Defendants argue that Plaintiff has not sufficiently alleged that they solicited
21
22
23
Plaintiff’s purchase. CF MTD at 7-8. They also argue that Plaintiff improperly grouped the
Entity CF Defendants together in the allegations and provided “no particularized allegations” as to
the direct role of each of the Entity CF Defendants in soliciting Plaintiff’s purchases. Id. Finally,
24
Defendants argue that there are no allegations as to their financial benefit. Id. at 8.
25
Plaintiff counters that whether the Defendants had direct involvement in the solicitation is
26
a “factually intensive exercise” that should not be decided on a motion to dismiss. Opp. at 21.
27
Plaintiff further argues that the Entity CF Defendants were motivated by a desire to serve their
28
20
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 21 of 43
1
own financial interests through the sale of View stock. Id. at 22. And Plaintiff argues that the
2
Proxy mentions the Sponsor (CF Holdings II) and that other solicitation materials refer to the
3
involvement of Cantor. Id. As to Cantor, Plaintiff asserts that the Investor Presentation
4
mentioned in the AC includes statements about Cantor, including that “Cantor Fitzgerald believes
5
View, Inc. represents a unique opportunity to revolutionize the property technology industry with
6
a proven product and a strong management team” as well as a full page “Overview of Sponsor”
7
about Cantor. Id.
8
United States District Court
Northern District of California
9
In Reply, the Entity CF Defendants note that Plaintiff made no argument as to CF&Co. or
CFGM. CF Reply at 5. And it argues that the Plaintiff’s argument as to Cantor fails because
10
Plaintiff did not plead in the AC that solicitation materials included Cantor; being mentioned in
11
solicitation materials does not constitute solicitation; and, at most, the materials show Cantor
12
assisted in others’ solicitation efforts, which is insufficient. Id.
13
Plaintiff alleges: “Defendant named in this Count promoted, offered or sold View
14
securities to Lead Plaintiff and other members of the Class for Defendants’ financial benefit and
15
the benefit of their associates by means of the Proxy Statement/Prospectus and oral
16
communications . . . .” AC ¶ 199. For each Entity CF Defendant, Plaintiff also alleges that the
17
Defendant “solicited and/or permitted the use of its name to solicit consent or authorization for the
18
Business Combination by issuing the Proxy Statement/Prospectus,” AC ¶¶ 43-46, and that the
19
Defendant “permitted the use of its name in the Proxy Statement/Prospectus, and solicited the
20
votes of shareholders in the Proxy Statement/Prospectus,” AC ¶¶ 147-50.
21
Plaintiff has not alleged that each individual Entity CF Defendant played a direct role in
22
the solicitation of the Plaintiff. See AC. This is true for the two Entity CF Defendants that
23
Plaintiff focuses on in the Opposition—CF Holdings II and Cantor. See Opp. at 22. Plaintiff’s
24
argument as to Cantor in Opposition—namely, that it is included in the Investor Presentation—is
25
not alleged in the AC. See Opp. at 22 (citing Herkenhoff Decl. Ex. 6 at Ex. 99.2); AC. Plaintiff
26
must include specific factual allegations as to Cantor in the AC. And the same is true for CF
27
Holdings II. The AC includes only conclusory allegations as to CF Holdings II, the Sponsor. See
28
AC. In amending the AC, Plaintiff must keep in mind that it is not sufficient to “participate in
21
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 22 of 43
1
soliciting the purchase” or to “merely assist in another’s solicitation efforts.” Pinter, 486 U.S. at
2
651 n.27.
3
4
5
3. Conclusion
For the reasons stated above, the Section 12(a)(2) claim is DISMISSED WITH LEAVE
TO AMEND.
6
7
Section 14(a) and Rule 14a-9 Claim (Count 1)
Plaintiff brought a claim under Section 14(a) and Rule 14a-9 against all Defendants except
8
Prakash. AC ¶¶ 130-71. All Defendants against whom this claim was alleged seek dismissal of
9
Plaintiff’s Section 14 claim. See View MTD at 9-13; LH MTD at 1-3; CF MTD at 2-5; PWC
10
United States District Court
Northern District of California
C.
MTD at 4-5.
11
“To state a claim under § 14(a) and Rule 14a–9, a plaintiff must establish that ‘(1) a proxy
12
statement contained a material misrepresentation or omission which (2) caused the plaintiff injury
13
and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation
14
materials, was an essential link in the accomplishment of the transaction.’” New York City Emps.'
15
Ret. Sys. v. Jobs, 593 F.3d 1018, 1022 (9th Cir. 2010), overruled on the other grounds by Lacey v.
16
Maricopa Cty., 693 F.3d 896 (9th Cir. 2012) (quoting Tracinda Corp. v. DaimlerChrysler AG, 502
17
F.3d 212, 228 (3d Cir. 2007)). There is also a loss causation requirement. Id.
18
19
1. Culpable Conduct
View Defendants and CF Defendants argue that the Plaintiff has failed to plead culpable
20
conduct under Section 14. View MTD at 9-11; LH MTD at 1-4; CF MTD at 3-5. The parties
21
disagree as to the applicable pleading standard for this claim. Plaintiff asserts that it need only
22
allege negligence and that it has adequately done so. Opp. at 6-11.
23
The Ninth Circuit recently addressed the pleading standard for a Section 14 claim where
24
the claim is “grounded in fraud.” In re Finjan Holdings, Inc., 58 F.4th 1048 (9th Cir. 2023).
25
While that claim was brought under Section 14(e), the same analysis applies here. The court there
26
looked at whether Rule 9(b) and different provisions of the PSLRA applied. Id. at 1057-59. First,
27
the Ninth Circuit held that “Rule 9(b) applies where a claim is ‘grounded in fraud’ or ‘sound[s] in
28
fraud,’ even if fraud is not an essential element of the cause of action.” Id. at 1057 (alteration in
22
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Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 23 of 43
1
original) (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003)). “In other
2
words, if ‘a plaintiff . . . choose[s] . . . to allege in the complaint that the defendant has engaged in
3
fraudulent conduct,’ then ‘the pleading of that claim as a whole must satisfy the particularity
4
requirement of Rule 9(b).’” Id. (alterations in original) (quoting Vess, 317 F.3d at 1103-04).
5
Second, the Ninth Circuit stated that the particularity requirements of Section 4(b)(1) of the
6
PSLRA applied to a Section 14(e) action. Id. at 1157-58. The same is true for this Section 14(a)
7
action. Finally, the Ninth Circuit addressed whether the requirements of Section 4(b)(2) of the
8
PSLRA applied. Id. at 1058-59. The court determined that Section 4(b)(2) did not apply even
9
though the claim sounded in fraud; the plaintiff needed only to plead negligence, not scienter. Id.
10
at 1058-59. This was because Section 14(e) required only negligence. Id. Because the same is
11
true of a Section 14(a) claim, the same reasoning applies here and, even if the claim sounds in
12
fraud, scienter is not required.
13
The Court must determine whether the AC sounds in fraud. To determine whether a
14
complaint sounds in fraud, the Court “must normally determine, after a close examination of the
15
language and structure of the complaint, whether the complaint ‘alleges a unified course of
16
fraudulent conduct’ and ‘relies entirely on that course of conduct as the basis of a claim.’” Rubke,
17
551 F.3d at 1161 (quoting Vess, 317 F.3d at 1103-04). “Where . . . a complaint employs the exact
18
same factual allegations to allege violations of section [14] as it uses to allege fraudulent conduct
19
under section 10(b) of the Exchange Act, we can assume that it sounds in fraud.” Id.
20
The Court determines that, as currently pled, the Section 14 claim sounds in fraud because
21
it is based on the same course of conduct as the Section 10(b) claims. See AC. Here, Plaintiff’s
22
Section 14 and Section 10(b) claims rely largely on the same factual allegations, and the Section
23
10(b) claim is based on misstatements of the warranty accrual, which were made in the Proxy. See
24
id. ¶¶ 91-93. The conduct forming the basis of Plaintiffs Section 14 claim, is the same as the
25
conduct Plaintiffs forming the basis of the Section 10(b) claims, which confirms that the Section
26
14 claim is grounded in fraud and therefore subject to Rule 9(b)’s heightened pleading standard.
27
See In re Bare Escentuals, 745 F. Supp. 2d at 1068 (heightened pleading standard applies where
28
“there is a remarkable similarity between the conduct forming the basis for plaintiffs’ section 11
23
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 24 of 43
1
United States District Court
Northern District of California
2
claims, and the conduct forming a basis for plaintiffs’ section 10(b) claims”).
The Court finds unconvincing Plaintiff’s assertion that for purposes of Count 1, it “does
3
not allege that any Defendant named in this Count acted with fraudulent intent and expressly
4
excludes and disclaims any allegation that could be construed as alleging or sounding in fraud or
5
intentional or reckless misconduct.” AC ¶ 131. The Ninth Circuit has held that “a plaintiff’s
6
nominal efforts to disclaim allegations of fraud with respect to its section 11 claims are
7
unconvincing where the gravamen of the complaint is fraud and no effort is made to show any
8
other basis for the claims.” See In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 885 (9th Cir.
9
2012) (citing In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 n.2 (9th Cir. 1996)). The same
10
reasoning applies to a Section 14 claim. The Court therefore rejects Plaintiffs’ nominal attempt to
11
disclaim fraud allegations regarding their Section 14 claim.
12
Accordingly, the Court finds that Plaintiffs’ Section 14 claim sounds in fraud and therefore
13
must be pled in accordance with Rule 9(b)’s heightened pleading standards. But, as the Ninth
14
Circuit made clear in In re Finjan Holdings, Inc., Plaintiff does not need to allege scienter. 58
15
F.4th at 1058-59.
16
The Court determines that Plaintiff has not adequately alleged negligence with particularity
17
for the Section 14 claim. Plaintiff must make individualized allegations of negligence. For each
18
Defendant, Plaintiff must allege the duty that they owed to the Plaintiff and how that duty was
19
breached.
20
21
2. Loss Causation
View Defendants and CF Defendants argue that the Plaintiff has not alleged facts to show
22
loss causation. View MTD at 11-12; LH MTD at 4; CF MTD at 2. Plaintiff argues that the loss
23
causation arguments are premature. Opp. at 13-14.
24
As stated above, a plaintiff must establish that the allegedly misleading proxy caused the
25
plaintiff injury in the form of economic loss. New York City Emps.' Ret. Sys., 593 F.3d at 1022.
26
Defendants argue that Plaintiff has not alleged loss causation because it sold all the shares it held
27
as of the record date months before the alleged stock-price decline. View MTD at 12. Plaintiff
28
held 80,000 shares of CFII stock on the Record Date. AC ¶ 1, Sch. A at 2. It sold all of these
24
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 25 of 43
1
shares on March 9, 2021. Id. The first alleged stock-price decline occurred in August 2021. AC ¶
2
118. The Plaintiff bought more View stock, but economic harm from those purchases was not
3
caused by the Proxy Statement because those purchases occurred after the vote solicited by the
4
Proxy Statement.
Plaintiff has not alleged loss causation.
5
6
3. Damages Claim Derivative
View Defendants except Leppert and Hughes and CF Defendants also argue that the
United States District Court
Northern District of California
7
8
Section 14 claim should be dismissed because the claim is derivative. View MTD at 11-12; CF
9
MTD at 2. Defendants argue that, to the extent the AC is read to plead that the merger resulted in
10
CFII shareholders receiving a worse bargain than they thought at the time of the vote, it would be
11
derivative under Delaware law. View MTD at 12. Therefore, Plaintiff had to plead demand
12
futility under Rule 23.1, but it did not do so. Id. Plaintiff asserts that Defendants misrepresent its
13
theory. Opp. at 12-13.
14
Defendant argues that “a Section 14(a) claim that a shareholder received less value in a
15
merger than disclosed in a proxy statement is derivative because any harm was suffered by the
16
company as a whole.” View MTD at 12. View is incorporated in Delaware. AC ¶ 23. Under
17
Delaware law, whether a claim is derivative depends on “(1) who suffered the alleged harm (the
18
corporation or the stockholders, individually); and (2) who would receive the benefit of any
19
recovery or other remedy (the corporation or the stockholders, individually)?” Brookfield Asset
20
Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1263 (Del. 2021) (quoting Tooley v. Donaldson, Lufkin &
21
Jennette, Inc., 845 A.2d 1031, 1033 (Del. 2004)). The Southern District of New York dismissed a
22
similar claim involving a SPAC merger where the “essence of Plaintiffs’ § 14(a) claim is that
23
proxy statements overstated the value of [the SPAC target], and as a result, [SPAC shareholders]
24
received less in value from the merger than they expected when they approved it.” In re Romeo
25
Power Inc. Sec. Litig., No. 21 Civ. 3362 (LGS), 2022 WL 1806303, at *5 (S.D.N.Y. June 2,
26
2022).
27
28
Plaintiff argues that the Defendants misunderstand their theory of the claim. Opp. at 1213. It asserts that the theory is that “as a result of Defendants’ materially false Proxy, Plaintiff and
25
United States District Court
Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 26 of 43
1
the Class Members that were entitled to vote on the Business Combination were denied the
2
opportunity to make a fully informed decision in voting without having been advised of material
3
facts and were damaged as a direct and proximate result of the untrue statements and omissions set
4
forth herein when the truth was disclosed, and the value of their View securities decreased in
5
value.” Opp. at 12 (citing AC ¶¶ 162, 169). Plaintiff argues that Romeo Power is distinguishable
6
because there the plaintiffs conceded that the alleged damage under Section 14 was that the proxy
7
statement overstated the value of the company. Id. at 12-13. Defendants do not raise this
8
argument in the reply. See View Reply. The Court determines that, given Plaintiff’s theory of the
9
damage under the Section 14 claim, the damages are not derivative, and it was not required to
10
plead demand futility. See also In re Bank of Am. Corp. Secs., Derivative, & Emp. Ret. Income
11
Sec. Act (ERISA) Litig., 757 F. Supp. 2d 260, 292 (S.D.N.Y. 2010) (“[M]aterial omissions from a
12
proxy statement could directly injure the corporation as well as the corporation’s shareholders.”
13
(citing Yamamoto v. Omiya, 564 F.2d 1319, 1326 (9th Cir. 1977)).
14
15
16
17
4. Solicitation by Entity CF Defendants
Entity CF Defendants argue that the Section 14 claim should be dismissed as to them
because Plaintiff did not adequately allege solicitation. CF MTD at 2-3.
Section 14(a) applies to those who “solicit” or “permit the use of [their] name to solicit”
18
stockholder votes. 15 U.S.C. § 78n(a)(1). Plaintiff must allege “a substantial connection between
19
the use of [defendant’s] name and the solicitation effort.” Yamamoto, 564 F.2d at 1323.
20
Plaintiff alleges that Defendant Lutnick signed the Proxy Statement/Prospectus, and he
21
signed the cover letter for the Proxy Statement/Prospectus “By Order of the CFII Board.” AC ¶
22
141. Plaintiff alleges that each Entity CF Defendant “permitted the use of its name in the Proxy
23
Statement/Prospectus, and solicited the votes of shareholders in the Proxy Statement/Prospectus.”
24
Id. ¶¶ 147-50. Plaintiff also alleges that each “solicited and/or permitted the use of its name to
25
soicit consent or authorization for the Business Combination by issuing the Proxy
26
Statement/Prospectus.” Id. ¶¶ 43-46. Entity CF Defendants assert that these allegations are
27
insufficient. CF MTD at 2-3. The Court agrees that these conclusory allegations are insufficient
28
to survive a motion to dismiss. See Yamamoto, 564 F.2d at 1323.
26
United States District Court
Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 27 of 43
1
In Opposition, Plaintiff points to its allegation in Paragraph 174, which states: “CFII
2
Defendants participated in meetings and conference calls, reviewed the Business Combination and
3
all of the underlying due diligence materials (as noted in the Proxy Statement/Prospectus), voted
4
to approve the Business Combination, and solicited the approval of the Business Combination
5
through CFII’s management’s recommendation to vote in favor of the Business Combination,
6
which appeared in the Proxy Statement/Prospectus.” Opp. at 11; AC ¶ 174. But this does not
7
identify the role of the individual Entity Defendants. In Opposition, Plaintiff also argues that it
8
makes sufficient allegations as to CF&Co. Opp. at 11. But Plaintiff points to only one allegation
9
in the AC—its allegation that “certain fees were payable [to CF&Co.] on summation of the
10
Business Transaction (which was achieved via the Proxy).” Opp. at 11 (citing AC ¶ 44). This
11
allegation is not sufficient to allege solicitation.
12
Plaintiff has not alleged solicitation by the Entity CF Defendants.
13
14
5. Exculpation for Individual CF Defendants
Individual CF Defendants also argue that the Section 14 claim should be dismissed as to
15
them because CFII’s certificate of incorporation contained an exculpation provision pursuant to 8
16
Delaware Code Section 102(b)(7) that shields its directors from liability for negligence. CF MTD
17
at 5. Plaintiff has not adequately alleged negligence as to the Individual CF Defendants, so the
18
Court declines to address whether such a claim would be exculpated.
19
20
6. PWC
PWC argues that the Section 14 claim against it must fail under Omnicare, for the same
21
reasons as it provided for the Section 11 claim. PWC MTD at 4-5. Plaintiff argues that the
22
Section 14 claim is adequately pled as to PWC for the same reasons that it asserts the Section 11
23
claim is adequately pled. Opp. at 5. For the reasons discussed above with respect to Section 11,
24
the Court determines that Plaintiff has not adequately pled a Section 14 claim against PWC. The
25
Court will therefore grant PWC’s motion to dismiss the Section 14 claim.
26
27
28
7. Conclusion
For the reasons stated above, the Section 14 claim is DISMISSED WITH LEAVE TO
AMEND.
27
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 28 of 43
1
D.
Section 10(b) and Rule 10b-5 Claims (Counts 6 and 7)
Plaintiff alleges two claims under Section 10(b). First, it alleges a claim under Section
2
10(b) and Rule 10b-5(b) against Defendants View, Mulpuri, Prakash, and PWC. AC ¶¶ 266-72.
3
Second, it alleges a claim under Section 10(b) and Rule 10b-5(a) and (c) for scheme liability
4
against Defendants View, Mulpuri, Prakash, and PWC. AC ¶¶ 273-81.
5
Section 10(b) makes it unlawful “for any person . . . [t]o use or employ, in connection with
6
the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in
7
contravention of such rules and regulations as the Commission may prescribe[.]” 15 U.S.C. §
8
78j(b). Rule 10b-5, promulgated by the SEC under the authority of Section 10(b), in turn makes it
9
unlawful for any person:
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
(a) To employ any device, scheme or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state
a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading, or
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any security.
17 C.F.R. § 240.10b-5.
To state a securities fraud claim, a plaintiff must plead: “(1) a material misrepresentation or
18
omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or
19
omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or
20
omission; (5) economic loss; and (6) loss causation.” Dearborn Heights, 856 F.3d at 613
21
(quoting Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 603 (9th Cir. 2014)).
22
Plaintiff alleges that these Defendants materially misstated and understated the warranty
23
24
25
26
accrual for Legacy View’s smart panels. See, e.g., AC ¶¶ 81-83.
1. Scienter
Defendants View, Mulpuri, and Prakash all argue that Plaintiff has not alleged facts
sufficient to support a strong inference of scienter. View MTD at 3-6; Prakash MTD at 1-4.
27
Scienter is a “mental state embracing intent to deceive, manipulate, or defraud.” Ernst &
28
Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). To plead scienter, the complaint must “state
28
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 29 of 43
1
with particularity facts giving rise to a strong inference that the defendant acted with the required
2
state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). Scienter is adequately pled when “all of the facts
3
alleged, taken collectively, give rise to a strong inference of scienter.” Tellabs, 551 U.S. 323.
4
This means that “[a] complaint will survive . . . only if a reasonable person would deem the
5
inference of scienter cogent and at least as compelling as any opposing inference one could draw
6
from the facts alleged.” Id. at 324. “Where, as here, the Plaintiffs seek to hold individuals and a
7
company liable on a securities fraud theory, we require that the Plaintiffs allege scienter with
8
respect to each of the individual defendants.” Apollo, 774 F.3d at 607.
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
The Court will first address the 2021 10-K. The parties disagree as to whether and how the
Court should consider the following statement in that document:
As previously disclosed on August 16, 2021, the Audit Committee of
the Company’s Board of Directors (the “Audit Committee”) initiated
an independent investigation concerning the adequacy of the
Company’s previously reported warranty accrual (the
“Investigation”).
Based on the independent investigation, the Audit Committee
concluded that (i) the Company’s previously reported liabilities
associated with warranty related obligations and the cost of revenue
associated with the recognition of those liabilities were materially
misstated, (ii) the Company’s former Chief Financial Officer and
certain former accounting staff negligently failed to properly record
the liabilities for warranty-related obligations and cost of revenue, and
(iii) the Company’s former Chief Financial Officer and certain former
accounting staff intentionally failed to disclose certain information to
the Board of Directors and the Company’s independent registered
public accounting firm, PricewaterhouseCoopers LLP (“PwC”)
regarding the applicable costs incurred and expected to be incurred in
connection with the warranty-related obligations.
As reported in the Current Report on Form 8-K filed with the SEC on
November 9, 2021, the Audit Committee concluded, with the
concurrence of management that certain financial statements of the
Company should no longer be relied upon and would require
restatement in order to correct misstatements in those financial
statements relating to the recording and reporting of the warrantyrelated obligations. In connection with this restatement, the Company
is also correcting other immaterial prior period misstatements.
Boessenecker Decl. Ex. 12. While the 2021 10-K is incorporated by reference in the AC, Plaintiff
26
does not plead facts related to the result of the Audit Committee’s independent investigation. See
27
AC. In the opposition brief, Plaintiff does mention this portion of the 2021 10-K. See Opp. at 2428
29
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 30 of 43
1
25. But Plaintiff for the most part ignores this statement, likely because it is inconsistent with the
2
theory pled in the AC. At the hearing Prakash asked the Court not to consider the statement for
3
purposes of the motion to dismiss.2 The Court will proceed on the theory pleaded in the AC for
4
purposes of this motion to dismiss. In amending the complaint, Plaintiff must make it clear on
5
what theory it is proceeding.
Defendants argue that Plaintiff has not alleged facts giving rise to a strong inference of
United States District Court
Northern District of California
6
7
scienter. And the Court agrees. Plaintiff first argues that the Court can find scienter because the
8
Defendants admitted they had actual knowledge that there were quality issues as to the smart
9
panels that required a warranty accrual. Opp. at 23-26. But this argument is unconvincing
10
because Defendants disclosed the warranty accrual, albeit inaccurately. The fact that Defendants
11
were aware of a problem with the panels such that a warranty accrual was required does not mean
12
that they were aware that the warranty accrual calculation omitted installation labor and freight
13
costs. Plaintiff has not alleged scienter on this basis.
Plaintiff also argues that many other allegations support scienter. Opp. at 26-33. The
14
15
Court will address each in turn, and then all of them holistically.
16
Resignations
Plaintiff alleges that there were suspiciously-timed resignations. AC ¶¶ 225-28.
17
18
“[P]laintiff must allege sufficient information to differentiate between a suspicious change in
19
personnel and a benign one.” Zucco, 553 F.3d at 1002. “[A]n employee’s resignation supports an
20
inference of scienter only when ‘the resignation at issue was uncharacteristic when compared to
21
the defendant's typical hiring and termination patterns or was accompanied by suspicious
22
circumstances.’” Dearborn Heights, 856 F.3d at 622 (quoting Zucco, 553 F.3d at 1002).
23
Plaintiff points to the resignations of Leppert, Hughes, Prakash, Pion, and Cheung. AC ¶¶
24
225-28; Opp. at 26-27. Plaintiff alleges that on February 22, 2022, Hughes resigned as Executive
25
Chair, Principal Executive Officer, and a director of View, and Leppert resigned as a director of
26
27
28
2
PWC asks the Court to treat this statement as true. See PWC MTD at 8. As discussed below, the
Court will dismiss the claims against PWC on other grounds and need not reach this argument for
PWC.
30
United States District Court
Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 31 of 43
1
View. AC ¶ 225. Hughes was chair of the Audit Committee and Leppert was a member of the
2
Audit Committee. Id. In connection with the resignations, View stated that “[i]t is the Company’s
3
understanding that Mr. Hughes and Mr. Leppert believe that the Audit Committee’s remedial
4
recommendations were not fully implemented by the Board; they believe that the Board’s
5
determination of the responsibilities of Mr. Hughes as Executive Chair was inconsistent with what
6
the Board had previously decided.” Id. Plaintiff alleges that Prakash resigned as CFO on
7
November 8, 2021. Id. ¶ 226. The same day, Hughes was appointed as Executive Chair to assist
8
in helping the Company’s financial and accounting functions. Id. ¶ 27. As argued by Defendants,
9
Plaintiff does not allege how these resignations were suspicious or how they indicate that the
10
Defendants had knowledge of that the warranty accrual misstatements were false at the time they
11
were made. See Prakash MTD at 3; View MTD at 5.
12
Plaintiff also alleges that the resignations of Pion and Cheung were suspicious. AC ¶¶
13
227-28. Plaintiff alleges that Pion resigned as CFO, director, and member of the Audit Committee
14
of CFII on January 31, 2021. Id. ¶ 227. It alleges that this was suspicious because it occurred
15
during the first quarter of 2021, which was when View made misstatements as to the warranty
16
accrual, and it occurred after the CFII due diligence processes, just five weeks prior to the merger.
17
Id. And Plaintiff alleges that Cheung resigned as a member of View’s board of directors on March
18
19, 2021. Id. ¶ 228. Plaintiff alleges this timing was suspicious because it was only ten days after
19
the merger was completed. Id. The Court determines that Plaintiff has not pled why these
20
resignations were suspicious. There is nothing inherently suspicious about the timing of these
21
resignations.
22
Core operations
23
Plaintiff also alleges that the Court can infer scienter on the basis that smart glass was
24
View’s core product and View had a narrow customer, supplier, and manufacturing framework.
25
AC ¶¶ 229-35. The “core operations” doctrine allows the knowledge of certain facts that are
26
critical to a business’s “core operations” to be attributed to a company’s key officers. Webb v.
27
Solarcity Corp., 884 F.3d 844, 854 (9th Cir. 2018). “Allegations that rely on the core-operations
28
inference are among the allegations that may be considered in the complete PSLRA analysis.” S.
31
United States District Court
Northern District of California
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 32 of 43
1
Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008). “[C]orporate management’s
2
general awareness of the day-to-day workings of the company’s business does not establish
3
scienter—at least absent some additional allegation of specific information conveyed to
4
management and related to the fraud.” Metzler Inv. GMBH, 540 F.3d at 1068. On the other hand,
5
“specific allegations that defendants actually did monitor the data that were the subject of the
6
allegedly false statements . . . is sufficient under the PSLRA.” S. Ferry, 542 F.3d at 785.
7
“In summary, allegations regarding management’s role in a company may be relevant and
8
help to satisfy the PSLRA scienter requirement in three circumstances. First, the allegations may
9
be used in any form along with other allegations that, when read together, raise an inference of
10
scienter that is cogent and compelling, thus strong in light of other explanations. . . . Second, such
11
allegations may independently satisfy the PSLRA where they are particular and suggest that
12
defendants had actual access to the disputed information. . . . Finally, such allegations may
13
conceivably satisfy the PSLRA standard in a more bare form, without accompanying
14
particularized allegations, in rare circumstances where the nature of the relevant fact is of such
15
prominence that it would be absurd to suggest that management was without knowledge of the
16
matter.” S. Ferry, 542 F.3d at 785-86 (citations omitted).
17
Defendants argue that Plaintiff cannot proceed on this theory because it makes only
18
generalized allegations about View’s “single production line” and customer and supplier base.
19
View MTD at 5. The Court agrees that the generalized allegations in the AC are insufficient to
20
indicate that the identified Defendants were aware of the facts related to the misstatements.
21
Restatement
22
Plaintiff alleges that the fact of the restatement supports scienter. AC ¶ 241-46. But “the
23
mere publication of a restatement is not enough to create a strong inference of scienter.” Zucco,
24
552 F.3d at 1000.
25
SEC investigation, GAAP violations, incentives, and SOX certifications
26
Plaintiff also alleges that the Court can infer scienter from its allegations that (1) there is an
27
SEC investigation into the warranty accrual issue; (2) Defendants violated GAAP; (3) Defendants
28
had a financial incentive to inflate View’s value; and (4) Defendants Mulpuri and Prakash signed
32
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 33 of 43
1
SOX certifications. AC ¶ 15 (SEC investigation), 236-40 (GAAP violations), 24-25, 109, 114-15
2
(SOX certifications); Opp. at 27-28, 32. Defendants argue that these allegations, standing alone,
3
do not give rise to a strong inference of scienter. View Reply at 3-4.
United States District Court
Northern District of California
4
The Court agrees. The SEC investigation says nothing about what the Defendants knew at
5
the time of the misstatements. “It is true that specific allegations of significant GAAP violations
6
will sometimes support an inference of scienter.” Oklahoma Firefighters Pension & Ret. Sys. v.
7
IXIA, 50 F. Supp. 3d 1328, 1362 (C.D. Cal. 2014). But the violations of GAAP here do not
8
support scienter because there are no allegations that the accounting standards were “so basic that
9
a court can infer scienter from the mere fact [that the accrual] was reported improperly.” Id. at
10
1363. But the Ninth Circuit has recognized that allegations as to the signing of the SOX
11
certifications “add nothing substantial to the scienter calculus.” Zucco, 552 F.3d at 1004. They
12
“are not enough to create a strong inference of scienter and do not make [plaintiff’s] otherwise
13
insufficient allegations more compelling by their presence in the same complaint.” Id.
14
Holistic Review
15
After having determined that none of Plaintiffs’ allegations, standing alone, is sufficient to
16
create a strong inference of scienter, the Court now considers the allegations holistically. See
17
Zucco, 552 F.3d at 992. The Court finds that taken together, the facts do not evince such
18
fraudulent intent or deliberate recklessness as to make the inference of scienter cogent. Tellabs,
19
551 U.S. at 323. Because Plaintiff has not alleged scienter as to any individual, it also has not
20
alleged scienter as to View.
21
22
23
24
2. Loss Causation
Defendants View, Mulpuri, and Prakash all argue that Plaintiff has not alleged loss
causation. View MTD at 6-7; Prakash MTD (joining View MTD).
Loss causation, “i.e., a causal connection between the material misrepresentation and the
25
loss” experienced by the plaintiff, is a necessary element of pleading a securities fraud claim under
26
Section 10(b) of the Exchange Act. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 342 (2005).
27
“The burden of pleading loss causation is typically satisfied by allegations that the defendant
28
revealed the truth through ‘corrective disclosures’ which ‘caused the company’s stock price to
33
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 34 of 43
1
drop and investors to lose money.’” Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1209 (9th Cir.
2
2016) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2406 (2014)). To be
3
corrective, the disclosure must “relate back to the misrepresentation and not to some other
4
negative information about the company.” In re Nuveen Funds/City of Alameda Sec. Litig., No.
5
08-cv-4575-SI, 2011 WL 1842819, at *10 (N.D. Cal. May 16, 2011) (In re Williams Sec. Litig.—
6
WCG Subclass, 558 F.3d 1130, 1139-40 (10th Cir. 2009)). Federal Rule of Civil Procedure 9(b)
7
requires a plaintiff to state with particularity the elements of a securities fraud claim, including
8
loss causation. Apollo, 774 F.3d at 605.
United States District Court
Northern District of California
9
Defendants argue that Plaintiff has not pled loss causation. View MTD at 6-7. Plaintiff
10
alleges that on August 16, 2021, View disclosed that its Audit Committee began an investigation
11
concerning the adequacy of the previous warranty accrual and View would not file its Form 10-Q
12
for the three and six months ended June 30, 2021. AC ¶¶ 7, 117. And, Plaintiff alleges, the
13
following day, August 17, 2021, the share price fell $1.26, or over 24%, to close at $3.92 per
14
share. Id. ¶¶ 8, 118. Defendants argue that the start of an investigation cannot be the basis of a
15
loss causation theory and that the quick recovery of the stock price refutes the loss causation
16
allegations. View MTD at 6-7. Plaintiff argues that its allegations are sufficient. Opp. at 33-35.
17
Defendants point the Court to Loos v. Immersion Corp., 762 F.3d 880 (9th Cir. 2014).
18
View MTD at 6-7. In Loos, the Ninth Circuit held that “[t]he announcement of an investigation
19
does not ‘reveal’ fraudulent practices to the market.” 762 F.3d at 890. The Ninth Circuit
20
explained that “at the moment an investigation is announced, the market cannot possibly know
21
what the investigation will ultimately reveal,” and the disclosure of an investigation “simply puts
22
investors on notice of a potential future disclosure of fraudulent conduct.” Id. (emphasis in
23
original). “Consequently, any decline in a corporation’s share price following the announcement
24
of an investigation can only be attributed to market speculation about whether fraud has occurred.”
25
Id. “This type of speculation cannot form the basis of a loss causation theory.” Id. The court thus
26
held “that the announcement of an investigation, without more, is insufficient to establish loss
27
causation.” Id. But the Ninth Circuit made clear that it did “not mean to suggest that the
28
announcement of an investigation can never form the basis of a viable loss causation theory.” Id.
34
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 35 of 43
1
at 890 n.3. Instead, it was holding that “the announcement of an investigation, ‘standing alone and
2
without any subsequent disclosure of any wrongdoing, does not reveal to the market the pertinent
3
truth of anything, and therefore does not qualify as a corrective disclosure.’” Id. (quoting Meyer v.
4
Greene, 710 F.3d 1189, 1201 n.13 (11th Cir. 2013)). In Loos, the plaintiff tried to save the loss
5
causation theory by arguing that two disclosures after the class period confirmed the fears that
6
were prompted by the investigation announcement. Id. at 890. The Ninth Circuit determined that
7
the argument failed because the impact of the later events on the stock price was not alleged in the
8
operative complaint. Id.
United States District Court
Northern District of California
9
The Ninth Circuit addressed the issue again in Lloyd v. CBF Financial Corp., 811 F.3d
10
1200 (9th Cir. 2016). In that case, the plaintiff alleged that the fall in the defendant’s share price
11
occurred after the announcement of an SEC subpoena. 811 F.3d at 1209. The Ninth Circuit
12
recognized that in Loos, it “held that ‘the announcement of an investigation, standing alone and
13
without any subsequent disclosure of actual wrongdoing, does not reveal to the market the
14
pertinent truth of anything, and therefore does not qualify as a corrective disclosure.’” Id. at 1209-
15
1210 (quoting Loos, 762 F.3d at 890 n.3). But it noted that Loos “left open whether the
16
announcement of an investigation can ‘form the basis for a viable loss causation theory’ if the
17
complaint also alleges a subsequent corrective disclosure by the defendant.’” Id. at 1210 (quoting
18
Loos, 762 F.3d at 890 n.3). And the Ninth Circuit in Lloyd “answer[ed] that question in the
19
affirmative.” Id. The court held that much more was alleged in Lloyd than in Loos. Id. The
20
Ninth Circuit specifically noted that about a month after announcing the SEC subpoena, the
21
defendant disclosed that it was charging off millions in loans from a certain borrower, and “the
22
market reacted hardly at all to [the defendant’s] bombshell disclosure about its largest borrower,
23
confirming that investors understood the SEC announcement as at least a partial disclosure of the
24
inaccuracy of the [alleged misstatements].” Id. The court ultimately determined that loss
25
causation was sufficient pleaded, noting that “any other rule would allow a defendant to escape
26
liability by first announcing a government investigation and then waiting until the market reacted
27
before revealing that prior representations under investigation were false.” Id.
28
Defendants argue that Plaintiff’s allegations are insufficient because Loos held that an
35
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 36 of 43
1
investigation cannot form the basis of a loss causation theory. View MTD at 6-7. Defendants also
2
argue that Plaintiff did not plead that the investigation was related to the alleged misstatements.
3
Id. at 7. Plaintiff argues that it alleges not only the announcement of the investigation, but also the
4
announcement about the Form 10-Q. Opp. at 34. Plaintiff also argues that Loos is distinguishable
5
because here, there was actual wrongdoing. Id. at 34-35. And Plaintiff argues that the
6
investigation explicitly related to the alleged misstatements. Id. at 35.
United States District Court
Northern District of California
7
Plaintiff has not adequately alleged loss causation. Plaintiff alleges that on August 16,
8
2021, View announced an audit investigation and announced that it would not file its Form 10-Q.
9
The announcement stated that View would not file its Form 10-Q based on the investigation, so it
10
would not suggest anything to the market above and beyond the investigation. See AC ¶ 117. As
11
to the announcement of the audit investigation itself, the Court determines that the allegations are
12
insufficient under Loos. Plaintiff seeks to distinguish Loos on the basis that here, the warranty
13
accrual actually was false. Opp. at 34-35. In the AC, Plaintiff alleges that, after the class period,
14
View restated its financials and indicated that the warranty accruals were false. AC ¶¶ 125-29.
15
But in Loos, the Ninth Circuit rejected the plaintiff’s argument “that two post-class period
16
disclosures ‘solidif[ied] the causative link’ between the fraud and his loss” because “the impact of
17
these events on [the defendant’s] stock price was not alleged” in the operative pleading. 762 F.3d
18
at 890. Here, Plaintiff makes a similar argument, but faces the same problem—the AC includes
19
no allegations about the effect of these later disclosures on the stock price. See AC ¶¶ 125-29.
20
The Court does agree with Plaintiff that the investigation was explicitly related to the alleged
21
misstatements. See Opp. at 35. And the Court need not reach the argument about the alleged
22
rebound of the stock price because Plaintiff has not alleged loss causation in the first instance.
23
24
Plaintiff has not adequately alleged loss causation under Section 10(b).
3. March 2022 Statements
25
Defendants View, Mulpuri, and Prakash argue that to the extent the Section 10(b) claim is
26
based on March 2022 statements, the claim fails. View MTD at 7-8; Prakash MTD (joining View
27
MTD). The parties disagree about falsity and loss causation.
28
Plaintiff alleges that on March 7, 2022, View filed a press release on a Form 8-K with the
36
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 37 of 43
1
SEC. AC ¶ 120. In this document, View announced “its cash balance of $281 million as of
2
December 31, 2021 with no substantial debt on the balance sheet. View expects to improve cash
3
burn through 2022 on higher volumes and revenues combined with associated improvements in
4
operational efficiencies.” Id. Plaintiff alleges that this statement was materially false and/or
5
misleading because View failed to disclose that as a result of the warranty accrual problem, the
6
positive statements about the cash balance and expectation of improved cash burn were misleading
7
and/or lacked a reasonable basis. Id. ¶ 121. On May 10, 2022, View filed an NT 10-Q on Form
8
12b-25 with the SEC. Id. ¶ 122. It stated:
9
10
United States District Court
Northern District of California
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
View, Inc. (the “Company”) is unable, without unreasonable effort or
expense, to file its Quarterly Report on Form 10-Q for the period
ended March 31, 2022 (the “10-Q”), within the prescribed time period
for the reasons described below. . . . While the Audit Committee
investigation is now complete, the Company has not been able to
finalize its financial statements or corresponding assessment of the
effectiveness of its disclosure controls and procedures and internal
control over financial reporting. The Company is also unable to make
a reasonable estimate of changes in results of operations in its
financial statements at this time; however, management anticipates
that they will be disclosing substantial doubt about the Company’s
ability to continue as a going concern, as the Company does not
currently have adequate financial resources to fund its forecasted
operating costs and meet its obligations for at least twelve months
from the expected issuance date of the 2021 Annual Report on Form
10-K. While management will look to raise capital, there can be no
assurance that the necessary financing will be available or will be
available on terms acceptable to the Company. Given the findings of
its Audit Committee, the Company also expects to report additional
material weaknesses, and is working to determine any additional
adjustments to the Company’s financial statements that may be
required. Although the Company expects that it will finalize its
financial statements and file the related 10-Q as soon as practicable,
it does not currently expect to file the 10-Q by the extended filing date
pursuant to Rule 12b-25.
Id. Later the same day, View issued a press release, which stated:
. . . its cash position [is] $201 million as of the end of Q1 2022 with
no substantial debt on its balance sheet. When the Company issues its
2021 financial statements, it anticipates that its reported cash outflow
from operations for the twelve months ended December 31, 2021,
ranged from $260 million to $270 million.
The Company anticipates that it will be disclosing substantial doubt
about the Company’s ability to continue as a going concern, as the
Company does not currently have adequate financial resources to
fund its forecasted operating costs and meet its obligations for at least
twelve months from the expected issuance date of its 2021 financial
37
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 38 of 43
1
2
3
4
5
6
7
8
9
10
United States District Court
Northern District of California
11
12
statements. While the Company will look to raise capital, there can be
no assurance that the necessary financing will be available or will be
available on terms acceptable to the Company.
As previously reported, the investigation of the Company’s Audit
Committee into its previously reported warranty accrual is now
complete. View continues to make substantial progress with its
financial restatement and related filings.
To date, outside of the previously reported misstatements in warrantyrelated accruals, no material errors have been identified in the
restatement process, which remains subject to the completion of the
Company’s financial close process and the completion of the financial
statement audit.
As previously reported, Nasdaq has granted View a stay of delisting
through the end of May 2022 and completion of its delinquent filings
will allow View to regain compliance with applicable Nasdaq listing
requirements. The Company will announce an earnings date and
dialin details closer to the date of expected filing.
Id. ¶ 123. The following day, on May 11, 2022, the share price fell over 62%. Id. ¶ 124.
Defendants argue that Plaintiff has not alleged that the March 2022 statement is false.
13
View MTD at 7-8. And Defendants assert that the second sentence is protected by the PSLRA’s
14
safe harbor provision. Id. at 8. As to the first sentence, both parties agree that the statement was
15
true—View did have a cash balance of $281 million as of December 31, 2021 with no substantial
16
debt on the balance sheet. See AC ¶ 121; see Opp. at 36. Plaintiff’s argument is that the statement
17
that View expected to improve cash burn through 2022 was misleading, as demonstrated by the
18
fact that by May 10, 2022, View was unsure of its ability to continue as a going concern. Plaintiff
19
argues that the May 10, 2022 statement shows that View had a high cash burn in the first quarter
20
of 2022, and Defendants therefore should have known at the time they made the statement on
21
March 31, 2022 that the forward-looking statement was misleading. Opp. at 36.
22
The Court determines that Plaintiff has not adequately alleged that the March 2022
23
statement was false or misleading. The PSLRA safe harbor precludes liability for forward-looking
24
statements in either of two circumstances: (1) “if they were identified as forward-looking
25
statements and accompanied by meaningful cautionary language,” or (2) “if the investors fail to
26
prove the projections were made with actual knowledge that they were materially false or
27
misleading.” In re Cutera Sec. Litig., 610 F.3d 1103, 1111-12 (9th Cir. 2010); see 15 U.S.C. §
28
78u–5(c)(1). A forward-looking statement is “a statement containing a projection of revenues,
38
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 39 of 43
1
income (including income loss), earnings (including earnings loss) per share, capital expenditures,
2
dividends, capital structure, or other financial items.” 15 U.S.C. § 78u–5(i)(1)(A). The statement
3
identified by Plaintiff is forward-looking, and Plaintiff has not adequately alleged that the
4
projections were made with knowledge that they were materially false or misleading. Plaintiff has
5
not alleged falsity for the March 2022 statements.
United States District Court
Northern District of California
6
Defendants also argue that Plaintiff has not alleged loss causation for the March 2022
7
statements. View MTD at 7. Defendants argue that the May 2022 statement was not a corrective
8
disclosure for the March 2022 statements and that Plaintiff did not tie the loss after the May 2022
9
statement back to the alleged March 2022 misstatements. Id. The Court agrees that Plaintiff has
10
not alleged loss causation as to the March 2022 statements. Loss causation requires that a plaintiff
11
“trac[e] the loss back to the very facts about which the defendant [allegedly] lied.” In re Nektar
12
Therapeutics Sec. Litig., 34 F.4th 828, 838 (9th Cir. 2022) (quoting Mineworkers’ Pension Scheme
13
v. First Solar Inc., 881 F.3d 750, 752 (9th Cir. 2018)). Because Plaintiff has not alleged that the
14
March 2022 statements were false or misleading, it also cannot allege loss causation.
15
16
17
18
19
20
Plaintiff’s has not alleged a Section 10(b) claim as to the March 2022 statements.
4. PWC
Defendant PWC argues that the Section 10(b) claim fails because Plaintiff has not alleged
any false statements or scienter. PWC MTD at 5-8. The Court will address each argument in turn.
a. False Statements
PWC argues that Plaintiff has not alleged any false statements in either the 2020 or 2021
21
Audit Report, and therefore the Section 10(b) claim against it must be dismissed. PWC MTD at 5.
22
For the reasons stated above with respect to Section 11, the 2020 Audit Report does not include
23
any false statements by PWC. See Golub v. Gigamon Inc., 994 F.3d 1102, 1107 (9th Cir. 2021)
24
(“[T]he Omnicare standard applies to claims under section 10(b) and Rule 10b-5.”). And based on
25
Plaintiff’s allegations, the 2021 Audit Report contains the same relevant language as the 2020
26
Audit Report such that the above reasoning also applies. Compare AC ¶ 101 (2021 Audit Report
27
excerpt) with AC ¶ 93 (2020 Audit Report excerpt). Plaintiff has not alleged any false statements
28
by PWC, so the Section 10(b) claim fails.
39
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 40 of 43
b. Scienter
1
PWC also argues that the Section 10(b) claim against it should be dismissed because
2
Plaintiff has not adequately alleged scienter. PWC MTD at 5-8.
3
4
5
6
As stated above, to plead scienter, the complaint must “state with particularity facts giving
rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. §
78u-4(b)(2)(A). And scienter is adequately pled when “all of the facts alleged, taken collectively
give rise to a strong inference of scienter.” Tellabs, 551 U.S. at 323.
7
Plaintiff points to two bases for scienter: (1) PWC failed to comply with PCAOB standards
8
and GAAS and (2) PWC knew of and/or was reckless in ignoring red flags. Opp. at 28-31; AC ¶¶
9
247-63. PWC argues that these two categories of allegations are insufficient, and the more
10
compelling inference is that PWC did not have fraudulent intent. PWC MTD at 6-8. The Court
11
United States District Court
Northern District of California
will address each in turn.
12
Auditing Standards Violations
13
Plaintiff alleges that PWC did not comply with PCAOB standards and generally accepted
14
auditing standards. AC ¶¶ 247-62; see Opp. at 28-30. PWC argues that these allegations are
15
16
insufficient because Plaintiff merely “recites a number of such standards and then vaguely asserts
that PWC somehow violated them.” PWC MTD at 6. The Court agrees that Plaintiff’s allegations
17
that PWC violated auditing standards are insufficient. Plaintiff provides conclusory allegations
18
that PWC violated several different PCAOB standards. More specific factual allegations are
19
required to give rise to a strong inference of scienter.
20
Red Flags
21
Plaintiff also alleges that PWC knew of and/or was reckless in ignoring red flags in
22
connection with issuance of the 2020 and 2021 Audit Reports. AC ¶ 263; see Opp. at 30-31.
23
First, Plaintiff alleges that PWC was on notice from at least 2019 that View had an issue with the
24
IGUs for which an accrual had been taken. AC ¶ 263. Second, Plaintiff alleges that PWC knew,
25
or was reckless in not knowing, that the excluded labor and freight costs existed because
26
27
“documentation such as contracts with the subject customer(s) or other readily verifiable facts
existed.” Id. Third, Plaintiff alleges that PWC was on notice that View had a history of material
28
40
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 41 of 43
1
weakness in its internal controls. Id. And fourth, PWC was on notice that warranty issues could
2
have a substantial negative impact on View’s financial statements, given View’s relatively small
3
number of customers and suppliers during the class period. Id.
4
PWC argues that none of these allegations is sufficient to give rise to a strong inference of
5
scienter. PWC MTD at 6-8. The Court agrees. As to the first alleged red flag, the fact that there
6
was a warranty accrual at all was not a red flag that the warranty accrual was incorrectly
7
calculated.
United States District Court
Northern District of California
8
As to the second red flag, PWC argues that Plaintiff does not identify any documents,
9
conversation, or witness to support the conclusory allegation that documentation of excluded labor
10
and freight costs existed. PWC MTD at 6-7. Plaintiff does point to the following statement in the
11
Proxy Statement/Prospectus: “The estimated cost includes our expectations regarding future
12
reductions in production costs, which are primarily comprised of materials, labor, and factory
13
overhead.” AC ¶ 263. But PWC argues that this statement is irrelevant, as it is about production
14
labor costs. As PWC points out, the restatement did not arise from production costs, but rather
15
“the exclusion of ‘installation labor and freight costs’ incurred in installing the IGUs.” PWC
16
MTD at 7 (citing AC ¶ 58). The Court finds that Plaintiff’s allegation that PWC knew, or was
17
reckless in not knowing, that the excluded labor and freight costs existed because “documentation
18
such as contracts with the subject customer(s) or other readily verifiable facts existed” is
19
conclusory. See AC ¶ 263. The Court notes that the statement from the Proxy
20
Statement/Prospectus does not show that PWC was on notice of, or reckless in not knowing of, the
21
installation labor and freight costs.
22
The third alleged red flag is that PWC was on notice that View had a history of material
23
weaknesses in its internal controls. AC ¶ 263. As PWC notes, other courts in this Circuit have
24
rejected this allegation as “boilerplate.” See Buttonwood Tree Value Partners, 2012 WL 2086607,
25
at *2; In re Peregrine Sys., Inc. Sec. Litig., No. 02CV870-BEN (RBB), 2005 WL 8158825, at *53,
26
67 (S.D. Cal. Mar. 30, 2005) (collecting cases).
27
Finally, the Court finds that Plaintiff’s fourth alleged red flag as to the size of View’s
28
business is insufficient. See Glazer Cap. Mgmt., LP v. Magistri, 549 F.3d 736, 747 (9th Cir.
41
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 42 of 43
1
2008).
The totality of Plaintiff’s allegations do not give rise to a strong inference of scienter by
2
3
PWC.
4
5
c. Conclusion
Plaintiff has not adequately alleged a Section 10(b) claim against PWC.
6
United States District Court
Northern District of California
7
5. Scheme Liability
Plaintiff pleads a “scheme liability” claim under Section 10(b) and Rule 10b-5(a) and (c).
8
AC ¶¶ 273-81. Defendants View, Mulpuri, and Prakash argue that the scheme liability claim fails
9
for the same reason as the other Section 10(b) claim. View MTD at 8-9; Prakash MTD at 4. A
10
claim for scheme liability requires the same elements as the other Section 10(b) claim. See In re
11
Aqua Metals, Inc. Sec. Litig., No. 17-cv-07142-HSG, 2019 WL 3817849, at *8 (N.D. Cal. Aug.
12
14, 2019). For the reasons stated above, the scheme liability claim fails.
13
14
6. Conclusion
For the reasons stated above, the Section 10(b) claims are DISMISSED WITH LEAVE TO
15
AMEND.
16
E.
17
Plaintiff alleges a Section 20(a) claim against Individual View Defendants and CF
18
Defendants. AC ¶¶ 172-78. Plaintiff alleges a Section 20(a) claim against Mulpuri, Prakash, and
19
CF Defendants except Blechman and Hochberg. Id. ¶¶ 282-86. And Plaintiff alleges a Section 15
20
claim against CF Defendants. Id. ¶¶ 206-15. Defendants move to dismiss these claims. View
21
MTD at 15; Prakash MTD at 4; LH MTD at 4; CF MTD at 8-9.
22
Section 15 and Section 20(a) Claims (Counts 2, 5, and 8)
Section 20(a) and Section 15 both require underlying primary violations of the securities
23
laws. Rigel, 697 F.3d at 886; see also 15 U.S.C. §§ 77o, 78t(a). Because Plaintiff here has failed
24
to adequately plead a violation of the federal securities laws, it follows that Plaintiff has have
25
failed to adequately plead violations of Section 20(a) and Section 15. In an amended pleading,
26
Plaintiff must plead control violations Defendant by Defendant.
27
The Section 20(a) and 15 claims are DISMISSED WITH LEAVE TO AMEND.
28
42
Case 5:21-cv-06374-BLF Document 168 Filed 05/22/23 Page 43 of 43
1
V.
ORDER
For the foregoing reasons, IT IS HEREBY ORDERED that Defendants' Motions to
2
Dismiss are GRANTED WITH LEAVE TO AMEND. Any amended complaint shall be filed
3
within 90 days of the entry of this order.
4
The amended complaint shall include a chart listing numerically each alleged false or
5
misleading statement, the speaker, date, reason for claim of falsity and scienter. The chart shall
6
also cite the paragraphs in the amended complaint where the allegations are made. Plaintiffs shall
7
also provide the Court a redlined version of the amended complaint.
8
9
Dated: May 22, 2023
10
United States District Court
Northern District of California
11
12
______________________________________
BETH LABSON FREEMAN
United States District Judge
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