Opinion
For Michael Brado, individually and on behalf of all others similarly situated, Plaintiff: Hal Davis Cunningham, LEAD ATTORNEY, Scott + Scott, Attorneys at Law, LLP, San Diego, CA; Amber L. Eck, Zeldes Haeggquist & Eck, LLP, San Diego, CA; David R. Scott, Scott & Scott LLP, Colchester, CT; Joseph Daniel Cohen, Scott + Scott LLP, New York, NY; Joseph P. Guglielmo, Scott & Scott LLP, New York, NY; Stephen J. Teti, Scott + Scott, Colchester, CT.
For Baltimore County Employees' Retirement System, Lead Plaintiff, Plaintiff: Joel H. Bernstein, Michael Walter Stocker, LEAD ATTORNEYS, Labaton Sucharow LLP, New York, NY; Joseph A. Fonti, LEAD ATTORNEY, PRO HAC VICE, Labaton Sucharow LLP, New York, NY; Carol C. Villegas, Jonathan Gardner, Mark S. Goldman, PRO HAC VICE, Labaton Sucharow LLP, New York, NY; Danielle Suzanne Myers, Darren Jay Robbins, Robbins Geller Rudman & Dowd LLP, San Diego, CA; Michael John von Loewenfeldt, Kerr & Wagstaffe LLP, San Francisco, CA; Shawn A. Williams, Robbins Geller Rudman & Dowd LLP, San Francisco, CA.
For Arkansas Teacher Retirement System, Lead Plaintiff, Plaintiff: Joel H. Bernstein, Mark S. Goldman, Michael Walter Stocker, LEAD ATTORNEYS, Labaton Sucharow LLP, New York, NY; Joseph A. Fonti, LEAD ATTORNEY, PRO HAC VICE, Labaton Sucharow LLP, New York, NY; Carol C. Villegas, Jonathan Gardner, PRO HAC VICE, Labaton Sucharow LLP, New York, NY; Danielle Suzanne Myers, Darren Jay Robbins, Robbins Geller Rudman & Dowd LLP, San Diego, CA; Michael John von Loewenfeldt, Kerr & Wagstaffe LLP, San Francisco, CA; Shawn A. Williams, Robbins Geller Rudman & Dowd LLP, San Francisco, CA.
For Vocera Communications Inc, Robert J. Zollars, Brent D. Lang, Martin J. Silver, William R. Zerella, Brian D. Ascher, John B. Grotting, Jeffrey H. Hillebrand, Howard E. Janzen, John N. McMullen, Hany M. Nada, Donald F. Wood, Defendants: Catherine Duden Kevane, Jennifer Corinne Bretan, Susan Samuels Muck, Marie Caroline Bafus, Fenwick and West LLP, San Francisco, CA; Ronnie Solomon, Fenwick and West LLP, Mountain View, CA.
For J.P. Morgan Securities LLC, Piper Jaffray & Co, Robert W. Baird & Co. Incorporated, William Blair & Company LLC, Wells Fargo Securities LLC, Leerink Swann LLC, Defendants: Norman J. Blears, LEAD ATTORNEY, Matthew James Dolan, Sidley Austin LLP, Palo Alto, CA; Simona Gurevich Strauss, LEAD ATTORNEY, Simpson Thacher & Bartlett LLP, Palo Alto, CA.
CLASS ACTION ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS (Docket Nos. 110-111)
EDWARD M. CHEN, United States District Judge.
On August 1, 2013, Plaintiffs filed a class action complaint (" CAC") against (1) Vocera Communications Inc., and its executives (" Vocera Defendants"); and (2) J.P. Morgan Securities LLC; Piper Jaffray & Co; Robert W. Baird & Co., Inc.; William Blair & Company, LLC; Wells Fargo Securities, LLC; Leerink Swann LLC (collectively " Underwriter Defendants"). Docket No. 1. The CAC alleges the Vocera Defendants knew that the ACA and the BCA were causing this slowdown in sales growth, and engaged in a scheme to hide this fact from investors by not disclosing the fact that Vocera was not meeting its internal sales goal and artificially inflating sales revenues at the end of each quarter by shipping sales ahead of schedule.
In claims 1 and 2, Plaintiffs allege violations of § 10(b) and § 20(a) of the Securities Exchange Act of 1934. In claims 3, 4 and 5, Plaintiffs allege Defendants also violated § § 11, 12(a)(2) and 15 of the Securities Exchange Act of 1933 respectively.
For the reasons stated on the record at the January 15, 2015 hearing on Defendants' motion to dismiss and as summarized and supplemented below, the Court DENIES the motion to dismiss claims 1 and 2, and GRANTS the motion to dismiss claims 3, 4, and 5, with LEAVE TO AMEND.
The CAC alleges, inter alia, that:
o During the class period, Vocera was consistently falling short of its sales and revenue projections ( See Exhibit A);
o During that same period, a sudden and substantial influx of revenue would occur in the run-up to reporting, and Vocera would meet it guidance for the quarter ( See Exhibit B; see also TRX at 49:2-24);
o Confidential witnesses (" CW") attribute this influx of revenue to Vocera's practice of shipping products ahead of time to make up for its shortfall in sales and revenue ( See ¶ ¶ 104, 110);
o CW1 also indicated that the Defendants were consistently present at revenue meetings in which (1) these revenue shortfalls and back-fills were discussed; and (2) the ACA and BCA were discussed as adversely affecting sales (¶ ¶ 61, 94, 103, 131);
o Defendants were consistently touting the growth of the company to investors as strong, consistent, and in line with the growth pattern of prior years (despite its continued reliance on timing artifices to pump up quarterly sales figures) (¶ ¶ 214-216);
o Defendants consistently stated that the ACA was not having a marked effect on growth (¶ ¶ 173-174, 186);
o CW3 attests that he witnessed the ACA and BCA hurt sales during the second and third quarters of 2012, including the loss of a $1.5 million sale that he personally worked on (¶ ¶ 95, 97, 100) (CW3 managed sales to two major hospital systems -- the DOD and VA -- and reported to the Vice-President in charge of sales to the federal government).
For the reasons stated on the record, these allegations state with sufficient particularity why Defendants' statements and omission regarding Vocera's growth and the effects of the ACA and BCA were misleading. TRX, 51:8-25; 52:1-12. Further, Plaintiffs' allegations create a " strong inference" of scienter. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007)); Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990-91 (9th Cir.2009) (citation omitted). Plaintiffs have sufficiently alleged a § 10(b) claim. The Court DENIES the Vocera Defendants' motion to dismiss.
Plaintiffs' § 20(a) claim is predicated on its § 10(b) claim. Thus, because Plaintiffs' § 10(b) claim survives, and its allegations demonstrate sufficient control, a § 20(a) claim is sufficiently pled as well. See 15 U.S.C. § 78t(a) (section 20(a) imposes liability on " [e]very person who, directly or indirectly, controls any person liable under any provision of this chapter [including § 10(b)] or of any rule or regulation thereunder."). The Court also DENIES Defendants' motion to dismiss Plaintiffs' § 20(a) claim.
A. Claims for Violation of § § 11, 12(a)(2), 15 of the Securities Exchange Act of 1933
1. Standing
a. Secondary Offering Claims
Plaintiffs asserting a § 11 claim based on alleged misrepresentations in a secondary offering registration statement must " prove that the shares they purchased came from the pool of shares issued in the secondary offering, rather than from the pool of previously issued shares." In re Century Aluminum Co. Sec. Litig., 729 F.3d at 1106. Plaintiffs can satisfy that requirement by proving either (1) " that they purchased their shares directly in the secondary offering itself"; or (2) " that their shares, although purchased in the aftermarket, can be traced back to the secondary offering." Id.
Here, it is undisputed that no Plaintiff purchased shares in or pursuant to the secondary offering. See Opp. at 3 n.5. Accordingly, the Court GRANTS Defendants' motion to dismiss Plaintiffs'§ 11 claims related to the secondary offering.
b. Section 12(a)(2) Claim With Respect To The IPO Against Five Of The Underwriter Defendants
Asserting a Section 12(a)(2) claim requires a showing that the defendant either actually sold to, or " successfully solicit[ed] a purchase" by the plaintiff. Pinter v. Dahl, 486 U.S. 622, 647, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988); Hertzberg v. Dignity Partners, 191 F.3d 1076, 1081 (9th Cir. 1999) (" Section 12 . . . permits suit against a seller of a security by prospectus only by 'the person purchasing such security from him . . .'").
Here, Plaintiff alleges that it purchased Vocera common stock exclusively from J.P. Morgan. ¶ 310. As such, Plaintiff only has standing to bring its 12(a)(2) claim against J.P. Morgan, and does not have standing with respect to the other five underwriters. See Pinter, 486 U.S. at 647.
Accordingly, the Court GRANTS Underwriter Defendants' motion to dismiss the 12(a)(2) claims against: Piper Jaffray & Co., Robert W. Baird & Co., William Blair & Company, LLC, Wells Fargo Securities, LLC, and Leerink Partners LLC.
c. Plaintiff's Remaining § § 11, 12(a)(2) Claims
Section 11 and 12(a)(2) impose liability where plaintiff establishes that the registration statement: (1) contained an untrue statement of a material fact; or (2) omitted to state a material fact required to be stated therein; or (3) omitted to state a material fact necessary to make the statements therein not misleading. In re Daou Sys., 411 F.3d at 1027. Both claims may be predicated on the omission of information that is required under Item 303(a) of Regulation S--K. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir. 1998). Plaintiffs asserting a § 12(a)(2) claim requires a plaintiff to " plead and prove that it purchased a security directly . . . as part of the [offering], rather than in the secondary market." In re Wells Fargo Mortgage-Backed Certificates Litig., 712 F.Supp.2d 958, 966 (N.D. Cal. 2010); see also Hertzberg, 191 F.3d at 1081.
Here, the CAC assertion of a violation of § 12(a)(2) must be assessed at the time of the registration statement. Plaintiffs assert two allegations:
(1) CW1 stated that at the time of the IPO " Vocera executives were already concerned about the impact of health care reform on sales and growth potential and discussed these concerns at internal revenue meetings." ¶ ¶ 359, 371.
(2) Internal Company documents show that bookings were short nearly 8.4% and revenue was short $1.8 million at the time of the IPO. ¶ ¶ 360-362.
For the reasons stated on the record, including the fact that as of the IPO, there had not been a meaningful pattern of disappointing sales, and the alleged " concerns" expressed about health care reform at the time were vague and general, these allegations were insufficient to support Plaintiff's § § 11, 12(a)(2) claims. TRX at 58:6-12; 58-59:22-1; 63:1-9. Accordingly, the Court GRANTS Defendants' motion to dismiss Plaintiff's remaining § § 11, 12(a)(2) claims with LEAVE TO AMEND.
Having failed to state a predicate § 11 or § 12(a)(2) claim, the Court also DISMISSES Plaintiff's § 15 claim with LEAVE TO AMEND. See In re Daou Sys., 411 F.3d at 1014 (" Section 15(a) of the 1933 Securities Act imposes joint and several liability upon every person who controls any person liable under sections 11 or 12.").
Plaintiffs have 45 days from the date of this order to file an amended complaint.
This order disposes of Docket Nos. 110 and 111.
IT IS SO ORDERED.