EDWARD J. DAVILA, United States District Judge.
This lawsuit stems from the revelation that Cambridge Analytica acquired the private Facebook data of millions of users and that, upon learning of this leak, Facebook allegedly attempted to suppress evidence of the breach contrary to its stated privacy policy.
Plaintiffs are persons who purchased shares of Facebook common stock between February 3, 2017 and July 25, 2018 (the "Class Period"), who believe that Mark Zuckerberg, Sheryl K. Sandberg, and David M. Wehner, collectively Defendants, made materially false and misleading statements and omissions in connection with the purchase and sale of Facebook stock. See Consolidated Complaint ("Compl.") ¶ 1, Dkt. 86. They allege that Defendants violated Section 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder because Defendants made guarantees that the Cambridge Analytica, and related data-privacy scandals, would not impact Facebook stock while knowing this to be false. Specifically, Plaintiffs focus on Defendants' statements and omissions "concerning Facebook's privacy and data protection practices" and their impact on Facebook's stock price during two time periods: March and July 2018.
Defendants have filed a motion to dismiss the lawsuit arguing that Plaintiffs have not, and cannot, meet Rule 9(b)'s heightened pleading requirements for securities fraud and instead allege "an overarching hindsight theory." Motion to Dismiss ("Mot.") at 2, Dkt. 93. Defendants make four main arguments all centered around Plaintiffs' inability to meet the elements of securities fraud. First, Defendants argue Plaintiffs have not pled an actionable misstatement or omission because they have not identified any false statements. Defendants argue the 36 "actionable" statements or omissions Plaintiffs raise are, in fact, neither actionable nor fraudulent because Plaintiffs make no attempt to plead that Defendants lied or mislead investors. As explained infra Section
Second, Defendants argue Plaintiffs have not pled a strong inference of scienter because Plaintiffs do not (1) relate the alleged misstatements to any conduct establishing scienter or (2) show facts that the Defendants knew the challenged statements were false. Further, Defendants contend that Plaintiffs offer only conclusions without alleging any specific facts to support these conclusions. As explained infra Section III.C.2. the one actionable Statement, Statement 22 lacks scienter because Plaintiffs do not allege with sufficient particularity that Defendant Sandberg made the statement knowing it was false.
Third, Defendants contend that Plaintiffs fail to plead loss causation since Defendants had already warned investors of a potential stock decline and cannot trace any corrective disclosure to the stock price's drop. Finally, Defendants argue that Plaintiffs cannot show reliance based on a "fraud-on-the market" theory because the Cambridge Analytica scandal was already known a year before the start of the putative class action and so the market already reacted to the data breach. The Court does not reach these arguments because it
Accordingly, the Plaintiffs do not adequately plead a securities fraud violation. Here, it is Plaintiffs' burden to point to plausible and particular facts tending to show fraudulent behavior by Defendants. Without such a showing, Plaintiffs cannot survive the higher evidentiary pleading standard enumerated in Rule 9 of the Federal Rules of Civil Procedure. See Fed. R. Civ. Pro. 9(b). Thus, for the reasons below, Defendants' Motion to Dismiss is
Facebook was founded by Mark Zuckerberg who is now the Chief Executive Officer ("CEO") of the company. Compl. ¶ 28. Sheryl Sandberg is the Chief Organization Officer ("COO") and David Wehner is the Chief Financial Officer ("CFO") of Facebook. Id. ¶¶ 30-31. Facebook is a social-media networking website that allows users to create profiles and share information about themselves to their "community." Id. ¶ 37. The platform also enables third-party developers' applications or websites ("apps") to access users' information. Id. ¶¶ 45-46. Importantly before 2015, a user could consent to an app developer gaining access to their personal data and the personal data of his or her friends (referred to herein as "third-party consent"). Id. ¶ 46.
Before 2015, Facebook's policies allowed users to share information about their friends with third-party app developers, i.e. "third-party consent." Id. ¶¶ 46, 82. Defendants subsequently announced that they would overhaul Facebook's privacy practices to better protect user data and would tell people if their data was shared with Cambridge Analytica. Id. ¶ 18. Specifically, in 2014, Facebook stated that changes would "dramatically limit the Facebook information apps could access," and "turn[ed] off users' ability to provide access to their friend's personal data." Id. ¶¶ 79, 251, 266(b), 280. However, in April 2018, it was revealed that Defendants still permitted third parties to access user data, known as "whitelisting." Id. ¶¶ 19, 140.
In response to the stories, Facebook's common stock dropped nearly 7% on Monday, March 19, 2018, the first trading day after the news broke. Id. By March 27, 2018, the stock was trading as low as $152/share, a drop of nearly 18% in value from its price before the stories broke. Id. ¶ 15. The Securities and Exchange Commission ("SEC") began investigating "whether Facebook adequately warned investors that developers and other third parties may have obtained users' data without their permission or in violation of Facebook policies." Id. ¶ 16.
The new European privacy legislation, the General Data Protection Regulation
Defendants attributed the user growth slowdown to the effects of the "GDPR rollout, consistent with the outlook we
Plaintiffs allege Defendants made a total of 36 materially misleading statements or omissions in press releases, SEC filings, earnings calls, and public remarks at conferences. The Court has arranged these statements chronologically and by source and bolded/italicized the relevant part of the statement.
"[M]isleading people or misusing their information is a direct violation of our policies and
"[I]ncluding banning those companies from Facebook and
"We use the information we have to help verify accounts and activity, and to promote safety and security on and off of our Services,
"We
"These partners
"Don't sell, license or purchase any data obtained from us or our services.... Don't transfer any data that you receive from us (including anonymous, aggregate or derived data) to any ad network, data broker or other advertising or monetization-related service....
"We
"You own all of the content and information you post on Facebook, and
"
"....
"Although
"In addition, some of our developers or other partners, such as those that help us measure the effectiveness of ads, may receive or store information provided by us or by our users through mobile or web applications integrated with Facebook.
"Affected users or government authorities could initiate legal or regulatory actions against us in connection with any security breaches or improper disclosure of data, which could cause us to incur
"If we fail to retain existing users or add new users, or if our users decrease their level of engagement with our products, our revenue, financial results, and business may be significantly harmed.
The size of our user base and our users' level of engagement are critical to our success....
"Any number of factors could potentially negatively affect user retention, growth, and engagement, including if:
"
"
"Targeted data collection and theft can affect all types of victims.... [t]ypical methods include phishing with malware to infect a person's computer and credential theft to gain access to their online accounts....
Here are some of the steps we are taking:
"[W]hen you share on Facebook, you need to know that no one's going to steal our data. No one is
"Europe[ ] has passed a single privacy law and
"
"
"In 2014, after hearing feedback from the Facebook community, we made an update
"This is just one of the many ways we give people the tools to
"These include steps such as random audits of existing apps along with the regular and proactive monitoring of the fastest growing apps.
"
"
"
"For Facebook specifically, one of the things we need to do and that I hope that more people look at are just the privacy controls that you have. I think, especially
"Despite facing important challenges,
"We made a number of changes and are still making changes to prioritize meaningful interactions between people over passive consumption of content....
We've been rolling out new changes....
Overall, I'd say these changes are doing what we expected that they would do and helping people to connect more and have more meaningful interactions.... We think that this is going in the direction of building a strong community and a stronger business over the long term and
"[W]e do not anticipate [that new European privacy regulations]
"So on GDPR....
I don't know that we really see a doomsday scenario here.
Following the collapse of Facebook's stock price, multiple lawsuits were filed against Defendants. One of these—Fan Yuan v. Facebook—was randomly assigned to this Court. See Dkt. 1. This Court consolidated that case with other related ones. See Order Granting Administrative Motion Relating Cases, Dkt. 23. On October 15, 2018, Plaintiffs submitted their consolidated class action amended complaint, which is the subject of the current motion to dismiss. Defendants also request judicial notice regarding facts pertaining to the motion to dismiss. See Request for Judicial Notice re Motion to Dismiss ("Req. Jud. Notice"), Dkt. 94.
Defendants ask this Court to take judicial notice of Exhibits 1 through 34 attached to the declaration of Brian M. Lutz (the "Lutz declaration") and of Exhibits 35 through 37.
Generally, district courts may not consider material outside the pleadings when assessing the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). When matters outside the pleadings are considered, the 12(b)(6) motion converts into a motion for summary judgment. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018); see also Fed. R. Civ. P. 12(d). This rule does not apply to the incorporation by reference doctrine and judicial notice under Federal Rule of Evidence 201. Khoja, 899 F.3d at 998. These exceptions, however, should not be used to "undermin[e] ... the usual pleading burden[ ]." Id. (noting the "concerning pattern" in securities cases where exploiting the exceptions improperly defeats what would otherwise constitute adequately stated claims at the pleading stage).
Rule 201 permits a court to take judicial notice of an adjudicative fact "not subject to reasonable dispute," that is "generally known" or "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). Specifically, a court may take judicial notice: (1) of matters of public record, Khoja, 899 F.3d at 999, (2) that the market was aware of information contained in news articles, Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999), and (3) publicly accessible websites whose accuracy and authenticity is not subject to dispute, Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998-99 (9th Cir. 2010). A court may further consider facts contained in the noticed materials. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994).
Incorporation by reference treats certain documents as though they are part of the complaint itself. Daniels-Hall, 629 F.3d at 998. These are situations where the complaint "necessarily relies" upon a document or where the complaint alleges the contents of the document and the documents authenticity and relevance is not disputed. Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010). A defendant may seek to incorporate a document into the complaint "if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim." Khoja, 899 F.3d at 1002.
Plaintiffs do not object to the judicial notice of these documents for any reason. Pl. Opp. to Jud. Notice at 4.
Plaintiffs object to judicial notice of Exhibits 1, 6-10. Pl. Opp. to Jud. Notice at 4. They do not object to this Court taking judicial notice of the existence of these documents, only of the facts contained therein. Id. at 1. Plaintiffs contend that Defendants seek to improperly use these exhibits to establish a defense to scienter by showing trades were made pursuant to a Rule 10b5-1
Defendants clarify in their Reply that they are only asking for judicial notice as to the "existence of the Individual Defendants' 10b5-1 plans." Reply in Support of Request for Judicial Notice ("Reply Jud. Notice") at 2, Dkt. 104. Courts "may take judicial notice of SEC Forms 4, even when not referenced in the pleading, to prove that stock sales were made pursuant to a Rule 10b5-1 trading plan." City of Royal
Plaintiffs object to any judicial notice of Exhibits 24, 30-34. Pl. Opp. to Jud. Notice at 7.
Plaintiffs argue that this Court should not take judicial notice because the facts of the policy are disputed and it is not relied on or referenced throughout. This policy is, however, implicitly referenced through-out; a central theme of the Complaint is that Facebook changed its 2013 Data Policy in 2015 to eliminate the provision that allowed third-party consent. See Compl. ¶¶ 79, 131, 176, 183, 203, 238, 251, 258(a), 264, 266(b), 268, 280, 288, & 302; see also Khoja, 899 F.3d at 1002 (noting incorporation by reference appropriate where Plaintiff references the document throughout). It would be unfair for Plaintiffs to reference this document to show the change in Facebook's Data Policy and suppress the actual policy. Plaintiffs repeatedly reference this change, and so their use of the document is more than "the mere mention of [its] existence." Cf. United States v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003). This Court agrees that Plaintiffs true contention is with the legal effect of the policy, which is outside the inquiry of judicial notice. See Reply Jud. Notice at 5. Because the policy is referenced throughout, the Court
In Khoja, the Ninth Circuit cautioned against the use of judicial notice to allow defendants to "use the doctrine to insert their own version of events into the complaint
Defendants also ask this Court to take judicial notice of three exhibits used to support its Reply in Support of its Motion to Dismiss. Request for Judicial Notice in Support of Facebook's Reply in Support of Motion to Dismiss, Dkt. 102, 103. Plaintiffs did not receive an opportunity to respond to this request because procedurally they had no leave to respond to Defendant's reply. Plaintiffs raised no objection to Defendants request for judicial notice of these three exhibits.
Defendants, however, misunderstand these cases; in each, the trial court materials being judicially noticed were used to show the trial court did or did not do something. In San Jose Airport Hotel, this Court judicially noticed the bankruptcy court's docket to show that it never ruled on a motion at issue. 2016 WL 3357175, at *4. Likewise, in Biggs, the Ninth Circuit judicially noticed that the trial court's transcript undertook the appropriate review of the Parole Board's hearing. 334 F.3d at 915. In contrast, here, Defendants are neither asking this Court to judicially notice another Court's ruling (or absence thereof) nor the reasoning used to support a ruling, they are asking this Court to judicially notice another judge's opining, at a hearing, on the issue of consent. The
To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual matter to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); Fed. R. Civ. Pro. 8(a). Threadbare recitals of the elements of a cause of action supported by mere conclusory statements "do not suffice." Ashcroft, 556 U.S. at 678, 129 S.Ct. 1937.
Securities fraud cases, however, must meet Rule 8's plausibility standard, the Private Securities Litigation Reform Act ("PSLRA"), and Rule 9(b)'s higher pleading standard. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319-22, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); Zucco Partners, LLC v. Digimarc, Corp., 552 F.3d 981, 991 (9th Cir. 2009).
The PSLRA mandates that securities fraud complaints "`specify'" each misleading statement, set forth the facts "`on which [a] belief'" that a statement is misleading was "`formed,'" and "`state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind [scienter].'" Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 345, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (quoting 15 U.S.C. §§ 78u-4(b)(1)-(2)); see also Metzler Inv. GmbH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1070 (9th. Cir. 2008) ("The PSLRA has exacting requirements for pleading `falsity.'"). Plaintiffs bear the burden of proving that the defendant's misrepresentations "`caused the loss for which the plaintiff seeks to recover.'" Dura Pharm., 544 U.S. at 345-46, 125 S.Ct. 1627 (quoting § 78u-4(b)(4)). In determining whether a "strong inference" of scienter has been sufficiently alleged, this Court must not only draw "inferences urged by the plaintiff," but also engage in a "comparative evaluation," thus examining and considering "competing inferences [in defendants' favor] drawn from the facts alleged." Tellabs, 551 U.S. at 314, 127 S.Ct. 2499. Hence, scienter must not only be "plausible or reasonable," it must also be "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Id. at 324, 127 S.Ct. 2499.
Rule 9 further requires a plaintiff pleading securities fraud to state, with particularity, the circumstances constituting fraud or mistake. Fed. R. Civ. Pro 9(b).
To show securities fraud under Section 10(b) and Rule 10b-5, plaintiffs must allege facts sufficient to establish (1) a material misrepresentation or omission; (2) made with scienter, i.e., a wrongful state of mind; (3) a connection between the misrepresentation and the purchase or sale
In their Motion to Dismiss, Defendants challenge the sufficiency of Plaintiffs' Section 10b and Rule 10b-5 claim as to (1) misrepresentation, (2) scienter, (3) reliance, and (4) causation. Regarding misrepresentation, Defendants argue that Plaintiffs' "scattershot pleading" fails on multiple levels.
First, Defendants argue that Plaintiffs fail to allege particularized, contemporaneous facts inconsistent with Defendants' allegedly false statements, and thus do not meet the PSLRA. Mot. at 10. Defendants also contend that many of the challenged statements are forward-looking statements accompanied by appropriate cautionary language and are thus protected by the PSLRA's "Safe Harbor" Provision. See Mot. at 11, 14, 19. Finally, Defendants assert that many of the challenged statements (including some of the ones claimed to be forward-looking) are non-actionable expressions of corporate optimism. See id. at 11.
Defendants next argue that Plaintiffs fail to plead sufficient facts establishing the requisite inference of scienter because "Plaintiff offer[s] almost nothing but conclusions." Id. at 20. Defendants then argue that Plaintiffs fail to plead loss causation because there is no pleading of a specific misstatement, as opposed to some other fact, that foreseeably caused Plaintiffs' loss. Id. at 27. Rather, Defendants contend that the stock fluctuation was due to other forces. Id. Defendants next contend that Plaintiffs fail to plead reliance based on the fraud-on-the market theory because Plaintiffs already knew of the core information allegedly concealed. Id. at 33. Finally, Defendants argue that because Plaintiffs cannot show a primary Securities Act violation, their Section 20(a) and 20A claims must be dismissed. Id. at 34.
As discussed in detail below, the Court finds that Statement 22 is the only actionable statement, but that Plaintiffs failed to adequately plead scienter and thus
For a misstatement to be actionable, the statement must be both false and material. See Basic Inc. v. Levinson, 485 U.S. 224, 238, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) ("It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise insignificant."). To survive a motion to dismiss, a complaint must "specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading." Metzler Inv. GmbH, 540 F. 3d at 1070 (quoting 15 U.S.C. § 78u-4(b)(1)).
Statements are misleading only if they "affirmatively create an impression of a state of affairs that differs in a material way from the one that actually exists." Brody v. Transitional Hosp. Corp., 280 F.3d 997, 1006 (9th Cir. 2002). Rule 10b-5 prohibits "only misleading and untrue statements, not statements that are incomplete." Id. Silence, absent a duty to disclose, "is not misleading under Rule 10b-5." Basic, 485 U.S. at 239 n.17, 108 S.Ct. 978. "Often a statement will not mislead
Not all material adverse events must be disclosed to investors. See In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 880 n.8 (9th Cir. 2012) (discussing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38-45, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011)). Information that a reasonable investor might consider material need not always be disclosed; companies can control "what they have to disclose [per § 10(b)] by controlling what they say to the market." Matrixx, 563 U.S. at 45, 131 S.Ct. 1309. Consequently, omissions are only actionable if a defendant has a duty to disclose information and fails to do so. Basic, 485 U.S. at 239 n.17, 108 S.Ct. 978. Hence, if the omission does not "make the actual statement[ ] misleading," a company need not supplement the statement "even if investors would consider the omitted information significant." Rigel, 697 F.3d at 880 n.8.
Finally, an actionable statement must also "be capable of objective verification." Retail Wholesale & Dep't Store Union Local 338 Ret. Fund v. Hewlett-Packard Co., 845 F.3d 1268, 1275 (9th Cir. 2017). For example, business puffery or opinion (vague, optimistic statements) is not actionable because it does not "induce the reliance of a reasonable investor." Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir. 2014).
The alleged material misstatements and omissions can be separated into four categories: first, material misstatements or omissions regarding Facebook's response to data misuse and privacy violations. For these, Plaintiffs allege actionable misstatements by Defendants because they mislead investors about how Facebook handled privacy violations by falsely stating that victims received notice when their data was compromised, that they would ensure the deletion of any purloined data, and that users could control their data, including where it went and with whom it was shared. Pl. Opp. at 5. Second, Plaintiffs allege that the risk disclosures (Defendants' 10-K forms) filed with the SEC were materially false and misleading because they failed to disclose the existence and magnitude of the risks created by Facebook's existing and uncorrected failures to protect user privacy, including the risk presented by the exposed data possessed by Cambridge Analytica and other privacy violations. Id. at 11. Third, Plaintiffs address material misstatements or omissions regarding Defendants' response to the Cambridge Analytica scandal. Plaintiffs allege that Defendants concealed the full extent that Cambridge Analytica damaged Facebook's image and thus mislead investors. Id. at 13; Compl. ¶¶ 149-52, 176. Finally, Plaintiffs allege that Defendants materially mislead investors by repeatedly assuring investors that Facebook was GDPR-compliant, when, in fact, it was not. Pl. Opp. at 17; Compl. ¶¶ 234-37.
In order to effectively address these categories of statements, the Court sorts the statements into headings based on Defendants arguments for dismissal, i.e., (1) Forward-Looking Statements, (2) General Statements of Corporate Optimism, and (3) Falsity (including the alleged omissions). To begin, this Court resolves whether Facebook's Privacy Policy statements are actionable.
Defendants argue that the Privacy Policy Statements (Statements 3-7) are not actionable because these statements were not "made in connection with the
To give rise to a 10b-5 claim, a statement must be made "in a manner reasonably calculated to influence the investing public." McGann v. Ernst & Young, 102 F.3d 390, 397 (9th Cir. 1996). Plaintiffs first point the Court to Batwin v. Occam Networks, Inc., to show that a "materiality" argument is premature at this stage. 2008 WL 2676364, at *22 (C.D. Cal. July 1, 2008). Plaintiffs are correct that materiality arguments often are "inappropriate for resolution on a motion to dismiss." Id. But the question here is not whether an investor would find the information in the privacy statements material, but if they are the types of documents that a reasonable investor would look at while making purchasing decisions. These questions, while remarkably similar, are distinct. Batwin, thus, is not applicable.
Defendants cite In re Lifelock, Inc. Securities Litigation, to argue that while Facebook's privacy policies may have some probative value in consumer protection litigation, they have none in a case alleging investor fraud. 690 F. App'x 947, 953-54 (9th Cir. 2017). The Lifelock court, however, specifically distinguished the simple ads at hand, from the "detailed drug advertisements in sophisticated medical journals" considered in In re Carter-Wallace, Inc. Securities Litigation, 150 F.3d 153, 154 (2d Cir. 1998). Here, Facebook's privacy policies are more like the detailed drug advertisements of Carter-Wallace and less like the "simple" advertisements discussed in Lifelock. See Pl. Opp. at 20 n.16. As Exhibit 24 and 25 show, Facebook's data policy is thorough and thus markedly different from the "simple descriptive chart" and "passive ads" at issue in Lifelock. Further, the Second Circuit, who has examined this issue more extensively, has "broadly construed" the phrase "in connection with" to account for Congressional intent. Carter-Wallace, 150 F.3d at 156. Accordingly, because this Court cannot say as a matter of law that a reasonable investor would not use the privacy policy when making investment decisions, the privacy policies may be used to show a material misstatement or omission.
Under the PSLRA "Safe Harbor" Provision, "forward-looking statements are not actionable as a matter of law if they are identified as such and accompanied by "meaningful cautionary statements identifying important facts that could cause actual results to differ materially from those in the forward looking statement." 15 U.S.C. § 78u-5(c)(1)(A)(i).
A forward-looking statement is "any statement regarding (1) financial projections, (2) plans and objectives of management for future operations, (3) future economic performance, or (4) the assumptions `underlying or related to' any of these issues." No. 84 Emp'r Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (citing 15 U.S.C. § 78u5(i)). "[I]f a
Here, Defendants argue that some of the challenged statements were forward-looking statements protected by the PSLRA's Safe Harbor. This Court holds that Statements 35 and 36 are inactionable forward-looking statements.
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 35 and 36. Accordingly, this Court
In the Ninth Circuit, "vague, generalized assertions of corporate optimism or statements of `mere puffing' are not actionable material misrepresentations under federal securities laws" because no reasonable investor would rely on such statements. In re Fusion-io, 2015 WL 661869, at *14 (collecting cases). When valuing corporations, investors do not "rely on vague statements of optimism like `good,' `well-regarded,' or other feel good monikers." In re Cutera, 610 F.3d at 1111.
Statements like "[w]e are very pleased with the learning from our pilot launch," "so far we're getting really great feedback," and "we are very pleased with our progress to date," are inactionable puffery. Wozniak v. Align Tech., Inc., 850 F.Supp.2d 1029, 1036 (N.D. Cal. 2012). Likewise, "statements projecting `excellent results,' a `blowout winner' product, `significant sales gains,' and `10% to 30% growth rate over the next several years'" have been held not actionable as mere puffery. In re Fusion-io, 2015 WL 661869, at *14 (citing In re Cornerstone Propane Partners, L.P. Sec. Litig., 355 F.Supp.2d 1069, 1087 (N.D.Cal.2005)).
Moreover, companies are not required to engage in "self-flagellation" by disclosing unproven allegations. Haberland v. Bulkeley, 896 F.Supp.2d 410, 426 (E.D.N.C. 2012); In re Paypal Holdings, Inc., 2018 WL 466527, at *3 (N.D. Cal. Jan. 18, 2018) ("Federal securities laws do not impose upon companies a `duty to disclose uncharged, unadjudicated wrongdoing.'" (citing City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173, 184 (2d Cir. 2014)). At the time this statement was made, the FTC only stated an intent to investigate Facebook, but had not made any formal finding that Facebook violated the decree order. See Compl. ¶ 16 ("On March 26, 2018, the FTC formally announced an investigation into Facebook's breach of the consent decree...." (emphasis added)). Thus, Defendants had no requirement to elaborate on any potential privacy breaches. Accordingly, Statement 31 is not an actionable misstatement.
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 31, 33, and 34. Accordingly, this Court
To assert a claim under the PSLRA, the plaintiff must particularly plead the element of falsity. Zucco Partners, 552 F.3d at 990-91. "The PSLRA has exacting requirements for pleading `falsity.'" Metzler, 540 F.3d at 1070. To satisfy these "exacting requirements" a plaintiff must plead "specific facts indicating why" the statements at issue were false. Id.; Ronconi v. Larkin, 253 F.3d 423, 434 (9th Cir. 2001) ("Plaintiffs' complaint was required to allege specific facts that show" how statements were false). A plaintiff may rely on contemporaneous statements or conditions to demonstrate why statements were false when made, but such circumstantial evidence must be plead with particularity. In re Stratosphere Corp. Sec. Litig., 1997 WL 581032, at *13 (D. Nev. May 20, 1997) (noting that to plead falsity, plaintiff must provide "evidentiary facts contemporary to the alleged false or misleading statements from which this court can make inferences permissible under Rule 9(b)."). Thus, to be actionable, a statement must be false "at [the] time by the people who made them." Larkin, 253 F.3d at 430. The fact that a "prediction proves to be wrong in hindsight does not render the statement untrue when made." In re VeriFone Sec. Litig., 11 F.3d 865, 871 (9th Cir. 1993).
Defendants stated they "will" take swift action;
Plaintiffs next urge this Court to find the statements false because Defendants had not taken any "meaningful steps to `require' Cambridge Analytica to `destroy' the affected data, to investigate the extent of the breach, or even to identify the amount of data affected." Pl. Opp. at 7 (citing Compl. ¶¶ 90-93, 98-99, 104-08). Plaintiffs, however, never allege that Defendants promised to take "meaningful steps." Further, and more damning, Plaintiffs cannot escape the fact that Defendants did require Kogan to destroy the data, Compl. ¶ 9, and received confirmation from Kogan that this was done, id. ¶ 92.
Finally, these statements, by their terms, are outside the scope of the Cambridge Analytica matter and are thus outside the purview of Plaintiffs' claim. Compare Compl. ¶¶ 227, 228 ("Facebook, which told The Guardian in 2015 that it was investigating allegations that the company had improperly obtained data from its users, would not comment on the current status of that investigation." (emphasis added)), with id. ¶ 225 ("Facebook's false assurances that it had "take[n] swift action" in response to the Cambridge Analytica data breach ... remained alive and uncorrected in the market at the outset of the Class Period.").
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 1 and 2. Accordingly, this Court
Plaintiffs take issue with the "investigating suspicious activity or violations of our terms or policies" part of Statement 3. Compl. ¶¶ 301(a), 302(a). Plaintiffs argue this statement is false because Defendants "deliberately ignored information brought to its attention about such risks and violations," like the failure to "fully or promptly" investigate the Cambridge Analytic breach or "thousands of [other] reports of [privacy] violations." Id. ¶ 302(a). Plaintiffs, however do not: (1) provide this Court with specific occurrences of Defendants ignoring these "thousands of reports" or (2) specifically allege, with evidentiary facts, that Defendants did not investigate suspicious activity. To the contrary, Plaintiffs identify actions Defendants took to respond to data breaches, like Cambridge Analytica, thus showing they did investigate these violations. See, e.g., id. ¶ 99. Plaintiffs instead make conclusions that "Facebook [did not] make any attempt to investigate what data had been compromised or from which users, or
Regarding Statement 4, Plaintiffs allege that contrary to Defendants' assertion that they "work hard to protect ... account[s] using teams of engineer, automated systems, and advanced technology," the company had "no ability to track user data provided to developers or others, much less the ability to determine whether information had been used or shared beyond the extent authorized by the user, or what user data had been compromised, who had it, or how it was being used." Id. ¶ 302(b). Specifically, Plaintiffs allege that during the class period, Defendants were still concealing that it was unaware of how much data had been compromised or how many users were affected by the Cambridge Analytica breach. Id. Plaintiffs' allegation that the statement "working hard to protect accounts" is rendered false by the Cambridge Analytica breach and issues arising from the breach is a stretch. In this statement, Defendants do not profess an ability to track user data or that they can determine third-party data-use. Further, Plaintiffs do not allege contemporaneous facts that Defendants meant Statement 4 as an assurance that they could track data. Accordingly, this Court cannot infer a connection between the data breach and this statement.
Regarding Statements 5 and 8, Plaintiffs allege that contrary to Defendants assertion that: (1) Facebook's vendors, service providers, and other partners must "adhere to strict confidentiality obligations that is consistent with [Facebook's policies];" (2) Facebook "require[s] applications to respect [user] privacy, and [the user's] agreement with that application will control who the application can use, store, and transfer that content and information;" and (3) that Facebook "expected app developers and others to protect user's rights by making it clear what information is being collected and how it is used," Facebook "repeatedly ignored information brought to its attention about violations of those policies, and repeatedly authorized developers and others to use information in ways that were directly contrary to those policies." Id. ¶ 302(e). First, Plaintiffs do not allege that Facebook partners do not have to adhere to strict confidentiality obligations. Further, Statement 5, by its terms, only requires developers to adhere to strict confidentiality obligations, it makes no assertion about what Defendants will do with developers who do not adhere to this policy, and thus even if Defendants ignored violations, they never asserted here that they would affirmatively do something. Finally, Plaintiffs provide no specific evidentiary facts from which the Court can infer falsity, i.e., that at the time the statement was made, developers did not have to adhere to strict confidentiality obligations. Accordingly, Statement 5 is not actionable.
Regarding Statement 8, at the time of the Cambridge Analytica scandal, Facebook had a different privacy policy. See Ex. 24. This privacy policy did not have any guarantee about requiring apps to respect user privacy. The Cambridge Analytica scandal, thus, is irrelevant to this 2015/2016 privacy policy (and this is likely why Plaintiffs did not plead any Cambridge Analytica related issues regarding Statement 8). Moreover, Plaintiffs point this Court toward no specific instances of
Further regarding Statement 8, Plaintiffs argue that Defendants falsely stated that "[users] can control" how their information is shared through "privacy and application settings." Id. ¶ 302(f); Pl. Opp. at 9. Plaintiffs argue this is a false statement because Defendants "knew that Facebook's privacy policies and settings were deliberately confusing to users," especially regarding third-party consent. Compl. ¶ 302(f). But Plaintiffs offer no contemporaneous pieces of evidence from which this Court can infer Defendants knew users did not understand the policy. Further, Plaintiffs do not allege that users could not control information-sharing. Therefore, again, the Court cannot conclude that Statement 8 is an actionable false statement.
Regarding Statement 6, Plaintiffs allege that contrary to Defendants warning to app developers that Facebook would enforce its privacy policy to prevent app developers from selling or transferring user data, "or from using their customers' friend data outside of their customer's use of the app," Facebook failed to verify that user data compromised in the Cambridge Analytica data breach had been deleted and its enforcement of this policy was "limited, haphazard, and inconsistent." Id. ¶ 302(c).
The connection between Cambridge Analytica and Statement 6 is tenuous. Statement 6 makes no guarantees about verifying data deletion. Rather, by its terms, it specifies enforcement options like "disabling [an] app, restricting ... access, requiring that you delete data, [or] terminating our agreements with you." Cf. id. ¶ 313 (Defendants required Cambridge Analytica to delete the data per the policy); Id. ¶ 137 ("On May 14, 2018, CNN reported that `Facebook has suspended 200 apps for possible misuse of user data in the wake of the Cambridge Analytica scandal.'"). Further, Plaintiffs offer no specific facts from which this Court can infer that Defendants' enforcement was "limited, haphazard, and inconsistent." Accordingly, the Court cannot conclude that Statement 6 is false as Plaintiffs have not met their burden of showing particular, evidentiary facts from which this Court can infer falsity.
Plaintiffs contend that Statement 7 is false because Defendants did not "notify [their] users with context around the status of their account and actionable recommendations" when they "confirmed ... accounts [were] compromised." Specifically, Plaintiffs point to the fact that Defendants "failed to notify tens of millions of users whose data had been compromised by the Cambridge Analytica data breach." Id. ¶ 301(d). Defendants wrote this policy in 2017, an entire year after they thought that Cambridge Analytica had already deleted the data. Id. ¶ 153. Moreover, Plaintiffs have not shown that Defendants did not notify users once they confirmed accounts were compromised. Id. ¶ 93; Id. ¶ 18 ("Facebook, also, for the first time, started to notify data misuse victims and `tell people if their information may have been improperly shared with Cambridge Analytica.'"). The notification to users came after Facebook learned that Cambridge Analytica had not actually deleted user data. To discount this, Plaintiffs highlight Defendants admissions of regret to show an inadequate response to the
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 3-8. Accordingly, this Court
For a risk disclosure to be false, Plaintiffs must "allege facts indicating that [the] risk factor was already affecting [Facebook] to the extent that [D]efendants' statements were false" when made. Lloyd v. CVB Fin. Corp., 2012 WL 12883522, at *19 (C.D. Cal. Jan. 12, 2012) (emphasis added); Baker v. Seaworld Entm't, Inc., 2016 WL 2993481, at *12 (S.D. Cal. Mar. 31, 2016) (holding that risk disclosure statements not materially false or misleading because "[p]laintiffs ... fail to plausibly allege Defendants knew that [warned-of risks] were having any impact on attendance"); Williams v. Globus Med. Inc., 869 F.3d 235, 241-43 (3d Cir. 2017) (holding risk disclosures not materially misleading because risks plead by the plaintiffs "had not actually materialized at the time of either the 2013 10-K or the 2014 1Q 10-Q"). Plaintiffs do not allege that the Cambridge Analytica data breach was "already affecting Facebook" at the time these risk disclosures were made. Nor could they; these risk disclosure statements were made on February 3, 2017, Compl. ¶ 291, two years after the first 2015 The Guardian story about Cambridge Analytica, id. ¶ 7, and a year before the 2018 Cambridge Analytica The Guardian story, id. ¶ 14-15. This chronology undercuts Plaintiffs theory of events, namely that the second story reignited scrutiny and distrust, which caused the stock collapse. Id. ¶ 18-23. Accordingly, Plaintiffs have offered no proof that future risks stated in the risk disclosures had "actually affected" Facebook's reputation or stock because the risks of negative media attention or regulatory action had not yet materialized.
In the alternative, Plaintiffs argue that the statements were false because Defendants knew the statements were incomplete. See Berson v. Applied Signal Tech.,
In contrast, here, Plaintiffs fail to plead specific facts from which this Court can infer that Facebook knew of the risk still posed by the Cambridge Analytica breach and that a materially different "state of affairs" existed. Rather, Plaintiffs indicate that no risk had materialized because Defendants had asked and had received certifications from Kogan, Cambridge Analytica, and its affiliates that all Facebook user data had been destroyed and had banned Kogan and his app from Facebook. ¶¶ 9, 90, 92, 96, 98, 150-51, 176. Plaintiffs do not allege other particular facts from which this Court can infer Defendants knew these risk disclosures were false. See ¶ 78 (noting that Facebook did not know of any continued risk because it never audited its developers). Further, Facebook changed its privacy policy and restricted app developers access to data, leading the Court farther from the inference that Defendants knew a Cambridge Analytica-like event was likely to happen again. Id. ¶¶ 98, 251, 258, 266, 280. For this reason, Statements 9, 10, 13-19 are inactionable.
Plaintiffs' opposition points this Court towards Statement 11 to argue its language about "developing systems and processes designed to protect user data" is false because Defendants allowed third-party consent for years. Opp. at 12. These risk disclosures, however, were made after Facebook updated its privacy policy to no longer allow such consent. Plaintiffs next argue that because Facebook continues to provide device makers access to users' friends' data without their explicit consent ("whitelisting"), this disclosure is false.
Finally, Plaintiffs argue Statement 12 is false because it affirmatively reassures users that Facebook only gives third parties "limited" data. Id. ¶ 291. Plaintiffs
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 9-19. Accordingly, this Court
Plaintiffs argue that these are false statements because (1) Defendant Zuckerberg admitted to the U.S. Senate that Facebook made a conscious decision not to inform users whose data had been appropriated by Cambridge Analytica about the data breach, id. ¶¶ 93, 98, 100, (2) failed to either investigate other data-sharing instances with other app developers or notify potential victims of such data-sharing, id. ¶¶ 79, 131-48, and (3) continued to share user data in ways that violated its stated privacy policies by providing "whitelisted" mobile device makers access to users' friends data without notifying users, id. ¶¶ 138, 140, 183, 209-10.
Plaintiffs, however, seem to ignore that these statements refer to "targeted data collection and theft." Ex. 26 at 7 (emphasis added). Specifically, this page advised users about protecting their accounts from data collection by methods like "phishing
Further, by its very terms, notification was limited to people targeted by "sophisticated attackers." Ex. 26 at 7. This is defined as an "attacker suspected of working on behalf of a nation-state." Ex. 37 (cited in Ex. 26 at 7 n.5). The additional warning is shown if Facebook "has a strong suspicion that an attack could be government-sponsored." Id. Plaintiffs do not allege that Cambridge Analytica, or any other app developer, was "suspected of working on behalf of a nation state" or "government sponsored." Instead, Plaintiffs allege that Cambridge Analytica misappropriated Facebook user data for use in U.S. political campaigns, but not that they were sophisticated attackers who targeted users' accounts. Cf. Compl. ¶¶ 80-83. Defendants commitment in the white paper to warn users either proactively or post-attack by a sophisticated attacker, thus, has no relation to the allegations of misappropriation by Cambridge Analytica.
Finally, Plaintiffs attempt to show falsity by contrasting the white paper statements and Defendants' 2018 statements. In 2018, Defendants are quoted as saying "[they] should have [informed users]" and that they "got [it] wrong" by withholding notice from the Cambridge Analytica victims, Compl. ¶¶ 174-83. The connection, however, fails for two reasons: first, as demonstrated, the white paper has no relation (stated or implied) to the Cambridge Analytica scandal, and so statements made about the Cambridge Analytica or related data scandals are per se unrelated to the white paper's statements, which focuses on Facebook's phishing policy. Second, and relatedly, while these statements may demonstrate Defendants' regret, they do not contradict any alleged earlier statement by Defendants that affected users would be notified about the Cambridge Analytica breach.
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 20 and 21. Accordingly, this Court
Plaintiffs allege two main theories of misconduct regarding consent: (i) third-party consent and (ii) whitelisting. This statement addresses theory (ii), specifically that Defendants were still involved in the harvesting of data by allowing certain whitelisted apps to access data contrary to the Privacy Policy. See Ex. 25.
For these reasons, the Court holds that Plaintiffs adequately pleaded falsity as required by the PSLRA for Statement 22.
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 25-28. Accordingly, this Court
In a Facebook post, Defendants wrote "[t]he claim that this is a data breach is completely false." (Statement 29), Compl. ¶ 255. Plaintiffs argue that this statement is materially misleading because (1) this was a huge data breach and (2) it undermined media reports concerning Facebook's lax privacy policies thus misleadingly reassuring investors that the Cambridge Analytica scandal was behind the Company. Id. ¶ 256-57. First, Plaintiffs state "[i]t was patently false to claim that the Cambridge Analytica scandal was "not a data breach." Id. ¶ 256. This, however, overlooks the fact that the post confined its meaning of "data breach" to "systems [being] infiltrated, ... passwords or sensitive pieces of information [being] stolen or hack[ing]." Id. Plaintiffs do not allege that this definition of a data breach was materially misleading or false or that the Cambridge Analytica scandal fit within this definition of data breach.
In this same post, Defendants wrote "everyone involved gave their consent. People knowingly provided their information." (Statement 30), Id. ¶ 255. Plaintiffs argue that this is a false statement because not all 87 million affected users consented to the data-sharing and none consented to the sale of their data for use in political campaigns. Pl. Opp. at 14. First, this statement never contends that people consented to the use of their data in political campaigns. Plaintiffs allege that saying
Again, Plaintiffs allege three main theories of misconduct regarding consent: (i) third-party consent, (ii) whitelisting, and (iii) sharing of data with third-parties contrary to stated policy. At issue here, is category (i); Statement 30 directly addresses this type of consent. Exhibit 24 shows the privacy policy in place during the creation and implantation of the app "thisisyourdigitallife." This policy stated "Just like when you share information by email or elsewhere on the web, information you share on Facebook can be re-shared. This means that if you share something on Facebook, anyone who can see it can share it with others, including the games, applications, and websites they use." Ex. 24 at 4 (emphasis added). The policy also told users they could decline to allow this third-party consent but would have to actively opt-out, otherwise their data could be shared. Id.; see also In re Facebook Inc., Consumer Privacy User Profile Litig., 402 F.Supp.3d at 792, 2019 WL 4261048, at *14 ("Thus, contrary to the plaintiffs' argument, the language of these disclosures cannot be interpreted as misleading users into believing that they merely needed to adjust their privacy settings to `friends only' to protect their sensitive information from being disseminated to app developers. Users were told that they needed to adjust their application settings too.").
While Facebook's updated Privacy Policy restricts friends' ability to share data with third-party app developers, Ex. 25, Plaintiffs have provided no factual basis that the statement "everyone involved gave their consent" was false when made because they have not shown that users did not consent. In re Fusion-io, 2015 WL 661869, at *16 ("To satisfy these `exacting requirements,' a plaintiff must plead `specific facts indicating why' the statements at issue were false.").
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 29 & 30. Accordingly, this Court
Statements 23, 24, and 32 are about the GDPR; Plaintiffs argue that Defendants falsely assured investors that Facebook was already "already adhering to or prepared to meet" the regulations, when they were not meeting the requirements. Compl. ¶¶ 233-37, 261, 276-77, 283. Defendants, however, never asserted that Facebook was fully compliant with the GDPR, only that "Europe ... passed a single privacy law and [Facebook is] adhering to that." Id. ¶ 201 (Statement 23). In other words, this expresses an intention to adhere
Further, Plaintiffs never identify a single provision of the GDPR that Facebook had not implemented at the time the challenged statements were made. Reply at 11. Instead, Plaintiffs rely on a fraud by hindsight pleading—they allege that GDPR compliance statements must have been false because user growth declined slightly once GDRP had been fully implemented. This is not permitted under PSRLA's strict pleading standards. See City of Roseville Emps. Ret. Sys. v. Sterling Fin. Corp., 963 F.Supp.2d 1092, 1109 (E.D. Wash. 2013) ("Without evidence of contemporaneous falsity, an allegation of a misleading representation, which entirely rests on later contradictory statements, constitutes an impermissible attempt to plead fraud by hindsight."). Accordingly, these statements are not actionable.
For these reasons, the Court holds that Plaintiffs failed to plead falsity as required by the PSLRA for Statements 25-28. Accordingly, this Court
Having determined that Statement 22
Scienter is required under the PSLRA and plaintiffs must plead "with particularity facts giving rise to a strong inference that the defendant acted with the requisite state of mind" regarding "each act or omission alleged." 15 U.S.C. 78u-4(b)(2)(A). It can be established by intent, knowledge, or certain levels of recklessness. In re VeriFone Holdings, Inc. Securities Litigation, 704 F.3d 694, 702 (9th Cir. 2012). Recklessness must be deliberate. Schueneman v. Arena Pharma., Inc., 840 F.3d 698, 705 (9th Cir. 2016) ("[S]cienter —a mental state that not only covers `intent to deceive, manipulate, or defraud,' but also `deliberate recklessness.'" (citations omitted)). Deliberate recklessness is an "extreme departure from the standards of ordinary care ... which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been
A "strong inference" of scienter exists "only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 551 U.S. at 324, 127 S.Ct. 2499. In reviewing a complaint under this standard, the court must consider "all reasonable inferences to be drawn from the allegations, including inferences unfavorable to the plaintiffs." Metzler, 540 F.3d at 1061. To plead a strong inference of scienter, plaintiffs must plead particularized facts demonstrating that the individual defendants knew the supposedly false statements challenged by the plaintiffs were false or misleading when made or had access to information demonstrating that the individual defendants were deliberately reckless in allowing the false statements to be made. See id. at 1068.
Plaintiffs allege Defendant Sandberg falsely claimed, "[N]o one is going to steal your data." Compl. ¶ 234(a). This Court held above that Plaintiffs adequately alleged that this is a materially misleading statement considering "whitelisting." To establish scienter, Plaintiffs rely on Sandberg's statements of regret, "witness accounts," "widespread privacy misconduct," and "the FTC Consent Decree."
The witness accounts do not establish scienter because none of the witnesses establish that Sandberg intentionally or recklessly lied when she claimed users controlled their data. First, Plaintiffs argue that in 2016, Roger McNamee raised "red flags" about Facebook's "systemic problem of data misuse." Pl. Opp. at 23. McNamee discussed with Defendants a "systemic problem with algorithms and the business model of Facebook that allow bad actors to cause harm to innocent users of Facebook." Ex. 15 at 3. This could establish knowledge that Sandberg knew, in 2017 when she made Statement 22, that people's data could be vulnerable. Plaintiffs, however, do not allege, nor can this Court infer, that when Sandberg made this statement, a year after McNamee "raised red flags," that these processes were still allowing bad actors to cause harm to innocent users. The stronger inference is that Facebook had addressed these problems since Sandberg addressed security improvements following the Russian interference in the Axios Interview (the interview in which Statement 22 was made).
Similarly, Plaintiffs use the fact that Sandy Parakilas warned the "top five executives" at Facebook about "privacy vulnerabilities" at Facebook. But, this was five years before the Class Period began, Reply at 14, and thus suffers the same problem as McNamee's statement. Likewise, Christopher Wylie's testimony that "Facebook was first notified of [Cambridge Analytica's] harvesting scheme in 2015," Compl. ¶ 86(f), has little import considering she said "going to get" your data, therefore rendering the Cambridge Analytica breach irrelevant.
Next, Plaintiffs argue that widespread privacy misconduct at Facebook confirms scienter. Plaintiffs point to the New York Times article discussing "whitelisting" and that "the Company had struck agreements allowing phone and other device makers
Third, Plaintiffs point to the FTC Decree to establish scienter because it put "Facebook on notice" that "its representations concerning its privacy practice needed to be completely accurate." Pl. Opp. at 26. Plaintiffs use In re Enron Corp. Sec., Deriv. & ERISA Litig., 235 F.Supp.2d 549 (S.D. Tex. 2002) to support this. However, there, the court mentioned the SEC Consent Decree in conjunction with many other factors; this combination gave rise to a strong inference of scienter. Id. at 706. The SEC Consent Decree alone was not enough to infer scienter and, likewise here, the FTC Consent Decree alone is insufficient to infer scienter as Plaintiffs have provided no particularized facts from which this Court can infer Sandberg consciously lied.
For these reasons, the Court finds that Plaintiffs fail to plead scienter as to Statement 22 as required by the PSLRA and so this Court
Plaintiffs also bring claims for violations of Sections 20(a) and (A) of the Exchange Act. Both these claims, however, depend on a primary violation of Section 10(b) or Rule 10b-5. Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1035 n.15 (9th Cir. 2002) ("[T]o prevail on their claims for violations of § 20(a) and § 20A, plaintiffs must first allege a violation of § 10(b) or Rule 10b 5."). Because the Court determines Plaintiffs' claim under Section 10(b) and Rule 10b-5 fail, Defendants motion to dismiss these claims is also
When dismissing a complaint for failure to state a claim, a court should grant leave to amend "unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). Although the Court has determined that Plaintiffs fail to state a claim, it is possible Plaintiffs can cure their allegations by alleging, among other things, more particular facts as to why statements by the Individual Defendants were false when made. Accordingly, because Plaintiffs may salvage their Complaint, the Court finds amendment would not be futile. Plaintiffs' claims are therefore dismissed with leave to amend.
Defendants' motion to dismiss Plaintiffs' Complaint in its entirety is
