Costanzo v. DXC Technology Company

1

2

3 UNITED STATES DISTRICT COURT

4 NORTHERN DISTRICT OF CALIFORNIA

5 SAN JOSE DIVISION

6

7 NEIL COSTANZO, et al., Case No. 19-cv-05794-BLF

8 Plaintiffs,

ORDER GRANTING DEFENDANTS’

9 v. MOTION TO DISMISS WITH LEAVE

TO AMEND

10 DXC TECHNOLOGY COMPANY, et al.,

[Re: ECF 39]

11 Defendants.

12 This is a putative class action pursuant to Sections 11 and 15 of the Securities Act of 1933

13 (the “Securities Act”) arising from the prospectus and registration statement (the “Registration

14 Statement”) issued in connection with the merger of Computer Sciences Corporation and the

15 Enterprise Services division of Hewlett Packard Enterprise Company completed in April 2017 (the

16 “Merger”).

17 Before the Court is Defendants’ Motion to Dismiss the Amended Complaint. Motion, ECF

18 39. The Court heard oral arguments on June 4, 2020 (the “Hearing”). For the reasons stated below,

19 the Court GRANTS Defendants’ Motion with leave to amend.

20 I. BACKGROUND

21 Defendant DXC Technology Company (“DXC”) is a Fortune 500 company, providing “end-

22 to-end IT services” to its clients. Amended Class Action Complaint (“Compl.”) ¶ 31. DXC is the

23 result of the combination of two large IT services businesses, Computer Sciences Corporation

24 (“CSC”) and HPE’s Enterprise Services division (“HPES”). Id. ¶ 33. In May 2016, CSC and HPE

25 publicly announced the merger of CSC and HPES, which was completed in April 2017. Id. The

26 Merger was structured as a “Reverse Morris Trust,” wherein Hewlett Packard spun off HPES into a

27 new company, and then the new company purchased CSC to form DXC. Id. CSC shareholders’

1 draft registration statement on Form S-4 with the SEC to register the DXC shares to be issued and

2 exchanged in the Merger. Id. ¶ 34. After filing several amendments, on February 24, 2017, DXC

3 filed with the SEC a final amendment to the Registration Statement on Form S-4/A, which forms

4 part of the Registration Statement. Id. ¶ 35. On February 27, 2017, the SEC declared the

5 Registration Statement effective. Id. ¶ 36. DXC was formed on April 1, 2017 through various

6 transactions. Id. ¶ 37. On April 3, 2017, DXC common stock began publicly trading on the NYSE

7 under the symbol “DXC” at approximately $59 per share. Id. ¶ 39.

8 This suit arises from the disclosures in the Registration Statement. Specifically, Neil

9 Costanzo, Ronald Jackson, and Ronald W. Fallness (“Lead Plaintiffs” or “Plaintiffs”) allege that the

10 Registration Statement failed to adequately disclose facts and risks that existed at the time of the

11 Merger regarding DXC’s “workforce optimization” plan. Compl. ¶ 40. Plaintiffs allege that the

12 Registration Statement “touted the more than $1 billion in synergies that DXC would purportedly

13 experience in the first year after the Merger due to a ‘workforce optimization’ plan that would ‘align

14 [DXC’s] costs with its revenue trajectory” without disclosing that “the cuts to DXC’s workforce

15 would be too large, too soon, resulting in client dissatisfaction and the departure of key employees,

16 which, consequently, would materially harm DXC’s ability to secure and generate revenue on new

17 or renewed contracts.” Id. ¶¶ 41-42.

18 Specifically, the Registration Statement provided:

19 The combined company expects that the merger of Everett with CSC

will produce first-year synergies of approximately $1.0 billion post-

20 close, with a run rate of $1.5 billion by the end of year one. The $1.0

billion post-close and $1.5 billion run rate at the end of year one were

21 each calculated by estimating the expected value of harmonizing

policies and benefits between the two companies, supply chain and

22 procurement benefits from expected economies of scale such as

volume discounts as well as cost synergies expected from workforce

23 optimization such as elimination of duplicative roles and other

duplicative general, administrative and overhead costs.

24

Compl. ¶ 77. Further, the Registration Statements detailed a “turnaround plan” that would “align

25

[DXC’s] costs with its revenue trajectory” and purportedly included “initiatives to improve

26

execution in sales performance and accountability.” Id. Plaintiffs allege that these statements were

27

false and misdealing because “they failed to disclose and/or misrepresented [certain] adverse facts

1 that existed at the time of the Merger.” Id. ¶ 78. Plaintiffs also allege that the Registration Statement

2 misleadingly represented that DXC could “attract and retain highly motivated people with the skills

3 necessary to serve their customers,” and that DXC would continue to “hire, train, motivate and

4 effectively utilize employees with the right mix of skills and experience to meet the needs of it

5 clients.” Id. ¶ 79.

6 For support, Plaintiffs rely on a lawsuit filed by a former DXC executive, Stephen J. Hilton

7 (“Hilton”). Following the Merger in April 2017, Hilton (an Executive Vice President at CSC)

8 became DXC’s Executive Vice President and Head of Global Delivery. Compl. ¶ 45. Hilton’s

9 employment was, however, terminated on July 20, 2018, following disagreements between Hilton

10 and Defendant Lawrie – who was Chairman of the DXC Board, President, and CEO of DXC. Id.

11 ¶¶ 45, 23. Hilton commenced a lawsuit against his former employer in the U.S. District Court for

12 the Southern District of New York, titled Hilton v. DXC Technology Company, Case No. 1:19-cv-

13 01157-PKC. Id. ¶ 43. The complaint filed in that action on February 6, 2019 (the “Hilton Compl.”,

14 ECF 40-8), brought various breach of contract claims related to Hilton’s termination by DXC. Id.

15 According to the Hilton Complaint, Defendant Lawrie told Hilton that he wanted to achieve

16 major cuts to DXC’s total expenses. Compl. ¶ 50. Lawrie and Hilton agreed that DXC could

17 eventually cut the Global Delivery division’s annual expenses by approximately $2.7 billion—

18 meaning that Hilton’s division could spend $2.7 billion less annually than its legacy entities, CSC

19 and HPES, together had spent in the year before the April 2017 Merger. Id. ¶ 51; Hilton Compl. ¶

20 68. The bulk of these cuts would be obtained through workforce reductions. Id. Based on Hilton’s

21 allegations, Plaintiffs claim that DXC had an internal target to “to make approximately $2.7 billion

22 in cuts within the first 12 months after the Merger.” Id. ¶ 53. In his complaint, Hilton claims that

23 he “repeatedly advised Lawrie about his reservations concerning the pace of cuts.” Id. ¶ 54; see

24 also Hilton Compl. ¶ 69. Hilton alleged that to meet the internal target of $2.7 billion in cuts, his

25 department “would have to fire far more people far more quickly, with the resulting negative impact

26 on customer satisfaction.” Compl. ¶ 53; see also Hilton Compl. ¶ 68. At Lawrie’s direction, Hilton

27 alleges, “DXC slashed Global Delivery’s workforce by approximately 20% worldwide.” Compl. ¶

1 Plaintiffs allege that DXC’s workforce reduction plan “hamper[ed]its ability to deliver on

2 its client contracts, leading to widespread client dissatisfaction.” Compl. ¶ 65. But according to

3 Plaintiffs “[t]he negative impact of the extreme workforce reduction plan on service delivery,

4 customer satisfaction, and revenues had a built-in lag.” Id. ¶ 64. Starting in the fall of 2018 through

5 the end of 2019, these negative impacts reached the media. See id. ¶¶ 66-67. On May 23, 2019,

6 August 8, 2019, and November 11, 2019, DXC issued press releases announcing disappointing

7 financial results. Id. ¶¶ 69, 71, 73. On November 11, 2019, DXC’s new CEO Mike Salvino

8 acknowledged “delivery and personnel retention problems,” which Plaintiffs allege “directly

9 resulted from his predecessor’s workforce reduction plan[.]” Id. ¶ 74. By the commencement of

10 this action, DXC stock was trading at $32.70 per share, a nearly 45% decline from the $59 price of

11 DXC stock at the time of the Merger. Id. ¶ 75.

12 Relying on the Hilton Complaint, Plaintiffs allege that the Registration Statement failed to

13 disclose the following adverse facts: “(a) the […] ‘workforce optimization’ highlighted in the

14 Registration Statement involved crippling the Company’s workforce infrastructure; (b) DXC

15 planned to jettison tens of thousands of employees on a destructively expeditious timeline, including

16 some of the Company’s most highly skilled and longest-tenured employees; (c) these workforce

17 reductions were made to inflate reported earnings and other financial metrics in the short-term at

18 the expense of client service delivery; (d) Defendant Lawrie had plans for $2.7 billion of cost

19 reductions in the first year, nearly double the $1.5 billion run rate savings target that was made

20 public; (e) as a result of these workforce reductions, DXC materially hampered its ability to deliver

21 on client contracts, endangering longer-term revenue growth; and (f) internally, senior executives

22 had voiced concerns that the targeted reductions would be unachievable without causing massive

23 damage to the Company’s customer relationships.” Compl. ¶ 78.

24 Based on the foregoing, Lead Plaintiffs bring this class action on behalf of themselves and

25 all other persons or entities who purchased or otherwise acquired the publicly-traded common stock

26 of DXC pursuant and/or traceable to the Registration Statement. Compl. ¶ 1. Lead Plaintiffs allege

27 that they “purchased or otherwise acquired DXC common stock pursuant and/or traceable to the

1 against DXC, HPE and thirteen DXC officers (Rishi Varma, Timothy C. Stonesifer, Jeremy K. Cox,

2 Mukesh Aghi, Amy E. Alving, David Herzog, Sachin Lawande, J. Michael Lawrie, Julio A.

3 Portalatin, Peter Rutland, Manoj P. Singh, Margaret C. Whitman, and Robert F. Woods (together,

4 the “Individual Defendants”)). Id. ¶¶ 14-28. Plaintiffs allege that Individual Defendants “were key

5 members of the Merger working group and the executives and directors of DXC who pitched CSC

6 investors to exchange their shares in the Merger.” Id. ¶ 30. Each of the Individual Defendants either

7 signed the Registration Statement or was identified in the document as an incoming director of DXC.

8 Id. ¶¶ 16-28.

9 Plaintiffs bring two causes of actions: (1) for Violation of Section 11 of the Securities Act

10 (15 U.S.C. § 77k) against all Defendants and (2) for Violation of Section 15 of the Securities Act

11 (15 U.S.C. § 77o) against Individual Defendants and HPE. See Compl. ¶¶ 100-116.

12 II. REQUEST FOR JUDICIAL NOTICE

13 While the scope of review on a motion to dismiss is generally limited to the contents of the

14 complaint, under Fed. R. Evid. 201(b), courts may take judicial notice of facts that are “not subject

15 to reasonable dispute.” Courts have taken judicial notice of documents on which complaints

16 necessarily rely, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001), publicly available

17 financial documents such as SEC filings, Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d

18 1049, 1064 n.7 (9th Cir. 2008), and publicly available articles or other news releases of which the

19 market was aware, Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18 (9th Cir. 1999).

20 Defendants request that the Court take judicial notice of (1) the Registration Statement (Exh.

21 A to Boutros Decl. at ECF 40-1); (2) excerpts of DXC’s 2018 Annual Report (Form 10-K), filed

22 with the SEC on May 29, 2018 (Exh. B to Boutros Decl. at ECF 40-2); (3) Everett SpinCo, Inc.,

23 General Form for Registration of Securities (Form-10), filed with the SEC on November 2, 2016

24 (Exh. C to Boutros Decl. at ECF 40-3); (4) DXC press release titled, “DXC Technology Delivers

25 Fourth Quarter Growth in Revenue, Earnings per Share, Margins, and Cash Flow,” issued on May

26 24, 2018 2016 (Exh. D to Boutros Decl. at ECF 40-4); (5) an analyst report from J.P. Morgan titled

27 “F4Q – Core Thesis of Margin Expansion Driven Earnings Growth is Reinforced – Positive,”

1 2020 Earnings Call, held on August 8, 2019 (Exh. F to Boutros Decl. at ECF 40-6); (7) transcription

2 of DXC’s Q2 2020 Earnings Call, held on November 11, 2019 (Exh. G to Boutros Decl. at ECF 40-

3 7); and (8) the Hilton Complaint (Exh. H to Boutros Decl. at ECF 40-8). See Motion at 1, n.1.

4 These documents are either referenced in the Complaint or are matters of public record of

5 which the market was aware. Accordingly, the Court takes notice of Exhibits A-H to Boutros’s

6 declaration at ECF 40. The Court does not take notice of the truth of any of the facts asserted in

7 these documents.

8 III. LEGAL STANDARD

9 “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a

10 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation Force

11 v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732

12 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all

13 well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese

14 v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not

15 “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations

16 that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re

17 Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations

18 omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient

19 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.

20 Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A

21 claim is facially plausible when it “allows the court to draw the reasonable inference that the

22 defendant is liable for the misconduct alleged.” Id. On a motion to dismiss, the Court’s review is

23 limited to the face of the complaint and matters judicially noticeable. MGIC Indem. Corp. v.

24 Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581

25 (9th Cir. 1983).

26 In deciding whether to grant leave to amend, the Court must consider the factors set forth by

27 the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the Ninth

1 ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1) undue

2 delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by amendment, (4)

3 undue prejudice to the opposing party, or (5) futility of amendment. Eminence Capital, 316 F.3d at

4 1052. “[I]t is the consideration of prejudice to the opposing party that carries the greatest weight.”

5 Id. However, a strong showing with respect to one of the other factors may warrant denial of leave

6 to amend. Id.

7 IV. DISCUSSION

8 Defendants move to dismiss the Complaint, arguing that Plaintiffs fail to plead any material

9 false statement or omission of fact in DXC’s Registration Statement. See generally, Motion.

10 A. Section 11 of the Securities Act (Count I)

11 Section 11 of the Securities Act contains a private right of action for purchasers of a security

12 if the issuer publishes a registration statement in connection with the security that “contain[s] an

13 untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or

14 necessary to make the statements not misleading.” 15 U.S.C. § 77k(a). “To prevail in such an

15 action, a plaintiff must prove (1) that the registration statement contained an omission or

16 misrepresentation, and (2) that the omission or misrepresentation was material, that is, it would have

17 misled a reasonable investor about the nature of his or her investment.” Rubke v. Capitol Bancorp

18 Ltd, 551 F.3d 1156, 1161 (9th Cir. 2009) (internal quotation marks omitted). “By definition, a

19 plaintiff must show that a purported misstatement in a registration statement was misleading at the

20 time the registration statement was issued.” In re: Resonant Inc. Sec. Litig., No.

21 CV1501970SJOPJWX, 2016 WL 1737959, at *7 (C.D. Cal. Feb. 8, 2016). For example, “[a] claim

22 under section 11 based on the omission of information must demonstrate that the omitted

23 information existed at the time the registration statement became effective.” Rubke, 551 F.3d at

24 1164.

25 1. Allegations in the Hilton Complaint

26 The Complaint makes clear that the factual basis for Plaintiffs’ allegations are taken solely

27 from the Hilton Complaint. Thus, the Court first addresses Defendants’ challenges to Plaintiffs’

1 As an initial matter, Defendants point out that the allegations in the Hilton Complaint are

2 “unverified” and argue that “Plaintiffs cannot blindly parrot allegations by another party in another

3 lawsuit—none of which Plaintiffs themselves have independently validated (or even attempted to

4 confirm)—to support their claim.” Motion at 3, 21. But at the Hearing, Defendants’ counsel

5 conceded that allegations from a pleading in an unrelated case may be relied upon at this stage of

6 litigation. See Hr’g Tr. at 33:4-5 (Defendants’ Counsel: “We could rely on another pleading in

7 theory, if that pleading actually said what Plaintiffs are saying it says here.”). Because there is no

8 dispute, the Court need not address whether the allegations in the Hilton Complaint may generally

9 be used as the factual basis for Plaintiffs’ allegations. That said, the Court notes that the Ninth

10 Circuit has relied on allegations brought by government agencies on motions to dismiss. See In re

11 VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 706–07 (9th Cir. 2012) (relying on allegations in

12 an SEC complaint incorporated into the plaintiff's pleadings); In re Musical Instruments and Equip.

13 Antitrust Litig., 798 F.3d 1186, 1199 (9th Cir. 2015) (relying on allegations in an FTC complaint

14 and settlement).

15 Defendants’ key objection to the allegations in the Hilton Complaint is that those allegations

16 – even if taken as true for the purposes of this Motion – do not support Plaintiffs’ claim that the

17 Registration Statement included false or misleading statements. See Motion at 15. Defendants

18 argue that the Hilton Complaint alleges that Lawrie’s $ 2.7 billion cost-cutting target (1) was an

19 aspirational internal goal (i.e., not real) and (2) was set after the merger was completed and thus

20 cannot be the basis for allegations that the disclosures in the Registration Statement were false when

21 made. Motion at 15, 21-22.

22 a. Lawrie’s Internal Cost Cutting Goal

23 The Court agrees with Defendants that Plaintiffs’ allegations are insufficient to show that

24 Lawrie’s $2.7 billion internal cost cutting target – even if true – was anything more than an

25 aspirational goal. As a sister court in Eastern District of Virginia recently found in a companion

26 case, “the allegations in the complaint filed by Hilton in connection with his employment dispute

27 with DXC, even assuming they are true, do not do make plausible that Defendants’ statements to

1 118CV01599AJTMSN, 2020 WL 3456129, at *12 (E.D. Va. June 2, 2020). Plaintiffs do not present

2 a fair reading of the Hilton Complaint. Read in its entirety, Hilton challenged his termination from

3 DXC by alleging that he successfully executed the workforce optimization plan and achieved the

4 goals that were set for purposes of revenue projections. As Judge Trenga explained, “Hilton’s

5 ‘reservations’ that he allegedly conveyed to Lawrie did not relate to the workforce cuts that had

6 been achieved, and which Hilton appears, by his allegations, to have supported, but rather more

7 extensive aspirational goals, not achieved, reflected in an internal budget.” Id. The Hilton

8 Complaint makes clear that “Lawrie understood his own internal budget to be merely aspirational

9 and a tool to reduce internal debate.” Hilton Compl. ¶ 69. And Plaintiffs have not alleged facts,

10 outside of the Hilton Complaint, supporting an inference that DXC intended to achieve this $ 2.7

11 billion cost-cutting target within the first year after the Merger was concluded.

12 Importantly, there are no allegations in the Complaint that DXC actually achieved this

13 alleged internal target or cut costs in excess of the disclosed $1 billion. Defendants cite to a press

14 release to claim that “in May 2018, DXC reported that during its first year of operation, the Company

15 achieved $1.1 billion in cost savings and generated $24.5 billion in revenue with earnings per share

16 of $6.04.” Motion at 13-14 (citing Exh. D to Boutros Decl. at 1-2, ECF 40-4). Plaintiffs challenge

17 Defendants’ “reach outside the pleadings to cite its own press release” but argue that even if true,

18 “further discovery is needed to test this assertion, including when and how those savings were

19 realized and booked, or how much ‘over’ that figure was cut (the reported number of jobs cut suggest

20 a higher figure).” Plaintiffs’ Opposition to Motion (“Opp’n”) at 22, ECF 48. The Court agrees that

21 the truth of DXC’s press release Defendants cite is not subject to judicial notice and thus may not

22 be considered in connection with the present Motion. But the Complaint does not allege that DXC

23 cut any more cost than it said it would in the first year after the Merger– the only year that is relevant

24 because the challenged statements only cover the first after the Merger was completed. The earliest

25 allegations of the impacts of the workforce reduction are two years after the Registration Statement

26 was issued. See Compl. ¶¶ 66-71.

27 Put differently, if DXC disclosed in the Registration statement that that it intended to cut $1

1 cut that same $1 billion in cost, the investors were not misled. DXC’s use of an internal aspirational

2 goal to “reduce internal debate” and achieve the promised cuts, would simply be a business decision

3 without any consequence to the investors. See Hilton Compl. ¶ 69 (“Lawrie understood his own

4 internal budget to be merely aspirational and a tool to reduce internal debate.”). This is the story of

5 Plaintiffs’ Complaint, relying on Hilton’s allegations.

6 On the other hand, if Plaintiffs had alleged that while DXC told the investors that it would

7 cut $1 billion dollars in costs in the first year, but was secretly cutting more – presumably by

8 eliminating more employees than the investors would have expected – then Plaintiffs would have

9 had a basis for alleging that DXC misled the investors. But the Complaint is devoid of any facts to

10 show that the alleged $2.7 billion goal was anything more than an aspirational (and not achieved, or

11 even meant to be achieved) internal target.

12 In sum, while the Court accepts as true for the purpose of deciding this Motion, that an

13 internal but aspirational target to cut costs by $2.7 billion existed at DXC, that fact – without more

14 – is not sufficient basis for allegations of securities violation.

15 b. The Timing of Hilton’s Allegations

16 The parties dispute whether Lawrie’s $2.7 billion internal goal existed before or after the

17 Merger – i.e., when the Registration Statement was issued. See Motion at 21-22 (citing Hilton

18 Compl. ¶¶ 87-89; Opp’n at 14. The Court is not persuaded that the Hilton Complaint – filed in an

19 unrelated employment matter – establishes, one way or the other, whether the referenced $2.7 billion

20 internal goal was set before or after the Merger. The same is true about Hilton’s allegations that he

21 “repeatedly advised Lawrie about his reservations concerning the pace of cuts” which Hilton

22 believed would have “negative impacts on customer satisfaction.” See Compl. ¶ 54; Hilton Compl.

23 ¶ 69. It is unclear from the Hilton Complaint when the discussions between Lawrie and Hilton

24 occurred. Viewing all factual allegations in the light most favorable to Plaintiffs in deciding this

25 Motion, the Court accepts that Plaintiffs have sufficiently pled that Lawrie’s $2.7 billion internal

26 budget was set and Hilton’s concerns were communicated to Lawrie before the Registration

27 Statement was issued.

1 In conclusion, the Court is persuaded that Plaintiffs have sufficiently pled that there was an

2 internal goal at DXC to cut $2.7 in costs at the time the Registration Statement was issued. But

3 Plaintiffs have failed to sufficiently allege that this goal was anything more than an aspirational

4 internal target or that it was actually achieved (or was even meant to be achieved). Thus, the

5 allegations from the Hilton Complaint – even if accepted as true at this juncture – cannot support

6 Plaintiffs’ claim for violations of securities laws.

7 2. Safe Harbor

8 Defendants challenge that certain alleged misstatements are forward-looking and therefore

9 protected under PSLRA’s Safe Harbor provisions. PSLRA’s Safe Harbor precludes liability for

10 forward-looking statements in either of two circumstances: “if they were identified as forward-

11 looking statements and accompanied by meaningful cautionary language,” or “if the investors fail

12 to prove the projections were made with actual knowledge that they were materially false or

13 misleading.” In re Cutera Sec. Litig., 610 F.3d 1103, 1111–12 (9th Cir. 2010); 15 U.S.C. § 78u-

14 5(c)(1). A forward-looking statement is “a statement containing a projection of revenues, income

15 (including income loss), earnings (including earnings loss) per share, capital expenditures,

16 dividends, capital structure, or other financial items.” 15 U.S.C. § 78u–5(i)(1)(A).

17 Defendants argue that the following statements are “forward-looking on their face” and

18 protected by Safe Harbor:

19 • The combined company expects that the merger of Everett with CSC will

produce first-year synergies of approximately $1.0 billion post-close,

20 with a run rate of $1.5 billion by the end of year one. The $1.0 billion

post-close and $1.5 billion run rate at the end of year one were each

21 calculated by estimating the expected value of harmonizing policies and

benefits between the two companies, supply chain and procurement

22 benefits from expected economies of scale such as volume discounts as

well as cost synergies expected from workforce optimization such as

23 elimination of duplicative roles and other duplicative general,

administrative and overhead costs. (Compl. ¶ 77).

24

• [W]ith a collective workforce of approximately 178,000 employees, the

25 size and scale of the combined company will enhance its ability to provide

value to its customers through a broader range of resources and expertise

26 to meet their needs. (Compl. ¶ 79).

27 Motion at 10.

1 and exempt from liability under Section 11 because (1) the Registration Statement contains

2 meaningful cautionary language and (2) Plaintiffs have not alleged actual knowledge. Motion at 9-

3 15. Plaintiffs respond that Defendants’ statement are not protected by the PSLRA Safe Harbor

4 provisions because (1) those provisions do not apply to initial public offerings of stock and the

5 Merger “ha[d] all the salient hallmarks of an initial public offering,” or alternatively, the Merger

6 should be considered an offering by CSC; (2) the alleged misstatements are “mixed” and concern

7 present facts while looking to the future; (3) the cautionary language was “inadequate” or “itself

8 misleading;” and (4) Defendants’ actual knowledge of undisclosed facts is sufficiently pled. Opp’n

9 at 16-22.

10 a. Public Offering

11 There is no dispute that the PSLRA’s Safe Harbor provisions do not apply to statements

12 “made in connection with an initial public offering” of stock. See 15 U.S.C. §77z–2(b)(2)(D); Opp’n

13 at 16; Reply in Support of Motion (“Reply”) at 8, ECF 52. Plaintiffs acknowledge that the Merger

14 “was not a vanilla IPO.” Opp’n at 16. But Plaintiffs nevertheless argue that because the Merger

15 “entailed the issuance of a brand new, never-before publicly traded security, of a new (and thus

16 previously non-reporting) company,” it should be treated as an IPO. Opp’n at 16-17. To support

17 this theory, Plaintiffs cite to a footnote from an out-of-district decision with clearly distinguishable

18 facts. In In re AT&T, the court rejected defendants’ assertion that “the Wireless IPO was not an

19 initial public offering.” In re AT&T Corp. Sec. Litig., 2004 U.S. Dist. LEXIS 29588, *36 n.6 (D.N.J.

20 Sept. 2, 2004) (emphasis added). This was because “the Prospectus referred to the Wireless IPO as

21 an initial public offering” and stated that “share of AT&T Wireless tracking stock have not been

22 publicly traded before this offering.” Id. There are no similar allegations in this case. The Court is

23 not persuaded that the Merger should be treated an IPO.

24 Similarly, Plaintiffs’ assertion that the Merger “should be considered an offering by CSC”

25 is unsupported and unpersuasive. Plaintiffs argue that because CSC was the subject of an

26 “administrative order finding that CSC had violated Section 10(b) of the Securities Exchange Act

27 of 1934, 15 U.S.C. §78j” less than three years before DXC’s Registration Statement was issued, the

1 U.S.C. §77z–2(b)(1)(A)(iii)). Under this theory, Plaintiffs ask this Court to treat CSC and DXC –

2 two legally distinct entities – as one entity and hold an administrative order related to one against

3 the other. The Court declines to do so. And unsurprisingly, Plaintiffs fail to provide any authority

4 supporting this proposition.

5 In short, the Court is not persuaded that the challenged statements in DXC’s Registration

6 Statements are exempt from PSLRA’s Safe Harbor provisions.

7 b. Forward-Looking Statements

8 Plaintiffs further argue that the challenged statements are not protected because they

9 “concerned or omitted present facts, or at best, were ‘mixed’ statements that both concerned present

10 facts and looked to the future; such ‘mixed’ statements are not entitled to the safe harbor, at least

11 with respect to the part of the statement that refers to the present.” Opp’n at 17 (citing In re Quality

12 Sys., Inc. Sec. Litig., 865 F.3d 1130, 1141-42 (9th Cir. 2017)). The gist of Plaintiffs’ argument is

13 that DXC’s statements misled the investors because they disclosed “there existed a current plan for

14 $1.0 to $1.5 billion in cost cuts, which had already been calculated using cost savings from

15 workforce ‘optimization’ and elimination of ‘duplicative’ roles as a basis” while there was a “true,

16 undisclosed plan, which had set nearly double the stated amount, or $2.7 billion, as the cost-cutting

17 amount.” Opp’n at 18.

18 As the Court noted above, the Complaint fails to allege that the $2.7 billion target in cost

19 cuts – taken from the Hilton Complaint – was anything more than an aspirational and internal goal

20 or that it had any impact on how the $1.0 billion expectation was calculated at the time the

21 Registration Statement was filed. Accordingly, Plaintiffs have failed to allege that DXC’s $1 billion

22 expectation in cost cut – which is facially forward-looking and related to financials – was a “mixed”

23 statement and not entitled to the Safe Harbor protections.

24 c. Cautionary Language

25 Next, Defendants contend that the Registration Statement contains meaningful cautionary

26 language. Motion at 11. For example, the Registration Statement included the following language:

27 • Even if CSC and Everett successfully integrate, CSC and Everett cannot

will be achieved. Registration Statement at 33, ECF 40-1.

1

• The amount of synergies actually realized in the Transactions, if any, and

2 the time periods in which any such synergies are realized, could differ

materially from the expected synergies discussed in this proxy

3 statement/prospectus-information statement, regardless of whether the

two business operations are combined successfully. Registration

4 Statement at 33.

5 • CSC, Everett and the combined company may have difficulty attracting,

motivating and retaining executives and other employees in light of the

6 Transactions. Registration Statement at 34.

7 • The ability of the combined company to provide customers with

competitive services is dependent on the ability of the combined company

8 to attract and retain qualified personnel. Registration Statement at 42.

9 • The loss of personnel could impair the ability of the combined company

to perform under certain contracts, which could have a material adverse

10 effect on the consolidated financial position, results of operations and

cash flows of the combined company. Registration Statement at 43.

11

Plaintiffs argue that these warnings were “boilerplate, obligatory disclaimers” and again cite

12

to the allegedly undisclosed cost-cutting plan of $2.7 billion from the Hilton Complaint. Opp’n at

13

20.

14

The Court does not find the cautionary language in DXC’s Registration Statement to be

15

boilerplate or conclusory. The challenged statement itself clearly disclosed that DXC expected to

16

achieve the disclosed $1 billion in cost reductions by, inter alia, “workforce optimization such as

17

elimination of duplicative roles and other duplicative general, administrative and overhead costs.”

18

See Compl. ¶ 77. This clearly means layoffs were to be expected. And the cautionary language

19

warned investors that those layoffs “could impair the ability of the combined company to perform

20

under certain contracts” which is precisely what Plaintiffs allege eventually happened. Registration

21

Statement at 43; see Compl. ¶ 67 (“[A]n inside DXC source told The Register that ‘the company is

22

in chaos as all the cuts are leading to mounting customer complaints.’”); see also City of Royal Oak

23

Ret. Sys. v. Juniper Networks, Inc., 880 F. Supp. 2d 1045, 1062 (N.D. Cal. 2012) (finding sufficient

24

the cautionary language that the company’s “ability to develop, market, and sell products could be

25

harmed if [it is] unable to retain or hire key personnel”). In short, a business decision that according

26

to Plaintiffs “backfire[d]” by undermining the Company’s ability to attract and retain qualified staff,

27

without more, is not a violation of securities laws. See Compl. ¶ 68.

1 It is true that the cautionary language did not warn the investors of the internal $2.7 billion

2 cost-cutting goal from Hilton’s Complaint – but the Registration Statement did warn about the

3 eventualities that Plaintiffs complain of (e.g., customer complaint). And in any event, as discussed

4 above, Plaintiffs have failed to allege facts to show that the internal target was either material or

5 actually achieved.

6 In sum, the Court finds that the cautionary language in the Registration Statement

7 sufficiently warned investors of the risks at issue in this case.

8 d. Defendants’ Actual Knowledge

9 Finally, Defendants argue that “Plaintiffs’ claims fail for the independent reason that

10 Plaintiffs have not satisfied their heavy burden of alleging facts establishing that Defendants actually

11 knew the forward-looking statements in the Registration Statement were false when made.” Motion

12 at 13. Defendants are of the opinion that Plaintiffs disavowed all allegations of actual knowledge

13 by “disclaim[ing] any allegations that are based on fraud, recklessness, or intentional misconduct”

14 in an attempt to “to avoid triggering fraud-based pleading standards.” Id. (citing Compl. ¶ 100).

15 Defendants further argue that because DXC, in fact, achieved the promised $1 billion cost savings, it is

16 “axiomatic that an accurate prediction cannot have been knowingly false when made.” Id. at 13-14.

17 Plaintiffs respond that they have properly pled knowledge because they allege that Lawrie,

18 DXC’s CEO, established the undisclosed plan to achieve $2.7 billion in cost-reductions in the first

19 year post-Merger. Opp’n at 21-22. Plaintiffs further object to Defendants’ “reach outside the

20 pleadings” for the assertion that DXC achieved the expected $1 billion on savings. Id. at 22.

21 The Court is not persuaded that Plaintiffs’ disavowed allegations of “knowledge” when they

22 “disclaim[ed] any allegations that are based on fraud, recklessness, or intentional misconduct.” See

23 Compl. ¶ 100. Reading the Complaint in the light most favorable to Plaintiffs, they have disclaimed

24 only “fraud, recklessness, or intentional misconduct.” The Court also agrees with Plaintiffs, as noted

25 earlier in this Order, that Defendants may not rely on DXC’s press release – not incorporated in the

26 Complaint or otherwise subject to judicial notice for the truth of its contents – to assert that DXC

27 saved approximately $1 billion in the first year post-Merger. That said, because the $2.7 billion

1 knowledge of it does not help Plaintiffs’ cause. Plaintiffs have properly pled that Lawrie knew of

2 the $2.7 billion cost saving target because he is alleged to have set that goal according to the Hilton

3 Complaint. But because the mere existence of this goal is not a sufficient basis for securities

4 violations, Defendants’ knowledge of it is irrelevant to this Complaint. And Plaintiffs have not

5 alleged that DXC cut any more costs than it told the investors it would in the first year following

6 the Merger.

7 ***

8 In sum, the Court agrees with Defendants that the alleged misstatements (Compl. ¶¶ 77, 79)

9 about the expected cost reductions tied to DXC’s workforce optimization plan are forward-looking

10 and protected by PSLRA’s Safe Harbor provision.

11 3. Puffery

12 Defendants argue that three alleged misstatements are non-actionable puffery. A material

13 misrepresentation differs significantly from corporate puffery. Puffery is an expression of opinion,

14 while a misrepresentation is a knowingly false statement of fact. Oregon Pub. Emps. Ret. Fund v.

15 Apollo Grp., Inc., 774 F.3d 598, 606 (9th Cir. 2014); Grossman v. Novell, Inc., 120 F.3d 1112, 1119

16 (10th Cir. 1997) (finding that puffery includes statements “not capable of objective verification”).

17 Moreover, the Ninth Circuit has noted that investors do not rely on puffery when making investment

18 decisions. In re Cutera, 610 F.3d at 1111. Finally, “mildly optimistic, subjective assessment[s] ...

19 [do not] amount[ ] to a securities violation.” Id.

20 First, Defendants contend that statements touting “net synergies” and “strategic and financial

21 benefits” are not actionable. See Motion at 16 (citing Compl. ¶ 77). Plaintiffs respond that these

22 representations were “misleading not merely by themselves but in conjunction with the surrounding

23 statements,” which touted the “size and scale of the combined company” that was expected to

24 “enhance [DXC’s] ability to provide value to its customers through a broader range of resources and

25 expertise to meet their needs.” Opp’n at 23.

26 While “general statements in anticipation of synergies resulting from [a] merger” are non-

27 actionable puffery, Jui-Yang Hong v. Extreme Networks, Inc., No. 15-CV-04883-BLF, 2017 WL

1 the synergies and benefits mentioned in the challenged statements are tied to the disclosure of the

2 anticipated $1 billion cost redetection target and therefore are not merely expressions of corporate

3 optimism. Specifically, the Registration Statements disclosed “[t]he $1.0 billion post-close and $1.5

4 billion run rate at the end of year one were each calculated by estimating the expected value of

5 harmonizing policies and benefits between the two companies, supply chain and procurement

6 benefits from expected economies of scale such as volume discounts as well as cost synergies

7 expected from workforce optimization such as elimination of duplicative roles and other duplicative

8 general, administrative and overhead costs.” Compl. ¶ 77 (emphasis added). Viewing the statement

9 in light most favorable to Plaintiffs – as the Court must – the challenged statement at ¶ 77 of the

10 Complaint is not puffery.

11 Second, Defendants argue that Plaintiffs’ challenge the Registration Statement detailing a

12 “turnaround plan” that would “align [DXC’s] costs with its revenue trajectory” and included

13 “initiatives to improve execution in sales performance and accountability” should be dismissed as

14 non-actionable puffery. Motion at 16 (citing Compl. ¶ 77). According to Defendants, these are

15 “vague descriptions of the Company’s plans.” Motion at 16. Plaintiffs respond that these

16 statements were “materially false and misleading (not ‘puffing’)” because “DXC’s true, undisclosed

17 plan had set nearly double the stated amount, or $2.7 billion, as the cost-cutting amount,” which was

18 “not aligned to revenue trajectory, but recklessly cut jobs without regard to revenue impact, and

19 would gravely undercut revenues and ‘sales performance and accountability.’” The Court agrees

20 with Defendants. The challenged statement does not mention the amount by which the Company

21 was to cut costs, but instead, expresses vague corporate optimism that DXC’s “costs” would align

22 with its “revenue trajectory” and “improve execution in sales performance and accountability.”

23 Such statements are incapable of objective verification and constitute non-actionable puffery. See

24 In re Wet Seal, Inc. Sec. Litig., 518 F. Supp. 2d 1148, 1167 (C.D. Cal. 2007) (finding non-actionable

25 puffery a statement that the company was “on track to deliver improved financial performance in

26 the fall, in line with our turnaround plan”).

27 Third, Defendants challenge the following allegations:

retain highly motivated people with the skills necessary to serve their

1 customers,” and that DXC would continue to “hire, train, motivate

and effectively utilize employees with the right mix of skills and

2 experience to meet the needs of its clients.”

3 Compl. ¶ 79; see Motion at 17. Defendants first argue that “Plaintiffs mischaracterize these

4 statements” and that DXC “made no such promises but rather warned investors about its potential

5 inability to execute on the above.” Motion at 17. Defendants are correct on this issue because the

6 challenged statements are represented out of context in the Complaint. Specifically, the Registration

7 Statement reads:

8 The ability of the combined company to grow and provide customers

with competitive services is partially dependent on the ability of the

9 combined company to attract and retain highly motivated people with

the skills necessary to serve their customers.

10

Registration Statement at 42-43. And:

11

If the combined company does not hire, train, motivate and effectively

12 utilize employees with the right mix of skills and experience in the

right geographic regions to meet the needs of its clients, its financial

13 performance could suffer.

14 Id. at 43. Plaintiffs do not directly respond to this argument but appear to concede that the

15 challenged statements are, in fact, “risk disclosures.” See Opp’n at 23. When read in their entirety,

16 the quoted portions of the Registration Statement do not make the promises Plaintiffs allege, but

17 instead, warn investors of potential risks.

18 Nevertheless, Defendants argue that even if DXC had made the statements as represented

19 by Plaintiffs, “such statements are puffery and thus cannot be actionable under the securities laws.”

20 Motion at 17. Plaintiffs respond that DXC’s “undisclosed massive, intended cuts” establish that

21 “these statements were themselves false and misleading, and failed to disclose material facts” and

22 are not “corporate cheerleading.” Opp’n at 23-24. Because these statements are clearly “risk

23 disclosures” and do not convey a general corporate optimism, they cannot be fairly categorized as

24 puffery.1

25 The remaining challenged statement in paragraph 79 of the Complaint, however, is not a risk

26

27

1 Defendants separately challenge these risk disclosures as non-actionable “because they warn of

1 disclosure:

2 [W]ith a collective workforce of approximately 178,000 employees,

the size and scale of the combined company will enhance its ability

3 to provide value to its customers through a broader range of resources

and expertise to meet their needs

4

Compl. ¶ 78; Registration Statement at 69. Plaintiffs contend that it was misleading for Defendants

5

to tout the “size and scale of the new company” that would “enhance its ability to provide value to

6

its customers” because at that time “Lawrie had internally set plans for well over 20% of those

7

employees.” Opp’n at 9 (citing Compl. ¶¶ 52-53, 56-57, 62). The Court agrees with Plaintiffs that

8

because touting of the Company’s “size and scale” is tied to DXC’s measurable headcount – which

9

admittedly was to be reduced under the workforce optimization plan – the challenged statement,

10

when read in its entirety, is more than mere puffery.

11

***

12

In sum, the Court finds that the alleged misstatement regarding DXC’s “turnaround plan”

13

(the second section of Compl. ¶ 77) is non-actionable puffery.

14

4. Opinion Statements

15

Separately, Defendants challenge Plaintiffs’ allegations of “synergies,” “turnaround plan,”

16

and hiring practices as non-actionable opinion statements. See Motion at 17-18 (Compl. ¶¶ 77, 79).

17

As an initial matter, the Court notes that Defendants label the alleged misstatements as “opinion

18

statements” without explaining why the statements describe a “belief, a view, or a sentiment which

19

the mind forms of persons or things” as opposed to a fact. Omnicare, Inc. v. Laborers Dist. Council

20

Const. Indus. Pension Fund, 575 U.S. 175, 183 (2015) (citation and alterations omitted). The

21

challenged statements do not, on their face, include any clear indication (e.g., “we believe” or “we

22

think”) that they describe an opinion. See Compl. ¶¶ 77, 79.

23

With that in mind, the Court addresses the parties’ arguments. Defendants argue that these

24

statements are not actionable because Plaintiffs fail to allege that Defendants (1) did not actually

25

believe they could achieve the synergies described in the Registration Statement or (2) omitted

26

material information regarding the basis for their opinions. Motion at 18-19. Plaintiffs respond that

27

“Defendants were aware of Lawrie’s existing parallel plan to cut costs nearly double the amount

1 publicly stated.” Opp’n at 25.

2 In the Ninth Circuit, there are three different standards for pleading falsity of opinion

3 statements: (1) “when a plaintiff relies on a theory of material misrepresentation, the plaintiff must

4 allege both that ‘the speaker did not hold the belief she professed’ and that the belief is objectively

5 untrue,” (2) “when a plaintiff relies on a theory that a statement of fact contained within an opinion

6 statement is materially misleading, the plaintiff must allege that the supporting fact the speaker

7 supplied is untrue” or (3) “when a plaintiff relies on a theory of omission, the plaintiff must allege

8 facts going to the basis for the issuer’s opinion whose omission makes the opinion statement at issue

9 misleading to a reasonable person reading the statement fairly and in context.” City of Dearborn

10 Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 615–16 (9th Cir. 2017)

11 (citation omitted).

12 Plaintiffs’ reliance on the allegedly undisclosed cost-cutting target is misplaced for the same

13 reasons stated earlier in this Order. While Plaintiffs allege that there existed an undisclosed plan to

14 cut costs more than what was revealed to the investors in the first year post-Merger, Plaintiffs have

15 failed to allege facts establishing that the internal target was more than aspirational to make its

16 omission misleading. Thus, assuming the challenged statements can properly be categorized as

17 “opinion statement,” Plaintiffs have failed to sufficiently plead that the omission of Lawrie’s internal

18 target was “misleading to a reasonable person reading the statement fairly and in context.” City of

19 Dearborn Heights, 856 F.3d at 615–16.

20 5. Risk Disclosures

21 Defendants next argue that DXC’s challenged risk disclosures are not actionable because

22 “the prospective nature of the risk factors renders them inactionable in light of Plaintiffs’ theory of

23 liability, which is based on conduct that occurred after the transaction closed.” Motion at 19.

24 Plaintiffs’ position is that the risk disclosers are themselves misleading because Lawrie’s plan to cut

25 $2.7 billion (more than double what was disclosed) was in place before the Merger and was

26 misleadingly left out of the Registration Statement. Opp’n at 10-11.

27 Generally, risk disclosures – like any other statement – may be misleading if they

1 that actually exists. City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,

2 65 F. Supp. 3d 840, 855 (N.D. Cal. 2014), aff’d, 856 F.3d 605 (9th Cir. 2017). The risk disclosures

3 here, however, warned of the eventualities that, even according to the Complaint, did not take place

4 until years later. Specifically, DXC warned:

5 The ability of the combined company to grow and provide customers

with competitive services is partially dependent on the ability of the

6 combined company to attract and retain highly motivated people with

the skills necessary to serve their customers.

7

Registration Statement at 42-43. And:

8

If the combined company does not hire, train, motivate and effectively

9 utilize employees with the right mix of skills and experience in the

right geographic regions to meet the needs of its clients, its financial

10 performance could suffer.

11 Id. at 43. Moreover, the Registration Statement disclosed to the investors that DXC intended to cut

12 costs through its “workforce optimization” plan. Compl. ¶ 77. Thus, the Registration Statement

13 disclosed the state of affairs as they were are the time: DXC planned to optimize its workforce and

14 eliminate duplicative roles, which could lead to problems with providing service to its customers.

15 Plaintiffs’ sole factual basis for their allegations that the risk disclosures were misleading on

16 their own is the $2.7 billion internal target taken from the Hilton Complaint, which the Court has

17 found to be no more than an aspirational goal. Thus, Plaintiffs have failed to allege sufficient facts

18 supporting their allegations that DXC’s risk disclosures were false or misleading.

19 6. Falsity

20 Alternatively, Defendants argue that even if the Court were to find the challenged statements

21 actionable, Plaintiffs’ claims must be dismissed because they fail to allege sufficient facts to show

22 that those statements were “false when made—or that Defendants omitted facts they were required

23 to disclose.” Motion at 20.

24 To prevail in such an action under Section 11 of the Securities Act, a plaintiff “must prove

25 (1) that the registration statement contained an omission or misrepresentation, and (2) that the

26 omission or misrepresentation was material, that is, it would have misled a reasonable investor about

27 the nature of his or her investment.” Rubke, 551 F.3d at 1161 (internal quotation marks omitted).

1 that discovery will reveal evidence satisfying the materiality requirement, and to allow the court to

2 draw the reasonable inference that the defendant is liable.’” Reese v. Malone, 747 F.3d 557, 568

3 (9th Cir. 2014), overruled on other grounds by City of Dearborn Heights, 856 F.3d 605 (9th Cir.

4 2017) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 46 (2011)). “Although

5 determining materiality in securities fraud cases should ordinarily be left to the trier of fact,

6 conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to

7 dismiss for failure to state a claim.” In re Cutera, 610 F.3d at 1108.

8 Again, to plead falsity, Plaintiffs rely on Hilton’s Complaint and argue that “the Registration

9 Statement was false and misleading in failing to disclose DXC’s true, internal plan to cut critical

10 staff by nearly double the amount told to investors, and despite the dire warnings of top management

11 of the inevitable adverse impact on DXC, which did occur.” Opp’n at 10. Because the Court has

12 concluded that Plaintiffs’ allegations do not show that the Lawrie’s internal budget was anything

13 more than an aspirational goal within the Company, or that it was actually achieved (or even meant

14 to be achieved) in the first year after the Merger, the Court finds that falsity of the Registration

15 Statement is not sufficiently pled.

16 B. Violations of Items 303 or 503

17 Defendants also challenge Plaintiffs’ allegations under Items 303 and/or 503(c) of SEC

18 Regulation S-K. Those provisions, require disclosure of (1) “known trends or uncertainties that

19 have had or that the registrant reasonably expects will have a material favorable or unfavorable

20 impact on net sales or revenues or income from continuing operations,” (17 C.F.R. §

21 229.303(a)(3)(ii)) and (2) under the caption “Risk Factors,” a discussion of the most significant

22 factors that make the offering speculative or risky (17 C.F.R. § 229.305(c)).

23 Plaintiffs’ allegations under this provision arise from the alleged non-disclosure of “Lawrie’s

24 aggressive workforce reduction plan,” which according to Plaintiffs, “would negatively impact

25 client service delivery, retention of necessary personnel, and future revenues and profitability.”

26 Opp’n at 13. Defendants argue that violations of Items 303 or 503 are not sufficiently pled because

27 (1) Hilton’s “subjective concerns” were raised after the Merger was completed and (2) Plaintiffs

1 Motion at 23-24.

2 As concluded earlier in this Order, the Court is not persuaded that Hilton’s concerns were

3 || raised after the Merger was completed or that Plaintiffs have disclaimed Defendants’ “knowledge”

4 || of the alleged misstatements. But once again, Plaintiffs have failed to allege facts sufficient to lead

5 to a reasonable inference that the $2.7 billion internal target was achieved or was even meant to be

6 achieved in the first year after the Merger was concluded. Thus, Plaintiffs’ allegations for violations

7 of Items 303 or 503 fail.

8 C. Section 15 of the Securities Act (Count ID

9 Section 15 of the Securities Act requires an underlying primary violation of the securities

10 || laws. 15 U.S.C. §§ 770. Because Plaintiffs here have failed to adequately plead a violation of

11 Section 11, it follows that Plaintiffs also have failed to adequately plead violations of Section 15.

12 See In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 886 (9th Cir. 2012).

13 V. ORDER

14 For the foregoing reasons, the Court GRANTS Defendants’ Motion to Dismiss at ECF 39

15 WITH LEAVE TO AMEND. Any amended complaint shall be filed within 60 days of this Order.

16

17 IT IS SO ORDERED.

19 || Dated: July 27, 2020 Z han tn

20

BETH LABSON FREEMAN

21 United States District Judge

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