Dickerson v. Macmillan

1

2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 BRENNA DICKERSON, Case No. 23-cv-01320-AMO

8 Plaintiff, ORDER GRANTING MOTION TO

DISMISS AND GRANTING

9 v. ADMINISTRATIVE MOTIONS TO

SEAL

10 ANDY MACMILLAN, et al.,

Re: Dkt. Nos. 31, 41, 42, 48, 52

Defendants.

11

12

13 Defendants’ motion to dismiss this PSLRA case was heard before this Court on March 14,

14 2024. Having read the papers filed by the parties and carefully considered their arguments therein

15 and those made at the hearing, as well as the relevant legal authority, the Court hereby GRANTS

16 the motion for the following reasons. Also before the Court are four administrative motions to

17 seal. ECF 31, 41, 48, 52; see ECF 59. For the reasons stated below, the Court hereby GRANTS

18 the administrative motions to seal.

19 I. BACKGROUND1

20 A. Factual Background

21 Defendant UserTesting is a company that went public on November 17, 2021, at $14 per

22 share. First Amended Complaint (“FAC”) (ECF 32) ¶¶ 14, 34. Following its Initial Public

23 Offering (IPO), the company’s stock declined, consistent with declines in the stock market.

24 FAC ¶ 35. In 2020 and 2021, Defendant Andy MacMillan (UserTesting’s Chief Executive Officer

25 and former Board Chair) and other officers and directors met with Thoma Bravo, a private equity

26

1 The Court accepts as true the factual allegations in the complaint and construes the pleadings in

27

the light most favorable to the non-moving party. Manzarek v. St. Paul Fire & Marine Ins. Co.,

1 firm, to discuss a potential acquisition of UserTesting by Thoma Bravo. FAC ¶¶ 15, 22, 43. In

2 July of 2022, Thoma Bravo indicated its interest in acquiring UserTesting. FAC ¶ 44.

3 On August 7, 2022, UserTesting held its second quarter earnings call, during which

4 MacMillan stated that the market “continue[d] to see good interest and need for [the Company’s]

5 platform.” FAC ¶ 45-¶ 46 (alterations in original). MacMillan also reported a “record second

6 quarter with revenue of $48 million, up 36% year-over-year,” which “represent[ed]

7 [UserTesting’s] sixth consecutive quarter of year-over-year subscription revenue growth of 40%

8 or greater.” FAC ¶ 47 (alterations in original). Defendant Jon Pexton (UserTesting’s former

9 Chief Financial Officer) added that UserTesting started experiencing problems in February 2022

10 but had a revenue growth rate of “29% to 31% year-over-year” and that the Company expected

11 revenue in the third quarter of 2022 of $47.5 to $47.8 million or a growth rate of 23% to 26%

12 year-over-year. FAC ¶¶ 16, 48.

13 After the earnings call, analysts updated their price targets for UserTesting, with a

14 consensus price target of $8.55 per share. FAC ¶ 50. On August 19, 2022, representatives of

15 Thoma Bravo met with MacMillian and Pexton and informed them that Thoma Bravo’s likely

16 proposal range for an acquisition would be between $9 to $11 per share. FAC ¶ 51.

17 UserTesting’s Board met on August 26 and 30, 2022 to discuss the possible acquisition and to

18 retain Morgan Stanley to advise the potential transaction. FAC ¶¶ 52-53. During the proposed

19 acquisition, Morgan Stanley was UserTesting’s financial advisor. FAC ¶ 24. Starting on

20 September 3, 2022, Defendants and Morgan Stanley developed financial projections for the

21 Company, the “September Forecast,” and presented these projections to the Board. FAC ¶¶ 56-57.

22 The September Forecast was based on a for the Company containing

23 quarter-by-quarter forecasts of revenue, gross profit, and free cash flow projections. FAC ¶ 55.

24 On September 8, 2022, Thoma Bravo submitted a non-binding indication of interest to

25 acquire all outstanding shares of UserTesting for $9.50 per share. FAC ¶ 58. The Board reviewed

26 the proposal on September 10, 2022, and Thoma Bravo submitted a revised proposal for $10 per

27 share on September 14, 2022. FAC ¶¶ 60-61. The Board considered the September 14 proposal at

1 acquirers. FAC ¶ 62. On September 30, 2022, the last day of the third quarter, Defendants and

2 Morgan Stanley met with Thoma Bravo representatives to discuss anticipated 2022 third quarter

3 performance. FAC ¶ 64. According to the Proxy, the anticipated results provided to Thoma

4 Bravo “included revenue and calculated billings . . . that were lower than those anticipated by

5 Wall Street analysts, Thoma Bravo and the September Financial Forecast.” FAC ¶ 64; ECF 42-3

6 (Proxy). Although calculated billings had grown less than expected, the Company’s revenue

7 . FAC ¶¶ 65-66.

8 On October 3, 2022, Thoma Bravo informed Morgan Stanley that it was no longer willing

9 to proceed at the proposed price of $10 per share because of the company’s 2022 third quarter

10 performance. FAC ¶ 68. The following day, Thoma Bravo indicated that it was prepared to

11 resume discussions at $7.50 per share. FAC ¶ 69. UserTesting rejected that proposal, terminated

12 Morgan Stanley, and disengaged from negotiations. FAC ¶ 70. On October 10, 2022, Defendants

13 provided Morgan Stanley with the “October Forecast,” which

14 . FAC ¶¶ 71-73. Morgan Stanley

15

16 . FAC ¶ 72.

17 MacMillan, Pexton, and Sabet “appear to have created the new set of projections and

18 continued engaging with Thoma Bravo without the authorization or even awareness of the Board.”

19 FAC ¶ 74. On October 16, 2022, UserTesting’s legal advisors sent a formal letter to Thoma Bravo

20 asking it to return or destroy all confidential information provided to it. FAC ¶ 74. On October

21 20, 2022, Thoma Bravo called MacMillian and informed him that it was willing to proceed at

22 $7.50 without conducting further due diligence, and MacMillan responded that Thoma Bravo

23 should put the offer in writing. FAC ¶ 75. Thoma Bravo submitted a non-binding written offer

24 for $7.50 that same day, and the Board formally considered the proposal on October 23, 2022, and

25 rehired Morgan Stanley. FAC ¶ 76. The Board met over the next several days, and on October

26 26, 2022, Morgan Stanley delivered an opinion that the acquisition agreement was fair from a

27 financial point of view to holders of UserTesting’s common stock. FAC ¶¶ 77-79.

1 stating that the transaction valued UserTesting at $1.3 billion, $700 million less than the IPO in

2 November of 2021. FAC ¶ 80.

3 On December 26, 2022, UserTesting issued a Schedule 14A (“Proxy”) to stockholders

4 inviting them to a special meeting and announcing the proposed merger. FAC ¶ 3; ECF 42-3

5 (Proxy). On January 10, 2023, UserTesting’s shareholders voted to approve the acquisition by

6 Thoma Bravo. FAC ¶ 7.

7 B. Procedural Background

8 On March 21, 2023, Plaintiff Brenna Dickerson initiated the instant suit against

9 Defendants on behalf of herself and a putative class. ECF 1. On August 11, 2023, Plaintiff filed

10 the First Amended Complaint, the operative complaint, alleging violations of Sections 14(a) and

11 20(a) of the Securities and Exchange Act (“Exchange Act”). Plaintiff alleges that Defendants

12 made eight false or misleading statements in the Proxy:

13

1. That UserTesting’s “anticipated [third quarter 2022] results included revenue and

14 calculated billings . . . that were lower than those anticipated by Wall Street analysts,

Thoma Bravo and the September Financial Forecast.” FAC ¶¶ 5(i), 126-28.

15

2. The October Forecast “reflected the potential impact of our financial results for the

16 third quarter ended September 30, 2022 on future periods [sic], and which reflected

reduced levels of revenue, gross margin, EBITDA and unlevered free cash flow as

17

compared to the September Financial Forecast as a result of our revenue and billing

18 results for the third quarter and estimates for the fourth quarter and trends in our end

markets[.]” FAC ¶¶ 5(ii), 131-33.

19

3. “Morgan Stanley assumed that [the October Financial Forecast] had been reasonably

20 prepared on bases reflecting the best currently available estimates and judgments of

UserTesting’s management of the future financial performance of UserTesting.”

21

FAC ¶¶ 5(iii), 134.

22

4. Morgan Stanley’s fairness opinion was a “positive reason to support the Merger

23 Agreement.” FAC ¶¶ 5(iv), 135-36.

24 5. “The present values per share of UserTesting common stock calculated by Morgan

Stanley using the unreasonably low October Forecast under: (a) a Discounted Cash

25

Flow Analysis, namely ‘$3.59 to $5.17’; (b) a Discounted Equity Value Analysis,

26 namely ‘$4.08 – 7.51’; and (c) a Precedent Transactions Multiples Analysis, namely

‘$6.92 – 10.77.’” FAC ¶¶ 5(v), 137.

27

1

7. The September Forecast summary chart was “materially omissive” as it failed to

2 provide the figures for UserTesting’s projected

or disclose the figures for the . FAC ¶¶

3 5(vi), 56-57, 86, 139

4

8. The September Forecast summary chart was “materially omissive” because it failed to

5 provide the figures for revenue, gross profit, and . FAC ¶¶ 5(vii),

56-57, 139-140.

6

7 The instant motion to dismiss followed.

8 II. LEGAL STANDARD

9 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain

10 statement of the claim showing that the pleader is entitled to relief.” A defendant may move to

11 dismiss a complaint for failing to state a claim upon which relief can be granted under Federal

12 Rule of Civil Procedure 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the

13 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.”

14 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule

15 12(b)(6) motion, a plaintiff must plead “enough facts to state a claim to relief that is plausible on

16 its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible

17 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that

18 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

19 In reviewing the plausibility of a complaint, courts “accept factual allegations in the complaint as

20 true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v.

21 St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nonetheless, Courts do not

22 “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or

23 unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

24 Securities fraud cases have heightened pleading requirements as the complaint must satisfy

25 both the pleading requirements of Federal Rule of Civil Procedure 9(b) and the PSLRA. In re

26 VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012). Pursuant to Rule 9(b),

27 claims alleging fraud must “state with particularity the circumstances constituting fraud . . . [.]”

1 alleged to have been misleading, [and] the reason[] why the statement is

2 || misleading... [.]” 15 U.S.C. § 78u—4(b)(1)(B). The PSLRA further requires that the complaint

3 || “state with particularity facts giving rise to a strong inference that the defendant acted with the

4 |] required state of mind.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 314 (2007)

5 || (quoting 15 U.S.C. § 78u—4(b)(2)). This means a plaintiff must allege that “the defendant[] made

6 || false or misleading statements either intentionally or with deliberate recklessness.” In re VeriFone

7 || Holdings, 704 F.3d at 701 (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991

8 || (9th Cir. 2009)).

9 || II. DISCUSSION

10 A. Administrative Motions to Seal

11 There are four pending administrative motions to seal the amended class action complaint,

a (12 the motion to dismiss, the opposition to the motion to dismiss, and related exhibits and documents.

13 || ECF 31, 41, 48, and 52.

14 Defendants move to seal the information included in the following chart:

4 Document | Dkt. | Dkt.No. | Dkt.No. | Partywith | Fullor| Brief

5 16 title or No. of ofun- | ofdecl.in| burdento | partial | statement of

description | redacte | redacted | support | substantiate | sealing | reason for

d version | of sealing | need seal | sought sealing

617

= version

Z 418

Amended 36-2 36-1 36 Defendants | Partial | Sensitive

19 Class Action and

Complaint confidential

20 financial and

business

21 information;

see Dkt. No.

22

36 at 49 3. 4,

23 6.

Motion to 42 41-3 41-1 Defendants | Partial | Sensitive

Dismiss and

25 Amended confidential

Class Action financial and

26 Complaint business

information:

28

Document DKkt. Dkt. No. | Dkt. No. | Party with | Full or Brief

| title or No. of ofun- | ofdecl.in| burdento | partial | statement of

description | redacte | redacted | support | substantiate | sealing | reason for

d version | of sealing | need to seal | sought sealing

3 version

4A see Dkt. No.

41-1 at

Exhibit 7 to 41-4 41-1 Defendants | Full Sensitive

6 the Lee Decl. and

in Support of confidential

7 Motion to financial and

8 Dismiss business

Amended information;

9 Class Action see Dkt. No.

Complaint Al-1 at § 3.

10

Exhibit 8 to 41-5 41-1 Defendants | Full Sensitive

11 the Lee Decl. and

in Support of confidential

12 Motion to financial and

E B Dismiss business

Amended information:

414 Class Action see Dkt. No.

Complaint 41-1 at 3.

15

Exhibit 9 to 41-6 Al-] Defendants | Full Sensitive

a 16 the Lee Decl. and

£ in Support of confidential

17 Motion to financial and

.

Dismiss business

Zz 18 Amended information;

19 Class Action see Dkt. No.

Complaint 41-1 at J 3.

70 Opposition to | 49 48-1 54-1 Defendants | Partial | Sensitive

21 Motion to and

Dismiss confidential

22 Amended financial and

Class Action business

23 Complaint information;

see Dkt. No.

24 54-1 at 99 5-

25 6.

26 Plaintiff s 53 52-1 54-1 Defendants | Partial | Sensitive

Appendix and

7 Summarizing confidential

Materially financial and

28 False or business

Document DKkt. Dkt. No. | Dkt. No. | Party with | Full or Brief

| title or No. of ofun- | ofdecl.in| burdento | partial | statement of

description | redacte | redacted | support | substantiate | sealing | reason for

d version | of sealing | need to seal | sought sealing

3 version

4A Misleading information:

Statements see Dkt. No.

5 and 54-1 at 99 5-

Omissions 6.

6 Challenged in

7 the Amended

Complaint

8

9 Civil Local Rule 79-5 requires the party seeking to file a document or portions of it under

10 || seal to explain “(i) the legitimate private or public interests that warrant sealing; (11) the injury that

11 || will result if sealing is denied; and (111) why a less restrictive alternative to sealing is not

a 12 || sufficient.” Civil L.R. 79-5(c)(1). The request must be “narrowly tailored to seal only the sealable

13 || material.” Jd. at 79-5(c)(3). A party seeking to seal records must provide “compelling reasons” to

14 || overcome the “strong presumption in favor of access.” Kamakana v. City & Cty. Of Honolulu,

2 15 || 447 F.3d 1172, 1178 (9th Cir. 2006) (citations omitted); see Ctr. for Auto Safety v. Chrysler Grp.,

QA 16 || LLC, 809 F.3d 1092, 1096 (9th Cir. 2016). The standard derives from the “common law right ‘to

= 17 || inspect and copy public records and documents, including judicial records and documents.’”

6

18 Pintos v. Pac. Creditors Ass 605 F.3d 665, 678 (9th Cir. 2010) (quoting Kamakana, 447 F.3d at

19 1178) (citation omitted)). To overcome this strong presumption, the party seeking to seal judicial

20 || records must “articulate compelling reasons supported by specific factual findings . . . that

21 outweigh the general history of access and the public policies favoring disclosure, such as the

22 || public interest in understanding the judicial process.” Kamakana, 447 F.3d at 1178-79 (citations

23 and quotation marks omitted). The party must make a “particularized showing” that “specific

24 || prejudice or harm will result” if the information is disclosed. Phillips ex rel. Estates of Byrd v.

25 Gen. Motors Corp., 307 F.3d 1206, 1210-11 (9th Cir. 2002). It is in the “sound discretion of the

26 || trial court” to determine what constitutes a “compelling reason” for sealing a court document. □□□

27 || for Auto Safety, 809 F.3d at 1097 (quoting Nixon v. Warner Comme’ns, Inc., 435 U.S. 589, 599

28 || (1978)). The protection of sensitive business information is a compelling reason to seal. Jd.

1 Defendants argue that the FAC and briefing and exhibits on the motion to dismiss contain

2 sensitive financial and business information based on non-public Company Board materials and

3 presentations. ECF 36 ¶¶ 3-4; ECF 41 at 2. Having considered Defendants’ motion and

4 supporting declarations and applying the relevant standard, the Court finds compelling reasons to

5 seal the documents, and citations thereto, listed above. To the extent the FAC, Defendants’

6 Motion to Dismiss, Plaintiff’s Opposition, and Plaintiff’s Appendix include direct quotations from

7 or references to substantive provisions of documents containing proprietary business information,

8 the Court GRANTS the motions to partially seal the documents as proposed in the redacted

9 versions filed. The exhibits attached in support of the Motion to Dismiss, the September 1, 2022

10 “Long Term Financial Plan: 2023-2025,” the September 10, 2022 “Board Presentation,” and the

11 October 26, 2022 “Valuation Materials Underlying Fairness Opinion,” also contain sensitive,

12 competitive business information, including non-public Board materials and presentations by

13 financial advisors, that the parties have agreed would remain confidential. For these reasons, the

14 Court GRANTS the administrative motions to file these exhibits fully under seal.

15 B. Judicial Notice

16 Defendants seek judicial notice of nine exhibits: excerpts of UserTesting’s Proxy and

17 Supplemental Proxy Statement (Exs. 1 and 2); UserTesting’s quarterly and full year earnings

18 release on February 28, 2022, (Ex. 3) quarterly earnings release on May 4, 2022, (Ex. 4), on

19 August 4, 2022 (Ex. 5), and on October 27, 2022 (Ex. 6), filed with the SEC on the respective

20 dates; and reports and presentations shared with UserTesting’s Board of Directors and referred to

21 by Plaintiffs in the FAC (Exs. 7, 8, and 9). ECF 42-12.

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

23 complaint, under Evidence Rule 201, courts may take judicial notice of facts that are “not subject

24 to reasonable dispute.” Fed. R. Evid. 201(b). Courts take judicial notice of documents on which

25 complaints necessarily rely, see, e.g., Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.

26 2001), publicly available financial documents such as SEC filings, Metzler Inv. GMBH v.

27 Corinthian Colls., Inc., 540 F.3d 1049, 1064 n.7 (9th Cir. 2008), and publicly available articles or

1 F.3d 971, 981 n.18 (9th Cir. 1999).

2 Plaintiff does not object but argues that specific factual assertions within the documents

3 should not be accepted as true when they conflict with the First Amended Complaint. Opp. (ECF

4 49) at 11 (citing Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1003 (9th Cir. 2018)). The

5 Court may not assume the truth of an incorporated document “if such assumptions only serve to

6 dispute facts in a well-pleaded complaint.” Khoja, 899 F.3d at 1003. Accordingly, the Court

7 takes judicial notice of the incorporated documents but does not assume the truth of disputed facts.

8 C. Section 14(a) Claim

9 Section 14(a) of the Exchange Act makes it unlawful to solicit a proxy “in contravention of

10 such rules and regulations as the Commission may prescribe as necessary or appropriate in the

11 public interest or for the protection of investors.” Seinfeld v. Bartz, 322 F.3d 693, 696 (9th Cir.

12 2003) (quoting 15 U.S.C. § 78n(a)). Section 14(a) and SEC Rule 14a–9 “disallow the solicitation

13 of a proxy by a statement that contains either (1) a false or misleading declaration of material fact,

14 or (2) an omission of material fact that makes any portion of the statement misleading.”

15 Desaigoudar v. Meyercord, 223 F.3d 1020, 1022 (9th Cir. 2000); see also 15 U.S.C. § 78n(a);

16 17 C.F.R. § 240.14a–9(a). “In addition, a Section 14(a), Rule 14a–9 plaintiff must demonstrate

17 that the misstatement or omission was made with the requisite level of culpability and that it was

18 an essential link in the accomplishment of the proposed transaction.” Seinfeld, 322 F.3d at 697

19 (quoting Desaigoudar, 223 F.3d at 1022).

20 The pleading requirements under Rule 9(b) apply where a claim is “grounded in fraud” or

21 “sound[s] in fraud.” In re Finjan Holdings, Inc., 58 F.4th 1048, 1057 (9th Cir. 2023). “[I]f ‘a

22 plaintiff . . . choose[s] . . . to allege in the complaint that the defendant has engaged in fraudulent

23 conduct,’ then ‘the pleading of that claim as a whole must satisfy the particularity requirement of

24 Rule 9(b).’” Id. (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003)).

25 Plaintiff’s theory is that UserTesting management decided to downwardly revise its projections to

26 secure shareholder approval of Thoma Bravo’s offer, and not based on its own good faith

27 judgments in the financial outlook of the company. Opp. at 7-8. Because Plaintiff asserts that

1 and were made to convince shareholders to accept the merger with Thoma Bravo, the claim

2 “sounds in fraud.” See In re Finjan Holdings, 58 F.4th at 1057.

3 Plaintiff challenges eight statements that Defendants made in the Proxy as materially false,

4 misleading, or omissive. FAC ¶ 5. Defendants move to dismiss Plaintiffs’ Section 14(a) claim

5 based on each of these statements, arguing (1) protection under the PSLRA safe harbor; (2) the

6 opinion statements are not subjectively or objectively false; (3) none of the statements are

7 materially false or misleading; and (4) Plaintiff has not alleged the requisite state of mind. In

8 addition, Defendants argue that Plaintiff has not alleged that Defendant Sabet is liable for any of

9 the statements. Mot. (ECF 42). The Court analyzes these contentions.

10 1. PSLRA Safe Harbor

11 Defendants first argue that all but one challenged statement are protected under the PSLRA

12 safe harbor. Mot. at 17. Under the PSLRA’s “safe harbor” rule, a person is not liable for a false

13 or misleading “forward-looking statement” if 1) it is identified as forward-looking and is

14 “accompanied by meaningful cautionary statements identifying important factors that could cause

15 actual results to differ materially” or 2) the forward-looking statement is “immaterial” or 3) the

16 plaintiff fails to prove it is made by a natural person with “actual knowledge . . . that the statement

17 was false or misleading.” 15 U.S.C. § 78u-5(c); see Weston Fam. P’ship LLLP v. Twitter, Inc., 29

18 F. 4th 611, 620 (9th Cir. 2022). A forward-looking statement is “any statement regarding (1)

19 financial projections, (2) plans and objectives of management for future operations, (3) future

20 economic performance, or (4) the assumptions ‘underlying or related to’ any of these issues.” No.

21 84 Emp.-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 936

22 (9th Cir. 2003) (“America West”) (citing 15 U.S.C. § 78u-5(i)).

23 Defendants argue that the statements are forward-looking, they identified them as such and

24 provided meaningfully cautionary language, and that there is no evidence that the Defendants

25 knew the statements were false or misleading. Mot. at 17-24. The Court first assesses whether the

26 statements are forward-looking before considering whether the statements are accompanied by

27 meaningfully cautionary language or were made without actual knowledge of falsity.

1 a. Forward-Looking Statements

2 Defendants argue that the second Proxy statement is forward looking because it describes

3 the October Forecast and its underlying assumptions. Mot. at 18.

4 • Statement Two: The “October Financial Forecast . . . reflected the potential impact of our

financial results for the third quarter ended September 30, 2022 on future periods [sic], and

5

which reflected reduced levels of revenue, gross margin, EBITDA [earnings before

6 interest, taxes, depreciation, and amortization] and unlevered free cash flow as compared

to the September Financial Forecast as a result of our revenue and billing results for the

7 third quarter and estimates for the fourth quarter and trends in our end markets[.]”

FAC ¶ 5(ii) (citing Proxy at 38).

8

9 Plaintiff responds that the portion of the statement that says that the October Financial Forecast

10 “reflected reduced levels . . . as a result of our revenue and billing results . . . and trends in our

11 markets,” FAC ¶ 5(ii), is not forward-looking as it conveys the purported reason why Defendants

12 lowered projections and was thus “verifiable when it was uttered.” Opp. at 24 (citing In re

13 Twitter, Inc. Sec. Litig., No. 16-CV-05314-JST, 2021 WL 4166725, at *2 (N.D. Cal. Sept. 14,

14 2021).

15 Statements about “the assumptions underlying or relating” to a declared objective are

16 forward-looking statements. Wochos v. Tesla, Inc., 985 F.3d 1180, 1192 (9th Cir. 2021) (quoting

17 15 U.S.C. § 78u-5(i)(1)(D)). In Wochos, the Ninth Circuit held that statements that Tesla was “on

18 track” to achieve a goal and that “there are no issues” that “would prevent” Tesla from achieving

19 the goal are forward-looking statements because they were “merely alternative ways of declaring

20 or reaffirming the objective itself.” Id. at 1191-92. Here, the second statement describes the

21 assumptions underlying the October Forecast – that it was based on the impact of third quarter

22 results on future quarters and had lowered projections than the September Forecast due to third

23 quarter results and market trends. FAC ¶ 5(ii). Plaintiff argues that the statement was not

24 forward-looking because it can be proven true or false whether the October Forecast is based on

25 third quarter revenue and billing or whether Defendants lowered the projections to facilitate the

26 merger. Opp. at 24. Because the safe harbor protects the “‘assumptions’ about future events on

27 which [the] goal is based,” Wochos, 985 F.3d at 1192, the Court finds that statement two is

1 forward-looking.2

2 Defendants also argue that the third statement is forward-looking because it reaffirms the

3 October Forecast. Mot. at 19.

4

• Statement Three: Morgan Stanley assumed that [the October Forecast] had been

5 reasonably prepared on bases reflecting the best currently available estimates and

judgments of UserTesting’s management of the future financial performance of

6 UserTesting. FAC ¶ 5(iii).

7 Plaintiff argues that present opinions about the basis for financial projections do not fall within the

8 PSLRA safe harbor. Opp. at 24-25 (citing Karri v. Oclaro, Inc., No. 18-CV-03435-JD, 2020 WL

9 5982097, at *5 (N.D. Cal. Oct. 8, 2020) (concluding that non-forward-looking statements included

10 1) that the forecast was “reasonably prepared on bases reflecting the best currently available

11 estimates . . .” and 2) implied equity reference ranges per share calculated by the company’s

12 financial advisor and derived from the lower financial projections)). However, the Ninth Circuit

13 has affirmed the opposite conclusion. In Golub v. Gigamon, the plaintiff challenged statements

14 relating to the Board’s belief that a set of updated financial protections were a “better reflection of

15 Gigamon’s financial outlook.” Golub v. Gigamon Inc., 372 F. Supp. 3d 1033, 1046 (N.D. Cal.

16 2019), aff’d, 994 F.3d 1102 (9th Cir. 2021), and aff’d, 847 F. App’x 368 (9th Cir. 2021). There,

17 the company updated its projections after it had two disappointing quarters of results. Id. at 1047.

18 The court reasoned that taking the view that “an expression of a ‘present belief’ in a forward-

19 looking statement is a ‘present fact’ – and therefore not itself a forward-looking statement – would

20 work an end-run around the PSLRA’s safe harbor provision [as] [e]xpressing confidence or lack

21 thereof in a given projection is not different from making a projection.” Id. at 1048 (citations

22 omitted). Thus, despite the company ultimately having a “record-setting” year, the court refused

23 to consider a “fraud by hindsight” claim and found that the statements were protected under the

24

2 Defendants move to dismiss the claim based on the second statement for the additional reason

25

that Plaintiff has not alleged that the statement is false or misleading. Mot. at 26 n.7. Plaintiff

argues that Defendants could not justify significant cuts to their projections based on one quarter

26

of lower billings figures. Opp. at 13. Although Plaintiffs argue that the revisions were pretextual,

the FAC fails to include factual allegations that the downward revision based on lower calculated

27

billings numbers was unjustified. Thus, even if the second statement were not protected under the

1 PSLRA safe harbor. Id.

2 Here, as in Golub, the third statement was based on the October Forecast, which the

3 company made after a disappointing third quarter. An inherent assumption in a financial

4 projection is that it was reasonably prepared. See Golub, 372 F. Supp. 3d at 1048. Plaintiff argues

5 that the statement is not protected by the PSLRA safe harbor because the October Forecast was

6 false. Opp. at 26-27. However, that is precisely what the safe harbor protects. “[E]ven if a

7 statement is objectively false or misleading, the PSLRA provides a ‘safe harbor’ for forward-

8 looking statements . . .[.]” Weston Fam., 29 F.4th at 620. Thus, the third statement is forward-

9 looking.

10 Defendants also contend that the fourth Proxy statement is protected under the PSLRA safe

11 harbor. The fourth Proxy statement states:

12

• Statement Four: Morgan Stanley’s fairness opinion was a “positive reason to support the

13 Merger Agreement.” FAC ¶¶ 5(iv), 136.

14 Defendants’ only explanation for why this is forward-looking is that it is a “reaffirmation or

15 restatement of the underlying October Forecast.” Mot. at 19. The Court cannot agree that a

16 present opinion about Morgan Stanley’s fairness opinion is forward-looking.

17 Defendants next challenge statement five as forward-looking:

18

• Statement Five: The implied present values per share of UserTesting common stock

19 calculated by Morgan Stanley using the October Forecast. Id. ¶ 5(v).

20 The implied present values of common stock in statement five were based on financial projections

21 and are thus protected by the safe harbor. See Police Ret. Sys. of St. Louis v. Intuitive Surgical,

22 Inc., 759 F.3d 1051, 1055-59 (9th Cir. 2014). Plaintiff argues that because the statement is a

23 “present” value, it cannot be protected under the safe harbor. Opp. at 26. However, Plaintiff

24 ignores Ninth Circuit authority which holds that a plaintiff must plead that a statement “goes

25 beyond” an “assumption” contained in a forward-looking statement and must instead contain an

26 “express or implied ‘concrete’ assertion concerning a specific ‘current or past fact.’” Wochos, 985

27 F.3d at 1191 (citation omitted). The fifth statement calculates an implied present value based on

1 statement, the implied present values are forward looking.

2 Finally, Defendants argue that statements six, seven, and eight, which Dickerson alleges

3 are misleading by omission, are protected by the safe harbor. Mot. at 20 (citing 15 U.S.C. § 78u-

4 5(c)(1)).

5 • Statement Six: “[T]he September Financial Forecast . . . was prepared by [Company]

management . . . for the fiscal year ending December 31, 2022 through 2025” failed to

6

disclose that the September Forecast also covered .

7 FAC ¶ 5(vi).

8 • Statement Seven: The September Forecast summary chart failed to disclose projections for

. FAC ¶ 5(vii).

9

10 • Statement Eight: The September Forecast failed to provide the figures for

revenue, gross profit, and FAC ¶ 5(viii).

11

12 Plaintiff argues that the safe harbor does not apply to these statements of omissions because they

13 omit “present facts,” i.e., that Defendants “actually prepared projections in September for

14 .” Opp. at 27. However, the safe harbor protects Defendants who do not fully disclose future

15 projections. See In re Cutera Sec. Litig., 610 F.3d 1103, 1111-12 (9th Cir. 2010) (holding that

16 incomplete disclosures about earnings projections fell within the PSLRA safe harbor).

17 Accordingly, statements six, seven, and eight are also forward-looking statements.

18 Because statements two, three, five, six, seven, and eight are forward-looking, the Court

19 moves on to determine whether the statements were either accompanied by meaningfully

20 cautionary language or were made without Defendants’ actual knowledge that the statements were

21 false.

22 b. Meaningfully Cautionary Statements

23 Forward-looking statements are protected under the PSLRA safe harbor if they are

24 accompanied by “meaningful cautionary statements” or are made without actual knowledge that

25 the statement was false or misleading. 15 U.S.C. § 78u-5(c). Meaningful cautionary statements

26 “identify[] important factors that could cause actual results to differ materially from those in the

27 forward-looking statement.” Id. Cautionary language must “precisely” and “directly” address the

1 597037, at *4 (N.D. Cal. Feb. 28, 2022) (citation omitted) (citing cases).

2 Defendants included language in the Proxy identifying the financial projections as

3 forward-looking and specifically cautioning shareholders about the uncertainties related to the

4 projections. Defendants stated that the “Management Projections constitute forward-looking

5 information and are subject to many risks and uncertainties that could cause actual results to differ

6 materially from the results forecasted . . . [.]” Proxy at 52. The Proxy lists these risks and

7 uncertainties, including “industry performance, general business and economic conditions,

8 customer requirements, [and] . . . adverse changes in applicable laws . . . [.]” Id. The Proxy also

9 states that these projections will be affected by the company’s “ability to achieve strategic goals,

10 objectives and targets,” and that the projections “reflect assumptions as to certain business

11 decisions that are subject to change and cannot, therefore, be considered a guarantee of future

12 operating results, and this information should not be relied on as such.” Id. The Proxy warns: “In

13 light of the foregoing factors, and the uncertainties inherent in the Management Projections, our

14 stockholders are cautioned not to place undue, if any, reliance on the Management Projections.”

15 Id. Further, the Proxy explains that Morgan Stanley made “numerous assumptions with respect to

16 industry performance” and business and financial conditions, “many of which are beyond

17 UserTesting’s control,” such as changes in the financial market and industry. Id. at 49-50. “Any

18 estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or

19 actual values, which may be significantly more or less favorable than those suggested by such

20 estimates.” Id.

21 This language is similar to language the Ninth Circuit has approved as meaningfully

22 cautionary:

23

Before we begin, I would like to inform you that comments mentioned on today’s call

24 may be deemed to contain forward-looking statements. Actual results may differ

materially from those expressed or implied, as a result of certain risks and

25 uncertainties. These risks and uncertainties are described in detail in the company’s

[SEC] filings. Prospective investors are cautioned not to place undue reliance on such

26 forward-looking statements.

27 Intuitive Surgical, 759 F.3d at 1059; see also In re Cutera, 610 F.3d at 1112 (concluding that the

1 looking statements concerning future financial performance and guidance . . . management may

2 make additional forward-looking statements in response to questions, and . . . factors like Cutera’s

3 ability to continue increasing sales performance worldwide could cause variance in the results.”).

4 Plaintiff argues that the language here failed to meaningfully caution that Defendants did

5 not believe that the October Forecast was their reasonably prepared best estimate. Opp. at 28

6 (citing In re SeeBeyond Techs. Corp. Secs. Litig., 266 F. Supp. 2d 1150, 1165 (C.D. Cal. 2003)

7 (holding that cautionary language accompanying a forward-looking statement made with actual

8 knowledge that it is false or misleading “can only be meaningful if it either states the belief of the

9 speaker that is false or misleading or, at the very least, clearly articulates the reasons why it is false

10 or misleading.”)). However, where a party identifies a statement as forward-looking and

11 accompanies it with meaningfully cautionary language, “the state of mind of the individual

12 making the statement is irrelevant, and the statement is not actionable regardless of the plaintiff’s

13 showing of scienter.” In re Cutera, 610 F.3d at 1112. Although Plaintiff argues that Defendants

14 did not genuinely believe that the financial projections in the Proxy were true, Defendants’ state of

15 mind is not relevant because of the detailed language warning investors about the specific risks

16 inherent in these projections and cautioning them not to place undue reliance on them.

17 Accordingly, statements two, three, five, six, seven, and eight are protected under the PSLRA safe

18 harbor and the Court DISMISSES the claims based on those statements.

19 2. Expressions of Opinion

20 Defendants move to dismiss the claims based on statements three, four, and five on the

21 additional basis that they are expressions of opinion that are not subjectively or objectively false.

22 Mot. at 25-27. 3 Plaintiff does not dispute that these are expressions of opinion. Opp. at 13-14.

23 Although the Court has already found that statement three is protected under the PSLRA, it

24 additionally finds that the Section 14(a) claim based on statement three and statement four may be

25

26

3 Although the parties do not dispute that statement five is an opinion statement, the Court cannot

find that statement five (the implied present values of shares) is an opinion statement, as it is not a

27

statement of “reason[], opinion, or belief.” Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083,

1 dismissed because Plaintiff has not alleged that the statements are objectively or subjectively false.

2

• Statement Three: “Morgan Stanley assumed that [the October Financial Forecast] had been

3 reasonably prepared on bases reflecting the best currently available estimates and

judgments of UserTesting’s management of the future financial performance of

4 UserTesting. Morgan Stanley expressed no view as to such financial projections or the

assumptions on which they were based.” FAC ¶¶ 5(iii).

5

6 • Statement Four: Morgan Stanley’s fairness opinion was a “positive reason to support the

Merger Agreement.” FAC ¶¶ 5(iv).

7

8 Expressions of opinions – as opposed to statements of fact – are only actionable if they are

9 both subjectively and objectively false or misleading. Rubke v. Capitol Bancorp Ltd, 551 F.3d

10 1156, 1162 (9th Cir. 2009) (citing Va. Bankshares, 501 U.S. at 1094-96). The parties dispute

11 whether Plaintiff has shown that statements three are four are objectively and subjectively

12 misleading.

13 Statements three and four are opinions, as they “inherently reflect the speaker’s assessment

14 of and judgment about the underlying circumstances.” Markette v. XOMA Corp., No. 15-CV-

15 03425-HSG, 2017 WL 4310759, at *4 (N.D. Cal. Sept. 28, 2017). In pleading the falsity of

16 opinion statements such as these, Plaintiff “must allege both that ‘the speaker did not hold the

17 belief she professed’ and that the belief is objectively untrue.” City of Dearborn Heights Act 345

18 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 616 (9th Cir. 2017) (citation omitted).

19 As the Supreme Court explained in Omnicare, “a statement of opinion is not misleading just

20 because external facts show the opinion to be incorrect.” Omnicare, Inc. v. Laborers Dist.

21 Council Const. Indus. Pension Fund, 575 U.S. 175, 186 (2015). “[W]hether an omission makes

22 an expression of opinion misleading always depends on context.” Id. at 190.

23 Plaintiff contends that the claim regarding the third statement is “predicated on the fact that

24 the Defendants – UserTesting’s management – did not actually hold such a belief” that the

25 October Forecast was reasonably prepared. Opp. at 16. However, she has alleged no facts

26 allowing the Court to make such an inference. Plaintiff also has not alleged that Defendants did

27 not believe that the fairness opinion was a reason to support the merger. Plaintiff argues that the

1 financial projections was misleading or false when they were made at a time when the financial

2 community stated that the company was “poised for growth . . . and that its stock was

3 undervalued.” 2020 WL 5982097 at *6. However, here, UserTesting’s calculated billings

4 decreased during the third quarter between the September and October financial projections.

5 FAC ¶ 65. In Karri, there were no allegations that any financial metrics had decreased before the

6 company revised its projections. Plaintiff also argues that MacMillan’s statement touting the

7 Company’s “strong third quarter results” and record revenue,” FAC ¶ 67, show the subjective

8 falsity of the statements that the financial projections were reasonably prepared. Opp. at 19.

9 However, the fact that MacMillan made positive statements about the Company’s future does not

10 create an inference that relying on the October Forecast misrepresented the value of the Company.

11 See Golub, 372 F. Supp. 3d at 1048.

12 Ultimately, while Plaintiff disagrees that the calculated billings decrease supported

13 revising the financial projections, she has not provided factual allegations that the statements were

14 objectively false or that Defendants subjectively did not believe them to be true. Accordingly, the

15 Court DISMISSES the claims based on statements three and four.

16 3. Materially False or Misleading

17 Defendants next argue that Plaintiff has not alleged that the first Proxy statement is

18 materially false or misleading. Mot. at 24-25. Plaintiff challenges statement one as false because

19 the statement indicates that revenue was lower than anticipated,

20 :

21

• Statement One: The Company’s “anticipated [Q3 2022 results as communicated to Thoma

22 Bravo on September 30, 2022] included revenue and calculated billings . . . that were

lower than those anticipated by Wall Street analysts, Thoma Bravo and the September

23 Financial Forecast.” FAC ¶ 5(i) (citing Proxy at 35) (alteration in original).

24 Defendants argue that this statement is not false or misleading because calculated billings fell

25 short of expectations. Mot. at 24-25 (citing Proxy at 35).

26 According to the allegations in the FAC, calculated billings were lower than anticipated.

27 FAC ¶ 65. Thus, the portion of the first statement referencing calculated billings was not false.

1 revenue in the third quarter .

2 See id. Defendants argue on reply that the statement is not false because it does not include the

3 word “both” in front of “revenue and calculated billings.” Reply (ECF 55) at 8. Defendants’

4 argument does not change the fact that the statement says that the anticipated results “included

5 revenue and calculated billings . . . that were lower than those anticipated . . .” FAC ¶ 5(i) (citing

6 Proxy at 35) (emphasis added).

7 Defendants also argue that because the third quarter results were reported publicly on

8 October 27, 2022, months before the Proxy was published, shareholders could not be misled about

9 revenue results. Mot. at 25 n.6. However, “investors are not generally required to look beyond a

10 given document to discover what is true and what is not.” Miller v. Thane Int’l, Inc., 519 F.3d

11 879, 887 (9th Cir. 2008); see In re Apple Computer Sec. Litig., 886 F.2d 1109, 1114 (9th Cir.

12 1989) (“Ordinarily, omissions by corporate insiders are not rendered immaterial by the fact that

13 the omitted facts are otherwise available to the public.”). Accordingly, the Court finds that

14 Dickerson has sufficiently alleged that the first Proxy statement is false or misleading.

15 4. Defendants’ State of Mind

16 Defendants further argue that Plaintiff failed to plead particularized facts that each

17 individual defendant acted with the requisite state of mind. Mot. at 30-31. Section 14(a) claims

18 do not require scienter, and instead require only a showing of negligence. See In re Finjan

19 Holdings, Inc., 58 F.4th at 1058; see, e.g., Mehedi v. View, Inc., No. 21-CV-06374-BLF, 2023 WL

20 3592098, at *14 (N.D. Cal. May 22, 2023); see also Varjabedian v. Emulex Corp., 888 F.3d 399,

21 408 (9th Cir. 2018) (“[B]ecause the text of the first clause of Section 14(e) is devoid of any

22 suggestion that scienter is required, we conclude that the first clause of Section 14(e) requires a

23 showing of only negligence, not scienter.”). Plaintiff fails to respond to Defendants’ argument,

24 and thus concedes it. See Namisnak v. Uber Techs., Inc., 444 F. Supp. 3d 1136, 1146 (N.D. Cal.

25 2020) (“Plaintiff fails to respond to this argument and therefore concedes it through silence.”)

26 (quoting Ardente, Inc. v. Shanley, No. C 07-4479 MHP, 2010 WL 546485, at *6 (N.D. Cal. Feb. 9,

27 2010)). As Plaintiff fails to plead particularized facts “giving rise to a strong inference that [each]

1 DISMISSES the Section 14(a) claim with leave to amend.*

2 D. Section 20(a) Claim

3 To state a Section 20(a) claim, a plaintiff must allege both “a primary violation of federal

4 || securities law” and “that the defendant exercised actual power or control over the primary

5 violator.” Dearborn Heights, 856 F.3d at 623 (quoting Zucco Partners, 552 F.3d at 990) (internal

6 quotation marks omitted); 15 U.S.C. § 78t(a); see In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046,

7 1052 (9th Cir. 2014) (requiring “a primary violation of underlying federal securities laws” to

8 establish a cause of action under Section 20(a)). Because Plaintiff has failed to allege a Section

9 14(a) claim, the Section 20(a) claim also fails. Accordingly, the Court DISMISSES the Section

10 20(a) claim with leave to amend.

11 || IV. CONCLUSION

12 For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss □□□□□□□□□□□

5 13 complaint with leave to amend. Any amended complaint must be filed by September 26, 2024.

14 || No additional claims or parties may be added without leave of Court or stipulation of Defendants.

3 15 This Order is the redacted version of the Order filed under seal. ECF 60. The parties met

a 16 || and conferred and submitted a new proposed redacted version of the sealed Order on September

3 17 || 4, 2024 that incorporated the Court’s rulings on the administrative motions to seal.

18 IT IS SO ORDERED.

19 Dated: September 16, 2024

20

21

22

23 col: Mod nf

24

ARACELI MARTINEZ-OLGUIN

United States District Judge

26

27 * Because the Court dismisses the Section 14(a) claim, it does not assess whether Plaintiff has

28 alleged that Defendant Sabet made any misstatements.