In a 30-page opinion issued on Tuesday, Judge Maxine M. Chesney dismissed the shareholders’ securities law claims against Cloudera Inc. and its leaders and financial backers without leave to amend.
The court said that the 42 statements proffered as proof of the company’s misrepresentations about the viability of its data storage and processing platform were inactionable as either not misleading, puffery, or protected, forward-looking statements. Likewise, the plaintiffs’ fraud claims failed to pass muster for inability to satisfy the securities laws’ falsity requirement.
The case dates to April 2017 when Cloudera announced an IPO. Later that year, it announced a secondary public offering. The plaintiffs note that in the latter offering, Cloudera’s earliest venture capital backer and its co-founder and Chief Strategy Officer, collectively sold over $112 million of Cloudera stock at $15.79 per share.
A year later, the company announced a merger with Hortonworks Inc., and touted it as a boon. According to plaintiffs, however, the merger was forced owing to insiders’ knowledge that the company was facing stiff competition and customers were already moving their workloads to “actual cloud providers” like Amazon, Google and Microsoft.
In early 2019, the merger closed. In June 2019, after announcing its “profoundly negative” first quarter financials, Cloudera’s share price closed at $5.21 per share, a single day drop of approximately 40.8% on extraordinary trading volume.
The shareholders claim the defendants knew the company was on thin ice, yet concealed material facts, causing them to lose money when the share price tumbled.
In this week’s opinion, Judge Chesney reviewed the statements alleged in the plaintiffs’ second amended complaint as well as the findings of the previously assigned Judge Lucy H. Koh who dismissed the first complaint in 2021.
Like the prior analysis, the opinion concluded that the statements were either forward-looking ones accompanied by meaningful cautionary language, and therefore immunized under the securities law’s safe harbor provision, not actionable as statements of corporate optimism, or were not shown to have been false when made.
For example, in assessing some of the 31 statements relating to cloud products, the court said the plaintiff’s new argument about the meaning of certain product-specific terms, made without supporting facts, was unpersuasive. Conclusory allegations cannot lend support to the plaintiffs argument that to reasonable investors, “cloud-native” and “cloud architecture” would mean “that such offerings or capabilities had specific material attributes such as the use of containers, ease-of-use, seamless scalability, security and elasticity,” the court explained.
Additionally, the plaintiffs’ fraud-based claims fell away for inability to satisfy the heightened pleading requirement, the opinion concluded. Citing the court’s previous warning that failure to cure pleading deficiencies would result in dismissal with prejudice, the court denied leave to amend.
The investors are represented by Kahn Swick & Foti LLP and Cloudera by Morrison & Foerster LLP and Munger, Tolles & Olson LLP.
