On Friday, DocuSign, Inc. filed a motion to dismiss to the Northern District of California requesting that the court dismiss the plaintiffs’ class action securities fraud complaint in Weston v. DocuSign, Inc.
According to the motion, DocuSign is a San Francisco based software company and is the largest provider of eSignature products in the world. Further, Docusign’s common stock trades on the NASDAQ under the symbol DOCU.
The complaint states that plaintiffs are individuals and entities who purchased DocuSign common stock from June 4, 2020 through June 9, 2022. The plaintiffs filed an amended complaint on July 8, 2022, alleging that DocuSign committed securities fraud in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
DocuSign states that the pandemic accelerated the need and demand for its eSignature causing it to beat its guidance exceeding expectations for six straight quarters after the onset of COVID-19. Further, it purports to have properly disclosed that it was uncertain about the pandemic’s effect on its business and customers and that such disclosures were direct and appropriately cautionary.
Conversely, in the complaint, the plaintiffs argued that DocuSign falsely reassured investors that the massive surge in customer demand in early 2020 brought on by the COVID-19 pandemic was a “sustained rise in demand” and “not a short term thing” because, once customers switch to eSignature, “they rarely go back.” Further, the plaintiffs argue that DocuSign had information that the demand and growth caused by the pandemic was unsustainable and concealed that information from investors.
The motion states that DocuSign reported its third quarter results for fiscal year 2022 on December 2, 2021, and it exceeded its revenue guidance but reported a billings guidance miss of 3.4 percent. The plaintiffs state that this caused DocuSign’s share price to plummet 42 percent in a single day and that it defrauded and misled investors causing the inflated share prices and subsequent decline in value.
In the motion to dismiss, DocuSign argued that the plaintiffs 171-page amended complaint lacks the substantive content necessary to plead a claim under the federal securities laws containing “pointless repetition and unfounded conclusions.”
Specifically, the motion to dismiss states that the plaintiffs failed to point to a single statement in a disclosure that was false or fraudulent nor a specific fact showing DocuSign had any intent or knowledge of wrongdoing as required by Securities Exchange Act. Further, it argues that the plaintiffs failed to properly plead a specific misstatement with a causal connection to the drop in share price and that the lower growth rate and subsequent price drop caused reactions to evolving market conditions.
Accordingly, DocuSign asks the court to dismiss the plaintiffs’ complaint for failing to adequately state a claim under the Securities Exchange Act of 1934. DocuSign is represented by Fenwick & West LLP, and the plaintiffs are represented by Labaton Sucharow, Kessler Topaz Meltzer & Check, LLP, Klausner, Kaufman, Jensen & Levinson and Risch Pisca, PLLC.