Shareholder Class Action Against LogMeIn Dismissed

A federal judge sitting in Boston, Mass. dismissed a shareholder class action filed on behalf of the former shareholders of LogMeIn, Inc. on Wednesday. The suit against the company and several of its officers charged the defendants with violating federal securities laws. The three lead plaintiffs’ claims centered on LogMeIn’s acquisition of GetGo, Inc. and the transition of GetGo customers from monthly to annual billing plans. The court’s opinion and order permitted the plaintiffs leave to amend a small subset of their allegations.

According to the order, LogMeIn is “a Boston-based provider of cloud-based software services used by mobile professionals to work remotely and IT service providers to manage computers and servers.” It reportedly generates revenue chiefly from subscription fees charged to individual consumers and small and medium-sized businesses. In July 2016, LogMeIn announced that it was planning to acquire GetGo, a subsidiary of LogMeIn’s biggest rival, Citrix Inc., and with it GetGo’s “GoTo family of products,” including GoToMeeting, GoToWebinar, and a handful of others. The order reported that “the transition did not go particularly smoothly.”

The shareholders’ complaint principally relied on information supplied by five confidential witnesses, who varied in their seniority and areas of expertise within LogMeIn’s corporate structure. According to the court, “the common theme espoused by the (confidential witnesses was) that LogMeIn management bungled the transition and lost customers as a result.”

In turn, the plaintiffs alleged securities fraud in violation of both Section 10(b) and Section 20(a) of the Exchange Act for misrepresentations made prior to and after the acquisition. Specifically, the shareholders contended that the defendants “knew that the transition was proving challenging throughout the class period based on their own internal review of anticipated (customer) cancellations, yet failed to disclose that fact to investors, as made evident by their eventual admission that (customer) retention rates had been declining for the duration of the class period.”

The defendants argued that the court should dismiss the complaint because it failed to plead facts that satisfy the first two elements of a Section 10(b) claim, that any statement was false or misleading and scienter. 

The court analyzed factual allegations setting forth LogMeIn’s supposed misrepresentations, like statements made during earnings calls by company officers concerning its financial welfare. As to the overwhelming majority of factual allegations, the court held that even if it assumed that they were true, the complaint did not adequately allege that they were fraudulent. The court explained that most of the challenged statements were either not material misrepresentations or omissions, were mere puffery, or were unactionable forward-looking statements.

As to scienter, the court ruled that the plaintiffs failed to “plead sufficient facts to support the conclusion that the Company acted with the requisite state of mind.” Finally, because Section 20(a) claims are derivative of Section 10(b) claim, the court held that the plaintiff’s 20(a) claim fell alongside the latter. The court noted that because allegations concerning whether customers were being transitioned to the new payment regime against their will presented “a close call,” the plaintiffs were permitted to amend their complaint within 21 days with respect to those allegations only.

The plaintiffs are represented by Glancy Prongay & Murray, Block & Leviton, and The Rosen Law Firm. LogMeIn is represented by Latham & Watkins LLP.