The opinion of the court was delivered by: JEFFREY WHITE, District Judge
ORDER GRANTING MOTION TO DISMISS
Now before the Court is the motion filed by Defendants
salesforce.com, inc. (the "Company"), Marc R. Benioff and Steve
Cakebread (collectively, "Defendants") to dismiss the Corrected
and Superseding First Amended Class Action Complaint (the
"Complaint"). Having carefully reviewed the parties' papers and
considered their arguments and the relevant legal authority, and
good cause appearing, the Court hereby GRANTS Defendants' motion
to dismiss without leave to amend.
In this federal securities class action, Plaintiff Chuo Zhu,
representing a purported class of purchasers of the common stock
of the Company between June 23, 2004 and July 21, 2004, alleges
that the Company's failure to disclose an internal earnings
forecast for fiscal year 2005 (ending January 31, 2005),
developed prior to the start of the fiscal year and predicting
diluted earnings per share ("EPS") of breakeven 3 cents,
constitutes a violation of the Securities Exchange Act of 1934. Founded in 1999, the Company provides on-demand, web-based
information management, or customer relationship management
("CRM") solutions, to companies of all sizes on a subscription
basis. (Complaint at ¶¶ 2, 35.) The Company went public in a
highly publicized initial public offering ("IPO") on June 23,
2004. (Id. at ¶¶ 6, 57.)
In advance of the IPO, the Company filed with the SEC a Form
S-1 Registration Statement and amendments which disclosed the
estimated diluted earnings per share by fiscal year. (See
Complaint at ¶ 60; Main Decl., Ex. A at 23, F-4, F-12.) The
Registration Statement also disclosed that fiscal year 2004
earnings benefitted from an extraordinary, non-recurring item,
the abandonment of office lease space in San Francisco. (See
Declaration of Claudia N. Main ("Main Decl."), Ex. A at 27.) When
that non-recurring item is excluded from the calculation, fiscal
year 2004 earnings would have been 1 cent.
The IPO price of the Company's stock was $11.00. (See
Complaint at ¶ 57.) After the passage of nearly one month, on
July 20, 2004, the stock price was $16.06. (See id. at ¶ 15.)
On July 21, 2004, Defendant Cakebread provided securities
analysts with internal guidance of the fiscal years 2005 for the
first time. The internal guidance indicated that the Company had
predicted a fiscal 2005 net income of breakeven to 3 cents a
share and revenue of $160 to $165 million. (See id. at ¶¶ 10,
78, 80, 81.) Cakebread also indicated that the Company had been
using the guidance internally since February 1, 2004. (See id.
at ¶¶ 10, 79, 81.) The next day, the Company's stock price closed
at $11.42, reflecting a 29% decline from the previous days'
closing price of $16.06. (See id. at ¶¶ 15, 83.)
On February 17, 2005, the Company announced its actual results
for fiscal year 2005. The revenues for the year were $176
million, 84% higher than fiscal year 2004 revenues. (See Main
Decl., Exs. B, C at 19, 51.) Diluted earnings per share were 7
cents, or 75% higher than the fiscal year 2004 diluted earnings.
The Court will address other specific facts relevant to this
motion as they are pertinent to the analysis. ANALYSIS
Rule 10b-5 makes it unlawful for any person to use interstate
(a) To employ any device, scheme, or artifice to
(b) To make any untrue statement of material fact or
to omit to state a material fact necessary in order
to make the statements made, in light of the
circumstances under which they were made, not
(c) To engage in any act, practice, or course of
business that operates or would operate as a fraud or
deceit upon any person, in connection with the
purchase or sale of any security.
17 C.F.R. § 240.10b-5.
To plead a claim under section 10(b) and Rule 10b-5, a
plaintiff must allege (1) a misrepresentation or omission, (2) of
material fact, (3) made with scienter, (4) on which the plaintiff
justifiably relied, (5) that proximately caused the alleged loss.
Binder v. Gillespie, 184 F.3d 1059, 1063 (9th Cir. 1999).
Additionally, as in all actions alleging fraud, Plaintiff must
state with particularity the circumstances constituting fraud.
Greebel v. FTP Software, Inc., 194 F.3d 185, 193 (9th Cir.
1999); Fed.R.Civ.P. 9(b).
Plaintiff also claims that individual defendants, Chief
Executive Officer Marc R. Benioff and Chief Financial Officer
Steve Cakebread, are liable pursuant to Section 20(a) of the
Securities Exchange Act, which provides for derivative liability
for those who control others found to be primarily liable under
the provisions of that act. In re Ramp Networks, Inc. Sec.
Lit., 201 F. Supp. 2d 1051, 1063 (N.D. Cal. 2002). Where a
plaintiff asserts a Section 20(a) claim based on an underlying
violation of section 10(b), the pleading requirements for both
violations are the same. Id.
A. Applicable Pleading Standards.
A motion to dismiss is proper under Rule 12(b)(6) where the
pleadings fail to state a claim upon which relief can be granted.
Fed.R.Civ.P. 12(b)(6). A motion to dismiss should not be
granted unless it appears beyond a doubt that a plaintiff can
show no set of facts supporting his or her claim. Conley v.
Gibson, 355 U.S. 41, 45-46 (1957); see also De La ...