United States District Court, N.D. California
ORDER DENYING MOTION TO STRIKE AND GRANTING MOTIONS
TO DISMISS WITH LEAVE TO AMEND
CHARLES R. BREYER UNITED STATES DISTRICT JUDGE
pending are Defendants’ Motion to Strike and three
Motions to Dismiss. As explained below, the Court DENIES the
Motion to Strike and GRANTS the Motions to Dismiss with leave
matter is a proposed securities fraud class action against
Defendants Identiv, Identiv’s Chief Executive Officer
Jason Hart, and Identiv’s Chief Financial Officer Brian
Nelson (collectively “Defendants”). Lead
Plaintiff Thomas Cunningham brings the case on behalf of all
persons who purchased Identiv’s common stock between
November 13, 2013, through November 30, 2015 (the
“Class Period”). Cunningham filed an amended
complaint alleging that the Defendants made “materially
false and misleading statements and omissions with
scienter” with regards to numerous public statements
about Identiv’s executive compensation and internal
financial controls, in violation of Securities Exchange Act
Section 10(b) and SEC Rule 10b-5. See Amended Compl.
(dkt. 34) (“Complaint”) ¶¶ 132-36.
Cunningham also alleges that Hart and Nelson are liable for
Identiv’s fraudulent conduct as “controlling
persons” of the company under Section 20(a) of the same
act. See id. ¶ 142.
now collectively and individually move to dismiss the
complaint, arguing that Cunningham has failed to meet his
heightened pleading burden to assert with particularity
specific facts showing any actionable material
misrepresentations or omissions, a strong inference of
scienter as to those statements, and loss causation.
See Identiv Mot. (dkt. 39) (“Motion”) at
1-2; Hart Mot. (dkt. 40) at 1; Nelson Mot. (dkt. 41) at
MOTION TO STRIKE
seeks to strike certain paragraphs and sentences in the
complaint that rely on a separate state court complaint,
Ruggiero v. Identiv, Inc., No. HG15764795 (Cal.
Super. Ct. Alameda County., filed Apr. 2, 2015) (hereafter
“Ruggiero complaint”) as a violation of
Federal Rule of Civil Procedure 11(b). See Mot. at
i, 10 n.11. Under Rule 11, “we do not require
complaints to be verified, ” because “[a]s the
litigation progresses, and each party learns more about its
case and that of its opponents, some allegations fall by the
wayside.” PAE Gov’t Serv., Inc. v. MPRI,
Inc., 514 F.3d 856, 859 (9th Cir. 2007). Rule 11
“deals specifically with bad faith conduct.”
See id. Cunningham asserts that his counsel
“conduct[ed] an investigation of all the allegations in
the Complaint, ” which also “contains numerous
corroborating factual sources for its allegations”
independent of the Ruggiero complaint. See
Opp’n (dkt. 45) at 32. The complaint confirms that
Cunningham premises his “information and belief”
on his counsel’s “independent
investigation” of “Identiv’s public filings
with the SEC, ” “public reports, ”
“economic analysis of securities movements, ”
“transcripts of Identiv’s investor’s calls,
” “interviews with former employees and other
potential witnesses, ” and “other publically
available material.” See compl. ¶ 2.
There is no indication that Cunningham’s counsel acted
in bad faith by referencing the Ruggiero complaint.
See PAE Gov’t Serv., 514 F.3d at 859. Keeping
with the proposition that “[c]ourts generally disfavor
motions to strike because striking is such a drastic remedy,
” see Freeman v. ABC Legal Serv., Inc., 877
F.Supp.2d 919, 923 (N.D. Cal. 2012) (citing Stanbury Law
Firm v. IRS, 221 F.3d 1059, 1063 (8th Cir. 2000)), the
Court hereby DENIES Defendants’ motion to strike the
MOTIONS TO DISMISS
fraud claims must meet the heightened pleading standards of
Rule 9(b), requiring that “a party must state with
particularity the circumstances constituting fraud or
mistake, ” Fed.R.Civ.P. 9(b), and of the Private
Securities Litigation Reform Act: “the complaint shall
specify each statement alleged to have been misleading, the
reason or reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on
information and belief, the complaint shall state with
particularity all facts on which that belief is
formed.” 15 U.S.C. § 78u-4(b)(1) (2010);
Tellabs, 551 U.S. at 321. Courts are to dismiss any
complaint that does not meet these requirements. See
15 U.S.C. § 78u-4(b)(3)(A).
alleging securities fraud under Securities Exchange Act
Section 10(b), 15 U.S.C. § 78j(b) (2010), and associated
SEC Rule 10b-5, 17 C.F.R. § 240.10b-5(b), must plead the
following elements: (1) a material misrepresentation or
omission; (2) scienter; (3) a connection with the purchase or
sale of a security; (4) reliance on the misrepresentation;
(5) economic loss; and (6) loss causation (a causal
connection between the material misrepresentation and the
economic loss). See Dura Pharm., Inc. v. Broudo, 544
U.S. 336, 341-42 (2005); Loos v. Immersion Corp.,
762 F.3d 880, 886-87 (9th Cir. 2014).
Court concludes that Cunningham failed to adequately plead
(A) material misrepresentations as to the internal controls
statements,  (B) a strong inference of scienter as to
all misrepresentations, and (C) loss causation.
10(b) and Rule 10b-5(b) “do not create an affirmative
duty to disclose any and all material information.”
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S.
27, 44 (2011). These rules “prohibit only misleading
and untrue statements, not statements that are
incomplete.” In re Rigel Pharm., Inc. Sec.
Litig., 697 F.3d 869, 880 n.8 (9th Cir. 2012).
Cunningham first alleges that the 2013 Form 10-K and the 2013
and 2014 Forms 10-Q-issued prior to Identiv’s supposed
remediation of the internal controls material weakness as
announced in its 2014 10-K-are misleading because they
“failed to disclose the existence of . . . the weakness
related to the Company’s ‘entity level
controls.’” See Compl. ¶
He alleges that although Identiv disclosed the internal
controls material weakness, see, e.g., id.
¶ 34, that weakness was separate from the undisclosed
entity level controls weakness that BDO identified and
notified the Board of in 2015, see Compl.
¶¶ 13, 91, 112, 115. Yet the complaint does not
allege with particularity that the latter material weakness
was present simultaneously and distinct from the former
weakness, see id. ¶ 91. Identiv affirmatively
disclosed the presence of the internal controls material
weakness. See e.g., ¶¶ 77, 81, 83, 85, 89.
Even if a second entity level controls weakness existed in
2013 and/or 2014 (one that BDO did not establish until a year
later), Identiv did not have an “affirmative
duty” to disclose it during those years. See
Matrixx, 563 U.S. at 44.
Cunningham contends that Identiv misrepresented that it had
remediated the internal controls weakness. See
Compl. ¶¶ 91, 94, 97, 100; Opp’n at 22-23.
Conversely, Identiv argues that the 2015 internal controls
weakness was “distinct” from the previous one,
albeit “described with similar terminology.”
See Mot. at 14, 16. Cunningham so far has failed to
“state with particularity the circumstances, ”
see Fed.R.Civ.P. 9(b), showing that the entity level
controls weakness existed simultaneously with the internal
controls weakness in 2013 and 2014 . He also failed to
“state with particularity all facts” forming the
basis of ...