United States District Court, N.D. California
IN RE INVENSENSE, INC. SECURITIES LITIGATION.
ORDER DISMISSING CASE Re: Dkt. No. 80
DONATO United States District Judge
securities fraud class action, defendants challenge
plaintiff's first amended complaint for failing to state
actionable claims. Dkt. No. 80. The complaint is dismissed
with prejudice and the case is ordered closed.
INVENTORY CLAIMS (STATEMENT NOS. 1-3)
Court dismissed plaintiff's first effort to state
inventory-related claims for failing to plead falsity
adequately. See Dkt. No. 78. Specifically, plaintiff
did not state with particularity the facts on which
plaintiff's information and belief were formed.
Id. at 6-7 (citing 15 U.S.C. § 78u-4(b)(1)).
The Court expressly advised plaintiff that, while a
confidential witness or informant is by no means a mandatory
factor, it needed “to identify some source for
how it knows of the key, very detailed factual allegations in
its complaint that support its theory of falsity,
e.g., that ‘by the end of June 2013,
InvenSense had built up an inventory of approximately 20
million 3-axis MEMS chips that were specifically for the
iPhone 5S and 5C'; or that these chips, which had an
‘approximate cost of $0.44 per chip' became
unsalable because, among other things, they ‘suffered
from manufacturing yield problems and did not meet any
high-volume customer's specifications.'”
Id. at 7 (quoting Dkt. No. 62 ¶¶ 8,
inventory claims in the amended complaint again do not meet
this basic pleading obligation. The foundational factual
allegation upon which these claims hinge is that the
“excess or obsolete” inventory InvenSense later
had to write down in fact consisted of “20 million
3-axis MEMS chips that had been manufactured for use in the
iPhone 5S and 5C in the summer of 2013, but never sold to
Apple.” Dkt. No. 79 ¶ 47. There can be no question
that without this fact, the inventory claims cannot stand.
See Dkt. No. 79-1 at 1-2 (explaining that the reason
why Statement Nos. 1-3 were false and misleading is because
the later written-off inventory “was primarily
comprised of approximately 20 million chips leftover from the
Apple design loss with the iPhone 5S and 5C” which the
Company improperly failed to write off earlier).
another chance to explain why or how it knows or believes
this foundational fact to be true, plaintiff's
allegations remain materially unchanged. Plaintiff says
paragraphs 48 to 50 of the amended complaint lay out the
bases for its information and belief, see Dkt. No.
86 at 2-3, but that is not the case. In Berson v. Applied
Signal Technology, Inc., 527 F.3d 982 (9th Cir. 2008),
an analogous foundational fact was the existence of four
“stop-work orders.” Plaintiffs alleged those
orders made Applied Signal's backlog reports misleading
because the reports included work Applied Signal was unlikely
ever to perform because it “had been halted [by the
stop-work orders] and was likely to be lost forever.”
Id. at 984. The circuit rejected the falsity
challenge because the complaint had “identifie[d] four
confidential witnesses who worked for Applied Signal and who
allegedly will testify to the existence and effect of the
stop-work orders.” Id. at 985. These
confidential witness employees were of a type where it was
“entirely plausible” that they “would know,
or could reasonably deduce, that the company had suffered
such setbacks.” Id. The circuit expressly held
that plaintiffs had “allege[d] the existence . . . of
the stop-work orders with particularity, ” where for
the second stop-work order, the complaint contained
statements by one of the confidential witnesses that
“the order followed a ‘series' of client
meetings where ‘management' tried unsuccessfully to
‘negotiate away' certain contract
requirements.” Id. at 987 & 988 n. 5. The
circuit also observed that “a different confidential
witness will allegedly testify that the third stop-work order
caused the company to reassign ‘50-75 employees, '
with the result that one of the company's facilities
became a ‘ghost town.'” Id.
scant factual allegations here about the supposed existence
of the 20 million 3-axis MEMS chips are qualitative worlds
apart from the allegations upheld in Berson. It is
true that plaintiff now makes a passing reference to a
confidential witness. See Dkt. No. 79 ¶ 50
(“In addition to the above sources, Lead
Plaintiff's allegations regarding InvenSense's
inventory of and inability to sell the 20 million 3-axis MEMS
chips that had been manufactured for use in the iPhone 5S and
5C are based on and corroborated by investigative interviews
with a former InvenSense officer who has requested to remain
anonymous.”). But this allegation is so sparse and
conclusory that it does not add materially to the soundness
of the complaint. Cf. Zucco Partners, LLC v.
Digimarc Corp., 552 F.3d 981, 995 (9th Cir. 2009) (for
complaint relying on statements from confidential witnesses
to satisfy PSLRA pleading requirements, confidential witness
“must be described with sufficient particularity to
establish their reliability and personal knowledge”).
Not only is the confidential witness barely described, the
complaint does not offer up any specific statements by the
confidential witness at all.
other allegations are also insufficient. Plaintiff has added
citations to the Company's own SEC filings and a handful
of third-party articles and reports. Dkt. No. 79 ¶¶
48-49. But the Company's SEC filings did not reveal that
its obsolete inventory consisted of 20 million 3-axis MEMS
chips -- if they had, there would be no securities fraud case
at all. And the speculations of some journalists and analysts
along the same lines as plaintiff do not make them useful
“sources” for plaintiff's claims. Allegations
of this kind fail to meet the PSLRA's requirement that
falsity be pled with particularity under 15 U.S.C. §
78u-4(b)(1). See Rubke v. Capitol Bancorp Ltd, 551
F.3d 1156, 1166 (9th Cir. 2009) (“Rubke has failed to
reveal ‘the sources of her information' with regard
to the telephone conversations, and has not otherwise
described how she knows that Capitol ‘exhorted'
Pedisich to make the calls. Thus, she has not properly
alleged the falsity of these statements under the
PSLRA.”) (internal citations omitted); Applestein
v. Medivation, Inc., 561 Fed.Appx. 598, 600 (9th Cir.
2014) (“uncredited and speculative conclusions do not
‘provide an adequate basis for believing that the
defendants' statements were false'”) (quoting
Zucco Partners, 552 F.3d at 995); see also In
re: FVC.com Sec. Litig., 32 Fed.Appx. 338, 340 (9th Cir.
2002) (finding plaintiffs' scienter allegations deficient
where complaint contained nothing to suggest that
plaintiffs' allegations were “based on anything
other than mere speculation. That is precisely the kind of
allegation that the PSLRA is designed to defeat at the
PRICING CLAIM (STATEMENT NO. 4)
Court dismissed with prejudice plaintiff's gross margin
claims, see Dkt. No. 78 at 8-12, and plaintiff has
now turned to a pricing claim. See Dkt. No. 79-1 at
8, Statement No. 4 (identifying 7/29/14 statement by Krock on
an earnings conference call: “But generally it's
about the value of these sensor function [sic] in
the market with the Gyro and integrated sensor attached. So
there's no one customer with any particular window of
pricing that's relevant.”). Plaintiff says that
this statement was false and misleading because
“[d]efendants lacked a reasonable basis to assure
investors that ASPs would be ‘consistent' with
prior quarters. Apple's purchase order with InvenSense
for at least 35 million 6-axis MEMS chips a quarter for its
iPhone 6 and 6 Plus was at heavily discounted prices that
[sic] the Company's margins on those chips would
only be approximately 40%.” Id.
just reading those two columns side by side makes plain why
this new statement does not support a claim. “At the
pleading stage, a complaint alleging claims under Section
10(b) and Rule 10b-5 must not only meet the requirements of
Rule 8, but must satisfy the heightened pleading requirements
of both Federal Rule of Civil Procedure 9(b) and the Private
Securities Litigation Reform Act (‘PSLRA').”
In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869,
876 (9th Cir. 2012). Under Rule 8, a complaint must allege
“enough facts to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). Rule 9(b) requires
“particularized allegations of the circumstances
constituting fraud, including identifying the statements at
issue and setting forth what is false or misleading about the
statement and why the statements were false or misleading at
the time they were made.” In re Rigel, 697
F.3d at 876. And under the PSLRA, to properly allege falsity,
a securities fraud complaint must “specify each
statement alleged to have been misleading [and] the reason or
reasons why the statement is misleading.” 15 U.S.C.
has not met any of these requirements for the new pricing
claim because there is a mismatch between the statement
identified as false and misleading on the one hand, and the
reasons why plaintiff says the statement was false or
misleading on the other. On its face, Krock's July 29,
2014 statement said nothing about “ASPs” or the
“Company's margins.” See Dkt. No.
79-1 at 8. Moreover, reading the statement in its full
context makes it even more clear that Krock was discussing
periods of time during which pricing could be negotiated, and
not whether there was or was not any particular customer
whose band of pricing might be significant for the
Company's overall financial outlook. See Dkt.
No. 81-1, Ex. 1 at 21 (transcript of 7/29/2014 InvenSense
earnings call, in which Krock discussed customers'
“unique schedules for negotiation of pricing”).
for the new pricing claim, plaintiff has failed to plead
falsity whether measured under ...