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Bodri v. Gopro, Inc.

United States District Court, N.D. California

May 1, 2017

JOSEPH BODRI, et al., Plaintiffs,
v.
GOPRO, INC., et al., Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS RE: ECF NO. 94

          JON S. TIGAR United States District Judge.

         Lead Plaintiff Camia Investment LLC (“Plaintiff”) brings this putative class action complaint alleging violations of the federal securities laws by defendants GoPro, Inc. (“GoPro, ” or “the Company”), its Chief Executive Officer (“CEO”), Nicholas Woodman, its former Chief Financial Officer (“CFO”), Jack Lazar, and the President and Director of its Board, Anthony Bates (collectively, “Defendants”). Plaintiff alleges in the Amended Consolidated Complaint (“the Complaint”) that Defendants made material misrepresentations about the strength of GoPro's HERO4 Session (“Session”) camera sales, and that when the truth was revealed about those sales, GoPro's stock fell substantially in value. Defendants move to dismiss the Complaint for failure to state a claim pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), as well as the Private Securities Litigation Reform Act of 1995 (“PSLRA”). ECF No. 94. Because the Complaint fails adequately to plead either a false or misleading statement or scienter the Court will grant the motion to dismiss with leave to amend.

         I. BACKGROUND

         A. Allegations of the Complaint

         GoPro, founded in 2004, is a consumer electronics company that “develops mountable and wearable cameras, which it calls ‘capture devices, ' and related accessories designed to enable consumers to capture content while engaged in a wide range of activities.” ECF No. 90 ¶ 3. The Company's “core products are [its] HERO line of capture devices[, ]” accounting for “nearly all of the Company's revenue.” Id. (internal quotation marks omitted).

         On July 12, 2015, GoPro introduced the Hero4 Session camera. Id. ¶ 44. GoPro “touted the Hero4 Session as ‘the smallest, lightest, most convenient GoPro possible, ' and boasted that “the Hero4 Session's one-button design ‘drastically improves the speed and convenience of capturing life moments as they happen.'” Id. The Session was “GoPro's only new camera and key new product offering for FY15.” Id. ¶ 4. Plaintiff alleges that by the Session's introduction date, “Defendants [already] knew that the launch would not meet their expectations” because “GoPro had revised downward its internal forecast for Hero4 Session sales . . . before the camera became publicly available due to weak retailer demand.” Id. Plaintiff contends that Defendants built and shipped cameras to meet the earlier, higher sales forecast anyway. Id.

         Plaintiff alleges the misrepresentations began when “GoPro announced its 2Q15[1] financial results on July 21, 2015.” Id. During an investor conference call held that day, Defendants “made false and misleading statements about the contribution that [Session's] sales made to the quarter's results and denied risks associated with the failure of [Session] to sell-through[2] to consumers.” Id. Plaintiff takes issue with the following statements made during the conference call: (1) CEO Woodman stated “the momentum that [GoPro] [is] seeing with Session out of the gates . . . is a testament to the strength of GoPro's brand[, ]” “we don't have to fortunately wait for a fourth quarter holiday season to launch a product and get a strong positive response from the marketplace, ” and “it seems that we are capable of launching a product at any time of year. We're happy with what we are seeing.” Id. ¶ 50; ECF No. 96-6 at 9; (2) CFO Lazar stated GoPro “did not experience any noticeable pricing pressure during th[e] quarter[, ]” Id. ¶ 49; ECF No. 96-6 at 8; and (3) CFO Lazar stated “[c]hannel inventory levels both in the U.S. and abroad look healthy[, ]” Id.; ECF No. 96-6 at 8. Analysts reacted positively to Defendants' statements regarding the HERO Session. Id. ¶ 52. J.P. Morgan, for example, noted, “3Q15 guidance beat, driven by management's confidence in the 50% smaller Hero Session and new initiatives . . . .” ECF No. 90 ¶ 52. “Analysts celebrated the key role” Session played “in GoPro's 2Q15 results and 3Q15 expectations.” ECF No. 96-6 at 4; ECF No. 90 ¶ 51-52.

         Plaintiff argues each of these statements was materially misleading because, at the time they were made, “GoPro had already reduced its internal sales forecast for . . . Session due to weak retail demand for the camera” and “Defendants had already begun cancelling and reducing purchase orders placed with suppliers of . . . Session's parts.” ECF No. 96-6 at 4; ECF No. 90 ¶ 54. Plaintiff contends that investors - unaware of what was really going on inside the company - relied on these representations and cause the stock to trade at inflated values. Id. Plaintiff also contends that “the Company's purported risk disclosures, which remained fixed even as the sales risks changed for the worse, described mere possibilities while failing to acknowledge that they had already begun to transpire, [and] were therefore themselves false, misleading, and inadequate.” Id.

         As Session's sales continued to lag, Plaintiff alleges Defendants continued to mislead investors during a series of investor presentations and media interviews in September 2015. Plaintiff takes issue with the following statements: (1) during one investor conference on September 9, 2015, CFO Lazar stated GoPro does not discount its prices, id. at 5; ECF No. 90 ¶ 55, (2) during another investor conference, CFO Lazar asserted GoPro was “in the right price points, ” id. at 5; ECF No. 90 ¶ 56; and (3) during an interview with CNBC's “Fast Money Halftime Report” on September 22, 2015, CEO Woodman said Session's sales were “going really well” and “sales [were] improving as we move towards the holiday season.” ECF No. 90 ¶ 57. During the September 22 call with CNBC, the interviewer also asked Defendant Woodman about a disclosure by Ambarella, GoPro's sole supplier of chips for its Session camera, on September 1, 2015, that “its wearable camera business segment would be down both sequentially and year-over-year.” ECF No. 90 ¶ 58. Woodman rejected the interviewer's understanding that “GoPro must not be ordering as many chips from Ambarella, ” stating, “That's not accurate.” Id.

         Plaintiff alleges each of these statements was materially misleading because, on September 28, 2015, GoPro reduced Session's retail price from $399 to $299 in response to Session's “sluggish sales.” ECF No. 90 ¶ 9.

         On October 28, 2015, after GoPro announced its 3Q15 financial results “missed the Company's previously issued guidance and analyst consensus by wide margins” and provided a “disappointing financial guidance for 4Q15, ” Defendants acknowledged in an investor conference call that “[t]he financial results reflected weak initial sell-through of the Hero4 Session, ” that Defendants “were aware of poor initial sell-through of the Hero4 Session in late July 2015, ” that “Hero4 Session channel inventory exceeded the Company's target levels, ” and finally that the “Hero4 Session's initial price of $399 was too high.” ECF No. 90 ¶ 66. Nevertheless, during the same investor conference call, CEO Woodman stated that, after Session's price reduction, “Session is now selling in line with what we would typically expect for a product at this price point[, ]” id. ¶ 11, and CFO Lazar stated “Q3 ASPs were relatively flat and overall we did not experience any noticeable pricing pressure during the quarter[, ]” id. Plaintiff argues that these last two statements were materially misleading because the Defendants were aware of Session's continued lagging sales and Defendants would soon have to cut the price once again. Id. ¶ 12.

         As a result of the concessions Defendants made to investors on October 28, 2015, “[a]nalysts and investors reacted negatively” and “GoPro's stock price dropped 15.2% on October 29, 2015 to $25.62.” Id. ¶ 13. Despite reassuring investors during the same call that the Session “was finally selling in line with expectations, lauding stable ASPs, [3] and representing an absence of pricing pressure, ” Defendants again reduced the price of the Session from $299 to $199 on December 4, 2015. Id. ¶ 14. On December 5, 2015, Woodman appeared on “the televised home shopping channel QVC, a recognized source of discount products[, ]” and “pitched the Hero4 Session at the newly reduced price, ” throwing in “accessories for free to anyone who bought the reduced-price camera.” Id. ¶ 15.

         “On January 13, 2016, Defendants preannounced GoPro's 4Q15 and FY15 financial results, which missed the midpoint of the guidance issued by Defendants by $90 million. The preannouncement disclosed that revenues were reduced by $21 million for price protection-related charges resulting from the December 2015” price cut and “that the Company had taken a charge of between $30 million and $35 million for excess purchase order commitments and excess inventory. Defendants also announced that they would cut 7% of the Company's workforce.” Id. ¶ 17. GoPro then “halted public trading of its stock, ” and the “price fell 14.6% on January 14, 2016, closing at $12.48 per share.” Id. ¶ 18.

         “On February 3, 2016, Defendants announced and hosted” another investor call during which they allegedly disclosed that: (i) the Session's “sales did not begin to meet expectations until after its price was reduced for a second time to half its initial price in December 2015; (ii) “[t]he Company would realign its product offering so that the” Session “would be demoted to its entry-level camera;” and (iii) the “Session's failure to sell resulted from the fact that it was mispriced.” Id. ¶ 19. GoPro again temporarily halted public trading, and the stock price fell once again to $9.78, “an 85% drop from the artificially inflated Class Period high.” Id. ¶ 20.

         B. Procedural History

         On January 13, 2016, Plaintiff Joseph Bodri filed a putative class action complaint against GoPro on behalf of purchasers of GoPro securities between July 21, 2015 and January 13, 2016. ECF No. 1. Shortly thereafter, Plaintiffs Barry Lee Deem and Rene Van Meerbeke filed similar proposed class action complaints against GoPro on behalf of purchasers of GoPro securities during the same time period. Deem v. GoPro, Inc., No. 16-cv-00338-JST, ECF No. 1 (N.D. Cal. Jan. 21, 2016); Van Meerbeke v. GoPro, Inc., No. 16-cv-00598-JST, ECF No. 1 (N.D. Cal. Feb. 4, 2016). Each of these complaints raised claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Securities Exchange Act”). Each complaint focused on GoPro's alleged failure to disclose information relating to its HERO line of cameras.

         On February 19, 2016, Plaintiff Majesty Palms LLLP filed a putative class action complaint against GoPro on behalf of purchasers of GoPro securities between November 26, 2014 and January 13, 2016. Majesty Palms, LLLP v. GoPro, Inc., No. 16-cv-00845-JST, ECF No. 1 (N.D. Cal. Feb. 19, 2016). As with the previous three actions, Majesty Palms asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act. However, unlike the previous three complaints, Majesty Palm's complaint encompassed allegations relating to disclosures of camera-equipped drones, as well as information relating to GoPro's HERO line of cameras.

         On April 28, 2016, this Court (1) severed the claims in the Majesty Palms action related to camera-equipped drones and encompassing purchases of GoPro securities between November 26, 2014 and July 20, 2015 from the remaining claims in that action; (2) consolidated the Bodri, Deem, and Van Meerbeke actions with the portion of the Majesty Palms action related to GoPro's HERO line of cameras and encompassing purchases of GoPro securities between July 21, 2015 and January 13, 2016; and (3) denominated the first-filed case, No. 16-cv-00232-JST, as the lead case. See ECF No. 76.

         On September 26, 2016, Defendants filed a motion to dismiss the Complaint, which motion the Court now considers. ECF No. 94.

         C. Jurisdiction

         Because this action arises under the Securities Exchange Act of 1934, the Court has jurisdiction pursuant to 28 U.S.C. § 1331.

         II. DEFENDANTS' REQUEST FOR JUDICIAL NOTICE

         Pursuant to Federal Rule of Evidence 201, Defendants ask the Court to take judicial notice of several categories of documents, most of which are SEC filings and transcripts of earnings calls and analyst interviews on which Plaintiff relies in the Complaint. ECF No. 95. Plaintiff opposes Defendants' request in part. ECF No. 99.

         A. Legal Standard

         In ruling on a 12(b)(6) motion to dismiss, the Court “must consider . . . documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). “On any motion to dismiss based [on the safe harbor of the PSLRA], the court shall consider any statement cited in the complaint and any cautionary statement accompanying the forward-looking statement, which are not subject to material dispute, cited by the defendant.” In re Quality Systems, Inc. Securities Litigation, 60 F.Supp.3d 1095, 1107 (C.D. Cal. 2015) (quoting 15 U.S.C. § 78u-5(e)). “If a plaintiff fails to attach to the complaint the documents on which it is based, defendant may attach to a Rule 12(b)(6) motion the documents referred to in the complaint to show that they do not support plaintiff's claim.” In re Silicon Storage Technology, Inc., No. C 05-0295 PJH, 2006 WL 648683, at *2 (N.D. Cal. March 10, 2006) (citing Lee, 250 F.3d at 688-89).

         In addition, a Court may take judicial notice of matters in the public record. Federal Rule of Evidence 201(b) provides: a “judicially noticed fact must be one not subject to reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court; or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”

         B. Defendants' Exhibits

         Plaintiff “objects to Defendants' [request for judicial notice] as to Exhibits C-D, which purport to cite GoPro's February 5, 2015 Form 8-K and April 28, 2015 Form 8-K.” ECF No. 99 at 2. Plaintiff also objects to Defendants' request to notice Exhibits R-T, which relate to the Defendants' sale, or lack thereof, of stock during the class period. Id. Since the Court may take notice of matters in the public record, and Exhibits C-D and R-T are such documents and are readily determined by resort to sources whose accuracy cannot reasonably be questioned, the Court may take notice of them. However, the Court takes judicial notice only of the existence of the documents, not of the veracity of allegations or legal conclusions asserted in them. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).

         Plaintiff does not object to this Court taking judicial notice of Exhibits A, B, and E-Q, ECF No. 99 at 2, which include GoPro's Form 10 and Form 8 submissions with the Securities and Exchange Commission (“SEC”) for the relevant time period, transcripts of four earnings calls, transcripts of CFO Lazar's appearances at two conferences, a Forbes article discussing the Session camera, Morgan Stanley's October 7, 2015 Research Report on GoPro, and a transcript of CEO Woodman's interview with CNBC, ECF No. 95 at 2-3. Since the exhibits are matters of public record, documents on which the complaint necessarily relies, or capable of determination by sources whose accuracy may not reasonably be questioned, the Court grants Defendants' unopposed request for judicial notice of the above documents.

         III. LEGAL STANDARD

         A. The Dual Pleading Requirements

         Section 10(b) of the Securities Exchange Act of 1934 prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. To establish a violation of Section 10(b), a plaintiff must plead: (1) a material misrepresentation or omission made by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation. See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008).

         On a motion to dismiss, the Court accepts the material facts alleged in the complaint, together with reasonable inferences to be drawn from those facts, as true. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). However, “the tenet that a court must accept a complaint's allegations as true is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Moreover, while a plaintiff generally need only plead “enough facts to state a claim to relief that is plausible on its face” to survive a motion to dismiss, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), “[s]ecurities fraud class actions must meet the higher, exacting pleading standards of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (‘PSLRA').” Oregon Pub. Employees Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir. 2014).

         Under the PSLRA and Rule 9(b), a complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind” with respect to each alleged false statement or omission, and a party must “state with particularity the circumstances constituting fraud or mistake.” 15 U.S.C. § 78u-4(b)(2)(A); Fed.R.Civ.P. 9(b); see also Oregon Pub. Employees Ret. Fund, 774 F.3d at 605. “In order to show a strong inference of deliberate recklessness, plaintiffs must state facts that come closer to demonstrating intent, as opposed to mere motive and opportunity.” In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974 (9th Cir. 1999), abrograted on other grounds by, S. Ferry LP, No. 2 v. ...


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