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Doherty v. Pivotal Software, Inc.

United States District Court, N.D. California

November 8, 2019

STEVEN DOHERTY, et al., Plaintiffs,
PIVOTAL SOFTWARE, INC., et al., Defendants.



         This case stems from three class actions alleging violations of the Securities Exchange Act and the Securities Act. Purchasers of Pivotal Software, Inc.'s (“Pivotal's”) securities assert that they are entitled to damages caused by Pivotal's alleged false and/or misleading statements about its financial and business condition. Three sets of motions are now pending-for consolidation, appointment as lead plaintiff, and approval of lead counsel pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Most substantial are the motions for appointment of lead plaintiff. Originally, five different plaintiffs sought to be named lead plaintiff. Three of those subsequently withdrew or chose not to oppose, leaving two competing motions: one by Steven Doherty and the Tech Trader Fund LP (collectively, the “Pivotal Investor Group” or “the Group”) and one by the Oklahoma City Employee Retirement System and Police Retirement System of St. Louis (collectively, “Oklahoma”).

         As discussed below, the Court (1) consolidates the three related securities class actions; (2) appoints Oklahoma as lead plaintiff in the consolidated action; and (3) appoints Labaton Sucharow LLP as lead counsel and appoints Wagstaffe, Von Loewenfeldt, Busch & Radwick LLP as liaison counsel for plaintiffs in the consolidated action.

         I. BACKGROUND

         A. Factual Background

         Defendant Pivotal is a Delaware corporation with its principal executive offices in San Francisco, California. Doherty Compl. (dkt. 1) ¶ 15. Pivotal and its subsidiaries provide a cloud-native application platform and services in the United States. Id. ¶ 2. Pivotal's platform allegedly accelerates and streamlines software development by reducing the complexity of building, deploying, and operating cloud-native and modern applications. Id. ¶ 21. Pivotal also allegedly provides strategic services, enabling customers to accelerate their adoption of a modern software development process. Id.

         Defendant Robert Mee served as Pivotal's Chief Executive Officer, and defendant Cynthia Gaylor served as Pivotal's Chief Financial Officer at all relevant times. Id. ¶¶ 16, 17. Defendants Mee and Gaylor (the “Individual Defendants”) possessed the power and authority to control the contents of Pivotal's Securities and Exchange Commission (“SEC”) filings, press releases, and other market communications at all relevant times. Id. ¶ 19.

         The Plaintiff class consists of all persons and entities, other than the defendants, who purchased or otherwise acquired (1) Pivotal's common stock traceable to the registration statement issued in connection with Pivotal's April 2018 initial public offering (“IPO”), and/or (2) Pivotal securities between April 24, 2018 and June 4, 2019 (the “class period”). Id. ¶ 1.

         On December 15, 2017, the defendants filed a confidential draft registration statement on Form S-1. Id. ¶ 24. The draft went through a series of amendments in response to SEC comments. Id. On or about April 18, 2018, defendants filed a final amendment to the registration statement, which registered over 37 million shares of Pivotal common stock for public sale. Id. ¶ 25. The SEC declared the registration statement effective on April 19, 2018. Id. ¶¶ 25-28. On or about April 20, 2018, defendants filed the final prospectus for the IPO. Id. ¶ 25.

         On April 24, 2018, Pivotal completed the IPO, which, upon the underwriters exercising their full overallotment option to purchase additional shares, issued a total of 42, 550, 000 shares priced to the public at $15.00 per share. Id. This generated over $638 million in gross proceeds for the defendants. Id.

         On March 14, 2019, Pivotal issued a press release in which Pivotal disclosed its financial and operating results for the fourth quarter and full fiscal year 2019. Id. ¶¶ 29- 31. In that press release, Mee stated that Pivotal was in the “early stages of [a] high-growth market.” Id. ¶ 30. The press release also contained Pivotal's financial outlook for the first quarter and full fiscal year 2020. Id. ¶ 31.

         Later on the same day, Pivotal held a conference call with analysts to discuss its financial results for fiscal year 2019 and its guidance for fiscal year 2020. Id. ¶ 32; see also id. ¶¶ 35-39. On that call, Gaylor told analysts and investors that Pivotal “continue[s] to attract new customers and as many [sic] of [its] existing customers grow their investments with [Pivotal].” Id. ¶ 32. Gaylor discussed Pivotal's “industry-leading” net expansion rate, but also stated that Pivotal “continued to see healthy expansion from existing customers, ” and that Pivotal “expect[s] the percentage to come down gradually over time.” Id. ¶ 33.

         On June 4, 2019, after the market closed, Pivotal issued a press release reporting its financial and operating results for the first quarter of fiscal year 2020. Id. ¶ 47. In that press release, Mee advised investors that “sales execution and a complex technology landscape impacted the quarter.” Id. The June 4 press release also contained a revised guidance for 2020. Id.

         The following day, on June 5, 2019, Pivotal held a conference call, and multiple analysts questioned Gaylor about the revised guidance. Id. ¶ 48. Following the call, an analyst called the quarter a “train wreck” and characterized Pivotal's operating results as “disastrous.” Id. ¶ 49. Pivotal's stock price fell $7.65 per share, or over 40%, to close at $10.89 per share on June 5, 2019, far below the IPO price of $15 per share. Id. ¶ 50.

         B. Procedural Background

         On June 20, 2019, Steven Doherty filed a complaint asserting claims under Section 11 and Section 15 of the Securities Act and Sections 10(b) and 20(a) of the Exchange Act. Id. ¶ 1 (the “Doherty Action”). On the same day, Mikebeb M. Abera filed a complaint asserting claims under Section 11 and Section 15 of the Securities Act. See Abera Compl. (dkt. 1) ¶ 9 in Abera v. Pivotal Software, Inc., No. 19-cv-3601-HSG (the “Abera Action”). The Abera Action named the same defendants as the Doherty Action, and included additional defendants such as Pivotal directors and underwriters of its IPO. Id. ¶¶ 14-40. Doherty published notice of the action on June 20, 2019, which advised investors in Pivotal securities that they had until August 19, 2019 to seek appointment as lead plaintiff. See Wagstaffe Decl., Ex. C (dkt. 22-3). The next day, on June 21, 2019, Peter Kleinman filed a complaint asserting claims under Section 11, Section 12(a)(2), and Section 15 of the Securities Act against the same defendants as the Abera Action. See Kleinman Compl. (dkt. 1) ¶¶ 2, 7-34 in Kleinman v. Pivotal Software, Inc., No. 19-cv-3605-RS (“the Kleinman Action”); Abera Compl. ¶¶ 14-40.

         All three actions advance substantially the same allegations. The complaints allege that the defendants made false and/or misleading statements regarding Pivotal's business, operational, and compliance policies. See Doherty Compl. ¶ 1; Abera Compl. ¶ 1; Kleinman Compl. ¶ 1. Specifically, they allege that the defendants failed to disclose that: (1) “Pivotal was facing major problems with its sales execution and a complex technology landscape”; (2) those issues “resulted in deferred sales, lengthening sales cycles, and diminished growth as its customers and the industry's sentiment shifted away from Pivotal's principal products because [they] were outdated, inadequate, and incompatible with the industry-standard platform”; and (3) Pivotal's “public statements were materially false and misleading at all relevant times.” Doherty Compl. ¶ 6.

         On August 19, 2019, class members Dana Penza, Vasant Punjabi, Mary Anderson, Oklahoma, and the Pivotal Investor Group filed five competing motions to consolidate the related actions, appoint lead plaintiff, and appoint lead counsel. See Penza Mot. (dkt. 7); Punjabi Mot. (dkt. 11); Anderson Mot. (dkt. 16); Okl. Mot. (dkt. 21); Group Mot. (dkt. 29).

         On August 28, 2019, Penza withdrew his motion, conceding that he does not have the largest financial interest in the relief sought by the class, as required by the PSLRA. Penza Not. (dkt. 35) at 3. On the same day, Punjabi withdrew his motion for the same reason. See Punjabi Not. (dkt. 36) at 1. On September 3, 2019, Anderson filed a notice of non-opposition to competing motions. See Anderson Not. (dkt. 37). Movants Oklahoma and the Group continue to seek appointment as lead plaintiff.


         Federal Rule of Civil Procedure 42(a) permits consolidation where “actions before the court involve a common question of law or fact.” Fed.R.Civ.P. 42(a). “Consolidation is within the broad discretion of the district court.” In re Adams Apple, Inc., 829 F.2d 1484, 1487 (9th Cir. 1987). In determining whether consolidation is appropriate, a court “should ‘weigh the interest of judicial convenience against the potential for delay, confusion and prejudice.'” See Hessefort v. Super Micro Computer, Inc., 317 F.Supp.3d 1056, 1060 (N.D. Cal. 2018) (quoting Zhu v. UCBH Holdings, Inc., 682 F.Supp.2d 1049, 1052 (N.D. Cal. 2010)); see also Huene v. United States, 743 F.2d 703, 704 (9th Cir. 1984). Courts in the Ninth Circuit “have recognized that class action shareholder suits are particularly well suited to consolidation . . . because unification expedites pretrial proceedings, reduces case duplication, avoids the need to contact parties and witnesses for multiple proceedings, and minimizes the expenditure of time and money for all parties involved.” See Hessefort, 317 F.Supp.3d at 1060 (quoting Miami Police Relief & Pension Fund v. Fusion-io, Inc., No. 13-CV-05368-LHK, 2014 WL 2604991, at *3 (N.D. Cal. June 10, 2014)).

         The Court agrees with the parties that consolidation of the Doherty Action, the Abera Action, and the Kleinman Action is proper. No party has opposed such consolidation. That the complaints differ slightly does not impede consolidation. See 15 U.S.C. § 78u-4(a)(3)(A)(ii) (contemplating consolidation when “more than one action on behalf of a class asserting substantially the same claim or claims” has been filed). All three actions involve common questions of law and fact related to the Pivotal IPO, and contain similar allegations regarding Pivotal's public dissemination of false and misleading information to investors during the same time periods. See Doherty Compl. ¶ 1; Abera Compl. ¶ 1; Kleinman Compl. ¶ 1. Consolidation is proper because it serves the judicial interest in convenience, there is no reason to think it would increase delay, including each claim in one action will reduce confusion, and no party has articulated a concern regarding prejudice.

         Accordingly, the Court orders that:

         1. The following actions are consolidated pursuant to Federal Rule of Civil Procedure 42(a) for all purposes including, but not limited to, discovery, pretrial proceedings and trial proceedings:

Abbreviated Case Name

Case Number

Doherty v. Pivotal Software, Inc.

No. 19-cv-03589-CRB

Abera v. Pivotal Software, Inc.

No. 19-cv-3601-HSG

Kleinman v. Pivotal Software, Inc.

No. 19-cv-3605-RS

         2. The consolidated cases shall be identified as: In re Pivotal Securities Litigation and the files of this action shall be maintained in one file. Any other actions now pending or hereafter filed in this District which arise out of the same or similar facts and circumstances as alleged in these related actions shall be consolidated for all purposes as the Court is notified of them. The parties shall notify the Court of any other action which is pending or filed outside of this District which may be related to the subject matter of these consolidated actions when they become aware of such actions.

         3. Every pleading filed in the consolidated action shall bear the following caption:

__/ Master File ...

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