Glazer Capital Management, L.p v. Forescout Technologies, Inc. ( 2023 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GLAZER CAPITAL No. 21-16876
MANAGEMENT, L.P.; GLAZER
ENHANCED FUND L.P.; GLAZER D.C. No.
ENHANCED OFFSHORE FUND, 3:20-cv-00076-SI
LTD.; GLAZER OFFSHORE FUND,
LTD.; HIGHMARK LIMITED;
MEITAV TACHLIT MUTUAL OPINION
FUNDS LTD.,
Plaintiffs-Appellants,
v.
FORESCOUT TECHNOLOGIES,
INC.; MICHAEL DECESARE;
CHRISTOPHER HARMS,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Susan Illston, District Judge, Presiding
Argued and Submitted October 20, 2022
San Francisco, California
Filed March 16, 2023
2 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
Before: Michael Daly Hawkins, Carlos T. Bea, and
Jacqueline H. Nguyen, Circuit Judges.
Opinion by Judge Bea;
Partial Concurrence and Partial Dissent by Judge Hawkins
SUMMARY *
Securities Fraud
The panel affirmed in part and reversed in part the
district court’s dismissal of a securities fraud class action
under §§ 10(b) and 20(a) of the Securities and Exchange Act
and Rule 10b-5 against Forescout Technologies, Inc., a
cybersecurity company that provides network security for
large computer networks, and two of Forescout’s officers.
Plaintiffs alleged that during the class period, defendants
made false or misleading statements about Forescout’s past
financial performance, presently confirmed sales, and
prospects for future sales. They alleged that defendants
misled investors with respect to (1) the strength of
Forescout’s sales pipeline, meaning its presently booked
sales and prospects for future sales; (2) the experience of
Forescout’s sales force; (3) the business Forescout lost with
certain business partners, or “channel partners,” when it
announced a merger with Advent International, Inc.; and (4)
the likelihood that the merger would close. The district court
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 3
dismissed on the grounds that plaintiffs failed adequately to
plead that any of defendants’ statements were false or
misleading or that defendants made such statements with the
requisite scienter.
The panel held that plaintiffs adequately pleaded both
falsity and scienter as to some of the challenged statements
and that the Private Securities Litigation Reform Act’s safe
harbor for forward-looking statements did not preclude
liability as to some of these statements. The panel affirmed
the district court’s dismissal as to certain statements, and it
reversed and remanded for further proceedings as to other
challenged statements regarding the sales pipeline and the
Advent acquisition.
Concurring in part and dissenting in part, Judge Hawkins
wrote that he agreed in the majority opinion except as to Part
IV.a., which concluded that plaintiffs successfully alleged
falsity and scienter with respect to four sales pipeline
statements that were not forward-looking and protected by
the PSLRA’s safe harbor. Judge Hawkins wrote that he
would affirm the dismissal as to these statements because
they reflected business judgments about the timing of deals
and the underlying causes of missing quarterly forecasts and
were not verifiably false. Further, as to these four
statements, plaintiffs did not adequately plead scienter,
which requires an intent to mislead or a deliberate
recklessness to an obvious danger of misleading investors.
4 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
COUNSEL
Omar Jafri (argued), Patrick M. Dahlstrom, and Brian
O’Connell, Pomerantz LLP, Chicago, Illinois; Jeffrey S.
Abraham (argued) and Michael J. Klein, Abraham Fruchter
& Twersky LLP, New York, New York; Jennifer Pafiti,
Pomerantz LLP, Los Angeles, California; Jeremy A.
Lieberman, Pomerantz LLP, New York, New York; for
Plaintiffs-Appellants.
Amy Jane Longo (argued) and Anna Johnson Palmer, Ropes
& Gray LLP, San Francisco, California; Diane Marie
Walters (argued), Ignacio E. Salceda, and Rebecca Epstein,
Wilson Sonsini Goodrich & Rosati, Palo Alto, California;
Peter L. Welsh and C. Thomas Brown, Ropes & Gray LLP,
Boston, Massachusetts; Charles D. Zagnoli, Ropes & Gray
LLP, Chicago, Illinois; for Defendants-Appellees.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 5
OPINION
BEA, Circuit Judge:
Lead Plaintiffs appeal the district court’s dismissal of
this securities fraud class action on behalf of all investors
who purchased common stock of Forescout Technologies,
Inc. between March 4, 2019, and May 15, 2020 (the “Class
Period”). 1 Plaintiffs alleged that during the Class Period,
defendant Forescout and two of its officers (“Defendants”)
made false or misleading statements about Forescout’s past
financial performance, presently confirmed sales, and
prospects for future performance. Individual defendants are
Michael DeCesare, Forescout’s Chief Executive Officer
(“CEO”) and President at all relevant times, and Christopher
Harms, Forescout’s Chief Financial Officer (“CFO”) at all
relevant times (collectively, “Individual Defendants”).
Throughout 2019, Forescout struggled to meet its
revenue goals. In statements to investors, Forescout
repeatedly blamed its reduced revenues on deals having
“slipped,” which caused the closing payments to be made at
a later date in 2019. In other words, Forescout told investors
that the company already had binding deals with clients and
that it expected these deals to close within the year, but that
closing payments on the deals had “slipped”—that is, had
become delayed. Forescout assured its investors that it was
still on track to meet its annual revenue goals based on the
1
The Class Period in the Second Consolidated Amended Complaint
(“SCAC”) ran from February 7, 2019, to May 15, 2020. The district court
dismissed all claims as to the statements made between February 7, 2019,
and March 4, 2019, and Plaintiffs do not challenge dismissal of those
claims.
6 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
strength of its “sales pipeline,” i.e., its presently booked sales
and prospects for future sales. In early 2020, Forescout
announced a pending merger with Advent International, Inc.
(“Advent”), a private equity firm. Plaintiffs alleged
Forescout lost several major clients because of the merger
announcement. In May 2020, Forescout announced that
Advent terminated the merger agreement. Forescout then
sued Advent in Delaware court for specific performance of
the merger, and the parties settled with Advent acquiring
Forescout at a price lower than first offered.
Plaintiffs alleged that Defendants misled investors with
respect to four items: (1) the strength of Forescout’s sales
pipeline, (2) the experience of Forescout’s sales force, (3)
the business Forescout lost with certain business partners
(“channel partners”) when it announced the merger, and (4)
the likelihood that the merger with Advent would close. The
district court dismissed Plaintiffs’ complaint with prejudice,
finding that Plaintiffs failed adequately to plead that any of
Defendants’ statements were false or misleading or that
Defendants made such statements with the requisite scienter.
I. FACTUAL BACKGROUND 2
Forescout Technologies, Inc. is a cybersecurity company
that provides network security for large computer networks.
Forescout became publicly traded through an initial public
offering in October 2017 and subsequently saw steady
revenue increases, reporting a 32% increase in revenues for
2018. But Forescout began to encounter some problems in
2019. The cybersecurity market was shifting increasingly
towards cloud-based solutions and remote working, and
2
These facts come from the SCAC and are accepted as true for this
appeal. See Nguyen v. Endologix, Inc., 962 F.3d 405, 408 (9th Cir. 2020).
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 7
Forescout’s products were not as well-suited to these trends
as those of its competitors.
In February 2019, Forescout predicted revenue growth
of 24% in 2019. In May 2019, Forescout preannounced a
lowered guidance range for the second quarter of 2019.
Forescout assured investors that it still expected to meet its
revenue projections for 2019. The company claimed that the
revenue miss was due to “slipped” deals—in other words,
firm contracts that were meant to close with payments to
Forescout in the second quarter were now expected to close
at a later point in the year. Forescout told investors that the
company already had the “tech wins” in these deals—i.e.,
that there were firm commitments to close the deals.
Forescout claimed that the sales pipeline continued to grow
and touted the experience level of its sales employees.
However, the statements of Plaintiffs’ confidential
witnesses (“CWs”) tell a quite different story. According to
the CWs, Forescout did not have “tech wins” in some of
these deals. Employees struggled to meet their sales goals,
and Forescout began conducting waves of layoffs. The CWs
also related that executives pressured employees to
categorize deals as “committed”—i.e., certain to close—
before Forescout had received firm commitments from
clients.
In October 2019, Forescout preannounced poor financial
results for the third quarter of 2019. Nonetheless, the
company again assured investors that the sales pipeline was
continuing to grow. It blamed the missed revenue on deals
having slipped because of extended approval cycles due to
poor economic conditions in Europe, the Middle East, and
Africa (the “EMEA region”).
8 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
On February 6, 2020, Forescout announced that it had
entered into a merger agreement with Advent International,
Inc., a private equity firm. Per the agreement, Advent would
acquire Forescout for $33 per share. Forescout’s
shareholders voted to approve the merger agreement.
Forescout lost business with three major “channel
partners”—third-party organizations that marketed and sold
products on behalf of Forescout 3—at some point after
February 6, and later blamed the loss on the February 6
announcement of the merger. According to Forescout itself,
the channel partner losses resulted in the loss of tens of
millions of dollars of potential profits to Forescout.
Advent began to reconsider the merger. On May 8, 2020,
an Advent representative informed Forescout’s CEO during
a phone call that Advent was considering not closing the
merger. Despite having received this word of Advent’s
hesitation, Forescout issued a press release on May 11, 2020,
stating “[w]e look forward to completing our pending
transaction with Advent.” Forescout made no mention of the
May 8 call with Advent in that press release or otherwise.
On May 15, 2020, Advent sent Forescout a termination letter
explaining that it no longer planned to proceed with the
merger.
Forescout then sued Advent in the Delaware Court of
Chancery. On May 19, 2020, it filed a complaint (the
“Delaware Complaint”) seeking specific performance of the
merger agreement. Forescout and Advent settled the
Delaware litigation in July 2020, with Advent agreeing to
acquire Forescout for $29 per share through a tender offer.
3
Channel Partner, TECHOPEDIA, https://www.techopedia.com/definitio
n/560/channel-partner (last visited Dec. 21, 2022).
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 9
Presently before the court is Plaintiffs’ Second
Consolidated Amended Complaint (“SCAC”) for violations
of the securities laws. Plaintiffs alleged violations of Section
10(b) and Rule 10b-5 of the Securities and Exchange Act
(“Exchange Act”), as well as Section 20(a) of the Exchange
Act. The district court dismissed the SCAC with prejudice
for failing to state a claim.
II. THE STATEMENTS
Plaintiffs alleged that Forescout made actionable
misstatements about: (1) Forescout’s sales pipeline; (2)
Forescout’s sales force; (3) Forescout’s channel partner
relationships; and (4) the planned merger with Advent. We
deal with each in turn.
a. Sales Pipeline Statements
Plaintiffs alleged that Defendants misled investors by
assuring them that Forescout’s sales pipeline was “strong”
and “healthy” when it was actually deteriorating. Plaintiffs
alleged that Defendants hid the true state of the sales pipeline
by blaming missed revenue projections and lowered revenue
guidance on deals having “slipped,” that is become delayed,
to close by payment later than originally expected.
i. May 9, 2019, Earnings Conference Call
On May 9, 2019, Forescout issued a press release
announcing the company’s financial results for the first
quarter of 2019. Forescout reported that it had exceeded its
revenue guidance for the first quarter of 2019 (it had
projected revenues of $71.9–74.9 million; it reported
revenues of $75.6 million). Forescout stated that revenues
for the second quarter of 2019 would be $75.3–78.3 million.
This projection represented an increase of approximately
14% compared to second quarter revenues in 2018—a
10 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
disappointing prediction given that, back in February 2019,
Forescout had predicted a 24% revenue increase in 2019
over the full year 2018. Despite the disappointing news
about the second quarter, Forescout increased its annual
revenue guidance for the fiscal year of 2019, raising
projections from $363.1–373.1 million to $365.3–375.3
million.
The day of the press release, Forescout held an earnings
conference call with securities analysts during which
Defendants blamed the lowered second quarter guidance on
“slipped” deals. When an analyst asked why the timeline was
delayed on some of Forescout’s deals, DeCesare responded:
[F]irst, understand that every one of those
deals is still in pipeline. . . . [W]e had an
expectation that a couple of them would have
been far enough along to be in guidance by
this point, that’s the major issue for us, right?
We have a high degree of confidence they
close for the year. We had originally thought
they would be more naturally suited for [the
second quarter] and they just slipped a little
bit . . . [I]t’s also worth pointing out, in every
one of those deals, we have the technology
win already. We’ve already been awarded the
business.
The question now is what I would call the
business win, which is when we actually get
the money and the commitment towards
timing. So that’s why we have a fairly high
degree of confidence that they will
materialize in the back half of the year.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 11
On the same call, an analyst asked Defendants about the
“slipped” deals and whether there was any risk that the deals
would not close until 2020. Harms responded:
So let’s address that directly. As it relates to
the second half of the year, kind of reiterating
some of the points [DeCesare] hit upon.
Those deals are ones where we’ve already got
the tech win. There are kind of each nuanced
elements to why we still feel we’re going to
close those deals in 2019, we just weren’t
prepared to put them into our guidance for
[the second quarter]. So inclusive in that, as
we’re looking at that second half of the year,
we feel like we’ve got plenty of pipeline for
the coverage of what we need to do. Those
deals are part of the portfolio that we look at.
Those, we still have a very high degree as
we’re assessing the deals that are taking
shape . . . we feel like there is plenty of
pipeline to deliver upon the guidance we’ve
given you for the full year.
Another analyst asked Defendants why Forescout
increased revenue guidance for the year despite the
anticipated poor performance for the second quarter. The
analyst asked:
You missed [the second quarter] guidance,
but you are raising [the yearly guidance].
You’re not keeping . . . the guidance for the
year[;] you’re raising the guidance for the
year. So that means you have some kind of
confidence on the materialization of the
12 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
contracts in the second half. Can you share
with us what is—what kind of arrangement
you have for these contracts? Why are you
increasing the guidance for the year? And
what’s the risks [sic] that it doesn’t
materialize? I just want to understand on
what basis you’re increasing the guidance?
DeCesare answered:
I think, as we said, in the second quarter,
this is a deal timing issue for us right? When
we started off the year, we had more of
substantial pipeline, we had a number of
larger deals that we thought at that point were
much more naturally going to close in the
second quarter, and we’re now realizing that
they need a little bit more time in the oven
before they’re going to be done. As I’ve
mentioned, we have tech win[s] in those
accounts, meaning that they’ve chosen us. So
it’s very,—it’s not common for a customer to
award a technology win to a vendor and then
not buy their [sic] product for an extended
period of time. So that gives us a high degree
of confidence.
We’ve also got 50% of our sales
organization, as we mentioned, at the end of
2018 is ramped, which means they’ve been in
their territory for more than a couple of years.
So many of these deals are into accounts that
we’ve had the same account manager on the
same accounts for a longer period of time,
which gives us more visibility. So obviously,
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 13
we would not raise 2019 if we did not have a
very high degree of confidence. The building
of pipeline, the maturation of our reps, the
success we’re seeing in some of the
international territories that were kind of later
high risk for us from a cohort perspective are
all giving us that confidence.
Later, on the same call, DeCesare stated:
We have a very large pipeline. We’ve been
working this [sic] for many years to build
pipeline. So we are not dependent on those
deals in the second half for us to be able to be
successful. We’re just pointing out to you
that we had maybe a sense that they were
going to close a little bit earlier, and now
we’ve got a high degree of confidence that
they’re going to close in the back half of the
year. So it doesn’t have a material impact on
kind of the overall productivity, we’ve got
hundreds of sales reps. We feel good about
those transactions in the second half of the
year. . . . I feel our pipeline is large enough
where we can still achieve our capacity
expectations without those deals closing in
the second quarter.
ii. August 7, 2019, Earnings Conference Call
On August 7, 2019, Forescout released its second quarter
financial results. Forescout reported $78.3 million in
revenue—within the guidance provided to investors in May.
Forescout predicted third quarter revenues of $98.8–101.8
14 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
million. It again forecasted annual revenues of $365.3–375.3
million for 2019.
During a conference call on the same day, DeCesare
stated that Forescout’s rate of closing deals “remain[s] very
strong” and “very healthy,” blamed poor performance on
“pent-up demand,” and said Forescout was “very
comfortable in our pipeline, rolling in both the third and the
fourth quarter, but we think we’ve kind of measured those
two things appropriately in our guidance.” On the same call,
Harms stated, “the pipeline is absolutely taking shape very
effectively,” and “we’re quite happy with the level of
pipeline we’re building.”
iii. August 12, 2019, KeyBanc Capital Markets
Technology Leadership Forum
On August 12, 2019, Harms participated in the KeyBanc
Capital Markets Technology Leadership Forum. At the
event, he stated that Forescout raised its full year revenue
guidance for 2019 during the second quarter of the year
because “we still had great visibility into the rest of the year
and still the confidence we have about how deals were taking
shape.” Harms also stated that he and DeCesare “spent a lot
of our July time frame really diving into the field to shape
how [the third quarter] was taking shape, [and] how [the
fourth quarter] was taking shape, so that we could reflect that
additional insight and give you an appropriate level of
guidance, which the [third quarter] was still very solid,
consistent with how I guided at the beginning of the year.”
iv. October 10, 2019, Press Release
On October 10, 2019, Forescout issued a press release
announcing preliminary financial results for the third quarter
of 2019. Forescout announced expected third quarter
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 15
revenues of $90.6–91.6 million, about 7% lower than the
projections announced in August. In the press release,
DeCesare attributed the results to “extended approval cycles
which pushed several deals out of the third quarter” due to
deteriorating conditions in Europe, the Middle East, and
Africa (the “EMEA region”). DeCesare further stated that
the fundamentals of the business had not changed and the
sales pipeline “continued to grow.”
v. November 6, 2019, Press Release and
Earnings Conference Call
On November 6, 2019, Forescout issued a press release
announcing its third quarter revenue results of $91.6
million—7% lower than Forescout’s August guidance.
Forescout predicted revenues of $93.5–96.5 million in the
fourth quarter of 2019 and $339–342 million for the fiscal
year of 2019 (a decrease from the prior guidance of $365.3–
375.3 million). DeCesare again blamed the missed revenue
goal on “extended sales cycles” in the EMEA region.
vi. Summary of Sales Pipeline Statements
The sales pipeline statements can be distilled into the
following six assertions: (1) Forescout’s disappointing
financial performance in the second quarter was due to
“slipped” deals; (2) the “slipped” deals were “tech wins,”
meaning the business had been awarded to Forescout; (3)
each of the “slipped” deals was still expected to close by
payment within the year; (4) Defendants believed they could
meet the full year revenue guidance even if the “slipped”
deals did not close; (5) the pipeline was large, healthy, and
continuing to grow; and (6) the third quarter revenue miss
was due to delays in closing caused by economic conditions
in the EMEA region.
16 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
b. Statements Regarding the Sales Employees’
Experience
Plaintiffs alleged that Forescout misled investors as to
the level of experience of Forescout’s employees. Plaintiffs
focus specifically on one particular metric: the percentage of
“ramped up” or “tenured” sales employees. Forescout
defined “ramped up” or “tenured” employees as those
having two or more years of experience in the same territory.
According to Plaintiffs, Forescout misrepresented this
percentage to investors and, as a result, misrepresented
Forescout’s sales capacity and overall productivity.
i. March 4, 2019, Investor Day
On March 4, 2019, Forescout hosted an investor day in
San Francisco, California. During this event, DeCesare
stated:
[A]t the end of 2016, 14% of our sales
organization was what we call tenured. That
is a[n] arbitrary definition for us. We have
chosen that to be two years in your territory.
We think it’s about two years when a rep[’]s
in the same territory, not just for the company
but in their territories, that’s when they start
to really get kind of the pipeline, everything
else that we need flowing. That rose to 35%
at the end of 2017 and 50% at the end of
2018. I don’t ever expect this to get to 100%.
We’re obviously hiring like crazy and not
everybody works out. So there’s going to be
a good kind of critical mass that we get to, but
we still think there is upside above and
beyond the 50% for sure. The new step we
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 17
want to share with you is where we are on
pipeline. So this shows you what the total
pipeline would be as a multiple of our internal
bookings plan which is, no, we are not
disclosing to you. But it gives you a sense of
how big that multiple could be at the start of
the year. So, that was 3.8% start of 2016;
3.4% at the end of 2017; and then $4.2
million as we go into 2019.
So, it’s given us increased visibility
which is [what] you’d expect as reps are
longer and the marketing team is getting
going, we get kind of better visibility into
pipeline. This is something that we certainly
track on a very, very, very consistent basis.
The key assertions contained in this statement are that:
Forescout consistently tracked the percentage of its sales
representatives who had two years of experience in the same
territory; Forescout’s “visibility” into the sales pipeline
increased as this percentage of its experienced sales
representatives increased; at the end of 2018, this percentage
was at 50%; and Forescout expected the percentage to
continue rising above 50%.
ii. May 9, 2019, Earnings Conference Call
During the May 9, 2019, earnings conference call, a
financial analyst asked DeCesare: “[D]o you have comfort
in the current levels of capacity that you have? Or should we
anticipate there should be sort of a ramp in rep hiring, in
capacity hiring as we progress through the year?” DeCesare
responded:
18 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
Yeah, no, consistent with the theme I just hit
upon, look, we feel like we are tracking very
well against our sales productivity, the
investment levels that we have been making
and plan to make through the rest of the year,
follow the—that path to profitability and
investing at levels below where our top line
is growing. Nothing has changed at those
levels.
Harms agreed with DeCesare’s response. The key assertion
contained in the above statement is that “[n]othing ha[d]
changed” regarding Forescout’s “sales productivity” levels.
Later, during the same call, DeCesare responded to a
question about his confidence in revenue projections for the
second half of the year. DeCesare stated:
We’ve also got 50% of our sales
organization, as we mentioned, at the end of
2018 is ramped, which means they’ve been in
their territory for more than a couple of years.
So many of these deals are into accounts that
we’ve had the same account manager on the
same accounts for a longer period of time,
which gives us more visibility.
DeCesare also listed “the maturation of our reps” as a reason
for his confidence in the 2019 revenue guidance.
In response to a different question about the effect of
“slipped” deals on sales capacity, DeCesare stated, “it
doesn’t have a material impact on kind of the overall
productivity, we’ve got hundreds of sales reps.”
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 19
iii. August 7, 2019, Earnings Conference Call
During the August 7, 2019, earnings conference call,
DeCesare again discussed the percentage of “ramped up”
sales representatives:
And just to remind you, that our definition of
ramped is they’ve been with Forescout for
more than two years and they’re in the
territory for more than two years. That was
50% at the end of 2018 up from 35% a year
prior, and although it’s tracking very well for
us, we’re going to hold-off on disclosing
what that percentage is until we finish 2019.
With that said, you’re kind of looking at like
softer data points that are underneath that,
we’re quite happy with the level of pipeline
we’re building, the percentage of our sales
reps that have been hired in the more recent
cohorts like Asia-Pacific that did very well
this quarter for us, there’s a lot of indicators
for us inside the business that are pointed in
the right direction. You can always do better
here, and until you’re at a place where every
single sales rep is making their numbers and
producing results.
The key assertion in this phrase was that the
percentage of ramped up sales representatives was
“tracking very well” for Forescout.
c. Channel Partner Statements
On February 6, 2020, Forescout announced the planned
merger with Advent. Plaintiffs alleged that Forescout misled
20 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
investors in subsequent SEC filings by failing to disclose
that the company had lost business with three major channel
partners as a result of the merger announcement.
i. February 28, 2020, Form 10-K
On February 28, 2020, Forescout filed with the SEC a
Form 10-K for 2019—an annual report containing an
overview of the Company’s business and financial condition
and any significant risks the company faced. The Form 10-
K stated under the title “Our Growth Strategy” that a primary
driver of growth was “[e]xpand[ing] our presence in the
market by leveraging our ecosystem of channel partners.”
The Form 10-K also stated, “[t]he announcement and
pendency of our agreement to be acquired by Advent could
adversely affect our business.” (emphasis added).
ii. March 24, 2020, Proxy Statement
On March 24, 2020, Forescout filed a proxy statement in
connection with the planned acquisition. The proxy
statement listed as a risk factor of the acquisition, “the effect
of the announcement of pendency of the merger on our
business relationships, customers, operating results and
businesses generally.” The proxy statement also
incorporated by reference the 2019 Form 10-K filed on
February 28, 2020.
d. Merger Statements
Forescout announced the pending merger with Advent
on February 6, 2020. Following this announcement,
Forescout made several statements assuring investors that
the company still expected the merger to close. Plaintiffs
argue that these assurances were misleading because
Defendants knew at the time of the statements that Advent
was reconsidering the merger.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 21
i. April 23, 2020, Extraordinary Shareholders’
Meeting and Press Release
On April 23, 2020, Forescout held an extraordinary
shareholders’ meeting. At this meeting, Forescout’s general
counsel stated, “We currently expect the merger to be
consummated on or about May 18, 2020[.]” The same day,
Forescout issued a press release stating:
Forescout continues to expect the transaction
to close in the second calendar quarter of
2020 following the completion of a
customary debt “marketing period” by
Advent. Upon completion of the transaction,
Forescout common stock will no longer be
listed on any public market.
The press release was attached as an exhibit to a Form 8-
K filed with the SEC the next day.
ii. April 29, 2020, Form 10-K/A
On April 29, 2020, Forescout filed a Form 10-K/A with
the SEC. The Form 10K/A incorporated the 2019 Form 10-
K by reference and stated:
Forescout expected to hold its 2020 Annual
Meeting of Stockholders (“2020 Annual
Meeting”) in late May 2020; however,
Forescout expects the proposed acquisition of
Forescout by entities affiliated with Advent .
. . to close in the second quarter of 2020 and,
as such, our Board of Directors has decided
not to hold the 2020 Annual Meeting at this
time.
22 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
iii. May 11, 2020, Press Release
On May 11, 2020, Forescout issued a press release
disclosing revenues of $57 million for the first quarter of
2020, $5 million less than the projection for the quarter,
which had earlier been provided to investors. The press
release quoted DeCesare as stating, “[w]e look forward to
completing our pending transaction with Advent.”
III. LEGAL STANDARDS
a. Standard of Review
We review de novo a district court’s dismissal for failure
to state a claim. Weston Fam. P’ship LLLP v. Twitter, Inc.,
29 F.4th 611, 617 (9th Cir. 2022). In determining the
adequacy of the complaint, we accept all factual allegations
as true and view them in the light most favorable to
Plaintiffs. Id. In addition to the factual allegations in the
complaint, we may consider any materials incorporated into
the complaint by reference. Id.b. Rule 12(b)(6)
A 12(b)(6) motion tests the adequacy of the complaint’s
allegations. Fed. R. Civ. P. 12(b)(6). Except where a
heightened pleading standard applies, a motion to dismiss
under Rule 12(b)(6) is analyzed using the pleading standard
of Rule 8(a). Swierkiewicz v. Sorema N.A., 534 U.S. 506, 513
(2002). Rule 8(a) requires a complaint to contain “a short
and plain statement of the claim showing that the pleader is
entitled to relief.” Fed. R. Civ. P. 8(a)(2). The court does not
blindly defer to the “labels and conclusions” provided by the
complaint, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007), nor to any “‘naked assertions’ devoid of ‘further
factual enhancement,’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 557) (alteration
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 23
adopted), but rather must demand that a complaint “contain
sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Id. (quoting Twombly,
550 U.S. at 570). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Id.c. Section 10(b) and Rule 10b-5
This appeal centers on Plaintiffs’ allegations under
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder. Section 10(b) makes it unlawful “to
use or employ, in connection with the purchase or sale of any
security . . . any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as
the [SEC] may prescribe as necessary or appropriate in the
public interest or for the protection of investors.” 15 U.S.C.
§ 78j(b). Rule 10b-5 implements Section 10(b) by making it
unlawful “[t]o make any untrue statement of a material fact
or to omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances under
which they were made, not misleading.” 17 C.F.R. §
240.10b-5(b).
To assert a claim under Section 10(b) and Rule 10b-5, a
plaintiff must allege: “(1) a material misrepresentation or
omission by the defendant [(“falsity”)]; (2) scienter; (3) a
connection between the misrepresentation or omission and
the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6)
loss causation.” In re NVIDIA Corp. Sec. Litig., 768 F.3d
1046, 1052 (9th Cir. 2014) (citation omitted). At issue in the
present case are the elements of falsity and scienter.
24 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
A statement is false or misleading if it “directly
contradict[s] what the defendant knew at that time” or “omits
material information.” Khoja v. Orexigen Therapeutics, Inc.,
899 F.3d 988, 1008–09 (9th Cir. 2018). In determining
whether a statement is misleading, the court applies the
objective standard of a “reasonable investor.” In re Alphabet,
Inc. Sec. Litig., 1 F.4th 687, 699 (9th Cir. 2021). When
defendants “tout positive information to the market,” they
must “do so in a manner that wouldn’t mislead investors,
including disclosing adverse information that cuts against
the positive information.” Schueneman v. Arena Pharms.,
Inc., 840 F.3d 698, 705–06 (9th Cir. 2016) (quotation marks
and citation omitted). However, “[Section] 10(b) and Rule
10b-5(b) do not create an affirmative duty to disclose any
and all material information. Disclosure is required under
these provisions only when necessary ‘to make . . .
statements made, in the light of the circumstances under
which they were made, not misleading.’” Matrixx Initiatives,
Inc. v. Siracusano, 563 U.S. 27, 44 (2011) (quoting 17
C.F.R. § 240.10b-5(b)).
The falsity analysis is slightly different when the
challenged statements contain opinions. A statement of
opinion, even if literally accurate, may be rendered
misleading by the omission of a material fact. Omnicare, Inc.
v. Laborers Dist. Council Const. Indus. Pension Fund, 575
U.S. 175, 186–87 (2015); see also City of Dearborn Heights
Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d
605, 616 (9th Cir. 2017) (applying Omnicare to Section
10(b) and Rule 10b-5 claims). “A statement of opinion is not
misleading just because external facts show the opinion to
be incorrect” or the “issuer knows, but fails to disclose, some
fact cutting the other way.” Omnicare, 575 U.S. at 188–89.
However, a reasonable investor expects that the issuer’s
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 25
opinion “fairly aligns with the information in the issuer’s
possession at the time.” Id. at 189. To state a claim that an
opinion is false or misleading, the investor must identify
particular material facts regarding the basis for the issuer’s
opinion, the omission of which make the statement
“misleading to a reasonable person reading the statement
fairly and in context.” Id. at 194.
“Scienter” as used in the federal securities laws means
the “intent to mislead investors” or deliberate recklessness
to “an obvious danger of misleading investors.” NVIDIA,
768 F.3d at 1053, 1059. Deliberate recklessness is a higher
standard than mere recklessness and requires more than a
motive to commit fraud. Schueneman, 840 F.3d at 705.
Rather, “deliberate recklessness is ‘an extreme departure
from the standards of ordinary care . . . which presents a
danger of misleading buyers or sellers that is either known
to the defendant or is so obvious that the actor must have
been aware of it.’” Id. (quoting Zucco Partners, LLC v.
Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009)).
“[R]ecklessness only satisfies scienter under § 10(b) to the
extent that it reflects some degree of intentional or conscious
misconduct.” Nursing Home Pension Fund, Local 144 v.
Oracle Corp, 380 F.3d 1226, 1230 (9th Cir. 2004) (quoting
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 977 (9th
Cir. 1999)).
d. Section 20(a)
Section 20(a) of the Exchange Act imposes liability on
certain “controlling” individuals for violations of Section
10(b) and its underlying regulations. 15 U.S.C. § 78t(a);
Twitter, 29 F.4th at 623. Section 20(a) claims are derivative.
Twitter, 29 F.4th at 623. “A defendant employee of a
corporation who has violated the securities laws will be
26 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
jointly and severally liable to the plaintiff, as long as the
plaintiff demonstrates ‘a primary violation of federal
securities law’ and that ‘the defendant exercised actual
power or control over the primary violator.’” Zucco, 552
F.3d at 990 (quoting No. 84 Emp.-Teamster Joint Council
Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920,
945 (9th Cir. 2003)).
e. Rule 9(b)
Plaintiffs’ claims are subject to the heightened pleading
requirements of Rule 9(b) and the Private Securities
Litigation Reform Act (the “PSLRA”). Twitter, 29 F.4th at
617–18. Under Rule 9(b), “a party must state with
particularity the circumstances constituting fraud or
mistake.” Fed. R. Civ. P. 9(b). “To comply with Rule 9(b),
allegations of fraud must be ‘specific enough to give
defendants notice of the particular misconduct which is
alleged to constitute the fraud charged so that they can
defend against the charge and not just deny that they have
done anything wrong.’” Bly-Magee v. California, 236 F.3d
1014, 1019 (9th Cir. 2001) (quoting Neubronner v. Milken,
6 F.3d 666, 671 (9th Cir. 1993)). “The complaint must
specify such facts as the times, dates, places, benefits
received, and other details of the alleged fraudulent
activity.” Neubronner, 6 F.3d at 672.
f. PSLRA Pleading Requirements
The PSLRA imposes “formidable pleading requirements
to properly state a claim and avoid dismissal” under Rule
12(b)(6). Metzler Inv. GMBH v. Corinthian Colls., Inc., 540
F.3d 1049, 1055 (9th Cir. 2008). The pleading requirements
imposed by the PSLRA vary depending on the element of
the claim at issue.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 27
To plead falsity adequately under the
PSLRA:
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). In doing so, the plaintiff must
“reveal ‘the sources of [his] information.’” In re Daou Sys.,
Inc., Sec. Litig., 411 F.3d 1006, 1015 (9th Cir. 2005)
(quoting Silicon Graphics, 183 F.3d at 985). Confidential
witnesses are a potential source of such information. See
infra Part III.g.
To plead scienter adequately under the PSLRA, the
complaint must “state with particularity facts giving rise to a
strong inference that the defendant acted with the required
state of mind.” 15 U.S.C. § 78u-4(b)(2)(A) (emphasis
added). A “strong inference” exists “if a reasonable person
would deem the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from
the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 324 (2007). This court conducts a dual
inquiry when assessing whether the strong inference
standard is met: first, it determines whether any one of the
plaintiff’s allegations is alone sufficient to give rise to a
strong inference of scienter; second, if no individual
allegations are sufficient, it conducts a “holistic” review to
determine whether the allegations combine to give rise to a
strong inference of scienter. Zucco, 552 F.3d at 992.
28 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
In the past, this court has taken a combined approach to
assessing the adequacy of pleadings of falsity and scienter.
In Ronconi v. Larkin, we discussed the pleading standards
for falsity and scienter as “a single inquiry” when both are at
issue. 253 F.3d 423, 429 (9th Cir. 2001). In other words, we
held that falsity and scienter should be analyzed together
when both are at issue. In employing this single inquiry, we
said that “[t]he stricter standard for pleading scienter
naturally results in a stricter standard for pleading falsity.”
In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1091 (9th Cir.
2002); see also In re Daou, 411 F.3d at 1015. Under our
combined standard, we looked not just for allegations giving
rise to a strong inference of scienter, but for allegations
giving rise to “a strong inference of fraud.” In re Vantive,
283 F.3d at 1092; see also In re Read-Rite Corp., 335 F.3d
843, 848 (9th Cir. 2003).
The combined approach used in Ronconi, In re Vantive,
In re Daou, and In re Read-Rite Corp. was abrogated by
subsequent Supreme Court decisions that treated falsity and
scienter as separate requirements. See Tellabs, 551 U.S. at315–18; Matrixx Initiatives, 563 U.S. at 37–49. The separate
approach employed by the Supreme Court is “clearly
irreconcilable” with Ronconi’s combined approach. See
Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003). Thus,
although some facts might be used to support both an
inference of scienter and an inference of falsity, our
decisions issued after Tellabs have consistently refrained
from co-mingling the inquiries. See, e.g., In re Rigel
Pharms., Inc. Sec. Litig., 697 F.3d 869, 877–83 (9th Cir.
2012); Zucco, 552 F.3d at 989–99; Metzler, 540 F.3d at1065–70. To be abundantly clear, this means that we do not
impute the strong inference standard of scienter to the
element of falsity; we do not require a “strong inference of
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 29
fraud.” Falsity is subject to a particularity requirement and
the reasonable inference standard of plausibility set out in
Twombly and Iqbal, and scienter is subject to a particularity
requirement and a strong inference standard of plausibility.
g. Use of Confidential Witnesses
The PSLRA does not necessarily require that a plaintiff
name his confidential witnesses. In re Daou, 411 F.3d at
1015. However, to comply with the PSLRA’s particularity
requirement, plaintiffs must “reveal with particularity the
sources of their information.” Id. A complaint relying on
confidential witness statements must describe the
confidential witnesses “with sufficient particularity to
establish their reliability and personal knowledge.” Zucco,
552 F.3d at 995.
Confidential witnesses may be used in two situations.
First, if a complaint relies on a confidential witness and other
factual information, the confidential witness need not reveal
his sources provided the other facts provide an adequate
basis for believing the defendant’s statements were false. Id.Second, if the complaint relies on a confidential witness and
no other information, the complaint must describe the
confidential witness with “sufficient particularity to support
the probability that a person in the position occupied by the
source would possess the information alleged.” Id. (quoting
Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir. 2000)). In
determining whether the complaint has “provide[d] an
adequate basis for determining that the witnesses in question
have personal knowledge of the events they report,” the
court considers the level of detail provided by the
confidential witnesses, the plausibility of the allegations, the
number of sources, the reliability of the sources,
corroborating facts, and similar indicia of reliability. Id.30 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
h. PSLRA Safe Harbor for Forward-Looking
Statements
Even when a plaintiff has adequately pleaded all six
elements of a Section 10(b) claim, the defendant may be
protected under the PSLRA’s “safe harbor” provision for
forward-looking statements. Forward-looking statements
include “statement[s] of the plans and objectives of
management for future operations, including plans or
objectives relating to the products or services of the issuer.”
15 U.S.C. § 78u-5(i)(1)(B). Pursuant to the safe harbor, an
issuer will not be liable with respect to any forward-looking
statement if: (A) the statement is “identified as a forward-
looking statement, and is accompanied by meaningful
cautionary statements identifying important factors that
could cause actual results to differ materially from those in
the forward-looking statement”; or (B) the plaintiff fails to
prove that the statement “was made with actual knowledge .
. . that the statement was false or misleading.” 15 U.S.C. §
78u-5(c)(1). In other words, “a defendant will not be liable
for a false or misleading statement if it is forward-looking
and either is accompanied by cautionary language or is made
without actual knowledge that it is false or misleading.” In
re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1141 (9th
Cir. 2017).
IV. SECTION 10(b) AND RULE 10b-5
For the reasons discussed below, the court holds that
Plaintiffs have adequately pleaded both falsity and scienter
as to some of the challenged statements. We also hold that
the PSLRA’s safe harbor does not preclude liability as to
some of these statements. We discuss each grouping of
statements in turn.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 31
a. Sales Pipeline Statements
i. Falsity
Plaintiffs argue that the sales pipeline statements were
misleading because they did not reflect the actual state of
Forescout’s affairs at the time the statements were made. The
sales pipeline statements can be summarized as making the
following assertions: (1) Forescout’s disappointing financial
performance in the second quarter was due to “slipped”
deals; (2) the “slipped” deals were “tech wins,” meaning the
business had been awarded to Forescout; (3) each of the
“slipped” deals was still expected to close by payment within
the year; (4) Defendants believed they could meet the full
year revenue guidance even if the “slipped” deals did not
close; (5) the pipeline was large, healthy, and continuing to
grow; and (6) the third quarter revenue miss was due to
delays in closing caused by economic conditions in the
EMEA region. We hold that Plaintiffs have adequately
alleged falsity as to each of these assertions.
First, the court finds that Plaintiffs have met the
particularity requirement imposed by the PSLRA. As
discussed above, the PSLRA provides that “if an allegation
regarding the [misleading] 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). Here, Plaintiffs’ argument for falsity
is based on Plaintiffs’ beliefs that: the cybersecurity market
shifted in 2018, Forescout employees struggled to make
sales in 2019, the “technical wins” were illusory deals rather
than actual awards of business, the illusory deals were
included in Forescout’s revenue projections, and there was a
pressure campaign at Forescout to categorize deals as
“committed” even when they were not likely to close by
32 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
payment. As the court will discuss, Plaintiffs support each of
these beliefs with detailed factual allegations and therefore
satisfy the PSLRA’s particularity requirement.
In support of their belief that the market shifted in 2018,
Plaintiffs alleged the following: There was a market shift in
2018 to cloud computing that rendered many of Forescout’s
products obsolete. David Linthicum, an expert in cloud
computing, asserted that the market began to shift towards
the cloud technology between 2018 and 2020 and, based on
his research of Forescout’s product offerings, Forescout
could not keep up with the shift. Forescout told investors in
2019 that it did not expect to launch its core cloud-based
product until late 2020. Multiple CWs blamed the declining
revenue on pricing pressure and superior cloud-related
products offered by competitors.
In support of their belief that Forescout employees
struggled to make sales in 2019, Plaintiffs alleged the
following: CW8 stated that sales substantially decreased in
2019 because customers preferred Forescout’s competitors’
products. CW8 was able to achieve only 25% of CW8’s $3
million quota for the year before CW8 left Forescout in
October 2019. CW1 stated that sales development
representatives had difficulty meeting their quotas for the
sales pipeline because of intense competition and lack of
customer interest. CW1 stated that most sales development
representatives met only 50% of their targets in the
beginning of 2019. CW2 stated that Forescout products were
difficult to sell, causing many employees to leave. CW1,
CW3, and CW4 stated that customers preferred larger
cybersecurity firms to Forescout. CW17 stated that some
sales employees quit because of difficulty selling
Forescout’s outdated products. CW17 stated that Forescout
lost every customer in CW17’s territory prior to April 2019,
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 33
and Forescout lost its largest customer in Texas by May
2019.
In support of their belief that at least some of the
“technical wins” were actually illusory, Plaintiffs alleged the
following: CW18 stated that Forescout identified deals with
only a 50% chance of success as “committed.” CW18 stated
that Forescout failed to implement a new revenue projection
system in early 2019, which would have included steps such
as securing “tech wins,” i.e., firm commitments to do
business with Forescout, from representatives of buyers with
economic decision-making authority. CW18 stated that
abandoning this system resulted in Forescout’s failure to
meet its sales targets. CW18 stated that an $80 million deal
repeatedly slipped in 2019. CW18 estimated that one out of
every five deals in the global sales pipeline was
miscategorized as “committed” and one out of every three
seven- or eight-figure deals was miscategorized as
“committed.” CW12 stated that “committed” deals
“evaporated” in the middle of 2019. CW10 inherited $1
million of deals that Forescout had predicted would close,
but when CW10 spoke to the customers they told CW10 that
they were not interested in Forescout’s products. CW12
stated that sales employees became concerned in 2019 that
“committed” deals would never close.
In support of their belief that illusory deals were included
in Forescout’s revenue projections, Plaintiffs alleged the
following: CW15 stated that “committed” deals lingered in
the forecast file for months or years without closing. CW19
stated that “committed” deals (including illusory deals that
were mischaracterized as “committed”) were included in
forecasts. CW20 stated that deals were forecasted to close
within weeks of a quarter, despite the actual length of the
sales cycle. CW20 stated that deals were regularly forecasted
34 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
improperly because the steps required to close the deals had
not taken place.
In support of their belief that there was a pressure
campaign at Forescout to categorize illusory deals as
“committed,” Plaintiffs alleged the following: Multiple CWs
stated that sales representatives, themselves included, were
pressured by senior executives to identify numerous seven-
figure deals as “committed” when, in fact, the buyers had no
interest. CW13 stated that the pressure campaign also
applied to deals involving SecurityMatters, which was
acquired by Forescout in 2018. CW19 stated that he saw and
heard the head of Americas for Forescout instruct sales
representatives to identify deals as “committed” in
Forescout’s Salesforce platform based on only a single
conversation with a senior executive of the customer in the
negotiations stage, despite a lack of actual commitment.
CW9 was pressured by Forescout management to identify a
$1 million deal with only a 50% chance of success as
“committed” even though the buyer had no interest in the
product at that date. CW9’s immediate boss instructed CW9
to move a $1 million deal to the “committed” category in the
Salesforce platform so the platform would show a $1 million
increase in revenue for the quarter, even though the deal was
not committed. CW7 heard a customer inform Niels Jensen
(Forescout’s Senior Vice President of Sales for the
Americas) that it would not place a purchase order before
September 2019, but Jensen pressured CW7 to list the close
date on or before the end of September 2019.
Requiring more detail than those presently alleged would
transform the PSLRA’s formidable pleading requirement
into an impossible one. “The PSLRA was designed to
eliminate frivolous or sham actions, but not actions of
substance.” Oracle, 380 F.3d at 1235. As demonstrated by
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 35
this court’s recitation, in perhaps tedious detail, of Plaintiffs
allegations, Plaintiffs have met their burden under the
PSLRA by stating with particularity the facts supporting
each of their beliefs as to why the challenged statements
were false or misleading. Defendants’ argument that
Plaintiffs alleged “insufficient particularized facts” as to the
sales pipeline statements asks the court to impose an
impossibly high burden on securities action plaintiffs.
The district court’s holding to the contrary relied on a
misinterpretation of the challenged statements. The district
court reasoned that Plaintiffs “fail[ed] to provide sufficient
facts indicating any of the ‘committed’ deals were falsely
reported as ‘committed.’” Defendants echo this reasoning by
arguing that Plaintiffs failed to show that Defendants
referred to any specific misclassified deals when they spoke
about having “technical wins” and about deals remaining in
the pipeline. This argument fails because Plaintiffs alleged
particular facts supporting their belief that the company had
a widespread practice of classifying illusory deals as
“committed” and including these deals in their forecasts.
When Defendants blamed missed projections on deals
having “slipped” and stated generally that “every one of
those deals is still in the pipeline,” Defendants did not refer
to any specific deals—they themselves never identified
which deals were the “slipped” deals leading to the revenue
miss. A finder of fact could reasonably conclude that, in a
company with a widespread practice of including illusory
deals in forecasts, some of the deals identified as
“committed,” but that did not close in a given quarter, were
indeed illusory.
Next, Defendants argue that Plaintiffs failed to connect
their allegations that deals were wrongfully marked
“committed” in internal company software with the
36 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
misleading nature of the statements. This argument fails
because Plaintiffs also alleged facts showing that deals
internally marked “committed” were included in company
projections. It follows that, when Forescout missed revenue
projections, at least part of the reason for the poor
performance was because the projections included these
illusory deals, and these deals never closed by payment into
Forescout’s revenue. It therefore follows that at least one
reason for missed revenue projections was the mislabeling
of illusory deals as “committed,” making it reasonably
plausible that Defendants’ statements blaming the missed
revenue on “slipped” deals was misleading.
The same reasoning applies to Defendants’ statements
blaming missed revenue guidance on conditions in the
EMEA region. It follows that, if a significant cause of the
missed revenue guidance was the misclassification of
illusory deals, it was misleading to blame the revenue miss
entirely on EMEA conditions (even if EMEA conditions
were also a factor in the financial performance).
Defendants also argue that most of the challenged
statements are “nonactionable puffery.” Defendants argue
that phrases such as “tracking very well” or “very large
pipeline” are nonactionable because they do not convey
concrete, verifiable facts. We reject this argument. Although
“vague statements of optimism” are generally not actionable
because investors “know how to devalue the optimism of
corporate executives,” In re Cutera Sec. Litig., 610 F.3d
1103, 1111 (9th Cir. 2010), “general statements of optimism,
when taken in context, may form a basis for a securities fraud
claim.” Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th Cir.
1996). In Warshaw, for example, the court held that a
biotech company president’s statement that “everything
[was] going fine” was actionable when made in response to
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 37
market fears about the company securing FDA approval on
a major product. 74 F.3d at 959.
Here, Plaintiffs have plausibly alleged that the
challenged statements “contravened the unflattering facts in
[Forescout’s] possession.” Id. at 960. The statements went
beyond mere optimism by “provid[ing] a concrete
description of the past and present state of the pipeline.”
Quality Sys., 865 F.3d at 1143–44 (holding that statements
representing that a company’s pipeline is “very consistent,”
“deep,” and “keeps growing,” and that “[t]here is nothing
drying up” were actionable and not mere puffery).
Moreover, many of the challenged statements were made
during earnings conference calls after Forescout announced
disappointing financial predictions or results, and most of
the challenged statements were made in response to specific
questions asked by financial analysts. Given this context, the
statements cannot be discounted as mere “puffery.”
Similarly, we reject Defendants’ argument that the
challenged statements were “nonactionable opinions.”
When Defendants “repeatedly reassured investors during the
class period that the number . . . of prospective sales in the
pipeline was unchanged . . . and reassured them that the
pipeline was full and growing,” they “affirmatively create[d]
an impression of a state of affairs.” Id. at 1144 (quoting
Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th
Cir. 2002)). These concrete assurances did not “fairly align[]
with the information in [Forescout’s] possession at the time”
and are therefore actionable. Omnicare, 575 U.S. at 189.
Next, Defendants challenge Plaintiffs’ reliance on CWs.
The SCAC contains statements by twenty CWs, all former
employees of Forescout. According to Defendants, “the
CWs provide no basis for any personal knowledge of
38 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
corporate-level pipeline . . . sufficient to plead falsity.” We
reject this argument. The adequacy of the SCAC does not
depend on each CW possessing inside knowledge about
corporate-level trends; Plaintiffs need only provide a basis
for each CW’s knowledge about the specific statements he
made. The SCAC meets this burden. For example, the SCAC
describes CW17 as a “Strategic Account Manager . . . at
Forescout from April 2019 to February 2021, who sold
Forescout’s products to large enterprises in Houston, Austin
and San Antonio.” This description adequately explains how
CW17 possessed the personal knowledge that Forescout lost
its largest customer in Texas in May 2019. Each of the CWs
worked at Forescout during the Class Period or immediately
prior to the Class Period. Many of the CWs described
conversations that they themselves heard (e.g., CW19 heard
an executive tell employees to mark a deal as committed) or
practices to which they themselves were subjected (e.g.,
multiple CWs were pressured to list deals as “committed”).
The SCAC thus sufficiently explains how each CW
possessed knowledge about the statements he made. Cf.
Zucco, 552 F.3d at 996 (reasoning, for example, that a
human-resources employee was not positioned to know the
workings of the finance department, and CWs who were not
employed during the class period were not positioned to
know about accounting practices during that time). Though
the CWs, as individuals, might not have known about
corporate-level trends, their statements combine to tell a
plausible story about Forescout’s pipeline.
Defendants take particular issue with Plaintiffs’ reliance
on CW18, the “senior executive” who estimated that one out
of every five deals and one out of every three seven- or eight-
figure deals was illusory. Unlike most of the CW statements,
which regarded only personal experiences or regional trends,
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 39
CW18’s estimates pertained to the sales pipeline on a
company-wide level. According to Defendants, “Plaintiffs
say nothing to establish CW18’s personal knowledge of
global . . . pipeline.” We disagree.
The SCAC describes CW18 as “a former senior
executive at Forescout who served as the Global Talent and
Enablement Manager (“GTEM”) . . . from June 2018 to
December 2020 and trained and supervised [account
managers] and other sales representatives.” CW18’s title
alone suggests that CW18 dealt with the company on a
“global” level. Further, based on CW18’s alleged
supervision of sales representatives, it is plausible that
CW18 would have knowledge about the way such
employees classified deals in the pipeline. Though CW18’s
estimates might not be 100% perfect, the court can consider
the fact that they are estimates—not hard facts—without
disregarding them entirely.
Lastly, we reject Defendants’ argument that Plaintiffs
“simply juxtapose [the] CWs’ subjective assessments of
deals with managers’ conflicting business judgments.”
Although some of the CW statements contain subjective
assessments of deals (e.g., CW18’s estimate that 1 out of
every 5 deals was illusory), the SCAC contains plenty of
allegations of verifiable facts (e.g., CW17’s statement that
Forescout lost its largest customer in Texas in May 2019).
Having considered the level of detail of the CW statements,
the number of CWs, and the consistency between the CW’s
statements of subjective opinion and those of verifiable fact,
we find that the CWs tell a reasonably plausible story about
Forescout’s state of affairs. See Zucco, 552 F.3d at 995.
40 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
ii. Scienter
Plaintiffs’ allegations of a company-wide pressure
campaign, on their own, are sufficient to raise a strong
inference of scienter. Plaintiffs argue that Defendants must
have known that deals were being miscategorized because
the Individual Defendants themselves participated in the
widespread pressure campaign to do so. The SCAC contains
the following allegations: CW18 stated that it was normal
practice to misidentify deals with only a 50% chance of
closing as “committed.” CW7 and CW14 stated that Steve
Redman (Forescout’s Chief Revenue Officer) pressured
sales representatives to identify illusory deals as
“committed.” Jensen and Redman pressured CW7 and
CW14 to report that a $2 million deal would close before
September 2019 even though the client had told Jensen in a
conference call with CW7 that it could not meet this
timeline. CW13 stated that sales employees at
SecurityMatters, an acquisition of Forescout, were pressured
to list deals as “committed” even though they knew there
was no actual commitment from buyers, that the head of
SecurityMatters left Forescout in January 2020 because he
was upset with the pressure campaign, and that the pressure
campaign came directly from DeCesare. At a breakout
session during a “sales kickoff” event in January 2020,
CW19 heard Matt Hartley (Forescout’s Vice President of the
Americas) instruct sales personnel that deals should be
identified as “committed” in the Salesforce platform “once
negotiations started” even though there was no real
commitment from customers.
These facts raise a strong inference that DeCesare
participated in the alleged pressure campaign and therefore
knew that illusory deals were included in sales projections.
CW13’s allegations are particularly persuasive. CW13 was
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 41
a Senior Administrative Assistant and Office Manager at
Forescout from November 2018 to March 2020, and joined
the company through its acquisition of SecurityMatters. As
an administrator and office manager, it is likely that CW13
regularly communicated with the employees who were
themselves subject to the pressure campaign. Defendants
argue that CW13’s statements are the equivalent of generally
alleging that conditions in a company are “known
internally.” We reject this argument. CW13 did not state that
conditions were generally known or merely “known
internally” at Forescout. Instead, CW13 identified a specific
group of employees (sales employees at SecurityMatters)
who were subjected to the alleged pressure. CW13 also
identified a specific high-level employee (the head of
SecurityMatters) who found the pressure campaign so
burdensome that he left the company. These particularized
facts support the inference that Forescout executives exerted
pressure on SecurityMatters employees and in turn
corroborate Plaintiffs’ allegations of a widespread pressure
campaign at Forescout.
The inference of scienter is bolstered by Plaintiffs’
allegations that DeCesare had access to information about
the sales pipeline and the status of deals through internal
reports and Clari, a revenue platform used to track deals. As
to the internal reports, Plaintiffs alleged: CW20 was a Senior
Deal Desk Manager at Forescout. CW20 reported to Mick
Roberts (Forescout’s Director of the Global Deal Desk), who
reported to Aaron Martin (Forescout’s Senior Vice President
of Revenue Operations), who reported to DeCesare. CW20
gathered information from sales representatives and
prepared updates using Smartsheet, a software program that
gathers information from Salesforce data concerning the
status of deals. These updates contained information
42 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
regarding deals valued at $500,000 or more, including the
status of negotiations, the steps remaining to close a deal,
and the expected dollar amount for each deal. Roberts told
CW20 that the Smartsheet updates were required because
Martin presented this information to DeCesare in weekly
meetings.
As to Clari, Plaintiffs alleged: CW17, CW18, and CW20
stated that DeCesare, Redman, and other executives used
Clari to track sales and monitor sales representatives, deals,
and forecasts. Clari contained real-time information on a
company-wide level that would allow Individual Defendants
to learn when the company was short on its pipeline, identify
deals that were at risk, and predict outcomes early in the
quarter. DeCesare publicly stated, “Clari provides new
visibility into the sales execution process that is
unparalleled.” 4
Individual Defendants’ access to internal reports and
Clari support the inference of scienter. First, Plaintiffs
alleged with particularity that DeCesare accessed the
internal reports. See Okla. Police Pension & Ret. Sys. v.
Lifelock, Inc., 780 F. App’x 480, 484 n.5 (9th Cir. 2019)
(finding a witness’s assertions that the witness’s supervisor
and the defendant met regularly to discuss reports prepared
by the witness sufficient to establish, at the pleading phase,
that the defendant had access to the information in the
reports). As to Clari, three different CWs, including
CW18—a “senior executive” and “Global Talent and
Enablement Manager”—alleged that DeCesare himself
accessed Clari. The CW allegations are corroborated by
DeCesare’s public statement implying that he himself used
4
The district court took judicial notice of this statement.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 43
the system. Although Defendants point out that DeCesare’s
public statement is undated, the fact that CW17, CW18, and
CW20 were all employed during the Class Period
strengthens the inference that DeCesare used Clari during
the Class Period.
Second, Plaintiffs adequately alleged the contents of the
information Individual Defendants accessed because the
SCAC includes particularized details about the data to be
reviewed. In Oracle, the court found access to information
allegations sufficient to support scienter where the complaint
included specific facts similar to those alleged here.
Compare 380 F.3d at 1231 (observing that the defendant
“maintained an internal database covering global
information about sales” including “up to the minute”
information), and id. (noting that former employees
“testif[ied] to a major slowdown in sales”), and id. (stating
that “by the summer 2000, the telephones in General
Business West ‘went dead’”), with SCAC ¶ 43 (describing
Clari’s forecasts regarding deals, sales, and employees as
“up-to[-]the-minute” and “company-wide”), and id. ¶ 36
(recounting five CWs’ statements that Forescout struggled
to sell products because customers preferred other vendors),
and id. ¶ 99.C (“CW17 states that Forescout lost every single
customer in CW17’s territory in southern Texas by April
2019.”). These particularized allegations regarding
Individual Defendants’ access to information about the
pipeline further enhance the inference of scienter. 5
5
We offer no opinion as to whether the access to information allegations,
on their own, would support a strong inference of scienter. We hold only
that these allegations enhance the strong inference already raised by the
pressure campaign allegations.
44 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
iii. Forward-looking Statements
Although Plaintiffs have adequately pleaded falsity and
scienter as to all of the sales pipeline statements, some of
these statements are protected by the PSLRA’s safe harbor
for forward-looking statements. The sales pipeline
statements are forward-looking to the extent they assert that
(1) each of the “slipped” deals was still expected to close
within the year, and (2) Defendants believed they could meet
the full year revenue guidance even if the “slipped” deals did
not close. These statements are forward-looking because
they constitute “statement[s] of future economic
performance.” 15 U.S.C. § 78u-5(i)(1)(C); Wochos v. Tesla,
Inc., 985 F.3d 1180, 1192 (9th Cir. 2021). Forescout
identified these statements as forward-looking during the
May 9, 2019, and August 17, 2019, earnings conference calls
during which they were made. During these calls, Forescout
directed investors to its SEC filings and earnings statements
made on the same dates. The relevant earnings statements
contained meaningful cautionary language listing specific
factors that might affect the company’s likelihood of closing
on its deals and achieving its revenue goals. For example,
the May 9, 2019, earnings statement provides, “[these]
forward-looking statements . . . involve risks and
uncertainties . . . [including] the evolution of the cyberthreat
landscape. . . developments and trends in the domestic and
international markets for network security products . . .
fluctuations in our quarterly results of operations and other
operating measures; increasing competition.” The August
17, 2019, statement contains similar meaningful cautionary
language. These statements are therefore protected by the
safe harbor. See 15 U.S.C. § 78u-5(c)(1).
Forescout’s statements are not forward-looking to the
extent they assert that (1) Forescout’s disappointing
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 45
financial performance in the second quarter was due to
“slipped” deals; (2) the “slipped” deals were “tech wins”; (3)
the pipeline was large, healthy, and continuing to grow; and
(4) the third quarter revenue miss was due to delays in
closing caused by economic conditions in the EMEA region.
Such statements describe past and current conditions, rather
than plans or objectives for future operations. See Quality
Sys., 865 F.3d at 1143 (holding that statements addressing
the past and current state of the sales pipeline, such as “[o]ur
pipeline continues to build to record levels,” were non-
forward-looking statements). Because these statements are
not forward-looking, they are not protected by the safe
harbor.
b. Sales Employee Statements
First, we take the time to clarify those aspects of the
statements that Plaintiffs alleged to be misleading. The
district court interpreted the SCAC as alleging that Forescout
misled its employees as to the amount of hiring or firing
taking place in the Company. The district court reasoned that
“Defendants’ alleged misstatements did not indicate there
would be no employee turnover,” and that, although the
CWs stated many employees left Forescout during the Class
Period, the CWs also stated that Forescout was hiring. But
the assertion Plaintiffs challenge here is narrower: Plaintiffs
argue that Forescout misled investors as to the level of
experience of its sales force at the time of the statements.
Specifically, Plaintiffs alleged that Forescout misled
investors about the percentage of sales employees who were
“ramped up”—a figure Plaintiffs often referred to in the
SCAC as Forescout’s “sales productivity.” According to the
SCAC, Forescout defined “ramped up” employees as those
having two or more years of experience in the same territory.
46 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
Plaintiffs argue that the percentage of “ramped up”
employees was material to investors because “the Company
informed investors that its sales representatives’
productivity is directly tied to the duration of their tenure,
with a 100% increase in productivity after the second year at
Forescout, and 50% higher than second-year productivity in
the third year at Forescout.” During the May 9, 2019,
earnings conference call, DeCesare tied the amount of time
a Named Account Manager had been at Forescout to the
“visibility” of the Company’s pipeline. It is unclear exactly
what DeCesare meant by “visibility of the Company’s
pipeline,” but the SCAC describes this statement as meaning
that “the longer a sales representative was at Forescout, the
greater the likelihood that the sales representative would
generate more deals and greater revenue.” For these reasons,
Plaintiffs are concerned not with Forescout’s turnover rate
on a general level, but with the number and percentage of
“ramped up” sales employees in Forescout’s sales force at
the time of the statements.
Defendants argue that Plaintiffs conflate “sales
productivity” with the percentage of “ramped up” sales
representatives and note that this percentage did not track
employees’ sales productivity, total employment duration,
or general sales experience. We recognize that the
percentage of “ramped up” employees is not a perfect proxy
for “sales productivity.” But read in context, most of the
allegedly misleading statements specifically address this
percentage. For example, during the August 7, 2019,
earnings conference call, DeCesare mentioned that the
percentage of “ramped up” sales employees was 50% at the
end of 2018, then said that the current percentage was
“tracking very well for us.” In this context, DeCesare clearly
meant that the percentage of “ramped up” employees was
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 47
“tracking very well,” not Forescout’s sales productivity
overall.
DeCesare’s statement during the May 9, 2019, earnings
conference call, however, did not specifically address the
percentage of “ramped up” employees. In response to an
analyst’s question about “sales capacity,” DeCesare stated,
“we feel like we are tracking very well against our sales
productivity” and “[n]othing has changed at those levels.”
The SCAC does not indicate that DeCesare and the analyst
ever specified that “sales productivity” or “sales capacity”
referred to the percentage of “ramped up” sales employees.
It is therefore unclear that this statement was rendered
misleading by the omission of facts relating to a decline in
the number of “ramped up” sales employees.
However, even if we accept for the sake of argument that
the percentage of “ramped up” sales employees was a
sufficient indicator of Forescout’s “sales productivity,”
Plaintiffs’ argument fails because Plaintiffs did not allege
with particularity that the number or percentage of
Forescout’s “ramped up” sales employees had dropped by
the time Forescout made the allegedly misleading
statements. The relevant statements occurred on March 4,
May 9, and August 7 of 2019. In support of their belief that
the percentage of “ramped up” sales employees had fallen
by these dates, Plaintiffs offered numerous CW statements
regarding employee turnover throughout 2019.
The CWs stated that: Forescout’s total sales force
declined from 400 employees in 2018 to 300 employees by
the end of 2019 and the beginning of 2020. Between 2019
and 2020, “Forescout replaced 100 experienced sales
representatives with inexperienced ones who were unable to
close deals given the lengthy sales cycle.” Significant cuts
48 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
were made in the commercial division in February 2019. An
entire sales team was cut in the spring of 2019. A total of
twenty-five to thirty “Business Development
Representatives” and “Sales Development Representatives”
were terminated or left Forescout in the first months of 2019.
Layoffs occurred in five rounds in 2019 and 2020, with most
cuts made in 2019. Around May 2019, Forescout made plans
to terminate more employees that summer. In 2019,
Forescout terminated or lost 25–30 of its “Named Account
Managers” with two or more years of experience in their
territories. There were numerous hiring freezes in 2019. In
August 2019, Forescout laid off “a significant number” of
sales representatives dedicated to the healthcare and
financial services industry. In the third quarter of 2019, an
entire section of a major division was eliminated. In addition
to the CW statements, Plaintiffs noted that, according to
Forescout’s 10-K for 2019, the percentage of Forescout’s
“ramped up” sales employees declined from 50% to 38%
between the end of 2018 and the end of 2019.
Although the CWs asserted that numerous layoffs
occurred at some point in 2019, these statements are unclear
as to the actual timeline at which company-wide layoffs
occurred. Plaintiffs’ belief that company-wide lay-offs had
already begun at the time the statements were made is simply
not supported by the CWs’ vague statements that layoffs
occurred in “spring 2019,” “summer 2019,” or just “2019.”
Similarly, the allegation that “Forescout replaced 100
experienced sales representatives with inexperienced ones”
between 2019 and 2020 does not establish that Forescout
made such replacements prior to March 4, May 9, or August
7, 2019. The allegation that significant cuts were made in the
commercial division in February 2019, does not establish
that company-wide lay-offs had occurred by February 2019.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 49
The fact that the percentage of “ramped up” sales employees
declined to 38% by the end of 2019 is similarly unhelpful as
it offers no insight into the percentage at the time the
statements were made. Accordingly, Plaintiffs failed to
plead with particularity that Forescout’s statements about the
experience of its sales force were false or misleading.
Plaintiffs accord too much weight to Forescout’s
“specific admission” that the percentage of “ramped up”
sales employees declined to 38% by the end of 2019.
Plaintiffs argue that this post-class period disclosure
supports a finding that the relevant percentage had fallen by
the date of the statements. The problem with Plaintiffs’
“admission” argument is not that Forescout’s disclosure
occurred after the statements were made, but that the
disclosure pertained only to conditions existing after the
statements were made (at the end of 2019). Forescout made
no admissions about the relevant percentage as of the dates
of the challenged statements.
Similarly meritless is Plaintiffs’ reliance on In re Daou
Sys., Inc., Sec. Litig., 411 F.3d 1006 (9th Cir. 2005). In In re
Daou, the court reversed dismissal of the plaintiffs’ claim
that the defendant company understated the rate of employee
attrition. Id. at 1020. The complaint alleged that “[e]mployee
turnover, especially among Field Service engineers,
exceeded 40%,” but the defendants stated that “attrition
within the technical ranks of employees was only 6.8%.” Id.
This court found that the plaintiffs adequately alleged falsity
by alleging “[s]uch discrepancy between what [the
defendants] reported and the allegedly true state of affairs of
[the company].” Id. at 1021. Plaintiffs argue that the district
court failed to follow In re Daou by overlooking the
allegation that 100 experienced sales representatives were
replaced with inexperienced employees. However, unlike in
50 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
In re Daou, Plaintiffs have failed to allege the “true state of
affairs” at the time of the alleged misstatements. The SCAC
does not specify when in 2019 these experienced employees
were replaced or specify the percentage of “ramped up”
employees at the time of the statements. Accordingly,
Plaintiffs have failed adequately to plead falsity as to the
sales employee statements.
c. Channel Partner Statements
Plaintiffs argue that Forescout misled investors by
stating that the company might lose business as a result of
announcing the merger with Advent and failing to disclose
that Forescout had already lost three major channel partner
relationships because of the announcement. This argument
fails because Plaintiffs failed to plead with particularity that
the channel partner relationships terminated prior to the date
on which Forescout made the alleged statements, and
therefore failed to plead falsity.
Forescout announced the planned merger with Advent
on February 6, 2020. On February 28, 2020, Forescout filed
with the SEC a Form 10-K for 2019, which stated, “[t]he
announcement and pendency of our agreement to be
acquired by Advent could adversely affect our business”
(emphasis added). Forescout included a similar disclosure in
a proxy statement issued on March 24, 2020, in connection
with the planned acquisition. On May 19, 2020, Forescout
filed the Delaware Complaint, which revealed that the
February 6, 2020, announcement of the deal with Advent led
to the termination of three major channel partner
relationships, resulting in the loss of tens of millions of
dollars of potential profits to Forescout. Based on these
dates, the channel partner losses occurred sometime between
February 6, 2020, and May 19, 2020.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 51
Plaintiffs argue that, because the channel partner losses
occurred as a result of the February 6, 2020, announcement,
they must have occurred prior to the February 28, 2020, and
March 24, 2020, statements. However, this court recently
held that “temporal proximity alone does not satisfy the
particularity requirements.” Twitter, 29 F.4th at 622. In
Twitter, the plaintiffs alleged that Twitter misled investors
by stating on July 26, 2019, and July 31, 2019, that Twitter
was working on the performance of its products and that
some products might contain undetected software errors. Id.
at 621. On August 6, 2019, Twitter tweeted that it “recently
discovered” software bugs in one of its products. Id. at 617.
The Twitter investors argued that the August 6 tweet was
sufficient to show that Twitter already knew about existing
software bugs when it made its July statements. Id. at 622.
This court rejected the argument, finding the temporal
proximity of the August 6 tweet insufficient to plead with
particularity that Twitter knew of the software bugs in late
July. Id. at 621.
Twitter is on point with the present issue. It is
inconsequential that Plaintiffs rely on an event prior to the
alleged statements (the February 6, announcement of the
merger), rather than an event after the alleged statements
(like the August 6, tweet, in Twitter). We see no reason why
temporal proximity would be sufficient to plead that an event
occurred shortly after another event if it is not sufficient to
plead that an event occurred shortly before another event.
Plaintiffs also alleged that Advent “received alarming
news” on March 20, 2020, and argue that this news must
have been related to the channel partner terminations. In
support of this theory, Plaintiffs alleged that Advent had
access to Forescout’s sales pipeline predictor tool;
presumably such access would allow Advent to learn of
52 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
business developments such as channel partner terminations
prior to the general public or Forescout’s investors.
Plaintiffs’ argument fails, however, because Defendants
stated in the Delaware proceeding that the “alarming news”
Advent received on March 20, 2020, was Forescout’s
preview of its first quarter results, and Plaintiffs have failed
to provide any particularized allegations suggesting that the
“alarming news” was anything other than the first quarter
results. The mere fact that Forescout announced
disappointing financial results for the first quarter of 2020 is
not enough for Plaintiffs to have alleged with particularity
that the specific channel partner relationships at issue
terminated during that quarter.
Lastly, Plaintiffs argue that they need not identify the
precise dates of the channel partner losses because falsity is
not subject to a heightened pleading standard, so Plaintiffs
must show only that their falsity allegations are plausible.
Plaintiffs are correct that falsity, unlike scienter, is not
subject to the “strong inference” pleading standard.
However, Plaintiffs confuse particularity (the level of detail
required in the allegations) with plausibility (the strength of
the inference that an element of the claim is satisfied based
upon the facts alleged). Thus, while it may be plausible
(under the reasonable inference standard of Twombly/Iqbal)
that the channel partner losses occurred prior to Forescout’s
statements, Plaintiffs’ claim nonetheless fails for lack of
detail.
d. Merger Statements
i. Falsity
Plaintiffs adequately pleaded falsity as to the May 11,
2020, statement that Defendants expected the merger to
close. As a preliminary matter, the district court erred in
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 53
reasoning that the merger statements did not create an
affirmative impression that the merger would close. The
district court relied on In re Lifelock, Inc. Securities
Litigation, in which this court affirmed the district court’s
holding that the phrase “our compliance with the FTC order”
did not create an affirmative impression that the defendant
was actually in compliance with the FTC order. 690 Fed.
App’x 947, 951–52 (9th Cir. 2017). The statement in
Lifelock is not analogous to the statements here. In its full
context, the statement in Lifelock read, “On January 17,
2014, we met with FTC staff . . . to discuss issues regarding
allegations . . . against us relating to our compliance with the
FTC order.” Id. at 951 (emphasis added). The reference to
“our compliance with the FTC order” is merely a description
of the topic of communication—nothing in the sentence
implies that the defendants were or were not in compliance
with the order. In contrast, here, a plain reading of the
statements does suggest that Defendants believed the merger
would close on May 18. The fact that the statements include
phrases such as “[w]e look forward to” and “[w]e currently
expect” might render the statements opinions rather than
assertions of concrete fact, but it does not follow that the
statements do not create an affirmative impression that there
was an expectation the merger would close on time.
We next turn to the question of whether Defendants’
statements of opinion that the merger would close were
misleading. To plead adequately that the merger statements
were false or misleading, Plaintiffs were required to allege
particular material facts regarding the basis for Forescout’s
opinion that the merger with Advent would close, the
omission of which made the statements “misleading to a
reasonable person reading the statement fairly and in
context.” Omnicare, 575 U.S. at 194. Plaintiffs identified
54 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
two communications by Advent to Forescout, the omission
of which they contend rendered Forescout’s merger
statements misleading. First, in an April 20, 2020, letter,
Advent expressed concerns about Forescout’s deteriorating
performance and said it was reviewing Forescout’s business
to assess whether closing conditions would be satisfied.
Second, on May 8, 2020, Advent’s head of technology
investment told DeCesare during a phone call that Advent
was considering not closing the merger and that Advent
could not “make the numbers work.”
We agree with the district court that Forescout did not
mislead investors by failing to disclose Advent’s April 20,
2020, letter. As the district court reasoned, Advent’s
statement that it was “assess[ing] conditions to closing” was
consistent with a review of conditions resulting in an actual
close of the merger. However, the omission of the May 8,
2020, phone call, in which Advent informed Forescout that
it was considering not closing the merger, was certainly
inconsistent with Forescout’s May 11, 2020, statement that
it expected the merger to close. Even if Forescout’s
executives sincerely believed that the merger would still
close as planned, Forescout’s May 11 statement did not
“fairly align[] with the information in the issuer’s possession
at the time”—i.e., that Advent was reconsidering the deal.
Id. at 189; see also Lloyd v. CVB Fin. Corp., 811 F.3d 1200,
1208–09 (9th Cir. 2016).
We reject Defendants’ argument that Forescout did not
mislead investors because it made “multiple specific
warnings” about the transaction, including that the timing of
closing was uncertain and that closing conditions might
impact the deal’s course. Defendants cannot rely on
boilerplate language describing hypothetical risks to avoid
liability for the failure to disclose that the company already
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 55
had information suggesting the merger might not ensue. See
In re Alphabet, Inc., 1 F.4th at 702 (holding that the plaintiffs
alleged actionable misstatements because the defendant
company included as a risk factor concerns about data
security but did not mention a security vulnerability that the
company had already discovered). We therefore hold that
Plaintiffs adequately pleaded falsity as to the May 11, 2020,
statement.
ii. Scienter
We also hold that Plaintiffs adequately alleged scienter
as to the May 11, 2020, statement. That DeCesare and Harms
were the corporate officials responsible for communicating
with Advent, is corroborated thoroughly by Defendants’
allegations in the Delaware Complaint. Moreover,
Defendants themselves alleged in the Delaware Complaint
that Advent’s representative told DeCesare directly during
the May 8, 2020, phone call that Advent was considering not
closing the merger. The fact that DeCesare was aware as of
May 8, of Advent’s reconsideration of the merger is
sufficient to raise a strong inference that Defendants knew
of the possibility of misleading the shareholders by stating
on May 11, 2020, “[w]e look forward to completing our
pending transaction with Advent.”
Defendants argue that they lacked scienter because they
were confident that the transaction was binding, as
evidenced by Forescout’s seeking specific performance of
the merger in Delaware Court. This argument is not
persuasive because whether the original merger agreement
was binding on Advent is not relevant. The issue is whether
Defendants knew that Advent was reconsidering the original
merger agreement—it was Advent’s reconsideration of the
56 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
merger, not whether such reconsideration was proper, that
rendered the May 11 statement misleading to shareholders.
Defendants also argue that Advent’s true intentions were
unknown before May 15, 2020, as evidenced by the
Delaware Complaint, in which Forescout stated: “At first, it
seemed that Advent was testing Forescout’s appetite to
reprice the deal.” There is little persuasive value in
Defendants’ own assertions that they did not believe that
Advent was seriously reconsidering the merger. If anything,
the fact that Defendants suspected that Advent wanted to
reprice the deal supports the inference that Defendants were
not confident the merger would close on its original terms,
and therefore knew it would be misleading to investors to
state otherwise. Because the May 11, 2020, press release
stated that management looked forward to closing the
merger deal but omitted management’s thought that Advent
was perhaps seeking a different price, it is, at best, a half-
truth.
iii. Forward-Looking Statements
The May 11, 2020, merger statement is not protected by
the safe harbor for forward-looking statements because it
was not accompanied by meaningful cautionary language. 6
To be “meaningful,” the cautionary language must
“identify[] important factors that could cause actual results
to differ.” 15 U.S.C. § 78u-5(c)(1)(A)(i).
Here, the most relevant risk disclosed by Defendants was
“the risk that the conditions to the closing of the transaction
are not satisfied or that the transaction is not consummated.”
6
Because we find that there was no meaningful cautionary language, we
do not consider Plaintiffs’ argument that the merger statement was not
“forward-looking” within the meaning of the statute.
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 57
We agree with Plaintiffs that this language is not
“meaningful” because it amounts to only a boilerplate listing
of generic risks and does not mention the specific risk to
which Forescout had been alerted—the risk that Advent
would back out of the merger. Our conclusion is bolstered
by the fact that Defendants did not meaningfully update the
risk disclosure after the May 8, 2020, phone call to reflect
the new development that Advent was reconsidering the
transaction. 7
When analyzing the falsity element of a securities claim,
this court has held that risk disclosures can be misleading to
investors when they “speak[] entirely of as-yet-unrealized
risks and contingencies” and do not “alert[] the reader that
7
The February 6, 2020, press release, which announced the pending
merger, listed as risks associated with the merger: “the risk that the
conditions to the closing of the transaction are not satisfied, including
the risk that required approvals from the stockholders of the Company
for the transaction or required regulatory approvals are not obtained;
potential litigation relating to the transaction; uncertainties as to the
timing of the consummation of the transaction and the ability of each
party to consummate the transaction; risks that the proposed transaction
disrupts the current plans and operations of the Company . . . .” The May
11, 2020, press release, which included the challenged statement, listed
as risks associated with the merger: “the risk that the conditions to the
closing of the transaction are not satisfied or that the transaction is not
consummated; potential litigation relating to the transaction;
uncertainties as to the timing of the consummation of the transaction and
the ability of each party to consummate the transaction; risks that the
proposed transaction disrupts our current plans and operations . . . .” The
risk disclosures before and after the May 8, 2020, call were nearly
identical, except for the addition in the May 11, 2020, press release of
the risk “that the transaction is not consummated.” The court is not
persuaded that this update meaningfully reflected the risk of which
Forescout and its executives were aware: that Advent would seek to
terminate the merger.
58 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
some of these risks may already have come to fruition.” See
Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985–87
(9th Cir. 2008); In re Alphabet, Inc., 1 F.4th at 703. The same
logic follows in the context of the safe harbor: cautionary
language is not “meaningful” if it discusses as a mere
possibility a risk that has already materialized. As of May
11, 2020, the risk that Advent would terminate merger
proceedings had not yet become an absolute certainty.
However, Forescout was aware of a significant likelihood
that the risk would materialize and did not sufficiently
apprise its investors of this development. The risk disclosure
contained in the May 11, 2020, press release was therefore
not “meaningful cautionary language” as required for safe-
harbor protection.
Finally, Defendants cannot invoke safe-harbor
protection on the basis that they lacked “actual knowledge
of falsity,” because DeCesare himself received the news that
Advent was reconsidering the merger.
V. SECTION 20(a)
The district court dismissed Plaintiffs’ Section 20(a)
claims on the basis that Plaintiffs failed adequately to allege
Section 10(b) violations. Because the court holds that
Plaintiffs adequately stated claims under Section 10(b), we
reverse the district court’s dismissal of the Section 20(a)
claims and remand for further proceedings.
VI. CONCLUSION
We affirm the district court’s dismissal of the claims
regarding the following challenged statements: (1) the
statements made on May 9, 2019, asserting that: (i) each of
the “slipped” deals was still expected to close within the
year, and (ii) Defendants believed they could meet the full
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 59
year revenue guidance even if the “slipped” deals did not
close, because these statements are protected by the
PSLRA’s safe harbor for forward-looking statements; (2) all
statements regarding Forescout’s sales force, because
Plaintiffs have failed adequately to plead falsity as to these
statements; (3) all statements regarding the channel partner
losses, because Plaintiffs have failed to plead with
particularity that the channel partner losses occurred prior to
the statements; and (4) the April 23, 2020, and April 29,
2020, statements that Forescout expected the merger with
Advent to close, because Plaintiffs have failed to plead that
Advent evinced an intent to renege on the merger prior to
these statements.
We reverse and remand for further proceedings
consistent with this opinion the claims regarding the
following challenged statements: (1) the statements made on
May 9, 2019, August 7, 2019, August 12, 2019, October 10,
2019, and November 6, 2019, asserting that (i) the
disappointing second quarter performance was due to
“slipped” deals, (ii) the “slipped” deals were “tech wins,”
(iii) the sales pipeline was large, healthy, and continuing to
grow, and (iv) the third quarter revenue miss was due to
delays in closing caused by economic conditions in the
EMEA area; and (2) the May 11, 2020, press release stating
that Forescout “look[ed] forward to completing [the]
pending transaction with Advent.”
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.
60 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
HAWKINS, Circuit Judge, concurring in part and
dissenting in part:
I agree with my friends in the opinion except for Part
IV.a. regarding the sales pipeline statements. The majority
concludes that the Plaintiffs have successfully alleged falsity
and scienter with respect to four statements that are not
forward-looking and protected by the PSLRA safe harbor:
(1) that Forescout’s second quarter performance was due to
“slipped” deals; (2) that the slipped deals were “tech wins”;
(3) that the pipeline was large, healthy and continuing to
grow; and (4) that the third quarter revenue miss was due to
declining economic conditions in the EMEA region. I
disagree and would affirm the dismissal of these claims as
well.
The district court determined the amended complaint
failed to adequately plead the falsity of Defendants’
statements. A statement is considered false if it directly
contradicts what the defendant knew at that time or omits
material information. Khoja v. Orexigen Therapeutics, Inc.,
899 F.3d 988, 1008‒09 (9th Cir. 2018). “A statement of
opinion is not misleading just because external facts show
the opinion to be incorrect.” Omnicare, Inc. v. Laborers
Dist. Council Const. Indus. Pension Fund, 575 U.S. 175,
188‒89 (2015). Statements that are not capable of objective
verification are “puffery” and cannot constitute material
representations. Oregon Public Emps. Ret. Fund v. Apollo
Group Inc., 774 F.3d 598, 606 (9th Cir. 2014).
I see these statements by Defendants as reflecting
business judgments and opinions about the timing of deals
and the underlying causes of missing second quarter
forecasts. Plaintiffs’ complaint reflects a difference of
opinion between the CWs and upper management as to when
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 61
to characterize a deal a “tech win” or “committed,” and how
much time to allot to closing such deals when including them
in earnings forecasts. The complaint alleges the company
had an “inadequate internal system for projecting future
revenue,” but this is hardly the same as intentional
falsification and scienter. “Plaintiffs cannot use the benefit
of 20-20 hindsight to turn management’s business judgment
into securities fraud.” In re Worlds of Wonder Sec. Litig., 35
F.3d 1407, 1419 (9th Cir. 1994).
Defendants may have underestimated the amount of time
required for some deals to close, leading to them “slipping”
into later quarters, but many of the deals did eventually
close, and the company missed its upwardly-revised
projections in the fourth quarter of 2019 by only 2.4 percent.
Anecdotal evidence that a few deals did not close at all
(comprising a relatively small fraction of annual sales
revenue) is not enough to render the pipeline “illusory” and
make more general statements about a strong and healthy
pipeline actually false. At most, the CWs’ statements reflect
a subjective disagreement with the Defendants’ more
optimistic business analysis. See Wochos v. Tesla, 985 F.3d
1180, 1194 (9th Cir. 2021) (employee pessimism
insufficient to establish knowledge; no indication defendants
“shared that gloomy view” at time statements were made).
Likewise, Defendants publicly opined that the company
missed second quarter projections in part because of the
deals that slipped into later quarters, but also because of
declining economic conditions in the EMEA region.
Plaintiffs disagree with this assessment but allege no facts
indicating this opinion was verifiably false, i.e., that these
economic conditions did not partially contribute to missing
the projections, especially when coupled with the deals that
slid into later quarters.
62 GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC.
For me, the determination Plaintiffs failed to adequately
plead scienter with respect to these statements is on solid
ground. Scienter requires an intent to mislead or a deliberate
recklessness to an obvious danger of misleading investors.
Schueneman v. Arena Pharms., Inc., 840 F.3d 698, 705 (9th
Cir. 2016). Deliberate recklessness is an “extreme departure
from standards of ordinary care” and “so obvious that the
actor must have been aware of it.” Zucco Partners, LLC v.
Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009).
As the district court noted, Plaintiffs failed to identify
specific information within internal reports or data that
conflicted with public statements, or other facts that would
have made it “so obvious” that Defendants must have been
aware that their assessments of the pipeline and slipped deals
were incorrect. See Lipton v. Pathogenesis Corp., 284 F.3d
1027, 1036 (9th Cir. 2012). The complaint also lacks a
sufficient indication that the CWs would have access to
company-wide global sales information or information
about the personal knowledge of the individual Defendants.
See Zucco Partners, 552 F.3d at 996‒97 (CWs “not
positioned to know the information alleged” and statements
that executives “had to have known what was going on” is a
generalized claim of knowledge and not sufficient indication
of scienter).
Plaintiffs also rely on the Defendant’s decision not to
implement a new forecasting system called “CEP” which
had been recommended by a consulting firm the company
employed in 2018. According to Plaintiffs, many of the
deals Defendants classified as “tech wins” or projected to
close by end of second quarter would have been analyzed
differently, and more accurately, by CEP. The continued use
of an older, outdated system may not have been a wise
business decision, but it is hardly the type of “extreme
GLAZER CAPITAL MGMT., L.P. V. FORESCOUT TECHS., INC. 63
departure from standards of ordinary care” that gives rise to
an inference of scienter. Id. at 991.
So, I would affirm the dismissal of these claims as well
and remand only with respect to the statements concerning
the Advent acquisition.