Sakkal v. Anaplan Inc., .

Background

This federal securities class action concerned allegedly false or misleading statements by Anaplan Inc., its chief executive officer, Frank Calderoni, and its chief financial officer, David Morton. The plaintiffs asserted claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

The complaint described what the court characterized as a toxic and abrasive workplace environment, particularly within Anaplan’s sales organization. According to allegations from confidential witnesses, sales employees faced aggressive quotas and pressure to overstate the likelihood that deals would close. The complaint alleged that these practices inflated sales forecasts, contributed to delayed or reduced billings, and led to turnover among sales personnel and leaders.

The challenged statements included comments about Anaplan’s billings growth, future revenue and operating margins, sales productivity, the business environment, corporate culture, executive talent, and the company’s ability to grow. The complaint also alleged that Anaplan’s quarterly filing failed to disclose slowing billings growth, sales-department turnover, and leadership changes, and instead included general warnings about maintaining its corporate culture and hiring and integrating new employees.

Claims and analysis

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Securities-fraud complaints must also identify each allegedly misleading statement, explain why it was misleading, and plead particular facts supporting a strong inference that the defendants acted with the required fraudulent intent, known as scienter.

The court held that most of the challenged statements were non-actionable corporate optimism, sometimes called puffery. It found that statements praising Anaplan’s culture, products, prospects, leaders, momentum, and growth were vague or subjective and were not the kind of specific factual representations on which a reasonable investor would rely.

The court separately examined the potentially actionable statements concerning billings growth, the business environment, and sales hiring. It concluded that the complaint did not specifically allege that billings had slowed in a way that affected the company’s projections or quarterly performance when the statements were made. The court also found that the statement projecting that billings would track overall revenue growth was forward-looking and protected by the securities-law safe harbor because it was accompanied by a specific warning that billings could fluctuate based on the timing of renewals and transactions. The court found the statement about hiring and sales-force productivity not misleading because the complaint did not provide factual detail showing that the sales force was shrinking rather than experiencing turnover.

The court further held that the complaint did not plead scienter. The confidential-witness allegations were not sufficiently tied to particular statements or time periods, and the witnesses did not show that Calderoni or Morton had the specific knowledge required. The court also rejected the plaintiffs’ reliance on Anaplan’s own forecasting technology, the alleged importance of sales operations, executive departures, and insider stock sales as collectively establishing the required intent.

Because the complaint did not adequately allege an actionable false or misleading statement or the required mental state, the court held that it did not state a claim under Section 10(b). The Section 20(a) claim, which the court described as derivative of the Section 10(b) claim, therefore also failed.

Document requests

The defendants sought judicial notice of, or incorporation by reference of, 19 exhibits. Judicial notice allows a court to accept certain matters without formal proof; incorporation by reference allows a document to be considered when the complaint extensively refers to it or the document forms the basis of the claim. The court granted in part and denied in part these requests. It did not incorporate or take notice of exhibits 1, 5, 10, 11, 13, 15, 16, and 19 because the order did not rely on or consider them, and it granted the request as to the other exhibits.

Disposition

Judge Richard Seeborg granted the motion to dismiss with leave to amend. The order stated that the plaintiff could file an amended complaint within 21 days of the order. The requests for incorporation by reference and judicial notice were granted in part and denied in part.