Leventhal v. Chegg, Inc.

Background

Lead plaintiffs Pompano Beach Police and Firefighters’ Retirement System and KBC Asset Management NV brought a securities-fraud class action against Chegg, Inc., Chegg CEO Daniel Rosensweig, Chegg CFO Andrew Brown, and Chegg President of Learning Services Nathan Schultz. The defendants previously moved to dismiss the complaint, but the court denied that motion on March 4, 2024. The court later allowed the defendants to seek reconsideration of that ruling.

Defendants’ Motion for Reconsideration

The defendants argued that the complaint failed to plead three required parts of the securities-fraud claims with enough detail: falsity, meaning that the challenged statements were misleading; scienter, meaning an intent to deceive or deliberate recklessness; and loss causation, meaning a connection between the alleged misstatements and investors’ losses.

The court denied reconsideration. It explained that reconsideration is an extraordinary remedy and is generally not appropriate when a party repeats arguments already made. On falsity, the court said it had already considered and rejected the defendants’ arguments that the complaint failed to connect cheating on Chegg’s platform with the company’s growth. On scienter, the court again found that allegations about reports of widespread cheating, communications with Daniel Rosensweig, and meetings attended by the individual defendants adequately supported an inference that the defendants were at least deliberately reckless in statements to investors.

On loss causation, the defendants argued that the complaint lacked a corrective disclosure by Chegg. The court said Ninth Circuit law permits other ways to plead loss causation. It found that the plaintiffs adequately alleged that statements about the absence of cheating helped inflate Chegg’s stock price and that later revenue guidance, which gave a more accurate picture of the business, caused that inflation to dissipate. The court therefore denied reconsideration on loss causation as well.

Plaintiffs’ Motion to Strike

The defendants had filed a statement about a recent decision after the hearing date for the reconsideration motion. The plaintiffs moved to strike that filing, arguing that it violated a local rule requiring such a statement to be filed before the noticed hearing date.

The court denied the motion to strike as moot because it had not considered the defendants’ statement in denying reconsideration. The court also vacated the August 8, 2024 hearing on the motion to strike.

Disposition

The court denied the defendants’ motion for reconsideration and denied as moot the plaintiffs’ motion to strike.