Michel v. Sumo Logic, Inc.

Background

This putative class action alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 against Sumo Logic, Inc., Ramin Sayar, and Stewart Grierson. In an earlier order, the court granted in part and denied in part the defendants’ motion to dismiss. Plaintiffs then moved under Federal Rule of Civil Procedure 60(a) for clarification of that order.

The parties’ arguments

Plaintiffs argued that the earlier order improperly dismissed their Section 14(a) claims concerning Statements 4 and 5 on loss-causation grounds. Loss causation is the required connection between the alleged wrongdoing and the claimed economic loss. Plaintiffs maintained that they had adequately alleged that Statements 4 and 5 were false or misleading, had suffered an economic loss, and had connected that loss to those statements.

The defendants argued that the earlier order correctly found no loss causation because plaintiffs had not adequately alleged negligence and had not shown the required connection between the alleged wrongdoing and economic loss.

Court’s ruling

The court found an inconsistency in its earlier order. It had stated that plaintiffs adequately alleged that Statements 4 and 5 were false or misleading, and it had rejected the defendants’ loss-causation arguments, including by finding that the alleged difference in share price was enough to allege that the company was undervalued. But the order later mistakenly stated that plaintiffs had not plausibly alleged any false or misleading statements and therefore had not alleged a causal connection to their economic loss.

The court held that the later statement was a clerical error. It granted plaintiffs’ motion for clarification and ordered a corrected order stating that plaintiffs plausibly alleged false or misleading statements concerning Statements 4 and 5 and plausibly alleged a causal connection between those statements and the economic loss. The court made one modification to plaintiffs’ proposed language: the correction would make clear that plaintiffs had both alleged economic loss and traced that loss to Statements 4 and 5, because economic loss alone is not enough to establish a causal connection.