The Reckstin Family Trust v. C3.ai, Inc.

Background

The plaintiffs brought a securities class action alleging that C3.ai, Inc. and several individual officers made false or misleading statements about C3’s joint venture with Baker Hughes. The court had previously granted in part and denied in part the C3 defendants’ motion to dismiss and granted Baker Hughes’ motion to dismiss. The plaintiffs then filed a Second Amended Class Action Complaint, and defendants filed additional motions to dismiss.

Before resolving those motions, the plaintiffs sought leave under Federal Rule of Civil Procedure 15(a) to file a Third Amended Class Action Complaint. The proposed amendments were based on information from a recently unsealed Delaware Chancery Court derivative case. They included factual allegations concerning Defendant Siebel’s knowledge of C3’s access to Baker Hughes’ full 12,000-person salesforce and a chart containing information required under 15 U.S.C. § 78u-4(b)(1).

Court’s Analysis

Rule 15(a) generally directs courts to allow amendment when justice requires. The court considered undue delay, bad faith, repeated failure to correct deficiencies, prejudice to the opposing party, and whether amendment would be futile. The court emphasized that prejudice to the opposing party carries the most weight.

The court found no evidence that the proposed amendment would substantially prejudice defendants. The proposed changes were limited to materially modifying two paragraphs and adding one chart to a 60-page complaint. Although defendants might need to modify their motions to dismiss, the court found that the amendments would not greatly change the nature of the litigation or require an entirely new defense. The fact that discovery had not begun also weighed against finding prejudice.

The court also declined to deny leave based on futility. The parties disputed whether the proposed allegations would cure previously identified pleading deficiencies, including deficiencies concerning whether Defendant Siebel had the required knowledge. The court concluded that defendants’ arguments about the evidentiary support and strength of the proposed allegations concerned the eventual merits or evidence, rather than whether amendment should be allowed. The court stated that those issues could be raised through a later motion to dismiss or a motion for summary judgment.

Ruling

The court GRANTED the plaintiffs’ motion for leave to file a Third Amended Class Action Complaint. It TERMINATED AS MOOT defendants’ motions to dismiss the Second Amended Class Action Complaint and TERMINATED AS MOOT defendants’ motions for joinder. The plaintiffs were DIRECTED to file the Third Amended Class Action Complaint as a separate docket entry by February 14, 2025. The parties were also directed to meet and confer about a briefing schedule for any renewed motion to dismiss and to submit a proposed schedule and hearing date by February 20, 2025.

The order allowed the pleadings to be amended but did not decide whether the plaintiffs’ securities allegations ultimately state a valid claim.