In re Adobe Inc. Securities Litigation

Background

The lead plaintiffs, Menora Mivtachim Insurance Ltd., Menora Mivtachim Pensions & Gemel Ltd., and Stichting Philips Pensioenfonds, brought a proposed securities class action against Adobe Inc. and several Adobe executives. They alleged that Adobe and the individual defendants violated Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 by misleading investors about the competitive threat posed by Figma, a company that created the Figma Design user-interface and user-experience design tool. The plaintiffs also asserted control-person liability under Section 20(a) against the individual defendants.

The plaintiffs focused on three categories of alleged misstatements: statements minimizing Figma’s competition; statements presenting Adobe XD as a successful and developing product even though Adobe allegedly had decided to deprioritize it; and statements about Adobe’s merger-and-acquisition plans. The plaintiffs alleged that Adobe’s September 2022 announcement of a planned $20 billion acquisition of Figma revealed the earlier misrepresentations and caused Adobe’s stock price to fall. Adobe and the individual defendants moved to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Court’s Analysis

The court held that the plaintiffs did not plausibly allege actionable misstatements or omissions concerning competition from Figma. The court found that the challenged statements describing Adobe as a market leader, characterizing Figma as a point-solution company, and describing competition as a tailwind or as validating the growth of the market were opinions, corporate optimism, or vague promotional statements. The court also found that the plaintiffs alleged only a potential future threat from Figma—not concrete losses to Adobe’s products—and that Adobe’s public filings had disclosed competition as a possible risk. The court noted that Adobe had specifically disclosed Figma as a competitor to Adobe XD.

The court likewise rejected the claims concerning Adobe XD. It found that statements about organizations using Adobe XD and improvements to the product were truthful as alleged, and that the securities laws did not require Adobe to stop promoting an existing product merely because it had decided internally to allocate resources elsewhere. The court also characterized several statements about Adobe XD as opinions, puffery, or corporate optimism, and found that including Adobe XD among Adobe’s Creative Cloud applications was too vague to be important to a reasonable investor.

The court rejected the claims concerning merger plans because Adobe’s statements emphasized organic growth but did not rule out acquisitions. The statements said Adobe would pursue acquisitions that advanced its strategy or provided shareholder value. In the court’s view, the plaintiffs therefore did not plausibly allege that Adobe had promised to follow an exclusively organic-growth strategy and then secretly changed course.

Scienter

The court identified lack of scienter—an intent to deceive, manipulate, or defraud, or at least knowing or highly reckless misconduct—as an independent reason for dismissal. The plaintiffs’ theory that Adobe wanted to maintain an inflated stock price to support the Figma acquisition was too general and began before the contemplated transaction. The alleged insider stock sales also did not establish a strong inference of fraudulent intent because the plaintiffs did not provide sufficient information about the defendants’ total holdings, the holdings increased during the Class Period, many sales were made to satisfy tax obligations, and some sales occurred under Rule 10b5-1 trading plans. The court also rejected the plaintiffs’ alternative theory concerning David Wadhwani’s relationship with Greylock as economically implausible.

The court further found that the plaintiffs had not alleged conscious recklessness. The court noted that the plaintiffs identified no actionable misstatements, no specific corporate documents reviewed by the defendants that contradicted their public statements, and no confidential sources supporting the claim that the defendants knowingly made false or misleading statements. Because the court found no actionable misstatements or adequately pleaded scienter, it did not reach the defendants’ separate argument concerning loss causation.

Control-Person Claims and Disposition

The court dismissed the Section 20(a) control-person claims because those claims require an underlying violation of Section 10(b), and the First Amended Complaint did not plausibly allege one. Judge John G. Koeltl granted the defendants’ motion to dismiss and dismissed the First Amended Complaint without prejudice. The court directed the clerk to close the pending motions and stated that, if the plaintiffs wished to file a second amended complaint, they should move for permission by April 17, 2025, attach the proposed complaint, and explain how it addressed the identified defects.