Dickerson v. Macmillan

Background

Brenna Dickerson brought claims against Andy MacMillan and UserTesting, Inc. based on statements in a proxy statement concerning UserTesting’s financial results and forecasts. She asserted claims under Section 14(a) of the Securities Exchange Act, which addresses materially false or misleading statements or omissions in proxy solicitations, and Section 20(a), which addresses control-person liability for a primary securities-law violation.

The defendants moved to dismiss the second amended complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim. They also relied on Rule 9(b), which requires allegations sounding in fraud to be stated with particularity, and the Private Securities Litigation Reform Act, which imposes additional requirements in securities cases. The court also considered four administrative motions to seal portions of the complaint, briefing, and exhibits.

Motions to Seal and Judicial Notice

The court granted the pending administrative motions to seal. It found compelling reasons to protect sensitive and confidential financial and business information, including proprietary information in board materials and related exhibits. The court also took judicial notice of documents submitted by the defendants, but did not assume that disputed factual assertions in those documents were true.

Section 14(a) Claim

Dickerson relied on two statements in the proxy statement. The court dismissed the claim based on Statement Two because the statement was forward-looking and protected by the Private Securities Litigation Reform Act’s safe harbor. The safe harbor applies when a forward-looking statement is accompanied by meaningful warnings about factors that could cause actual results to differ, among other circumstances. The court had previously found that Statement Two included meaningful cautionary language, and Dickerson did not argue that the statement was made with actual knowledge that it was false or misleading.

The court dismissed the claim based on Statement One for a different reason. The court had previously found that Statement One was false or misleading but had dismissed the claim because Dickerson had not sufficiently pleaded the required state of mind. In the second amended complaint, Dickerson alleged that MacMillan should have known the proxy contained false or misleading statements because of his role as UserTesting’s CEO, his participation in and awareness of the company’s performance, and his access to relevant materials.

The court held that these allegations were generalized and did not satisfy Rule 9(b)’s particularity requirement. It also held that Rule 9(b) applied because the complaint, considered as a whole, alleged that the proxy contained false or misleading information intended to help accomplish the merger, even though Dickerson characterized the theory as negligence. The court therefore concluded that Dickerson again failed to plead the required mental state and dismissed the Section 14(a) claim based on Statement One without reaching loss causation.

Section 20(a) Claim

The court dismissed Dickerson’s Section 20(a) claim because that claim depended on an adequately pleaded primary violation of federal securities law. Since the Section 14(a) claim failed, the Section 20(a) claim failed as well.

Disposition

The court granted the defendants’ motion to dismiss the second amended complaint. Dickerson had already received an opportunity to correct defects in her first amended complaint, and the court found that she gave no reason to believe another amendment would not be futile and did not identify additional facts she could allege. The court therefore dismissed the second amended complaint with prejudice. The court also granted the pending administrative motions to seal.