In re Cloudera, Inc. Securities Litigation

Background

This putative securities class action was brought by Mariusz J. Klin and The Mariusz J. Klin MD PA 401K Profit Sharing Plan, along with Robert Boguslawski and Arthur P. Hoffman, on behalf of people who purchased or otherwise acquired Cloudera common stock from April 28, 2017, through June 5, 2019. The defendants were Cloudera, Intel, several Cloudera officers, and directors of Cloudera and Hortonworks.

The consolidated amended complaint asserted five causes of action: claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933; a claim under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5; and a control-person claim under Section 20(a) of the Exchange Act. Plaintiffs alleged that defendants made 55 false or misleading statements about Cloudera’s cloud-native technology, its Altus product, its competitive position, its customer growth, and the expected benefits of Cloudera’s merger with Hortonworks. Plaintiffs also alleged that Cloudera’s disclosures failed to reveal adverse trends and uncertainties.

Procedural Rulings

The court granted Cloudera Defendants’ request for judicial notice as to specified publicly filed and otherwise referenced documents, while declining to take judicial notice of disputed facts within those documents. The court also granted plaintiffs’ request for judicial notice of a later Cloudera earnings-call transcript, but only for the fact that Cloudera made the statements in it, not for the truth of the facts asserted. The court denied plaintiffs’ administrative motion for leave to file a supplemental brief because plaintiffs had not identified new arguments or evidence first raised in defendants’ reply, and the proposed filing included allegations outside the complaint.

Exchange Act Claims

The court granted the motion to dismiss the Section 10(b) and Rule 10b-5 claim. The court held that plaintiffs had not adequately pleaded falsity for the challenged statements under the heightened requirements of Rule 9(b) and the Private Securities Litigation Reform Act. In particular, plaintiffs did not explain what “cloud-native” meant when the statements were made or provide contemporaneous facts showing that defendants’ statements were false at that time. Later developments, including Cloudera’s launch of its Cloudera Data Platform product, did not establish that earlier statements were false when made.

The court also found that several statements were non-actionable corporate puffery—vague expressions of optimism that a reasonable investor would not rely on as concrete facts. These included statements that Cloudera was “better than Amazon on Amazon,” had many advantages in the cloud, would compete effectively, and had best-in-class functionality. Other statements about the Hortonworks merger were forward-looking statements protected by the Securities Exchange Act’s safe-harbor provision because they concerned future operational or economic results and were accompanied by meaningful cautionary language.

Because plaintiffs did not adequately plead a primary securities-law violation, the court granted the motion to dismiss the Section 20(a) control-person claim.

Securities Act Claims

The court granted Cloudera Defendants’ and Intel’s motions to dismiss the Sections 11 and 12(a)(2) claims. Plaintiffs did not adequately plead that statements about Cloudera’s cloud products, Altus, customer expansion, or risk disclosures were false or misleading when made. The court also held that plaintiffs did not adequately plead that the alleged trends or uncertainties were known to management, as required for their disclosure claim under Item 303 of Securities and Exchange Commission Regulation S-K.

The court granted the motions to dismiss as to Statements 42–49 and 53–55 because plaintiffs had not adequately pleaded falsity. It also granted the motions as to Statements 50–52 because those statements were forward-looking and protected by the safe harbor. The court dismissed the Section 15 claim because plaintiffs had not plausibly alleged an underlying violation of Sections 11 or 12.

Conclusion and Effect

The court granted Cloudera Defendants’ and Intel’s motions to dismiss the complaint in its entirety. The court granted plaintiffs leave to amend because another amendment would not be futile, cause undue delay, or unfairly prejudice defendants, and the court found no bad faith. Plaintiffs were required to file any amended complaint within 30 days and could not add new claims or parties without a stipulation or court permission. The order states that failure to amend, or failure to correct the identified deficiencies, would result in dismissal of the deficient claims with prejudice. The order was signed by Lucy H. Koh.