In re HP Inc. Securities Litigation

Background

Plaintiffs brought a securities class action against HP Inc. and Dion Weisler, Catherine Lesjak, Steven Fieler, and Enrique Lores. The claims concerned statements made during the period from February 23, 2017, through October 3, 2019, about HP’s Four Box Model, supplies sales model, channel inventory, market shares, supplies revenue, and placement of printers. Plaintiffs alleged that defendants misled investors about these subjects and that later disclosures caused HP’s stock price to decline.

The court previously granted defendants’ first motion to dismiss. Plaintiffs then filed a second amended complaint, and defendants filed a second motion to dismiss. On a motion under Rule 12(b)(6), the court evaluates whether the complaint alleges enough facts to state a legally plausible claim, generally treating well-pleaded allegations as true.

Judicial Notice

The court granted defendants’ request for judicial notice of the existence of HP securities filings, earnings-call transcripts, analyst-meeting transcripts, and presentation transcripts. The court did not accept as true the contents of those materials that were reasonably subject to dispute, and it did not rule on their admissibility.

Section 10(b) Claims

Section 10(b) of the Securities Exchange Act prohibits deceptive conduct connected with buying or selling securities. The court explained that a claim under this provision requires adequate allegations of a material misstatement or omission, knowledge or deliberate recklessness, reliance, economic loss, and a causal connection between the misstatement and the loss.

The court held that plaintiffs failed to plead with sufficient particularity that defendants’ statements were false. Specifically:

- The allegations about the Four Box Model and telemetry data did not show that defendants made false statements or had a duty to disclose every detail of the model. - The allegations about market share did not establish falsity because market share did not decrease during the relevant quarters, and defendants described certain market-share predictions as based on available data and estimates. - The allegations about supplies stabilization did not show that supplies revenue failed to stabilize in 2017 and 2018. The statements also did not promise that the distribution channel would contain no excess supplies. - The allegations about channel inventory did not show that HP’s statements were inconsistent with its disclosure that it lacked visibility into the downstream distribution system. The court also noted that defendants discussed inventory ceilings rather than providing concrete projections or methods for measuring channel stock. - The allegations about placement of positive-net-present-value printers did not show that defendants lacked data to identify those printers or that HP promised to sell only such printers. - The allegations about the change from a “push” sales method to a “pull” sales method did not show falsity because defendants did not promise to stop offering discounts or use a particular method for the new model.

The court separately held that plaintiffs failed to plead a strong inference of scienter, meaning that defendants knew their statements were false or acted with deliberate recklessness. The court found that the Securities and Exchange Commission order concerned undisclosed discounts by certain sales managers, not conduct shown to have been known by the individual defendants during the class period. The court also found insufficient plaintiffs’ allegations based on public statements, defendants’ alleged monitoring of inventory, the company’s core operations, nine confidential witnesses, and stock sales by Weisler and Lores. In particular, the confidential-witness allegations did not adequately connect the reported conduct to the individual defendants’ mental states or establish that relevant information reached them.

The court did not find a pleading defect in loss causation, the requirement that the alleged misconduct cause the claimed economic loss. It found that the complaint identified the alleged corrective disclosures and alleged that HP’s stock price declined afterward. However, the failure to adequately plead falsity and scienter was sufficient to dismiss the Section 10(b) claims.

Sections 20(a) and 20A Claims

Section 20(a) claims impose control-person liability based on an underlying securities-law violation. Because plaintiffs did not adequately plead such a violation, the court dismissed the Section 20(a) claims.

Section 20A concerns insider trading liability and requires an adequately pleaded independent securities-law violation. The court held that plaintiffs failed to adequately plead their Section 20A claims as well.

Disposition

The court granted defendants’ second motion to dismiss. It denied plaintiffs’ request for permission to amend the second amended complaint to add facts from redacted Securities and Exchange Commission testimony. The court dismissed the second amended complaint with prejudice, meaning the complaint could not be amended further in that action.