Lefkowitz v. Synacor, Inc.

Background

The court had previously granted defendants’ motion to dismiss plaintiffs’ federal securities-fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. One group of allegations concerned statements about revenue projections tied to Synacor’s contract with AT&T. The earlier decision concluded that those statements were either non-actionable opinions or forward-looking statements protected by the Private Securities Litigation Reform Act.

The court had allowed plaintiffs to seek permission to replead. Plaintiffs then moved for leave to file a Third Amended Complaint. They argued that the proposed complaint cured the earlier defects by adding allegations about the AT&T revenue projections. The proposed complaint also shortened the proposed class period and added allegations from a confidential witness identified as CW2, described as a Synacor Senior Director of Business Development from April 2016 through October 2017. Defendants opposed the motion.

Court’s Analysis

The court explained that permission to amend a complaint should generally be freely given, but may be denied when the proposed amendment would be futile. An amendment is futile if the proposed complaint could not survive a motion to dismiss.

The proposed complaint attempted to allege that defendants actually knew their statements about the revenue projections and the AT&T contract were false. The court treated the challenged statements as opinions about future revenue growth and Synacor’s progress toward its goals. An opinion statement may be actionable if the speaker did not genuinely hold the belief expressed.

The court found that the new allegations did not establish that defendants lacked the beliefs they expressed. The proposed complaint alleged that defendants learned soon after beginning work on the contract that AT&T did not intend to focus on advertising or monetization. But the court concluded that this allegation, together with the rest of the proposed complaint, was not sufficiently different from the allegations in the Second Amended Complaint. Neither complaint showed that AT&T’s focus on customer engagement rather than advertising would necessarily prevent Synacor from meeting its revenue goals. Additional allegations about the portal’s status also failed to connect that status to defendants’ understanding that the revenue forecasts could not be achieved.

Disposition

The court denied plaintiffs’ application to file a Third Amended Complaint as futile. The Clerk of Court was directed to close the case. This order itself addressed plaintiffs’ request to amend after the earlier dismissal; it did not describe a new merits determination on the securities-fraud claims beyond the futility analysis.