Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_14-cv-05204/USCOURTS-cand-5_14-cv-05204-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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Case No.: 5:14-cv-05204-EJD

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS; DENYING PLAINTIFFS’

MOTION TO STRIKE AS MOOT

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

VIJAY FADIA, et al.,

Plaintiffs,

v.

FIREEYE, INC., et al.,

FireEye.

Case No. 5:14-cv-05204-EJD 

ORDER GRANTING DEFENDANTS’

MOTION TO DISMISS; DENYING

PLAINTIFF'S MOTION TO STRIKE AS 

MOOT

Re: Dkt. Nos. 75, 82

Lead Plaintiffs State-Boston Retirement System and Vijay Fadia (“Plaintiffs”) filed a Class 

Action Complaint against FireEye, Inc. (“FireEye”) and its Chief Executive Officer David DeWalt 

(“DeWalt”), Chief Financial Officer Kevin Mandia (“Mandia”), and Chief Operating Officer 

Michael Sheridan (“Sheridan”) (collectively “Defendants”) on November 24, 2014. Dkt. No. 1. 

Plaintiffs then filed an amended complaint (“FAC”) on June 29, 2015. Dkt. No. 72 (“FAC”). 

Presently before the court is Defendants’ Motion to Dismiss the amended complaint. Dkt. No. 75

(“Mot.”).

Federal jurisdiction arises pursuant to 28 U.S.C. § 1331, and Section 27 of the Exchange 

Act, 15 U.S.C. § 78aa. Oral argument on the motion was held on November 19, 2015. Having

carefully reviewed the parties’ briefing, the Court GRANTS Defendants’ Motion to Dismiss for 

the reasons explained below.

I. FACTUAL AND PROCEDURAL BACKGROUND

FireEye, a Delaware corporation with its principal executive offices in California, develops

and sells products and services that provide real-time detection of and protection from cyberCase 5:14-cv-05204-EJD Document 98 Filed 11/14/16 Page 1 of 30
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attacks. FAC at ¶¶ 2, 32. FireEye sells these products and services via direct and indirect sales 

teams, primarily targeting large enterprise and government customers. Id. at ¶ 3.

FireEye became a public company in September 2013, and acquired privately held 

Mandiant Corporation (“Mandiant”) shortly thereafter in December of 2013. Id. at ¶ 6. Mandiant 

sells software products that detect cyber-threats on remote devices (i.e. laptops, desktops, laptops, 

computers, tablets, smartphones etc.) that access a corporate network. Id. With its acquisition, 

FireEye could offer customers products and services that detect threats along both strategic points 

on the network and on these remote devices. Id. 

Both lead Plaintiffs purchased FireEye stock on the open market during the class period1

and allegedly suffered damages as a result of a drop in FireEye’s stock price. The stock price 

dropped by 22% on May 7, 2014, 11.42% on August 6, 2014, and 14.98% on November 4, 2014. 

Id. at ¶ 29. Plaintiffs allege the stock price declined due to material misrepresentations made by 

Defendants throughout the class period.

Individual Defendants DeWalt, Mandia, and Sheridan were all employed by FireEye 

through the duration of the class period. Id. at ¶¶ 33-35. DeWalt served as CEO from May 2012 

onwards, Mandia served as FireEye’s CFO from 2011, and Sheridan served in the capacities of 

Chief Financial Officer and Senior Vice President from 2011 onwards. Id. at ¶¶ 33-35. 

Plaintiffs allege that Defendants, due to their positions of control and authority, had access 

to FireEye’s internal corporate documents, and participated in drafting, preparing, and approving 

the statements that gave rise to this lawsuit. Id. at ¶¶ 37-38. Plaintiffs further allege that 

Defendants were obligated to disseminate accurate and truthful information about FireEye’s 

operations and that the alleged misrepresentations were in violation of these obligations. Id. at ¶

40.

Plaintiffs also contend that Defendants DeWalt, Mandia, and Sheridan deceived investors 

 

The class period spans from January 2, 2014 to November 4, 2014. FAC at ¶ 1.

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by distorting the true state of FireEye’s business, forcing plaintiffs and other buyers to purchase 

FireEye’s stock at an artificially inflated price. Id. at ¶ 41. Plaintiffs also point out that since the 

alleged misrepresentations were made by individual defendants - all of whom served as senior 

officers overseeing the company’s operations - they are attributable to the company. Id. at ¶ 42. 

The misrepresentations and omissions pertain to the Mandiant integration, the Mandiant Infinite 

Response (or “MIR”) endpoint threat detection product, a belated announcement of a change in 

the revenue recognition policy, an alleged shift in revenue from products to services, the

appointment of a new head of sales, and the company’s overall financial performance. Id. at ¶¶ 

50; see also Dkt. No. 78 (“Opp.”) at 10-15.

Plaintiffs allege that the post-acquisition integration of Mandiant and FireEye was going 

quite poorly. Id. at ¶ 107. FireEye was having trouble merging the two companies’ products, 

retaining its customer base, and fighting off competitors. Id. at ¶ 140. Plaintiffs also allege that 

there was a significant slowdown in sales due to “mass confusion” in the sales force, a lengthening 

of the sales cycle, and increased competition from the market place – all which Plaintiffs claim

Defendants failed to mention in the numerous press conferences, earnings call, and public events

held during the class period. Id. at ¶¶ 140-207.

Plaintiffs contend Defendants also concealed product integration problems, specifically 

with respect to MIR. Id. at ¶¶ 67-68. MIR was designed to monitor 10,000 endpoints (10,000 

individual laptops, desktops, tablets, and smartphones), but “was unable to monitor more that 

3000-4000 before dropping offline.” Id. Next, FireEye missed analyst’s expectations of $30 

million in revenue by only reporting $24.3 million, which allegedly caused the stock price to drop 

by 22.84%. Id. at ¶¶ 79, 81. The next drop in stock price came on August 6, 2014 following an 

announcement of a change in the revenue recognition policy for FireEye’s email products. 

Plaintiffs contend Defendants informed the public shortly before August 6 that it would recognize 

the revenue generated by the sale of its email products at the time of shipment – a break from to its 

previous practice of recognizing it pro rata over a three year contract term. Id. at ¶¶47-49. 

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According to Plaintiffs, this change caused an 11.42% drop in FireEye’s stock price. Id. at ¶22. 

Plaintiffs also contend that a third drop in stock price of 14.98% occurred due to 

Defendants’ failure to acknowledge an “unexpected shift in revenue from product to services.” Id.

at ¶¶ 24, 135. Analysts surmised that a “slower than anticipated growth” in product revenue was 

the cause of the drop in stock price. Id. at ¶ 137.

Finally, Plaintiffs allege Defendants reaped significant rewards by selling thousands of

shares allegedly within a few days after the Secondary Public Offering. Id. at ¶¶ 77-78. 

Specifically, DeWalt, Mandia, and Sheridan sold 485,656, 227,586, and 121,733 shares at a price 

of $79.54, collecting proceeds in the amounts of $38,629,078.24, $18,102,190.44, and 

$9,682,642.82 respectively. Id. at ¶ 78. Plaintiffs contend that the amount, timing, and 

consistency of the stocks sales indicate a strong inference of scienter. Plaintiffs rely on statements 

made by Defendants, analysts, and seven confidential witnesses (“CW”) to support these

allegations. Id. at ¶¶ 65-71, 92-119, 140-209. Additionally, these allegations form the basis of 

Plaintiffs claims under sections 10(b), 10b-5(a) and (c), and 20(a).

Plaintiffs’ commenced this action on November 24, 2014, and filed an amended complaint 

on August 29, 2015. Defendants moved to dismiss the FAC - the operative complaint. Plaintiffs 

filed an opposition. This matter has been fully briefed and a hearing was held on November 19, 

2015.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient 

specificity to “give the defendant fair notice of what the...claim is and the grounds upon which it 

rests.” Bell At. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations and internal quotations 

committed). A complaint that falls short of the Rule 8(a) standard may be dismissed if it fails to 

state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The factual allegations in 

the complaint “must be enough to raise a right to relief above the speculative level” such that the 

claim “is plausible on its face.” Twombly, 550 U.S. at 556-57.

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In addition to Rule 8’s requirements, fraud cases are also governed by the heightened 

pleading standard of Rule 9(b). The Rule 9(b) requirement “has long been applied to securities 

complaints.” Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009)

(citing Semegen v. Weidner, 780 F.2d 727, 729, 734–35 (9th Cir. 1985)). In accordance with that 

rule, courts in the past required plaintiffs in securities fraud cases to plead falsity with 

particularity, while allowing scienter to be alleged generally. Id. However, in 1995 Congress

enacted the Private Securities Litigation Reform Act (PSLRA), which “significantly 

altered pleading requirements in securities fraud cases.” Id. (quoting Gompper v. VISX, Inc., 298 

F.3d 893, 895 (9th Cir. 2002)). Under the PSLRA, to survive a motion to dismiss, a plaintiff must 

now plead both falsity and scienter with particularity. In re Daou Sys., Inc., 411 F.3d 1006, 1014

(9th Cir. 2005).

III. EVIDENTIARY ISSUES

A. Defendants’ Request for Judicial Notice and Plaintiffs’ Motion to Strike

Defendants ask the court to take judicial notice of 23 documents attached as exhibits 1-22 

to the Declaration of Doru Gavril in support of Defendant’s motion to Dismiss. See Dkt. No. 76

(“Gavril Decl.”), (“Exhs. 1-22”). Most of these documents are SEC filings, transcripts from 

earnings calls, and a chart that includes a compilation of data from exhibits 5, 9, 10, 11, 12, and 

13. Plaintiffs assert that Exhibit 1 should be striken from the record because it improperly 

assumes the truth of the contents of the SEC filings and includes additional attorney calculations

of SEC filings.

In ruling on a Rule 12(b)(6) motion to dismiss, court “must consider...documents 

incorporated into the complaint by reference, and matters of which a court may take judicial 

notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). “Under Federal 

Rule of Evidence 201, facts subject to judicial notice are adjudicative facts that are not subject to 

reasonable dispute.” City of Royal Oak Retirement System v. Juniper Networks, Inc., 880 F. 

Supp. 2d 1045, 1058 (N.D. Cal. 2012) (citations and internal quotations omitted).

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Since Plaintiffs object only to Exhibit 1, the court takes judicial notice of Exhibits 2-23, 

which are comprised of SEC filings and transcripts from earnings calls. See Id. (citations and 

internal quotations omitted). And because the chart in Exhibit 1contains facts subject to 

reasonable dispute, the court declines to take judicial notice of it. Therefore, the motion to strike 

Exhibit 1 is moot.

B. Plaintiffs’ Request for Judicial Notice

Plaintiffs request judicial notice of the following court records: (1) the Consolidated First 

Amended Class Action Complaint pending in the California Superior Court of Santa Clara 

County, (2) the Tentative Ruling on Defendants’ demurrer in the California Securities Action, and 

(3) the order after the hearing on July 10, 2015 with respect to the demurrer and joinder to the 

demurrer in the Consolidated First Amended Complaint. See Dkt. No. 81 at 2-3.

The court grants Plaintiffs’ unopposed request for judicial notice of the above documents. 

See Hanover Insurance Co. v. Fremont Bank, 68 F. Supp. 3d 1085, 1092, n.1 (N.D. Cal. 2014); 

see also Louis v. McCormick & Schmick Restaurant Corp., 460 F. Supp. 2d 1153, 1155, n.4 (C.D. 

Cal. 2006) (“Under Rule 201 of the Federal Rules of Evidence, the court may take judicial notice 

of the records of state courts...”).

IV. DISCUSSION

A. Sufficiency of the allegations Under the PSLRA

To adequately state a claim under Section 10(b) and Rule 10b-5, a plaintiff must allege 

facts sufficient to establish: “(1) a material representation or omission by the defendant, (2)

scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a 

security, (4) reliance upon the misrepresentation, (5) economic loss, and (6) loss causation.”

Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37-38 (2011) (quoting Stoneridge Inv.

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008)).

i. Material Misrepresentation

In order to adequately plead material misrepresentation or omission under § 10(b), the 

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PSLRA requires plaintiffs to “specify each statement alleged to have been misleading, the reason 

or reasons why the statement is misleading, and, if an allegation regarding the statement or 

omission is made on information and belief, the complaint shall state with particularity all facts on 

which that belief is formed.” 15 U.S.C. § 78u-4(b)(1)(B); see also In re Tesla Motors, Inc. Sec.

Litig., 75 F. Supp. 3d 1034, 1041-42 (N.D. Cal. 2014).

A material misrepresentation differs significantly from corporate puffery. Puffery is an 

expression of opinion, while a misrepresentation is a knowingly false statement of fact. Oregon 

Public Employees Retirement Fund v. Apollo Group, Inc., 774 F.3d 598, 606 (9th Cir. 2014). 

Moreover, the Ninth Circuit has noted that investors do not rely on puffery when making

investment decisions. In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010); see also

Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (“...a statement will not mislead even if it 

is incomplete or does not include all relevant facts”) (citations and internal quotations omitted). 

Finally, “mildly optimistic, subjective assessment[s]...[do not] amount to a securities violation.” 

In re Cutera Sec. Litig., 610 F.3d at 1111.

An omission, by contrast, “refers to the failure to disclose material information about a 

company.” Desai v. Deutsche Bank Sec. Ltd. 573 F.3d 931, 939 (9th Cir. 2009). “[A]n omission 

is material if there is a substantial likelihood that the disclosure of the omitted fact would have 

been viewed by the reasonable investor as having significantly altered the total mix of the 

information made available.” Juniper Networks, 880 F. Supp. 2d at 1061 (citations and internal 

quotations omitted) (emphasis added).

Additionally, when plaintiffs’ rely on statements from confidential witnesses (CW) to 

support their allegations, the PSLRA’s particularity standard must be satisfied. Personal sources 

in a complaint must be described “with sufficient particularity to support the probability that a 

person in the position occupied by the source would possess the information alleged.” In re Daou 

Sys., 411 F.3d at 1015; see also In re Lockheed Martin, 272 F. Supp. 2d at 940. Thereafter, a 

number of decisions in this district have followed the same approach. See In re OmniVision 

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Technologies, Inc. Sec. Litig., 937 F. Supp. 2d 1090, 1109 (N.D. Cal. 2013) (same); Wozniak v. 

Align Technology, Inc., No. C-09-3671-MMC, 2011 WL 2269418, *4 (N.D. Cal. 2012) (same); In 

re LDK Solar Sec. Litig., 584 F. Supp. 2d 1230, 1256, n.2 (N.D. Cal. 2008) (same); Mulligan v. 

Impax Laboratories, Inc., 36 F. Supp. 3d 942, 962 (N.D. Cal. 2014) (same).

“To determine whether a confidential witness is sufficiently reliable, courts look to the 

level of detail provided by the confidential sources, the corroborative nature of the other facts 

alleged...[including] the coherence and plausibility of the allegations, the number of sources, the 

reliability of sources, and similar indicia.” Gammel v. Hewlett-Packard Co., No. SACV-11-1404-

AG, 2013 WL 1947525, *11 (May 8, 2013) (citations and internal quotations omitted)(emphasis 

added). 

Recognizing that the heightened pleading standard applies here, and since the majority of 

allegations are derived from statements made by confidential witnesses, the preliminary inquiry is 

whether Plaintiffs satisfy the heightened pleading requirement with respect to these witnesses.

1. Confidential Witnesses

Defendants assert that Plaintiffs’ allegations derived from CW statements fail to satisfy the 

heightened pleading requirement because the allegations are impermissibly vague and the CWs 

lack the personal knowledge necessary to make the allegations. Mot. at 21. Plaintiffs argue 

otherwise.

Plaintiffs rely on statements made by seven confidential witnesses. CW1 is identified as a 

former Mandiant Sales Engineer and a key advisor to the Mandiant sales team that reported to

Mandiant’s Worldwide Director of Sales Engineers. He joined and worked for FireEye from July 

2013 to August 2014 and allegedly made comments about scalability issues related to Mandiant’s

MIR solution. FAC at ¶¶ 66, 68, 69. CW2 was a former Regional Sales Manager at FireEye from 

September 2011 to September 2014, sold all of FireEye’s products in Florida, Georgia, and 

Bermuda, and reported directly to the Senior Director of Sales. Id. at ¶92. CW2 stated that the 

integration added new people that were not knowledgeable about FireEye’s products, which 

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created issues for field sales personnel. Id. at ¶ 94.

CW3 was a former Senior Director of Infrastructure at FireEye from March 2010 to 

August 2014, reported directly to the Chief Information Officer, and said that FireEye decided to 

do a mass lay-off in August because “the integration was not going well.” Id. at ¶¶102-103. CW4 

was a former Director of Strategic Solutions and Chief Cyber Solutions Strategist from May 2014 

to September 2014, and stated that the integration was going poorly because multiple people were

serving in duplicate roles, and Mandiant and FireEye was “operating on different sets of sales 

projections.” Id. at ¶¶106. 

CW5 served as a Senior Manager from August 2013 to January 2015, reported to Alden 

Huen – Senior Manager of Business Systems, and opined that the integration was “difficult” 

because Mandiant “had not brought over some of their systems.” Id. at ¶110, 112. CW6 was a 

former Senior Revenue Manager in the UK from May 2014 to August 2014, and allegedly said 

that executives knew the likelihood of specific deals closing by quarter-end, and that they were 

getting constant updates from Salesforce. Id. at ¶118. CW7 served as a former Senior Director of 

Sales from May 2014 to April 2015, tracked deals, and participated in weekly calls that discussed 

sales in various regions. Id. at ¶119.

The FAC satisfies the particularity requirements with respect CWs 1-6. Each of these

witnesses’ job title, length of time employed at FireEye, and statements made are described with 

adequate specificity. Moreover, these witnesses were in a position to know the alleged 

information with reasonable probability. It is not clear, however, what statements CW7 made or

why his or her input is needed. As such, the FAC fails to satisfy the particularity requirement with 

respect to CW7.

2. The Mandiant Integration

Plaintiffs allege Defendants falsely represented that the Mandiant Integration was 

progressing successfully. According to Plaintiffs, Defendants failed to disclose a significant post 

integration slowdown in sales, a lengthening of sales cycles due to integration inefficiencies,

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increased competition in the marketplace, and friction with its channel partners. Opp. at 17; see 

also FAC at ¶140.

Defendants counter that Plaintiffs’ claims and allegations fail because they are unsupported 

by particularized facts. Reply at 8-9. Specifically, they assert that Plaintiffs’ allegations are based 

on “impressions of former employees” and lack important details such as dates, number of 

customers and partners affected, or deals won by competitors. Id. at 11. Moreover, they contend 

Plaintiffs fail to show how any of these allegations contradict Defendants’ statements. Id. at 12. 

Finally, Defendants emphasize that their press releases, registration statement, and other public 

disclosures adequately informed the public of the risks and uncertainties associated with the

integration. Mot. at 16-17.

Defendants allegedly made several misrepresentations or omissions during press releases,

earnings calls, conferences, technology talks, and various public events from January 2, 2014 to 

November 2, 2014. See FAC at ¶¶ 142-203. The court will address each of these statements in 

turn.

On January 2, 2014, Plaintiffs allege that Defendants made the following

misrepresentations:

 Mandiant’s endpoint products, which are already integrated with the FireEye 

platform, enable security teams to make faster, more accurate decisions about 

potential security incidents while eliminating blind spots...

 The combination of the two companies is a natural extension of [a strategic] 

partnership and their integrated product offering...

 Many customers have now deployed [Mandiant Infinite Response and FireEye 

web] integrated solution, proving the synergy potential between the 

companies...

 ...MIR and MSO [both Mandiant products] can drop right into the FireEye 

sales and install base as well as cross-sell into the Mandiant base...so the 

product synergies here are very strong...

 [After the integration, FireEye’s business has] a bigger services component; but 

as I mentioned in my comments, on a combined basis services are only going to 

make up 15% to 17% of our current makeup of revenues...without talking 

about specific percentages...I would tell you the products and the recurring 

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subscriptions...will grow faster as a business than the services... you will 

continue to see that product and product subscription and recurring revenue 

growth outpace the service part of the business, which would therefore imply 

that services as a percentage should move to a smaller percentage than that over 

time.

 [FireEye] looks more like a product company than anything else...On the 

Mandiant side it is more and more product as well.

¶¶ 148.

According to Plaintiffs, the above statements constitute material misrepresentations or 

omissions for three reasons. First, Defendants allegedly concealed problems associated with 

integrating Mandiant’s core MIR solution (a key Mandiant product) with FireEye’s platform, 

leading customers to purchase products from FireEye’s competitors. See FAC at ¶¶ 140, 143, 145, 

147, 149, and 151. Second, that there was significant slowdown in sales due to “mass confusion”

and lack of knowledge about the company’s new products. Id. Third, Plaintiffs assert these

problems caused a lengthening of the sales cycles, which Defendants concealed. Id.

Plaintiffs’ allegations are deficient for several reasons. First, the statement regarding the

integration of the two companies’ products allowing for more accurate decision making is not

contradicted by any of Plaintiffs allegations or arguments. Moreover, there is no evidence to 

suggest the security teams were unable to make faster and more accurate decisions about potential 

security incidents. In fact, none of Plaintiffs’ allegations or arguments directly address this 

statement. As such, this allegation fails.

Second, statements such as a combination of two companies is a “natural extension...of a 

partnership,” “product synergies are strong,” and companies enjoy “synergy potential” have been 

found to be examples of corporate optimism. Grossman v. Novell, Inc., 120 F.3d 1112, 1121-22 

(10th Cir. 1997) (holding that statements such as a company had substantial success integrating 

the sales forces of two companies, and that the merger presented a compelling set of opportunities

are non-actionable statements of corporate optimism); see In re Level 3 Comm., Inc. Sec. Litig., 

667 F.3d 1331, 1340 (2012) (holding that “this year is really focused on integrating and getting 

synergies from all those acquisitions” is a vague and meaningless “management-speak” upon

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which no reasonable investor would base a trading decision).

Moreover, Plaintiffs fail to adequately link the statements made on January 2 with reasons 

why they are misrepresentations. Instead, they select statements made by Defendants that 

generally discuss the integration, list merger issues that most companies face, and urge the court to 

draw an unreasonable contextual inference. Without more, Plaintiffs have failed to satisfy the 

particularity requirement with respect to the statements made on January 2, 2014.

Next, on February 11, 2014, Plaintiffs allege that the following statements made by 

Defendants constitute material misrepresentations:

 ...the integration is progressing rapidly and smoothly.

 ...the synergies across every segment of the combined product road map 

became more and more evident.

 We trained another 350 channel representatives, including 135 reps from 

international distributors and resellers.

 We’re going to continue to scale services...but not at a faster pace than we are 

going to be selling products...15% to 17% would be service oriented...

 We focused heavily on Mandiant products this past week with...350 of our 

partners, and we made great progress.

¶¶ 152, 155, and 156. Plaintiffs contend the above statements are material misrepresentations for 

four reasons. In addition to concealing a significant sales slowdown that caused “mass confusion, 

problems associated with the integration of the MIR solution with FireEye’s platform, a 

lengthening of the sales cycles, Plaintiffs contend FireEye omitted to report that it experienced 

friction with its channel partners. Id. at ¶¶ 140, 143, 145, 147, 149, 151, 158.

The statements made on February 11, 2014 are not actionable. CEOs and executives of

companies that merge with or acquire other companies often describe ongoing mergers as smooth, 

rapid, and successful – which courts regularly deem corporate puffery. See Grossman, 120 F.3d at 

1121-22 (reasoning that “moving rapidly to a fully integrated sales force...” is a vague statement 

of corporate optimism that courts “routinely dismiss”); see In re Level 3, 667 F.3d at 1340 

(reasoning that a statements such as “...integration of all the acquired companies is progressing 

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well and we’re beginning to see the benefits of synergies from those transactions” are nonactionable); See In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d 1150, 1158 (S.D. Cal. 2008)

(reasoning that integration of technology was on schedule and continuing smoothly, and already a 

success was corporate puffery).

Next, the accuracy of the statement regarding the 350 partners is not disputed by Plaintiffs, 

and evidence strongly suggests that the services did in fact constitute 15% to 17% of FireEye’s 

revenue. See Dkt. No. 76- 13 (“Ex. 13”) at 20. As such, the statements made on February 11, 

2014 are not actionable misrepresentations.

On May 6 and 20, 2014, Plaintiffs allege FireEye made the following misrepresentations in 

its first quarter earnings call:

 We have had our most successful sales training and partner event [ever] at our 

inaugural Momentum conference in Las Vegas.

 Moreover, in the subsequent 60 days we conducted over 40 field seminar 

events...[a]ll in all, we generated explosive growth in incremental pipeline for 

the Company.

 ...[W]e had a record number of cross-sell opportunities, with 15 significant 

deals where we sold Mandiant and FireEye together...these included some of 

the largest transaction[s] in the quarter...

 ...the amount of leads coming from [recruiting partners is a] really nice metric 

that is expanding...

 ...[the number of no-touch deals that we were getting was] a record for us...

 ...the trends and indications are in the right direction for us in terms of what we 

are doing.

 The head to head battles with any competitor resulted in near flawless 

execution and win rates. I would say 100%.

 Any conversions to a competitor...to my knowledge...is zero. I have not seen 

a single transaction when somebody moves from FireEye to Wildfire [a 

competitor]

 ...I don’t see the competition as a major factor for us...the competitive 

landscape looks good.

 We had the products integrated at least at some level...

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 ...we are off to a really good start from a products point of view.

 ...the FireEye sales team would sell every Mandiant product...

 Mandiant business and the FireEye business both were very healthy...both 

models were really good.

 We feel confident that...sales are coming online well and performing...[we are 

having] explosive [pipeline] growth...

 ...We do a very good job showing the value of our product...our win rates are 

very high...particularly after we’ve shown the technology to a company.

 [After the incident responses we had] very quick product sales.

FAC at ¶¶167, 175. Plaintiffs assert the above statements are material misrepresentations for 

several reasons. In addition to concealing a significant sales slowdown that caused “mass 

confusion, problems associated with the integration of the MIR solution with FireEye’s platform, a 

lengthening of the sales cycles, omitted to report that it experienced friction with its channel 

partners, Plaintiffs assert Defendants failed to disclose pushback they experienced from customers 

that were disinterested in purchasing products from both FireEye and Mandiant. FAC at ¶176.

These statements are not actionable because comments such as FireEye was “off to a really 

good start from a products point of view,” “trends and indications are in the right direction,” 

“FireEye sales team would sell every Mandiant product,” “Mandiant business and FireEye 

business both were very healthy,” and “win rates are very high...,” among several others, are 

typical examples of non-actionable statements of corporate optimism. See Wozniak v. Align 

Tech., Inc., 850 F. Supp. 2d 1029, 1036 (N.D. Cal. 2012) (“outstanding retail results,” “business 

will be good this year,” and “industry leading growth,” are non-actionable statements of corporate 

optimism); See In re ECOtality, Inc. Sec. Litig, No. 13-03791-SC, 2014 WL 4634280, *8 (N.D. 

Cal. Sep. 16, 2014) (reasoning that “we’re doing well and I think we have a great future,” 

“everything is clicking,” and “old products are doing well” are non-actionable statements of 

corporate optimism) (citations and internal quotations omitted); see also In re Dot Hill, 594 F. 

Supp. 2d at 1158 (reasoning that stating integration of technology was on schedule, continuing 

smoothly, and already a success constitutes a non-actionable statement of corporate optimism).

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Accordingly, the statements made on May 6 and 20, 2014 are examples of non-actionable 

statements of corporate optimism and puffery.

Finally, on May 29, and in June, August, and September, and November of 2014, Plaintiffs

allege Defendants made the following materially misrepresentations:

 Product revenue in our business would be 40% to 45% of the mix...we have

reiterated that guidance for the year.

 [with respect to the acquisition] we [have] had a good start...we spent about 

8000 hours worth of training to get both sales forces up to speed on our

technologies.

 ...the mix between product revenue and product subscription revenue is not a 

factor for the way we look at our business...In fact we almost like more product 

subscription than we like product because it creates a longer-term ratable 

business model for the company...

 We had a blend difference between product and product subscription in the 

quarter largely due...[to the Mandiant Integration]

 [We are not]...restructuring [the]...sales operations...We’re just trying to bring 

in some new leadership...[there is] no major change...

 The number of companies that we’ve cross-sold to is picking up...they are

shortening the sales cycle...

 ...We...did a lot better in Q2 than we did in Q1 when it came to crossselling...the competition really hasn’t had any impact that’s of notice.

 Sales cycles have been very consistent...when we compete head-on...we feel 

we have a substantial gap.

 We think the pipeline and outlook looks good...purchasing products is a 

primary driver...our sales force is making great progress ramping up

 We haven’t lost our channel partners... [t]hey remain very strong, in terms of 

relationships... we’ve spent a lot of time with the channel to ensure that... 

conflicts are addressed...the significant majority of the time...it really hasn’t 

been a problem.

 I don’t think that there was restructuring...we’re going to have some overlap in 

employees...We may have hired into some regions that...may not have been 

exactly where we should have made our bets...

 ...I can’t be more pleased [with the Mandiant acquisition]...We are finding 

ourselves with a tremendous amount of synergy...

FAC at ¶¶167, 175, 176, 178, 179 181-203. According to Plaintiffs, these statements are 

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misrepresentations because the CWs allegedly said Defendants failed to disclose that there was a 

slowdown and mass confusion in the sales force, lengthening of the sales cycles, pushback from 

customers, and friction with its channel partners. Additionally, Plaintiffs assert Defendants’

statement regarding restructuring was an omission because it failed to disclose that the company 

had terminated employees due to integration issues. Id. at ¶¶ 201. According to Plaintiffs, the 

termination of employees negatively impacted product sales. Id. at ¶¶ 200-201.

The statements made in May, June, August, September, and November of 2014 are nonactionable because they represent typical examples of puffery and corporate optimism, were not 

directly contradicted or addressed by Plaintiffs, or were simply statements of fact. Additionally, 

the court does not find Plaintiffs assertion that FireEye failed to discuss alleged layoffs a material 

omission.

“[A]n omission is material if there is a substantial likelihood that the disclosure of the 

omitted fact would have been viewed by the reasonable investor as having significantly altered the 

total mix of the information made available.” Juniper Networks, 880 F. Supp. 2d at 1061

(citations and internal quotations omitted) (emphasis added).

Here, the question posed to DeWalt during the August 5, 2014 earnings call specifically 

referenced restructuring within the sales department. See FAC at ¶ 185. DeWalt denied that there 

was any restructuring. See FAC at ¶¶ 185, 186. Plaintiffs’ argue that this denial constitutes an 

material omission of the lay-offs that occurred within the company. However, a reasonable 

investor would discern from DeWalt’s complete response that he was merely trying to clarify 

ambiguities regarding the word “restructuring.” Moreover, DeWalt admitted that there was “some 

overlap of employees.” From this, a reasonable investor would infer that layoffs were imminent or 

could have already occurred. And since Plaintiffs fail to provide details regarding the extent and 

severity of layoffs (other than a conclusory statement that it was a “mass-layoff”), it cannot be 

found that there was a significant alteration in the total mix of information available to reasonable 

investors. See FAC at ¶¶102-103. As such, the alleged omission is non-material.

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In sum, Plaintiffs have inadequately pled material misrepresentations with respect to the 

Mandiant Integration.

3. Product Revenue, Revenue Recognition Policy Change, and 

Services Revenue

Plaintiffs’ allege Defendants’ failure to disclose integration problems adversely impacted 

product revenue, causing a 22.84% reduction in the stock price on May 7, 2014 and a 14.98% drop 

in the stock price in November of 2014. Opp. at 13, 14, 18-19. Additionally, they contend 

Defendants’ belated announcement of a change in revenue recognition policy of its email product

caused an 11.42% reduction in the stock price. Finally, Plaintiffs assert Defendants downplayed 

the services component of overall revenue. Opp. at 18-19; see also FAC at ¶ 19. Defendants 

dispute Plaintiffs’ allegations, asserting that they lack particularity, while emphasizing that

FireEye met all its guidance estimates. Id. at 9-10. Defendants then contend that the service 

component accounted for 16.9% of total revenue, which was within the 15%-17% range initially 

projected.

Plaintiffs’ allegation that FireEye’s stock price dropped due to Defendants failure to 

disclose integration problems is deficient – primarily because it is an unreasonable, self-serving

inference, that is unsupported by the facts. No analyst expressly stated that the 22.84% or 14.98%

drop was due to Defendants’ inability to meet analysts’ earnings estimates. More importantly, 

even if an analyst had expressly stated so, Defendants are only bound by or obligated to meet these 

estimates if they expressly or impliedly agree to do so. In re Syntex Corp. Sec. Litig., 95 F.3d 

922, 934 (9th Cir. 1996) (“In order to be liable for unreasonably disclosed third-party forecasts, 

defendants must have put their imprimatur, express or implied, on the projections.”); Id., 95 F.3d 

at 934. As such, Plaintiffs’ fails to adequately link their self-serving inference to Defendants in

any meaningful way, rendering Plaintiffs’ allegations deficient.

Plaintiffs’ allegation regarding Defendants delayed revenue recognition policy is likewise 

deficient. Just as in product revenue, Plaintiffs’ rely on comments, estimates, and analysts’

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predictions to make their case, while failing to link any statements made by Defendants regarding 

revenue recognition – express or implicit – with any drop in the share price. None of the 

Defendants adopted or agreed with any analyst’s prediction regarding recognition policy change. 

In fact, Defendant Sheridan’s statement that this change did not have a significant impact on 

second quarter results is bolstered by the fact that Defendants met or exceeds their revenue 

guidance estimates throughout the class period. See Ex. 5 at 7-8; Ex. 9 at 7; Ex. 10 at 7-8; Ex. 11 

at 8-9; Ex. 12 at 10; and Ex. 13 at 8-9.

Finally, since evidence suggests that the services component was within the 15% - 17% 

range specified by Defendants, Plaintiffs’ allegation that Defendants downplayed the services 

component is inaccurate, and as such, is deficient.

2

 See Dkt. No. 76- 13 (“Ex. 13”) at 20.

4. Statutory Safe Harbor Provision

“Forward-looking statements are not actionable as a matter of law if they are identified as 

such and accompanied by meaningful cautionary statements identifying important facts that could 

cause actual results to differ materially from those in the forward looking statement.” See Police 

Retirement Systems of St. Louis v. Intuitive Surgical, Inc., No. 10-CV-03451-LHK, 2012 WL 

1868874, *10 (N.D. Cal. May 22, 2012) (citations and internal quotations omitted). “A forward 

looking statement is any statement regarding (1) financial projections, (2) plans and objectives of 

management for future operations, (3) future economic performance, or (4) the assumptions 

underlying or related to any of these issues.” Id. (citations and internal quotations omitted).

Defendants identify the following statements as falling under the Safe Harbor Provision:

 We will be able to deliver fully integrated products and services that help 

organizations protect themselves from attacks

 I believe there’s a number of additional near-term opportunities, including the 

ability to sell FireEye’s existing products into Mandiant’s base of more than 

500 customers

 

2

Professional Services revenue is $72,103,000, which is 16.94% of the total revenue amount of 

$425,662,000. See Ex. 13 at 20.

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 Immediate short-term synergy will be the length of the FireEye sales cycle. 

Being closer to the breach crated by the Mandiant service engine can 

significantly shorten the product cycles and increase the average sales price

 We’re going to continue to scale services people, but not at a faster pace than 

we are going to be selling products

 We see many synergies between the companies

See FAC at ¶¶8-11, 56-57, 144.

The statement regarding the fully integrated products and services includes the phrase “We 

will,” which indicates that Defendants will, at some point in the future, deliver integrated products 

and services to its customers. In re Violin Memory Sec. Litig., No. 13-CV-5486-YGR, 2014 WL 

5525946, at *13-14 (N.D. Cal. Oct. 31, 2014) (The phrase “we will” develop a derivative product 

to our Velocity PCle Flash Memory Card is forward looking). Next, a reference to additional 

near-term opportunities is just that – a reference to sales opportunities in the near future, making it

a forward looking statement. 

The statement that the length of the FireEye sales cycle will be an immediate short-term 

synergy is an identification of an existing benefit, making it representation of a current fact. 

Additionally, Defendants comment that they will continue to scale services people, shows that 

some degree of scaling has already occurred and that future scaling will be calibrated at a pace that 

is slower than that of products. Such a statement is a representation of current fact. Mallen v. 

Alphatec Holdings, Inc., 861 F. Supp. 2d 1111, 1126 (S.D. Cal. 2012) (holding that revenues will 

continue to grow is a statement that concerns historical and current fact); see also In re TETRA 

Techs., Inc., Inc. Sec. Litig., No. 4:08-CV-0965, 2009 WL 6325540, at *32 (S.D. Tex. July 9, 

2009) (holding that “onshore business continues to grow rapidly” is a statement of historical fact 

unprotected the Safe Harbor provision). Finally, the comment that FireEye sees many synergies

between the companies demonstrates that synergies have already been identified, making it a 

current representation of fact. Mallen, 861 F. Supp. 2d at 1126 (holding that “we have already 

begun to realize synergies” is a representation of historical or current fact).

Since only the first two statements are forward looking, they may fall under the safe harbor 

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provision if accompanied by meaningful cautionary statements. Prior to the press conference held 

on January 2, 2014, FireEye’s Vice President of Investor Relations, Kate Patterson, informed 

individuals on the call that FireEye would be making forward-looking statements regarding the 

company’s billing and revenue results, expected benefits of the company’s acquisition of 

Mandiant, product development and integration plans, industry trends and customer adoption of 

the company’s solutions, and the expected capabilities and benefits of integrated and new 

products. See Dkt. No. 76-15 at 4. Patterson also informed individuals that they can refer to the 

most recent 10-Q filings for a more detailed description of the risks and uncertainties associated

with the merger. Id. at 4. 

The 10-Q form provides a comprehensive list of disclosures with factors that FireEye 

admits might delay product releases. For starters, with respect to fully integrating products and 

services, the operative disclosure states: “Although the market expects rapid introduction of new 

products...the development of these products and enhancements is difficult and the timetable for 

commercial release and availability is uncertain because there can be significant time lags 

between initial beta releases and the commercial availability of new products and enhancements.” 

Dkt. No. 76-6 at 8. Additionally, Defendants admitted that they may experience “unanticipated 

delays” in the availability of new products and enhancements to its platform and fail to meet 

customer’s timing expectations. The disclosures also identify several new products like the

NX1000, Oculus, and SaaS. When viewed in totality, these disclosures constitute meaningful 

cautionary statements. See In re Violin, 2014 WL 5525946, *13-14 (holding that disclosures 

about the successful development and completion of a specific product like the PCLE card being

uncertain constitutes an extensive and substantive disclosure); see also Plevy v. Haggerty, 38 F. 

Supp. 2d 816, 832 (C.D. Cal. 1998) (reasoning that a company’s abundant and specific risk 

disclosures puts the investing public on notice and the public “cannot be heard to complain that 

the risks were masked as mere contingencies.”).

With respect to selling FireEye’s products to Mandiant customers, Defendants extensively 

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discuss competitors such as Cisco Systems, IBM, HP, and Juniper that might “emulate or integrate 

virtual-machine features similar to [FireEye’s] into their own products,” all of which would 

adversely affect FireEye’s revenue. Dkt. No. 76-6 at 7. Moreover, Defendants emphasize the fact 

that its larger competitors have “substantially broader product offerings,” which would discourage 

users from purchasing their products. Id. These admissions clearly identify the factors that would 

affect the company’s product sales, making them meaningful cautionary disclosures. For all of 

these reasons, the first two statements fall within the Safe Harbor provision, and Plaintiffs will be 

precluded from relying on them to support their misrepresentation allegations.

ii. Scienter

In addition to satisfactorily alleging falsity, Plaintiffs in securities fraud actions must state 

with particularity the “facts evidencing scienter, i.e., the defendant’s intention to deceive, 

manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007)

(citations and internal quotations omitted). “The Ninth Circuit has articulated a two-part inquiry 

for scienter: first, [the court must] determine whether any of the allegations, standing 

alone, are sufficient to create a strong inference of scienter; second, if no individual allegation is 

sufficient, ... the court [must] conduct a holistic review of the same allegations to determine 

whether the insufficient allegations combine to create a strong inference of intentional conduct or 

deliberate recklessness.” Brown v. China Integrated Energy, Inc., 875 F. Supp. 2d 1096, 1105 

(C.D. Cal 2012) (citations and internal quotations omitted). 

The court must evaluate scienter in the context of the entirety of the complaint. Tellabs,

551 U.S. at 323. A strong inference of scienter will be “cogent and at least as compelling as any 

opposing inference of non-fraudulent intent.” Id. at 314. A complaint will survive “only if a 

reasonable person would deem the inference of scienter cogent and at least as compelling as any 

opposing inference one could draw from the facts alleged.” Id. at 324.

1. Confidential Witness Statements

Plaintiffs assert that the CW witness allegations support an inference of scienter because 

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the CWs are numerous and possess first-hand knowledge of the allegations. Opp. at 24. 

Defendants counter that the CW allegations are not sufficient to satisfy the scienter requirement 

because the CWs did not have personal contact with Defendants, asserted vague allegations, and 

were low-level employees with no access to company-wide information. Reply at 14-15.

“To satisfy the PSLRA, a complaint relying on statements from confidential witnesses 

must past two hurdles.” Zucco, 552 F.3d at 995. “First, the confidential witnesses whose 

statements are introduced to establish scienter must be described with sufficient particularity to 

establish their reliability and personal knowledge.” Id. (citations and internal quotations 

omitted.). “Second, those statements which are reported by confidential witnesses with sufficient 

reliability and personal knowledge must themselves be indicative of scienter.” Id. Conclusory 

allegations are typically insufficient to establish scienter. In re Cadence Design Sys., Inc. Sec. 

Litig., 654 F. Supp. 2d 1037, 1046 (N.D. Cal. 2009) (“conclusory allegations that a defendant 

must have known about particular wrongdoing are, standing alone, generally insufficient.”).

For the reasons previously stated, the first prong has been satisfied with respect to CWs 1-

6. The job title, length of time employed at FireEye, and statements made by these CWs was 

described with adequate specificity. Moreover, these witnesses were in a position to know the 

alleged information with reasonable probability. It is not clear, however, precisely what CW7 said 

or why his or her input is needed. As such, the FAC fails to satisfy the particularity requirement 

with respect to CW7. As such, the court reiterates that it will consider the statements made by 

each of these confidential witnesses. 

Upon review, however, it is clear that the CW statements fail to establish a strong 

inference of scienter. CW6 merely asserts that he participated in a “war room” on the last days of 

the quarter calling sales, and that the Salesforce software “constantly” updated FireEye employees. 

Opp. at 25-26. However, there is no allegation, indication, or evidence that CW6 was instructed to 

misrepresent the status of the Mandiant integration, FireEye’s financial condition, or otherwise 

omit material information. In re Cadence, 654 F. Supp. 2d at 1047 (reasoning that a CW that was 

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not instructed to do anything wrong is a factor that weighs against scienter). CW6’s participation 

in a meeting is merely routine corporate activity - hardly indicative of scienter.

CWs 2-5 allegedly said that the acquisition created “a lot of confusion,” loss of channel 

business was “a very big deal,” and that the cultures of the two companies lacked synergy. FAC 

at ¶107. There is no adequate explanation, however, of what “a very big deal” meant or whether

the lack of synergy resulted in FireEye suffering a quantifiable adverse effect. The CWs entirely 

fail to support their allegations with concrete and readily verifiable figures or explanations. As 

such, these statements also fail to support an inference of scienter.

Finally, CW1 purportedly said that there were integration issues with the MIR product, 

which required the product team to “babysit” customers while the problem was resolved. These 

are typical examples of delays and corporate mismanagement - insufficient to satisfy the scienter 

requirement. See Sorkin, LLC v. Fischer Imaging Corp., No. 03-CV-00631-R, 2005 WL 

1459735, *10 (D. Col. Jun. 21, 2005) (holding that vague allegations about customer complaints 

or quality control problems do not establish scienter); see also Anderson v. Spirit Aerosystems 

Holdings, Inc., 827 F.3d 1229, 1239-40 (10th Cir. 2016) (“generalized descriptions...of delays 

and mismanagement do not contribute to a cogent, compelling inference of scienter.”).

For all of the above reasons, the CW statements when viewed individually or holistically, 

fail to justify an inference of scienter.

2. Defendants’ Stock Sales

Plaintiffs contend that the amount, timing, and inconsistent nature of Defendants’ stock 

sales support an inference of scienter. Opp. at 27. Specifically, Plaintiffs allege that stock sales 

amounting to $66 million - constituting 17.6%, 8.7%, and 15% of DeWalt, Mandia, and

Sheridan’s stock holdings - are large and suspicious enough to support an inference of scienter. 

Id. Additionally, Plaintiffs contend the timing of the stock sales is suspect because it was sold 

near all-time highs, and while officials were making optimistic statements about the company’s 

financial condition. Id. at 28. Finally, Plaintiffs argue that these sales were inconsistent because

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Defendant did not sell any shares in the year following the secondary public offering. Id.

Defendants counters that the stock sales are not suspicious because higher percentage of

stock sales have been found to be insufficient indications of scienter. Reply at 16. Moreover, 

Defendants asserts they sold stocks during and not after the public offering. Id. at 17. Finally, 

Defendants contend that since they were “legally forbidden to trade before and after the secondary 

offering,” an inference of scienter cannot be drawn. Id. at 17-18.

“Unusual or suspicious stock sales by corporate insiders may serve as circumstantial 

evidence of the requisite scienter but only if the insider trading is dramatically out of line with 

prior trading practices at times calculated to maximize the personal benefit from undisclosed 

inside information.” In re Splash Tech. Holdings, 160 F. Supp. 2d 1059, 1081 (N.D. Cal. 2001) 

(citations and internal quotations omitted). “Relevant factors to consider when determining 

whether stock sales meet this standard are: (1) the amount and percentage of shares sold; (2) the 

timing of the sales; and (3) the consistency between the sales and the insider’s prior trading 

history.” Id.; see also Ronconi v. Larkin, 253 F.3d 423, 435 (9th Cir. 2001) (same). “Although 

viable circumstantial evidence of scienter, stock sales alone cannot create a strong inference of 

scienter.” In re Splash, 160 F. Supp. 2d at 1081 (citations and internal quotations omitted).

Here, Dewalt, Mandia, and Sheridan collectively sold stocks worth $66 million. Plaintiffs 

allege this amount equates to 17.6%, 8.7%, and 15% of Defendants total stock holdings, instead of 

Defendants stated percentages of 9.5%, 7%, and 9.6%. This discrepancy, Plaintiffs assert, was an 

attempt on the part of Defendants to distort the stock percentages sold by including both unvested 

and vested stocks. These and other facts, Plaintiffs assert, support a strong inference of scienter. 

The court disagrees.

Even if Plaintiffs calculations are taken at face value, courts have held that higher 

percentages of stock sales failed to raise a strong inference of scienter. Silicon Graphics, 183 F.3d 

at 987-88 (9th Cir. 1999) (no scienter inference when stocks sales were in excess of 75.3% of 

stock holdings); Meltzer, 540 F.3d at 1049, 1067 (9th Cir. 2008) (holding that there was no 

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scienter even when one defendant sold 37% of his stock holdings and another sold 100%); In re 

ImmersionCorp. Sec. Litig., No. C–09-4073-MMC, 2011 WL 871650, *7 (N.D. Cal. Mar. 11, 

2011) (holding that defendants that sold 100% and 92.88% of current stock, but retained 79.11% 

and 90.28% of their total holdings when exercisable options were included failed to raise a strong 

inference of scienter). 

Plaintiffs rely primarily on No. 84 Employer-Teamster Joint Council Pension Trust Fund 

v. Corp. v. American West Holding Corp.., Nursing Home Pension Fund, Local 144 v. Oracle 

Corp., Batwin v. Occam Networks, Inc., and In re SeeBeyond Tech. Corp. Sec.Litig. to support 

their arguments. See 320 F.3d 920 (9th Cir. 2003); 380 F.3d 1226 (9th Cir. 2004); No. CV-07-

2750-CAS, 2008 WL 2676364, at *1 (C.D. Cal. July 1, 2008); 266 F. Supp. 2d 1150 (C.D. Cal. 

2003). However, the facts and circumstances surrounding the stock sales in these cases are

distinguishable from the current case.

In Am. West, the court ruled that the investors stock sales were suspicious because 

they were dramatically out of line with prior trading practices, totaling nearly 100% of their stock 

holdings. Am. West, 320 F.3d at 939 (“Most of the individuals sold 100% of their shares, with the 

lowest percentage being 88%”). In contrast, Defendants sold their FireEye stock only during the 

secondary public offering, had no prior trading history, and retained a majority of their shares. 

Moreover, the court in Am. West cautions against inferring scienter simply because the amount 

and percentages of the sales are large. 320 F.3d at 939. 

And while the court in Oracle Corp. ruled that the stocks sold by Oracle’s CEO Larry 

Ellison, which amounted to $900 million and constituted 2.1% of his stock holdings, was “truly 

astronomical,” this fact cannot be seen in isolation. The Oracle Corp court notes that there were 

improper accounting records kept, customers had inadvertently overpaid Oracle, and Ellison sold 

his stock at a time when several of Oracle’s business deals fell through, causing a significant 

reduction in Oracle’s earnings. 380 F.3d at 1232. No such accounting irregularities or dubious 

business practices are alleged here. Defendants also met or exceeded their guidance expectations 

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throughout the class period.

Batwin is non-analogous because the Batwin court reasoned there were significant 

violations of GAAP that took place over an extended period of time, including premature 

recognition and overstating of company revenues. Batwin, 2008 WL 2676364, at *13-14. Finally, 

the court in SeeBeyond reasoned that Defendants deliberately misled investors and analysts by 

making it seem as if they voluntarily deferred their revenue announcements. In fact, they were 

instructed to defer revenue disclosure by an outside accounting firm – E & Y. 266 F. Supp. 2d at

1169 (C.D. Cal. 2003). 

Here, in contrast to the above cases, there are no allegations of GAAP violations, and 

certainly no evidence that indicates Defendants were informed to delay disclosures of their 

earnings reports. Instead, Defendants retained approximately 82.4% to 91.3% of their total 

holdings, had no prior trading history, and would suffer significant losses if FireEye’s stock price 

dropped – facts that weighs against an inference of scienter. See In re Hansen Natural Corp. Sec. 

Litig., 527 F. Supp. 2d 1142, 1160 (C.D. Cal. 2007).

Next, Plaintiffs’ argument that the timing and consistency of Defendants sales supports 

scienter is also unpersuasive for several reasons. Even assuming Defendants sold their stocks at a 

price that was close to the stock’s all-time high, “this alone is not sufficient for scienter purposes.” 

In re Tut. Sys, Inc. Sec. Litig., No. C-01-02659-CW, 2002 WL 35462358, *11 (N.D. Cal. Aug. 15, 

2002). Moreover, Plaintiffs’ reliance on In re Tut Sys. is misplaced. In In re Tut Sys., Defendants 

sold significant portions of their holdings – 46.5% – within a very short time, while here, 

Defendants sold at most 17.6% of their stock holdings. Third, since Defendants entered into lockup agreements before and after the secondary public offering, they lack a meaningful trading 

history, which weighs against a finding of scienter. In re Vantive Corp. Sec. Litig., 283 F.3d 

1079, 1095 (9th Cir. 2002); In re Pixar Sec. Litig., 450 F. Supp. 2d 1096, 1105 (N.D. Cal. 2006) 

(“Without a meaningful trading history...the Court cannot conclude that Bax’s trades were 

suspicious and thus supportive of scienter.”).

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For all of the above reasons, Plaintiffs have failed to establish that the stock sales support a 

strong inference of scienter.

3. Core Operations Theory

Core Operations may support a strong inference of scienter under following three 

circumstances: 

First, the allegations may be used in any form along with other 

allegations that, when read together, raise an inference of scienter 

that is cogent and compelling, thus strong in light of other 

explanations...Second, such allegations may independently satisfy 

the PSLRA where they are particular and suggest that defendants 

had access to the disputed information...Finally, such allegations 

may conceivably satisfy the PSLRA standard in a more bare form, 

without accompanying particularized allegations, in rare 

circumstances where the nature of the relevant fact is of such 

prominence that it would be absurd to suggest that management was 

without knowledge of the matter.

South Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 785-86 (9th Cir. 2008). More importantly, the 

role of corporate officers and their access to information may support a strong inference of 

scienter if supported by “detailed and specific allegations about the management’s exposure to 

factual information within the company.” In re Maxwell Technologies, Inc. Sec. Litig., 18 F. 

Supp. 3d 1023, 1041 (S.D. Cal. 2014). “In rare circumstances, particularized allegations are not 

needed where the nature of the relevant fact is of such prominence that it would be absurd to 

suggest that management did not have knowledge of it.” Id.

Here, Plaintiffs’ argue that a strong inference of scienter can be drawn from the following

facts: Defendants were high level corporate officers that attended board meetings, had a “handson” management style, and could access FireEye’s reports, press releases, public filings, and other 

statements. FAC at ¶ 248. The court disagrees. While informative, more is needed to establish a 

strong inference of scienter. In re Peoplesoft, Inc., No. C-99-0472-WHA, 2000 WL 1737936, at 

*4 (N.D. Cal. May 25, 2000); see In re Taleo Corp. Sec. Litig., No. C-09-00151-JSW, 2010 WL 

597987, *8 (N.D. Cal. Feb. 17, 2010) (“[g]eneral allegations of defendants’ hands on management 

style, their interaction with other officers and employees, their attendance at monthly 

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meetings...are not sufficient to establish scienter”) (citations and internal quotations omitted); see 

also In re Autodesk, Inc. Sec. Litig., 132 F. Supp. 2d 833, 843-44 (N.D. Cal. 2000) (similar). At a 

minimum, Plaintiffs needed to have provided information about precisely what was said by the 

parties in these meetings, which facts the Defendants were exposed to, and why this exposure 

supports an inference of scienter. Plaintiffs also fail to provide evidence that suggests the current 

circumstances are somehow rare, which justifies an inference of scienter without particularized 

allegations.

As such, Plaintiffs allegations fail to raise a strong inference of scienter under the core 

operations theory.

4. Replacement of Head of Sales

Plaintiffs assert Defendant’s announcement of a new Head of Sales bolsters an inference of

scienter. Opp. at 30. Defendants counter that facts of the case are non-analogous to the facts in 

cases cited by Plaintiffs because the head of sales remained part of the company and took on a 

different role while the individuals in Plaintiffs’ cases were no longer employed by the company.

Reply 19-20.

Plaintiffs’ arguments are unpersuasive. Since the court has found that Plaintiffs’ other 

scienter allegations fail to support a strong inference of scienter, the determinative inquiry is 

whether a replacement of the Head of Sales, when viewed in conjunction with these failed 

allegations, supports an inference of scienter. The court finds that it does not. Where, as here, a 

replacement of the head of sales support is unaccompanied by any additional evidence of 

wrongdoing on the part of the Defendants, an inference of scienter is unlikely. See In re Downey 

Sec. Litig., No. CV-08-3261-JFW, 2009 WL 2767670, at *13 (C.D. Cal. Aug. 21, 2009) (holding 

that Plaintiffs allegations fail to support an inference of scienter if the facts alleged do not suggest 

any wrongdoing or fraudulent activity associated with employee terminations); see also Middlesex 

Retirement System v. Quest Software Inc, 527 F. Supp. 2d 1164 (C.D. Cal. 2007) (holding that 

scienter exists when an officer resigned in order to avoid cooperating with an internal

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investigation).

Accordingly, the replacement of head of sales fails to support a strong inference of 

scienter. In sum, the above allegations, when viewed individually and collectively, fail to support

a strong inference of scienter.

iii. Loss Causation

The element of loss causation needs to be analyzed only if the second element of scienter is 

satisfied. In re Verifone Sec. Litig., No. 5:13-CV-01038-EJD, 2016 WL 1213666, at *9 (N.D. 

Cal. Mar. 29, 2016); see Stevens v. InPhonic, Inc., 662 F. Supp. 2d 105, 125 (D.C. 2009); see also

In re AOL, Inc. Repurchase Offer Litig., 966 F. Supp. 2d 307, 312 (S.D.N.Y. 2013). “To prove 

loss causation, the Plaintiffs must demonstrate a causal connection between the deceptive acts that 

form the basis for the claim of securities fraud and the injury suffered by the Plaintiffs.” Oregon 

Public Employees Retirement Fund v. Apollo Grp., 774 F.3d 598, 608 (9th Cir. 2014) (citations 

and internal quotations omitted.).

Here, since Plaintiffs fail to satisfactorily plead the material misrepresentation and scienter 

elements, the loss causation analysis is unnecessary.

V. SCHEME LIABILITY – Rules 10b-5(a) and (c)

Plaintiffs assert they have adequately plead a claim under scheme liability because of 

Defendants’ deceptive conduct, including making false and misleading statements about the 

Mandiant integration. Opp. at 32.

Where a Plaintiff’s sole basis for scheme liability arises out of the alleged

misrepresentations or omissions that form the basis of a Rule 10b-5(b) claim, courts have reasoned 

that scheme liability does not apply. Scott v. ZST Digital Networks, Inc., 896 F. Supp. 2d 877, 

893 (C.D. Cal. 2012) (citations and internal quotations omitted).

Here, the court finds that Plaintiffs scheme liability claim fails because it rests entirely on 

the allegations that form the basis of the 10b-5(b) claim. See S.E.C. v. Mercury Interactive, LLC, 

No. 5:07-CV-02822-WHA, 2011 WL 5871020, at *2 (N.D. Cal. Nov. 22, 2011) (citing WPP 

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Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1057 (9th Cir. 2011)).

Accordingly, Plaintiffs’ scheme liability claim fails.

VI. CONTROL PERSON CLAIM – Section 20(a)

Plaintiffs assert Defendants’ day-to-day control over FireEye’s operations is enough for 

them to state a claim under scheme liability. Opp. at 33.

Congress established liability under § 20(a) for “[e]very person who, directly or indirectly, 

controls any person liable” for violations of the securities laws. 15 U.S.C. § 78t(a). To prevail on

its claim under Section 20(a) of the Securities and Exchange Act (“Exchange Act”), Plaintiff must 

demonstrate “a primary violation of federal securities law” and that “the defendant exercised 

actual power or control over the primary violator.” Zucco, 552 F.3d at 990. Section 20(a) claims

may be dismissed if plaintiff “fails to adequately plead a primary violation of section 10(b).” Id. 

Since Plaintiffs fail to allege a viable Section 10(b) or Rule 10b-5 claim, the court finds 

that Plaintiffs have likewise failed to adequately allege a Section 20(a) claim. Id.

VII. CONCLUSION

For the reasons stated above, the court GRANTS Defendants’ motion to dismiss with leave 

to amend. Any amended complaint must be filed within fifteen days of the date of this Order.

IT IS SO ORDERED.

Dated: November 14, 2016

______________________________________

EDWARD J. DAVILA

United States District Judge

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