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REPLY ISO MOTION TO DISMISS FAC CASE NO. 4:17-CV-00458-JSW

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

KEVIN P. MUCK (CSB No. 120918) 

kmuck@fenwick.com 

MARIE C. BAFUS (CSB No. 258417) 

mbafus@fenwick.com 

JENNIFER A. EBLING (CSB No. 294574) 

jebling@fenwick.com 

FENWICK & WEST LLP 

555 California Street, 12th Floor 

San Francisco, California 94104 

Telephone: (415) 875-2300 

Facsimile: (415) 281-1350 

Attorneys for Defendants Natus Medical Incorporated, 

James B. Hawkins and Jonathan A. Kennedy 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

JOHN COSTABILE, Individually and On 

Behalf of All Others Similarly Situated, 

Plaintiff, 

v. 

NATUS MEDICAL INCORPORATED, 

JAMES B. HAWKINS and JONATHAN A. 

KENNEDY, 

Defendants. 

Case No. 4:17-cv-00458-JSW 

CLASS ACTION 

DEFENDANTS’ REPLY MEMORANDUM 

IN SUPPORT OF MOTION TO DISMISS 

FIRST AMENDED COMPLAINT 

Hearing: 

Date: January 12, 2018 

Time: 9:00 a.m. 

Courtroom: Courtroom 5, 2nd Floor 

Judge: The Honorable Jeffrey S. White 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 1 of 21
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REPLY ISO MOTION TO DISMISS FAC i CASE NO. 4:17-CV-00458-JSW

FENWICK 

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WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

TABLE OF CONTENTS 

Page 

I. INTRODUCTION .............................................................................................................. 1

II. THE OPPOSITION IS UNABLE TO IDENTIFY FACTUAL ALLEGATIONS TO 

SHOW THAT THE CHALLENGED STATEMENTS ARE ACTIONABLE .................. 2

A. Plaintiff Fails to Show That the October 16, 2015 Form 8-K Is Actionable .......... 2

1. The Opposition Confirms Plaintiff’s Inability to Plead Falsity .................. 2

2. Plaintiff Is Also Unable to Show Actual Knowledge of Falsity ................. 4

3. Plaintiff Is Unable to Show Loss Causation ............................................... 5

B. The October 21, 2015 Press Release and Conference Call Are Not Actionable .... 5

1. The PSLRA Precludes Any Claim Based on the Challenged Guidance ..... 5

2. Both the Safe Harbor and the Absence of Loss Causation Preclude 

Claims Based on the Challenged Statements Relating to Expected 

Contract Payments ...................................................................................... 7

3. Plaintiff Abandons the Currency Risk Claim ............................................. 9

C. The November and December 2015 Statements Do Not Support a Claim ............. 9

D. Plaintiff Has No Claim for the January 2016 Statements ..................................... 11

1. The Revenue Projections Are Protected By the Safe Harbor ................... 11

2. Statements Regarding Payment Delays Are Not Actionable .................... 11

E. The Opposition Does Not Dispute That the Challenged March 2016 Statement 

Is a Non-Actionable Expression of Optimism ...................................................... 12

III. PLAINTIFF’S ADDITIONAL SCIENTER ARGUMENTS DO NOT COME CLOSE 

TO SATISFYING THE PSLRA’S STRINGENT STANDARD ..................................... 13

A. Recognizing That Defendants’ Stock Transactions Undermine an Inference of 

Fraud, Plaintiff Tries to Run From the FAC’s Primary Scienter Theory ............. 13

B. The Opposition’s Miscellaneous Scienter Arguments Are Ineffectual ................. 14

IV. CONCLUSION ................................................................................................................. 15

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REPLY ISO MOTION TO DISMISS FAC ii CASE NO. 4:17-CV-00458-JSW

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

TABLE OF AUTHORITIES 

Page(s) 

CASES

Applestein v. Medivation, Inc., 861 F. Supp. 2d 1030 (N.D. Cal. 2012), 

aff’d, 561 F. App’x 598 (9th Cir. 2014) ..................................................................................3, 4 

Bodri v. GoPro, Inc., 2017 WL 1732022 (N.D. Cal. May 1, 2017) ........................................................................6, 14 

Brodsky v. Yahoo! Inc., 630 F. Supp. 2d 1104 (N.D. Cal. 2009) ....................................................................................13 

Brody v. Transitional Hosps. Corp., 280 F.3d 997 (9th Cir. 2002) ...................................................................................................3, 9 

Browning v. Amyris, Inc., 2014 WL 1285175 (N.D. Cal. Mar. 24, 2014) ............................................................................3 

Cement Masons & Plasterers Jt. Pens. Trust v. Equinix, Inc., 2012 WL 685344 (N.D. Cal. Mar. 2, 2012) ............................................................................6, 7 

City of Dearborn Hts. Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605 (9th Cir. 2017) ........................................................................................12, 13, 15 

City of Royal Oak Ret. Sys. v. Juniper Networks, Inc., 

880 F. Supp. 2d 1045 (N.D. Cal. 2012) ................................................................................9, 10 

Colyer v. Acelerx Pharms., Inc., 

2015 WL 7566809 (N.D. Cal. Nov. 25, 2015) ........................................................................3, 6 

Cooper v. Thoratec Corp., 

2014 WL 12644026 (N.D. Cal. Nov. 26, 2014) ..........................................................................5 

Curry v. Yelp Inc., 

--- F.3d ---, 2017 WL 5583889 (9th Cir. Nov. 21, 2017) .............................................13, 14, 15 

Glenbrook Cap. Ltd. P’ship v. Kuo, 

2009 WL 839289 (N.D. Cal. Mar. 30, 2009) ..............................................................................3 

Harris v. IVAX Corp., 

182 F.3d 799 (11th Cir. 1999) .....................................................................................................6 

In re Celera Corp. Sec. Litig., 2013 WL 4726097 (N.D. Cal. Sept. 3, 2013) .............................................................................8 

In re Cisco Sys., Inc. Sec. Litig., 2013 WL 1402788 (N.D. Cal. Mar. 29, 2013) ......................................................................7, 14 

In re Clearly Canadian Sec. Litig., 

875 F. Supp. 1410 (N.D. Cal. 1995) .........................................................................................14 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 3 of 21
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REPLY ISO MOTION TO DISMISS FAC iii CASE NO. 4:17-CV-00458-JSW 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

In re Countrywide Fin. Corp. Sec. Litig., 

588 F. Supp. 2d 1132 (C.D. Cal. 2008) ....................................................................................14 

In re Cutera Sec. Litig., 

610 F.3d 1103 (9th Cir. 2010) ........................................................................................... passim

In re Downey Sec. Litig., 

2009 WL 2767670 (C.D. Cal. Aug. 21, 2009) ..........................................................................15 

In re Foundry Networks, Inc. Sec. Litig., 

2003 WL 22077729 (N.D. Cal. Aug. 29, 2003) ........................................................................10 

In re Fusion-io, Inc. Sec. Litig., 

2015 WL 661869 (N.D. Cal. Feb. 12, 2015) ..............................................................................8 

In re Herbalife, Ltd. Sec. Litig., 

2015 WL 1245191 (C.D. Cal. Mar. 16, 2015) ..........................................................................10 

In re HI/FN, Inc. Sec. Litig., 

2000 WL 33775286 (N.D. Cal. Aug. 9, 2000) ..........................................................................10 

In re Leapfrog Enters., Inc. Sec. Litig., 

200 F. Supp. 3d 987 (N.D. Cal. 2016) ..................................................................................7, 12 

In re Lockheed Martin Corp. Sec. Litig., 

272 F. Supp. 2d 944 (C.D. Cal. 2003) ........................................................................................8 

In re Nimble Storage, Inc. Sec. Litig., 

2017 WL 4355570 (N.D. Cal. Oct. 2, 2017) .........................................................................7, 11 

In re Nuvelo, Inc. Sec. Litig., 

2008 WL 5114325 (N.D. Cal. Dec. 4, 2008) ..............................................................................6 

In re Nuvelo, Inc. Sec. Litig., 

668 F. Supp. 2d 1217 (N.D. Cal. 2009) ....................................................................................12 

In re Portal Software, Inc. Sec. Litig., 

2005 WL 1910923 (N.D. Cal. Aug. 10, 2005) ............................................................................7 

In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130 (9th Cir. 2017) .....................................................................................................4 

In re Silver Wheaton Corp. Sec. Litig., 2016 WL 3226004 (C.D. Cal. June 6, 2016) .............................................................................3 

In re SolarCity Corp. Sec. Litig., 2017 WL 3453387 (N.D. Cal. Aug. 11, 2017) ............................................................................4 

In re Tibco Software, Inc. Sec. Litig., 

2006 WL 1469654 (N.D. Cal. May 25, 2006) ......................................................................6, 13 

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REPLY ISO MOTION TO DISMISS FAC iv CASE NO. 4:17-CV-00458-JSW 

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ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

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ATTORNEYS AT LAW

SAN FRANCISCO 

In re Veritas Software Corp. Sec. Litig., 

2006 WL 1431209 (D. Del. May 23, 2006) ..............................................................................10 

Janus Cap. Grp., Inc. v. First Deriv. Traders, 

564 U.S. 135 (2011) ....................................................................................................................9 

Jasin v. Vivus, Inc., 

2015 WL 3809357 (N.D. Cal. June 18, 2015) ......................................................................5, 12 

Lipton v. Pathogenesis Corp., 

284 F.3d 1027 (9th Cir. 2002) ...................................................................................................14 

Markette v. XOMA Corp., 

2017 WL 4310759 (N.D. Cal. Sept. 28, 2017) .........................................................................12 

Matrixx Initiatives, Inc. v. Siracusano, 

563 U.S. 27 (2011) ......................................................................................................................2 

Metzler v. Inv. GMBH v. Corinthian Colls., Inc., 

540 F.3d 1049 (9th Cir. 2008) ...................................................................................................13 

Oaktree Principal Fund V, LP v. Warburg Pincus, LLC, 

2017 WL 3187688 (C.D. Cal. Jan. 17, 2017) .......................................................................4, 11 

Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 

759 F.3d 1051 (9th Cir. 2014) .............................................................................................4, 6, 8 

Ronconi v. Larkin, 

253 F.3d 423 (9th Cir. 2001) ...............................................................................................10, 13 

Slayton v. Am. Express Co., 

604 F.3d 758 (2d Cir. 2010) ........................................................................................................6 

Sudunagunta v. NantKwest, Inc., et al., 

No. 2:16-cv-01947-MWF-JEM, slip op. (C.D. Cal. Sept. 20, 2017) ..........................................3 

The WU Grp. v. Synopsys, Inc., 

2005 WL 1926626 (N.D. Cal. Aug. 10, 2005) ..........................................................................13 

Washtenaw Cty. Emps. Ret. Sys. v. Celera Corp., 2012 WL 3835078 (N.D. Cal. Sept. 4, 2012) .........................................................................3, 8 

Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) .................................................................................................3, 15 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 5 of 21
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REPLY ISO MOTION TO DISMISS FAC v CASE NO. 4:17-CV-00458-JSW 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

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ATTORNEYS AT LAW

SAN FRANCISCO 

STATUTES

Securities Exchange Act of 1934 

 Section 10(b), 15 U.S.C. § 78j(b) ................................................................................2, 6, 8, 15

 Section 21E(i)(1), 15 U.S.C. § 78u-5(i)(1) .................................................................................4 

 Section 21E(i)(1)(D), 15 U.S.C. § 78u-5(i)(1)(D) ......................................................................4 

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REPLY ISO MOTION TO DISMISS FAC 1 CASE NO. 4:17-CV-00458-JSW

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

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ATTORNEYS AT LAW

SAN FRANCISCO 

I. INTRODUCTION 

In their motion to dismiss, defendants1 challenged plaintiff to identify, for each alleged 

misstatement, particularized facts in the FAC that meet the exacting pleading requirements of the 

PSLRA. Plaintiff’s opposition (“Opposition” or “Opp.”) does not meet that challenge, and ends 

up confirming that his claims are based on speculation, conclusions and hindsight. 

At the center of this case is the October 15, 2015 agreement between Natus’ Argentinian 

subsidiary (Medix) and the Venezuela Ministry of Health, and a series of statements regarding the 

anticipated benefits from that contract. Virtually all of those statements are insulated by the 

PSLRA’s safe harbor, and plaintiff’s efforts to sidestep that conclusion – by arguing that the 

statements were not forward-looking, or that the accompanying cautionary language was not 

meaningful – disregard the language of the statute and controlling Ninth Circuit law. 

In addition, the Opposition does not identify contemporaneous facts establishing that the 

challenged statements were false when made, or that they were known to be false. Indeed, as to 

the FAC’s principal falsity theory – the unfounded speculation that the Ministry of Health contract 

may not have been signed – plaintiff tries to obscure his pleading failure in a novel way: he chides 

defendants for not having submitted the signed agreement with their moving papers. See Opp. at 

6, 15 n.17. Of course, defendants were not obligated to disprove plaintiff’s baseless assertion; it 

was enough to point out that his conjecture is unsupported by the specific facts required by the 

PSLRA. Nonetheless, since plaintiff has raised the issue, defendants are submitting the executed 

agreement now so that the Court can see that it was, in fact, signed on October 15, 2015.

2

Plaintiff fares no better with his other falsity arguments. The Opposition assails defendants’ 

stated expectations for when payments would be received from the Ministry of Health, and the 

projected revenues that Natus would recognize in future periods, without identifying a single 

document, source or other fact to show that those statements were not honestly believed to be 

accurate. And although the Opposition argues that defendants should have disclosed additional 

 

1

 Unless otherwise specified, all defined terms have the same meanings as in defendants’ opening 

brief (“Motion” or “Mot.”), and all paragraph references are to the FAC. 

2 See Ex. 22 to Reply Declaration of William B. Hill (“Hill Decl.”); see also Defendants’ 

Supplemental Request to Consider Document Under Incorporation-by-Reference Doctrine. 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 7 of 21
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REPLY ISO MOTION TO DISMISS FAC 2 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

details regarding the contract’s payment terms, plaintiff does not demonstrate (as the law requires) 

that the allegedly omitted details rendered any statements materially misleading. 

Plaintiff also fails to establish loss causation. What he is required to do – but what the 

Opposition confirms he cannot do – is show, for each challenged statement, that the allegedly 

misrepresented facts were still undisclosed when he bought his stock in March 2016. 

Finally, plaintiff is unable to show that defendants’ stock sales support a strong inference of 

scienter. To the contrary, defendants’ stock transactions during the class period (including the 

Company’s purchase of stock) actually undercut an inference of fraud. 

In sum, plaintiff’s claims are unsupported by well-pleaded facts or legal authority, and are 

ultimately nothing more than impermissible “fraud by hindsight.” The FAC should be dismissed. 

II. THE OPPOSITION IS UNABLE TO IDENTIFY FACTUAL ALLEGATIONS TO 

SHOW THAT THE CHALLENGED STATEMENTS ARE ACTIONABLE 

A. Plaintiff Fails to Show That the October 16, 2015 Form 8-K Is Actionable 

1. The Opposition Confirms Plaintiff’s Inability to Plead Falsity 

Plaintiff challenges one statement in the October 16, 2015 Form 8-K: “prepayments totaling 

approximately $69 million are expected by the first quarter of 2016.” Opp. at 7 (emphasis added). 

The Opposition concedes this statement was “technically consistent with the truth,” but argues “it 

would have been material for investors to know” that the contract contemplated payments 

commencing in late 2015. Id. That assertion gets plaintiff nowhere. Even if he could show that 

this additional detail would have been significant to a reasonable investor (which he does not do), 

merely alleging that defendants failed to provide “material” information does not state a Section 

10(b) claim. See, e.g., Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011). 

The Opposition then theorizes that, if Natus had disclosed that payments were scheduled to 

begin in late 2015, investors might have later inferred there was some “major problem” with the 

contract. Opp. at 7-8. Setting aside that this theory is premised on conjecture and is devoid of 

supporting facts, it does nothing to satisfy plaintiff’s legal obligation: establishing that the omitted 

information was at odds with what Natus actually said, such that the Form 8-K “affirmatively 

created an impression of a state of affairs that differ[ed] in a material way from the one that 

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REPLY ISO MOTION TO DISMISS FAC 3 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

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actually exist[ed].” Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002). 

Plaintiff simply cannot show that the contract’s reference to scheduled payments in late 2015 is 

inconsistent in any way with the statement that Natus expected payments “by the first quarter of 

2016.” As a result, the Form 8-K is not actionable. See, e.g., Colyer v. Acelerx Pharms., Inc., 

2015 WL 7566809, at *6 (N.D. Cal. Nov. 25, 2015) (no claim where statement was “quite literally 

true,” and did not create an impression differing materially from allegedly omitted information); 

Glenbrook Cap. Ltd. P’ship v. Kuo, 2009 WL 839289, at *11 (N.D. Cal. Mar. 30, 2009) (same).3

Nor can plaintiff plead falsity by continuing to speculate that the Ministry of Health might 

not have signed the contract. Opp. at 5-6. Plaintiff concedes his speculation is based on CW1 (id. 

at 6-7), yet does not identify facts showing that a “Purchasing Coordinator” who joined the 

Ministry of Health in 2016 would know when the contract was signed. See Zucco Partners LLC v. 

Digimarc Corp., 552 F.3d 981, 995-96 (9th Cir. 2009). Instead, he asks the Court to accept on 

faith that someone who later “prepar[ed] price quotes,” processed payments and accounts payable 

data, and “track[ed] the receipt of goods and services,” could speak knowledgeably about when 

the contract was executed. Opp. at 6. Such conclusory averments fall far short of alleging “with 

particularity” facts establishing that CW1 was “in a position to be personally knowledgeable of 

the information alleged.” Zucco, 552 F.3d at 996. See also Applestein v. Medivation, Inc., 861 F. 

Supp. 2d 1030, 1037-38 (N.D. Cal. 2012), aff’d, 561 F. App’x 598 (9th Cir. 2014).4

 

3 The cases cited by plaintiff (Opp. at 8) are inapposite and actually underscore his failure to plead 

that the allegedly omitted details rendered the Form 8-K misleading. See Washtenaw Cty. Emps. 

Ret. Sys. v. Celera Corp., 2012 WL 3835078, at *3-4 (N.D. Cal. Sept. 4, 2012) (efforts to dismiss 

concerns about declining demand for medical tests and unpaid receivables were misleading; while 

defendants stated accurately that most tests were reimbursed by insurance, they failed to disclose 

the “new development” that patients were being reimbursed directly and the company was 

experiencing difficulty collecting payment from those patients); Sudunagunta v. NantKwest, Inc., 

et al., No. 2:16-cv-01947-MWF-JEM, slip op. at 16-17 (C.D. Cal. Sept. 20, 2017) (statement that 

“9 million shares may be acquired” by an executive was misleading because, under the relevant 

agreement, the shares were guaranteed to vest) (emphasis added). 

4

 CW1’s dependence on unspecified hearsay from other unnamed individuals is another reason to 

disregard his/her allegations. See Mot. at 9; Browning v. Amyris, Inc., 2014 WL 1285175, at *18 

(N.D. Cal. Mar. 24, 2014). Plaintiff’s argument that “hearsay does not automatically disqualify” a 

CW (Opp. at 6 n.4, quoting In re Silver Wheaton Corp. Sec. Litig., 2016 WL 3226004, at *3 n.3 

(C.D. Cal. June 6, 2016)), misses the point. While there are rare instances in which hearsay might 

be reliable – for example, in Silver Wheaton, where a CW recounted information from another 

person who was identified by name and where concrete facts regarding that person’s knowledge 

were provided – the nebulous hearsay offered by CW1 does not satisfy the PSLRA. 

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REPLY ISO MOTION TO DISMISS FAC 4 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

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ATTORNEYS AT LAW

SAN FRANCISCO 

In any event, the Ministry of Health contract was signed on October 15, 2015, the day 

before the Form 8-K was filed. Hill Decl., Ex. 22. That fact further confirms CW1’s lack of 

reliability (Applestein, 861 F. Supp. 2d at 1038) and disposes of plaintiff’s entire theory. 

Finally, while the FAC advanced two other falsity arguments – the Form 8-K failed to 

disclose the contract’s forum selection provision (¶ 51) and should have attached a copy of the full 

agreement (¶ 52) – those claims have now been abandoned. The moving papers described why 

those allegations are meritless (see Mot. at 9-10) and the Opposition offers no response. 

2. Plaintiff Is Also Unable to Show Actual Knowledge of Falsity 

The Form 8-K is not actionable for another reason: the challenged statement is forwardlooking and plaintiff does not plead defendants’ actual knowledge of falsity. See Mot. at 8. See

also Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1059 (9th Cir. 2014); 

In re Cutera Sec. Litig., 610 F.3d 1103, 1111-12 (9th Cir. 2010); 15 U.S.C. § 78u-5(i)(1). 

Plaintiff argues the statement is not forward-looking because it is “embedded with 

misrepresentations of current facts.” Opp. at 12. That argument misapprehends Ninth Circuit law 

and the PSLRA. A statement is forward-looking if, “examined as a whole” and “in context,” it 

relates to “future expectations and performance.” Intuitive Surgical, 759 F.3d at 1059, citing 

Cutera, 610 F.3d at 1111-12.5

 The challenged portion of the Form 8-K – the Company’s 

“expect[ation]” that contract payments would be received “by the first quarter of 2016” – clearly 

meets that standard. See Oaktree Principal Fund V, LP v. Warburg Pincus, LLC, 2017 WL 

3187688, at *12 (C.D. Cal. Jan. 17, 2017) (statement is forward-looking if “it predicts events that 

have not yet occurred”). Moreover, even statements of existing fact are defined by the PSLRA as 

forward-looking if, as here, they are “assumptions underlying or relating to” future expectations. 

Intuitive Surgical, 759 F.3d at 1059; 15 U.S.C. § 78u-5(i)(1)(D). Tellingly, the Opposition avoids 

any mention of Intuitive Surgical, Cutera or the PSLRA’s statutory definition. 

 

5 Plaintiff’s reference to In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130 (9th Cir. 2017), is 

unavailing. As discussed in the moving papers, the statements in Quality Sys. – unlike those at 

issue here – related to existing facts, rather than future events. Mot. at 11 n.5. Plaintiff does not 

address that distinction. See also In re SolarCity Corp. Sec. Litig., 2017 WL 3453387, at *13 

(N.D. Cal. Aug. 11, 2017) (allegedly “mixed” statements were forward-looking under the PSLRA 

because they related to future events and reflected information underlying projections). 

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Plaintiff next argues that defendants had actual knowledge of falsity because they knew 

the contract was “unsigned” and payments were “already materially late.” Opp. at 13. As 

discussed above, however, the contract was fully executed and the FAC contains no facts to the 

contrary. Nor does the FAC plead the existence of any “late” payments as of October 16, let 

alone defendants’ knowledge of delays. Thus, any claim based on the Form 8-K must be 

dismissed. See Cooper v. Thoratec Corp., 2014 WL 12644026, at *8 (N.D. Cal. Nov. 26, 2014). 

3. Plaintiff Is Unable to Show Loss Causation 

Because the facts allegedly misrepresented in the Form 8-K were publicly disclosed before 

plaintiff bought his Natus stock on March 15, 2016, loss causation is lacking and any claim based 

on the Form 8-K fails. See Mot. at 10-11; see also Jasin v. Vivus, Inc., 2015 WL 3809357, at *8 

(N.D. Cal. June 18, 2015). Plaintiff responds with a straw man, arguing that a “partial corrective 

disclosure” does not preclude him from asserting a claim (Opp. at 19) – even though defendants’ 

argument is not based on a “partial” disclosure. Rather, as to the Form 8-K, there was a complete

corrective disclosure. The market knew prior to March 15, 2016 that, contrary to the one 

challenged statement in the Form 8-K, Natus would not receive “payments of $69 million” by the 

first quarter of 2016. ¶¶ 92-94, 97. Even to the extent that plaintiff contends the real problem 

with the Form 8-K was not disclosing that the contract contemplated payments in late 2015 (Opp. 

at 7), that fact was disclosed by February 2016 when the agreement was filed with the SEC. ¶ 92. 

B. The October 21, 2015 Press Release and Conference Call Are Not Actionable 

Plaintiff challenges three categories of statements in the October 21, 2015 press release and 

conference call: guidance for the fourth quarter and full year 2015 (¶¶ 53, 59), the amount and 

timing of expected contract payments (¶¶ 55, 57, 61) and anticipated currency risk (¶ 63). See

Mot. at 11-15. None of these statements is actionable under the PSLRA. 

1. The PSLRA Precludes Any Claim Based on the Challenged Guidance 

Any claim based on the October 21 guidance6

 is barred by the PSLRA’s safe harbor. See

Mot. at 11-12. Plaintiff concedes the guidance is forward-looking (see Opp. at 12), and does not 

 

6 While the FAC assails revenue, EPS and margin guidance, the Opposition only discusses revenue 

projections and apparently concedes there is no claim as to the other metrics. See Opp. at 9-10. 

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dispute that it was identified as such in the press release and conference call. See Mot. at 11-12; 

see also Exs. 8, 9. Instead, plaintiff tries to avoid the safe harbor with the glib assertion that the 

Company’s risk disclosures were “boilerplate” and “inadequate.” Opp. at 12. However, the 

Opposition eschews any analysis of the detailed cautionary language provided by Natus, including 

the 11-page discussion of risk factors in its Form 10-K. Mot. at 12; Ex. 2 at 18-29. As a result, 

plaintiff does not begin to demonstrate that the cautionary language was not meaningful. See 

Cutera, 610 F.3d at 1110 (safe harbor applied where plaintiffs relied on “conclusory allegations” 

and failed to show cautionary language was not meaningful); see also In re Tibco Software, Inc. 

Sec. Litig., 2006 WL 1469654, at *27 (N.D. Cal. May 25, 2006). Nor does plaintiff mention, 

much less address, the cases cited by defendants in which courts have found that similar references 

to risk factors in SEC filings were sufficient to invoke the safe harbor. See Mot. at 12 (citing 

cases). See also Intuitive Surgical, 759 F.3d at 1059-60; Colyer, 2015 WL 7566809, at *10. 

Plaintiff fares no better with the argument that the cautionary language was deficient 

because it did not warn of the risks that actually materialized. Opp. at 12-13. Courts in this 

district (and elsewhere) have made clear that the safe harbor does not “require specification of the 

particular factor that ultimately renders the forward-looking statement incorrect.” In re Nuvelo, 

Inc. Sec. Litig., 2008 WL 5114325, at *16 (N.D. Cal. Dec. 4, 2008); Cement Masons & Plasterers 

Jt. Pens. Trust v. Equinix, Inc., 2012 WL 685344, at *5 (N.D. Cal. Mar. 2, 2012).7

 And plaintiff’s 

baffling suggestion that the adequacy of cautionary language is “rarely properly decided ... on a 

motion to dismiss” (Opp. at 13) flies in the face of controlling authority, including Cutera and 

Intuitive Surgical. In reality, courts routinely dismiss Section 10(b) claims on precisely that basis, 

as discussed above and in the moving papers. See Mot. at 12, 15, 17, 18. 

Plaintiff next argues that, even if the cautionary language was meaningful, the safe harbor 

does not protect statements made with actual knowledge of falsity. Opp. at 13. That argument 

 

7

 See also Bodri v. GoPro, Inc., 2017 WL 1732022, at *13 (N.D. Cal. May 1, 2017) (“cautionary 

language ... does not need to warn of the ‘exact risk’ that transpires and causes a company to miss 

a guidance forecast”); Harris v. IVAX Corp., 182 F.3d 799, 807 (11th Cir. 1999) (safe harbor 

applies even if defendants do not “mention the factor that ultimately belies a forward-looking 

statement”); Slayton v. Am. Express Co., 604 F.3d 758, 773 (2d Cir. 2010) (“a defendant need not 

include the particular factor that ultimately causes its projection not to come true in order to be 

protected by the meaningful cautionary language prong of the safe harbor”). 

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was rejected by the Ninth Circuit as inconsistent with the PSLRA. Cutera, 610 F.3d at 1112-13. 

Under the statute, a statement identified as forward-looking and accompanied by meaningful 

cautionary language is not actionable regardless of defendants’ alleged state of mind. Id. In other 

words, the safe harbor’s “actual knowledge” prong presents an additional hurdle for plaintiff if – 

and only if – meaningful cautionary disclosures are not provided. Id. at 1112-13; see also In re 

Cisco Sys., Inc. Sec. Litig., 2013 WL 1402788, at *14 (N.D. Cal. Mar. 29, 2013). 

In addition, plaintiff does not dispute that “actual knowledge” requires him to plead facts 

showing that defendants knew the guidance was unachievable. Mot. at 13. See also Equinix, 2012 

WL 685344, at *6; In re Portal Software, Inc. Sec. Litig., 2005 WL 1910923, at *14 (N.D. Cal. 

Aug. 10, 2005). Plaintiff does not argue the FAC meets this standard, and instead offers the bald 

conclusion that defendants “misleadingly increased ... revenue guidance for the fourth quarter and 

full-year 2015.” Opp. at 9. To the extent that plaintiff’s argument is based on speculation that the 

contract was unsigned (id. at 10), it fails for the reasons discussed above. More fundamentally, 

the Opposition cannot identify facts showing that, as of October 21, defendants knew that the 

projections were not attainable – let alone facts pleaded with the particularity required by the 

PSLRA. See In re Leapfrog Enters., Inc. Sec. Litig., 200 F. Supp. 3d 987, 1004-05 (N.D. Cal. 

2016); In re Nimble Storage, Inc. Sec. Litig., 2017 WL 4355570, at *5 (N.D. Cal. Oct. 2, 2017). 

Loss causation is also lacking. Natus reported actual 2015 results in January 2016. ¶¶ 75, 

80. Thus, even if the October 21 guidance was false, the “truth” was known before plaintiff 

bought his stock. See Mot. at 14-15. Unable to address this point, plaintiff ignores it. 

2. Both the Safe Harbor and the Absence of Loss Causation Preclude 

Claims Based on the Challenged Statements Relating to Expected 

Contract Payments 

The Opposition is unable to show that statements regarding expected contract payments (¶¶ 

55, 57, 61) are actionable. While plaintiff avers generally that the challenged statements were not 

forward-looking (Opp. at 12), he avoids any analysis of what was actually said. The FAC, though, 

makes clear that the statements all relate to what was anticipated to occur in the future,

8

 and are 

 

8 See ¶ 55 (“we are to receive three payments totaling $69 million by the end of the first quarter of 

2016,” with payments “to continue throughout the contract period as we fulfill our requirements”); 

¶ 57 (“[w]e expect to receive some payments here by the end of the year” and “most likely those 

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thus forward-looking. See Intuitive Surgical, 759 F.3d at 1059; see also In re Fusion-io, Inc. Sec. 

Litig., 2015 WL 661869 (N.D. Cal. Feb. 12, 2015) (even “mixed” statements are forward-looking 

if “they discuss [the Company’s] opportunity for growth in the future and the reasons [it] believes 

those opportunities will exist”) (emphasis in original). 

Plaintiff’s suggestion that he can avoid the safe harbor by characterizing his claim as 

pertaining to “omissions regarding the Contract” (Opp. at 11) is foreclosed by the Ninth Circuit’s 

holdings in Cutera and Intuitive Surgical – cases that, again, are not even mentioned in the 

Opposition. Indeed, plaintiff’s argument would improperly “discard [the PSLRA’s] statutory 

framework that provides protection for forward-looking statements, replacing it instead with the 

notion that mere allegations of omission ... would make such statements actionable.” In re 

Lockheed Martin Corp. Sec. Litig., 272 F. Supp. 2d 944, 950 (C.D. Cal. 2003).9

 

As discussed above, plaintiff fails to show that the cautionary language accompanying the 

October 21 press release and conference call was not meaningful. See Sec. II.B.1, supra; see also

Cutera, 610 F.3d at 1110. Consequently, the PSLRA mandates dismissal of any claim based on 

the challenged statements regarding anticipated contract payments. Id. at 1113. 

Even if that were not the case, the FAC pleads no facts to establish falsity or the requisite 

state of mind. Mot. at 13-14. Recognizing that defendants’ actual statements – i.e., that Natus 

expected to receive $69 million by the first quarter of 2016, with some portion in late 2015 (¶¶ 55, 

57) – were not false, plaintiff posits (without any authority) that “investors had a right to know” 

the contract called for payments to be made in late 2015. Opp. at 8. But that argument is a non 

sequitur. The challenged statements merely indicate when Natus expected to receive payment; 

they do not purport to recite the contract’s payment schedule or address when payments are “due.” 

Thus, while additional details about contract terms might satisfy the curiosity of a particular 

investor, Section 10(b) only prohibits “misleading and untrue statements, not statements that are 

 would extend into the first quarter of next year”); ¶ 61 (Natus expected contract payments to be 

“lumpy,” “very large,” and to “stretch out over many years”). 

9

 Nor does In re Celera Corp. Sec. Litig., 2013 WL 4726097, at *2 (N.D. Cal. Sept. 3, 2013), 

support plaintiff’s attempt to rewrite the PSLRA. At most, Celera stands for the proposition that a 

statement relating predominantly to historical fact is not forward-looking; any other reading would 

be inconsistent with the Ninth Circuit’s subsequent decision in Intuitive Surgical. 

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incomplete.” Brody, 280 F.3d at 1006. Because the omitted information was not necessary to 

prevent the statements at issue from being misleading – in fact, the “undisclosed” contract terms 

are consistent with the expectation that payments would be received by the first quarter of 2016 – 

falsity is lacking as a matter of law. Id. Not surprisingly, then, the Opposition does not even try 

to show that defendants knew (or even believed) those statements were false. See City of Royal 

Oak Ret. Sys. v. Juniper Networks, Inc., 880 F. Supp. 2d 1045, 1062-63 (N.D. Cal. 2012). 

Nor can plaintiff establish loss causation. By March 15, 2016, the market knew that 

payments would not be received within the timeframe anticipated by defendants, and the allegedly 

omitted contract terms had been fully disclosed to investors. See Sec. II.A.3, supra. 

3. Plaintiff Abandons the Currency Risk Claim 

The moving papers explained that the statement regarding anticipated currency risk (¶ 63) 

is not actionable. Mot. at 14. The Opposition offers no contrary argument, and thus concedes that 

the statement cannot support a claim. 

C. The November and December 2015 Statements Do Not Support a Claim 

The challenged November and December analyst conference statements – all of which were 

made by Mr. Hawkins – relate to revenue guidance and expected contract payments. ¶¶ 65, 67, 

69, 71, 73.10 Those statements are forward-looking, as discussed previously. See Sec. II.A.2., 

supra. Additionally, plaintiff does not dispute that the statements were identified as forwardlooking and that Natus referred to its SEC filings for discussion of factors that could cause actual 

results to vary from projections. Mot. at 15; Ex. 10 at 1; Ex. 11 at 1. Because plaintiff fails to 

demonstrate that the cautionary language was not meaningful, and his characterization of Natus’ 

risk factors as “boilerplate” is devoid of any facts or supporting analysis (see Opp. at 12-13), the 

safe harbor insulates the November and December statements. See Sec. II.B.1., supra. 

Assuming arguendo that plaintiff could sidestep that conclusion, he still fails to plead facts 

to support a claim. Plaintiff argues the statements were misleading because the first payments 

contemplated under the contract were “already weeks late.” Opp. at 9. See also id. at 13. 

 

10 There is no allegation that Mr. Kennedy said anything at the analyst conferences, and thus the 

challenged statements cannot support a claim against him. Mot. at 15 n.11; Janus Cap. Grp., Inc. 

v. First Deriv. Traders, 564 U.S. 135, 142-43 (2011). Plaintiff does not contest the point. 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 15 of 21
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However, he cannot show that such delays are inconsistent with Mr. Hawkins’ statements. As to 

the guidance, plaintiff must plead facts showing that: (i) the fourth quarter and full year 2015 

revenue projections did not take the possibility of delays into account; and (ii) Mr. Hawkins 

actually knew that the delays would prevent the projections from being achieved. In re Foundry 

Networks, Inc. Sec. Litig., 2003 WL 22077729, at *8 (N.D. Cal. Aug. 29, 2003). The FAC makes 

no such showing – nor could it, given that Mr. Hawkins made clear that Natus did not expect to 

receive the first payment (and begin recognizing revenues) until sometime in December (¶¶ 67, 

71, 73), and that the projections only included $4 million in revenues from the contract (id.¶ 75).11 

For the same reasons, plaintiff is unable to show that statements “lauding the Contract” 

(Opp. at 9) were false. The fact that initial payments might have been delayed by a few weeks 

does not mean that stated expectations regarding the benefits of a three-year contract were false. 

Ronconi v. Larkin, 253 F.3d 423, 434 (9th Cir. 2001). Put another way, plaintiff offers no basis to 

conclude that delays were not already factored into the challenged statements – especially when 

Natus cautioned that it expected to receive the bulk of the payments in early 2016, rather than late 

2015 (¶¶ 67, 71, 73). Foundry, 2003 WL 22077729, at *8. And the Opposition is devoid of facts 

purporting to address Mr. Hawkins’ state of mind in November and December, or show that he 

knew (or even believed) his statements were inaccurate. Juniper, 880 F. Supp. 2d at 1062-63. 

Nor does plaintiff plead loss causation. As noted above, before plaintiff bought his shares, 

the market knew that: (i) actual 2015 revenues had fallen short of guidance; and (ii) the payments 

originally expected by the first quarter of 2016 would not be received in that period. See Sec. 

II.B.1., supra. In fact, plaintiff confirms there was only one “corrective” disclosure after his stock 

purchase – the April 4, 2016 press release (Opp. at 20) – and does not contend anything in that 

press release revealed the “truth” about facts allegedly misrepresented in November or December. 

See In re Herbalife, Ltd. Sec. Litig., 2015 WL 1245191, at *7 (C.D. Cal. Mar. 16, 2015). 

 

11 The FAC thus stands in stark contrast to the cases cited by plaintiff, where detailed internal facts 

indicated defendants knew forecasts were unachievable. See In re HI/FN, Inc. Sec. Litig., 2000 

WL 33775286, at *3 (N.D. Cal. Aug. 9, 2000) (alleging details of an internal meeting, including 

date, participants and subject matter, where management discussed “that the company could not 

maintain its revenue forecast”); In re Veritas Software Corp. Sec. Litig., 2006 WL 1431209, at *7 

(D. Del. May 23, 2006) (alleging specific facts, including information from CWs, showing that 

company’s projections were known to be false and based upon “improper revenue recognition”). 

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D. Plaintiff Has No Claim for the January 2016 Statements 

The Opposition argues that two categories of statements in January 2016 support a claim: 

(i) projected 2016 revenues from the Ministry of Health contract; and (ii) discussion of payment 

delays. Opp. at 10-11. Neither theory has merit. 

1. The Revenue Projections Are Protected By the Safe Harbor 

Plaintiff contends it was “misleading” to project that the Ministry of Health contract would 

generate $5 million in revenue in the first quarter of 2016 and $60 million in revenue for the full 

year. Opp. at 11 (citing ¶ 75). However, he does not dispute that defendants identified the 

guidance as forward-looking and detailed factors that could cause results to differ materially – 

including uncertainties regarding “shipments and revenues associated with ... Medix[’s] ... 

contract with the Venezuela Ministry of Health.” Ex. 12. The Opposition does not mention this 

cautionary language, much less show that it was not meaningful, and the guidance is therefore not 

actionable. See Sec. II.B.1., supra. Plaintiff is also unable to cite facts suggesting that defendants 

knew the revenue estimates could not be achieved, which means the safe harbor’s second prong 

independently bars any claim. Id.; see also Nimble Storage, 2017 WL 4355570, at *5. 

2. Statements Regarding Payment Delays Are Not Actionable 

The statements regarding delayed contract payments are also forward-looking because, 

based on plaintiff’s own allegations, they go to whether Natus could expect to receive payment in 

the future. Mot. at 17. The Opposition effectively concedes the point, arguing the statements 

were misleading because they “lulled investors” into thinking “that payment would be forthcoming

in the first quarter of 2016.” Opp. at 10 (emphasis added). And by characterizing the statements 

as conveying the message that the delay was a “one-time, unforeseeable” event (id.), plaintiff 

confirms they are forward-looking. See Oaktree, 2017 WL 3187688, at *12 (statement that a 

“write-off was a ‘one-time event’ is forward-looking because it predicts events that have not yet 

occurred”). Since plaintiff does not contest that the statements were identified as forward-looking 

(Mot. at 17; see also Exs. 12-14), and is unable to show that the January 2016 cautionary language 

was not meaningful (see Sec. II.D.1., supra), the safe harbor shields the challenged statements. 

Moreover, plaintiff fails to show that the statements were false or known to be false. As the 

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Opposition stresses, plaintiff challenges defendants’ expressed belief that the payment delay was 

due to a combination of political, economic and seasonal factors, and their opinion that payment 

would be received in the first quarter of 2016. Opp. at 10 (citing ¶¶ 75, 82). Where such 

statements of belief or opinion are challenged, plaintiff must provide particularized facts showing 

that defendants “did not hold the belief [they] professed and that the belief is objectively untrue.” 

Markette v. XOMA Corp., 2017 WL 4310759, at *5 (N.D. Cal. Sept. 28, 2017), quoting City of 

Dearborn Hts. Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 616 (9th Cir. 

2017). Neither the FAC nor the Opposition cites any such facts. At most, plaintiff (with the 

benefit of hindsight) seems to suggest that defendants should have known the prior delay was a 

portent of future problems and disclosed that purported “fact” to investors. See Opp. at 10. In so 

doing, plaintiff improperly “conflate[s] the accuracy of Defendants’ predictions and expectations 

with the sincerity with which Defendants held them.” Markette, 2017 WL 4310759, at *5.12

Finally, plaintiff cannot dispute that his stock purchase occurred after the contract was filed 

with the SEC (¶ 92), after Natus disclosed it had still not received a payment (id. ¶ 97), and after 

it allegedly became clear that analysts could “discount the expected revenues” under the contract 

(id.). These were not, as plaintiff suggests, merely “partial disclosures.” Opp. at 20. Instead, they 

fully disclosed the “truth” about delayed payments that was allegedly misrepresented in January 

2016, which means plaintiff cannot plead loss causation. See Jasin, 2015 WL 3809357, at *8. 

E. The Opposition Does Not Dispute That the Challenged March 2016 

Statement Is a Non-Actionable Expression of Optimism 

The one challenged statement in the March 14, 2016 analyst conference – Mr. Hawkins’ 

comment that “we really believe this is going to happen” (¶ 97) – is a non-actionable “vague 

expression of optimism.” See Mot. at 18-19; Cutera, 610 F.3d at 1111. The Opposition makes no 

effort to contest this point, and thus concedes that the statement cannot support a claim.13 

 

12 By contrast, plaintiffs in In re Nuvelo, Inc. Sec. Litig., 668 F. Supp. 2d 1217, 1231 (N.D. Cal. 

2009), alleged statements of existing fact (e.g., regarding clinical drug trials) that were rendered 

misleading by undisclosed known risks making regulatory approval less likely. Nothing akin to 

that is alleged here. Nor does plaintiff allege facts to show that defendants knew the statements 

were misleading absent additional information. See Leapfrog, 200 F. Supp. 3d at 1004-05. 

13 Plaintiff also fails to identify facts showing falsity or scienter. See Mot. at 19. His only real 

argument is that Mr. Hawkins failed to disclose the contract was not signed (Opp. at 19) – which, 

as discussed above, is devoid of factual support and wholly inaccurate. See Sec. II.A.1., supra.

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 18 of 21
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REPLY ISO MOTION TO DISMISS FAC 13 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

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WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

III. PLAINTIFF’S ADDITIONAL SCIENTER ARGUMENTS DO NOT COME CLOSE 

TO SATISFYING THE PSLRA’S STRINGENT STANDARD 

A. Recognizing That Defendants’ Stock Transactions Undermine an Inference of 

Fraud, Plaintiff Tries to Run From the FAC’s Primary Scienter Theory 

The FAC relies heavily on defendants’ stock sales to plead scienter (¶¶ 103-107), but 

plaintiff relegates the issue to a cursory discussion near the end of his brief. See Opp. at 18. The 

reason is clear: he knows the transactions actually refute an inference of fraud. See Mot. at 19-20. 

Plaintiff does not dispute that he bears the burden of establishing that stock sales are so 

“dramatically out of line with prior trading practices” as to be suspicious. Align Tech., 856 F.3d at 

621; Curry v. Yelp Inc., --- F.3d ----, 2017 WL 5583889, at *4 (9th Cir. Nov. 21, 2017). Nor does 

he contest that the timing of Mr. Hawkins’ and Mr. Kennedy’s sales is consistent with prior 

practices; in 2015, as in other years, they sold stock in the fourth quarter. Mot. at 19-20. Under 

Ninth Circuit law, trading is not suspicious if it is “in line with prior patterns.” Metzler v. Inv. 

GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1067 (9th Cir. 2008). See also Brodsky v. 

Yahoo! Inc., 630 F. Supp. 2d 1104, 1118 (N.D. Cal. 2009) (trading not suspicious where 

“Defendants regularly sold stock following earnings releases”); Tibco, 2006 WL 1469654, at *20 

(same). The Opposition ignores these authorities. 

It is also uncontroverted that the number of shares sold in the class period was less than the 

amount sold in the fourth quarter of prior years. Mot. at 19-20. Ignoring this crucial fact, plaintiff 

tries to turn the focus to the gross proceeds from defendants’ sales. Opp. at 18. That diversionary 

tactic is unavailing: the Ninth Circuit has explained that courts should examine “the amount and 

percentage of shares sold by insiders.” Ronconi, 253 F.3d at 435 (emphasis added). See also

Tibco, 2006 WL 1469654, at *20 (sale proceeds were not suspicious where defendant sold same 

amount of shares at the same time in the prior year); The WU Grp. v. Synopsys, Inc., 2005 WL 

1926626, at *10 (N.D. Cal. Aug. 10, 2005) (same). In short, defendants followed their usual 

pattern and sold fewer shares during the class period, which undermines any inference of scienter. 

Finally, plaintiff concedes Natus actually bought stock in the class period. Opp. at 18 n.25. 

While he suggests those purchases “do not negate scienter” (id.), he offers no supporting analysis 

and makes no effort to address the cases holding that such purchases are, in fact, inconsistent with 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 19 of 21
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REPLY ISO MOTION TO DISMISS FAC 14 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

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WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

an intent to defraud. See Cisco, 2013 WL 1402788, at *8; Bodri, 2017 WL 1732022, at *14.14 

B. The Opposition’s Miscellaneous Scienter Arguments Are Ineffectual 

None of the other arguments advanced in the Opposition is adequate to plead scienter, 

either individually or in the aggregate. Each is discussed in turn below. 

Ministry of Health Contract. Plaintiff’s suggestion that scienter may be inferred because 

the contract “was apparently not signed” (Opp. at 14) fails at the most basic level: the contract was

signed and plaintiff pleads no facts to the contrary. See Sec. II.A.1., supra. Also fruitless is the 

assertion that defendants “misrepresented the Contract’s payment terms and subtly shifted the 

payment due dates.” Opp. at 15. As discussed above, none of the challenged statements spoke to 

when payments were due or misstated contractual terms; rather, defendants stated when they 

expected Natus to receive payments, their expectations changed over time, and the FAC fails to 

plead facts showing that any statement was false or known to be false. See Sec. II.A.-D., supra. 

And averments that defendants “inquir[ed] into” the status of payments (Opp. at 16) are not 

suggestive of scienter, especially where the FAC pleads no facts showing what information was 

provided to defendants or that they learned anything contradicting their statements. See Lipton v. 

Pathogenesis Corp., 284 F.3d 1027, 1035-36 (9th Cir. 2002); Curry, 2017 WL 5583889, at *5.

Prior Medix Contract. The FAC’s vague allegations regarding a 2010 agreement between 

Medix and the Ministry of Health, which are based entirely on three CWs (Opp. at 16-17), do 

nothing to plead scienter. Not only is the FAC is devoid of facts establishing the CWs’ 

knowledge and reliability (Mot. at 13-14 & n.8), the CWs plainly contradict each other. Id. CW1 

insists that “final amounts under the [2010] contract were not paid” (¶ 44; emphasis added), while 

CW2 and CW3 claim that final payments were made (¶¶ 45, 46). Accordingly, the Opposition’s 

blithe insistence that the CWs “comport with one another” (Opp. at 17 n.21) is frivolous. If CW1 

is correct, then the other two sources must be wrong – and vice versa. Under the PSLRA, when 

CWs give such markedly different accounts, they are inherently unreliable and cannot support an 

 

14 Plaintiffs’ cases do not suggest a different result. See In re Clearly Canadian Sec. Litig., 875 F. 

Supp. 1410, 1417 (N.D. Cal. 1995) (not addressing repurchase where there was overwhelming 

evidence that defendants knowingly made false statements); In re Countrywide Fin. Corp. Sec. 

Litig., 588 F. Supp. 2d 1132, 1187 (C.D. Cal. 2008) (repurchase itself was unusual and suspicious 

given shares were repurchased using newly raised capital while insiders increased their selling).

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REPLY ISO MOTION TO DISMISS FAC 15 CASE NO. 4:17-CV-00458-JSW 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

FENWICK 

&

WEST LLP 

ATTORNEYS AT LAW

SAN FRANCISCO 

inference of scienter. In re Downey Sec. Litig., 2009 WL 2767670, at *6 (C.D. Cal. Aug. 21, 

2009). Plaintiff offers no authority to the contrary. Nor does the Opposition explain how the 

CWs can speak to defendants’ state of mind (see Mot. at 13 n.8), or how unspecified issues 

purportedly experienced years earlier would show defendants’ knowledge in 2015 that their 

stated expectations regarding payments under a new contract were false. Id. at 13-14. 

Core Operations. Invocation of the unpled “core operations” doctrine (Opp. at 17-18) also 

falls flat. Plaintiff ignores that the doctrine applies only in “exceedingly rare” cases (Zucco, 552 

F.3d at 1001), and his argument rests on a fallacious premise: that the contract “was unsigned.” 

Opp. at 17. Equally unavailing is the fact that payments were not made on the schedule initially 

contemplated (id.), given plaintiff’s inability to plead that the challenged statements were 

inconsistent with, or failed to account for, possible delays (Sec. II.A-D., supra). See Curry, 2017 

WL 5583889, at *5 (core operations doctrine did not apply where, among other things, allegations 

did not establish defendants’ knowledge of facts at odds with challenged statements). 

Holistic Review. Plaintiff urges that his scienter allegations be viewed holistically (Opp. 

at 18-19), but “holistic” review cannot transform multiple baseless arguments into a viable claim. 

See Zucco, 552 F.3d at 1008. Indeed, “holistic” review (which also requires consideration of 

facts negating an inference of fraud) makes clear that the FAC is based on impermissible 

hindsight – and that the only reasonable inference to be drawn from the relevant facts is that 

defendants honestly and reasonably believed their statements were accurate when made.15

IV. CONCLUSION 

Plaintiff fails to plead the particularized, contemporaneous facts necessary to state a claim 

for securities fraud under the PSLRA. The FAC should therefore be dismissed with prejudice. 

Dated: November 27, 2017 FENWICK & WEST LLP 

By /s/ Kevin P. Muck

 Kevin P. Muck 

Attorneys for Defendants Natus Medical Incorporated, 

James B. Hawkins and Jonathan A. Kennedy

 

15 Plaintiff does not dispute that dismissal of his Section 10(b) claim would also mandate 

dismissal of his control person claim. Mot. at 20; Align Tech., 856 F.3d at 623. 

Case 4:17-cv-00458-JSW Document 36 Filed 11/27/17 Page 21 of 21