CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

1

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

JOSEPH RODRIGUEZ,

Plaintiff,

v.

GIGAMON INC., et al.,

Defendants.

Case No. 5:17-cv-00434-EJD 

ORDER GRANTING MOTION TO 

DISMISS WITH LEAVE TO AMEND; 

SETTING CASE MANAGEMENT 

CONFERENCE

Re: Dkt. No. 54

I. INTRODUCTION

In this securities fraud class action suit, Plaintiffs allege that executive officers of 

Defendant Gigamon Inc. (“Gigamon” or “Company”) made false and misleading statements about 

the Company’s revenue and sales backlog in violation of Sections 10(b) and 20(a) of the Securities 

Exchange Act of 1934 (the “Exchange Act”). Defendants Gigamon, Paul A. Hooper (“Hooper”), 

and Michael J. Burns (“Burns”) move to dismiss the Amended Class Action Complaint for 

Violation of the Federal Securities Laws (“Complaint”). The Court finds it appropriate to take the 

motion under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). 

Based upon all pleadings filed to date1, Defendants’ motion to dismiss is granted with leave to 

amend.

II. BACKGROUND2

Plaintiffs purport to bring this securities fraud suit on behalf of all persons and entities who 

purchased or otherwise acquired the securities of Gigamon between October 27, 2016 and 

 

1

The parties’ respective requests for judicial notice (Dkt. 56 and 60) are granted. 

2

The Background is a summary of the allegations in the Complaint.
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

February 2, 2017 (the “Class Period”). Complaint, ¶ 1. Gigamon is a technology company that 

provides software and services to other companies. Id. at ¶ 2. Gigamon’s products are designed 

to monitor and control data traveling across internet networks. Id. Hooper is Gigamon’s Chief 

Executive Officer. Id. at ¶ 3. Burns is Gigamon’s Chief Financial Officer. Id. Hooper and Burns 

routinely provided investors with estimates concerning Gigamon’s future revenue. Id. 

On October 27, 2016, the Company held a conference call with investors and analysts to 

discuss the Company’s third quarter 2016 financial results. Id. at ¶¶ 4, 46. During that call, 

Defendants provided the public with estimates concerning the Company’s revenue and backlog for 

the fourth quarter, which was almost halfway complete. Id. Hooper stated, “As we enter our 

fourth quarter with a healthy backlog, we are on track to deliver our second consecutive year of 

accelerating top-line revenue growth and expanding profitability.” Id. at ¶¶ 4, 32, 46. Defendants 

estimated fourth quarter revenue to be “in the range of $91 million to $93 million.” Id. More 

specifically, Burns stated in pertinent part as follows:

Now for our Q4 outlook. We’re excited to provide the following 

guidance, using our same disciplined guidance methodology for our 

fiscal fourth quarter ending December 31, 2016. It’s based on nonGAAP results and excludes any stock-based compensation and 

related expenses. Our large deferred service, healthy product 

backlog, and consistent quarterly linearity continue to provide good 

visibility on growth, profits and execution. We expect fourth quarter 

revenue in the range of $91 million to $93 million, 37% year-overyear growth at the midpoint. As we continue to execute on the profit 

drivers in all aspects of our business, we are confident that we will 

sustain gross margins at approximately the range of 82% to 83%. 

We continue to believe that now is a great time for us to invest in 

our business. We are investing with conviction to expand our 

security portfolio, deliver next generation technology, and increase 

sales capacity to ensure continued strong growth next year.

In the fourth quarter of 2016 we also expect to accrue accelerated 

year-end commissions due to our strong performance throughout the 

year. As a result, we are forecasting fourth-quarter operating 

expenses in the range of $54.5 million to $55.5 million. We expect 

to book a 32% non-GAAP tax provision, and with the diluted share 

count of approximately 39 million, we expect to deliver non-GAAP 

earnings per share in the range of $0.36 to $0.38. Achieving the 

midpoint of our fourth-quarter guidance will bring our 2016 annual 

revenue growth to 43%, our second consecutive year of accelerating 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

revenue growth. We would deliver annual EPS growth of 56% and 

would result in annual gross margin above 82% and annual 

operating margin of 22%.

In summary, the third quarter was another great quarter of execution 

and we are well-positioned for a strong finish to the year. We 

continue to see significant demand for our solutions across all of our 

verticals and plan to next update you on our progress during our 

fourth-quarter and full-year 2016 conference call preliminarily 

scheduled for Thursday, February 2, 2017.

Id. at ¶ 47 (emphasis added). These statements led investors to believe that Gigamon “had 

significant unrecognized revenue, that there were product bookings in the backlog which would 

significantly increase revenue, and that, overall, increased revenue was guaranteed.” Id. at ¶ 48.

On October 28, 2016, the first trading day following the conference call, the price of Gigamon’s 

common stock increased from $47.38 per share to $55.01 per share. Id. at ¶ 5. 

Unbeknownst to investors, Defendants did not have a reasonable basis in fact for the 

revenue estimate that they provided. Id. at ¶ 6. “As of October 27, 201[6], Defendants knew that 

key customers were in the process of deferring purchases that were likely to have a significant 

negative impact on the Company’s revenue for the quarter.” Id. “Moreover, Defendants were 

aware that Gigamon’s sales ‘backlog’ would not be sufficient to compensate for the deferred 

purchase from this customer, i.e., the Company would not be able to meet its revised revenue 

estimate by relying on its ‘backlog.’” Id. 

On November 2, 2016, Hooper mentioned in an interview that Gigamon was expecting 

$315 million in revenue for the year, “which meant that revenue for the fourth quarter was 

expected to be approximately $89 million.” Id. at ¶ 6. Plaintiffs allege that Hooper’s November 

2, 2016 statement showed Gigamon was expecting less revenue than what was publicly stated just 

a few days earlier on October 27. Id. 

Plaintiffs allege that Defendants’ knowledge about Gigamon’s true revenue estimates was 

materially adverse and not public. Id. at ¶ 7. A number of Gigamon’s insiders sold stock while in 

possession of the material, non-public information. Id. In total, the proceeds from the insider 

sales amounted to more than $14.5 million, not including Burns’ sale of over 20,000 shares of 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

stock. Id. Plaintiffs allege that these sales were atypical in timing and size and support a strong 

inference that Defendants acted with scienter. Id.

The truth about Gigamon’s fourth quarter revenue emerged on January 17, 2017, when the 

Company issued a press release entitled “Gigamon Announces Preliminary Fourth Quarter and 

Fiscal Year 2016 Results.” Id. at ¶ 8. The press release disclosed preliminary fourth quarter 2016 

revenue of $84.5 million to $85.0 million, compared to the Company’s prior guidance of $91 

million to $93 million.” Id. The press release also quoted Hooper stating that “fourth quarter 

revenue was below our prior guidance” and that “[f]ourth quarter revenue fell short primarily due 

to lower than expected product bookings in our North America West region, as several significant 

existing customer accounts deferred purchasing decisions into 2017.” Id. The price of Gigamon’s 

common stock fell $12.65 per share (or 28.7%) to close at $31.40 per share on January 18, 2017. 

Id.

Two weeks later, during an investor call on February 2, 2017, Defendant Hooper explained 

that the shortfall was “due to lower than expected bookings in our North America west region, as 

several significant larger accounts deferred purchasing decisions into 2017.” Id. at ¶ 10. Hooper 

also stated: “We understand that the reasons for the deferrals range from changes in their 

purchasing patterns to network upgrade decisions that we believe are unrelated to our customer’s 

commitments to add solutions.” Id. at ¶ 56. Rex Jackson, the Chief Financial Officer that 

replaced Burns, stated further that “product backlog at quarter end was $3.1 below our range of 

approximately $6 million to $8.5 million of proceeding six quarters.” Id. at ¶ 10. Between 

February 2, 2017 and February 3, 2017, Gigamon’s common stock declined from $32.10 to $30.40 

(or 5.3%). Id. 

III. STANDARDS

Federal Rule of Civil Procedure 8 requires that a complaint contain a short and plain 

statement showing the pleader is entitled to relief. A motion to dismiss under Rule 12(b)(6), Fed.

R. Civ. P., “tests the legal sufficiency” of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Cir. 2001). A court may dismiss a claim for “lack of a cognizable legal theory or the absence of 

sufficient facts alleged under a cognizable theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 

696, 699 (9th Cir. 1988). In reviewing the sufficiency of a claim, the court accepts as true all of 

the plaintiff’s allegations and construes them in the light most favorable to the plaintiff. In re 

Gilead Sciences Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 

“To recover damages for violations of section 10(b) and Rule 10b-5, a plaintiff must prove 

(1) a material misrepresentation 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 or omission; (5) economic loss; and (6) loss causation.” Halliburton Co. v. 

Erica P. John Fund, Inc., 134 S. Ct. 2398, 2407 (2014) (internal quotation marks omitted). 

Because a section 10(b) claim sounds in fraud, a plaintiff asserting such a claim must satisfy the

heightened pleading standard of Rule 9(b), Fed. R. Civ. P. A plaintiff averring securities fraud 

must plead with particularity the circumstances constituting fraud. Fed. R. Civ. P. 9(b). 

Securities fraud claims must also satisfy the pleading requirements of the Private Securities 

Litigation Reform Act (“PSLRA”), which states that the complaint “shall 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). 

The PSLRA also requires a plaintiff to state with particularity facts giving rise to a strong 

inference of a defendant’s scienter. See 15 U.S.C. §78u-4(b)(2). To plead scienter, a plaintiff 

must allege “specific facts indicating no less than a degree of recklessness that strongly suggests 

actual intent.” Bielousov v. GoPro, Inc., No. 16-6654 CW, 2017 WL 3168522, at *3 (N.D. Cal. 

July 26, 2017) (quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 979 (9th Cir. 1999)). 

IV. DISCUSSION

Defendants move to dismiss the Complaint for two fundamental reasons: the challenged 

statements are not actionable and the Complaint lacks sufficient facts to support a strong inference 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

of scienter. As to the first argument, Defendants contend that the challenged statements are 

forward-looking and protected by the PSLRA’s Safe Harbor, vague statements of corporate 

optimism, and that Plaintiffs have failed to allege particular facts showing that any alleged 

misstatement was false or misleading when made. As to the second argument, Defendants 

contend that neither Hooper’s November 2 statement nor the stock sales allegations, viewed

individual or holistically, are sufficient to support a compelling inference of scienter.

A. Whether The Challenged Statements Are Forward-Looking

The Safe Harbor of the PSLRA immunizes forward-looking statements from liability if the 

statements are (i) “identified as forward-looking” and (ii) “accompanied by meaningful cautionary 

statements identifying important factors that could cause actual results to differ materially from 

those in the forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i); see also In re Cutera 

Securities Litig., 610 F.3d 1103, 1112-13 (9th Cir. 2010); City of Royal Oak Ret. Sys. v. Juniper 

Networks, Inc., 880 F. Supp. 2d 1045, 1061 (N.D. Cal. 2012). “Under subsection (A)(i), . . . if a 

forward-looking statement is identified as such and accompanied by meaningful cautionary 

statements, then the state of mind of the individual making the statement is irrelevant, and the 

statement is not actionable regardless of the plaintiff’s showing of scienter.” In re Cutera 

Networks, Inc., 610 F.3d at 1112. 

The term “forward-looking” statement means: 

(A) a statement containing a projection of revenues, income 

(including income loss), earnings (including earnings loss) per 

share, capital expenditures, dividends, capital structure, or other 

financial items;

(B) a statement of the plans and objectives of management for future 

operations, including plans or objectives relating to the products or 

services of the issuer;

(C) a statement of future economic performance, including any such 

statement contained in a discussion and analysis of financial 

condition by the management or in the results of operations included 

pursuant to the rules and regulations of the Commission;

(D) any statement of the assumptions underlying or relating to any 

statement described in subparagraph (A), (B), or (C);
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

(E) any report issued by an outside reviewer retained by an issuer, to 

the extent that the report assesses a forward-looking statement made 

by the issuer; or

(F) a statement containing a projection or estimate of such other 

items as may be specified by rule or regulation of the Commission.

15 U.S.C. § 78u-5(i)(1). 

1. Defendant Burns’ Statements

Plaintiffs identify the following statements by Burns as actionable: “Our large deferred 

service, healthy product backlog, and consistent quarterly linearity continue to provide good 

visibility on growth profits and execution. We expect fourth quarter revenue in the range of $91 

million to $93 million.” Complaint, ¶ 47. Plaintiffs contend that the references to “large deferred 

service” and “healthy product backlog” do not fall within the Safe Harbor because they were false 

or misleading statements about the present state of Gigamon’s affairs, and not forward-looking 

statements. 

Burns’ statements are similar to those at issue in In re Quality Systems, Inc. Securities 

Litigation, 865 F.3d 1130 (9th Cir. 2017). In Quality Systems, the defendants repeatedly made 

revenue and earnings projections based upon Quality Systems, Inc.’s (“QS”) “pipeline” of future 

business. One individual defendant stated that “opportunities” for sales to first-time electronic 

healthcare system purchasers “are plentiful,” and predicted a revenue range and earnings per 

share. The defendant characterized these predictions as “quite conservative” given QS’s “large” 

pipeline. Other individual defendants similarly made predictions for revenue growth and earnings 

per share that were based upon, among other things, QS’s pipeline. Id. at 1147-48 (“growing” 

pipeline; “the state of the current sales pipeline”; “[y]ou wouldn’t know that by our pipeline”;

“$183 million worth of pipeline”; “the sales pipeline has grown every quarter . . . since February 

of 2009 and we view it as continually growing”). The Ninth Circuit described these statements as 

“forward-looking statements made as part of mixed statements in which the non-forward-looking 

statements were materially false or misleading.” Id. at 1146. The Ninth Circuit next considered 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

whether the non-forward looking portions of these “mixed” statements were accompanied with 

adequate cautionary language under the PSLRA, and concluded that they were not. Id. at 1148. 

The Ninth Circuit reasoned that the cautionary language used by defendants failed to correct the 

materially false or misleading non-forward looking statement regarding the current state of QS’s 

pipeline, and therefore reversed the trial court’s dismissal of the mixed statements. Id. at 1150. 

Here, Burns similarly made mixed statements containing forward-looking and nonforward-looking statements. Burns made a forward-looking prediction about fourth quarter 

revenue. Burns’ forward-looking prediction was accompanied by a non-forward-looking 

statement regarding Gigamon’s “large deferred service,” “healthy product backlog,” and 

“consistent quarterly linearity,” which provided the factual predicate for Burns’ revenue 

prediction. Plaintiffs contend that the “large deferred service,” “healthy product backlog,” and 

“consistent quarterly linearity” refer to the present business conditions at Gigamon. Plaintiffs’ 

Opposition at 15:4-5 (“This refers to a present state of affairs, and is not a projection or forecast.”). 

Defendants nevertheless contend that the Safe Harbor provision applies because the “large 

deferred service,” “healthy product backlog,” and “consistent quarterly linearity” are 

“assumptions” underlying the revenue prediction that are protected pursuant to 15 U.S.C. § 78u5(i)(1)(A) & (D). Westley v. Oclaro, Inc., 897 F. Supp. 2d 902, 918 (N.D. Cal. 2012). 

Defendants’ argument is unpersuasive. Burns’ statement includes facts regarding the present state 

of the Company, not assumptions. “To interpret the safe harbor protection of underlying 

assumptions in the manner suggested by the defendants would allow the exception to swallow the 

rule. Virtually any factual assertion by a business entity would be subject to safe harbor 

protection.” In re Boeing Securities Litig., 40 F. Supp.2d 1160, 1169 (W.D. Wash. 1998). 

Defendants’ reliance on Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051 (9th 

Cir. 2014) is misplaced. In Intuitive Surgical, the company issued forward-looking growth and 

revenue projections for its robotic surgical devices based upon assumptions underlying future 

economic performance, such as “[g]ynecology plays a bigger and bigger role each day,” which the 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

court held fell within the Safe Harbor. Id. at 1059. Burns’ factual representations regarding 

Gigamon’s existing “large deferred service,” “healthy product backlog,” and “consistent quarterly 

linearity” are clearly distinguishable from the “assumptions” regarding gynecology underlying the 

statements at issue in Intuitive Surgical. 

In sum, the non-forward-looking portions of Burns’ statement are not protected by the Safe 

Harbor Provisions of the PSLRA. See Quality Systems, 865 F.3d at 1141 (“We hold a defendant 

may not transform non-forward-looking statements into forward-looking statements that are 

protected by the safe harbor provisions of the PSLRA by combining non-forward-looking 

statements about past or current facts with forward-looking statements about projected revenues 

and earnings.”).

2. Defendant Hooper’s Statement

Hooper’s statement that “[a]s we enter our fourth quarter with a healthy backlog, we are on 

track to deliver our second consecutive year of accelerating top-line revenue growth and 

expanding profitability” is arguably a forward-looking statement because it contains a projection 

regarding revenues and profitability. See, e.g., Police Ret. Sys. of St. Louis v. Intuitive Surgical, 

Inc., No. 10-03451 LHK, 2012 WL 1868874, at *10 (N.D. Cal. May 22, 2012), aff’d, 759 F.3d 

1051 (9th Cir. 2014) (statement that “revenue ‘is on track to grow 55% this year’” was forwardlooking); Guangyi Xu v. ChinaCache Int’l Holdings Ltd., No. 15-07952 CASR, 2017 WL 114401,

at *5-6 (C.D. Cal. Jan. 9, 2017) (statement that company was “on track” to complete migration to 

new platform was forward-looking); In re ECOtality, Inc. Securities Litig., No. 13-3791 SC, 2014 

WL 4634280, at *5-7 (N.D. Cal. Sept. 16, 2014) (“on track to begin delivery in the third quarter to 

satisfy our healthy pipeline of interest in [the Minit-Charger]” is forward-looking). 

Hooper’s statement, however, could also be interpreted as a statement about Gigamon’s 

current business condition. See e.g. Bielousov v. GoPro, Inc., 2017 WL 3168522, at *3 (“[w]e 

believe we’re still on track to make [revenue guidance]” is a statement of present opinion and not 

forward-looking); In re Secure Computing Corp. Securities Litig., 120 F. Supp. 2d 810, 818 (N.D. 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Cal. 2000) (in analyzing statement that company was “on track to meet analysts’ earnings 

expectations,” the court “accepts [p]laintiffs’ representation that they are alleging that [d]efendants 

misrepresented current business conditions” and concludes that the statement is not forwardlooking); In re Copper Mountain Securities Litig., 311 F. Supp.2d 857, 880 (N.D. Cal. 2004)

(statement that company was “on track” to meet future goals was not forward-looking “to the 

extent that such statement[] rested upon a characterization of the present state of the company).

Plaintiffs contend that they are challenging Hooper’s reference to “healthy backlog” as a 

fraudulent representation about the present state of affairs at the Company. Plaintiffs’ Opposition 

at 15:4-5. The Court accepts Plaintiffs’ characterization of their claim and will treat Hooper’s 

statement as a mixed statement. It follows that the non-forward-looking portion of Hooper’s 

statement is not protected by the Safe Harbor provisions of the PSLRA. See Quality Systems, 865 

F.3d at 1141.

3. Defendants’ “Cautionary Statements” 

Because Burns and Hooper made forward-looking statements as part of mixed statements, 

the Court next considers Defendants’ contention that their statements were accompanied by 

“meaningful” cautionary language and are therefore protected by the PSLRA’s Safe Harbor.

“The requirement for ‘meaningful’ cautions calls for substantive company-specific warnings based 

on a realistic description of the risks applicable to the particular circumstances.” In re Harman 

Intern. Industries, Inc. Securities Litig., 791 F.3d 90, 102 (D.C. Cir. 2015) (quoting Southland Sec. 

Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 372 (5th Cir. 2004) (some internal quotation 

marks omitted)). “[C]autionary statements must be substantive and tailored to the specific future 

projections, estimates or opinions in the [statements] which the plaintiffs challenge.” Id. (quoting 

Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 256 (3d Cir. 2009) (internal quotation marks 

omitted)). 

A boilerplate statement, such as “[t]his is a forward-looking statement: caveat emptor” is 

not “meaningful” cautionary language under the PSLRA. Id. (quoting Asher v. Baxter Int’l Inc., 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

377 F.3d 727, 729 (7th Cir. 2004). Generalized warnings that statements are “not guarantees of 

future performance . . . and involve known and unknown risks and other factors that could cause 

actual results to be materially different from any future results expressed or implied by them” are 

also insufficient to satisfy the PSLRA. Id. (quoting Lormand v. US Unwired, Inc., 565 F.3d 228, 

244 (5th Cir. 2009) (internal quotation marks omitted)).

The Quality Systems decision is also instructive. In that case, the defendants allegedly 

made mixed statements that contained predictions about future revenue and earnings per share that 

were supported by, among other things, positive characterizations about the current state of the 

defendant company’s pipeline. The Ninth Circuit opined as follows with regard to the PSLRA’s 

cautionary language provision:

Where a forward-looking statement is accompanied by a nonforward-looking factual statement that supports the forward-looking 

statement, cautionary language must be understood in the light of 

the non-forward-looking statement. If the non-forward-looking 

statement is materially false or misleading, it is likely that no 

cautionary language—short of an outright admission of the false or 

misleading nature of the non-forward-looking statement—would be 

“sufficiently meaningful” to qualify the statement for the safe 

harbor.

* * *

Adequate cautionary language under the PSLRA must identify 

“important factors that could cause actual results to differ materially 

from those in the forward-looking statement.” See 15 U.S.C. § 78u5(c)(1)(A)(i). For cautionary language accompanying a forwardlooking portion of a mixed statement to be adequate under the 

PSLRA, that language must accurately convey appropriate, 

meaningful information about not only the forward-looking 

statement but also the non-forward-looking statement.

Quality Systems, 865 F.3d at 1146-1148. 

In the present case, Gigamon issued the following cautionary statement at the beginning of 

the October 27 conference call:

During the course of today’s presentation, our executives will make 

forward-looking statements within the meaning of the federal 

securities laws. Forward-looking statements generally relate to 

future events or future financial or operating performance. Forward-
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

looking statements in this presentation include, but are not limited 

to, statements related to our business and financial performance and 

expectations, and guidance for future periods, our expectations 

regarding our product initiatives and the related benefits, and our

expectations regarding the market. Our expectations and beliefs 

regarding these matters may not materialize, and actual results in 

future periods are subject to risks and uncertainties that could cause 

actual results to differ materially from those projected. These risks 

include those set forth in the press release that we issued earlier 

today as well as those more fully described in our filings with the 

Securities and Exchange Commission, including our annual report 

on Form 10-K and our most recent quarterly report on Form 10-Q. 

The forward-looking statements in this presentation are based on 

information available to us as of the date hereof, and we disclaim 

any obligation to update any forward-looking statements, except as 

required by law. Please note that other than revenue or as otherwise 

specifically stated, the financial measures to be discussed on this call 

will be on a non-GAAP basis. The non-GAAP financial measures

are not intended to be considered in isolation or as a substitute for 

results prepared in accordance with GAAP. A discussion of why we 

present non-GAAP financial measures and a reconciliation of the 

non-GAAP financial measures discussed in this call to most directly 

comparable GAAP financial measures, are included in our earnings 

press release that’s available on our website. On this call, we will 

give guidance for the fourth quarter of fiscal year 2016 on a nonGAAP basis. We do not make available the reconciliation of nonGAAP guidance measures to corresponding GAAP measures on a 

forward-looking basis due to the high variability and low visibility 

with respect to the changes, which are excluded from these nonGAAP measures.

Decl. of Nicholas R. Miller, Ex. 14, p. 3. 

Plaintiffs contend that the cautionary statement above was inadequate because it amounted 

to only a general disclaimer and failed to disclose the true state of the company’s backlog as of 

October 27, which analysts described as “almost nonexistent.” Complaint, ¶ 59. Plaintiffs also 

contend that the cautionary statement was not “meaningful” because Burns and Hooper did not 

disclose to the public that as of October 27, Gigamon customers had already deferred purchases 

and that revenue would be less than represented. Plaintiffs’ Opposition at 17:22-23 (citing In re 

Countrywide Fin. Corp. Sec. Litig., 588 F. Supp.2d 1132, 1178, n. 62 (C.D. Cal. 2008) 

(“cautionary words about future risk cannot insulate from liability the failure to disclose that the 

risk has transpired”)). 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

Gigamon’s cautionary statement and its SEC filings contained extensive lists of important 

risk factors that could cause its actual revenue results to differ from those forecasted. In particular, 

Defendants highlight two warnings in Gigamon’s Form 10-Q:

• “if we fail to close a large transaction or multiple smaller 

transactions that we expect to close in a given period, our operating 

results . . . may be materially adversely affected”; and,

• “[a]ctual results may vary from our guidance and the variations 

may be material” because of “the timing of orders from our channel 

partners and end-user customers” or “the budgeting cycles and 

internal purchasing priorities of our enduser customers . . . .”

Dkt. 55, Ex. 21 at 35, 37, 50. Gigamon also warned that actual results could vary because of 

“customer acceptance and purchase of our existing products” and “our ability to retain existing 

customers . . . .” Id., Ex. 3 at Ex. 99.1. Defendants contend that the Company’s cautionary 

statements described the very risk that came to pass and ultimately caused Gigamon to miss its 

revenue guidance, namely “lower than expected product bookings . . . as several significant 

existing customer accounts deferred purchasing decisions into 2017.” Complaint, ¶53. 

Conspicuously absent from the numerous cautionary warnings, however, is any mention of 

Gigamon’s backlog. Plaintiffs define product backlog as including “orders for products scheduled 

to be shipped within 90 days to customers with approved credit status, and is net of service 

revenue allocations and any rebates and discounts.” Id. at ¶ 29. Construing the Complaint 

liberally in favor of Plaintiffs, the Court treats the “orders” included in the backlog as firm 

commitments to purchase that existed as of the date of Defendants’ alleged misstatements. 

Defendants do not explain how Gigamon’s cautionary statement about the potential failure to 

“close” transactions, which presumably refers to future transactions, provides a meaningful 

warning about orders existing at the time of Defendants’ alleged misstatements. Defendants also 

do not explain how a cautionary statement about the “timing of orders” and “the budgeting cycles 

and internal purchasing priorities” of customers, which also presumably refer to future orders and 

future purchasing priorities of customers, provides a meaningful warning about orders existing at 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the time of Defendants’ alleged misstatements. Because it is not apparent from the pleadings that 

Defendants’ cautionary language corrected the alleged misstatement regarding Gigamon’s 

backlog, it is premature to decide whether the Safe Harbor immunizes Defendants’ from liability. 

See Bodri v. GoPro, Inc., 252 F. Supp.3d 912, 930 (N.D. Cal. 2017) (if there is a legitimate 

dispute as to whether cautionary language is sufficient, dismissal of claim is not warranted).

3

B. Whether the Challenged Statements are “Puffery”

Defendants next contend that the challenged statements about “healthy” product backlog, 

“large” deferred service revenue, “consistent” quarter linearity, and “on track” to deliver

“accelerating top-line revenue growth and expanding profitability” are vague and subjective 

statements of corporate optimism that should be dismissed as mere puffery. Defendants 

characterize these phrases as vague and subjective statements of corporate optimism that cannot 

support a claim for securities fraud. In response, Plaintiffs argue that Defendants’ statements are 

similar to the statements found actionable in Quality Systems regarding the condition of the 

company’s pipeline. 

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). Generalized statements of corporate optimism, such as business is “healthy,” 

may be considered puffery. See Fadia v. FireEye, Inc., No. 14-5204 EJD, 2016 WL 6679806, at 

*9 (N.D. Cal. Nov. 14, 2016) (statements about business being “very healthy” and sales cycles 

being “consistent” were non-actionable puffery); see also Intuitive Surgical, 759 F.3d at 1060 

(statement that “opportunity for system placement at hospitals ‘is still very, very large’” not 

actionable); In re Nimble Storage, Inc. Sec. Litig., 252 F. Supp. 3d 848, 854 n.8 (N.D. Cal. 2017) 

(“statements indicating that a company is ‘on track’ to meet a certain goal are, without more, 

inactionable puffery.”); In re Rackable Sys., Inc. Sec. Litig., No. 09-0222 CW, 2010 WL 199703, 

 

3

For the same reason, it is premature to determine whether the bespeak caution doctrine precludes 

liability. 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

at *6 (N.D. Cal. Jan. 13, 2010) (statements that relationship with customers was “pretty strong” 

and “solid” not actionable) (citation omitted).

Defendants’ statements in this case, however, are not as generalized as those at issue in 

Fadia, Intuitive Surgical, Nimble Storage, or Rackable. Rather than describing the Company, 

opportunities, goals, or relationships with customers in broad strokes, Defendants made factual 

statements regarding certain aspects of Gigamon’s business, in particular Gigamon’s backlog. In 

Quality Systems, the Ninth Circuit found that the defendants “went beyond ‘feel good’ optimistic 

statements” when they represented that the company’s pipeline was “very robust,” “deep,” at 

“record levels,” and “keeps growing.” Quality Systems, 865 F.3d at 1137-1138. According to the 

Ninth Circuit, the defendants in Quality Systems “did not just describe the pipeline in subjective 

or emotive terms. Rather they provided a concrete description of the past and present state of the 

pipeline.” Id. at 1144. Consistent with Quality Systems, the Court finds that Defendants in this 

case went beyond just providing subjective or emotive descriptions of Gigamon’s product 

backlog, deferred service revenue, revenue and profitability. Defendants’ challenged statements

cannot be dismissed as mere puffery.

C. Whether Plaintiffs Pled Facts Showing That Challenged Statements Were False or 

Misleading

Defendants next contend that the Complaint should be dismissed because Plaintiffs fail to 

plead contemporaneous facts showing that any of the challenged statements were false or 

misleading at the time they were made. Plaintiffs cite to Hooper’s November 2 annual revenue 

estimate to show that the October 27 guidance of $91-93 million was false. On November 2, 

Hooper said that Gigamon was “currently running to around that $315 million revenue this year . . 

. .” ¶ 6; Ex. 16 at 5. Gigamon’s Q3 revenue was $226 million, and the difference between the 

projected $315 million and previously-earned $226 million is $89 million, which is lower than the 

October 27 guidance range. ¶ 62; Ex. 16 at 5. The fact that Gigamon’s financial results turned out 

differently from the guidance, however, does not establish that the guidance was false when made. 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

See In re Rackable Sys., Inc. Sec. Litig., 2010 WL 3447857, at *8 (failing to meet projection 

“does not make the projection a misrepresentation”). 

Plaintiffs’ Complaint also includes information provided by five former sales employees

(“CWs”) to show Defendants’ statements were false when made. Complaint, ¶¶ 37-43. 

Defendants contend that these employees do not provide any information about Gigamon’s Q4 

2016 revenue guidelines or the assumptions underlying the guidelines, or what Hooper or Burns 

allegedly knew about the Q4 2016 guidance or the Company’s backlog, deferred service revenue 

or quarterly linearity. Inexplicably, Plaintiffs do not mention CWs even once in their Opposition, 

much less attempt to refute Defendants’ arguments. The Court treats Plaintiffs’ failure to address 

Defendants’ arguments as a tacit acknowledgement of their merit. 

Plaintiffs have failed to plead facts to show Defendants’ statements were false or 

misleading when made.

D. Scienter

Defendants also contend that Plaintiffs fail to allege facts to support a strong inference of 

scienter. Plaintiffs’ counter that scienter can be inferred from Hooper’s November 2 statement, as 

well as the stock sales of the individual Defendants and other officers and directors. 

The PSLRA requires a plaintiff to “state with particularity facts giving rise to a strong 

inference that the defendant acted with the required statement of mind.” 15 U.S.C. § 78u-4(b)(2). 

“A defendant is liable under Section 10(b) and Rule 10b-5 when he acts with scienter, a ‘mental 

state that not only covers intent to deceive, manipulate, or defraud, but also deliberate 

recklessness.’” City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align 

Tech., Inc., 856 F.3d 605, 619 (9th Cir. 2017) (quoting Schueneman v. Arena Pharm., Inc., 840 

F.3d 698, 705 (9th Cir. 2016). “Deliberate recklessness is ‘an extreme departure from the 

standards of ordinary care . . . which presents a danger of misleading buyers or sellers that is either 

known to the defendant or is so obvious that the actor must have been aware of it.’” Schueneman, 

840 F.3d at 705 (italics in original). In ruling on a motion to dismiss, the inquiry is “whether all of 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

17

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any 

individual allegation, scrutinized in isolation, meets that standard.” Tellabs, Inc. v. Makor Issues 

& Rights, Ltd., 551 U.S. 308, 310 (2007) (italics in original). “A securities fraud complaint will 

survive a motion to dismiss under Rule 12(b)(6) ‘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.’” New Mexico State Investment Council v. Ernst & Young LLP, 641 F.3d 1089, 

1095 (9th Cir. 2011) (quoting Tellabs, 551 U.S. at 324).

Hooper’s November 2 Statement

Hooper’s November 2 statement does not support a strong inference that Defendants made 

false or misleading statements intentionally or with deliberate recklessness. As Defendants point 

out, Hooper’s choice of words—“currently running to around that $135 million revenue this 

year”—suggests that Hooper was approximating the annual revenue number. Hooper’s November 

2 statement cannot reasonably be construed as an admission that Hooper was modifying the Q4 

guidance. Indeed Hooper’s statement did not prompt analysts at the November 2 conference to 

announce a change in Gigamon’s Q4 guidance. 

Stock Sales

In the Ninth Circuit, only “unusual” or “suspicious” stock sales by corporate insiders may 

support a strong inference of scienter. In re Silicon Graphics, 183 F.3d at 986. “Three factors are 

relevant to this inquiry: (1) the amount and percentage of the shares sold; (2) the timing of the 

sales; and (3) whether the sales were consistent with the insider’s trading history.” Metzler Inv. 

GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1067 (9th Cir. 2008). 

Here, Plaintiffs’ stock sale allegations are also insufficient to support an inference of 

scienter. Hooper sold 45,000 shares of Gigamon stock on October 31, 2016 pursuant to a Rule 

10b5-1 trading plan adopted in May of 2015, more than a year before the alleged fraud. This sale 

occurred days after Gigamon’s announcement of Q3 results and represented about 16% percent of 

his Class Period Holdings. In general, automatic sales made pursuant to Rule 10b5-1 plans do not 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

18

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

support a strong inference of scienter. See e.g. Kotun v. VIVUS, Inc., No. 10-4957 PJH, 2012 

WL 4477647, at *21 (N.D. Cal. Sept. 27, 2012).4 Moreover, Plaintiffs have not shown that the 

timing of Hooper’s stock sales is unusual or suspicious. “Officers of publicly traded companies 

commonly make stock transactions following the public release of quarterly earnings and related 

financial disclosures.” Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1037 (9th Cir. 2002). Nor 

have Plaintiffs shown that the amount and percentage of Hooper’s stock sales are unusual or 

suspicious. “The Ninth Circuit has held that typically ‘larger sales amounts’ than 37% of a 

defendant's holdings are necessary to support scienter.” Wozniak v. Align Techs., Inc., No. 09-

3671 MMC, 2011 WL 2269418, at *14 (N.D. Cal. June 8, 2011) (citing Metzler Inv. GMBH v. 

Corinthian Colleges, Inc., 540 F.3d at 1067) (finding allegation defendant sold 37% of total stock 

holdings insufficient; noting “[w]e typically require larger sales amounts-and corroborative sales 

by other defendants-to allow insider trading to support scienter”)). Plaintiffs cite Nursing Home 

Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1232 (9th Cir. 2004), and argue that 

“[t]here is no hard-and-fast rule as to how much stock a defendant must sell before he or she can 

be found to have acted with scienter.” Opposition, pp. 23-24. In Oracle, the Ninth Circuit held 

that defendants’ sales were sufficient to support a finding of scienter, even though the sales 

comprised only 2.1% and 7% of defendants’ respective holdings. In doing so, the Ninth Circuit

noted, however, that the sales amounted to over $900 million in proceeds. Id. Hooper’s stock 

proceeds in this case are hardly comparable. Further, Hooper’s stock sales were consistent with 

his prior trading history. Hooper sold 45,000 shares in August 2016 and 30,000 shares in each of 

the prior three quarters, in May 2016, February 2016 and November 2015.

 

4 Contrary to Plaintiffs’ assertion, Plaintiffs’ out-of-district cases do not hold otherwise. In 

Employees’ Retirement System of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 309 (2nd 

Cir. 2015), the defendants entered into 10b5-1 trading plans after the alleged fraudulent scheme 

began. In Stocke v. Shuffle Master, Inc., 615 F. Supp.2d 1180, 1193, n. 5 (D. Nev. 2009), the 

defendant entered into a 10b5-1 trading plan during the class period. In contrast, Hooper entered 

into a 10b5-1 trading plan more than a year before the alleged fraud. 
CASE NO.: 5:17-cv-00434-EJD

ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND; SETTING CASE 

MANAGEMENT CONFERENCE

19

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

As to Burns, Plaintiffs allege that he “sold stock at atypical times and in atypical amounts” 

without setting forth sufficient facts to support such a conclusion. Complaint, ¶68. Instead, 

Plaintiffs compare the number of shares Burns held as of September 23, 2016 to those he held as 

of April 30, 2017, and assume that Burns sold those shares at the highest price during the Class 

Period. No inference of scienter can be drawn from such speculative allegations, much a strong 

inference of scienter as required by the PSLRA. 

Plaintiffs’ allegations of Gigamon stock sales by several non-defendant officers and 

directors also fail to support an inference of scienter. Plaintiffs allege that Shehzad Merchant, 

Chief Technology Officer, sold 37,935 shares for $2,166,064.06; Ted Ho, a Director, sold 180,000 

shares for $8,731,310.49; Helmut Wilke, Sr. VP Worldwide Sales, sold 8,032 shares for 

$462,573.40; and Paul Shinn, Secretary and General Counsel, sold 5,064 shares for $293,972.00. 

Complaint, ¶¶ 69-73. Plaintiffs do not, however, allege any facts to show that these stock sales 

were unusual or suspicious. In sum, Plaintiffs’ allegations, whether viewed separately or 

holistically5, are insufficient to raise an inference of scienter.

V. CONCLUSION

For the reasons set forth above, Defendants’ motion to dismiss is granted with leave to 

amend.6 Plaintiffs may file and serve an amended complaint no later than July 30, 2018.

The Court will conduct a case management conference at 10:00 a.m. on October 11, 2018. The 

parties shall file a joint case management statement no later than October 1, 2018.

IT IS SO ORDERED.

Dated: July 11, 2018 ______________________________________

EDWARD J. DAVILA

United States District Judge

 

5

Tellabs, 551 U.S. at 310.

6 Defendants’ motion challenges other statements made by Hooper during three analyst 

conferences and interview. Complaint, ¶ 44. Plaintiffs do not address Defendants’ arguments, 

and thus implicitly concede that Hooper’s statements during the three analyst conferences and 

interview are not actionable. In the event Plaintiffs elect to amend their Complaint, Plaintiffs are 

precluded from realleging these statements.