417 F.Supp.3d 1242
N.D. Cal.2019Background
- Restoration Robotics completed an IPO in October 2017; Lead Plaintiff Guerrini bought shares under the Registration Statement/Prospectus (the "Offering Materials").
- Plaintiff alleges the Offering Materials contained materially false/misleading statements about (a) the company’s marketing support (PSMs, leads), (b) ARTAS device performance (notably needles and graft yields), and (c) the installed base and procedure-based revenue (including alleged international "warehousing").
- Three confidential witnesses (RSM/PSMs) reported deficient marketing support, poor patient leads, product issues, and customer abandonment; post-IPO the stock fell and the company reported disappointing revenue.
- Defendants moved to dismiss claims under Section 11 and 15 of the Securities Act and for alleged Item 303 violations; court took judicial notice of the Prospectus and granted joinder motions by other defendants.
- Court assessed which discrete Prospectus statements were actionable (puffery vs. falsity/omission), found some statements non-actionable or insufficiently pleaded and allowed others to proceed; leave to amend granted except as to one statement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are general optimistic statements about marketing and utilization actionable? | Statements promising marketing support and increased utilization were false/omitted material facts showing the company could not deliver. | Such statements are vague, forward‑looking, or puffery and accompanied by cautionary language in the Prospectus. | Court: Nonactionable puffery/forward‑looking; dismissed (Statements 1–3). |
| Did Prospectus misrepresent PSMs/marketing (quality/availability of patient leads)? | PSMs did not deliver leads; marketing was ineffective, so statements portraying robust support were misleading. | Prospectus describes marketing in generic terms and discloses risks; allegations target efficacy not falsity. | Court: Plaintiff failed to plead falsity for Statements 1, 4, 5; dismissed with leave to amend. |
| Were device performance statements about the ARTAS needle and graft yield false? | Needle defects damaged grafts and lowered yields; performance claims were misleading. | Some performance descriptions were clinical/opinion‑type and not objectively false or were disclosed as risks. | Court: Allegations suffice as to needle defect (Statement 7) — claim survives; other clinical/programming claims (Statement 8) dismissed. |
| Was the "installed base"/sales disclosure misleading because of international warehousing and reduced procedure revenue? | Reported installed‑base growth included overseas distributor warehousing (not installed/used), inflating the metric and misleading investors about procedure revenue growth. | Prospectus explained sales/installed base and warned about risks; context shows investors were informed; some explanations go to motive, not falsity. | Court: Sufficient pleading for Statement 9 (installed base) — survives; Statement 10 (reasons for revenue gap) dismissed. |
| Does Item 303 impose a duty to disclose alleged known trends (warehousing, customer abandonment, stalled purchases)? | Failure to disclose these known trends/uncertainties violated Item 303. | Alleged trends lack specificity, were not known to management at time of IPO, or post‑date the IPO; single isolated examples inadequate. | Court: Item 303 claim dismissed — Plaintiff did not plead a known, material trend at time of offering. |
| Section 15 control‑person claim derivative of Section 11? | Control persons are liable if underlying Section 11 violations are shown. | — | Court: Section 15 stands to the extent Section 11 survives. |
Key Cases Cited
- Rubke v. Capital Bancorp Ltd., 551 F.3d 1156 (9th Cir.) (Section 11 materiality and pleading standard)
- In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir.) (Section 11 liability does not require scienter)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (U.S.) (materiality standard for nondisclosure)
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S.) (materiality and omissions doctrine)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S.) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (legal conclusions vs. factual allegations)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S.) (standards for evaluating pleadings in securities cases)
- Oregon Public Employees Retirement Fund v. Apollo Group, Inc., 774 F.3d 598 (9th Cir.) (distinction between opinion/puffery and actionable statements)
- In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir.) (limitations on Item 303 duties under certain securities claims)
- Steckman v. Hart Brewing, Inc., 143 F.3d 1293 (9th Cir.) (Item 303 trend/uncertainty test)
- Herman & MacLean v. Huddleston, 459 U.S. 375 (U.S.) (issuer liability under Section 11 can be absolute)
- In re Cutera Securities Litigation, 610 F.3d 1103 (9th Cir.) (puffery does not constitute securities fraud)