690 F. App'x 947
9th Cir.2017Background
- Plaintiffs (a putative securities class) sued LifeLock and two officers under Section 10(b)/Rule 10b-5 alleging securities fraud based on LifeLock statements in its 2013 Form 10-K about compliance with an FTC 2010 settlement order and related disclosures. The district court dismissed the Second Amended Consolidated Class Action Complaint (SCAC) under Rule 12(b)(6) and denied leave to amend; plaintiffs appealed.
- Core allegation: LifeLock omitted that it was deliberately “throttling” identity-theft alerts (delaying or not sending alerts) to reduce strain on call centers; plaintiffs say that omission made LifeLock’s statement that it “believe[s] we are in compliance” with the FTC Order false/misleading.
- Plaintiffs relied on confidential witnesses, a Deutsche Bank analyst comment, PCI-compliance allegations about the Wallet app, website/advertisement statements, whistleblower complaints, and SOX certifications to plead falsity and scienter.
- The district court took judicial notice of LifeLock’s full 2013 Form 10-K, which repeatedly disclosed rapid growth, strain on operations, customer-service limitations, and the possibility of regulatory inquiry—facts the court found part of the “total mix.”
- The district court held (and the Ninth Circuit affirmed) that plaintiffs failed to plead actionable misstatements/omissions or a strong inference of scienter as required by the PSLRA/Tellabs; leave to amend and Rule 60(b) relief based on a later FTC contempt filing were also denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LifeLock’s statement that it "believe[s] we are in compliance" with the FTC Order was false or misleading | Omission of the throttling practice rendered the opinion/statement materially misleading to investors | The 10‑K statement was an opinion, accompanied by disclosures of growth-related strain and possible regulatory scrutiny; omitted operational details were not material to the "total mix" | Court: Not misleading; opinion protected under Omnicare framework and contextual disclosures defeated materiality claim |
| Whether plaintiffs pleaded scienter (intent or deliberate recklessness) adequately | CW accounts, whistleblower complaints, SOX certifications, and other circumstantial facts create a strong inference of scienter | Allegations lack particularity, CWs lack personal knowledge, SOX certifications are insufficient, and nonculpable explanations (operational strain) are plausible | Court: Plaintiffs failed PSLRA/Tellabs pleading; scienter not adequately alleged |
| Allegations about PCI noncompliance (Wallet app) and other technical/service defects | Defs misrepresented PCI compliance and service capabilities, supporting falsity and scienter | Defs never affirmatively represented Wallet as PCI‑compliant; CWs do not show defendants’ awareness; broad operational disclosures undermine materiality | Court: Claims inadequately pleaded as to falsity and scienter |
| Use of ads/analyst statements and whistleblower count to show market‑wide fraud | Ads and analyst remarks showed public misrepresentations and corroborated company knowledge; omissions about number of whistleblower complaints were misleading | Ads were generic/consumer‑oriented, not targeted to market professionals; third‑party analyst comments not traceable to defendants; 10‑K disclosed increased whistleblower claims | Court: Ads and analyst statements not actionable; whistleblower disclosure not plausibly misleading |
| Motion for relief under Rule 60(b) and leave to amend based on later FTC contempt filing | New FTC contempt filing is newly discovered evidence/surprise that would change outcome and warrants reopening/amendment | Plaintiffs were on notice of ongoing FTC scrutiny and LifeLock’s negative disclosures; new filing would not likely change dismissal result | Court: Denied Rule 60(b) relief and further leave to amend; new evidence would not have altered disposition |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (total‑mix materiality standard)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (requirement to weigh inferences under PSLRA/Tellabs scienter standard)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Ind. Pension Fund, 135 S. Ct. 1318 (opinion‑statement falsity framework)
- Ronconi v. Larkin, 253 F.3d 423 (9th Cir.) (PSLRA heightened pleading and scienter discussion)
- In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (PSLRA pleading context and deterrence rationale)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir.) (confidential witness particularity and competing innocent inferences)
- Brody v. Transitional Hosps. Corp., 280 F.3d 997 (9th Cir.) (disclosure duty focused on misleading statements, not completeness)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (causation/reliance/loss‑causation elements referenced)