Costanzo v. DXC Technology Company

• Court: District Court, N.D. California
• Decided: December 14, 2021
• Docket: 5:19-cv-05794
• Status: Unknown

Opinion

1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 NEIL COSTANZO, ET AL., Case No. 19-cv-05794-BLF

8 Plaintiffs, ORDER GRANTING MOTION TO 9 v. DISMISS THIRD AMENDED COMPLAINT WITHOUT LEAVE TO 10 DXC TECHNOLOGY COMPANY, et al., AMEND 11 Defendants. [Re: ECF No. 98]

12 13 Before the Court is Defendants’ Motion to Dismiss the Third Amended Complaint. This is 14 a putative class action alleging violations of Sections 11 and 15 of the Securities Act of 1933 (the 15 “Securities Act”). Plaintiffs’ claims pertain to representations in the prospectus and registration 16 statement (the “Registration Statement”) issued in connection with the merger of Computer Sciences 17 Corporation (“CSC”) and the Enterprise Services division of Hewlett Packard Enterprise Company 18 (“HPE”) completed in April 2017 (the “Merger”) to form Defendant DXC Technology Company 19 (“DXC”), an IT services company. Plaintiffs allege that Registration Statement disclosures related 20 to an expectation of $1 billion in cost cuts during the first year following the Merger were false and 21 misleading in light of an internal goal at DXC to cut $2.7 billion in costs set by CEO J. Michael 22 Lawrie. At issue in this Motion is whether Plaintiffs’ addition of confidential witness allegations in 23 the Third Amended Complaint focused on the $2.7 billion goal being a “real” target for the first year 24 following the Merger is sufficient to overcome the deficiencies of the prior pleadings. 25 For the reasons stated below, the Court GRANTS Defendants’ Motion WITHOUT LEAVE 26 TO AMEND. 27 I. BACKGROUND 1 Merger. Plaintiffs allege that DXC disclosed a “workforce optimization” plan involving expected 2 cost cuts of approximately $1 billion during the first year following the Merger while internally 3 planning to reach a much larger cost-cutting goal involving $2.7 billion in first-year cuts. Third 4 Amended Complaint (“TAC”), ECF No. 94 ¶¶ 43-45, 54. Plaintiffs allege that this $2.7 billion cost- 5 cutting goal required DXC to cut its workforce too quickly and too deeply and involved undisclosed 6 risks to DXC’s ability to effectively provide IT services to its clients, which DXC’s executives were 7 aware of at the time of the merger. Id. ¶¶ 43-45, 53-57. Plaintiffs further allege that these risks 8 ultimately materialized during the years after the Merger and significantly impeded DXC’s ability 9 to serve its clients and caused its stock price to drop. Id. ¶¶ 58-77. But Plaintiffs do not allege that 10 DXC actually reached the $2.7 billion cost-cutting goal during the first year following the Merger, 11 or that the budget cuts they made during the first year exceeded the $1 billion in cuts disclosed in 12 the Registration Statement. Id. ¶¶ 6, 64, 87. Still, Plaintiffs allege that the Registration Statement 13 disclosures related to DXC’s expectation of $1 billion in cost cuts during the first year following the 14 merger constituted false or misleading statements in violation of Sections 11 and 15 of the Securities 15 Act given the existence of the internal $2.7 billion cost-cutting goal. 16 The Court provided a complete summary of the background in this case in its order 17 dismissing the First Amended Complaint. ECF No. 75 at 1–5. 18 Plaintiffs’ First Amended Complaint was based on the allegations of former DXC Executive 19 Vice President Stephen J. Hilton filed in Hilton v. DXC Technology Company, No. 1:19–cv–01157– 20 PKC (S.D.N.Y.). The Court dismissed the First Amended Complaint with leave to amend because 21 Plaintiffs failed to allege that the $2.7 billion cost-cutting goal was met during the first year 22 following the merger or that the goal was anything more than “aspirational.” See generally Order 23 Dismissing First Amended Complaint (“FAC”), ECF No. 75. 24 In the Second Amended Complaint, Plaintiffs added allegations from confidential witness 25 CW1 indicating that the $2.7 billion cost-cutting goal was “real” and “concrete” and from 26 confidential witnesses CW2 and CW3 regarding negative impacts of cost cuts on DXC. See 27 generally Second Amended Complaint (“SAC”), ECF No. 78. The Court dismissed the Second 1 alleged $2.7 billion cost-cutting goal pertained to the first year following the merger. See generally 2 Order Dismissing SAC, ECF No. 87. 3 On June 1, 2021, Plaintiffs filed the Third Amended Complaint, which added CW1 4 allegations to support that the $2.7 billion cost-cutting goal pertained to the first year following the 5 merger. See generally TAC, ECF No. 94. Defendants moved to dismiss the Third Amended 6 Complaint on July 8, 2021. See Motion, ECF No. 98. Plaintiffs filed an Opposition on August 16, 7 2021. See Opposition, ECF No. 99. Defendants filed a Reply on September 9, 2021. See Reply, 8 ECF No. 100. The Court held a hearing on the Motion on October 28, 2021. 9 This order focuses primarily on the new allegations in the Third Amended Complaint and 10 considers them in light of the deficiencies previously outlined by the Court in its orders dismissing 11 the First and Second Amended Complaints. The new allegations appear primarily as CW1, CW2, 12 and CW3’s expanded allegations. 13 A. CW1 Allegations 14 The Third Amended Complaint includes allegations from CW1, who was a Senior VP and 15 General Manager of Security at DXC from April 2017 to January 2018 and had worked at HPE 16 since April 2013. See TAC, ECF No. 94 ¶¶ 6, 78–82, 87. According to CW1, Lawrie had a 17 $2.7 billion budget cut goal for the first year following the merger that was “not merely 18 aspirational.” Id. ¶¶ 6, 79. Rather, it was a “‘real’ goal that managers were expected to attain.” 19 Id. ¶ 79. The budget cut goal included a $1 billion to $1.8 billion budget cut goal for DXC’s Global 20 Delivery division alone. Id. ¶¶ 6, 79. Lawrie’s internal budget was discussed with top company 21 executives during regular executive committee meetings on, at least, June 21, 2017, 22 August 20, 2017, October 12, 2017, and November 15, 2017. Id. ¶ 80. Further, executive bonuses 23 were tied to the $2.7 billion budget cut goal, id. ¶¶ 79, 87, and divisional and regional progress was 24 measured in relation to the goal, id. ¶ 81. CW1 alleges that workforce reductions happened too 25 quickly to meet budget cut targets, which led to customer satisfaction problems. Id. ¶ 82. By the 26 time CW1 left DXC in January 2018, the Global Delivery division had cut more than $800 million. 27 Id. ¶ 6. Further, CW1 alleges that executive bonuses were significantly reduced because DXC did 1 B. CW2 and CW3 Allegations 2 The Third Amended Complaint also includes allegations from CW2 and CW3 confirming 3 the negative consequences of DXC’s cost cutting that Plaintiffs had already alleged based on the 4 Hilton complaint. See TAC ¶¶ 7, 9, 83–86. CW2 was a Delivery Lead in the automotive division 5 of Global Delivery at DXC. Id. ¶ 83. CW2 alleges workforce reduction cuts were “too fast and too 6 much” and were “not well-targeted,” cutting senior level employees and hampering customer 7 service. Id. ¶¶ 83–84. CW2 alleges that problems were evident by early 2018. Id. ¶ 83. CW3 was 8 a Technical Delivery Manager at DXC. See TAC ¶ 85. CW3 alleges that workforce cuts “quickly 9 impacted the business in a negative way,” including by cutting experienced U.S.-based technicians. 10 See TAC ¶¶ 85–86. 11 II. LEGAL STANDARD 12 “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim 13 upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation Force v. Salazar, 14 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). 15 When determining whether a claim has been stated, the Court accepts as true all well-pled factual 16 allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration 17 (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as true allegations 18 that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, 19 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 20 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not 21 contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state 22 a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell 23 Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 24 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. On 25 a motion to dismiss, the Court’s review is limited to the face of the complaint and matters judicially 26 noticeable. MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); N. Star Int’l v. Ariz. 27 Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). 1 the Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the Ninth 2 Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district court 3 ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1) undue 4 delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by amendment, (4) 5 undue prejudice to the opposing party, or (5) futility of amendment. Eminence Capital, 6 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries the 7 greatest weight.” Id. However, a strong showing with respect to one of the other factors may 8 warrant denial of leave to amend. Id. 9 III. DISCUSSION 10 A. Section 11 of the Securities Act (Count I) 11 Section 11 of the Securities Act contains a private right of action for purchasers of a security 12 if the issuer publishes a registration statement in connection with the security that “contain[s] an 13 untrue statement of a material fact or omit[s] to state a material fact required to be stated therein or 14 necessary to make the statements therein not misleading.” 15 U.S.C. § 77k(a). “To prevail in such 15 an action, a plaintiff must prove (1) that the registration statement contained an omission or 16 misrepresentation, and (2) that the omission or misrepresentation was material, that is, it would have 17 misled a reasonable investor about the nature of his or her investment.” Rubke v. Capitol Bancorp 18 Ltd., 551 F.3d 1156, 1161 (9th Cir. 2009) (citation and internal quotation marks omitted). “By 19 definition, a plaintiff must show that a purported misstatement in a registration statement was 20 misleading at the time the registration statement was issued.” In re: Resonant Inc. Sec. Litig., No. 21 CV 15–01970 SJO (PJWx), 2016 WL 1737959, at *7 (C.D. Cal. Feb. 8, 2016). For example, “[a] 22 claim under section 11 based on the omission of information must demonstrate that the omitted 23 information existed at the time the registration statement became effective.” Rubke, 551 F.3d at 24 1164. 25 1. Confidential Witness Allegations 26 a. CW1 Allegations 27 The CW1 allegations added in the Third Amended Complaint characterize Lawrie’s $2.7 1 to be in response to the Court’s previous finding that Plaintiffs had alleged no more than that the 2 goal was merely “aspirational.” See, e.g., Order Dismissing FAC, ECF No. 75 at 8–9. In light of 3 the new CW1 allegations, the two main points of disagreement between the parties are (1) whether 4 Plaintiffs state a Section 11 claim that DXC’s representations regarding $1 billion in cuts were false 5 or misleading statements of material fact and (2) whether Plaintiffs allege sufficient facts regarding 6 the timing of the $2.7 billion goal to plead that representations in the Registration Statement were 7 false when made. 8 i. Sufficiency of Allegations Regarding “Real” $2.7 Billion Cost-Cutting Goal 9 Defendants argue that Plaintiffs continue to fail to state a claim for relief under Section 11 10 because they have not alleged facts indicating that DXC failed to meet its publicly disclosed cost- 11 cutting expectation of $1 billion during the first year post-Merger. Motion, ECF No. 98 at 9–12. 12 Plaintiffs argue that they have alleged sufficient facts to show that Lawrie’s $2.7 billion cost-cutting 13 budgets “were serious, every effort was to be made to make them, and failure had consequences,” 14 which is what the Court previously found was missing from their allegations. Opposition, 15 ECF No. 99 at 7–9. In response, Defendants argue that whether “aspirational” or “concrete,” the 16 $2.7 billion cost-cutting goal that DXC failed to meet did not render its disclosure of a $1 billion 17 cost-cutting expectation false or misleading. Reply, ECF No. 100 at 3–5. 18 The Court agrees with Defendants. The only deficiency of the prior complaints Plaintiffs 19 attempt to address with the CW1 allegations is the failure to plead that the $2.7 billion internal target 20 was “anything more than an aspirational goal.” Order Dismissing FAC, ECF No. 75 at 8–9; see 21 Opposition, ECF No. 99 at 7–9. Plaintiffs incorrectly suggest that in purportedly addressing this 22 deficiency, they have “provid[ed] what the Court previously found was lacking in the FAC.” 23 Opposition, ECF No. 99 at 8. This ignores the other deficiencies the Court identified in the prior 24 pleadings. In dismissing the First Amended Complaint, the Court found that “if DXC disclosed in 25 the Registration statement that … it intended to cut $1 billion in costs through workforce 26 optimization in the first year post-Merger, and then went on to cut that same $1 billion in cost, the 27 investors were not misled.” Order Dismissing FAC, ECF No. 75 at 9–10. CW1’s allegations fail 1 to support that DXC cut more than $1 billion in costs during the first year post-Merger. As 2 Defendants point out, CW1’s allegations of $800 million in cost cuts by the time he or she left DXC 3 in January 2018 were on track with a total $1 billion in cuts in the first year after the merger. Reply, 4 ECF No. 100 at 6–7; see also TAC ¶ 87 (“DXC did not meet its internal budgeted goals for cost 5 reductions, including workforce reductions[.]”). Accordingly, the Third Amended Complaint does 6 not address one of the main deficiencies the Court identified in the prior complaints—Plaintiffs do 7 not plead facts to support that DXC was ever on target to cut more than $1 billion in the first year. 8 Without allegations of a reality that differed from DXC’s publicly disclosed $1 billion cost- 9 cutting expectation, Plaintiffs continue to point only to the discrepancy between DXC’s $1 billion 10 cost-cutting expectation and an internal $2.7 billion cost-cutting goal. Opposition, ECF No. 99 at 11 7–12. But the Court previously found that absent facts to indicate that DXC cut more than $1 billion 12 in the first year post-Merger, the $2.7 billion internal goal “would simply be a business decision 13 without any consequence to the investors.” Order Dismissing FAC, ECF No. 75 at 10. The Court 14 remains skeptical that an aggressive internal cost-cutting goal—even a “serious,” “real,” or 15 “concrete” one—is sufficient on its own to state a claim that a more modest publicly disclosed cost- 16 cutting expectation was false or misleading.1 A goal is not the same as an expectation. See In re 17 18 1 Defendants argue that the Court should take judicial notice of a Hilton allegation from the Second 19 Amended Complaint that “Lawrie understood his own internal budget to be merely aspirational,” 20 which Plaintiffs dropped from the Third Amended Complaint. Motion, ECF No. 98 at 11 (citing 21 Second Amended Complaint, ECF No. 78 ¶ 58). Plaintiffs argue that taking judicial notice of this 22 allegation would be improper, since (1) the Third Amended Complaint supersedes the prior 23 complaints and (2) Defendants rely on the Hilton allegation for the truth of the matter asserted. 24 Opposition, ECF No. 99 at 13–14. The Court may take judicial notice of a document “if the plaintiff 25 refers extensively to the document or the document forms the basis of the plaintiff’s claim.” Khoja 26 v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018) (citing United States v. Ritchie, 27 342 F.3d 903, 907 (9th Cir. 2003)). Furthermore, the Court may consider allegations in a prior 1 Exodus Commc’ns, Inc. Secs. Litig., No. C 01–2661 MMC, 2005 WL 1869289, at *42 (N.D. Cal. 2 Aug. 5, 2005) (“[T]he setting of an internal ‘revenue goal’ of 40% growth is not the equivalent of a 3 public forecast that such growth would actually be achieved.”). A company can have an ambitious 4 internal target and disclose publicly that it expects to meet a more modest target without misleading 5 investors. Finding otherwise would deny companies an important tool in their motivational 6 arsenal—using an optimistic goal internally to ensure they can meet more modest publicly disclosed 7 expectations. Order Dismissing FAC, ECF No. 75 at 9–10. CW1’s allegations indicating that DXC 8 linked executive bonuses and regional and divisional benchmarks to the $2.7 billion cost-cutting 9 goal are consistent with the goal being an internal motivational tool. Opposition, ECF No. 99 at 8 10 (citing TAC ¶¶ 79, 81). Accordingly, even if Plaintiffs have adequately alleged that the $2.7 billion 11 cost-cutting goal was a “real” goal, the Court does not find that this is sufficient on its own to support 12 that the challenged statements in the Registration Statement were false or misleading when made.2 13 14 an entitlement to relief. See Cole v. Sunnyvale, No. C–08–05017 RMW, 2010 WL 532428, at *4 15 (N.D. Cal. Feb. 9, 2010) (citing Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009)). Accordingly, the 16 Court takes judicial notice of the previously pled Hilton allegation regarding Lawrie’s internal 17 budget being “merely aspirational.” Second Amended Complaint, ECF No. 78 ¶ 58. This allegation 18 supports that it is at least equally plausible to infer from the alleged facts that Lawrie’s $2.7 billion 19 budget cut target was an aspirational goal as opposed to a “real” or “serious” one. See In re Century 20 Aluminum Co. Sec. Litig., 729 F.3d 1104, 1108 (9th Cir. 2013) (“When faced with two possible 21 explanations, only one of which can be true and only one of which results in liability, plaintiffs 22 cannot offer allegations that are ‘merely consistent with’ their favored explanation but are also 23 consistent with the alternative explanation.”) (citations omitted). 24 2 At the October 28, 2021 hearing, Plaintiffs raised the argument that the existence of the $2.7 billion 25 cost-cutting goal changed how DXC cut costs during the first year after the Merger, even if it did 26 not impact the amount of costs that DXC cut. The Court does not find support for this theory in the 27 Third Amended Complaint. The citations to the Third Amended Complaint Plaintiffs offered at the 1 Plaintiffs argue that it does not matter whether DXC actually cut more than the disclosed 2 $1 billion, because the existence of the $2.7 billion goal was enough to render the $1 billion figure 3 misleading on its own. Opposition, ECF No. 99 at 2. Plaintiffs argue that Section 11 is a “strict 4 liability” statute, so factoring in the actual costs DXC cut is “essentially a loss causation argument 5 that is not required in Section 11 cases.” Id.; see also id. at 11–12. The Court disagrees. As outlined 6 above, the size of DXC’s cost cuts is significant because it shows that DXC’s publicly disclosed 7 cost-cutting expectations were accurate—not false or misleading. The Court is not convinced that 8 a company’s statement of expectation that turned out to be accurate can be false or misleading in 9 light of an internal target the company failed to reach. Plaintiffs cannot point to a single case in 10 support of this seemingly novel theory of liability. As Defendants point out, Plaintiffs’ cited cases 11 involve (1) projections that were not met and (2) contemporaneous data that contradicted those 12 projections when they were made. Reply, ECF No. 100 at 4–5; see, e.g., Murphy v. Precision 13 Castparts Corp., 2020 WL 4040827, at **19–20 (D. Or. July 17, 2020) (“Lead Plaintiffs … present 14 evidence that Defendants knew that the assumptions underlying the FY16 Target ‘“would not be 15 achievable” given the “dismal economic data”’ … before Defendants announced the FY16 16 Target.”). Without authority to indicate that a statement of expectation that proved true is still 17 actionable under Section 11, the Court is not convinced that it is misconstruing the requirements of 18 Section 11 by rejecting Plaintiffs’ theory here. 19 Plaintiffs further argue that Defendants should be liable because once DXC chose to tout its 20 cost-cutting and workforce optimization plan, it was required to do so in a way that would not 21 mislead investors. Opposition, ECF No. 99 at 10–11 (citing, inter alia, Schueneman v. Arena 22 Pharm., Inc., 840 F.3d 698, 707–08 (9th Cir. 2016).) In response, Defendants argue Plaintiffs’ 23 supporting cases stand only for the unremarkable proposition that once a company speaks on a topic, 24 25 50–54, 56–59—do not support that the existence of the goal itself caused DXC to make different 26 cuts than it would have otherwise. These allegations merely support the unremarkable proposition 27 that had DXC reached the $2.7 billion first-year cost-cutting goal—which Plaintiffs have not 1 it is bound to do so in a manner that would not mislead. Reply, ECF No. 100 at 5. The Court agrees 2 with Defendants. Since the $2.7 billion internal cost-cutting goal is not a sufficient basis to show 3 that any of the challenged statements in the Registration Statement were false or misleading, 4 Plaintiffs’ caselaw fails to move the needle. 5 Plaintiffs argue that the CW1 allegations regarding DXC’s “real” $2.7 billion goal are 6 sufficient to state a claim that a variety of statements in the Registration Statement were false or 7 misleading. Plaintiffs argue that statements about (1) the importance of the size and scale of DXC’s 8 workforce, (2) “workforce optimization” and elimination of “duplicative roles,” and (3) the 9 importance of hiring, attracting, and retaining personnel are misleading given DXC’s internal plan 10 to cut a massive part of its workforce. Opposition, ECF No. 99 at 9–10 (citing TAC ¶¶ 89, 91). But 11 the Registration Statement disclosed workforce cuts. See Registration Statement, Boutros Decl., 12 ECF No. 40, Ex. A at 131 (disclosing “expected economies of scale such as … cost synergies 13 expected from workforce optimization such as elimination of duplicative roles and other duplicative 14 general, administrative and overhead costs”); Order Dismissing FAC, ECF No. 75 at 14 (disclosures 15 about workforce optimization “clearly means layoffs were to be expected”); TAC ¶¶ 89–91. Absent 16 factual allegations that DXC cut more than it said it would, the Court finds that Plaintiffs have not 17 stated a claim that these statements were false or misleading. Further, Plaintiffs point to a 18 Registration Statement disclosure of a risk that DXC might not be able to reach cost reduction targets 19 as misleading where “the opposite extreme was happening.” Opposition, ECF No. 99 at 11. The 20 fact that DXC had an internal goal more aggressive than its publicly disclosed expectations did not 21 remove the possibility that DXC would have trouble satisfying its more modest publicly disclosed 22 expectations. In fact, the existence of a more aggressive internal goal to motivate DXC employees 23 is consistent with DXC having concerns it would not be able to meet its publicly disclosed 24 expectations. 25 Accepting the allegations that Lawrie had an internal goal of cutting $2.7 billion, Plaintiffs 26 still fail to allege sufficient facts to demonstrate that Defendants’ aggressive internal cost-cutting 27 goal rendered public statements about $1 billion in expected cost cuts false or misleading. 1 prior pleadings and thus Plaintiffs have failed to state a claim for a Section 11 violation. 2 ii. Timing of Cost-Cutting Goal 3 To plead a Section 11 violation, Plaintiffs must allege facts demonstrating that the statements 4 were false or misleading when made. See Resonant, 2016 WL 1737959, at *7. The parties dispute 5 whether CW1’s allegations are sufficient to adequately plead that the alleged $2.7 billion first-year 6 cost-cutting goal existed at the time the Registration Statement became effective on February 27, 7 2017. Defendants argue that CW1’s allegations are insufficient because (1) CW1 was employed at 8 HPE prior to the April 1, 2017 Merger, whereas Lawrie was a senior executive at CSC and (2) CW1 9 did not learn about the alleged $2.7 billion first-year cost-cutting plan until a June 21, 2017 meeting, 10 nearly four months after the Registration Statement’s effective date. Motion, ECF No. 98 at 10–11; 11 Reply, ECF No. 100 at 6. Plaintiffs argue that, since the Merger happened only 60 days prior to the 12 June 21, 2017 meeting, this strongly suggests that the $2.7 billion target was in existence at the time 13 of the Registration Statement. Opposition, ECF No. 99 at 13. Further, Plaintiffs point out that the 14 Court previously held that Plaintiffs adequately alleged that the $2.7 billion cost-cutting goal existed 15 at the time of the Registration Statement. Id. 16 The Court agrees with Plaintiffs. The Court already found based on the allegations in the 17 Hilton complaint that Plaintiffs had sufficiently pled that “Lawrie’s $2.7 billion internal budget was 18 set and Hilton’s concerns were communicated to Lawrie before the Registration Statement was 19 issued.” Order Dismissing FAC, ECF No. 75 at 10. CW1’s allegations add nothing to the Hilton 20 allegations regarding timing of the $2.7 billion cost-cutting goal. CW1 was not in a position prior 21 to the Merger to know whether the alleged $2.7 billion cost-cutting target was in existence, since he 22 was at a different company than Lawrie. Although it may not be a reasonable inference based on 23 CW1’s allegations that the $2.7 billion goal was in existence nearly four months prior to when it 24 was first discussed at an Operations Committee meeting, the Court sees no reason to reconsider its 25 prior finding that the Hilton allegations sufficiently pled that the $2.7 billion goal existed at the time 26 of the Registration Statement. 27 Accordingly, the Court finds that Plaintiffs have adequately alleged that the $2.7 billion 1 b. CW2 and CW3 Allegations 2 The CW2 and CW3 allegations have no bearing on the deficiencies the Court has previously 3 identified in Plaintiffs’ pleadings. Defendants point out that there is only a single mention of CW2 4 and CW3 in Plaintiffs’ Opposition, where their allegations are used to describe the alleged impact 5 of DXC’s cost-cutting. Reply, ECF No. 100 at 7 (citing Opposition, ECF No. 99 at 5). Accordingly, 6 the Court finds that the CW2 and CW3 allegations have no impact on the outcome of Defendants’ 7 Motion to Dismiss. 8 *** 9 In sum, the Court finds that Plaintiffs have sufficiently pled that there was an internal goal 10 at DXC to cut $2.7 billion in costs at the time the Registration Statement was issued. But 11 notwithstanding Plaintiffs’ new allegations that it was a “serious” or “real” target, Plaintiffs have 12 failed to adequately allege that the $2.7 billion goal rendered false or misleading any statements in 13 the Registration Statement given the lack of facts supporting DXC’s achievement of that goal or 14 failure to meet its publicly disclosed expectations. Accordingly, Plaintiffs’ new confidential witness 15 allegations do not remedy the deficiencies previously found by the Court. 16 2. Safe Harbor 17 Defendants argue that certain alleged misstatements are forward-looking and therefore 18 protected under PSLRA’s Safe Harbor provisions. PSLRA’s Safe Harbor precludes liability for 19 forward-looking statements in either of two circumstances: (1) “if they were identified as forward- 20 looking statements and accompanied by meaningful cautionary language,” or (2) “if the investors 21 fail to prove the projections were made with actual knowledge that they were materially false or 22 misleading.” In re Cutera Sec. Litig., 610 F.3d 1103, 1111–12 (9th Cir. 2010) (emphasis omitted); 23 15 U.S.C. § 78u–5(c)(1). A forward-looking statement is “a statement containing a projection of 24 revenues, income (including income loss), earnings (including earnings loss) per share, capital 25 expenditures, dividends, capital structure, or other financial items.” 15 U.S.C. § 78u–5(i)(1)(A). 26 Defendants argue that the following statements are forward-looking and protected by the 27 PSLRA’s Safe Harbor provision: • “The combined company expects that the merger of Everett with CSC will produce 1 first-year synergies of approximately $1.0 billion post-close, with a run rate of $1.5 billion by the end of year one. The $1.0 billion post-close and $1.5 billion run rate at 2 the end of year one were each calculated by estimating the expected value of harmonizing policies and benefits between the two companies, supply chain and 3 procurement benefits from expected economies of scale such as volume discounts as well as cost synergies expected from workforce optimization such as elimination of 4 duplicative roles and other duplicative general, administrative and overhead costs.” (TAC ¶ 89). 5 • “[W]ith a collective workforce of approximately 178,000 employees, the size and scale 6 of the combined company will enhance its ability to provide value to its customers through a broader range of resources and expertise to meet their needs.” (TAC ¶ 91). 7 8 Motion, ECF No. 98 at 12. 9 Defendants argue these statements are subject to the PSLRA Safe Harbor provision because 10 (1) they contain meaningful cautionary language and (2) Plaintiffs have not plausibly alleged actual 11 knowledge. Id. at 12–15. In response, Plaintiffs argue that these statements are not subject to the 12 PSLRA Safe Harbor because (1) the Safe Harbor should not apply to companies like DXC without 13 a history of public filings, particularly when its predecessor CSC has a history of violating the 14 federal securities laws, (2) the alleged misstatements are “mixed” in light of Plaintiffs’ alleged facts 15 about a “real” $2.7 billion target, (3) any cautionary language was “generalized” or “boilerplate” 16 and not “meaningful,” and (4) Defendants’ actual knowledge of undisclosed facts is sufficiently 17 pled. Opposition, ECF No. 99 at 14–17. 18 a. Public Offering 19 Plaintiffs argue that since the PSLRA Safe Harbor does not apply to forward-looking 20 statements made in connection with an initial public offering, it should not apply to DXC, because 21 DXC has no public track record for investors to rely on. Opposition, ECF No. 99 at 14 (citing 22 15 U.S.C. §77z–2(b)(2)(D)). Further, Plaintiffs argue that the Safe Harbor does not apply to 23 companies who have been the subject of a judicial or administrative decree, and DXC’s predecessor 24 company CSC was subject to an administrative decree before the Merger. Id. (citing 15 U.S.C. 25 §77z–2(b)(1)(A)(ii)). In response, Defendants argue that the Court previously rejected both of these 26 arguments. Reply, ECF No. 100 at 8. 27 The Court agrees with Defendants. In its order dismissing the First Amended Complaint, 1 ECF No. 75 at 12. Further, the Court declined to “treat CSC and DXC – two legally distinct entities 2 – as one entity and hold an administrative order related to one against the other.” Id. at 12–13. 3 Plaintiffs provide no reason why the Court should reconsider its prior ruling. 4 Accordingly, the Court is not persuaded that the challenged statements in DXC’s 5 Registration Statement are exempt from PSLRA’s Safe Harbor provisions. 6 b. Forward-Looking Statements Accompanied by Meaningful Cautionary Language 7 The Court previously found that Defendants’ statements regarding cost-cutting expectations 8 in the Registration Statement were “facially forward-looking” and entitled to the protections of the 9 PSLRA Safe Harbor, and not “mixed” statements. Order Dismissing FAC, ECF No. 75 at 13. 10 Plaintiffs now argue that the “real” $2.7 billion goal was a present fact Defendants omitted from the 11 Registration Statement, so the Safe Harbor does not apply. Opposition, ECF No. 99 at 14–15. In 12 response, Defendants argue that Plaintiffs cannot convert facially forward-looking statements into 13 a present representation of fact based on the Registration Statement’s omission of an internal goal. 14 Reply, ECF No. 100 at 9. 15 The Court agrees with Defendants. The Court considers the challenged statements to be 16 facially forward-looking disclosures of financial expectations. See Police Ret. Sys. of St. Louis v. 17 Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014) (finding statements of expectation to 18 be facially forward-looking); 15 U.S.C. § 78u–5(i)(1)(A) (“forward-looking statements” include “a 19 statement containing a projection of revenues, income (including income loss), earnings (including 20 earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items”). 21 The Court disagrees with Plaintiffs that the existence of Lawrie’s $2.7 billion internal goal 22 was a material present fact that rendered the challenged statements of expectation misleading or 23 “mixed statements.” As the Court outlined above, a goal and an expectation are different, and the 24 existence of a goal on its own does not render a statement of expectation false or misleading. In 25 Wochos, the Ninth Circuit stated that “in order to establish that a challenged statement contains non- 26 forward-looking features …, a plaintiff must plead sufficient facts to show that the statement goes 27 beyond the articulation of ‘plans,’ ‘objectives,’ and ‘assumptions’ and instead contains an express 1 or implied ‘concrete’ assertion concerning a specific ‘current or past fact[].’” Wochos v. Tesla, Inc., 2 985 F.3d 1180, 1191 (9th Cir. 2021) (citations and emphasis omitted). The Court finds it 3 implausible that Defendants’ statement of expectation about a $1 billion cost reduction contained 4 “an express or implied ‘concrete’ assertion” that DXC did not have a more aggressive internal cost- 5 cutting goal for motivational purposes. Id. Plaintiffs point to the Prodanova case, which holds that 6 a forward-looking statement does not qualify for safe harbor protections where it is “misleading 7 because it omit[s] a disclosure of a present fact.” Opposition, ECF No. 99 at 15 (citing Prodanova 8 v. H.C. Wainwright & Co., LLC, No. LA CV17–07926 JAK (ASx), 2018 WL 8017791, at **12–13 9 (C.D. Cal. Dec. 11, 2018).) But as outlined above, the Court does not consider the existence of the 10 $2.7 billion internal cost-cutting goal to be a present fact that rendered the disclosure of $1 billion 11 in expected cost cuts misleading. Further, Plaintiffs cite cases involving disclosures that intertwined 12 material present or past facts with forward-looking statements. See Mulderrig v. Amyris, Inc., 492 13 F. Supp. 3d 999, 1021 (N.D. Cal. 2020) (no Safe Harbor protections for company’s financial 14 forecasts “intertwined with its misstatements of current revenues”); In re Quality Sys., Inc. Sec. 15 Litig., 865 F.3d 1130, 1141 (9th Cir. 2017) (no Safe Harbor protections for statements that “provided 16 a concrete description of the past and present”). The Court previously found that Plaintiffs failed to 17 allege that the $2.7 billion internal cost-cutting goal “had any impact on how the $1.0 billion 18 expectation was calculated at the time the Registration Statement was filed.” Order Dismissing 19 FAC, ECF No. 75 at 13. Seeing no reason to reconsider its prior holding, the Court finds Plaintiffs’ 20 cases about intertwined present and past facts are inapposite. 21 Because the Court finds that the challenged statements of expectation are indeed forward- 22 looking, it turns now to the question of whether those forward-looking statements were accompanied 23 by meaningful cautionary language. Defendants argue that the Court previously found that the 24 Registration Statement contains meaningful cautionary language that adequately warned investors 25 of the risks at issue in this case. Motion, ECF No. 98 at 14 (citing Order Dismissing FAC, ECF No. 26 75 at 14–16). Plaintiffs argue that (1) virtually no cautionary language is sufficient for mixed 27 statements, (2) Defendants’ boilerplate disclaimers do not meet the standard for “meaningful” 1 disclosures about attracting, retaining, and losing personnel told investors nothing about DXC itself 2 cutting employees. Opposition, ECF No. 99 at 15–16. In response, Defendants argue that (1) 3 Plaintiffs cite to cases where then-existing facts contradicted cautionary language, when DXC’s 4 then-existing goal had not been implemented at the time of the Registration Statement and (2) 5 Plaintiffs’ “boilerplate” argument ignores detailed cautionary language in the Registration 6 Statement. Reply, ECF No. 100 at 10–11. 7 The Court agrees with Defendants. The Court previously found the cautionary language in 8 the Registration Statement to be meaningful, because the Registration Statement warned investors 9 about “the eventualities that Plaintiffs complain of (e.g., customer complaint).” Order Dismissing 10 FAC, ECF No. 75 at 14–15. Plaintiffs fail to point to any newly alleged eventualities. For example, 11 Plaintiffs argue that the cautionary language in the Registration Statement was not sufficient to warn 12 about DXC itself cutting its workforce. Opposition, ECF No. 99 at 16. But the Court previously 13 found that the Registration Statement’s cautionary language about “workforce optimization such as 14 elimination of duplicative roles and other duplicative general, administrative and overhead costs” 15 warned investors that “clearly … layoffs were to be expected.” Order Dismissing FAC, ECF No. 75 16 at 14. Accordingly, the Court finds that Plaintiffs have not alleged sufficient facts to change the 17 Court’s prior holding that the Registration Statement contained meaningful cautionary language that 18 warned investors about “the eventualities that Plaintiffs complain of.” Id. at 14–15. 19 Further, Plaintiffs argue that the cautionary language in the Registration Statement is not 20 meaningful in light of the $2.7 billion internal cost-cutting goal. The Court previously found that 21 the cautionary language in the Registration Statement “did not warn the investors of the internal 22 $2.7 billion cost-cutting goal.” Order Dismissing FAC, ECF No. 75 at 15. But the Court 23 nonetheless found the cautionary language meaningful because “the Registration statement did warn 24 about the eventualities that Plaintiffs complain of[.]” Id. In light of their new allegations that the 25 $2.7 billion cost-cutting goal was “serious” and “real,” Plaintiffs point to cases finding cautionary 26 language insufficient where risks had already materialized and a company had already changed its 27 strategy. Opposition, ECF No. 99 at 16–17. But Plaintiffs fail to allege that $2.7 billion in cost cuts 1 there are no allegations that the pace of budget cuts was any greater than needed to achieve the 2 expected $1 billion in cuts in year one. Accordingly, Plaintiffs have failed to adequately allege per 3 their cited cases that any risks associated with the $2.7 billion goal had materialized at the time of 4 the Registration Statement or that DXC had already changed its strategy. See, e.g., Mingbo Cai v. 5 Switch, Inc., No. 2:18–cv–01471–JCM–VCF, 2019 WL 3065591, at *5 (D. Nev. July 12, 2019) 6 (“the sections [of the registration statement] defendants quote do not indicate that Switch had 7 already changed its sales strategy”); In re Alphabet, Inc. Sec. Litig., 1 F.4th 687, 704 (9th Cir. 2021) 8 (“complaint plausibly alleges that Alphabet’s warning in each Form 10-Q of risks that ‘could’ or 9 ‘may’ occur is misleading to a reasonable investor when Alphabet knew that those risks had 10 materialized.”) 11 Further, since the Court rejected Plaintiffs’ contention that the challenged language in the 12 Registration Statement constitutes “mixed” statements, the Court also rejects Plaintiffs’ argument 13 that virtually no cautionary language accompanying a mixed statement is sufficient. Opposition, 14 ECF No. 99 at 15. 15 Accordingly, the Court finds that the challenged statements of expectation in the 16 Registration Statement are facially forward-looking and contain meaningful cautionary language. 17 They therefore qualify for PSLRA Safe Harbor protection. 18 c. Defendants’ Actual Knowledge 19 Defendants argue that even if they were not able to satisfy the cautionary language prong of 20 the PSLRA Safe Harbor, they can satisfy the prong that offers Safe Harbor protection where “the 21 plaintiff fails to prove that the forward-looking statement … if made by a natural person, was made 22 with actual knowledge by that person that the statement was false or misleading[.]” 23 15 U.S.C. § 78u–5(c)(1)(B)(i). Defendants argue that Plaintiffs have failed to show that actual 24 knowledge of the $2.7 billion internal cost-cutting goal indicated that Defendants knew their 25 $1 billion public cost-cutting expectation was false or misleading. Motion, ECF No. 98 at 14–15. 26 Plaintiffs argue that Lawrie’s actual knowledge of the $2.7 billion cost-cutting goal prevents 27 Defendants from taking advantage of this prong of the PSLRA Safe Harbor. Opposition, ECF No. 1 The Court found in its order dismissing the First Amended Complaint that “because the mere 2 existence of this goal is not a sufficient basis for securities violations, Defendants’ knowledge of it 3 is irrelevant to this Complaint.” Order Dismissing FAC, ECF No. 75 at 16. Since the Court has 4 again found that Plaintiffs have failed to adequately plead that the existence of the $2.7 billion 5 internal cost-cutting goal without any allegations that the goal was realized in the first year is a 6 sufficient basis for securities violations, the Court again finds that knowledge of the $2.7 billion 7 cost-cutting goal does not defeat the PSRLA Safe Harbor protection. 8 Accordingly, the Court finds that the challenged statements qualify for PSLRA Safe Harbor 9 protections under the “actual knowledge” prong, in addition to the “cautionary language” prong. 10 *** 11 In sum, the Court agrees with Defendants that the alleged misstatements (TAC ¶¶ 89, 91) 12 about the expected cost reductions tied to DXC’s workforce optimization plan are forward-looking 13 and protected by PSLRA’s Safe Harbor provision. 14 3. Opinion Statements 15 Separately, Defendants challenge Plaintiffs’ allegations related to representations in the 16 Registration Statement regarding “synergies,” a “turnaround plan,” and hiring practices as non- 17 actionable opinion statements, including the following: 18 • “The combined company expects that the merger of Everett with CSC will produce first- year synergies of approximately $1.0 billion post-close, with a run rate of $1.5 billion by the 19 end of year one. The $1.0 billion post-close and $1.5 billion run rate at the end of year one were each calculated by estimating the expected value of harmonizing policies and benefits 20 between the two companies, supply chain and procurement benefits from expected economies of scale such as volume discounts as well as cost synergies expected from 21 workforce optimization such as elimination of duplicative roles and other duplicative general, administrative and overhead costs.” (TAC ¶ 89). 22 23 Motion, ECF No. 98 at 15 (citing TAC ¶¶ 89–92). Defendants argue that the new allegations do not 24 change the Court’s prior conclusion that the challenged opinion statements are non-actionable. 25 Motion, ECF No. 98 at 15–16 (citing Order Dismissing FAC, ECF No. 75 at 20). Defendants argue 26 that despite Plaintiffs’ new allegations regarding the $2.7 billion cost-cutting goal, Plaintiffs still 27 fail to allege that the goal so undermined the basis for the opinion statements to render them 1 goal was “more than aspirational,” they have sufficiently alleged that the opinion statements were 2 false, misleading, and omitted material facts. Opposition, ECF No. 99 at 18. 3 An opinion statement is defined as “a belief, a view, or a sentiment which the mind forms of 4 persons or things.” Omnicare, Inc. v. Laborers Dist. Council Const. Ind. Pension Fund, 575 U.S. 5 175, 183 (2015) (citation and alterations omitted). There are three different standards for pleading 6 falsity of opinion statements: (1) “when a plaintiff relies on a theory of material misrepresentation, 7 the plaintiff must allege both that ‘the speaker did not hold the belief she professed’ and that the 8 belief is objectively untrue,” (2) “when a plaintiff relies on a theory that a statement of fact contained 9 within an opinion statement is materially misleading, the plaintiff must allege that the supporting 10 fact the speaker supplied is untrue” or (3) “when a plaintiff relies on a theory of omission, the 11 plaintiff must allege facts going to the basis for the issuer’s opinion whose omission makes the 12 opinion statement at issue misleading to a reasonable person reading the statement fairly and in 13 context.” City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 14 605, 615–16 (9th Cir. 2017) (citation omitted). Plaintiffs argue that the alleged opinion statements 15 meet all three standards under Dearborn Heights. Opposition, ECF No. 99 at 18. 16 To the extent that these statements could be considered opinions, the Court will evaluate 17 them under Omnicare and Dearborn Heights. 18 For the first Dearborn Heights standard, in order to plead a material misrepresentation, 19 Plaintiffs must adequately allege that (1) Defendants did not hold the belief they professed and 20 (2) that the belief was objectively untrue. Dearborn Heights, 856 F.3d at 615–16. Defendants argue 21 that Plaintiffs “fail to allege (even conclusorily) that Defendants disbelieved any of the opinion 22 statements in the Registration Statement.” Motion, ECF No. 98 at 15. Plaintiffs argue that 23 Defendants “could not and did not believe the assertions professed, even if negligently,” due to the 24 $2.7 billion cost-cutting goal. Opposition, ECF No. 99 at 18. The Court agrees with Defendants. 25 Plaintiffs have not explained how an aggressive internal cost-cutting goal that did not produce 26 greater actual cost reductions in the first year rendered false Defendants’ belief in synergies or hiring 27 practices following the merger, particularly where an internal goal like Plaintiffs allege came with 1 For the second Dearborn Heights standard, in order to allege that a statement of fact 2 contained within an opinion statement is materially misleading, Plaintiffs must allege that the 3 supporting fact Defendants supplied was untrue. Dearborn Heights, 856 F.3d at 616. Plaintiffs 4 have failed to adequately allege that DXC’s aggressive internal cost-cutting goal rendered false any 5 fact in the challenged opinion statements. For example, the Court does not see how an internal goal 6 DXC failed to reach renders false any fact about expected cost synergies, DXC’s turnaround plan, 7 or any of its hiring practices, particularly where Plaintiffs have failed to allege that DXC cut more 8 than the $1 billion in expected cost cuts disclosed in the Registration Statement during the first year 9 post-Merger. 10 For the third Dearborn Heights standard, in order to allege that an opinion statement 11 contained an actionable omission, Plaintiffs must allege facts going to the basis for Defendants’ 12 opinion whose omission made the opinion statement at issue misleading to a reasonable person 13 reading the statement fairly and in context. Dearborn Heights, 856 F.3d at 616. Defendants argue 14 that Plaintiffs failed to allege the $2.7 billion first-year cost-cutting goal so undermined the basis 15 for the opinion statements regarding future synergies or hiring practices as to render them 16 misleading. Motion, ECF No. 98 at 16. Plaintiffs argue “Defendants omitted its [sic] plan to 17 terminate a substantial portion of its workforce,” thereby “conflicting with what investors would 18 take away from such statements.” Opposition, ECF No. 99 at 18. The Court finds that Plaintiffs 19 have not sufficiently alleged that the $2.7 billion cost-cutting goal was a fact “going to the basis for 20 [Defendants’] opinion.” Dearborn Heights, 856 F.3d at 16. As the Court found above, a goal is not 21 the same as an expectation. It is implausible that investors would have “take[n] away” from 22 Defendants’ opinion statements that DXC did not have an aggressive internal cost-cutting goal. 23 Opposition, ECF No. 99 at 18. This is particularly true where language like “workforce optimization 24 such as elimination of duplicative roles” clearly meant layoffs were to be expected. Order 25 Dismissing FAC, ECF No. 75 at 14. Further, the statements about DXC’s hiring practices are 26 sufficiently generalized that they could still be accurate after significant workforce cuts. TAC ¶ 91. 27 Accordingly, assuming the challenged statements can properly be categorized as “opinion 1 confidential witness allegations in the Third Amended Complaint. 2 4. Risk Disclosures 3 Defendants argue that DXC’s challenged risk disclosures are not actionable. Generally, risk 4 disclosures—like any other statement—may be misleading if they affirmatively create an 5 impression of a state of affairs that differs in a material way from the one that actually exists. City 6 of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 65 F.Supp.3d 840, 855 7 (N.D. Cal. 2014), aff’d, 856 F.3d 605 (9th Cir. 2017). 8 Defendants argue the Court should reject Plaintiffs’ claims based on the following risk 9 disclosures: 10 The ability of the combined company to grow and provide customers 11 with competitive services is partially dependent on the ability of the combined company to attract and retain highly motivated people with 12 the skills necessary to serve their customers. 13 Registration Statement, Boutros Decl., ECF No. 40, Ex. A at 42–43. And: 14 If the combined company does not hire, train, motivate and effectively utilize employees with the right mix of skills and experience in the 15 right geographic regions to meet the needs of its clients, its financial performance could suffer. 16 17 Id. at 43. Defendants argue that these statements are non-actionable as the Court previously found 18 because (1) Plaintiffs still fail to allege that DXC actually implemented more significant cuts than 19 it disclosed publicly and (2) the Registration Statement disclosed “workforce optimization” plan 20 cost cuts that could lead to problems with providing customer service, which was the state of affairs 21 at the time. Motion, ECF No. 98 at 17. Plaintiffs argue that these statements are actionable “due to 22 the business strategy [DXC] had in place to massively reduce key personnel[.]” Opposition, ECF 23 No. 99 at 11. 24 The Court agrees with Defendants. Plaintiffs have not alleged that DXC had a “business 25 strategy … in place to massively reduce key personnel” beyond the disclosed $1 billion in cuts as 26 Plaintiffs argue. Opposition, ECF No. 99 at 11. Plaintiffs can only allege a $2.7 billion cost-cutting 27 goal DXC never met, which is insufficient on its own to render the challenged risk disclosures false 1 previously found the challenged risk disclosures “disclosed the state of affairs as they were [at] the 2 time: DXC planned to optimize its workforce and eliminate duplicative roles, which could lead to 3 problems with providing service to its customers.” Order Dismissing FAC, ECF No. 75 at 21. 4 Plaintiffs’ new allegations that the $2.7 billion cost-cutting goal was “serious” and “real” do not 5 change the Court’s conclusion. 6 Plaintiffs’ cases finding risk disclosures false or misleading where there was evidence that 7 the disclosed risks had already materialized are inapposite. See, e.g., Alphabet, 1 F.4th at 704 8 (“complaint plausibly alleges that Alphabet’s warning in each Form 10-Q of risks that ‘could’ or 9 ‘may’ occur is misleading to a reasonable investor when Alphabet knew that those risks had 10 materialized.”); Siracusano v. Matrixx Init., Inc., 585 F.3d 1167, 1181–82 (9th Cir. 2009) (“Form 11 10-Q was misleading because it spoke of the risk of product liability actions against the company 12 without revealing that a lawsuit already had been filed.”); Berson v. Applied Signal Tech., Inc., 13 527 F.3d 982, 986 (9th Cir. 2008) (“The passage, moreover, speaks entirely of as-yet-unrealized 14 risks and contingencies. Nothing alerts the reader that some of these risks may already have come 15 to fruition[.]”). Plaintiffs fail to allege that DXC ever reached the $2.7 billion goal, or at any time 16 in the first year after the Merger was on pace to meet that goal, so the Third Amended Complaint 17 does not sufficiently allege that the disclosed risks had materialized at the time of the Registration 18 Statement. See, e.g., TAC ¶¶ 6, 87. 19 Accordingly, the Court finds that Plaintiffs have failed to plausibly allege that the challenged 20 risk disclosures were false and misleading based on DXC’s $2.7 billion internal cost-cutting goal. 21 5. Puffery 22 Defendants argue that certain alleged misstatements are non-actionable puffery. A material 23 misrepresentation differs significantly from corporate puffery. Puffery is an expression of opinion, 24 while a misrepresentation is a knowingly false statement of fact. Oregon Pub. Emps. Ret. Fund v. 25 Apollo Grp., Inc., 774 F.3d 598, 606 (9th Cir. 2014); Grossman v. Novell, Inc., 120 F.3d 1112, 1119 26 (10th Cir. 1997) (finding that puffery includes statements “not capable of objective verification”). 27 Moreover, the Ninth Circuit has noted that investors do not rely on puffery when making investment 1 [do not] amount[] to a securities violation.” Id. 2 Defendants argue that language in the Registration Statement referencing a “turnaround 3 plan” that would “align [DXC’s] costs with its revenue trajectory” and included “initiatives to 4 improve execution in sales performance and accountability” was non-actionable puffery. Motion, 5 ECF No. 98 at 17 (citing TAC ¶¶ 89, 90). Plaintiffs argue that based on (1) the starkness of the 6 difference between what DXC stated publicly and what Plaintiffs now allege occurred internally 7 and (2) the frequency with which DXC discussed its “turn-around plan,” the Court should find the 8 alleged “puffery” statement to be a material misrepresentation. Opposition, ECF No. 99 at 18. In 9 response, Defendants argue that the Court’s prior order found the challenged “turn-around plan” 10 statement to be “vague corporate optimism” on its face and as a matter of law. Reply, ECF No. 100 11 at 12–13 (citing Order Dismissing FAC, ECF No. 75 at 19). 12 The Court agrees with Defendants. The Court previously found that “[t]he challenged 13 statement does not mention the amount by which the Company was to cut costs, but instead, 14 expresses vague corporate optimism that DXC’s ‘costs’ would align with its ‘revenue trajectory’ 15 and ‘improve execution in sales performance and accountability.’ Such statements are incapable of 16 objective verification and constitute non-actionable puffery.” Order Dismissing FAC, ECF No. 75 17 at 17 (citing In re Wet Seal, Inc. Sec. Litig., 518 F. Supp. 2d 1148, 1167 (C.D. Cal. 2007).) The 18 Court is not convinced that the “turn-around plan” statement is now magically capable of objective 19 verification because of new allegations in the Third Amended Complaint. Nothing has changed 20 about the statement itself—it is just as incapable of objective verification as the Court found it was 21 before. Plaintiffs’ cases, which pertain to verifiable facts and have no bearing on the “puffery” 22 issue, fail to change the Court’s mind. See In re Immune Response Sec. Litig., 375 F. Supp. 2d 983, 23 1019 (S.D. Cal. 2005) (relating to reporting of “statistically flawed” results); Atlas v. Accredited 24 Home Lenders Holding Co., 556 F. Supp. 2d 1142, 1155 (S.D. Cal. 2008) (relating to company’s 25 underwriting practices and standards). 26 Accordingly, the Court finds that the challenged “turn-around plan” statement in the 27 Registration Statement is non-actionable puffery. 1 B. Violations of Items 303 or 503 2 Defendants also challenge Plaintiffs’ allegations under Items 303 and 503(c) of SEC 3 Regulation S-K. Those provisions require disclosure of (1) “known trends or uncertainties that have 4 had or that the registrant reasonably expects will have a material favorable or unfavorable impact 5 on net sales or revenues or income from continuing operations,” (17 C.F.R. § 229.303(a)(3)(ii) 6 (2020)) and (2) under the caption “Risk Factors,” a discussion of the most significant factors that 7 make the offering speculative or risky (17 C.F.R. § 229.503(c) (2019)). 8 Regarding Plaintiffs’ Item 303 claim, Defendants argue that the internal $2.7 billion cost- 9 cutting goal was not a “known trend” as Item 303 requires. Motion, ECF No. 98 at 18. Plaintiffs 10 argue that the $2.7 billion cost-cutting goal was a substantial and known uncertainty and trend that 11 DXC reasonably expected would have a material impact on its financial condition, which is 12 sufficient for Item 303. Opposition, ECF No. 99 at 19 (citing Steckman v. Hart Brewing, 143 F.3d 13 1293, 1296 (9th Cir. 1998).) 14 The Court agrees with Defendants. The TAC does not plausibly allege that the $2.7 billion 15 cost-cutting goal was a known trend when Plaintiffs have not alleged that DXC met that goal or was 16 even on pace to meet it in the first year following the Merger. Further, the Court does not find that 17 the mere existence of an internal goal makes it “reasonably likely” that it will be achieved, or that 18 any consequences will result. See Steckman, 143 F.3d at 1296–97. Plaintiffs can only point to cases 19 where at the time of the Registration Statement, a known downward trend or deleterious change in 20 strategy already existed or had taken place. See Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 716 21 (2d Cir. 2011) (“Plaintiffs allege that the downward trend in the real estate market was already 22 known and existing at the time of the IPO[.]”); Switch, 2019 WL 3065591, at *5 (“Switch had 23 already changed its sales strategy[.]”) Since Plaintiffs have not alleged facts to indicate that DXC 24 ever reached or even approached the $2.7 billion cost-cutting goal, they have not plausibly alleged 25 an Item 303 violation. 26 Under Item 503, Defendants argue that they were not required to disclose risk factors related 27 to an alleged internal, aspirational business target—however, “serious.” Motion, ECF No. 98 at 18– 1 of the $2.7 billion cost-cutting goal to employee retention and expected revenue and income 2 constituted an Item 503 violation. Opposition, ECF No. 99 at 20. The Court agrees with Defendants. 3 Since Plaintiffs have not made sufficient allegations to show that the $2.7 billion cost-cutting goal 4 was ever reached, the TAC does not plausibly allege that Defendants were obliged to disclose risk 5 factors related to that goal. 6 Accordingly, the Court finds that Plaintiffs have failed to state a claim that Defendants 7 violated Item 303 or 503 based on their $2.7 billion cost-cutting goal. At the end of the day, there 8 is no getting around the fact that Defendants announced an expectation to cut $1 billion in year one 9 after the Merger and that is what they did. Even if they accomplished that expectation by internally 10 pushing for more cuts, nothing in the Third Amended Complaint plausibly supports Plaintiffs’ 11 claims. 12 C. Section 15 of the Securities Act (Count II) 13 Plaintiffs’ only basis for the adequacy of their Section 15 claim is that the Third Amended 14 Complaint stated a Section 11 claim. Opposition, ECF No. 99 at 20. Having found that Plaintiffs 15 have failed to state a claim under Section 11, the Court finds that Plaintiffs’ Section 15 claim is 16 inadequately pled as well. 17 / / / 18 / / / 19 / / / 20 / / / 21 / / / 22 / / / 23 / / / 24 / / / 25 / / / 26 / / / 27 / / / 1 D. Leave to Amend 2 Since this 1s the third time that the Court has dismissed Plaintiffs’ complaint, the Court finds 3 || that Plaintiffs have repeatedly failed to cure deficiencies in their allegations by amendment. 4 || Accordingly, the Court DISMISSES Plaintiffs’ Third Amended Complaint WITHOUT LEAVE TO 5 || AMEND. 6 || IV. ORDER 7 For the foregoing reasons, IT IS HEREBY ORDERED that Plaintiffs’ Third Amended 8 || Complaint is DISMISSED WITHOUT LEAVE TO AMEND. 9 10 || Dated: December 14, 2021 heh Lh han én M. BETH LABSON FREEMAN 12 United States District Judge

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