1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 NEW YORK CITY FIRE DEPARTMENT Case No. 24-cv-01234-PCP PENSION FUND, et al., 8 Plaintiffs, ORDER GRANTING MOTION TO 9 DISMISS SECOND AMENDED v. COMPLAINT 10 SNOWFLAKE INC., et al., Re: Dkt. No. 109 11 Defendants.
12 13 Every stock purchase carries the risk that the stock’s price will decrease. This risk may be 14 particularly pronounced where an investor purchases a growing company’s stock with the hope 15 that the company will experience “super growth” that will continue to accelerate rather than level 16 off over time, resulting in substantial stockholder gains. Unfortunately for stockholders, not every 17 company experiences such Nvidia-like growth.1 And when a company’s growth continues but 18 slows, the market often reacts. 19 This securities fraud class action lawsuit by eleven New York City retirement funds is one 20 of several recently filed cases initiated after a company’s stock price fell under such 21 circumstances. During the putative class period, defendant Snowflake Inc. continued to grow and 22 in fact surpassed the quarterly revenue guidance that it had provided to the market. But its stock 23 price nonetheless fell in March 2022 after it announced “disappointing” quarterly results and 24 lowered its projected rate of revenue growth. Based on that price drop, plaintiffs filed suit against 25 Snowflake, its former CEO Frank Slootman, and its former CFO Michael Scarpelli. 26 The federal securities laws are not intended to provide an “insurance policy” against such 27 1 investor losses. Brown v. Ambow Educ. Holding Ltd., No. 12-cv-5062 PSG AJWX, 2014 WL 2 523166, at *9 (C.D. Cal. Feb. 6, 2014). Instead, they protect the market’s integrity by prohibiting 3 certain fraudulent misstatements or omissions that mislead investors. Defendants move to dismiss 4 plaintiffs’ second amended complaint under Federal Rule of Civil Procedure 12(b)(6), contending 5 that plaintiffs do not plausibly allege that they engaged in such conduct. For the following reasons, 6 the Court agrees and grants defendants’ motion. 7 BACKGROUND 8 Snowflake is a software company that offers cloud data storage and analytics services.2 9 Snowflake customers receive a “warehouse” to store data on the cloud and to conduct “advanced 10 querying and analytics.” Rather than sell customers a license or subscription to access its platform, 11 Snowflake sells its services in “credit” units. Credits function as a measure of a customer’s use of 12 Snowflake’s services. The number of credits a customer uses per hour depends on the size of its 13 data warehouse and the analytics it runs. Most of Snowflake’s revenue comes from capacity 14 contracts, under which customers commit to using a certain number of credits, measured in 15 dollars, within a given time frame—e.g., to use $100,000 worth of credits within two years. 16 Snowflake realizes revenue when customers use, or consume, their credits. Snowflake uses 17 the metric “RPO,” or remaining performance obligations, to measure the value of credits 18 remaining on customer contracts that have not yet been consumed. Snowflake realizes revenue 19 both when customers use credits during their contract terms and when customers forfeit their 20 credits by failing to consume them during their contract terms. RPO is thus a measure of customer 21 demand and anticipated revenue. 22 Snowflake went public on September 16, 2020, with an initial IPO valuation of $70 billion. 23 Snowflake’s stock price peaked in November 2021, shortly before Slootman and Scarpelli sold 24 millions of stock shares and earned hundreds of millions in profits on December 15, 2021. On a 25 March 2, 2022, earnings call, defendants announced “disappointing” results for the last quarter of 26 27 1 fiscal year 2022 and lower growth rate guidance for fiscal year 2023. Defendants also announced 2 that Snowflake was rolling out platform enhancements, including a warehouse scheduling service 3 and an improved chip processor. These enhancements remedied inefficiencies in Snowflake’s 4 platform, which would lead to lower credit consumption and a slower conversion of RPO to 5 revenue. Defendants anticipated a revenue headwind of $97 million for the fiscal year due to the 6 platform enhancements. Snowflake’s stock price dropped following the earnings call. 7 Plaintiffs allege that defendants made 45 false and misleading statements and material 8 omissions about Snowflake’s business practices and performance prior to the March 2022 call that 9 misled investors into believing Snowflake was a super-grower company. In particular, plaintiffs 10 allege that Snowflake knowingly oversold credits to customers when they entered contracts, which 11 resulted in customers experiencing one of two problems. One group did not use all their credits 12 during their contract periods. The other group consumed their credits too quickly due to 13 inefficiencies in credit pricing and in Snowflake’s platform, including poor user controls that led 14 customers to accidentally blow through credits from “runaway queries.” Both trends, plaintiffs 15 allege, “effectively forced [customers] to purchase credits they did not need” and inflated RPO. 16 Snowflake allegedly implemented the platform enhancements to remedy some of these 17 inefficiencies but delayed rolling out and announcing the enhancements. 18 Plaintiffs bring claims on behalf of all persons who purchased Snowflake Class A common 19 stock on or between September 16, 2020, and March 2, 2022. Plaintiffs allege: (1) a violation of 20 Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against Snowflake, 21 Slootman, and Scarpelli; and (2) a violation of Section 20(a) of the Act against Slootman and 22 Scarpelli. Defendants move to dismiss both claims under Rule 12(b)(6). 23 LEGAL STANDARD 24 Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include a “short and plain 25 statement of the claim showing that the pleader is entitled to relief.” If the complaint fails to state a 26 claim, the defendant may move for dismissal under Federal Rule of Civil Procedure 12(b)(6). 27 Dismissal is required if the plaintiff fails to allege facts allowing the Court to “draw the reasonable 1 678 (2009). “Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a 2 cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. 3 Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 12(b)(6) 4 motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible on its 5 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 6 In considering a Rule 12(b)(6) motion, the Court must “accept all factual allegations in the 7 complaint as true and construe the pleadings in the light most favorable” to the non-moving party. 8 Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1029–30 (9th Cir. 2009). While legal 9 conclusions “can provide the [complaint’s] framework,” the Court will not assume they are correct 10 unless adequately “supported by factual allegations.” Iqbal, 556 U.S. at 679. Courts do not “accept 11 as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 12 inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (quoting Sprewell 13 v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 14 A Section 10(b) violation requires “a material misrepresentation or omission of fact, 15 scienter, a connection with the purchase or sale of a security, transaction and loss causation, and 16 economic loss.” Curry v. Yelp Inc., 875 F.3d 1219, 1224 (9th Cir. 2017). “A securities fraud 17 complaint under § 10(b) and Rule 10b-5 must satisfy the dual pleading requisites of Federal Rule 18 of Civil Procedure 9(b) and the PSLRA [Private Securities Litigation Reform Act].” In re 19 VeriFone Holdings, Inc. Securities Litigation, 704 F.3d 694, 701 (9th Cir. 2012). Rule 9(b) states: 20 “In alleging fraud or mistake, a party must state with particularity the circumstances constituting 21 fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be 22 alleged generally.” Fed. R. Civ. P. 9(b). And “[t]he PSLRA significantly altered pleading 23 requirements in private securities fraud litigation by requiring that a complaint plead with 24 particularity both falsity and scienter.” Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002). 25 For plaintiffs in private securities fraud class actions, the PSLRA creates “formidable 26 pleading requirements to properly state a claim and avoid dismissal under Fed. R. Civ. P. 27 12(b)(6).” Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1055 (9th Cir. 2008). 1 reason or reasons why the statement is misleading, and, if an allegation regarding the statement or 2 omission is made on information and belief, … with particularity all facts on which that belief is 3 formed.” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990–91 (9th Cir. 2009). To 4 adequately plead scienter the complaint must “state with particularity facts giving rise to a strong 5 inference that the defendant acted with the required state of mind.” Id. at 991. 6 In Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007), the Supreme 7 Court held that a “strong inference” of scienter exists “if a reasonable person would deem the 8 inference of scienter cogent and at least as compelling as any opposing inference one could draw 9 from the facts alleged.” In the Ninth Circuit, a court must conduct a dual inquiry in assessing 10 whether this standard is met: “[F]irst, it determines whether any one of the plaintiff’s allegations is 11 alone sufficient to give rise to a strong inference of scienter; second, if no individual allegations 12 are sufficient, it conducts a ‘holistic’ review to determine whether the allegations combine to give 13 rise to a strong inference of scienter.” Glazer Capital Management, L.P. v. Forescout 14 Technologies, Inc., 63 F.4th 747, 766 (9th Cir. 2023). The strong inference standard applies only 15 to the element of scienter, not to falsity. Id. (“Falsity is subject to a particularity requirement and 16 the reasonable inference standard of plausibility set out in Twombly and Iqbal, and scienter is 17 subject to a particularity requirement and a strong inference standard of plausibility.”). 18 ANALYSIS 19 I. Plaintiffs fail to state a claim under Section 10(b) because they do not plead falsity with particularity. 20 21 To state a claim under Section 10(b), plaintiffs must plead the falsity of material statements 22 or omissions. Curry, 875 F.3d at 1224. A statement is false or misleading “if it would give a 23 reasonable investor the impression of a state of affairs that differs in a material way from the one 24 that actually exists.” Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir. 2008) 25 (cleaned up). The purportedly false or misleading statement must “directly contradict what the 26 defendant knew at that time.” Weston Family Partnership LLLP v. Twitter, Inc., 29 F.4th 611, 619 27 (9th Cir. 2022). Even if a statement is not false, it may be misleading if it omits material 1 required ... only when necessary ‘to make ... statements made, in the light of the circumstances 2 under which they were made, not misleading.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 3 27, 44 (2011) (quoting 17 C.F.R. § 240.10b-5(b)). Thus, “once defendants choose to tout positive 4 information to the market, they are bound to do so in a manner that wouldn’t mislead investors, 5 including disclosing adverse information that cuts against the positive information.” Schueneman 6 v. Arena Pharm., Inc., 840 F.3d 698, 706 (9th Cir. 2016) (cleaned up). “[E]ven general statements 7 of optimism, when taken in context, may form a basis for a securities fraud claim when those 8 statements address specific aspects of a company’s operation that the speaker knows to be 9 performing poorly.” In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1143 (9th Cir. 2017). 10 Whether a plaintiff alleges a false statement or an omission, they must allege materiality. 11 “[A] misrepresentation or omission is material if there is a substantial likelihood that a reasonable 12 investor would have acted differently if the misrepresentation had not been made or the truth had 13 been disclosed.” Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 14 2005).3 15 The statements and omissions that plaintiffs allege were false or misleading fall into five 16 categories. 17 A. RPO Figures and Economic Performance 18 Many of the statements that plaintiffs allege were false and misleading concerned RPO. 19 See Statement Nos. 1, 4, 5, 6, 12, 13, 14, 15, 21, 24, 25, 26, 29, 35, 36, 37, 38, and 39.4 At the 20 hearing on defendants’ motion, plaintiffs clarified that they do not allege that the RPO figures that 21 defendants reported for given financial periods were false. Rather, plaintiffs allege that RPO was 22 not an accurate indicator of future revenue because defendants knew the RPO numbers were 23 inflated by their sales practices. In plaintiffs view, because Snowflake’s RPO numbers were 24 25 3 Defendants’ request for judicial notice of Exhibits A through Y to their motion is granted. The exhibits include SEC filings, transcripts of earnings calls and conferences, and analyst reports that 26 are either incorporated by reference into the second amended complaint or the proper subject of judicial notice. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998–1003 (9th Cir. 2018); 27 Fed. R. Evid. 201. The Court takes judicial notice of the existence and content of the exhibits, but not the truth of any facts therein. See Khoja, 899 F.3d at 999–1000, 1003; Dkt. 112. 1 inflated, certain statements about Snowflake’s past performance were false or misleading, 2 including that Snowflake “finished [the] fiscal year with strong performance” and “saw strong 3 consumption trends across [its] customer base in Q3.” Statement Nos. 8 and 16. But these 4 statements are inactionable puffery. Generally, “vague statements of optimism like ‘good,’ ‘well- 5 regarded,’ or other feel good monikers” are held to be inactionable “puffing” because 6 “professional investors, and most amateur investors as well, know how to devalue the optimism of 7 corporate executives.” In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010). Statements 8 characterizing performance and credit consumption as “strong” are precisely the kinds of “mildly 9 optimistic, subjective assessment[s]” that courts tend to find inactionable. Id.; see, e.g., In re 10 Splash Tech. Holdings, Inc. Sec. Litig., 160 F. Supp. 2d 1059, 1076–77 (N.D. Cal. 2001) 11 (“[S]tatements which use[] the words ‘healthy’, ‘strong’, … ‘robust’, ‘well-positioned’, ‘solid’ and 12 ‘improved’… [are] vague and nonactionable.”); In re SunPower Corp. Sec. Litig., 769 F. Supp. 3d 13 1042, 1057 (N.D. Cal. 2025) (discussing caselaw that found statements about a “strong 14 foundation” inactionable). 15 Plaintiffs also clarified at the motion hearing that they do not allege that defendants’ 16 projections for RPO and revenue were false or misleading. See Statement Nos. 12, 25, 38. In fact, 17 plaintiffs conceded that demand for Snowflake’s platform continued to grow, and that Snowflake 18 met or exceeded its revenue guidance during the class period. Instead, plaintiffs challenge 19 defendants’ statements about Snowflake’s anticipated rate of revenue growth and credit 20 consumption. See Statement Nos. 31, 32, 34, and 43. These statements, plaintiffs argue, 21 misrepresented the extent to which Snowflake’s growth rate would remain steady or continue to 22 accelerate. For example, in an August 25, 2021, earnings call, Scarpelli stated, “Obviously, longer 23 term, [net revenue expansion] will come down as our customer base becomes larger. … Looking 24 at it, I don’t see any real slowdown in the near-term future, but definitely, over time, that number 25 will come down.” Statement No. 31. On a December 1, 2021, earnings call, Slootman said, “As 26 you see from the metrics that we report on, there is a very, very steady aggressive growth 27 happening quarter-on-quarter. But we sort of haven’t reached that tipping point yet, where sort of 1 that, that will happen at some point.” Statement No. 43. 2 These statements about Snowflake’s future growth rate are forward-looking and protected 3 by the PSLRA’s safe harbor. The PSLRA provides that a defendant “shall not be liable” for any 4 forward-looking statement that is “identified as a forward-looking statement, and is accompanied 5 by meaningful cautionary statements identifying important factors that could cause actual results 6 to differ materially from those in the forward-looking statement.” 15 U.S.C. § 78u-5(c). A 7 forward-looking statement is “any statement regarding (1) financial projections, (2) plans and 8 objectives of management for future operations, (3) future economic performance, or (4) the 9 assumptions ‘underlying or related to’ any of these issues.” No. 84 Employer-Teamster Joint 10 Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (citing 11 15 U.S.C. § 78u-5(i)). “[I]n order to establish that a challenged statement contains non-forward- 12 looking features ... a plaintiff must plead sufficient facts to show that the statement goes beyond 13 the articulation of plans, objectives, and assumptions and instead contains an express or implied 14 concrete assertion concerning a specific current or past fact.” Wochos v. Tesla, Inc., 985 F.3d 15 1180, 1191 (9th Cir. 2021) (cleaned up) (quoting Quality Sys., 865 F.3d at 1142, 1144). 16 The statements here are forward-looking because they concern future economic 17 performance and growth. See No. 84, 320 F. 3d at 936. To the extent the statements imply current 18 knowledge by defendants, the knowledge implied is about a lack of future risk factors, rather than 19 “current or past fact[s].” See Wochos, 985 F.3d at 1191–92 (“Tesla’s various statements that it was 20 ‘on track’ to achieve this goal and that ‘there are no issues’ that ‘would prevent’ Tesla from 21 achieving the goal are likewise forward-looking statements.”). That knowledge thus related to 22 assumptions underlying defendants’ predictions for future performance, which the safe harbor 23 protects. See No. 84, 320 F. 3d at 936. Moreover, the earnings calls during which defendants made 24 these statements began with standard cautionary language warning against undue reliance on 25 statements discussing “expected performance,” “long-term growth,” and “overall future 26 prospects.” 5 Courts have found similar language sufficiently “meaningful” to merit safe harbor 27 1 protection. See Weston v. DocuSign, Inc., 669 F. Supp. 3d 849, 878 (N.D. Cal. 2023) (discussing 2 the cautionary language in Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 3 1059–60 (9th Cir. 2014) and In re Solarcity Corp. Sec. Litig., 274 F. Supp. 3d 972, 994 (N.D. Cal. 4 2017)). Defendants’ statements concerning Snowflake’s future growth are thus shielded by the 5 PSLRA’s safe harbor provision. See Statement Nos. 31, 32, 34, and 43. 6 In sum, defendants’ statements about Snowflake’s past and anticipated performance are not 7 actionable. See Statement Nos. 8, 16, 31, 32, 34, and 43. 8 B. Sources of Demand and Growth 9 Plaintiffs allege that defendants’ statements about the drivers of RPO, revenue growth, and 10 customer demand were false or misleading. The first set of statements variously attributed RPO 11 and revenue growth to Snowflake’s “customer base realizing the value of our platform,” “large 12 enterprises really want[ing] to do multiyear deals,” “strength in sales across the board,” “more 13 multimillion-dollar deals as well as [] customers’ willingness to engage in multi-year contracts,” 14 “more multimillion dollar relationships,” and “strength in customer consumption.” Statement Nos. 15 5, 7, 17, 18, 22, 23, 25, 27, and 28. The second set of statements characterized demand for 16 Snowflake’s products as organic and customer driven. See Statement Nos. 20 (“I mean we’ve been 17 bottled up literally for generations. And now there’s a situation where there is no upper limit to 18 how much you can do.”) and 33 (“[A] lot of what Snowflake does is what we call enabling the 19 demand. In other words, we’re not creating it. … So there’s a lot of latent, bottled-up, pent-up 20 demand that has literally grown over decades. … [T]hat is really the explosion of the enablement 21 of demand that was already there, is really the big, big driver behind Snowflake.”). 22 Plaintiffs argue that these statements are false and misleading because Snowflake 23 make forward-looking statements, including statements related to the expected performance of our 24 business, future financial results, strategy, products and features, long-term growth and overall future prospects. These statements are subject to risks and uncertainties, which could cause them 25 to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after market close today and in our SEC filings, including our 26 most recently filed Form 10-Q for the fiscal quarter ended [DATE], and the Form 10-Q for the quarter ended [DATE], that we will file with the SEC. We caution you to not place undue reliance 27 on forward-looking statements and undertake no duty or obligation to update any forward-looking 1 manufactured demand and growth by overselling credits to customers, encouraging customers to 2 consume unused credits that they did not need, and allowing the proliferation of platform 3 inefficiencies that caused customers to burn through their credits too quickly. Plaintiffs contend 4 that the testimony of 48 confidential witnesses (CWs)—39 former employees and 9 customers—is 5 collectively sufficient to plead that these phenomena were widespread enough to contradict 6 defendants’ statements. The Court disagrees. 7 The CW testimony is insufficient because it does not plausibly establish that the trends 8 identified by plaintiffs impacted Snowflake’s business so significantly as to render defendants’ 9 statements about demand false or misleading. Taken together, the CW testimony from former 10 employees provides evidence regarding certain sales practices and customer trends within 11 Snowflake. But the testimony does not allege, with particularity, the prevalence of these practices 12 and trends or their impact on Snowflake’s overall business. For example, the former employee 13 CWs said that “[m]any,” “some,” or “a lot of” their customers were oversold credits or that it was 14 “pretty common,” there were a “ton of instances,” or “sometimes” customers under-consumed 15 their credits. Two CWs said that runaway queries “happened ‘more often than you would think’” 16 and that customers “often blew through” their credits. Two other CWs estimated that about 30– 17 40% of their 60 or 70 accounts were underperforming or oversold credits. Three CWs pointed to 18 only a single customer. Moreover, of the former employee CWs, some worked with, for example, 19 “six or seven customers,” “5–15 large accounts,” or “20 customers based in Utah.” The Court 20 cannot determine from these allegations how many of Snowflake’s customers experienced such 21 issues in relation to Snowflake’s customer base as a whole. Indeed, the former customer CWs 22 represent only 9 Snowflake accounts, and it is not clear that they are a representative sample. 23 Plaintiffs concede that they are unaware of what percentage of customers were unhappy 24 with the pricing or performance of Snowflake’s platform or how frequently customers experienced 25 runaway queries, and that no CWs speak to companywide trends. Although it is not necessary for 26 any one CW to speak to companywide trends on their own, the CW testimony, collectively, must 27 do so in this case for plaintiffs to allege with particularity that the statements challenged here—all 1 particularized allegations from which the Court can conclude that the CW testimony reflects 2 companywide patterns, it is entirely plausible that the CW testimony reflects a limited set of 3 customers and that defendants’ statements about the company as a whole were not false or 4 misleading. 5 Other cases in which courts have found CW testimony sufficient to establish falsity are 6 illustrative. Robb v. Fitbit Inc., for example, involved “misdescriptions of specific or absolute 7 characteristics of a product” and plaintiffs who alleged “not that users have difficulty using the 8 product but that the product itself does not do the thing that it claims to do.” 216 F. Supp. 3d 1017, 9 1028–29 (N.D. Cal. 2016). In Leventhal v. Chegg, Inc., the defendants represented that only a 10 “tiny fraction of users” cheated on the platform, and that instances of cheating were “very 11 isolated,” while the CW testimony plausibly alleged that cheating was widespread. 721 F. Supp. 12 3d 1003, 1014–15 (N.D. Cal. 2024). And in E. Ohman J:or Fonder AB v. NVIDIA Corp., plaintiffs 13 challenged the misattribution of revenue to certain sources in response to direct questions about 14 the source of that revenue. 81 F.4th 918, 936–37 (9th Cir. 2023); see also 3226701 Canada, Inc. v. 15 Qualcomm, Inc., No. 15-cv-2678-MMA (WVG), 2017 WL 4759021, at *20–21 (S.D. Cal. Oct. 16 20, 2017) (finding statements that only one company was experiencing issues with a product were 17 false or misleading when customers and news outlets reported that other company’s experienced 18 similar issues). Here, plaintiffs do not allege that defendants represented that the Snowflake 19 platform was free of inefficiencies, that customers never complained about pricing or 20 functionality, or that customers never over- or under-consumed credits. While the CW testimony 21 they have presented would be sufficient to establish the falsity of such statements, this case does 22 not involve such claims. 23 Plaintiffs also do not provide corroborating information to bolster their CW testimony. The 24 courts in Nvidia, Chegg, and Robb all relied on former employee and customer testimony in 25 conjunction with empirical analyses, independent studies, and other informational sources. Nvidia, 26 81 F.4th at 929–32; Chegg, 721. F. Supp. 3d at 1012–14; Robb, 216 F. Supp. 3d at 1028–29. The 27 allegations here lack comparable “multiple and varying sources” from which the Court could 1 216 F. Supp. 3d at 1029. 2 Finally, plaintiffs argue that, under Nvidia, any evaluation of CW testimony should focus 3 not on whether CWs can attest to companywide phenomena but rather on the “the level of detail 4 provided …, the corroborative nature of the other facts alleged …, the coherence and plausibility 5 of the allegations, the number of sources, the reliability of the sources, and similar indicia.” See 81 6 F.4th at 938. But the Ninth Circuit in Nvidia explained how to assess the reliability of a CW’s 7 testimony and personal knowledge. Id.; see Weston, 669 F. Supp. 3d at 881–83 (considering CW 8 reliability and personal knowledge as a distinct question from “whether the statements reported by 9 the confidential witnesses are themselves indicative of scienter”). Here, the Court considers not 10 whether the CWs had the personal knowledge sufficient to support their testimony, but whether 11 that testimony, even if accepted as reliable and considered collectively, is sufficient to plead falsity 12 with particularity. It is not. 13 Accordingly, plaintiffs fail to allege with particularity that defendants’ statements about the 14 sources of Snowflake’s demand and growth were false or misleading. See Statement Nos. 5, 7, 17, 15 18, 22, 23, 25, 27, and 28. 16 C. Customer Consumption and Satisfaction 17 Similarly, plaintiffs allege that defendants’ statements regarding customer consumption 18 and satisfaction were false or misleading. One group of statements concerned the quantity and rate 19 at which customers consumed their credits and their interest in multi-year contracts. See Statement 20 Nos. 2 (“Consumption for most customers accelerates from the beginning of their usage to the end 21 of their contract terms and often exceeds their initial capacity commitment amounts.”), 9 (“So it 22 all depends upon the industry they’re in, but on average, we’re seeing our customers consume 23 more than we would expect.”), 18, 19, 34, 40, and 45.6 Another group of statements concerned 24 customers’ reasons for consumption and tolerance for Snowflake’s high costs. See Statement Nos. 25 11 (“So people are getting used to spending way more money on this class of service than they 26
27 6 The Court notes that one CW affirmed that larger customers typically signed longer contracts. 1 ever imagined. And the reason is they now can and they now need to, right? … [T]hey see 2 advantage in doing it, right?”), 20 (“[W]e also see organizations really getting used to managing 3 consumption … because, oftentimes, there are very compelling business reasons why they need to 4 consume these services as opposed [to] just looking at the amount of spend.”), and 42 (“We’re 5 really resetting what is normal and what is appropriate spend for this class of computing.”). 6 Plaintiffs fail to adequately allege that these statements were false or misleading. As 7 discussed above, the CW testimony is insufficient to plead with particularity that the customer 8 trends plaintiffs identify—over- and under-consumption of credits and dissatisfaction with price 9 and platform performance—are representative of the companywide customer experience. 10 Although some customers may have experienced these problems and made such complaints, 11 plaintiffs’ allegations do not plausibly allege, with particularity, that enough did so to render 12 defendants’ statements false or misleading. 13 Moreover, plaintiffs’ argument that defendants “should have disclosed customer 14 complaints themselves” is unsupported by the law. Securities law prohibits false and misleading 15 statements; it does not prohibit “statements that are incomplete” or compel the disclosure of all 16 potentially adverse information in a company’s possession. Brody v. Transitional Hosps. Corp., 17 280 F.3d 997 (9th Cir. 2002). Defendants did not have to account for the full range of customer 18 experiences each time they spoke about customer behavior and satisfaction, nor did they have to 19 explain why customers over- or under- consumed credits for the sake of completeness. 20 Defendants, in fact, disclosed many customer complaints in the same statements that 21 plaintiffs allege were false or misleading. For example, defendants said that some customers 22 overconsumed credits. See Statement Nos. 45 (“[T]here were some of our top 10 customers that 23 over-consumed, but we did see over-consumption on average across the board from our 24 customers.”), 11 (“[S]ometimes [credits] go[] a little bit too quick.”), and 41 (explaining that the 25 biggest thing holding customers back is credits “are running away from them maybe a little bit too 26 quickly”). Defendants said that customers often initially under-consumed credits. See Statement 27 Nos. 19 (“And what we find is – so [customers] consume very little in the first 6 months, and then 1 are some that are down, that happen[s] every quarter, but there’s a lot more that were above their 2 forecast.”). And defendants said that customers were initially averse to Snowflake’s price. See 3 Statement Nos. 11 (noting that “it takes time for people to get used to” the amount of spend on 4 Snowflake’s service) and 42 (“[I]n the beginning, people have sticker shock, yes.”). Taken 5 together, these statements would not “give a reasonable investor the impression of a state of affairs 6 that differs in a material way from the one that actually exists.” See Berson, 527 F.3d at 985. 7 Plaintiffs therefore fail to allege with particularity that defendants’ statements about 8 customer consumption and satisfaction were false or misleading. See Statement Nos. 2, 9, 11, 18, 9 19, 20, 34, 40, 42, and 45. 10 D. Platform Resources and Performance 11 Plaintiffs allege that various statements by defendants concerning Snowflake’s customer 12 service were false and misleading. See Statement Nos. 3 and 30. Snowflake’s IPO prospectus 13 stated, “When a customer’s consumption during the contract term does not exceed its commitment 14 amount, it may have the option to roll over any unused capacity to future periods, generally on the 15 purchase of additional capacity.” Statement No. 3 (emphasis added). And on an earnings call, 16 when Scarpelli was asked whether he felt good about the resources available to make sure 17 customers were on track to start consuming their credits within 9 to 12 months, he answered, 18 “Yes.” Statement No. 30. 19 Plaintiffs do not allege with particularity how these statements were false or misleading. 20 As to the first statement, plaintiffs allege it was misleading for defendants not to disclose that a 21 customer’s credits could only be rolled over if they purchased additional credits at the same or 22 greater value than their original contractual commitment. But the statement itself indicated that 23 rolling over credits was not a guarantee and might require additional purchases. In addition, 24 plaintiffs offer conflicting allegations as to when Snowflake’s strict rollover policy took effect. 25 The statement is from the prospectus issued on September 16, 2020. Some CWs, however, allege 26 that customers complained about the strict rollover policy in the summer of 2019, while others say 27 the policy only came into effect after the IPO. E.g., Dkt. 107 ¶¶ 135, 138. As to the second 1 their credits because, even if that was true, it was only due to platform inefficiencies that led them 2 to burn through credits. This is a misreading of the statement. Scarpelli only affirmed that he 3 “fe[lt] good” about the resources available to customers. Plaintiffs do not challenge the resources 4 available to customers. 5 Plaintiffs also allege that statements concerning Snowflake’s platform capabilities were 6 false or misleading. See Statement Nos. 10, 20, 41, and 42. For example, Scarpelli said that the 7 “product we’re delivering today is so much better than what it was … the performance on it every 8 year gets better and better.” Statement No. 10. Slootman said that “business units can decide 9 where they want to run those workloads, how often they want to run it, how they want to provision 10 it. … It’s not sort of a runaway utility model.” Statement No. 42. He also said that customers “are 11 really accountable for what they do and don’t do. We have hard limits. We have soft limits. We 12 have notifications. We have dashboards.” Statement No. 20. 13 These statements, according to plaintiffs, obscured platform inefficiencies and the extent of 14 customer complaints about these inefficiencies. But on some of the same calls in which defendants 15 made these statements, they also said that one of the biggest issues facing customers was credits 16 “running away from them maybe a little bit too quickly.” See Statement No. 41. In addition, 17 regardless of the platform’s inefficiencies, plaintiffs do not allege that its capabilities were not an 18 improvement over prior iterations. As discussed below, plaintiffs’ theory as to why these 19 statements were false and misleading is in tension with the fact that Snowflake ultimately rolled 20 out platform improvements—a recognition in itself that the product was not perfect. And, again, it 21 is not clear from the CW testimony to what extent customers ran into problems with runaway 22 queries or found the platform’s controls ineffective. 23 Accordingly, plaintiffs do not allege with particularity that the statements about 24 Snowflake’s customer service and platform performance were false or misleading. See Statement 25 Nos. 3, 10, 20, 30, 41, and 42. 26 E. Platform Enhancements 27 Finally, plaintiffs allege that defendants failed to disclose that certain platform 1 consumption and Snowflake’s revenue. A plaintiff can plead a violation of Section 10(b) through a 2 material omission of fact. Curry, 875 F.3d at 1224. “To be actionable under the securities laws, an 3 omission must be misleading; in other words it must affirmatively create an impression of a state 4 of affairs that differs in a material way from the one that actually exists.” Brody, 280 F.3d at 1006. 5 Plaintiffs’ theory is that defendants “delayed announcing” the platform enhancements and 6 their anticipated effect on Snowflake’s revenue until the March 2, 2022, earnings call even though 7 the enhancements were extensively tested and previewed throughout the summer and fall of 2021. 8 Defendants therefore allegedly knew well before March 2022 that the platform enhancements 9 would reduce credit consumption and materially impact revenue, in part because the 10 enhancements were in fact developed to address price and product inefficiencies. 11 The problem with this theory is that plaintiffs do not point to any statements misleading 12 investors into believing that Snowflake would not pursue platform enhancements or undertake 13 efforts to improve the customer experience. Instead, statements during the class period should 14 have dissuaded investors from having that impression. Some of defendants’ statements were made 15 as part of generic disclosures and warnings. See Dkt. 109, Ex. A at 20 (“[F]luctuations in customer 16 consumption resulting from our introduction of new features or capabilities to our systems [] may 17 impact customer consumption.”); Ex. N at 20 (same); Ex. P at 4 (“[Y]ou can expect more platform 18 enhancements from us going forward.”); Ex. D at 5 (“We regularly introduce product and 19 performance enhancements that lower the cost for our customers to run Snowflake.”). Others were 20 more specific. For example, on a May 26, 2021, earnings call, defendants explained that they “just 21 rolled out” a “new storage compression technology” that they anticipated would “take about $13 22 million of our revenue away from the company because the economics of our storage is so much 23 better for our customer. … Switch is a good thing for our customers.” Dkt. 109, Ex. D. at 7–8. In 24 response to a question on that call about whether this improvement was “symbolic of any change 25 in pricing strategy” and “a greater willingness now to pass these types of cost savings on to 26 customers,” Scarpelli replied that “our philosophy has always been to pass that on to customers. 27 But there’s other performance improvements as well. For instance, we’re working on a new chip 1 that to have an impact, and that’s more of next year you’ll see that. And we have always done that 2 and continue to improve the performance of our product that goes directly to the benefit of our 3 customers.” Dkt. 109, Ex. D at 9. Where defendants warned of platform enhancements, even 4 generally, and had previously implemented platform improvements to the financial benefit of 5 customers, investors could have reasonably anticipated similar enhancements in the future. 6 Moreover, even if defendants did not disclose the scope of the platform enhancements and 7 anticipated reduction in revenue sooner, plaintiffs do not adequately allege that they needed to do 8 so; as demonstrated by the statements above, defendants did not create an impression that 9 investors should not expect platform improvements, customer savings, or a resulting impact on 10 revenue. See Brody, 280 F.3d at 1006. Plaintiffs therefore fail to plead with particularity a material 11 omission. 12 Similarly, plaintiffs fail to allege with particularity that defendants’ statement that “at 13 Snowflake, we’re 100% focused on price performance for our customers” was false or misleading. 14 Statement No. 44. Plaintiffs themselves allege that the platform enhancements improved price 15 performance for customers. Their argument that these enhancements should have been rolled out 16 sooner may speak to questionable business practices, but not to whether defendants misled 17 investors and committed securities fraud. 18 * * * 19 In sum, plaintiffs fail to plead with particularity that defendants made any false or 20 misleading statements or material omissions. Because this is dispositive as to plaintiffs’ Section 21 10(b) claim, the Court need not consider whether plaintiffs have adequately pleaded scienter or 22 loss causation. 23 II. Plaintiffs fail to state a claim under Section 20(a). 24 Section 20(a) imposes liability on individuals who “control[] any person” who has 25 violated, among other laws, Section 10(b) and Rule 10b-5. 15 U.S.C. § 78t(a); Zucco, 552 F.3d at 26 990. Section 20(a) requires a primary violation of the securities laws. See Prodanova v. H.C. 27 Wainwright & Co., LLC, 993 F.3d 1097, 1113 (9th Cir. 2021). ] Accordingly, their Section 20(a) claim falls with their claim under Section 10(b). 2 CONCLUSION 3 Defendants’ motion to dismiss plaintiffs’ second amended complaint is granted. Plaintiffs 4 are granted leave to file an amended complaint by March 24, 2026. Failure to timely file an 5 amended complaint will result in dismissal of plaintiffs’ claims with prejudice.’ 6 IT IS SO ORDERED. 7 Dated: February 17, 2026 8
10 P. Casey Fitts United States District Judge
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Z 18 19 20 21 22 23 24 25 %6 7 Plaintiffs’ second amended complaint, despite having a length of 163 pages, failed to state a valid claim for relief. Should plaintiffs file a third amended complaint, the Court strongly 97 || encourages plaintiffs to take a more succinct and streamlined approach and to focus their allegations on only those statements and omissions for which they can adequately plead all of the 4g || tequirements for a securities fraud claim, including not only falsity but also scienter and loss causation.