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Southern District Of New York Dismisses Putative Class Action Against Technology Company For Failure To Adequately Allege Misrepresentations And Scienter
03/25/2025On March 19, 2025, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action asserting claims under the Securities Exchange Act of 1934 against a technology company and certain of its officers. Damri v. LivePerson, Inc., 2025 WL 863322 (S.D.N.Y. March 19, 2025). Plaintiff alleged that defendants made misrepresentations concerning various aspects of the company’s performance. The Court held that plaintiff failed to adequately allege any actionable misstatement or omission and failed to adequately plead scienter.
As a threshold matter, the Court observed that the complaint “suffer[ed] from an overarching methodological deficiency—heavy reliance on statements from [purported confidential witnesses] that are problematic on multiple grounds.” Id. at *13. For example, the Court noted that (i) plaintiff’s counsel never interacted with or learned the identity of a confidential witness upon whom they “heavily” relied, and instead took those allegations from a different litigation brought by different counsel, id. at *9–10, and (ii) for the confidential witnesses that plaintiff’s counsel interacted with, their alleged statements were largely generic, conclusory, and based on “secondhand information” without any allegation of personal knowledge, id. at *10–12.
With respect to the alleged misrepresentations, the Court held that various claims were “unsubstantiated by the facts pled and cognizable materials,” including as to alleged misrepresentations regarding the justifications for key metrics, the effectiveness of internal controls, a subsidiary’s performance, and the refinancing of certain notes. Id. at *13. The Court further determined that plaintiff’s omission claims were faulty because pure omissions are not actionable absent a freestanding disclosure duty, but plaintiff had identified no legal basis requiring disclosure of the information in question. Id. The Court held that various other allegations were either non-actionable puffery, immaterial, or amounted to improper “fraud by hindsight.” Id.
The Court also determined that plaintiff failed to adequately plead scienter, based either on a theory of motive and opportunity or based on strong circumstantial evidence of conscious misbehavior or recklessness. The Court rejected plaintiff’s argument that the individual defendants had a motive to inflate the company’s stock price and increase their compensation through stock sales; rather, the Court observed that these motives were true for most officers and directors and did not rise to the level of the required concrete and personal benefit from the alleged fraud. Id. at *24. The Court further explained that, while the volume of shares sold here was significant, the individual defendants retained significantly more shares than they sold, cutting against an inference of scienter. Id. at *25. With respect to plaintiff’s theory based on conscious misbehavior or recklessness, the Court concluded that plaintiff’s allegations—including that defendants had “control” over the company’s business decisions and financials, and that defendants allegedly gave misleading responses to analyst questions—were conclusory and “did not come close to supporting an inference of scienter.” Id. at *26.
In addition, the Court rejected plaintiff’s arguments in connection with Item 303 of Regulation S‑K, requiring the disclosure of known material trends and uncertainties. Id. at *27. The Court emphasized that these allegations largely rested on the erroneous premise that there was an affirmative obligation to disclose ostensibly deteriorating business prospects. Id. at *28. Moreover, the Court concluded that plaintiff failed to allege actual knowledge of the allegedly omitted trends and uncertainties. Id.
The Court dismissed the action with prejudice, denying plaintiff’s request for leave to amend because plaintiff had already amended the complaint once, had forgone an additional opportunity to do so, and further amendment would be futile because of the substantive deficiencies in the complaint. Id. at *29.
