On March 27, 2025, Judge John G. Koeltl of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action asserting claims against a software company and certain of its officers (the “Individual Defendants”) under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. In re Adobe Inc., No. 23-cv-9260 (S.D.N.Y. Mar. 27, 2025). Plaintiffs claimed that defendants knowingly misled investors about competitive threats facing the Company that came to light when the Company acquired one of its competitors and the Company’s stock price declined. In dismissing the complaint, the Court held that plaintiffs failed to adequately plead any actionable misstatement or omission and also failed to plead scienter.
Plaintiffs alleged that defendants made misstatements and omissions regarding the threat posed to the Company by a competitor, and grouped the alleged statements into three categories: (1) statements downplaying competition from the competitor; (2) statements concerning the viability of the Company’s own product; and (3) statements regarding plans to merge with the competitor.
As to the first category, plaintiffs alleged several statements that purportedly downplayed the known risk of the competitive threat. For example, the complaint alleges that defendants misleadingly stated that rather than pose a threat, the success of other companies “validate[d] the explosiveness of the market.” The Court held, however, that plaintiffs failed to plausibly allege that any of the statements were false or misleading. In so holding, the Court distinguished the allegations here from those in the cases relied on by plaintiffs, noting that plaintiffs in those cases had alleged that the competitive threat caused tangible and concrete harm to defendant’s business, whereas here plaintiffs plausibly alleged only that the Company’s competition presented a potential competitive threat. The Court further held that certain alleged misstatements related to competitive threats were mere expressions of opinion, puffery, or corporate optimism, such as the Company being a “market leader” and of competition being a “tailwind” and as “validat[ing] the explosiveness of these markets that we’re competing in,” which the Court described as “plainly vague expressions of corporate optimism that are too general to induce reliance.”
As to the second category, plaintiffs alleged a series of statements that they contended “misleadingly promoted [the Company’s product] as a viable and developing product despite [the Company’s] decision to wind it down,” including referencing the product as one of the Company’s “flagship applications.” The Court agreed with defendants that to the extent the alleged statements represented facts at all, the statements were truthful and accurate, emphasizing that plaintiffs did not even contest the accuracy of the statements. The Court further stated that the securities laws do not require the Company to refrain from promoting a product merely because it had internally decided to allocate resources elsewhere, and that statements such as that the product “keeps getting better and better” are inactionable statements of subjective opinion.
As to the third category, the Court held that plaintiffs failed to sufficiently allege that defendants misrepresented the Company’s strategy as it related to organic growth. In so holding, the Court rejected plaintiffs’ contention that alleged statements regarding the Company’s pursuit of “organic” growth were rendered false or misleading in light of its acquisition of a competitor because the Company never ruled out potential acquisitions and even stated that it would “burn calories to acquire those assets” that it considered valuable and worthwhile.
Although the Court found the 10(b) claim defective on the ground that plaintiffs failed to sufficiently allege any actional misstatement or omission, it nevertheless considered and held that plaintiffs failed to adequately allege scienter pursuant to either a “motive and opportunity” or a “recklessness” theory. As to the motive and opportunity allegations, the Court held that plaintiffs failed to allege that the Individual Defendants’ stock sales during the putative class period were unusual or indicative of fraud. As to the recklessness allegations, the Court held that plaintiffs failed to identify any false or misleading statements, let alone ones representing “an extreme departure from the standards of ordinary care.”
Having found that plaintiffs failed to adequately plead their Section 10(b) claim, the Court dismissed the derivative control person claims against the Individual Defendants under Section 20(a). The Court provided plaintiffs the opportunity to further amend their complaint.
