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Southern District Of New York Grants Motion To Dismiss Securities Class Action Against Digital Technology Services Company For Failure To Plead Falsity Or Scienter
08/18/2026On August 11, 2026, Judge Victor Marrero of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities fraud class action against a digital technology services company (the “Company”), and four of its current and former officers (the “Individual Defendants”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Sarria v. TELUS International (CDA) Inc., No. 25 Civ. 889 (S.D.N.Y. Aug. 11, 2026). In granting the motion to dismiss, the Court held that plaintiffs failed to plead any actionable misstatement or omission, or any facts giving rise to a strong inference of scienter.
According to the operative complaint, the Company provides customer experience management, trust and safety, digital, and artificial intelligence (“AI”) data solutions. Plaintiffs allege that the Company made false and misleading statements between February 9, 2023, and August 1, 2024, concerning (1) its AI capabilities and growth, (2) its margins, including revenue loss and margin pressure from competition and pricing, and (3) the impact of its cost-cutting initiatives. Plaintiffs allege, relying in part on four confidential witnesses, that the Company lacked proprietary AI technology, and that it reassigned inexperienced personnel to “AI teams” rather than hiring employees with AI experience. As a result, plaintiffs allege that the Company’s flagship generative AI offering was little more than a third-party chatbot packaged under the Company’s user interface, and that the Company’s touted internal cost-efficiency programs could not have generated savings because the Company allegedly had no meaningful AI capabilities to deploy internally. Plaintiffs allege that the truth was revealed through partially corrective disclosures on May 9, 2024, and August 2, 2024, in which the Company reported disappointing first- and second-quarter 2024 results and lowered its full-year 2024 guidance, which allegedly caused the Company’s stock price to drop.
In dismissing the complaint, the Court first addressed whether plaintiffs adequately alleged falsity. The Court held that several alleged misstatements drawn from the Company’s Form 20-F risk factors were forward-looking statements protected by the PSLRA’s safe harbor, explaining that those statements were not merely accompanied by meaningful cautionary language but instead constituted that cautionary language. The Court reasoned that finding those statements actionable would convert the “cautionary language into the fraud itself.” The Court likewise held that the Company’s former CEO’s alleged statement that the Company was “better positioned than most” to benefit from AI adoption was an inherently subjective opinion rather than a fact ascertainable with certainty. The Court further held that a number of alleged statements—including the former CEO’s characterization of the Company as a “premium provider” with a “unique value proposition”—constituted nonactionable puffery too general for a reasonable investor to rely upon.
Turning to the remaining alleged statements, the Court grouped them into four categories regarding the Company’s (1) talent and personnel, (2) financial or business outlook, (3) AI capabilities and offerings, and (4) cost-cutting initiatives. The Court held that alleged confidential witness accounts of employee inexperience amounted to conclusory allegations of mismanagement, which do not support a securities fraud claim, and that three of the four confidential witnesses spoke only to a single acquired division rather than to company-wide capabilities. Addressing alleged misstatements regarding the Company’s financials, the Court held that plaintiffs did not offer sufficient support that the alleged statements were false or materially misleading when made. With respect to the Company’s AI capabilities and offerings, the Court explained that “[h]aving AI capabilities and earning revenue from them are separate points,” such that the alleged nascency of the Company’s AI revenue streams did not render the statements that it had AI capabilities false or misleading when made. As to alleged statements regarding the Company’s cost-cutting initiatives, the Court held that allegations based on later acknowledgments that certain initiatives were taking longer than expected reflected impermissible “fraud by hindsight,” rather than falsity at the time of the statements.
The Court next addressed the issue of scienter, noting that plaintiffs proceeded solely on a theory of conscious misbehavior or recklessness. The Court determined that nothing in the pleadings indicated that the former CEO knew facts or had access to information suggesting his earlier statements were false, particularly because the Company had disclosed as early as February 2023 that pilot programs might occur and had repeatedly warned of competitive and pricing pressures throughout the class period. The Court also rejected allegations that defendants held themselves out as knowledgeable, explaining that plaintiffs identified no “specific contradictory information” defendants possessed or any temporal connection between such information and the statements at issue.
Finally, the Court rejected plaintiffs’ reliance on the core operations doctrine, noting that it remains unresolved in the Second Circuit whether the doctrine survived the PSLRA and that, in any event, the doctrine cannot independently establish scienter. Because plaintiffs failed to plead scienter under his other theories, the Court concluded there was no inference for the doctrine to bolster. In light of its findings, the Court declined to address defendants’ argument that plaintiffs also failed to plead loss causation.
Having found that plaintiffs failed to sufficiently allege a primary violation under Section 10(b), the Court dismissed plaintiffs’ Section 20(a) control person liability claim against the Individual Defendants.
Securities Litigation