On September 12, 2025, Judge Marsha J. Pechman of the United States District Court for the Western District of Washington denied a motion to dismiss a proposed securities class action against a software company (the “Company”).
Sohovich v. Avalara, Inc., No. C22-1580 MJP (W.D. Wash. Sept. 12, 2025). Plaintiff alleged that the Company, its Board of Directors (the “Board”), and its CEO (together, the “Defendants”) misled investors about the fairness of the Company’s August 2022 sale to a private investor, allegedly violating Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). The Court had previously dismissed the complaint with prejudice for failure to identify an actionable misstatement, but the Ninth Circuit affirmed in part and reversed in part, directing the Court to analyze two specific alleged misstatements. On remand, the Court found plaintiff’s pleading sufficient as to those two misstatements but held that claims related to one could not proceed against the Board.
Plaintiff alleged that after a period of rapid growth, the Company’s purported slowdown and share price decline attracted private equity interest, leading to a sales process in April 2022. The Company prepared projections, allegedly approved by the Board, which were included in proxy materials. The Board allegedly approved the merger agreement in August 2022, which was ratified by shareholders shortly thereafter. Plaintiff claimed that the proxy materials misrepresented the Company’s financial condition to encourage shareholder approval. As we covered in "
Western District Of Washington Grants Motion To Dismiss Proposed Class Action Against Software Company And Its Board Of Directors," the district court initially dismissed the complaint, but the Ninth Circuit remanded for reconsideration of two omissions: (1) that the May and July 2022 projections omitted “inorganic growth” from the Company’s valuation, and (2) that the Company “cherry-pick[ed]” positive information from an Institutional Shareholder Services (the “ISS report”) for the proxy while allegedly omitting negative information.
Addressing whether plaintiff had adequately pleaded the Board’s knowledge concerning these alleged omissions,
i.e., whether the Board had acted negligently, the Court held that plaintiff sufficiently pleaded the Board knew or reasonably should have known the May and July projections were misleading, particularly given the CEO’s routine presentation of projections at multiple board meetings. Based on the Board’s alleged experience construing and deciphering projections with inorganic growth figures, the Court inferred that the Board knew or should have known that the May and July projections were outliers and presented a less than full picture of the Company’s financial condition. However, the Court held plaintiff did not adequately allege any facts sufficient to show the Board knew or should have known about the full contents of the ISS report.
Accordingly, the Court allowed plaintiff’s remaining Exchange Act claims proceed against the Company and CEO and against the Board only as to the alleged omissions concerning the May and July projections.
