Glazer Capital Management, L.P., et al. v. Forescout Technologies, Inc. et al.

Where plaintiffs' adequately pled fraud under Section 10b and Rule 10b-5 of the Securities and Exchange act, statements by defendant may still be protected when they are forward-looking under the PSLRA's safe harbor provision

Plaintiffs appealed a dismissal of a fraud class action suit against Forescout Technologies. Specifically, plaintiffs alleged Forescout misrepresented their (1) sales pipeline; (2) sales force; (3) channel partner relationships; and (4) planned merger with Advent, to the detriment of investors. The allegations were made under Section 10(b) and Rule 10b-5 of the Securities and Exchange Act. Plaintiffs’ claims were subject to heightened pleading requirements under Rule 9(b) and the private Securities Litigation Reform Act (PSLRA). Fraud under Section 10(b) and Rule 10b-5, is alleged by, among other elements, falsity and scienter, which were at issue here. Falsity, where the challenged statement contains opinion, requires plaintiff to show “particular material facts” that the opinion is based on, and that when omitted, would mislead a reasonable person at the time the challenged statement was made. Under the PSLRA, falsity is subject to a particularity and reasonable inference standard. The scienter is the intent to mislead investors. Under the PSLRA, scienter is subject to a particularity requirement and strong inference standard of plausibility. Section 20(a) of the Exchange Act imposes liability on individuals for violating Section 10(b) and Rule 10b-5. A defendant’s forward-looking statements may still be protected by the PSLRA’s safe harbor provision, despite a plaintiff’s adequate pleading under Section 10(b). The court determined plaintiffs’ allegations regarding the sales pipeline met both falsity and scienter requirements, however, some statements were forward-looking and, therefore, rightfully dismissed by the district court. Plaintiffs’ allegations on sales force and channel partner statements failed the particularity requirements and were rightfully dismissed. Plaintiffs’ allegations about the merger statement adequately pled falsity and scienter, and were not subject to protection by the safe harbor provision. Affirmed in part, reversed in part, remanded consistent with this opinion.