City of Royal Oak Ret. Sys. v. Juniper Networks, Inc.

• Decision Date: 23 July 2012
• Docket Number: Case No. 5:11–CV–04003–LHK.
• Citation: 880 F.Supp.2d 1045
• Court: U.S. District Court — Eastern District of California
• Parties: CITY OF ROYAL OAK RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. JUNIPER NETWORKS, INC., Kevin R. Johnson, Robyn M. Denholm, and Scott G. Kriens, Defendants.

880 F.Supp.2d 1045

CITY OF ROYAL OAK RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.JUNIPER NETWORKS, INC., Kevin R. Johnson, Robyn M. Denholm, and Scott G. Kriens, Defendants.

Case No. 5:11–CV–04003–LHK.

United States District Court,

N.D. California,

San Jose Division.

July 23, 2012.

Deborah Clark-Weintraub, Scott+Scott LLP, New York, NY, Shawn A. Williams, Christopher Paul Seefer, Robbins Geller Rudman & Dowd LLP, San Francisco, CA, Catherine J. Kowalewski, Darren Jay Robbins, David Conrad Walton, Robbins Geller Rudman & Dowd LLP, Mary K. Blasy, Scott Scott LLP, San Diego, CA, Michael J. Vanoverbeke, Thomas C. Michaud, Vanoverbeke Michaud & Timmony, P.C., Detroit, MI, for Plaintiff.

Joni L. Ostler, Wilson Sonsini Goodrich & Rosati Professional Corporation, Nina F. Locker, Wilson Sonsini Goodrich & Rosati, Steven Guggenheim, Wilson Sonsini et al., Palo Alto, CA, for Defendants.

ORDER GRANTING JUNIPER'S MOTION TO DISMISS WITHOUT PREJUDICE; AND GRANTING KRIENS' MOTION TO DISMISS WITHOUT PREJUDICE

LUCY H. KOH, District Judge.

This is a putative securities fraud class action on behalf of all persons who purchased or otherwise acquired Juniper common stock between July 20, 2010, and July 26, 2011, inclusive (the “Class Period”) against Defendants Juniper Networks, Inc. (“Juniper,” “Juniper Networks” or the “Company”), Kevin R. Johnson (“Johnson”), Robyn M. Denholm (“Denholm”), and Scott G. Kriens (“Kriens”) (collectively, “Defendants”). Lead Plaintiffs City of Omaha Police and Fire Retirement System and City of Bristol Pension Fund (“Plaintiffs”) assert claims against all Defendants for violations of § 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities Exchange Commission (“SEC”) Rule 10b–5. Plaintiffs additionally assert claims against all Individual Defendants for violations of §§ 20(a) and 20A of the Exchange Act. Before the Court are two motions. Juniper Networks, Johnson, and Denholm move to dismiss pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. See ECF No. 54 (“Juniper Motion”). Kriens separately moves to dismiss, based on the arguments raised in the Juniper Motion and based on additional grounds for dismissal specific to Kriens. See ECF No. 53 (“Kriens Motion”). Both motions are fully briefed. See ECF No. 69 (“Opp'n to Juniper”); ECF No. 70 (“Opp'n to Kriens”); ECF No. 76 (“Juniper Reply”); ECF No. 73 (“Kriens Reply”). The Court found this matter appropriate for determination without oral argument and accordingly vacated the hearing set for July 19, 2012. See Civ. L.R. 7–1(b). For the reasons explained below, the Court GRANTS Defendants Juniper Networks', Johnson's, and Denholm's motion to dismiss, and GRANTS Defendant Kriens' motion to dismiss, both with leave to amend.

I. BACKGROUND

A. Procedural History

The City of Royal Oak Retirement System (“City of Royal Oak”) filed a private securities class action complaint against Defendants on August 15, 2011. ECF No. 1. After the City of Royal Oak published the pendency of this action on August 16, 2011, three parties moved the Court for appointment as lead plaintiff and for approval of lead counsel: (1) City of Omaha Police and Fire Retirement System and City of Bristol Pension Fund (collectively, the “Public Retirement Systems”), see ECF No. 17; (2) Stationary Engineers Local 39 Pension Trust Fund, see ECF No. 19; and (3) Roofers Local No. 149 Pension Fund and Steamship Trade Association–International Longshoremen's Pension Benefit Fund, see ECF No. 21. Only the Public Retirement Systems' motion was unopposed. On January 9, 2012, 2012 WL 78780, pursuant to 15 U.S.C. § 78u–4 governing the selection of a lead plaintiff in private securities class actions, the Court appointed the Public Retirement Systems lead plaintiff, and appointed Scott+Scott LLP lead counsel. ECF No. 42. Lead Plaintiffs Public Retirement Systems (hereinafter “Plaintiffs”) filed an Amended Complaint on February 23, 2012. ECF No. 47 (“AC”).

B. Factual Allegations

This is a putative securities fraud class action on behalf of all persons who purchased or otherwise acquired Juniper common stock between July 20, 2010, and July 26, 2011, inclusive (the “Class Period”). See AC ¶ 2. Defendant Juniper Networks is a technology company that designs and sells communications networking and security equipment and software. Id. ¶¶ 3, 21. Juniper's primary communications networking product and service offerings are its core routers and switches, which allow customers to move voice, video, and data traffic across their networks. Id. ¶ 3. Juniper also specializes in security products and software that enable the secure and efficient operation of data networks. Id. Juniper's operations are organized into two reportable segments: “Infrastructure,” which offers scalable routing and switching products; and “Service Layer Technologies” (“SLT”), which offers products designed to protect its customers' networks. Id. ¶ 4. Juniper sells its products to both “Service Providers,” such as Verizon and AT & T, and to “Enterprise” customers, meaning large entities such as corporations, universities, financial institutions, and the federal government. Id. ¶ 5. During the Class Period, Juniper Networks had between 519 and 533 million shares of common stock outstanding, which were traded in an efficient market on the NASDAQ National Market under the ticker symbol “JNPR.” Id. ¶ 21.

The Individual Defendants were employed at Juniper Networks during the Class Period. Defendant Kriens was Chairman of Juniper's Board of Directors during the Class Period, a position he has held since the company was founded in 1996. Id. ¶ 22. Kriens was also Juniper's Chief Executive Officer (“CEO”) from 1996 to 2008, when Defendant Johnson became CEO. Id. Kriens remained a salaried employee of Juniper until April 1, 2011, when he became its “non-executive Chairman. Id. Plaintiffs allege that, during the Class Period, Kriens “received daily reports and/or had ready access to Juniper's computerized systems containing up-to-date information regarding Juniper's sales, product demand, expenses and inventory,” and “was intimately knowledgeable about all aspects of Juniper's business operations.” Id. Specifically, Plaintiffs allege that Kriens reviewed, prepared, and signed the Shelf Registration Statement Juniper filed with the SEC on August 10, 2010, which incorporated by reference any “additional documents that [Juniper would] file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the completion or termination of the offering, including all such documents [Juniper would] file with the SEC after the date of the initial registration statement and prior to the effectiveness of the registration statement ....” Id. (emphasis omitted). Kriens also reviewed, approved, and signed the 2010 Form 10–K filed with the SEC on February 25, 2011. Id.

Defendant Johnson was, during the Class Period, President, CEO, and a director of Juniper. Id. ¶ 23. Defendant Denholm was, during the Class Period, Executive Vice President and Chief Financial Officer (“CFO”). Id. ¶ 24. Plaintiffs allege that both Johnson and Denholm were “hands-on manager[s].” Id. ¶¶ 23–24. Plaintiffs further allege that both Johnson and Denholm were “intimately involved in the preparation of Juniper's financial statements and earnings guidance,” and in particular that they made various public statements for the Company during the Class Period, and participated in all Class Period earnings conferences, as well as the 2010 and 2011 Analyst Day Conferences. Id. Plaintiffs also allege that Johnson and Denholm reviewed, approved, and signed several of Juniper's SEC filings during the Class Period, including the August 10, 2010 Registration Statement, the 2010 Form 10–K, and the Sarbanes–Oxley certificates filed with all quarterly financial reports on Form 10–Q. Id.

Plaintiffs allege that during the Class Period, Defendants issued various materially false and misleading statements regarding the Company's business practices and financial results, which caused the Company's stock to be traded at artificially inflated prices during the Class Period, reaching a high of $45 per share on March 8, 2011. Id. ¶¶ 8–14. Plaintiffs allege that Defendants repeatedly made false or misleading statements or omissions during the course of press releases relating to Juniper's quarterly and yearly earnings, conference calls accompanying those press releases, quarterly and annual filings with the SEC, and investor events attended by the Individual Defendants. See id. ¶¶ 67–139. Although Plaintiffs cite voluminous examples of allegedly misleading statements spanning the Class Period, Plaintiffs effectively accuse Defendants of two broad categories of misleading conduct: (1) misleading statements regarding Juniper's future growth prospects, and (2) insufficient disclosures of Juniper's adoption of new accounting practices.

First, Plaintiffs allege that Defendants failed to disclose material facts about Juniper's business operations that were necessary to prevent the Company's long-term growth projections from being misleading. Plaintiffs allege that on February 23, 2010, Juniper hosted an Analyst Day Conference with analysts and investors, during which Defendants set out a long-term business plan calling for 20% or higher revenue growth and a 25% or higher operating margin over the next three to five years. Id. ¶ 26. At the Conference, Denholm stated that there were “two factors that we believe will drive our growth, and that is our innovation and our expanding routes market,” and that Juniper was “strengthening [its] channel and generating demand through [its] connective sales and marketing programs.” Id. Denholm also justified the plan for a 25% operating margin by saying “[t]he main actor that will drive this margin expansion are the growth in revenue and a continued focus on...