Zamir v. Bridgepoint Education, Inc. et al

MOTION to Dismiss for Failure to State a Claim re Third Amended Class Action Complaint

S.D. Cal.May 19, 2017

1 NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041009 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GREENBERG TRAURIG, LLP DANIEL J. TYUKODY (SBN 123323) TyukodyD@gtlaw.com ROBERT H. GRUBER (SBN 301620) Gruberr@gtlaw.com 1840 Century Park East, Suite 1900 Los Angeles, CA 90067-2121 Telephone: (310) 586-7700 Facsimile: (310) 586-7800 Attorneys for Defendants Bridgepoint Education, Inc. and Daniel J. Devine UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA SAN DIEGO DIVISION NELDA ZAMIR, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, vs. BRIDGEPOINT EDUCATION, INC.; ANDREW S. CLARK; DANIEL J. DEVINE; PATRICK T. HACKETT; ADARSH SARMA; WARBURG PINCUS LLC; WARBURG PINCUS & CO.; WARBURG PINCUS PARTNERS LLC; WARBURG PINCUS PRIVATE EQUITY VIII, L.P., Defendants. CASE NO. 15-CV-408 JLS (DHB) CLASS ACTION NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Special Briefing Schedule Ordered DATE: July 27, 2017 TIME: 1:30 p.m. DEPT: 4A (4th Floor - Schwartz) JUDGE: Janis L. Sammartino Case 3:15-cv-00408-JLS-AGS Document 70 Filed 05/19/17 PageID.998 Page 1 of 4 2 NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041009 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TO ALL PARTIES AND TO THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE THAT on July 27, 2017, at 1:30 p.m. or as soon thereafter as the matter may be heard in the courtroom of the Honorable Janis L. Sammartino, United State District Judge, located at the Edward J. Schwartz United States District Courthouse, 221 West Broadway, San Diego, California 92101, Courtroom 4A, Defendants Bridgepoint Education, Inc. and Daniel J. Devine will and hereby do move for an order dismissing with prejudice all claims made against them in the Plaintiffs’ Third Amended Class Action Complaint for Violations of the Federal Securities Laws. This motion is made pursuant to Rules 8, 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure and the provisions of the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 78u-4 & 5. This motion is based upon the accompanying Memorandum of Points and Authorities and the papers on file in the action, and such other matters as may be judicially noticed or come before the Court at the hearing on this matter. DATED: May 19, 2017 GREENBERG TRAURIG, LLP By: s/ Daniel J. Tyukody Daniel J. Tyukody Attorneys for Defendants Bridgepoint Education., Inc. and Daniel J. Devine Case 3:15-cv-00408-JLS-AGS Document 70 Filed 05/19/17 PageID.999 Page 2 of 4 1 CERTIFICATE OF SERVICE CASE NO. 15-CV-408 JLS (DHB) LA 133041009 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I hereby certify that on May 19, 2017, I caused to be filed electronically document(s) described as: NOTICE OF MOTION AND MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT with the Clerk of the Court using the Court’s CM/ECF system which will send notification of such filing to the e-mail addresses noted below: Sameer Advani sadvani@willkie.com Tariq Mundiya tmundiya@willkie.com Willkie Farr and Gallagher LLP 787 Seventh Avenue New York, NY 10019 (212) 728-8000; Fax: (212) 728-8111 Counsel for Defendants: Warburg Pincus LLC; Warburg Pincus & Co.; Warburg Pincus Partners LLC; and Warburg Pincus Private Equity VIII, L.P. John F Cannon jcannon@sycr.com Stradling Yocca Carlson and Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660-6441 (949) 725-4107; Fax: (949) 823-5107 Counsel for Defendants: Warburg Pincus LLC; Warburg Pincus & Co.; Warburg Pincus Partners LLC; and Warburg Pincus Private Equity VIII, L.P. Laurence M. Rosen lrosen@rosenlegal.com The Rosen Law Firm, P.A. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 (213) 785-2610; Fax: (213) 226-4684 Counsel for Plaintiffs: Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch Sarah Fuks sfuks@rosenlegal.com The Rosen Law Firm 275 Madison Avenue, 34th FL New York, NY 10016 (212) 686-1060; Fax: (212) 202-3827 Counsel for Plaintiffs: Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch Case 3:15-cv-00408-JLS-AGS Document 70 Filed 05/19/17 PageID.1000 Page 3 of 4 2 CERTIFICATE OF SERVICE CASE NO. 15-CV-408 JLS (DHB) LA 133041009 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Lionel Z. Glancy info@glancylaw.com Robert Vincent Prongay rprongay@glancylaw.com Casey Edwards Sadler csadler@glancylaw.com Glancy-Prongay & Murray LLP 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 (310) 201-9150; Fax: (310) 201-9160 Counsel for Plaintiffs Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch By: s / Daniel J. Tyukody Daniel J. Tyukody Case 3:15-cv-00408-JLS-AGS Document 70 Filed 05/19/17 PageID.1001 Page 4 of 4 1 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GREENBERG TRAURIG, LLP DANIEL J. TYUKODY (SBN 123323) TyukodyD@gtlaw.com ROBERT H. GRUBER (SBN 301620) Gruberr@gtlaw.com 1840 Century Park East, Suite 1900 Los Angeles, CA 90067-2121 Telephone: (310) 586-7700 Facsimile: (310) 586-7800 Attorneys for Defendants Bridgepoint Education, Inc. and Daniel J. Devine UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA SAN DIEGO DIVISION NELDA ZAMIR, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, vs. BRIDGEPOINT EDUCATION, INC.; ANDREW S. CLARK; DANIEL J. DEVINE; PATRICK T. HACKETT; ADARSH SARMA; WARBURG PINCUS LLC; WARBURG PINCUS & CO.; WARBURG PINCUS PARTNERS LLC; WARBURG PINCUS PRIVATE EQUITY VIII, L.P., Defendants. CASE NO. 15-CV-408 JLS (DHB) CLASS ACTION MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Special Briefing Schedule Ordered DATE: July 27, 2017 TIME: 1:30 p.m. DEPT: 4A (4th Floor - Schwartz) JUDGE: Janis L. Sammartino Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1002 Page 1 of 22 i MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page I. INTRODUCTION. .................................................................................................. 1 II. THE HEIGHTENED PLEADINGS STANDARD APPLICABLE TO SECURITIES CASES AND PLAINTIFFS’ ATTEMPTED DILUTION OF THAT STANDARD. .................................................................... 6 III. THE NEW MATERIAL ADDED TO THE TAC ONLY MAKES FOR A LESS COGENT AND COMPELLING INFERENCE OF SCIENTER. ....................................................................................................... 8 IV. A HOLISTIC ANLAYSIS IS DEVASTATING TO PLAINTIFFS’ CASE .... 14 V. PLAINTIFFS’ §20(a) CLAIM FAILS BECAUSE THEY HAVE FAILED TO PLEAD A PRIMARY VIOLATION. ........................................... 15 VI. CONCLUSION. ..................................................................................................... 15 Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1003 Page 2 of 22 ii MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page(s) Federal Cases In re Aspeon, Inc. Sec. Litig., 168 F. App’x 836 (9th Cir. 2006) ................................................................................. 12 City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Technology, Inc., 2017 U.S. App. LEXIS 8005 (9th Cir. May 5, 2017) ......................................... 2, 13, 14 City of Hallandale Beach Police v. LifeLock, Inc., 2017 U.S. App. LEXIS 8386 (9th Cir. May 11, 2017) ................................................. 14 In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d, 1150, 1158 ........................................................................................... 2 DSAM Global Value Fund v. Altris Software, Inc., 288 F.3d 385 (9th Cir. 2002) .......................................................................................... 2 Gompper v. VISX, Inc., 298 F.3d 893 (9th Cir. 2002) .......................................................................................... 1 In re Harmonic Inc. Sec. Litig., 163 F. Supp. 2d 1079 (N.D. Cal. 2001) .......................................................................... 6 Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971 (9th Cir. 1999) ........................................................................................ 15 N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089 (9th Cir. 2011) ........................................................................................ 2 In re Netflix, Inc. Sec. Litig., 647 Fed. App’x 813 (9th Cir. 2016) ............................................................................. 15 Noble v. Bank of Am., N.A., 2015 U.S. Dist. LEXIS 147744 (N.D. Cal. Oct. 29, 2015) ............................................ 2 Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598 (9th Cir. 2014) .......................................................................................... 1 Reed v. Labbe, 2012 U.S. Dist. LEXIS 153095 (C.D. Cal. Oct. 22, 2012) ............................................ 2 Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1004 Page 3 of 22 iii MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009) ...................................................................................... 14 Steckman v. Hart Brewing, 143 F.3d 1293 (9th Cir. 1998) .................................................................................. 3, 15 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ............................................................................................... passim In re Vantive Corp. Sec. Litig., 283 F.3d 1079 (9th Cir. 2002) ...................................................................................... 15 In re Worlds of Wonder Sec. Litig., 35 F.3d 1407 (9th Cir. 1994) .......................................................................................... 2 WPP Lux. Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039 (9th Cir. 2011) ........................................................................................ 7 Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) .................................................................................. 14, 15 Federal Statutes Fed R. Civ. P. 8 ....................................................................................................................................... 1 9(b) .................................................................................................................................. 1 1 12(b)(6) ........................................................................................................................... 1 Rule 10b-5 ............................................................................................................................ 1 Rule 11 ............................................................................................................................... 16 15 U.S.C. §§ 78u-4 & 5 ................................................................................................................... 1 § 78u-4(b)(1) ................................................................................................................... 6 § 78u-4(c) ...................................................................................................................... 16 Private Securities Litigation Reform Act ............................................................................. 1 Other Statutes 1934 Securities Exchange Act. ............................................................................................ 1 Reform Act ................................................................................................................. 1, 6, 15 § 21D(c) ........................................................................................................................ 16 Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1005 Page 4 of 22 1 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Defendants Bridgepoint Education, Inc. (“Bridgepoint” or the “Company”) and Daniel J. Devine (the “Individual Defendant” and along with Bridgepoint, “Defendants”) respectfully submit this memorandum in support of their motion to dismiss Plaintiffs’ Third Amended Class Action Complaint for Violation of the Federal Securities Laws (the “TAC”) pursuant to Fed R. Civ. P. 8, 9(b) and 12(b)(6), as well as the provisions of the Private Securities Litigation Reform Act (the “Reform Act” or “PSLRA”), 15 U.S.C. §§ 78u-4 & 5. I. INTRODUCTION. With every new attempt, Plaintiffs only get farther away from their goal of pleading adequately the required element of scienter.1 Under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007), Plaintiffs were required to plead facts that make the “inference of scienter … cogent and compelling, thus strong in light of other explanations.” And under Gompper v. VISX, Inc., 298 F.3d 893, 896-97 (9th Cir. 2002) the Court is required to consider all reasonable inferences to be drawn from the complaint, including those which favor the 1 Plaintiffs attempt to plead a case primarily under Section 10(b) and Rule 10b-5 of the 1934 Securities Exchange Act. “To plead a claim under section 10(b) and Rule 10b-5, the Plaintiff[] must allege (1) a material misrepresentation or omission; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a securities; (4) reliance; (5) economic loss; and (6) loss causation.” Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 603 (9th Cir. 2014). As before, Defendants’ primary arguments are that Plaintiffs fail to plead the required elements of scienter and loss causation. However, since Plaintiffs’ loss causation allegations are identical to those offered in their Second Amended Complaint (“SAC”) (compare SAC ¶¶ 116-30 with TAC ¶ 139-53) which allegations the Court found to be sufficient “at this time” (see Dismissal Order of April 5, 2017 (ECF No. 64) at 19 (“Second Dismissal Order”)), Defendants request the Court’s permission to incorporate by reference their prior loss causation arguments. While Defendants do not anticipate that the Court will change its mind on this issue, they nevertheless wish to preserve the issue for the record. Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1006 Page 5 of 22 2 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 defendant. See also Tellabs, 551 U.S. at 323-24 (a “court must consider plausible nonculpable explanations for the defendant’s conduct”). The only reasonable inference that arises from the TAC is that Bridgepoint made a simple accounting error, and Plaintiffs have no answer for the long line of Ninth Circuit authority holding that “[t]he mere publication of inaccurate accounting figures, or a failure to follow Generally Accepted Accounting Principles (“GAAP”), without more, does not establish scienter.” In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1426 (9th Cir. 1994) (“WOW”).2 The changes that Plaintiffs made to convert their SAC into the TAC are entirely trivial, and as part of the required holistic analysis, 3 they only help Defendants’ case. Almost all of the new material in the TAC comes from Bridgepoint’s February 28, 2014 and June 3, 2014 communications with the SEC, which Plaintiffs quote extensively and which are even attached as exhibits to the TAC. Had Defendants attempted to submit these materials, Plaintiffs might have had a valid objection, but Defendants have no objection at all to Plaintiffs’ use of these materials, because the only cogent and compelling inference that arises from them is that Defendants made a good faith effort to comply with GAAP.4 2 Accord City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Technology, Inc., 2017 U.S. App. LEXIS 8005 at *35 (9th Cir. May 5, 2017) (quoting this passage from WOW); DSAM Global Value Fund v. Altris Software, Inc., 288 F.3d 385, 390-91 (9th Cir. 2002); see also In re Dot Hill Sys. Corp. Sec. Litig., 594 F. Supp. 2d, 1150, 1158 (“To survive a motion to dismiss, plaintiffs must plead defendants’ scienter of the misrepresented figures in the financial statements.”). 3 See N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1095 (9th Cir. 2011) (“[I]f no individual allegation is sufficient, we conduct a ‘holistic’ review of the same allegations to determine whether the insufficient allegations combine to create a strong inference of intentional conduct or deliberate recklessness.”). 4 See Reed v. Labbe, 2012 U.S. Dist. LEXIS 153095, at *20 (C.D. Cal. Oct. 22, 2012) (“Exhibits that contradict the allegations of a complaint may fatally undermine the complaint’s allegations.”); Noble v. Bank of Am., N.A., 2015 U.S. Dist. LEXIS 147744, at *4 (N.D. Cal. Oct. 29, 2015) (granting motion to dismiss Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1007 Page 6 of 22 3 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 As with Plaintiffs’ previous pleading attempts, the sole accounting issue identified in the TAC arises from how Bridgepoint treated the so-called “independent paying” students. These were students who became ineligible to receive government-funded student financial aid, and who thus posed a higher risk of default. Bridgepoint initially treated the collectability issue posed by these students as something that could be addressed by raising its bad debt levels, and the essence of the restatement that is the gravamen of the TAC is that Bridgepoint should have created separate revenue recognition categories for the independent paying students and the rest of the student population, and performed a revenue recognition analysis for the students in each group. Following communications with the SEC regarding the appropriate accounting treatment for the independent paying students, much of which Plaintiffs now incorporate into the TAC, Bridgepoint issued a restatement of its 2013 financial statements, and revised its financials statements for 2012 and 2011, which Plaintiffs refer to as the “Restatement.” TAC ¶4. Rather than addressing the substantive legal deficiencies identified by the Court’s Orders dismissing the First Amended Complaint (“FAC”)5 and the SAC,6 Plaintiffs simply shifted their focus to the Restatement’s impact on Bridgepoint’s accounts receivable. Thus, their prior comparison of pre- and post-Restatement revenue to bad debt has given way to a focus on comparing revenue to accounts where “many of Plaintiff’s allegations are, at best, not supported and, at worst, contradicted by the exhibits”); see also Steckman v. Hart Brewing, 143 F.3d 1293, 1295-96 (9th Cir. 1998) (“[W]e are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint.”). 5 See Order of July 25, 2016 (ECF No. 53) (“First Dismissal Order”). 6 See Second Dismissal Order. Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1008 Page 7 of 22 4 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 receivable. Compare the table presented in SAC ¶43 with the table presented in TAC ¶38.7 But this simply avoids dealing with the Court’s fundamental reason for dismissing the prior complaints, which required that “Lead Plaintiffs must also plead facts explaining how Defendants’ ‘incorrect interpretation was so unreasonable or obviously wrong that it should give rise to an inference of deliberate wrongdoing.’” Second Dismissal Order at 12 (quoting In re Medicis Pharm. Corp. Sec. Litig., 2010 WL 3154863, at *5 (D. Az. Aug. 9, 2010)).8 Instead of answering the bell, Plaintiffs attempt to avoid it by simply focusing upon a different financial line item, as if that should make any difference to the Court’s analysis. Obviously, it should not. A restatement will often cascade through different line items in the financial statements; merely focusing on one versus another does not get Plaintiffs any closer to making a cogent and compelling case that the restatement was the result of fraud. In addition, as with Plaintiffs’ prior complaints, the TAC is based upon allegations that, if assumed to be true, at most amount to non-actionable negligence. The core of Plaintiffs’ new scienter argument is that Defendants “had the ability” to design an accounts receivable system that would have been capable of distinguishing between the independent paying students and the rest of the 7 Compare also SAC ¶ 15 (“When Bridgepoint ultimately restated its financial results to correct its material revenue recognition errors, the restated revenue decreased by tens of millions of dollars and the corresponding bad debt expense also decreased by tens of millions. Predictably, the Bad Debt Percentage fell back in line with Bridgepoint’s historic rates.”) (emphasis added) with TAC ¶16 (“When Bridgepoint ultimately restated its financial results to correct its material revenue recognition errors, the restated revenue and accounts receivable figures decreased by tens of millions of dollars; due to the de-recognition of accounts receivable, bad debt expense also correspondingly decreased. Predictably, the Bad Debt Percentage fell back in line with Bridgepoint’s historical rates.”) (emphasis added). 8 See also First Dismissal Order at 13-16. Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1009 Page 8 of 22 5 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 student population, but failed to do so.9 Plaintiffs’ latest attempt at pleading scienter essentially consists of the following: “Defendants designed and utilized a system of accounts receivable that made no distinction as to students with financial aid funding and those without . . . for the express purpose of remaining ignorant . . . so that they could overstate revenues and accounts receivables.” TAC ¶ 7.10 But the materials that Plaintiffs added to the TAC only undermine any reasonable inference that Defendants purposefully designed their accounts receivable system “for the express purpose of remaining ignorant.” In fact, the only cogent and compelling inference that arises from Plaintiffs’ new materials is that Bridgepoint thoughtfully attempted to deal with the relevant accounting issues. There is no attempt in the TAC to explain what advantage Defendants supposedly gained by crafting a “remain[] ignorant” system. There is no alleged insider trading by the sole remaining Individual Defendant in this case,11 and there is no suggestion that the Company inflated its stock price so that Bridgepoint could use the stock as currency in making acquisitions. There are no confidential witnesses identified in the TAC who support a case for deliberate wrongdoing, 9 See TAC ¶9 (“Bridgepoint’s accounts receivable system had the ability to separate students, and did so by their enrollment status (active or inactive) and by the age of the owed balances. . . . Defendants thus had readily available information to help make an informed estimate on an appropriate reserve for students without financial aid in its accounts receivable system.”); see also TAC ¶ 7 (“Defendants designed and utilized a system of accounts receivable that made no distinction as to students with financial aid funding and those without.”). 10 See also TAC ¶ 54 (Defendants “purposely design[ed] an accounts receivable system that ‘does not separate or categorize students with or without financial aid funding …’ because a ‘student who enters one of the Company’s institutions will most likely be eligible for Title IV loans.’”) (quoting Bridgepoint’s February 28, 2014 letter to the SEC). 11 Plaintiffs named four individual Defendants in their FAC, two in the SAC, and are now down to naming just Mr. Devine, Bridgepoint’s CFO during the class period, in the TAC. Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1010 Page 9 of 22 6 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and there is still no allegation that Bridgepoint’s independent auditor counseled against the practices Plaintiffs assail.12 In short, there is nothing alleged in the TAC that the Ninth Circuit has ever recognized as making a cogent and compelling case for scienter in the context of a restatement. If the Court ever entertained serious doubts about the appropriateness of a dismissal with prejudice, the TAC should put those concerns to rest. Nothing in the TAC addresses the primary issues identified by the Court in its Dismissal Orders, and this latest filing is the epitome of the kind of frivolous litigation that the Reform Act was designed to end. The Defendants have had this baseless case hanging over their heads long enough, and justice demands a dismissal with prejudice. II. THE HEIGHTENED PLEADINGS STANDARD APPLICABLE TO SECURITIES CASES AND PLAINTIFFS’ ATTEMPTED DILUTION OF THAT STANDARD. Private securities class actions are reviewed under the “[e]xacting pleading requirements” of the Reform Act. Tellabs, 551 U.S. at 313. The Reform Act was put in place to deter abusive securities lawsuits and facilitate their dismissal at the pleading stage, id. at 320, and “‘to put an end to the practice of pleading ‘fraud by hindsight.’” In re Harmonic Inc. Sec. Litig., 163 F. Supp. 2d 1079, 1086 (N.D. Cal. 2001) (quoting In re Silicon Graphics Sec. Litig., 183 F.3d 970, 988 (9th Cir.1999)). The Reform Act requires Plaintiffs to “specify each statement alleged to have been misleading, [and] the reasons why the statement is misleading … with particularity.” 15 U.S.C. § 78u-4(b)(1). Plaintiffs must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. at § 78u-4(b)(2)(A). That state of mind is 12 See Second Dismissal Order at 14 (“As before, ‘[t]he [S]AC does not allege that [Bridgepoint]’s external auditors counseled against the practice or that [any of the Individual Defendants] admitted or was aware it was improper.’ Metzler [Inv. GmbH v. Corinthian Colls., Inc.,], 540 F.3d [1049,] 1069 [9th Cir. 2009]”). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1011 Page 10 of 22 7 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 “scienter, i.e., the defendant’s intention ‘to deceive, manipulate, or defraud.’” Tellabs, 551 U.S. at 313 (citation omitted). To meet this high standard, a plaintiff’s allegations must raise an inference of scienter that is “more than merely plausible or reasonable -- it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Id. at 314. “The requisite state of mind for a securities fraud case is … knowing or intentional conduct, or reckless conduct to the extent that it reflects some degree of intentional or conscious misconduct, or ‘what we have called deliberate recklessness.’” WPP Lux. Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1051 (9th Cir. 2011). As with the SAC, the TAC makes only the most passing reference to intentional conduct,13 and instead attempts to make a case based upon deliberate recklessness. E.g., TAC ¶ 9 (“The failure to separate students with and without financial aid was, at minimum, deliberately reckless.”). But while the Ninth Circuit standard requires “conduct . . . that reflects some degree of intentional or conscious misconduct,” Plaintiffs try to dilute that to a standard that only requires that a defendant deliberately or intentionally acted, eliminating the “misconduct” element. See, e.g., TAC ¶ 5 (“The Restatement stemmed from Defendants’ deliberate assessment of the collectability of its revenue”); TAC ¶ 53 (“Defendants intentionally assessed whether the collectability of revenue was reasonably assured”). In the way Plaintiffs use the term, all conduct that does not qualify as some form of sleepwalking is “intentional” or “deliberate” and would thus satisfy the “deliberately reckless” pleading standard -- a concept that is diametrically opposed to what the Ninth Circuit’s standard is intended to achieve. Moreover, as discussed below, the TAC makes an even stronger case than its predecessors that Defendants’ conduct was not intended to deceive. 13 See, e.g., TAC ¶ 13 (“Defendants’ intentional and/or deliberately reckless accounting eventually came to light”); ¶ 18 (“Defendants’ willful or reckless disregard in improperly recognizing revenue”). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1012 Page 11 of 22 8 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Apparently unwittingly, Plaintiffs’ new material only makes the case that Bridgepoint’s original accounting treatment for the individual paying students was reasonable. III. THE NEW MATERIAL ADDED TO THE TAC ONLY MAKES FOR A LESS COGENT AND COMPELLING INFERENCE OF SCIENTER. By and large, the new factual material in the TAC consists of quotes from Bridgepoint’s February 28, 2014 letter to the SEC, and an internal accounting memorandum regarding Bridgepoint’s allowance analysis that was attached to that letter. TAC Ex. A. To a lesser degree (and substantially overlapping with prior complaints), the TAC also quotes from Bridgepoint’s June 3, 2014 letter to the SEC, where Bridgepoint acknowledged that it would need to restate and offered its restatement analysis. TAC Ex. B.14 Although these new excerpts are somewhat scattered throughout the TAC, for the most part they can be found at TAC ¶¶ 5-12, 38-40, 46-66, 70, 78-94 and 157-61. What is remarkable is how favorable this new material is to the Defendants, as well as how little of it is responsive to the deficiencies identified in the Court’s Dismissal Orders. Beginning with what Plaintiffs add to their “Additional Scienter Allegations,” we now learn that the SEC’s focus upon Bridgepoint’s revenue recognition practices was not unique to Bridgepoint, but rather was part of a broad industry investigation (TAC ¶ 157), and that a “majority” of the companies in Bridgepoint’s industry “did not reassess collectability of revenue upon a change in a students’ circumstances prior to SEC correspondence.” TAC ¶ 158 (emphasis 14 See, e.g., TAC ¶ 37 (compare to FAC ¶¶ 67-68, discussing the need for a reassessment when a student’s financial aid status changes); TAC ¶ 67 (Devine explaining the internal processing error that caused a significant number of students to lose financial aid, and the lower collection rate associated with independent paying students). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1013 Page 12 of 22 9 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 added). Thus, according to the TAC itself, Bridgepoint’s revenue recognition policy was not an outlier. Next, the TAC repeatedly states that prior to the Restatement, Bridgepoint’s accounts receivable system did not track students by their financial aid status, as if that helps Plaintiffs’ case.15 Instead, it is devastating to Plaintiffs’ attempt to cobble together an adequate scienter argument. Plaintiffs repeatedly acknowledge that it was not the case that Bridgepoint had an inconvenient statistic that it failed to acknowledge or report, and the gravamen of the TAC is just that Bridgepoint could have designed a better accounts receivable system. The TAC then offers a series of newly alleged facts whose only cogent and compelling inference is that Bridgepoint’s original accounting treatment was at least reasonable. The TAC quotes Bridgepoint’s February 28, 2014 letter to the SEC as saying that Bridgepoint “historically collected approximately 93% of revenue in cash each year since 2010” (TAC ¶ 51), despite the fact that “only ‘approximately 85% of the Company’s revenues are derived from students utilizing [federal financial aid] as the primary source for their tuition and fees.’” TAC ¶55. Those two numbers indicate that a fair number of the independent paying students did pay their bills, suggesting that treating the collectability issue posed by such students as something that could be addressed by raising bad debt was a reasonable approach. 15 See, e.g., TAC ¶52 (“Defendant Devine also admitted that the ‘Company has not done a formal analysis to separate collection rates of students with and without financial aid funding [, and that the] Company’s accounts receivable system does not separate or categorize students with and without financial aid funding’”) (emphasis added); ¶66 (“in Defendant Devine’s February 28, 2014 letter, he clarified that his statement was not based on any actual historical collection experience, assessment of individual accounts receivable, or consideration of the nature of the receivable accounts, but rather, was ‘reflective of the fact that students with financial aid funding have one extra source of funding.’”). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1014 Page 13 of 22 10 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 More fundamentally, the material newly incorporated into the TAC helps to explain why Bridgepoint’s original reserve analysis based upon accounts receivable aging made sense. The February 28 letter explains that while “[t]he Company does determine initial financial aid eligibility (e.g., Title IV loans, military benefits, or corporate funding), [it] does not require that the students complete their financial aid processing before entering the institution.” TAC Ex. A at 4.16 It also explains how differently Bridgepoint operated compared to a traditional university and how that affected the accounts receivable analysis. At Bridgepoint, a student takes one course at a time for a span of five weeks, as opposed to a traditional university where students take multiple courses on a semester or quarter system, meaning that at Bridgepoint, a student achieved full financial aid eligibility in the third week of his or her third course, or about 90 days after matriculation. Id. at 2-4. Thus, the Company’s allowance for doubtful accounts focused on “a breakdown of students as active, currently attending class, or inactive . . . and their relative aging . . . as well as agings of less than and greater than 120 days, which is the date at which the collection risk profile increases as financial aid funding should have been received prior to this time and, in turn, the Company considers an account receivable to be delinquent.” Id. at 12.17 Given the timing difference between initial enrollment and full financial aid eligibility, Bridgepoint’s 16 See also TAC ¶ 46 (explaining that regardless of the presence or absence of financial aid, the contractual agreement is between the Company and the student, with the student being the ultimate responsible party for paying the tuition bill). 17 See also TAC ¶63 (“‘We … stratify student receivables by aging category . . . . [S]tudent accounts receivable balance less than 120 days is considered to be waiting for Title IV disbursement. However, students with a receivable balance greater than 120 days are likely to have not qualified for student financing and the risk of payment is primarily on the students’ ability to pay. In this case, the collection risk profile increases and we reserve appropriately.’”) (quoting February 28, 2014 letter). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1015 Page 14 of 22 11 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 “stratified student receivables by age” analysis where accounts receivable were reserved at 3% if under 120 days old, and between 60-85% if over 120 days old, seemingly made perfect sense. TAC ¶78. The TAC also makes the case that this stratification of accounts receivable by aging was a good approximation for what happens when one does separate the independent paying students from the rest of the student population. This is evident from Plaintiffs’ supposedly “telling” table at TAC ¶ 89, where Plaintiffs perform several calculations that only lead to the conclusion that the pre- and post- Restatement approaches were not all that different in their net effect. The table’s “Eliminated” category -- which, according to Plaintiffs, represents “students who, based on Defendants’ analysis, were unlikely to have financial aid funding due to a change in circumstances” (TAC ¶ 90) brings this point home. As the table shows, these were reserved at a relatively high rate of 73% for the periods ending September 30, 2013 and December 31, 2013. Not only is this precisely what one would expect (put the major problems in one bucket and that bucket should have high reserves), but that percentage is obviously very similar to the 60-85 percent reserves Bridgepoint took when an account was more than 120 days old. See TAC ¶ 78. As Plaintiffs themselves acknowledge, the aging system Bridgepoint utilized pre-Restatement was a close proxy for identifying the independent paying students from the rest of the student population.18 Contrary to Plaintiffs’ unsupported conclusion, the facts Plaintiffs allege show precisely the opposite of Defendants’ “turning a blind eye to critical information.” TAC ¶ 91.19 18 See TAC ¶ 82 (“The 60% and 85% reserves, although also taking into account age of the receivables, served as proxies for the risk that a student would not be paying amounts owed without aid.”). 19 The table at TAC ¶ 89 also demonstrates how innocent mistakes are possible: the $4,569 (in thousands) figure at the bottom right of the table under the column headed “12/31/13” should instead be $5,612 (i.e., the difference between $20,815 and $15,203). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1016 Page 15 of 22 12 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The table at TAC ¶ 38, which compares original and restated revenue to accounts receivable, continues to show that the difference in restated revenue for FY 2013 was a mere 2.2%. As this Court recognized in both Dismissal Orders, this measly amount fails to raise a strong inference of scienter under Ninth Circuit law.20 This brief dive into the minutiae should not obscure the bigger, holistic picture. One cannot come away from reading the February 28, 2014 letter and the attached accounts receivable analysis memorandum without concluding that Defendants employed a thoughtful approach to the relevant accounting issues. The modest differences that Plaintiffs focus upon just shift relatively small amounts between and among different financial quarters, and Plaintiffs have yet to articulate a theory (much less a theory supported by cogent and compelling facts) as to why Defendants would have wanted to make those small shifts in order to effectuate a fraud. Instead of articulating a cogent and compelling theory of fraud, Plaintiffs’ criticism sounds in negligence, as they contend that “Defendants were armed with information needed with respect to a student-by-student determination of the probability of collection as of a course date.” TAC ¶ 80. But being “armed with information” that arguably should have led to a different conclusion is not simply enough. As the Court noted in its Second Dismissal Order: 20 See Second Dismissal Order at 16 (discussing “‘narrow’” exceptions to the general rule that restatements alone are insufficient to raise a strong inference of scienter and concluding “Lead Plaintiffs’ allegations satisfy neither of these exceptions. . . . [T]he restated revenue for fiscal year 2013 differed by only 2.2%. . . . ‘When restatements have been considered evidence of scienter, the restatements were of considerably greater magnitude than those here.’ See In re Aspeon, Inc. Sec. Litig., 168 F. App’x 836, 839 (9th Cir. 2006) (affirming district court’s dismissal of § 10(b) claim where restatement “only demonstrated a revenue reduction of 1.57%” and therefore failed to ‘give rise to a strong inference the original statements were issued with deliberate or conscious recklessness’”); see also First Dismissal Order at 15-17 (similar). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1017 Page 16 of 22 13 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 “GAAP is not the lucid or encyclopedic set of pre- existing rules that [Lead Plaintiffs] might perceive it to be.” Shalala v. Guernsey Mem’l Hosp., 514 U.S. 87, 101 (1995). “There are 19 different GAAP sources, any number of which might present conflicting treatments of a particular accounting question.” Id. . . . Consequently, GAAP “tolerate a range of ‘reasonable’ treatments, leaving the choice among alternatives to management.” Thor Power Tool Co. v. Comm’r of Internal Revnue, 439 U.S. 522, 544 (1979). The Ninth Circuit therefore recognizes that “the mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, does not establish scienter.” DSAM, 288 F.3d at 390 (quoting In re Software Toolworks, Inc., 50 F.3d 615, 627 (9th Cir. 1994)). Violations of GAAP, “even significant ones or ones requiring large or multiple restatements, must be augmented by other specific allegations that defendants possessed the requisite mental state.” In re Int’l Rectifier Corp. Sec. Litig., No. CV07-02544-JFWVBKX, 2008 WL 4555794, at *13 (C.D. Cal. May 23, 2008) (collecting cases). Second Dismissal Order at 13. The latest decision from the Ninth Circuit in Align Technologies reiterates these fundamental principles. In Align, the plaintiffs alleged that defendants knowingly misreported the company’s goodwill, and offered their own calculations regarding how goodwill supposedly should have been calculated. Unlike this case, plaintiffs in Align also pointed to the statements of confidential witnesses that they said supported their arguments, and they alleged the presence of considerable insider selling as evidence of defendants’ scienter. Align Techs., 2017 U.S. App. LEXIS 8005 at *24-28 & *37. (Here, Plaintiffs abandoned the confidential witness allegations that were present in the SAC, and abandoned their theory of insider selling that was present in the FAC.) Notwithstanding this, the Ninth Circuit firmly rejected plaintiffs’ pleading, concluding that “Defendants’ knowledge . . . at most, establish only that Defendants may have committed Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1018 Page 17 of 22 14 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GAAP violations in determining that no interim goodwill impairment testing was required. But we have held that ‘a failure to follow GAAP, without more, does not establish scienter.’” Id. at *35 (quoting WOW, 35 F.3d at 1426.). IV. A HOLISTIC ANLAYSIS IS DEVASTATING TO PLAINTIFFS’ CASE As before, Plaintiffs also rely upon allegedly false Sarbanes-Oxley certifications (TAC ¶¶ 136-38),21 unrelated government investigations (TAC ¶¶ 162-65),22 and allegations of ineffective internal controls (TAC ¶¶ 166-67),23 as a form of “additional” scienter allegations. The Court previously analyzed all of these as part of its holistic analysis, and found them lacking. See Second Dismissal Order at 17-18.24 The TAC provides no reason for the Court to alter course. As the Court previously recognized, under Ninth Circuit law “Sarbanes- Oxley certifications are not sufficient, without more, to raise a strong inference of scienter.” Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981, 1004 (9th Cir. 2009);25 see also City of Hallandale Beach Police v. LifeLock, Inc., 2017 U.S. App. LEXIS 8386, at *15 (9th Cir. May 11, 2017) (“Defendants’ Sarbanes-Oxley certifications ‘add nothing substantial to the scienter calculus’”) (quoting Zucco Partners). The required holistic analysis must lead to a strong inference of scienter “that is greater than the sum of its parts.” Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1165 (9th Cir. 2009).26 In this case, a holistic analysis only compels the conclusion that the TAC’s whole is even less than the sum of its parts. The 21 Compare SAC ¶¶ 113-15. 22 Compare SAC ¶¶ 134-37. 23 Compare SAC ¶¶ 138-39. 24 See also First Dismissal Order at 19-20. 25 See Second Dismissal Order at 17; First Dismissal Order at 19. 26 See Second Dismissal Order at 18; First Dismissal Order at 20. Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1019 Page 18 of 22 15 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 additions to the TAC only serve as an indictment of Plaintiffs’ stubborn refusal to let this case go when they seemingly know they have no legal or factual justification for continuing it. The new material added to Plaintiffs’ “Additional Scienter Allegations” only establishes that Bridgepoint’s original approach to the independent student issue was within what the “majority” of companies in its industry did (TAC ¶ 158), and Plaintiffs’ newly incorporated source materials only helps to explain the reasonableness of Bridgepoint’s original accounting approach. V. PLAINTIFFS’ §20(a) CLAIM FAILS BECAUSE THEY HAVE FAILED TO PLEAD A PRIMARY VIOLATION. Plaintiffs also attempt to plead a Section 20(a) “control person” claim under the 1934 Act. But “Section 20(a) claims may be dismissed summarily … if a plaintiff fails to adequately plead a primary violation of section 10(b).” Zucco Partners, 552 F.3d at 990 (citing In re. VeriFone Sec. Litig., 11 F.3d 865, 872 (9th Cir. 1993)); see also Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 978 (9th Cir. 1999) (affirming dismissal of control person claims because plaintiff did not adequately plead a primary violation). Because the TAC fails to state a claim for a primary violation of the securities laws, its “control person” claim fails as a matter of law. VI. CONCLUSION. By now it should be obvious that any further attempt at amendment would be futile, and therefore the Court should dismiss the Third Amended Complaint with prejudice.27 The Reform Act was enacted to curtail “abusive securities 27 See Steckman v. Hart Brewing Inc., 143 F.3d 1293, 1298 (9th Cir. 1998) (“Although there is a general rule that parties are allowed to amend their pleadings, it does not extend to cases in which any amendment would be an exercise in futility.”) (citations omitted); In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1097 (9th Cir. 2002) (“Leave to amend need not be granted when an amendment would be futile.”); In re Netflix, Inc. Sec. Litig., 647 Fed. App’x 813, Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1020 Page 19 of 22 16 MP&A ISO MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Case No. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 lawsuits,” Tellabs, 551 U.S. at 320, and at this late stage it seems clear that this case qualifies as abusive. Plaintiffs do not even pretend that they have an answer to the fundamental issue posed by the Court -- namely, how the Restatement reflected intentional, or deliberately reckless, fraudulent conduct. Instead, Plaintiffs just ignored the Court’s Dismissal Orders and forced Defendants to spend time and money defending a complaint that had no reasonable basis in fact or law. Section 21D(c) of the Reform Act, 15 U.S.C. § 78u-4(c), has a specific provision requiring the Court to make a determination of good faith compliance with Rule 11 regarding the filing of the TAC, and the Court should not only dismiss with prejudice, but consider the appropriateness of that sanction as well. Respectfully submitted, DATED: May 19, 2017 GREENBERG TRAURIG, LLP By: s/ Daniel J. Tyukody Daniel J. Tyukody Attorneys for Defendants Bridgepoint Education, Inc. and Daniel J. Devine 817 (9th Cir. 2016) (“When, as here, a plaintiff has previously been granted leave to amend and has subsequently failed to add the requisite particularity to its claims, [t]he district court’s discretion to deny leave to amend is particularly broad.”) (internal citations and quotation marks omitted). Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1021 Page 20 of 22 1 CERTIFICATE OF SERVICE CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I hereby certify that on May 19, 2017, I caused to be filed electronically document(s) described as: MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT with the Clerk of the Court using the Court’s CM/ECF system which will send notification of such filing to the e-mail addresses noted below: Sameer Advani sadvani@willkie.com Tariq Mundiya tmundiya@willkie.com Willkie Farr and Gallagher LLP 787 Seventh Avenue New York, NY 10019 (212) 728-8000; Fax: (212) 728-8111 Counsel for Defendants: Warburg Pincus LLC; Warburg Pincus & Co.; Warburg Pincus Partners LLC; and Warburg Pincus Private Equity VIII, L.P. John F Cannon jcannon@sycr.com Stradling Yocca Carlson and Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660-6441 (949) 725-4107; Fax: (949) 823-5107 Counsel for Defendants: Warburg Pincus LLC; Warburg Pincus & Co.; Warburg Pincus Partners LLC; and Warburg Pincus Private Equity VIII, L.P. Laurence M. Rosen lrosen@rosenlegal.com The Rosen Law Firm, P.A. 355 South Grand Avenue, Suite 2450 Los Angeles, CA 90071 (213) 785-2610; Fax: (213) 226-4684 Counsel for Plaintiffs: Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch Sarah Fuks sfuks@rosenlegal.com The Rosen Law Firm 275 Madison Avenue, 34th FL New York, NY 10016 (212) 686-1060; Fax: (212) 202-3827 Counsel for Plaintiffs: Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1022 Page 21 of 22 2 CERTIFICATE OF SERVICE CASE NO. 15-CV-408 JLS (DHB) LA 133041030v12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Lionel Z. Glancy info@glancylaw.com Robert Vincent Prongay rprongay@glancylaw.com Casey Edwards Sadler csadler@glancylaw.com Glancy-Prongay & Murray LLP 1925 Century Park East, Suite 2100 Los Angeles, CA 90067 (310) 201-9150; Fax: (310) 201-9160 Counsel for Plaintiffs Nelda Zamir, individually and on behalf of all others similarly situated; and Thomas G. Prosch By: s / Daniel J. Tyukody Daniel J. Tyukody Case 3:15-cv-00408-JLS-AGS Document 70-1 Filed 05/19/17 PageID.1023 Page 22 of 22