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Oklahoma Firefighters Pension & Retirement System v. K12, Inc.

United States District Court, E.D. Virginia, Alexandria Division

November 5, 2014

OKLAHOMA FIREFIGHTERS PENSION & RETIREMENT SYSTEM, Individually And On Behalf of All Others Similarly Situated, Plaintiff,
K12, INC., et al., Defendants

Page 712

For Oklahoma Firefighters Pension & Retirement System, Individually And On Behalf Of All Others Similarly Situated, Plaintiff: Elizabeth Anne Aniskevich, LEAD ATTORNEY, Cohen Milstein Sellers & Toll PLLC (DC), Washington, DC.

For K12, Inc., Nathanial A. Davis, Ronald J. Packard, Timothy L. Murray, Harry T. Hawks, James J. Rhyu, Defendants: Stephen Paul Barry, LEAD ATTORNEY, Timilin Sanders, Latham & Watkins LLP (DC), Washington, DC.

Page 713



Anthony J. Trenga, United States District Judge.

Defendant K12, Inc. (" K12" ) is a publically traded company that provides online classroom services. In this securities class action, plaintiff Oklahoma Firefighters Pension & Retirement System (" plaintiff" ), a public pension fund, purchased K12's common stock, whose stock price declined by nearly 40% on October 9, 2013, following K12's announcement of the results of its Fall 2013 enrollment season. Bringing this action on behalf of all purchasers of K12 stock from February 5, 2013 through October 8, 2013 (the " Class Period" ), plaintiff alleges that K12 and certain of its officers (collectively " K12" or " defendants" ) violated Section 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 (" the Exchange Act" ) when they made a series of false or misleading statements during the Class Period during several investors' conference calls and in K12's 2013 10-K annual report.[1] Defendants

Page 714

filed their Motion to Dismiss [Doc. No. 39] (the " Motion" ) on June 20, 2014. The Court heard oral argument on the Motion on August 8, 2014, following which it took the matter under advisement.[2] For the reasons stated below, the Motion is GRANTED.

I. Standard of Review

The sufficiency of plaintiff's complaint is governed by the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (the " PSLRA" ). Under the PSLRA, plaintiff is required to prove: " (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874, 884 (4th Cir. 2014) (quoting Stoneridge Inv. Partners v. Scientific-Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008)).

A statement constitutes a " misrepresentation" if it either (1) is materially false or (2) contains an omission that renders the statement materially misleading. Longman v. Food Lion, Inc., 197 F.3d 675, 682 (4th Cir. 1999). " [A] fact stated or omitted is material if there is a substantial likelihood that a reasonable purchaser or seller of a security (1) would consider the fact important in deciding whether to buy or sell the security or (2) would have viewed the total mix of information made available to be significantly altered by disclosure of the fact." Id. at 683. The materiality of an alleged misrepresentation or omission must be considered in the full context in which it was made. Gasner v. Bd. of Supervisors of the Cnty. of Dinwiddie, Va., 103 F.3d 351, 358 (4th Cir. 1996). Cautionary language in a document may negate the materiality of an alleged misrepresentation or omission. Id. (citing In re Donald J. Trump Casino Securities Lit., 7 F.3d 357, 371 (3d Cir. 1993), cert. denied, Gollomp v. Trump, 510 U.S. 1178, 114 S.Ct. 1219, 127 L.Ed.2d 565(1994)).

Certain statements are legally incapable of satisfying these requirements. " Forward-looking statements" that are either accompanied by cautionary language, immaterial, or made without actual knowledge of their falsity are statutorily protected under the PSLRA's safe harbor provision. See 15 U.S.C. § 78u-5(c)(1). Likewise, statements that are commonly referred to as " puffery" are not material as a matter of law. In re Lab. Corp. of Am. Holdings Sec. Litig., No. 1:03cv591, 2006 WL 1367428, at *9 (M.D.N.C. May 18, 2006) (" [S]tatements that consist of nothing more than indefinite statements of corporate optimism, also known as 'puffery,' are immaterial as a matter of law." ) (citing Raab v. Gen. ...

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