Plaintiff argues that ViewRay’s disclosures about the backlog’s value are false
come to fruition or completely fabricated. (ECF No. 62, PageID #1849–56 (citing ECF No. 55, ảả 7, 11, 47–48, 72–73, 78–79, 82–84, 87, 90–93, 95, 99–103, PageID #1255, 1257, 1269–71, 1278–88).) These citations reference numerous disclosure documents addressing the value of the backlog at various points in time. For example, ViewRay stated in an exhibit to its May 8, 2018 Form 8-K that “[t]otal backlog grew year over year to $195 million, as of March 31, 2018, up from $144.9 million as of March 31, 2017.” (ECF No. 60-7, PageID #1572.) ViewRay made similar statements in other filings.1 ViewRay’s officers (and Mr. Bansal, in particular) reiterated these numbers to analysts on earnings calls (see, e.g., ECF No. 60-8, PageID #1581), as was a common practice for the company (see ECF No. 60-14, PageID #1638 (Nov. 8, 2018 Earnings Call); ECF No. 60-19, PageID #1699–1700 (Mar. 14, 2019 Earnings Call); ECF No. 60-22, PageID #1740 (May 2, 2019 Earnings Call).)
The parties stake out markedly different positions regarding these valuations.
Defendants argue that these statements about the backlog’s worth are estimates and opinions and, therefore, evaluated under the standard for soft information. (ECF No. 59-1, PageID #1432.) To support this position, they point the Court to two cases:
the Supreme Court’s decision in Omnicare and a case from the Southern District of
1 See ECF No. 60-10, PageID #1601 (Ex. 99.1 to Aug. 3, 2018 Form 8-K); ECF No. 60-12, PageID #1263 (2Q18 Form 10-Q); ECF No. 60-13, PageID #1629 (Ex. 99.1 to Nov. 8, 2018 Form 8-K); ECF No. 60-15, PageID #1654 (3Q18 Form 10-Q); ECF No.
60-16, PageID #1662 (Ex. 99.1 to Jan. 7, 2019 Form 8-K); ECF No. 60-18, PageID
#1683 (Ex. 99.1 to Mar. 14, 2019 Form 8-K); ECF No. 60-20, PageID #1711 (FY18 Form 10-K); ECF No. 60-21, PageID #1731 (Ex. 99.1 to May 2, 2019 Form 8-K); ECF No. 60-22, PageID #1755 (1Q19 Form 10-Q).
New York, In re Pretium Resources Inc. Securities Litigation. (See id. (citations omitted)). Defendants also argue the estimates amount to a subjective belief about the value of the backlog. (Id., PageID #1433.) They assert the second amended complaint is deficient because “the Court cannot reasonably conclude that Defendants did not subjectively believe the backlog estimates.” (Id.)
Plaintiff disagrees. It argues that because Defendants did not follow their own criteria regarding which orders were properly included in the backlog statements about the value of the backlog itself are also actionable misstatements. (ECF No. 62, PageID #1853–54.) Further, Plaintiff argues that the speaker’s subjective belief presents only one way to assert an actionable omission and that it has adequately alleged that the other two—opinions of fact with embedded misstatements or omissions—render ViewRay’s statements misleading. (See id., PageID #1854–55.) Also, Plaintiff argues that the “divergence between [ViewRay’s] misstatements regarding that criteria and the negligible criteria they actually used” is material
“because [ViewRay was] including sham orders in [its] backlog among other invalid orders that had no reasonable expectation of converting into revenue, and were in any event far less likely to do so than the stated backlog criteria indicated.” (Id. at PageID #1855 (citing ECF No. 55, ảả 49–67, PageID #1271–77).)
ViewRay’s criteria for inclusion in the backlog involve some degree of judgment and discretion. But that does not make them soft information or a matter of opinion, as Defendants maintain. Either ViewRay had commitments for a certain number of sales of MRIdian systems worth a certain number of dollars, or it did not. Statements
about the value of the backlog may prove false or misleading even if the company did not ignore its own criteria and include orders in the backlog that it should not have.
For example, an officer may have changed the calculations rolling up into the valuation of the backlog, the company may have reviewed a particular order, determined including in the backlog was not appropriate, but included it anyway, or the valuations may be inaccurate for other reasons.
To the extent Plaintiffs argue the hard numbers themselves constitute actionable misstatements under Section 10(b), no factual allegation in the second amended complaint suggests or implies that ViewRay’s math was incorrect. On this point, the confidential witnesses provide no help. None offers anything more than mere generalities about the backlog, the criteria by which orders are removed or included, and the general workings of the company.
Beyond that, Plaintiff’s argument about the value of the backlog devolves into circularity and, essentially, restates its complaint that the backlog includes invalid orders and orders that do not comply with the company’s criteria. Indeed, Plaintiff argues “Defendants’ statements regarding the value of the backlog contained the embedded misrepresentation of fact that the orders in the backlog complied with the stated backlog criteria. . . . Similarly, it was misleading to provide backlog estimates while ‘omitting’ the Company’s failure to comply with the criteria.” (ECF No. 62, PageID #1854.)
Under the heightened standards Plaintiff must meet under Rule 9(b) and the Reform Act, the second amended complaint fails to measure up and provide factual
allegations beyond mere generalities that Defendants’ statements or omissions about the value of the backlog were false or misleading. To the extent Plaintiff’s argument goes to scienter, the Court addresses it separately below.