Boston Judge Ends Shareholders’ Suit Against LogMeIn for Bungled Acquisition

On March 18, the plaintiffs spearheading a securities fraud case against LogMeIn Inc., a company that offers subscription software services to mobile professionals and IT service providers, had their case dismissed from federal court with prejudice. Last week’s memorandum opinion and order found that the renewed pleading still did not state a claim upon which relief could be granted and failed to plead intent as required by federal securities laws.

In their November-filed second complaint against LogMeIn and several of its executives, the shareholders asserted that beginning in the second quarter of 2017, LogMeIn “used overly aggressive methods to transition customers to an annual subscription plan, quickly realized that customers were dissatisfied with that approach and, as a result, were canceling their subscriptions, but nonetheless publicly reported that the transition was going well until finally coming clean in July 2018.”

Subsequently, the company reported its financial results, and in particular an increased number of customer departures. It reportedly adjusted its revenue projections downwards and then experienced a precipitous share price drop. As proof of the supposed coverup and resulting shareholder losses, the plaintiffs relied on both allegedly false or misleading statements made by LogMeIn executives and the testimony of two confidential witnesses.

Previously, the court held that the first amended complaint failed to show that the company’s statements were actionable. Its October opinion explained that most of the challenged statements were not material misrepresentations or omissions, were mere puffery, or were permissible forward-looking statements. The court allowed the plaintiffs to amend their allegations concerning whether customers were being transitioned to the new payment regime against their will.

In last week’s opinion, Judge Allison D. Burroughs first addressed the plaintiffs’ motion for reconsideration of her prior ruling. The court declined to reconsider the matter, explaining that it believed that there was no manifest error of law, no newly discovered evidence, and that it was confident that it understood the plaintiffs’ position when it decided LogMeIn’s initial motion to dismiss.

As to the merits of the complaint, the court found that the amended pleading fell short of “plausibly suggest(ing) that the company was transitioning unwilling customers.” Furthermore, the court ruled that the plaintiffs could not establish scienter “because doing so would require them to demonstrate that LogMeIn’s executives intentionally or recklessly misled investors regarding forced conversions notwithstanding the fact that Plaintiffs have failed to plead facts plausibly suggesting that such forced conversions actually occurred.”

The plaintiffs are represented by Glancy Prongay & Murray LLP, Block & Leviton LLP, and The Rosen Law Firm, P.A. LogMeIn is represented by Latham & Watkins LLP.