SAN FRANCISCO - Class action lawyers who hoped they'd found a savior for their case against a software company have been rebuffed by a federal judge who found his testimony confusing and inconsistent.
For a second time, Judge William Orrick, of the Northern District of California, has dismissed a class action complaint against Atlassian, a company that develops collaboration and project-management software and suffered a 29% stock decline in 2022.
The firm Saxena White says executives at the company misled investors in the months before that stock drop, leading them to believe everything was fine. Orrick dismissed their claims in January but allowed them time to file an amended complaint.
Enter a man known in court documents as Confidential Witness 3, who said he was the company's head of product strategy and business operations from June 2022-June 2023. His allegations that it was "clear growth rates were not what they were;" that he reported metrics to "division heads;" and that members of Project Big Fish knew troubles were ahead were supposed to save the case.
"CW3 says he personally reviewed Paid User Expansion and Free to Paid Conversions on a daily basis, and attended 'monthly' meetings where executives generally reviewed objectives, key performance indicators, and metrics for the 'Jira' project, but he fails to make the connection or allege that Paid User Expansion or Free to Paid Conversions were discussed at those meetings," Orrick wrote.
"He also seems to say that these metrics were discussed at Big Fish meetings in June, July and August, but simultaneously says that he was not a member of Big Fish until September."
Atlassian generates revenue from license subscriptions. The plaintiffs claim that in the spring and summer of 2022, "macroeconomic conditions" deteriorated and caused the company's competitors to lower its revenue guidance.
The plaintiffs further claim Atlassian failed to disclose the impact on the company; overstated its financial guidance; and concealed "slowing conversions" from free users and paying customers, as well as the slowing growth of "in paying-user expansion."
One contested statement came from an Aug. 4, 2022, call, when an Atlassian rep was asked "Has there been any change to the mix of products sold over the last few months? Anything different with regard to customer prioritization?"
Cameron Deatsch, the chief revenue officer, replied, "We have not seen any significant shift in customer demand across our product lines."
The company later admitted to a slowdown across its customer base that began the month before.
Orrick had already found the plaintiffs failed to adequately plead scienter - basically, that the employees making the challenged statements to investors were actually lying. This time around, Saxena White hoped CW3's stories would change his mind.
CW3 said company president Anu Bharadwaj attended meetings for Project Big Fish (a big-picture review and strategy undertaking) and knew the slowdown was coming yet withheld that information.
"Even if (CW3) had personal knowledge about Big Fish, the complaint says the project was designed generally 'to increase Atlassian user expansion,' not to address declining Paid User Expansion," Orrick wrote.
"His personal knowledge of a hiring freeze also does not show that Bharadwaj knew of a slowdown to Paid User Expansion."
Orrick says CW3's claims he or his team presented metrics to Bharadwaj can't be accepted.
"(H)e does not say when and is very vague about how - 'either directly in meetings or in a report that he submitted for her review, [or] on other occasions his team's report was incorporated into a document that was presented to [her],'" Orrick wrote.
"These are a far cry from the particular and comprehensive allegations in (a previous case) that established the witnesses' personal knowledge and reliability."
However, Orrick is giving Saxena White 21 more days to file a third amended complaint. Atlassian traded Thursday at around $145 per share. The complaint, filed last year, complained of a drop from $174.17 on Nov. 3, 2022, to $123.73.