Weston v. DocuSign, Inc. — Entry #318: Order by Judge Vince Chhabria granting 279 Motion to Dismiss

Case 3:22-cv-00824-VC          Document 318         Filed 01/26/26      Page 1 of 5


                               UNITED STATES DISTRICT COURT

                           NORTHERN DISTRICT OF CALIFORNIA


  RICHARD R. WESTON, et al.,                         Case No. 22-cv-00824-VC
                 Plaintiffs,
                                                     ORDER GRANTING THE MOTION
          v.                                         TO DISMISS
  DOCUSIGN, INC., et al.,                            Re: Dkt. No. 279
                 Defendants.


       The motion to dismiss is granted. This order assumes that the reader is familiar with the

allegations in the complaint, the documents relied on by the complaint, the applicable legal

standards, and the arguments made by both parties.

       This case was filed in 2022, and an earlier motion to dismiss was already adjudicated and

denied. Dkt. No. 88. The case proceeded to discovery, and the previously assigned judge

certified a class. Dkt. No. 158. Subsequently, the defendants sent a Rule 11 letter to the plaintiffs
asserting that the complaint’s description of the allegations of two confidential witnesses was not

accurate. Dkt. No. 230 at 2. It’s not clear whether the confidential witnesses recanted their

allegations or whether the complaint misrepresented what the witnesses said in the first place,

but at any rate, the parties agreed that class counsel would file an amended complaint that would

exclude any description of the allegations of those two confidential witnesses, and that the

defendants could move to dismiss it. Dkt. 230 at 4. The plaintiffs then filed a 401-page amended

complaint, but after the Court encouraged them to streamline it, they filed the amended

complaint that is now the subject of this motion to dismiss. The amended complaint removes all
reference to confidential witness allegations and adds a lot of new factual allegations based on


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internal documents that the plaintiffs obtained in discovery. The defendants’ motion to dismiss

contends that the complaint misrepresents many of those internal documents. In light of the

earlier issues relating to confidential witnesses and indications that at least some of the internal

documents are misrepresented in the amended complaint, the Court invited the parties to file

supplemental briefs to address and produce certain internal documents cited in the complaint that

appear most relevant to the plaintiffs’ allegations of falsity. This ruling on the motion to dismiss

follows the Court’s review of the supplemental briefs and the accompanying internal

documents.1

       eSignature Demand Statements. The complaint alleges, in essence, that the defendants

made a series of public statements that the success of Docusign’s eSignature product was not

limited to the COVID era because customers had discovered how useful the product was and

were renewing and expanding their Docusign contracts instead of returning to pen and paper

signatures. But internally, the complaint alleges, people were raising alarms that demand was

slowing down and customers were increasingly failing to renew their contracts. The complaint is

written in a way that makes it difficult to link the public statements to allegations about what was

happening internally that would allow a reader to conclude that the statements were false. And a

review of the internal documents makes clear that many of those documents are described in a

misleading way in the complaint. To give just a couple examples, Paragraph 136 alleges that in
May and June 2021, senior Docusign leaders were talking about the need to “level set on the new

reality” and “‘tighten up the story’ on churn.” But the referenced documents were talking about

problems moving people from free trials to actually buying the product, not about problems with

customer churn. Paragraph 155 alleges that in June 2021 Smith was talking about raising


1
 The Court takes judicial notice of the internal documents and public statement documents filed
by the defendants and plaintiffs only to the extent that they were incorporated into the complaint
by reference. The Court takes judicial notice of those documents only for purposes of
determining whether the plaintiffs adequately alleged falsity and scienter. To the extent the
defendants submitted documents to dispute the factual allegations in the complaint, the Court did
not consider any documents for that purpose. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d
988, 1002-03 (2018).


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“sirens” on Commercial churn, but the full document shows that Smith was saying that he’d seen

data rebutting the churn sirens he’d previously raised. Frankly, these misrepresentations would

probably justify dismissal of the complaint without further analysis. But in any event, this ruling

will only discuss colorable allegations of falsity that do not involve the mischaracterization of

internal documents relied on in the complaint.

       There is one public statement for which falsity is adequately pled: Springer’s statement

on the September 2, 2021, earnings call that “we’re not seeing any differences in churn rates in

any meaningful way.” ¶ 168. Paragraphs 156, 157, and 159 of the complaint allege that during

the summer of 2021, people were talking internally about evidence of increasing customer churn

(a metric that captures when customers downsize or don’t renew their existing contracts) in

certain portions of the business, including the Commercial segment and Financial Services and

Financial Technology customers. The internal documents cited by the complaint back this up. A

reader could conclude from those allegations that Springer’s statement that there were no

meaningful differences in churn was false.

       But the complaint does not adequately allege that Springer acted with scienter. To plead

scienter, plaintiffs need to allege facts that allow the reader to infer that Springer knew about the

churn problems. And under the PSLRA, the allegations need to give rise to a “strong inference”

of scienter—in other words, the inference that Springer knew about the churn problems needs to
be at least as strong as an inference that he didn’t know about the problems. The strong inference

requirement can sometimes be satisfied by alleging information that is so important to a

company’s “core operations” that the company’s leadership can be assumed to have known

about it. Webb v. Solarcity Corp., 884 F.3d 844, 854 (9th Cir. 2018); Hayden v. Portola

Pharmaceuticals, Inc., 2021 WL 3506614, at *5 (N.D. Cal. Aug. 10, 2021); Union Asset

Management Holding AG v. SanDisk LLC, 2017 WL 3097184, at *2 (N.D. Cal. June 22, 2017).

But the information alleged here doesn’t rise to that level. The internal communications about

customer churn are about churn in specific business segments, and there is no indication that they
cover enough business segments to infer that customer churn had become a company-wide


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problem that would be “absurd” for Springer not to know about. Berson v. Applied Signal

Technology, Inc., 527 F.3d 982, 988 (9th Cir. 2008).

       Without being able to rely on the core operations inference, there is no “strong inference”

that Springer knew about the churn problems. The emails about churn referenced in paragraphs

156 and 157 were sent to Alhadeff (who reported to Springer) and Willis and Smith (who

reported to Alhadeff).2 But the reader can’t assume that Springer knew the information merely

because Alhadeff and Alhadeff’s reports knew it. Without any allegations that Springer had

access to or was exposed to the information in those emails, the most reasonable inference is that

he didn’t know about it and therefore didn’t know he was being misleading when he said they

weren’t seeing any meaningful differences in churn. See South Ferry LP, No. 2 v. Killinger, 542

F.3d 776, 785-86 (9th Cir. 2008).

       The only other eSignature statement worth addressing is Gaylor’s September 8, 2021,

statement that customers who came to Docusign with a COVID-specific use case that they no

longer have are the “vast minority versus the majority of the motion.” ¶ 172. The complaint

alleges that an internal slide deck from May 2021 discussed the risks of customers with COVID-

specific use cases not renewing. ¶ 124. But there is nothing in those allegations, or in the

referenced slide deck, that would allow the reader to conclude that those risky one-time use

customers were not in the “vast minority.” Additionally, the slide deck was only discussing the
risk of losing customers in the future, and it also discussed Docusign’s strategies to identify

additional use cases for the risky customers. The complaint therefore does not adequately allege

that Gaylor’s statement was false.

       Competition Statements. The complaint alleges that the defendants misleadingly stated

publicly that competition from Adobe wasn’t a threat, while people were talking internally about

losing their competitive edge due to Adobe’s price pressure. But in each of the public statements,

the defendants also acknowledged that Adobe tended to “compete on price” and argued that

2
 The emails referenced in paragraph 59 only involved Customer Success employees who do not
seem to have reported directly to senior leadership.


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despite Adobe’s pricing pressure, Docusign retained its edge by selling a “premium” product.

Dkt. Nos. 279-23, 279-11, 279-12, 279-19. The complaint does not plead facts that would make

those statements untrue or misleading.

       CLM Statements. Finally, the complaint alleges that the defendants misleadingly touted

their CLM product as a key growth driver despite poor CLM sales. But the statements about

CLM were forward-looking and accompanied by meaningful cautionary statements. See 15

U.S.C. § 78u-5(c)(1)(A). For example, Springer stated on the December 3, 2020, earnings call

that he thought they were going to see customers ready to “reaccelerate with CLM” in the next

few quarters, but he also stated on that same call that they had seen a slowing of CLM

transactions during COVID. Dkt. No. 279-14. Nothing in the pleadings indicates that those

statements were false or misleading.

       Given the history of this case and all the problems with the current complaint that make it

misleading and confusing, the Court concludes that further amendment would be futile.

Accordingly, the motion to dismiss is granted, and the case is dismissed with prejudice.

       IT IS SO ORDERED.

Dated: January 26, 2026
                                             ______________________________________
                                             VINCE CHHABRIA
                                             United States District Judge


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