Austin Williams v. Globus Medical Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________

No. 16-3607
________________

AUSTIN J. WILLIAMS; MARK SILVERSTEIN,
Individually and on behalf of all others similarly situated

v.

GLOBUS MEDICAL, INC.; DAVID C. PAUL; RICHARD
A. BARON; DAVID M. DEMSKI; STEVEN M. PAYNE

Austin J. Williams,
Appellant

_______________________

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-15-cv-05386)
District Judge: Honorable: Wendy Beetlestone
______________

ARGUED: April 5, 2017

Before: CHAGARES, SCIRICA, and FISHER,
Circuit Judges
 (Opinion Filed: August 23, 2017)

Jacob A. Goldberg [ARGUED]
Keith R. Lorenze
Rosen Law Firm
101 Greenwood Avenue
Suite 440
Jenkintown, PA 19046

Robert V. Prongay
Jason L. Krajcer
Charles H. Linehan
Glancy Prongay & Murray
1925 Century Park East
Suite 2100
Los Angeles, CA 90067
Counsel for Appellant

Cheryl W. Foung
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304

Barry M. Kaplan [ARGUED]
Gregory L. Watts
Wilson Sonsini Goodrich & Rosati
701 Fifth Avenue
Suite 5100
Seattle, WA 98104

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Marc J. Sonnenfeld
Timothy D. Katsiff
Morgan Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellees

_________________

OPINION OF THE COURT
_________________

SCIRICA, Circuit Judge

In the spring of 2014, Globus Medical, Inc., a medical
device company, terminated its relationship with one of its
product distributors. Several months later, in August 2014,
Globus executives alerted shareholders that sales growth had
slowed, attributed this decline in part to the decision to
terminate its contract with the distributor, and revised
Globus’s revenue guidance downward for fiscal year 2014.
The price of Globus shares fell by approximately 18% the
following day.

Globus shareholders contend the company and its
executives violated the Securities Exchange Act and
defrauded investors by failing to disclose the company’s
decision to terminate the distributor contract and by issuing
revenue projections that failed to account for this decision.
The trial court dismissed the shareholders’ suit, and the
shareholders appealed. We will affirm.

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I. BACKGROUND

A. Facts

Globus is a publicly traded medical device company
that designs, develops, and sells musculoskeletal implants,
particularly for individuals with spine disorders. Globus
relies on both in-house sales representatives and independent
distributors to sell its products to surgeons and surgical staff
nationwide. Vortex Spine, LLC, was one of Globus’s
independent distributors, serving as the exclusive distributor
for Globus’s spine implant products in certain portions of
Louisiana and Mississippi. Vortex signed its initial
Exclusive Distributorship Agreement with Globus in 2004,
and the parties renewed the agreement in 2008 and 2010. The
2010 agreement was scheduled to expire on December 31,
2013.

Globus’s statements and actions in the wake of the
December 31, 2013, expiration of the agreement have become
the focus of this case. Plaintiffs allege that Globus decided to
terminate its partnership with Vortex around the time of the
expiration of the agreement. This was in line with the
company’s strategy to increase its reliance on in-house sales
representatives in the hopes of controlling commission costs
and strengthening its control over its sales team. Nonetheless,
Globus extended the existing distributorship agreement for
four months—through April 2014—and allegedly told Vortex
the companies would use this period to negotiate terms for a
new distributorship agreement. Plaintiffs contend Globus
instead used this period to establish a new in-house sales
position to cover the geographic territory being handled by
Vortex.

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 On February 26, 2014—in the midst of the period
covered by the extension of the agreement with Vortex—
Globus Chief Financial Officer Richard A. Baron projected
“sales in the range of $480 million to $486 million, earnings
per fully diluted share of $0.90 to $0.92 per share” for fiscal
year 2014 during an earnings conference call. A51. A few
weeks later, on March 14, 2014, Globus filed its 2013 10-K
with the Securities & Exchange Commission. In a section of
the 10-K titled “Risks Related to Our Business and Our
Industry,” Globus cautioned, “If we are unable to maintain
and expand our network of direct sales representatives and
independent distributors, we may not be able to generate
anticipated sales.” A46. The risk disclosure added:

We face significant challenges and risks in
managing our geographically dispersed
distribution network and retaining the
individuals who make up that network. If any
of our direct sales representatives were to leave
us, or if any of our independent distributors
were to cease to do business with us, our sales
could be adversely affected. Some of our
independent distributors account for a
significant portion of our sales volume, and if
any such independent distributor were to cease
to distribute our products, our sales could be
adversely affected. In such a situation, we may
need to seek alternative independent distributors
or increase our reliance on our direct sales
representatives, which may not prevent our
sales from being adversely affected.

A47.

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 Globus met with Vortex’s founder and manager on
April 18, 2014. Globus leadership notified him that Globus
had designated a new in-house sales representative to handle
distribution for the geographic territory covered by Vortex.
Globus proposed a new agreement with Vortex which would
require Vortex to turn over its customers to Globus in
exchange for a royalty payment and would require Vortex’s
sales representatives to become Globus employees. Vortex
rejected the proposed terms.

Approximately ten days later, on another earnings
conference call, CFO Baron again projected Globus would
achieve $480 to $486 million in sales, with $0.90 to $0.92
earnings per fully diluted share for fiscal year 2014—
estimates identical to those he projected in February 2014.
The next day, April 30, 2014, Globus filed with the SEC its
Quarterly Report on Form 10-Q for the period ended March
31, 2014. In a section titled “Quantitative and Qualitative
Disclosure About Market Risk,” Globus stated, “We have
evaluated the information required under this item that was
disclosed in our 2013 Annual Report on Form 10-K and there
have been no significant changes to this information.” A49–
50.

Months later, on August 5, 2014, Globus issued a press
release announcing its results for the second fiscal quarter of
2014 and revising its revenue guidance. According to the
release, Globus “now expect[ed] full year net sales to be in
the range of $460 to $465 million” but added that its earnings
per share guidance “remained unchanged.” A53. In an
earnings conference call held the same day, Globus Chief
Operating Officer David M. Demski explained that “domestic
sales growth in the quarter was below our historical

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standards” attributing this development, in part, to the fact
that “early in the quarter we made the decision not to renew
our existing contract with a significant U.S. distributor,
negatively impacting our sales.” A53. Demski observed that
the company “understood the risks to our short-term results.”
A53. Globus shares fell $4.05 per share (17.9%) in the wake
of the revised revenue guidance to close at $18.51 per share
on August 6, 2014. Ultimately, at the fiscal year’s end,
Globus announced it had achieved $474.4 million in sales,
with earnings per share at $0.97—meaning sales for the fiscal
year ultimately finished just 1.17% below the initial
projection made in February 2014 and earnings per share
exceeded the projection by 5.4%.

B. Procedural History

Plaintiff Mark Silverstein filed this action in the
United States District Court for the Eastern District of
Pennsylvania on September 29, 2015, on behalf of “all those
who purchased or otherwise acquired Globus securities traded
on the New York Stock Exchange [between February 26,
2014 and August 5, 2014] and were damaged upon the
revelation of the alleged corrective disclosure.” A54. On
January 14, 2015, the District Court granted the motion of
Austin J. Williams to be appointed lead plaintiff as the person
most capable of adequately representing the class.1

1
The Private Securities Litigation Reform Act amended the
Securities Exchange Act to provide that “[n]ot later than 90
days” after notice to shareholders of the pending securities
action, “the court shall consider any motion made by a
purported class member in response to the notice, . . . and
shall appoint as lead plaintiff the member or members of the

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 By stipulation of the parties, plaintiffs filed an
Amended Complaint on February 19, 2016. The Amended
Complaint names as defendants Globus, Globus CEO David
C. Paul, Globus CFO Richard A. Baron, Globus COO David
M. Demski, and Globus Chief Accounting Officer Steven M.
Payne. The Amended Complaint alleges the 2013 10-K, 2014
1Q 10-Q, and related earnings calls violated §§ 10(b) and
20(a) of the Securities Exchange Act and Rule 10b-5
promulgated under that Act by the Securities and Exchange
Commission.

On March 28, 2016, Globus filed a motion to dismiss
the Amended Complaint. The District Court granted that
motion and dismissed all claims against all defendants by
Memorandum and Order dated August 25, 2016. Plaintiff
filed a motion for reconsideration, which the District Court
denied on September 12, 2016. This timely appeal followed.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction under Section 27 of
the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, and
28 U.S.C. §§ 1331 and 1337. We have jurisdiction over the
appeal from a final order granting a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6) under 28 U.S.C. §

purported plaintiff class that the court determines to be most
capable of adequately representing the interests of class
members[.]” 15 U.S.C. § 78u-4(a)(3)(B)(i). The statute
provides a rebuttable presumption that the most adequate
plaintiff is the person that “in the determination of the court,
has the largest financial interest in the relief sought by the
class.” 15 U.S.C. § 78u-4(a)(3)(B)(iii)(bb).

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1291. “We exercise plenary review over the order dismissing
the complaint, as well as the District Court’s interpretation of
securities law.” Morrison v. Madison Dearborn Capital
Partners III L.P., 463 F.3d 312, 314 (3d Cir. 2006).

III. ANALYSIS

A. Legal Standard

Section 10(b) of the Securities Exchange Act of 1934
prohibits any person “[t]o use or employ, in connection with
the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such rules
and regulations as the [Securities and Exchange] Commission
may prescribe . . . .” 15 U.S.C. § 78j(b). Rule 10b-5,
promulgated by the Securities and Exchange Commission
under the Exchange Act, makes it unlawful:

(a) To employ any device, scheme, or artifice to
defraud,
(b) To make any untrue statement of a material
fact or to omit to state a material fact necessary
in order to make the statements made, in the
light of the circumstances under which they
were made, not misleading, or
(c) To engage in any act, practice, or course of
business which operates or would operate as a
fraud or deceit upon any person,
in connection with the purchase or sale of any
security.

17 C.F.R. § 240.10b-5.

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 To state a claim for relief under section 10(b), a
plaintiff must plead facts demonstrating that (1)
the defendant made a materially false or
misleading statement or omitted to state a
material fact necessary to make a statement not
misleading; (2) the defendant acted with
scienter; and (3) the plaintiff’s reliance on the
defendant’s misstatement caused him or her
injury.

Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 143
(3d Cir. 2004).

All securities fraud claims are subject to Rule 9(b),
which requires plaintiff to “state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P.
9(b). In addition, the Public Securities Litigation Reform Act
(PSLRA) imposes two heightened pleading requirements
above the normal Rule 12(b)(6) standard. First, “the
complaint must specify each allegedly misleading statement,
why the statement was misleading, and if an allegation is
made on information and belief, all facts supporting that
belief with particularity.” Institutional Investors Grp. v.
Avaya, Inc., 564 F.3d 242, 252 (3d Cir. 2009) (internal
quotations omitted) (citing 15 U.S.C. § 78u-4(b)(1)). Second,
the complaint must “with respect to each act or omission
alleged to violate this chapter, state with particularity facts
giving rise to a strong inference that the defendant acted with
the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A).
Accordingly, “[f]ailure to meet the threshold pleading
requirements demanded by [Rule 9(b) and the PSLRA]
justifies dismissal apart from Rule 12(b)(6).” Cal. Pub.
Emps.’ Ret. Sys., 394 F.3d at 145.

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 B. Application

Plaintiffs’ claims can be divided into two categories:
challenges to historical statements, namely the risk
disclosures found in Globus’s 2013 10-K and 2014 1Q 10-Q;
and challenges to forward-looking statements, namely the
sales and earnings projections made in the February and April
earnings conference calls. We address each category in turn.

1. Historical Statements

The District Court held that plaintiffs failed to plead
actionable omissions from Globus’s risk disclosures because
Globus had no duty to disclose either its decision to terminate
its relationship with Vortex or the completed termination of
that relationship. Plaintiffs argue the District Court erred
because the absence of that information rendered the risk
disclosures materially misleading. We disagree and conclude
there was no duty to disclose.

“[Section] 10(b) and Rule 10b-5(b) do not create an
affirmative duty to disclose any and all material information.
Disclosure is required under these provisions only when
necessary ‘to make . . . statements made, in light of the
circumstances under which they were made, not misleading.’”
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011)
(quoting 17 C.F.R. § 240.10b–5(b)). “Silence, absent a duty
to disclose, is not misleading under Rule 10b-5.” Basic Inc.
v. Levinson, 485 U.S. 224, 239 n.17 (1988). As we have
previously held, “[e]ven non-disclosure of material
information will not give rise to liability under Rule 10b-5
unless the defendant had an affirmative duty to disclose that

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information.” Oran v. Stafford, 226 F.3d 275, 285 (3d Cir.
2000). The duty to disclose arises “when there is insider
trading, a statute requiring disclosure, or an inaccurate,
incomplete or misleading prior disclosure.” Id. at 285–86.

Plaintiffs contend Globus’s omission of its decision to
terminate its relationship with Vortex falls into the final
category because, without that information, Globus’s existing
risk disclosures were inaccurate, incomplete, or misleading.
Globus’s risk disclosures in the 2013 10-K and 2014 1Q 10-Q
warned that the loss of an independent distributor could have
a negative impact on sales—but it omitted to warn investors,
plaintiffs argue, that Globus had in fact lost an independent
distributor.

Once a company has chosen to speak on an issue—
even an issue it had no independent obligation to address—it
cannot omit material facts related to that issue so as to make
its disclosure misleading. Kline v. First W. Gov’t Sec., Inc.,
24 F.3d 480, 490–91 (3d Cir. 1994) (“[E]ncompassed within
that general obligation [to speak truthfully] is also an
obligation or ‘duty’ to communicate any additional or
qualifying information, then known, the absence of which
would render misleading that which was communicated.”)
(internal citation omitted). Consistent with this principle,
courts are skeptical of companies treating as hypothetical in
their disclosures risks that have already materialized.

For example, in In re Harman International Industries,
Inc. Securities Litigation, the United States Court of Appeals
for the District of Columbia Circuit considered a company—a
manufacturer of information and entertainment systems for
automobiles—that touted its considerable inventory of

12
personal navigational devices (PNDs) while also warning
generally that its sales depended on its ability to develop new
products in a competitive market. 791 F.3d 90, 103–04 (D.C.
Cir. 2015). But the company did not disclose to investors that
much of its PND inventory had already been rendered
obsolete by new technology, forcing the company to cut its
prices and reducing its sales revenue. The District of
Columbia Circuit suggested the company’s general warnings
about product obsolescence could be misleading and
emphasized, “there is an important difference between
warning that something ‘might’ occur and that something
‘actually had’ occurred.” Id. at 103.

Similarly, in the United States Court of Appeals for the
Ninth Circuit, a government intelligence and surveillance
contractor was sued after its revenue dropped by 25%
following the cancellation of several contracts. Berson v.
Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008). The
contracts at issue were subject to “stop-work” orders—which
immediately stop payment to the company and often signal
eventual cancellation of the contract—but the company
included revenue from these contracts as part of its “backlog”
of work the company had contracted to do, but had not yet
performed. The company warned that “future changes in
delivery schedules and cancellations of orders” might mean
sales for the year would not match the full backlog value, but
the court found the company’s representations could be
misleading. Id. at 986. The company’s warning, the court
held, “speaks entirely of as-yet-unrealized risks and
contingencies. Nothing alerts the reader that some of these
risks may already have come to fruition, and that what the
company refers to as backlog includes work that is
substantially delayed and at serious risk of being cancelled

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altogether.” Id.; see also Siricusano v. Matrixx Initiatives,
Inc., 585 F.3d 1167, 1181 (9th Cir. 2009) (finding actionable
a statement that “speaks about the risks of product liability
claims in the abstract, with no indication that the risk ‘may
already have come to fruition.’”), aff’d 563 U.S. 27 (2011).

We agree that a company may be liable under Section
10b for misleading investors when it describes as hypothetical
a risk that has already come to fruition. But this is not such a
case. In the 2013 10-K filed in March 2014, and incorporated
by reference in the 2014 1Q 10-Q a month later, Globus
warned, “if any of our independent distributors were to cease
to do business with us, our sales could be adversely affected.”
A47. The risk actually warned of is the risk of adverse effects
on sales—not simply the loss of independent distributors
generally. Accordingly, the risk at issue only materialized—
triggering Globus’s duty to disclose—if sales were adversely
affected at the time the risk disclosures were made.

Plaintiffs have not plead that Globus’s sales were
adversely affected by the decision to terminate Vortex at the
time the risk disclosures were made. The 2013 10-K was
filed in March 2014, while Vortex was still distributing
Globus’s products under the four-month extension of the
existing distributorship agreement. Nothing in the Amended
Complaint suggests sales had decreased at that time. The
2014 1Q 10-Q was filed on April 30, 2014—less than two
weeks after Vortex rejected Globus’s proposed terms for a
new agreement. Plaintiffs have not pleaded facts sufficient to
show that Globus’s sales were adversely affected within that
short window. To the contrary, plaintiffs allege Globus had
spent months preparing to end its relationship with Vortex
and had an in-house sales representative prepared to take over

14
the territory previously covered by Vortex. Nothing in the
Amended Complaint permits the inference that Globus was
aware of adverse effects on sales prior to the August 5, 2014,
earnings conference call when the company revised its
revenue projections.

Accordingly, this case is unlike the materialization of
risk cases cited by plaintiffs, in which the adverse effects at
issue had in fact been realized. In Harman, at the time of the
company’s general warnings about the need to develop new,
competitive products, the obsolescence of its PNDs had
already led to a reduction in prices and missed sales targets.
791 F.3d at 107 (“by April, inventory obsolescence was
becoming a problem; by September it had fully materialized
into a serious problem effecting Company revenues”)
(internal citations omitted). Similarly, in Berson, the court
noted that stop-work orders—like those that were not
disclosed by the company in conjunction with its backlog
report—“immediately interrupt the company’s revenue
stream.”2 527 F.3d at 986. Accordingly, the circumstances in

2
In re Facebook, Inc. IPO Securities & Derivative Litigation
is also illustrative. 986 F. Supp. 2d 487 (S.D.N.Y. 2013).
Facebook’s risk disclosures warned that increased mobile
usage might negatively affect the company’s revenue, but the
court found the plaintiffs had sufficiently plead that the
disclosure was misleading. It explained, “Facebook’s
Registration Statement did not disclose that increased mobile
usage and the Company’s product decisions had already had a
negative impact on the Company’s revenues and revenue
growth. The Company’s purported risk warnings
misleadingly represented that this revenue cut was merely

15
these cases differ from the circumstances here because
plaintiffs have not plead that Globus was already
experiencing an adverse financial impact at the time of the
risk disclosures.

Nor have plaintiffs sufficiently pleaded that a drop in
sales was inevitable. Plaintiffs suggest Globus should have
known that its sales would be adversely affected by the
company’s decision to end its relationship with Vortex based
on the company’s experience with “distributor turnover” in
2010. Plaintiffs note that defendant Paul acknowledged that
it took “almost two years” to get Globus back to the same
level financially in the wake of that turnover. A48–49. But
the Amended Complaint provides no details about the
“distributor turnover” in 2010, including how many
distributors were involved, whether the distributor or
distributors involved were of comparable significance to
Globus’s sales as Vortex was, whether the turnover was
expected, and what, if any, contingencies were in place at the
time of the distributor turnover. Absent this information, we
cannot conclude that Globus and its executives should have
expected a similar financial impact from its decision to
terminate its relationship with Vortex as from the 2010
“distributor turnover.”

Because plaintiffs have failed to adequately plead that
the risk about which Globus warned—the risk of adverse
effects on sales as a result of the loss of a single independent
distributor—had actually materialized at the time of either the
2013 10-K or the 2014 1Q 10-Q, Globus had no duty to

possible when, in fact, it had already materialized.” Id. at
516.

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disclose its decision to terminate its relationship with Vortex,
and the risk disclosures were not materially misleading. We
will affirm the District Court’s dismissal of the claims based
on historical statements.

2. Forward-Looking Statements

Plaintiffs contend Globus and its executives violated
Section 10(b) and Rule 10b-5 by issuing revenue projections
in February and April 2014 that failed to account for the
company’s decision to terminate its relationship with Vortex.
The District Court dismissed these claims because it found
that plaintiffs failed to plead facts sufficient to show that the
revenue projections were false when made, or in the
alternative, the challenged statements were entitled to the
protection of PSLRA’s safe harbor.

a. Falsity

Because plaintiffs allege that the revenue projections at
issue were false or misleading, their allegations must meet the
“[e]xacting pleading requirements” of the PSLRA. City of
Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 168 (3d Cir.
2014) (alteration in original, internal quotations omitted). “In
addition to requiring plaintiffs to specify each statement
alleged to have been misleading, . . . the PSLRA directs
plaintiffs to specify ‘the reason or reasons why the statement
is misleading.’” Calif. Pub. Emps., 394 F.3d at 145 (quoting
15 U.S.C. § 78u–4(b)(1)). These “true facts” allegations
cannot rely exclusively on hindsight, but must be sufficient to
show that the challenged statements were “actionably
unsound when made.” See In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1430 (3d Cir. 1997); see also In re

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NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002)
(“To be actionable, a statement or omission must have been
misleading at the time it was made; liability cannot be
imposed on the basis of subsequent events.”). Accordingly,
“it is not enough merely to identify a forward-looking
statement and assert as a general matter that the statement
was made without a reasonable basis.” Burlington, 114 F.3d
at 1429. Instead, plaintiffs were required to plead factual
allegations that show the projections were “made with either
(1) an inadequate consideration of the available data or (2) the
use of unsound forecasting methodology.” Id.

In this case, plaintiffs’ allegations hinge on their
conclusory assertion that Globus’s “announced forecast
incorporated Vortex’s projected sales figures for the
remainder of the 2014 fiscal year.” A51. To support this
claim, plaintiffs draw numerous inferences based on
statements made by Globus executives during the August
2014 call explaining the revisions to the revenue guidance.
First, they cite defendant Baron’s statement that “the decision
not to renew the distributor, and the impact to pricing will
affect our top line expectations. We now expect full year
revenue to be in the range of $460 million to $465 million.”
A327. This statement, they contend, shows Globus must
have incorporated Vortex revenue into their earlier
projections—otherwise they would not have needed to revise
the revenue forecast downward. Further, because defendant
Baron responded, “I don’t think we should comment on that,”
when asked whether the revenue guidance would have been
revised “if not for the distributor issue,” A336, plaintiffs
contend we should infer the loss of Vortex’s revenue
accounted for the full $20 million downward revision.
We agree with the District Court that these allegations

18
fall short of the exacting pleading standards imposed by the
PSLRA. Plaintiffs were required to plead “true facts”
sufficient to show the February and April revenue projections
were false or misleading when made. But instead of citing
contemporaneous sources to show Globus knowingly
incorporated Vortex revenue into those projections, plaintiffs
rely on conjecture based on subsequent events. This is
insufficient. See In re NAHC, 306 F.3d at 1330 (“[L]iability
cannot be imposed on the basis of subsequent events.”); see
also Burlington, 114 F.3d at 1430 (“Plaintiffs’ Complaint
contains a number of vague factual assertions regarding the
period prior to November 1, 1993, but plaintiffs have failed to
link any of these allegations to their claim that the November
1 forecast was actionably unsound when made.”).

Even assuming plaintiffs’ conclusory assertions were
sufficient to infer that Globus’s projections incorporated some
revenue from Vortex, the Amended Complaint would still
fail. Plaintiffs fail to plead specific facts regarding the
amount of sales revenue from Vortex projected by Globus;
how far short of the projections Vortex sales ultimately fell;
and, how significant the shortfall was in the context of
Globus’s sales overall. Without these facts, plaintiffs do not
sufficiently plead that, at the time the projections were made,
Globus failed to adequately account for the imminent change
in distributorship and any resulting effect on sales. Absent
these details, plaintiffs have done nothing more than “assert
as a general matter that the [revenue projections were] made
without a reasonable basis.” Burlington, 114 F.3d at 1429.

Further, at the end of the fiscal year, Globus achieved
$474.4 million in sales—just less than its initial projection of
$480 million to $486 million—and earnings of $0.97 per

19
share—compared to an initial projection of $0.90 to $0.92. In
other words, Globus exceeded its projections for earnings per
fully diluted share and missed its initial revenue projection by
just 1.17%. While the ultimate touchstone is whether the
projections were false or misleading when made, plaintiffs’
claim that the projections were impossible to achieve is
undermined by the fact that the company ultimately
substantially achieved the challenged projections. See Avaya,
564 F.3d at 266–67. On these facts, we conclude plaintiffs
have not adequately pleaded the revenue projections were
false or misleading when made.

b. Safe Harbor

In the alternative, like the trial court, we find the
challenged revenue projections are entitled to protection
under the PSLRA’s safe harbor. The statute “immunizes
from liability any forward-looking statement, provided that:
the statement is identified as such and accompanied by
meaningful cautionary language; or is immaterial; or the
plaintiff fails to show the statement was made with actual
knowledge of its falsehood.” Avaya, 564 F.3d at 254 (citing
15 U.S.C. § 78u–5(c)). We find plaintiffs have failed to
adequately plead that the revenue projections were made with
actual knowledge of falsehood.

The PSLRA requires plaintiffs in securities class
actions to “state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of
mind.” 15 U.S.C. § 78u–4(b)(2). To meet this standard, “an
inference of scienter must be more than merely plausible or
reasonable—it must be cogent and at least as compelling as
any opposing inference of nonfraudulent intent.” Tellabs,

20
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314
(2007).

Plaintiffs primarily point to three facts in asking us to
infer actual knowledge of falsity on the part of Globus and its
executives: (1) during the August 5, 2014, call explaining the
revisions to the sales projections, COO Demski stated that the
company “understood the risks to our short-term results”
when it terminated its relationship with Vortex, A53; (2)
during that same call, CEO Paul and CFO Baron
acknowledged that they recalled Globus’s 2010 experience
with “distributor turnover” and the two-year period it took to
get the company “back to where [it was],” A45–46; and (3)
the nature of the market for spinal implant products and the
importance of goodwill between salespeople and customers.

From these facts, it may be plausible to infer that
Globus knew or should have known that ending its
relationship with Vortex could have some effect on its sales.
But, as the District Court correctly noted, actual knowledge
that sales from one source might decrease is not the same as
actual knowledge that the company’s overall sales projections
are false. Silverstein v. Globus Medical, Inc., No. 15-5386,
2016 WL 4478826, at *8 (E.D. Pa. Aug. 25, 2016) (“But
simply knowing that the loss of a distributor may cause a drop
in sales does not mean that Globus failed to account for this
drop in its projections.”). Plaintiffs have not pleaded any
facts to support their claim that Globus incorporated
anticipated revenue from Vortex in its projections. Indeed,
given plaintiffs’ allegations regarding Globus’s extensive,
months-long planning for the end of its relationship with
Vortex—including the company’s broad strategy to transition
its sales force from independent distributors to in-house sales

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representatives and the fact that a new in-house sales
representative was in place to take over Vortex’s geographic
territory before the relationship was terminated—the more
plausible inference from the Amended Complaint is that
Globus accounted for the change in strategy when it devised
its sales projections for the year. Globus’s later revision of
those projections does not sufficiently show that Globus knew
the projections were false when made—particularly when
Globus ultimately achieved sales for the fiscal year within
1.17% of the original, challenged projection and exceeded its
projection for earnings per share. Absent facts giving rise to
a strong inference of scienter, Globus’s forward-looking
revenue projections are entitled to the protection of the
PSLRA safe harbor.

3. Section 20(a) Claims

Section 20(a) of the Securities Exchange Act permits
plaintiffs to bring a cause of action against individuals who
control a corporation that has violated Section 10(b). 15
U.S.C. § 78t(a). “[L]iability under Section 20(a) is derivative
of an underlying violation of Section 10(b) by the controlled
person.” Avaya, 564 F.3d at 252. Because we affirm the
dismissal of plaintiffs’ claims under Section 10(b), we also
affirm the District Court’s dismissal of their Section 20(a)
claims.

IV. CONCLUSION

For these reasons, plaintiffs have failed to adequately
plead any violation of the Securities Act on the part of Globus
or its controlling officers. We will affirm the District Court’s
dismissal of all claims.

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