Electrical Workers Pension Fund, Local 103, I.B.E.W. v. HP Inc.

Court: United States District Court for the Northern District of California
Case Number: 3:20-cv-01260
Class Period: 02/23/2017 - 10/03/2019
Case Leaders: Jeremy P. Robinson, Jonathan D. Uslaner, Hannah Ross, Avi Josefson, Michael D. Blatchley
Case Team: Will Horowitz, Alexander T. Payne

This securities class action is filed in the U.S. District Court for the Northern District of California on behalf of investors in HP Inc. (“HP” or the “Company”) common stock who purchased between February 23, 2017 and October 3, 2019, inclusive (the “Class Period”). The case alleges claims under Section 10(b) of the Exchange Act and rule 10b-5 against HP and certain of its current and former senior executives (“Individual Defendants” collectively “Defendants”), under Section 20(a) of the Exchange Act against the Individual Defendants, and under sections 10(b) and 20A of the Exchange Act and rule 10b-5 for insider trading against certain of the Individual Defendants. The Honorable Susan Illston is presiding over the case.

Based in Palo Alto, California, HP is a global provider of personal computers, printers and related supplies, solutions, and services. One of the Company’s primary segments is Printing, which encompasses the Supplies business unit consisting of ink and laser cartridges and other consumable products. The Supplies business has been a significant revenue driver for HP.

The Complaint alleges that, throughout the Class Period, Defendants falsely emphasized that its analytical model, called the “four-box model,” was an accurate, reliable tool to determine demand, and market share in the Company’s Supplies business, and reassured investors that, based on the four-box model, HP had a “clear line of sight to supply stabilization.” Furthermore, just prior to the Class Period, as an SEC Cease and Desist Order later made clear, HP had met quarterly financial targets by engaging in “pull-in” sales tactics which sold excess Supplies into the sales channel which cannibalized sales from future quarters. Entering the Class Period, Defendants had assured the market that HP had implemented a “pull” sales model and was only selling Supplies into the sales channel in response to true demand. Unbeknownst to investors, Defendants continued to operate a “push” sales model and pushed tens of millions of dollars of excess inventory into the channel each quarter thereby creating the illusion that HP had stabilized the Supplies business. As a result of Defendants’ misrepresentations, shares of HP’s common stock traded at artificially inflated prices during the Class Period.

The truth emerged through a series of disclosures, beginning on February 27, 2019, when HP reported disappointing Supplies revenue for the first quarter of fiscal 2019. Significantly, in reporting these results, the Company admitted that its four-box model had been based upon incorrect and insufficient data concerning inventory, market share, and pricing assumptions. The Company also admitted that rather than selling to true end-user demand, the Company had oversold the channel by at least $100 million. Then, on August 22, 2019, HP announced disappointing earnings results for the third quarter of fiscal 2019, with Supplies revenue down 7% year-over-year. The Company also further reduced its Supplies revenue guidance for fiscal 2019. Finally, on October 3, 2019, after the market closed, HP announced it did not expect Supplies revenue to grow at all past fiscal 2020 and that it was abandoning its supplies-focused business model altogether.

On May 20, 2020, the Court appointed Iron Workers Local 580 Joint Funds (“Iron Workers”) as co-Lead Plaintiff and BLB&G as co-Lead Counsel for the Class. On July 20, 2020, Lead Plaintiffs filed the operative Complaint, which was dismissed without prejudice on March 19, 2021. Lead Plaintiffs filed an Amended Complaint on May 3, 2021, which Defendants moved to dismiss on June 4, 2021. Lead Plaintiffs filed an Opposition on June 25, 2021, and Defendants filed a Reply on July 9, 2021. After a hearing on September 9, 2021, the Court issued an Order on September 15, 2021 granting Defendants’ motion to dismiss with prejudice. Lead Plaintiffs have filed an appeal to the Ninth Circuit and a brief in support that appeal on February 23, 2022. Defendants filed an answering brief on April 25, 2022. Plaintiffs’ reply brief was filed on June 15, 2022.