In reversal, Carbonite investors can sue over 'super strong product' claim

(Reuters) - A federal appeals court revived a securities fraud lawsuit against software company Carbonite Inc on Wednesday, saying investors had a plausible claim the company's "super strong" backup program had never worked.

Judge William Kayatta Jr on the 1st U.S. Circuit Court of Appeals wrote that investors in the cloud security company had sufficient evidence to pursue their claim that top executives were highly negligent in not checking whether a new data backup product was working before they touted it as "super strong" in November 2018.

The court overturned U.S. District Judge Leo Sorokin's finding that the statements were likely backed by a belief that the company could fix the product.

"These were not projections of hoped-for future performance. Rather, they were flat-out claims about the product as it then stood," Kayatta wrote.

Representatives for the company did not immediately respond to a request for comment on Wednesday. Carbonite was acquired by Canada's Open Text Corp in November 2019.

Carbonite argued the investors had failed to provide strong evidence that its executives intended to defraud the market or were highly reckless in making the statements.

Samuel Rudman of Robbins Geller Rudman & Dowd, who represents the pension fund leading the proposed class of investors, called the ruling "a great result." In deciding that an executive's statement, which said the product "improves our performance," was a statement of fact, not opinion, the court's ruling will be broadly helpful to investors, he said.

The lawsuit claims that Carbonite deceived investors starting in late 2018 by touting the strength of the product, which the complaint alleges never worked and was taken off the market in July 2019.

U.S. Circuit Judges Bruce Selya and David Barron joined in the opinion reviving the lawsuit.

The case is Construction Industry and Laborers Joint Pension Trust v. Carbonite Inc, 1st U.S. Circuit Court of Appeals, No. 20-2110.

For investors: Andrew Love, Samuel Rudman, David Rosenfeld, and Robert Gerson of Robbins Geller Rudman & Dowd; and Theodore Hess-Mahan of Hutchings Barsamian Mandelcorn

For Carbonite and the executives: Alisha Nanda, James Carroll of Skadden, Arps, Slate, Meagher & Flom

Read more:

Canada's Open Text to buy cloud security firm Carbonite for $800 million

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