Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Murashko v. Hammer

United States District Court, D. New Jersey

February 22, 2018

N. ROBERT HAMMER, et al, Defendants.


          PETER G. SHERIDAN, U.S.D.J.

         This shareholder derivative complaint arises from allegations that Commvault Systems, Inc. (hereinafter, "Commvault") and its former board of directors and executive officers breached their fiduciary duties by fraudulently misrepresenting the corporation's financial status and engaging in a "cookie jar accounting" scheme. Presently, Defendants N. Robert Hammer, Alan G. Bunte, Brian Carolan, Frank J. Fanzilli, Jr., Armando Geday, Keith B. Geeslin, Robert F. Kurimsky, Louis F. Miceli, Gary Merrill, Ronald L. Miiller, Daniel J. Pulver, Gary B. smith, and David F. Walker (collectively, "Director Defendants") seek dismissal of Plaintiff Alexander Murashko's amended shareholder derivative complaint (ECF No. 20) pursuant Federal Rule of Civil Procedure 23.1 for failure to plead particularized facts showing that a demand on the Commvault Board of Directors would have been futile. (ECF No. 21). For the reasons discussed below, the motion is granted without prejudice.


         Commvault is a publicly traded data protection and information management software company that is incorporated in Delaware and headquartered in New Jersey. (Amended Complaint at ¶¶ 3, 25). Commvault has a ten-member board of directors, of which two, Defendants Hammer and Bunte, are inside directors. Of the eight outside directors, Defendants Kurimsky, Pulver and Walker served on the Audit Committee, and Defendants Kurimsky, Pulver, Smith, and Walker on the Governance Committee. (Id. at ¶¶ 42-43). Under the terms of its corporate charter, Commvault exempts directors from liability for monetary damages, "[t]o the fullest extent permitted by the General Corporation law of the State of Delaware." (ECF No. 21-6, "Corporate Charter").[1]

         In December 2003, Commvault entered a business partnership with Dell, wherein Dell served as Commvault's reseller and original equipment manufacturing partner. (Amended Complaint at ¶ 4). After going public in 2006, Commvault's revenue quadrupled in value from $109, 472, 000 in 2007 to $406, 639, 000 in 2012. (Id. at ¶ 5). Of this, Dell accounted for twenty percent of Commvault's total revenue. (Id.). Over the next few years, Commvault predicted that its revenue would grow from $500 million in 2013 to over $1 billion. (Id. at ¶ 6). To meet this goal, analysts predicted that Commvault would "have to grow by at least 20% year-over-year until fiscal [year] 2017." (Id.). However, in 2012, Dell acquired certain Commvault competitors and ended its partnership with Commvault; this termination would severely affect Commvault's ability to achieve its revenue targets. (Id. at ¶ 7). Plaintiff claims Defendants falsely reassured investors that Commvault was replacing Dell with business partners, and that the lost partnership would not affect Commvault's revenue target numbers. (Id. at ¶ 8).

         On May 14, 2013, Commvault filed its annual Form 10-K for fiscal year 2013, as required pursuant Section 13 of the Securities Exchange Act of 1934. (ECF No. 21-4, "FY 2013 10-K").[2]

         In their Form 10-K, Commvault reported deferred software revenue of $9, 193, 000, which was approximately $6 million more than the $3, 764, 000 reported in 2012. (Amended Complaint at ¶ 72). Plaintiff claims that the statements in the Form 10-K "were materially false and misleading" because a material portion of the $9.2 million reported as deferred software revenue should have been reported as realized revenue for the fourth quarter, but "was being saved to mask Commvault's undisclosed declining growth prospects." (Id. at ¶ 77).

         According to the Complaint, Defendants created a "cookie jar" accounting scheme, wherein Defendants concealed Commvault's declining revenue and manipulated Commvault's finances, in violation of the Generally Accepted Accounting Principles (GAAP). (Id. at ¶ 9). Specifically, Plaintiff claims that Defendants did not recognize revenue earned in prior fiscal periods and, instead, deferred these earnings to later periods to show financial growth. For instance, during the second and third fiscal quarters of 2014, Plaintiff claims that "[Defendants caused the Company to recognize a material portion of its artificially inflated deferred software revenue balance to create the illusion that Commvault was meeting its 20% year-over-year growth targets." (Id. at ¶ 10). In both quarters, Commvault recognized more than $4 million in previously deferred software revenue, which misrepresented Commvault's true revenue numbers. (Id. at ¶¶ 11-12).

         However, Commvault's financial struggles became public on April 25, 2014, when it announced that its fourth quarter profits had declined by 7.8% and that software revenue had dropped to 10% year-over-year, half of the 20% figure that analysts expected. (Id. at ¶ 16). Once these disclosures were made public, Commvault experienced a 30% drop in stock value, falling from $68.58 per share to $47.56. (Id.).[3]

         Plaintiff now brings this present cause of action on behalf of Commvault, against Director Defendants, alleging two counts of breach of fiduciary duties, one count of unjust enrichment, and one count of insider trading. The Complaint identifies the following individual defendants and their corporate capacities:

N. Robert Hammer, President and Chief Executive Officer of Commvault. (Complaint at ¶ 27);
Alan G. Bunte, Excecutive Vice President and Chief Operating Officer. (Id. at ¶ 28);
Brian Carolan, Chief Financial Officer. (Id. at ¶ 29);
Ronald L. Miiller, senior vice president of worldwide sales. (Id. at ¶ 30);
Gary Merrill, vice President, finance and chief accounting officer. (Id. at ¶ 31);
Frank J. Fanzilli, Jr., director. (Id. at ¶ 32); Armando Geday, director. (Id. at ¶ 33);
Keith B. Geeslin, director. (Id. at ¶ 34);
Robert F. Kurimsky, director and audit committee member. (Id. ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.