Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Two investment entities entered into an agreement to sell a significant number of shares of a company to a purchaser. The seller was represented by a law firm as administrative agent and a broker as placement agent. Before the purchaser paid for the shares, it placed the transaction on hold. Despite this, the shares were mistakenly transferred to the purchaser. Multiple parties, including the administrative agent and broker, communicated about the error, and assurances were made that the transfer would be reversed. However, the reversal did not occur, and years later, the purchaser executed documents asserting ownership of the shares, which had notably increased in value. After demands for the return of the shares went unmet, the sellers filed suit. The shares were eventually returned, but their value had dropped.The United States District Court for the Northern District of California addressed claims brought by the sellers against the purchaser for conversion, among other causes of action. The purchaser, in turn, filed a third-party complaint seeking equitable indemnity and statutory contribution from the administrative agent and broker, alleging negligence in their handling of the transaction. The district court granted summary judgment in favor of the third-party defendants on the equitable indemnity claim, reasoning that conversion is an intentional tort for which equitable indemnity is unavailable. The sellers and purchaser settled their claims, but the purchaser appealed the indemnity ruling.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s decision. It held that, under California law, conversion is a strict liability tort, not an intentional tort requiring wrongful intent. Accordingly, a party liable for conversion may seek partial equitable indemnity from negligent joint tortfeasors. The panel reversed the district court’s summary judgment for the third-party defendants and remanded for further proceedings. View "SERENITY INVESTMENTS, LLC, ET AL. V. SUN HUNG KAI STRATEGIC CAPITAL, LTD." on Justia Law

The case concerns the process for selecting a lead plaintiff in a securities fraud class action brought under the Private Securities Litigation Reform Act (PSLRA). After investors filed federal securities claims against a company and its executives, several parties moved to be appointed as lead plaintiff, including Crain Walnut Shelling, LP. Crain Walnut reported the largest financial losses among the movants and made a prima facie showing of adequacy and typicality, initially making it the presumptive lead plaintiff. However, a competing movant, Universal, challenged Crain Walnut’s adequacy, raising concerns about inaccuracies in Crain Walnut’s filings and inconsistent representations about its ownership and organizational structure. During discovery, further issues arose when Crain Walnut’s representative gave problematic deposition testimony, indicating an unwillingness to comply with potential discovery obligations.The United States District Court for the Northern District of California evaluated these challenges. After initial proceedings and discovery, the district court concluded that the evidence raised doubts about Crain Walnut’s adequacy but initially applied a “genuine and serious doubt” standard. Ultimately, Universal was appointed as lead plaintiff after the district court found that Crain Walnut’s adequacy was rebutted based on the evidence.Crain Walnut then petitioned the United States Court of Appeals for the Ninth Circuit for a writ of mandamus to vacate the district court’s orders. The Ninth Circuit clarified that the correct standard for rebutting the PSLRA’s presumption of adequacy is the preponderance of the evidence, not a lower standard. The appellate court held that, even under the correct standard, the district court did not commit clear error in finding Crain Walnut inadequate, and thus mandamus relief was not warranted. The court therefore denied the petition for writ of mandamus. View "CRAIN WALNUT SHELLING, LP V. UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA" on Justia Law

Shahriyar Bolandian was convicted of insider trading based on allegations that he traded on nonpublic information regarding the mergers of two companies, information allegedly obtained from a friend, Ashish Aggarwal, who worked at J.P. Morgan. Bolandian executed trades in the stocks of PLX Technologies and ExactTarget before their respective acquisitions, ultimately earning substantial profits. These trades occurred while Aggarwal, though not assigned to the deals, worked in the relevant banking group. The case revolved around whether Aggarwal had improperly shared confidential information, and whether Bolandian knowingly traded on it.Initially, the United States District Court for the Central District of California severed Aggarwal’s trial from that of Bolandian and another co-defendant, Sadigh, due to the risk of antagonistic defenses. Aggarwal was ultimately acquitted by a jury. Afterward, a superseding indictment charged only Bolandian and Sadigh, and eventually Bolandian alone proceeded to trial. During Bolandian’s trial, a juror (Juror No. 6) expressed uncertainty about his ability to be impartial due to a family connection to J.P. Morgan. The district court questioned Juror No. 6 briefly, but allowed him to remain on the jury after both parties did not object.The United States Court of Appeals for the Ninth Circuit reviewed Bolandian’s conviction and focused on the issue of juror bias. The court held that the district court failed in its independent duty to investigate credible allegations of juror bias after Juror No. 6 expressed doubt about his impartiality. The panel concluded that defense counsel’s agreement to keep Juror No. 6 did not waive Bolandian’s right to challenge for bias, as a proper investigation is a prerequisite to waiver. The Ninth Circuit found plain error, vacated Bolandian’s conviction, and remanded for a new trial. View "USA V. BOLANDIAN" on Justia Law

Funko, Inc., a company specializing in pop culture collectibles, experienced a significant decline in its share price after writing off millions of dollars in unsellable inventory. Shareholders who purchased Funko stock during the relevant period alleged that Funko and its key officers misled investors about the progress of relocating to a new warehouse, the quality and management of inventory, the status of its information technology upgrades, and its distribution capabilities. The plaintiffs claimed that these misrepresentations led them to buy stock at artificially inflated prices. The period in question was marked by Funko's transition to a larger distribution center and a planned upgrade of its enterprise resource planning software, both of which encountered serious operational difficulties that impacted inventory management and order fulfillment.The United States District Court for the Western District of Washington dismissed the complaint, holding that the plaintiffs failed to sufficiently allege falsity and scienter—a necessary intent to mislead investors or recklessness to the risk of doing so. The district court found that most of the challenged statements were either not objectively false, constituted non-actionable puffery, or were protected as forward-looking statements under the Private Securities Litigation Reform Act’s safe harbor.On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal in part and reversed in part. The Ninth Circuit held that while Funko’s affirmative statements about the distribution center operations, inventory quality, and distribution capabilities were not demonstrably false or actionable, certain risk disclosures in Funko’s SEC filings regarding inventory management and its use of existing information technology systems were misleading. The court found that these risk disclosures implied the risks were merely hypothetical when, in fact, they had already materialized. The court also found sufficient allegations of scienter, concluding that senior officers likely knew their statements were misleading. The court reversed the dismissal of claims related to those disclosures and remanded for further proceedings. View "Construction Laborers Pension Trust of Greater St. Louis v. Funko, Inc." on Justia Law

Bloom Energy, a company specializing in fuel-cell servers, entered into Managed Services Agreements (MSAs), which are sale-leaseback arrangements involving banks and customers. The company initially classified these MSAs as operating leases, based on its assessment that the lease terms were less than 75% of the servers’ estimated useful lives and that the servers were not “integral equipment.” This classification affected how Bloom Energy reported revenue and liabilities in its financial statements. PricewaterhouseCoopers LLP (PwC) was engaged to audit Bloom Energy’s 2016 and 2017 financial statements, which were prepared by Bloom Energy’s management, and PwC issued an audit opinion stating that the financial statements were fairly presented in accordance with generally accepted accounting principles.After Bloom Energy went public in 2018, it later restated its financial statements, reclassifying certain MSAs as capital leases following a review prompted by PwC’s identification of an accounting issue. This restatement led to a significant drop in Bloom Energy’s stock price. Plaintiffs, consisting of shareholders, filed a class action in the United States District Court for the Northern District of California against Bloom Energy, its officers, directors, underwriters, and later added PwC as a defendant. They alleged violations of § 11 of the Securities Act of 1933, claiming that PwC was liable for material misstatements in the registration statement due to its audit opinion.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s dismissal of the claims against PwC. The Ninth Circuit held that under § 11, an independent accountant is not strictly liable for information in a registration statement or financial statements merely because it certified them. PwC’s audit opinion was a statement of subjective judgment, protected as an opinion under Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, and did not contain actionable misstatements or omissions. The court affirmed the district court’s dismissal of the claims against PwC. View "HUNT V. PRICEWATERHOUSECOOPERS LLP" on Justia Law

A group of former executives from an investment management company were prosecuted after the company collapsed and was placed in receivership. The company, which raised hundreds of millions of dollars from private investors, primarily through promissory notes and other investment vehicles, experienced severe financial distress following the default of a major asset. Despite this, the executives continued to solicit investments, representing to investors that their funds would be used to purchase secure receivables and that the company was financially healthy. In reality, most new investor funds were used to pay prior investors and cover operating expenses. The executives were accused of making material misrepresentations and misleading half-truths about the use of investor funds, the security of investments, and the company’s financial health.The United States District Court for the District of Oregon presided over the trial. The jury found all three defendants guilty of conspiracy to commit mail and wire fraud and multiple counts of wire fraud; one defendant was also convicted of making a false statement on a loan application. The defendants argued that they were improperly convicted on an omissions theory of fraud and that they were prevented from presenting a complete defense based on disclosures in offering documents and financial statements. They also challenged the sufficiency of the evidence and the materiality of their statements.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the government’s theory at trial was based on affirmative misrepresentations and misleading half-truths, not mere omissions, and that the jury instructions fairly stated the law. The court found that evidence of what was not disclosed was relevant to materiality, and that disclaimers in offering documents did not render other representations immaterial in a criminal fraud prosecution. The convictions were affirmed. View "USA V. JESENIK" on Justia Law

The Securities and Exchange Commission (SEC) initiated a civil enforcement action against Ongkaruck Sripetch and several other defendants, alleging that they engaged in fraudulent schemes involving at least 20 penny stock companies. The SEC claimed that the defendants obtained over $6 million in illicit proceeds through violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, including securities fraud and the sale of unregistered securities. The SEC sought various remedies, including an order requiring the defendants to disgorge all ill-gotten gains.The United States District Court for the Southern District of California presided over the case. Sripetch consented to the entry of judgment, agreeing that the court could order disgorgement and prejudgment interest, and that the complaint’s allegations would be accepted as true for the purposes of the SEC’s motion. The district court ordered Sripetch to disgorge $2,251,923.16 in net profits, plus prejudgment interest. Sripetch appealed, arguing that disgorgement under 15 U.S.C. § 78u(d)(5) and (d)(7) requires a showing of pecuniary harm to investors, which he claimed the SEC had not demonstrated.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s disgorgement order for abuse of discretion. The Ninth Circuit held that the SEC is not required to show that investors suffered pecuniary harm as a precondition to a disgorgement award under § 78u(d)(5) or (d)(7). The court reasoned that disgorgement is a profits-based remedy focused on depriving wrongdoers of ill-gotten gains, not compensating victims for losses. Accordingly, the Ninth Circuit affirmed the district court’s judgment. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. SRIPETCH" on Justia Law

Robinhood Markets, Inc., an online brokerage firm, experienced a surge in business during early 2021 due to increased trading in “meme stocks” and Dogecoin. This activity declined sharply in the second quarter of 2021, leading to significant drops in key financial metrics and performance indicators. In July 2021, Robinhood conducted an initial public offering (IPO) and issued a registration statement that included limited information about its second-quarter performance. After the IPO, Robinhood released its full second-quarter results, which revealed substantial declines and led to a drop in its stock price. Plaintiffs, representing a class of investors, alleged that Robinhood’s registration statement omitted material information about these declines, violating Sections 11, 12, and 15 of the Securities Act of 1933.The United States District Court for the Northern District of California dismissed the plaintiffs’ claims with prejudice. The district court found that Robinhood and its co-defendants were not liable under the Securities Act for failing to disclose the pre-IPO declines in key performance indicators and certain revenue sources. The court also held that there was no actionable omission regarding the increased percentage of Robinhood’s revenue attributable to speculative trading.On appeal, the United States Court of Appeals for the Ninth Circuit reviewed the district court’s decision de novo. The Ninth Circuit held that the district court applied incorrect legal standards to the plaintiffs’ theories under Section 11’s “misleading” prong and Item 303 of Regulation S-K. The appellate court clarified that, in this context, Sections 11 and 12 require disclosure of all material information, and rejected the “extreme departure” test used by the district court. The court vacated the dismissal as to these theories and remanded for further proceedings. However, the Ninth Circuit affirmed the district court’s dismissal of the claim based on Item 105 of Regulation S-K, finding no duty to provide a breakdown of revenue sources for the relevant period. View "Sodha v. Golubowski" on Justia Law

A pharmaceutical company developed a sublingual opioid painkiller, DSUVIA, which could only be administered in medically supervised settings due to safety concerns and was subject to a strict FDA Risk Evaluation and Mitigation Strategy (REMS). The company marketed DSUVIA with the slogan “Tongue and Done” at investor conferences, accompanied by additional disclosures about the drug’s limitations and REMS requirements. After the FDA issued a warning letter objecting to the slogan as potentially misleading under the Federal Food, Drug, and Cosmetic Act, several shareholders filed suit, alleging that the slogan misled investors about the complexity of administering DSUVIA and the drug’s limited market potential.The United States District Court for the Northern District of California dismissed the shareholders’ complaint, finding that the plaintiffs failed to adequately plead facts supporting a strong inference of scienter, but did not rule on whether the statements were false or misleading. The plaintiffs were given two opportunities to amend their complaint, but the court ultimately dismissed the case with prejudice.On appeal, the United States Court of Appeals for the Ninth Circuit reviewed the dismissal de novo. The Ninth Circuit held that the plaintiffs failed to adequately plead falsity because a reasonable investor would not interpret the “Tongue and Done” slogan in isolation, but would consider the context provided by accompanying disclosures and other available information. The court also held that the FDA’s warning letter did not establish falsity under securities law, as the standards and intended audiences differ. Additionally, the court found that the plaintiffs did not plead a strong inference of scienter, as the facts suggested the company’s officers acted in good faith. The Ninth Circuit affirmed the district court’s dismissal. View "Sneed v. Talphera, Inc." on Justia Law

Three individuals served as sales agents for a California company that marketed and sold fractional interests in life settlements, which are transactions where investors purchase life insurance policies from insured individuals, pay the ongoing premiums, and receive the death benefit when the insured passes away. The company selected which policies to purchase, determined the purchase price, and managed a complex premium reserve system to fund ongoing premium payments. Investors relied on the company’s expertise in selecting policies and managing the reserve system, and their interests in each policy were fractionalized among multiple investors. When the reserve system failed due to insureds living longer than projected, the company made additional premium calls to investors, and some investors lost their investments if they did not pay.The United States District Court for the Central District of California granted summary judgment in favor of the Securities and Exchange Commission (SEC) against the three sales agents. The court found that the fractional interests in life settlements were securities under the Securities Act of 1933, that no exemption from registration applied, and that the sales agents had not registered as broker-dealers. The court ordered disgorgement of a portion of the agents’ commissions, imposed civil penalties, and enjoined one agent from future violations.The United States Court of Appeals for the Ninth Circuit affirmed the district court’s judgment. The Ninth Circuit held that the fractional interests in life settlements were investment contracts and thus securities, because investors’ profits depended on the company’s selection of policies, management of the premium reserve system, and the structure of the fractionalized interests. The court also held that the offerings were not exempt from registration as intrastate offerings, as they were integrated and included at least one out-of-state investor. The court affirmed the remedies, finding that investors suffered pecuniary harm through the loss of the time value of their money. View "UNITED STATES SECURITIES AND EXCHANGE COMMISSION V. BARRY" on Justia Law