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

The case involves shareholders of Genius Brands International, Inc., a children's entertainment company, who alleged that the company violated the Securities Exchange Act of 1934 by making fraudulent statements and omissions. The shareholders claimed that Genius concealed its relationship with a stock promoter, PennyStocks.com, misrepresented its relationship with Arnold Schwarzenegger, exaggerated the frequency of its show Rainbow Rangers on Nickelodeon Jr., falsely suggested that Disney or Netflix would acquire Genius, and overstated its rights to the works of comic book author Stan Lee.The United States District Court for the Central District of California dismissed the shareholders' complaint, finding that they failed to adequately allege that Genius's representations were misleading or that they caused the shareholders' losses.On appeal, the United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the district court's decision. The appellate court held that the shareholders adequately alleged that Genius's representations regarding PennyStocks were misleading and that they caused the shareholders' losses with respect to the Rainbow Rangers, Disney/Netflix, and Stan Lee claims. However, the court affirmed the dismissal of the claim regarding Genius's relationship with Schwarzenegger, finding that the shareholders did not adequately allege loss causation. The case was remanded for further proceedings. View "In re Alavi v. Genius Brands International, Inc." on Justia Law

In the case involving Sorrento Therapeutics, Inc., its CEO, and its Vice President, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a securities fraud class-action case brought by lead plaintiff Andrew R. Zenoff. The plaintiff alleged that the defendants violated the Securities Exchange Act and the SEC's Rule 10b-5 by falsely claiming to have discovered a "cure" for COVID-19, resulting in a temporary surge in Sorrento's stock prices.The court held that the defendants' representations about the potential COVID-19 cure, when read in context, were not materially false or misleading. The court also found that the plaintiff failed to support the requisite strong inference of scienter, or intent to deceive, manipulate, or defraud. The court noted that Sorrento's financial difficulties and the need to raise capital did not provide a strong inference of scienter. Furthermore, the plaintiff did not provide evidence of specific stock sales or purchases that would indicate an intent to manipulate stock prices.The court found that the plaintiff's allegations did not meet the specific requirements for claims of securities fraud under the Private Securities Litigation Reform Act of 1995, which include demonstrating a material misrepresentation or omission, scienter, a connection between the misrepresentation or omission and the purchase or sale of a security, reliance upon the misrepresentation or omission, economic loss, and loss causation. The court concluded that the defendants' initial enthusiasm about the potential cure was not inherently false or misleading at the time, and the plaintiff failed to establish a strong inference of scienter. As a result, the court affirmed the lower court's dismissal of the case. View "ZENOFF V. SORRENTO THERAPEUTICS, INC., ET AL" on Justia Law

The case involves a whistleblower-retaliation action brought by Tayo Daramola, a Canadian citizen, under the Sarbanes-Oxley and Dodd-Frank Acts. Daramola was employed by Oracle Canada, a subsidiary of Oracle America, and worked remotely from Canada. He alleged that Oracle America and its employees retaliated against him for reporting suspected fraud related to one of Oracle's software products.The United States Court of Appeals for the Ninth Circuit affirmed the district court's dismissal of Daramola's action. The court held that the whistleblower anti-retaliation provisions in the Sarbanes-Oxley and Dodd-Frank Acts do not apply outside the United States. The court applied a presumption against extraterritoriality and concluded that the presumption was not overcome because Congress did not affirmatively and unmistakably instruct that the provisions should apply to foreign conduct.The court further held that this case did not involve a permissible domestic application of the statutes, given that Daramaola was a Canadian working out of Canada for a Canadian subsidiary of a U.S. parent company. The court agreed with other circuits that the focus of the Sarbanes-Oxley anti-retaliation provision is on protecting employees from employment-related retaliation, and the locus of Daramola's employment relationship was in Canada. The court also concluded that Daramola did not allege sufficient domestic conduct in the United States in connection with his Dodd-Frank claim. The same reasoning disposed of Daramola’s California state law claims. View "DARAMOLA V. ORACLE AMERICA, INC." on Justia Law

In this case, Robert Sproat was convicted on ten counts of securities fraud. On appeal, Sproat argued that the district court improperly coerced the jurors into reaching a unanimous guilty verdict by instructing them to return the next day after they had reported an impasse in their deliberations.The United States Court of Appeals for the Ninth Circuit affirmed the conviction, rejecting Sproat's argument. The court held that merely instructing a jury that reported an impasse to return the next day is not unconstitutionally coercive. The court found that the district court's instruction to return did not amount to an Allen charge, an instruction encouraging jurors to reach a unanimous verdict. The court explained that no such encouragement was explicit or implicit in the district court's instruction.The court also observed that the district court had not asked the jury to identify the nature of its impasse or the vote count before excusing them for the evening, and that any theoretical risk of coercion was cured by the partial Allen instruction the district court gave the following day, emphasizing the jurors' freedom to maintain their honest beliefs and their ability to be excused if they could not overcome their impasse. The court concluded that the district court's instruction to return the next day and the partial Allen instruction the following day did not coerce the jurors into reaching a unanimous guilty verdict. View "USA V. SPROAT" on Justia Law

In this case, the plaintiffs, who are shareholders of Facebook, Inc., brought a securities fraud action against the company and its executives, alleging that they made materially misleading statements and omissions about the risk of improper access to Facebook users' data, Facebook's internal investigation into the actions of Cambridge Analytica, and the control Facebook users have over their data. The United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the decision of the District Court for the Northern District of California.The Circuit Court held that the shareholders adequately pleaded falsity as to the challenged risk statements in Facebook's 2016 Form 10-K. The court held that these statements were materially misleading because Facebook knew at the time of filing that the risk of improper third-party misuse of Facebook users' data was not hypothetical, but had already occurred.As to the statements regarding Facebook's investigation into Cambridge Analytica, the court affirmed the district court's decision, holding that the shareholders failed to plead scienter, or intent to defraud.Lastly, the court held that the shareholders adequately pleaded loss causation as to the statements assuring users that they controlled their data on the platform. The court found that the shareholders had adequately pleaded that the March 2018 revelation about Cambridge Analytica and the June 2018 revelation about Facebook's whitelisting policy were the first times Facebook investors were alerted that Facebook users did not have complete control over their own data, causing significant stock price drops.The case was remanded to the district court for further proceedings. View "AMALGAMATED BANK V. FACEBOOK, INC." on Justia Law

Amyris is a publicly traded biotechnology company that operates out of California. John Doerr is a member of the Amyris board of directors. Doerr and his wife, Ann Doerr, are also trustees of Vallejo Ventures Trust (Vallejo), which is a member of Foris Ventures, LLC (Foris). Doerr indirectly owns all membership interests in Foris. Foris and Amyris entered into several transactions involving Amyris stock, warrants, and debt between April 2019 and January 2020. The Amyris board of directors approved each of those transactions. The following year, Andrew Roth, an Amyris shareholder, filed a derivative lawsuit on behalf of Amyris against the Doerrs, Foris, and Vallejo, alleging that those transactions violated Section 16(b) and seeking disgorgement of profits. Defendants moved to dismiss. The district court denied the motion. The district court subsequently granted a certificate of interlocutory appealability on the sole issue of whether Rule 16b-3 requires a board of directors to explicitly approve transactions for the purpose of exempting them under the Rule.   The NInth Circuit affirmed in part and reversed in part the district court’s order denying defendants’ motion to dismiss. The panel held that the district court erred by imposing a purpose-specific approval requirement. However, the district court did not err in finding that the Amyris board was aware that defendant John Doerr had an indirect pecuniary interest in the challenged transactions when it approved them. The panel left it for the district court on remand to address whether defendant Foris Ventures, LLC, a beneficial owner of Amyris, was a director by deputation and thus eligible for the Rule 16b-3(d)(1) exemption. View "ANDREW ROTH V. FORIS VENTURES, LLC, ET AL" on Justia Law

Appellants, collectively “the shareholders,” purchased shares of Facebook common stock between February 3, 2017, and July 25, 2018. Soon after the first stock drop in March 2018, they filed a securities fraud action against Facebook and three of its executives. The shareholders allege that Facebook and the executives violated Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 and Rule 10b-5 of the Exchange Acts. The district court dismissed for failure to state a claim.   The Ninth Circuit affirmed in part and reversed in part. The panel considered whether, under the heightened standard of the Private Securities Litigation Reform Act, the shareholders (1) adequately pleaded falsity as to the challenged risk statements, (2) adequately pleaded scienter as to the Cambridge Analytica investigation statements, and (3) adequately pleaded loss causation as to the user control statements. First, the panel held that the shareholders adequately pleaded falsity as to the statements warning that misuse of Facebook users’ data could harm Facebook’s business, reputation, and competitive position, and the district court erred by dismissing the complaint as to those statements. Second, the panel agreed with the district court that the shareholders failed to plead scienter as to Cambridge Analytica investigation statements, including ones made by a Facebook spokesperson to journalists in March 2017 that Facebook’s internal investigation into Cambridge Analytica had “not uncovered anything that suggested wrongdoing” related to Cambridge Analytica’s work on the Brexit and Trump campaigns. The panel affirmed the dismissal as to statements related to Facebook’s goals of transparency and control— statements that were not false when they were made. View "AMALGAMATED BANK, ET AL V. FACEBOOK, INC., ET AL" on Justia Law

iRhythm Technologies, Inc.’s (iRhythm) stock price fell after it received a historically low Medicare reimbursement rate for one of its products. Appellant, an investor in iRhythm, filed a putative securities fraud class action against iRhythm and one of its former Chief Executive Officers, alleging that investors were misled during the regulatory process preceding this stock price collapse. Pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA), the district court appointed Public Employees’ Retirement System of Mississippi (PERSM) as the lead plaintiff in the action. PERSM filed a first and then second amended complaint (SAC, the operative pleading) alleging securities fraud claims against iRhythm and additional corporate officers (together, Defendants). Defendants filed a motion to dismiss PERSM’s SAC for failure to state a claim. PERSM did not appeal the district court’s grant of this motion. Appellant appealed.   The Ninth Circuit dismissed, for lack of jurisdiction due to Appellant’s lack of standing, an appeal from the district court’s dismissal of a putative securities fraud class action. The panel held that Appellant lacked standing to appeal because he was not a party to the action. Appellant’s filing of the initial complaint and his listing in the caption of the second amended complaint were insufficient to confer party status upon him. The body of the operative complaint made clear that PERSM was the sole plaintiff, and Appellant’s status as a putative class member did not give him standing to appeal. The panel further held that Appelant failed to demonstrate exceptional circumstances conferring upon him standing to appeal as a non-party. View "MARK HABELT, ET AL V. IRHYTHM TECHNOLOGIES, INC., ET AL" on Justia Law

The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law

Lead Plaintiff E. Öhman J:or Fonder AB and others (“Plaintiffs”) brought this putative class action on behalf of all persons or entities who purchased or otherwise acquired common stock of NVIDIA Corporation (“NVIDIA”) during the proposed Class Period. The district court dismissed Plaintiffs’ first complaint with leave to amend, holding that it failed to plead sufficiently that defendants’ statements were materially false or misleading, and that the statements were made knowingly or recklessly.   The Ninth Circuit affirmed in part and reversed in part. The court explained that Section 20(a) assigns joint and several liability for any person who controls any person liable under Section 10(b). Because the panel held that the amended complaint did not sufficiently plead a cause of action under Section 10(b) and Rule 10b-5 against defendants Kress and Fisher, the only alleged primary violation was that committed by NVIDIA through defendant Huang. The panel affirmed the district court’s dismissal of plaintiffs’ Section 20(a) claims against Kress and Fisher, vacated the dismissal of the Section 20(a) claims as to Huang, and remanded for further proceedings as to those claims. View "E. OHMAN J:OR FONDER AB, ET AL V. NVIDIA CORPORATION, ET AL" on Justia Law