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

The Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. 77p(b)–(f), 78bb(f)), bars private class actions based on state law in cases where the plaintiff alleges a material falsehood or omission connected to the purchase or sale of most federally-regulated securities. In this case, plaintiff filed suit for breach of contract and various fiduciary duties under Massachusetts law. The district judge held that SLUSA barred his claims, and dismissed them with prejudice. The panel held that dismissals pursuant to SLUSA's class-action bar must be for lack of subject-matter jurisdiction—and therefore without prejudice—rather than on the merits. Therefore, the panel affirmed the district court's judgment to the extent it concluded that plaintiff's claims were barred. View "Hampton v. Pacific Investment Management Co." on Justia Law

Plaintiffs appealed the district court's dismissal of their amended securities fraud class action complaint, alleging that Atossa and its Chairman and CEO, Steven Quay, made a series of public statements about Atossa's breast cancer screening products that were materially false or misleading. The district court dismissed the complaint. The Ninth Circuit held that plaintiffs have properly alleged falsity and materiality as to some, but not all, of these statements. In this case, plaintiffs have sufficiently alleged that the following were materially false or misleading: (1) Quay's statement quoted in Atossa's December 20, 2012 Form 8–K filing describing the ForeCYTE Test as "FDA-cleared"; (2) Quay's statement during his interview with NewsMedical.Net that the ForeCYTE test had "gone through all of the FDA clearance process"; (3) Atossa's Form 8–K filing on February 25, 2013, giving notice of the FDA's warning letter; and (4) Quay's statement during his interview with the Wall Street Transcript that "FDA clearance risk has been achieved." Accordingly, the court affirmed in part, reversed in part, vacated in part, and remanded. View "Levi v. Atossa Genetics, Inc." on Justia Law

Plaintiffs filed this would-be class action on behalf of all persons or entities who purchased or otherwise acquired the common stock of QSI, alleging that during the Class Period, QSI and its officers made false or misleading statements about the current and past state of QSI's sales "pipeline," and used those statements to support public guidance to investors about QSI's projected growth and revenue. The Ninth Circuit reversed the district court's dismissal of the complaint and remanded for further proceedings. The panel held that some of defendants' statements were mixed statements, containing non-forward-looking statements as well as forward-looking statements of projected revenue and earnings; a defendant may not transform non-forward-looking statements into forward-looking statements that are protected by the safe harbor provisions of the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-5, by combining non-forward-looking statements about past or current facts with forward-looking statements about projected revenues and earnings; many of defendants' non-forward-looking statements were materially false or misleading; and some of defendants' forward-looking statements were materially false or misleading, were not accompanied by appropriate cautionary statements, and were made with actual knowledge of their false or misleading nature. View "City of Miami Fire Fighters' and Police Officers' Retirement Trust v. Quality Systems, Inc." on Justia Law

The Ninth Circuit affirmed the dismissal of plaintiff's suit alleging securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, 15 U.S.C. 78j(b) and 78t(a), 17 C.F.R. 240.10b-5. Plaintiff alleged that defendants violated these statutes in connection with statements regarding Align's goodwill valuation of its subsidiary, Cadent. The Ninth Circuit held that the three standards for pleading falsity of opinion statements articulated in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, apply to Section 10(b) and Rule 10b-5 claims; plaintiff has failed to sufficiently plead falsity under any of the three Omnicare standards; plaintiff has also failed to sufficiently plead scienter; and, because plaintiff has inadequately alleged a primary violation of federal securities law, plaintiff cannot establish control person liability. View "City of Dearborn Heights Act 345 Police & Fire Retirement System v. Align Technology" on Justia Law

Victor Messina and International Market Ventures (IMV), challenged their liability as relief defendants in the SEC's enforcement action against Phil Ming Xu and various Xu-related entities for federal securities law violations arising out of a fraudulent investment scheme. The SEC alleged that Messina and IMV received $5 million of the tens of millions of dollars Xu unlawfully raised through investor deposits worldwide, but Messina and IMV asserted that they received those funds as a loan. At issue was whether putative relief defendants may divest a district court of jurisdiction to proceed against them using summary procedures simply by asserting a claim of entitlement to the disputed funds in their possession. The court concluded that the district court properly exercised its jurisdiction to determine the legal and factual legitimacy of Messina and IMV's claim to the $5 million; the district court acted correctly under its precedent approving the invocation of relief defendant procedures in SEC enforcement actions and did not clearly err in finding that Messina and IMV had no legitimate claim to the funds; the evidence demonstrated that far more than $5 million was raised by Xu and his various entities in the United States, and the district court correctly concluded that the funds sought were proceeds of illegal activity and subject to disgorgement; and thus the district court did not abuse its discretion in later ordering disgorgement from Messina and IMV as relief defendants. Accordingly, the court affirmed the judgment. View "SEC v. Messina" on Justia Law

This appeal relates to a last-minute addition to the anti-retaliation protections of the Dodd-Frank Act (DFA), Pub. L. No. 111-203, 124 Stat. 1376, to extend protection to those who make disclosures under the Sarbanes-Oxley Act and other laws, rules, and regulations. 15 U.S.C. 78u-6(h)(1)(A)(iii). At issue was whether, in using the term "whistleblower," Congress intended to limit protections to those who come within DFA's formal definition, which would include only those who disclose information to the SEC. If so, it would exclude those, like plaintiff here, who were fired after making internal disclosures of alleged unlawful activity. The Second Circuit, viewing the statute itself as ambiguous, applied Chevron deference to the SEC's regulation. The court agreed with the district court, and followed the Second Circuit's approach, that the regulation was consistent with Congress's overall purpose to protect those who report violations internally as well as those who report to the government. The court explained that this intent was reflected in the language of the specific statutory subdivision in question, which explicitly references internal reporting provisions of Sarbanes-Oxley and the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq. Therefore, the court concluded that the SEC regulation correctly reflected congressional intent to provide protection for those who make internal disclosures as well as to those who make disclosures to the SEC. Accordingly, the court affirmed the judgment. View "Somers v. Digital Realty Trust" on Justia Law

Sharemaster filed an application for Commission review of FINRA's final disciplinary sanction. The Commission dismissed Sharemaster's application for review, finding that it lacked jurisdiction over the matter under Section 19(d) of the Securities and Exchange Act, 15 U.S.C. 78s(d)(2), because there was no longer a live sanction for it to act upon after FINRA lifted the suspension. The court held that the Commission's interpretation of Section 19(d)(2) as limiting its review authority to final disciplinary sanctions that remain live is entitled to Chevron deference. However, the court held that the Commission unreasonably decided that the monetary penalty that FINRA imposed on Sharemaster was not a sanction and thus not a live disciplinary sanction. Accordingly, the court granted the petition for review. The court remanded to the Commission to determine whether, if Sharemaster prevails on the merits of its argument regarding the applicability of a registered-accountant requirement, the Commission may direct FINRA to reinstate Sharemaster nunc pro tunc. View "Sharemaster v. SEC" on Justia Law

HP shareholders filed a putative class action alleging violations of the Securities and Exchange Act of 1934, 15 U.S.C. 78a et seq. At issue is whether shareholders may bring a claim for securities fraud when a CEO and Chairman violates the corporate code of ethics after publicly touting the business’s high standards for ethics and compliance. The court held that Retail Wholesale, lead plaintiff in the putative class action, has failed to state a claim under the Act. The court explained that Retail Wholesale's fraud allegations must satisfy the particularity standard of Federal Rule of Civil Procedure 9(b), as well as the heightened pleading standard for securities fraud created by the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. 78u–4. In this case, the court concluded that there were no material misrepresentations or actionable material omissions. Further, even if the complaint adequately alleged the existence of a misrepresentation or a misleading omission, it would not have been actionable, as it was immaterial. Accordingly, the court affirmed the district court's dismissal of the action. View "Retail Wholesale Union v. Hewlett-Packard Co." on Justia Law

Plaintiff filed suit against Archon, alleging breach of contract stemming from Archon's issuance of a Notice of Redemption to holders of outstanding shares of preferred stock. The court concluded that the district court properly held that it lacked federal question subject matter jurisdiction under 28 U.S.C. 1331 because plaintiff did not assert a federal claim, and the Securities Litigation Uniform Standards Act, 15 U.S.C. 77p(d)(1)(A), does not provide an independent basis for federal question jurisdiction over plaintiff's state-law claim. The court also concluded that it lacked diversity jurisdiction over the class action suit under section 1332(d)(2) because of the exception provided in section 1332(d)(9)(C). Finally, the court concluded that the district court properly held that it lacked diversity jurisdiction over plaintiff's individual claim under section 1332(a) and therefore could not exercise section 1367 supplemental jurisdiction over the class members’ claims. Accordingly, the court affirmed the district court's dismissal of the complaint. View "Rainero v. Archon Corp." on Justia Law

Plaintiff filed a putative securities class action against defendants in connection with public statements made about Arena’s weight-loss drug, lorcaserin. When Arena filed its application with the FDA, the FDA’s advisory panel published a briefing document that disclosed, for the first time, that Arena had been in a “highly unusual” back-and-forth with the FDA regarding the results of cancer studies on rats (the “Rat Study”). Plaintiff filed suit after news of the Rat Study broke. The district court dismissed the First, Second, and Proposed Third Amended Complaints. The court agreed that once defendants touted the safety and likely approval of the drug based on animal studies, defendants were obligated to disclose the Rat Study's existence to the market. The court concluded that plaintiff has alleged scienter with sufficient particularity to survive a motion to dismiss. In this case, there is no question that plaintiff has alleged that defendants knew that the Rat Study existed, that defendants knew that the FDA’s request for bi-monthly reports and follow-up studies was highly unusual and out-of-process, and defendants went ahead and told investors about their confidence in lorcaserin’s approval based on preclinical animal studies. Therefore, the court concluded that plaintiff has properly pleaded scienter under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. 78u-4. The court reversed and remanded. View "Schwartz v. Arena Pharmaceuticals, Inc." on Justia Law