Mere Stock Dilution Not Economic Loss

michael j. barry, grant & eisenhoffer p.a., wilmington, amend its consolidated complaint to reallege a claim that was 1738 new york city employees' retirement v. jobs consolidated complaint with leave to amend solely to assert b. economic loss f.3d 733, 737 (9th cir. 2008), a district court may abuse its holders were deprived of the right to a fully informed vote. *2-5. without a primary violation under � 14(a), nycers' that such a plaintiff must also "demonstrate that the misstate- causation. 3461163, at *5 (n.d. cal. nov. 14, 2007). in rejecting the of a private action under � 14(a) of the 1934 act and sec lybrand, 644 f.2d 811, 814 (9th cir. 1981), for the assertion cir. 2007) (quotation marks omitted); see also desaigoudar bility and that it was an essential link in the accomplishment (e.d. pa. 2006) (holding that dura allows the "transaction- remedy?" tooley v. donaldson, lufkin & jenrette, inc., 845 instead, nycers characterizes its claim as "rescissory in the below market . . . cash compensation . . . paid to executive jobs with 630,000 extra shares valued at over $50 million. for plaintiff who omits previously dismissed claims from an 3 system ("nycers") alleged that the false solicitation denied 1729new york city employees' retirement v. jobs sis was based on an interpretation of state law. id. at *2-5. � 78u-4(b))); grace v. rosenstock, 228 f.3d 40, 47 (2d cir. false and misleading proxy solicitation for a stock option plan. that apple's compensation practices "align[ed]" the interests nycers alleges falsity because backdated options can have circuit judges, and ann aldrich,* district judge. the consolidated complaint might also be read to allege direct injury under �� 10(b), 14(a), and 20(a) of the securities exchange court's dismissal on this ground was proper. motion to dismiss. manzarek v. st. paul fire & marine ins. act ("sea"). nycers was appointed lead plaintiff pursuant apple's 2005 proxy solicitation. first, the solicitation states u.s. 375 (1970), grants courts broad authority to fashion equi- nate ground that the plaintiffs offered no proper explanation for the omis- complaint to reallege the omitted claim. options had been granted on forty-two days between 1997 and 2002. as pslra "imposed . . . a loss causation requirement upon `any loss causation. see stoneridge, 552 u.s. at 165 (discussing a into past option practices. the results disclosed that 6,428 backdated 1732 new york city employees' retirement v. jobs 1735new york city employees' retirement v. jobs ment or omission was made with the requisite level of culpa- state of incorporation. lapidus v. hecht, 232 f.3d 679, 682 rule 14a-9 quence even though the company's share price may not have ments with an actual economic harm. grace, 228 f.3d at 46. nomic loss does not necessarily accompany dilution, so such (9th cir. 2009). plaint. id. at *4. mined that: (1) nycers' claim was derivative, not direct, claim is direct, the district court erred in dismissing the con- ory of injury. filed january 28, 2010 mits claims for losses without offsetting for profitable transac- suffer economic loss through share dilution. the district court jobs, 2007 wl 3461163, at *4. current chairman and ceo, cancelled his outstanding options share price, and [nycers] alleges no more here." vogel v. notice of what the relevant economic loss might be. here, discussion waiver of that claim." in london, the plaintiff alleged a title jerome p. york; apple computer, tions). nonetheless, dura requires that the pleadings provide nycers' claim for injury to its right to a fully informed vote administration of justice, is not well-grounded, considering there appears to be no difference between delaware and cali- that a plaintiff waives all causes of action alleged in the origi- [3] treating the claim as a direct claim under � 14(a) of the nycers sought leave to amend to assert, in part, a direct s'holder litig., 906 a.2d 766, 772 (del. 2006) ("[w]here it court.4 to state a claim under � 14(a) and rule 14a-9, a plaintiff claim under � 10(b) of the sea, but explaining that the an erroneous application of the law and, thus, an abuse of dis- of employees and stockholders, because stock options would ciary duty of candor for various proxy solicitations, form 10- appeal, the parties dispute whether nycers states a claim to file such an amended complaint on the ground that previous amendments). nonetheless, the district court denied even if nycers were to allege a drop in apple stock's price due to ners, llc v. scientific-atlanta, 552 u.s. 148, 165 (2008). on rule of civil procedure 15(a), concluded that no factors through dilution of apple stock's economic value and voting power. how- moved in response to the transfer." the second amended complaint, the plaintiff appealed, seek- what the causal connection might be between that loss and the injury to the corporation." id. at 1039. expense of $105 million. "backdating" of stock options involves granting an awardee a stock option complaint. we have held that, "[i]f a plaintiff fails to include nycers states that dilution "reduces a shareholder's per- transfer clearly has a highly significant economic conse- cretion. jeremy d. fogel, district judge, presiding under � 14(a) that is both direct and adequately alleges loss any cognizable economic loss. applying a waiver rule to nycers' omitted � 10(b) claim, must meet the heightened pleading standards of the pslra, to its right to a fully informed vote, we need not address this alternate the- not necessarily accompanied by economic loss." the court remedy, equitable or otherwise, is available. the omitted claim. � 20(a) control person claim failed. id. at *5. furthermore, the ported in caselaw, and as the district court recognized, eco- � 10(b) claim by failing to include it in the consolidated com- dismissing the claim, the district court noted that "dilution is court level. in king, the plaintiffs elected not to reallege cer- sion. we decline to consider this new contention apple raises for the first california, for the defendants. before: david r. thompson and sidney r. thomas, (9th cir. 2000). in the present case, california law applies, but of dilution, and, as such, does not seek to rely directly on dura.3 it its right to an informed shareholder vote and caused it to amended complaint waives his right to reallege these claims solicitation states that in march 2003, steve jobs, apple's solicitation; and (2) a state law claim for breach of the fidu- claim, and, because the district court determined that leave to cigna corp. sec. litig., 459 f. supp. 2d 338, 350-54, 357 wollard, jr., affirm the district court's dismissal of nycers' consolidated the particular defect in the solicitation materials, was an 2007) ("where a shareholder has been denied one of the most tions are direct claims, as they are based in rights secured to fails to adequately plead economic loss, and the district deemed to have waived any error in the ruling dismissing the based methodology" for calculating economic loss which per- both economic loss and proximate causation. dura pharm., claim, but nycers did not include that claim in the consoli- vidual, not corporate, harm."); dieterich v. harrer, 857 a.2d 1731new york city employees' retirement v. jobs tion. indeed, in dura, the supreme court noted that it "need demonstrate that the duty breached was owed to the stock- of the proposed transaction"). in addition, private plaintiffs nomic loss." id. at 347-48 (noting the complaint's failure to plaintiffs, votes, compensatory damages for share dilution, an order for critical rights he or she possesses--the right to a fully delaware, for the plaintiff-appellant. --and who would receive the benefit of the recovery or other this litigation arises out of the issuance of an allegedly in exchange for ten million (split adjusted) shares of restricted not, and d[id] not, consider other proximate cause or loss- options were priced at fair market value on the date of the from 1996 to 2005, shareholders "unwittingly" authorized sis of whether a claim is direct or derivative "must be based of the option is the difference between the low option price and the current not purport to establish a single method of proving loss causa- hudson; delano e. lewis, jr.; a. jurgen hintz; katherine m. informed vote--the harm suffered is almost always an indi- as well as its loss causation requirement. stoneridge inv. part- [5] nycers' dilution theory of economic loss is unsup- review is limited to the allegations in the most recently filed martin vogel; kenneth conclusory assertions of loss are insufficient. thus, nycers substantial dilution of their shares. nycers asserts that, recognized other showings of loss causation. see, e.g., in re centage of ownership." nycers elaborates, "this 20% inc.; gareth c.c. chang; peter george a. riley, o'melveny & myers, llp., san francisco, id. this court stated, "it has long been the rule in this circuit i. disclosure claims under � 14(a) of the sea and sec in this case, the original complaint contained a � 10(b) sidering undue delay, bad faith, undue prejudice, futility and dismissed claims in an amended complaint, the plaintiff is � 14(a) claims, loss causation connects the proxy misstate- the new york city employees' use mills to avoid pleading economic loss. the pslra does background jf, 2008 wl 2073935, at *2-4 (n.d. cal. may 14, 2008). first, apple's policy argument, advocating the efficient securities." 544 u.s. at 347 (alteration in original). the court on november 14, 2007, the district court dismissed the dismissed nycers' consolidated complaint. the court deter- citing allen v. city of beverly hills, 911 f.2d 367, 374 (9th cir. 1990), faulted the complaint for failing to "provide[ ] the defendants for which the plaintiff seeks to recover damages." 15 u.s.c. fornia law on this issue. table remedies for � 14(a) claims. however, nycers cannot district court erred in applying a "waiver" rule to the omitted opinion asserts that, in king, we approved a waiver rule at the district a. nature of nycers' claim defendants-appellees. and alleging they "paid artificially inflated prices for dura[`s] [6] on appeal, nycers correctly asserts that london actu- related questions." 544 u.s. at 346. accordingly, courts have against apple and fourteen of its officers and directors. the the northern district of ohio, sitting by designation. found the complaint "legally insufficient," because an " `arti- that "a party's failure to reassert a claim may be deemed a tain claims in their amended complaint. 814 f.2d at 567. the grant. must establish that "(1) a proxy statement contained a mate- 319, 330 n.12, 332 (del. 1993))).2 consolidated complaint alleges: (1) direct class claims under state a direct claim under � 14(a). thus, we affirm the district 4 district court abused its discretion by relying on london in is claimed that a duty of disclosure violation impaired the 1725 this claimed injury is independent of any injury to the corpo- concluded that dura pharmaceuticals "bars any suit brought [7] nycers fails to allege economic loss as required to ally stands for the proposition that the scope of appellate prior complaint." forsyth v. humana, inc., 114 f.3d 1467, shown. id. king is distinguishable from the present case sought to have the omitted claims considered by the district 1017, 1029 (del. ch. 2004) ("dieterich's disclosure allega- its allegations on the backdating of stock options by apple.1 for the northern district of california apple's arguments to the contrary do not alter this result. officers." nycers alleges misrepresentation because back- in further amendments at the district court level. the district value even if apple's stock price does not increase, thereby 2 for the ninth circuit allege a subsequent drop in dura's share price). the court [1] a claim asserted under � 14(a) of the sea may be vii claim in her first amended complaint, but not in her sec- any alleged injury to the corporation. the stockholder must co., 519 f.3d 1025, 1030 (9th cir. 2008). consolidated complaint. the district court, applying federal state law claims presumably failed because the � 14(a) analy- nycers next asserts that, even if dura applies, dura does counsel d.c. no.steven p. jobs; fred anderson; 5:06-cv-05208-jfwilliam v. campbell; millard s. that is dated on a date earlier than it is actually issued, usually at a date ever, because nycers states a direct claim based on the alleged injury amendment. vogel v. jobs, 2008 wl 2073935, at *2-4 (con- apple compensates some employees by awarding stock options. states v. sprague, 135 f.3d 1301, 1304 (9th cir. 1998). complaint. nycers pled a direct injury, but failed to assert nycers waived the � 10(b) claim by not alleging that claim amend should otherwise be granted, a ruling not challenged the cancelled options were backdated, improperly providing a claim as direct or derivative is governed by the law of the asserted in the initial complaint, but which it omitted from the "have value . . . only if the company's stock price increases." a consequence, apple restated its financial statements to reflect a pre-tax 1730 new york city employees' retirement v. jobs 1728 new york city employees' retirement v. jobs solicitation states that granted options "did not make up for that "[t]he court should freely give leave when justice so complaint, nycers had "waived" it. we conclude that the harm--the corporation or the suing stockholder individually this appeal followed. 2000) ("[l]oss causation . . . must be proven in the context rule 14a-9 promulgated thereunder.") as codified, loss cau- requires." fed. r. civ. p. 15(a). second, apple incorrectly direct." (citing in re tri-star pictures, inc., litig., 634 a.2d ii. leave to amend brought either as a direct or a derivative claim. j.i. case co. conclusion in its consolidated complaint. vogel v. jobs, no. c 06-5208 v. borak, 377 u.s. 426, 431 (1964). the characterization of private action' arising from the [sea]" (quoting 15 u.s.c. we review de novo the district court's decision to grant a retirement system, inc. v. broudo, 544 u.s. 336, 346 (2005). in well-pleaded plaintiff-appellant new york city employees' retirement ers. see in re tyson foods, inc., 919 a.2d 563, 601 (del. ch. appeal from the united states district court solely on the following questions: who suffered the alleged sation requires a showing that the defendant "caused the loss review of the omitted claims. id. on appeal, no error was o. crisp; lawrence j. ellison; b. not differentiate between plaintiffs seeking legal and equitable in 2004, the delaware supreme court stated that an analy- weighed against further amendment, but nonetheless deter- in dura pharmaceuticals, the supreme court considered an accounting, a declaration of defendants' liability, and attor- fully establish a causal connection between such a drop and any misrepre- of discretion, see abagninin v. amvac chem. corp., 545 cinda corp. v. daimlerchrysler ag, 502 f.3d 212, 228 (3d shortly before the complaint was filed, apple initiated an investigation because the king plaintiffs did not seek to amend, but merely to amend the consolidated complaint to reallege the � 10(b) apple contends that denial of leave to amend is appropriate on the alter- a.2d 1031, 1035 (del. 2004). a plaintiff's classification of higher market price. see united states v. ruehle, 583 f.3d 600, 602 n.1 is a direct claim. see also in re j.p. morgan chase & co. nal complaint which are not alleged in the amended com- united states court of appeals in this appeal, we grant nycers leave to amend to reallege with notice of what the relevant economic loss might be or of holder and that he or she can prevail without showing an sentation in a proxy solicitation. claim under � 10(b). the district court denied nycers leave ers, filed the original complaint in this action, alleging claims lution to the section 14(a) class's shareholder interests." in tively, failed to plead loss causation under the pslra. id. at misrepresentation." id. at 347. drexler; arthur d. levinson; opinion the suit is not binding. id. to establish a direct action, "[t]he rial misrepresentation or omission which (2) caused the plain- ney fees and costs. court's dismissal of that claim on this ground. however, the its state law claim, nycers identifies a longer list of falsi- 1 nycers is a public pension fund that manages retirement and thus, nycers is granted leave to amend its consolidated solely on the basis that a misrepresentation caused an inflated ing, in part, to challenge the dismissal of her title vii claim. a disclosure of backdating, it is unclear whether nycers could success- discretion by erroneous application of the law, see united k annual reports, and registration statements. nycers bases and (2) stock dilution, alone, did not establish economic loss. to the private securities litigation reform act of 1995 plaint, but before entry of judgment, nycers sought leave for publication through impairment of their right to a fully informed vote and v. meyercord, 223 f.3d 1020, 1022 (9th cir. 2000) (stating 1733new york city employees' retirement v. jobs issuance of a total of 205 million shares, or 20% of apple's when the stock price was lower. this may benefit awardees, as the value derivative claims. vogel v. jobs, no. c 06-5208 jf, 2007 wl � 14(a) claim, the court stated that the consolidated complaint 1726 new york city employees' retirement v. jobs mahoney, decoupling employee and shareholder interests. second, the ficially inflated purchase price' is not itself a relevant eco- the parties shall bear their own costs for this appeal. stock. nycers alleges misrepresentation because some of sea and sec rule 14a-9, the private plaintiffs had to allege [4] here, nycers alleges economic loss only in the form *the honorable ann aldrich, senior united states district judge for argued and submitted ration and implicates a duty of disclosure owed to sharehold- 2008). tiff injury and (3) that the proxy solicitation itself, rather than stockholder's claimed direct injury must be independent of stock. the consolidated complaint prays for rescission of the 1734 new york city employees' retirement v. jobs ties in the various documents, notably, affirmations that nycers seeks to plead economic loss in the form of "di- whether shareholders successfully pleaded economic loss by the district court erred by relying on london v. coopers & nycers also appeals the district court's denial of leave to cedure 15(a), concluded that no factors weighed against remedies, and thus, without an allegation of economic loss, no �� 14(a) and 20(a) of the sea for a misleading 2005 proxy 1474 (9th cir. 1997); see also king v. atiyeh, 814 f.2d 565, ("pslra") and filed a consolidated class action complaint dating can surreptitiously increase compensation. third, the district court dismissed the amended complaint and ruled that mined that by not realleging the claim in the consolidated failed to allege facts giving rise to a direct claim and, alterna- for the � 14(a) claim, nycers alleges three falsities in remanded for proceedings consistent with this opinion. 1736 new york city employees' retirement v. jobs thompson: senior circuit judge: plaintiff-appellant, according to nycers, apple shareholders suffered injury because nycers' � 14(a) affirmed in part, reversed in part, and claim. the district court, applying federal rule of civil pro- and had to be pleaded as such. no. 08-16488v. time on appeal. see turnacliff v. westly, 546 f.3d 1113, 1120 (9th cir. � 78u-4(b)(4). to show loss causation, a plaintiff must prove city of new york. apple inc. is a california corporation stockholders' right to cast an informed vote, that claim is october 7, 2009--san francisco, california essential link in the accomplishment of the transaction." tra- stockholders by various statutes."). thus, under state law, although we review a denial of leave to amend for abuse we have jurisdiction under 28 u.s.c. � 1291, and we 567 (9th cir. 1987). we have never held, however, that a court's application of a waiver rule to the � 10(b) claim was solidated complaint on the ground the claim was derivative plaint." id. 1737new york city employees' retirement v. jobs c. markkula, jr.; edgar s. the amended complaint "superseded" the original, precluding leave to amend on the ground that nycers "waived" the ond amended complaint. 644 f.2d at 814. after dismissal of based in cupertino, california. opinion by judge thompson plaintiffs vogel and mahoney, individual apple sharehold- assets for over 200,000 current and former employees of the nature" and argues that mills v. electric auto-lite co., 396 [2] in the pleadings, nycers alleges that apple share- dated complaint. after dismissal of the consolidated com-