Articles Posted in US Court of Appeals for the Ninth Circuit

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Under Federal Rule of Evidence 201, a court may take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment, but a court cannot take judicial notice of disputed facts contained in such public records. The incorporation-by-reference doctrine prevents plaintiffs from selecting only portions of documents that support their claims, while omitting portions of those very documents that weaken or doom their claims. The Ninth Circuit addressed and clarified when and how the district court should consider materials extraneous to the pleadings at the motion to dismiss stage via judicial notice and the incorporation-by-reference doctrine. In this case, plaintiffs appealed the district court's dismissal of an action under the Securities Exchange Act of 1934. The panel held that the district court erred in part by judicially noticing some facts, but properly took notice of the date of Orexigen's international patent application for Contrave. Therefore, the panel reversed and remanded for clarification on Exhibit D, reversed the district court's judicial notice of Exhibit E, and affirmed the judicial notice of Exhibit V. The panel also that the district court abused its discretion by incorporating certain documents into the complaint and properly incorporated others. The panel reversed the district court's incorporation-by-reference of Exhibits B, C, F, H, R, S, and U, and affirmed the incorporation of Exhibits A, I K, L, N, O, P, and T. The panel affirmed in part, reversed in part, and remanded as to the remaining claims. View "Khoja v. Orexigen Therapeutics, Inc." on Justia Law

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The Ninth Circuit reversed the dismissal of an action brought by purchasers of American Depository Shares (ADRs) or Receipts, alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act based on Toshiba Corp.'s fraudulent accounting practices. The district court held, under the test in Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247 (2010), that the Exchange Act, which does not apply extraterritorially, did not apply to the purchase of Toshiba ADRs. The panel held that the Exchange Act could apply to the Toshiba ADR transactions, as domestic transactions in securities not registered on an exchange, and that Toshiba ADRs were "securities" under the Exchange Act. The panel applied the "irrevocable liability" test and held that plaintiffs must be allowed to amend their complaint to allege that the purchase of Toshiba ADRs on the over-the-counter market was a domestic purchase, and that the alleged fraud was "in connection with" the purchase. Accordingly, the panel remanded to allow plaintiffs to amend their complaint. View "Auto Industries Pension Trust Fund v. Toshiba Corp." on Justia Law

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The Ninth Circuit affirmed the dismissal of an action alleging that when Yahoo! invested in Alibaba.com, a Chinese retail website, Yahoo! violated the conditions of its exemption, granted by the SEC, from the registration requirements of the Investment Company Act (ICA). Plaintiff brought derivative claims against Yahoo!'s board of directors and certain corporate officers, as well as one direct claim against Yahoo!, under the ICA. The panel held that plaintiff failed to state a claim because the ICA does not establish a private right of action for challenging the continued validity of an ICA exemption. View "UFCW Local 1500 Pension Fund v. Mayer" on Justia Law

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Plaintiff, on behalf of former Emulex shareholders, appealed the district court's dismissal of his putative securities class action. The Ninth Circuit held that claims under Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. 78n(e), require a showing of negligence, not scienter. Therefore, the panel reversed the dismissal of the complaint and remanded to the district court for it to reconsider defendants' motion to dismiss under a negligence standard. Because plaintiff's Section 14(e) claim survived, his claim under Section 20(a) of the Exchange Act also remained. Furthermore, the panel affirmed the district court's conclusion that Section 14(d)(4) of the Exchange Act did not create a private right of action and dismissal of the complaint as to Emerald Merger Sub because it was not a proper defendant. View "Varjabedian v. Emulex Corp." on Justia Law

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The Ninth Circuit affirmed the dismissal of a securities fraud action brought on behalf of a class of plaintiffs who bought SolarCity shares. Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they changed the company's accounting formula prior to the initial public offering in order to misrepresent SolarCity's profitability. The panel held that plaintiff's third amended complaint failed to adequately plead facts giving rise to a strong inference of scienter, as required by the Private Securities Litigation Reform Act. In this case, the facts did not give rise to an inference of scienter that was at least as compelling as the inference of an honest mistake. View "Webb v. SolarCity Corp." on Justia Law

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A general proximate cause test is the correct test for loss causation under the Securities Exchange Act of 1934. The Ninth Circuit affirmed the district court's denial in part of defendants' motion for summary judgment. In this case, the district court held that the evidence, if accepted by the jury, could satisfy the proximate cause loss causation test with respect to five of the six alleged stock price declines. The panel held that the district court applied the correct test in making that determination and did not reach any remaining issues. View "Mineworkers' Pension Scheme v. First Solar, Inc." on Justia Law

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A general proximate cause test is the correct test for loss causation under the Securities Exchange Act of 1934. The Ninth Circuit affirmed the district court's denial in part of defendants' motion for summary judgment. In this case, the district court held that the evidence, if accepted by the jury, could satisfy the proximate cause loss causation test with respect to five of the six alleged stock price declines. The panel held that the district court applied the correct test in making that determination and did not reach any remaining issues. View "Mineworkers' Pension Scheme v. First Solar, Inc." on Justia Law

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The Ninth Circuit affirmed the dismissal of putative class actions because the Securities Litigation Uniform Standards Act (SLUSA), Pub L. 105-353, 112 Stat. 3227, deprived the court of subject matter jurisdiction. Plaintiffs filed suit alleging a breach by a securities dealer of the "duty of best execution" in completing trades. The panel held that plaintiffs had Article III standing because they alleged overpaying for securities trades and losses from trades not executed promptly and those concrete injuries, if proven, were redressable through monetary damages. However, plaintiffs' claims were barred by SLUSA, because all of plaintiffs' pleaded causes of action allege deceptive conduct actionable under federal securities law; the challenged conduct occurred in connection with the purchase or sale of a security; the complaint plainly pleaded a manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security; and thus the claims were SLUSA-barred. View "Fleming v. Charles Schwab Corp." on Justia Law

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The Ninth Circuit affirmed the district court's dismissal of a securities fraud action brought against Yelp and others. Plaintiffs argued that the district court erred by holding that they did not adequately plead falsity, materiality, loss causation, and scienter. The panel held that the disclosure of consumer complaints, without more, in the circumstances of this case did not form a sufficient basis for a viable loss causation theory. Furthermore, allegations of suspicious insider sales of stock without allegations of historical trading data did not create a strong inference of scienter. Finally, the panel affirmed the district court's dismissal of the complaint with prejudice because amendment of the complaint as to loss causation would be futile under current precedent. View "Curry v. Yelp, Inc." on Justia Law

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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