Cement & Concrete Workers District Council Pension Fund v. Hewlett Packard Co.
964 F. Supp. 2d 1128
N.D. Cal.2013Background
- Pension Fund plaintiff sues HP and former CEO Mark Hurd under Exchange Act §10(b) and Rule 10b-5 for alleged securities fraud during 2007–2010.
- FAC centers on Hurd’s leadership during and after the 2006 HP ethics scandal and his August 2010 resignation.
- Allegations target HP’s Standards of Business Conduct (SBC) updates in 2006, 2008, 2010 and risk-factor disclosures in HP’s Form 10-K/10-Q.
- Plaintiff contends the SBCs and risk disclosures were misrepresentations or omissions reflecting Hurd’s alleged improper conduct.
- Court holds the challenged statements were not material, and the complaint fails to plead falsity, scienter, or causation, granting dismissal with leave to amend.
- The court granted incorporation by reference of HP’s SBC as of March 2010; other requested materials were denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality of SBCs and risk disclosures | Plaintiff contends SBCs and risk factors were material misrepresentations. | HP argues SBCs and risk factors are non-material puffery or not capable of objective verification. | SBCs and risk disclosures are not material statements. |
| Falsity of the challenged statements | Plaintiff asserts specific misstatements/omissions from SBCs and risk disclosures. | Defendants contend no concrete false statements or omissions are pled. | Plaintiff fails to plead specific false or misleading statements with particularity. |
| Scienter (Hurd) | Hurd knowingly or recklessly misled investors about ethics violations. | Plaintiff fails to show Hurd believed his statements were false or knew they were misleading. | Plaintiff missing strong inference of scienter; insufficient at pleading stage. |
| Imputation of Hurd’s scienter to HP (adverse interest/agency) | HP is liable for Hurd’s misrepresentations under agency or respondeat superior. | Adverse-interest exception may apply, requiring complete abandonment of principal’s interests. | Adverse-interest exception not resolved on motion; dismissal unless factual showing supports it. |
| Causation/loss causation | Resignation and disclosure of misconduct caused stock drop and investor loss. | Materiality and causation not shown; any loss not tied to alleged omissions. | Loss causation not established due to materiality deficiencies; dismissal affirmed. |
Key Cases Cited
- In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694 (9th Cir. 2012) (necessity of pleading falsity and scienter with particularity under PSLRA)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleading claims)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (heightened pleading standard; threadbare allegations rejected)
- Stoneridge Investment Partners v. Scientific-Atlanta, 552 U.S. 148 (U.S. 2008) (elements of 10b-5 claims; reliance and causation considerations)
- Kaplan v. Rose, 49 F.3d 1363 (9th Cir. 1994) (limits of puffery and materiality in PSLRA context)
- ECF Local 113k v. JP Morgan Chase & Co., 553 F.3d 187 (2d Cir. 2009) (distinction between puffery and material misrepresentation)
- FoxHollow Techs., Inc. Sec. Litig., 2008 WL 2220600 (N.D. Cal. 2008) (risk disclosures not necessarily implying retention of management)