58 F.4th 1048
9th Cir.2023Background
- Finjan Holdings agreed to be acquired by Fortress for $1.55 per share in mid‑2020; shareholders approved and the deal closed July 22, 2020.
- Plaintiff Robert Grier, a Finjan shareholder, sued under §14(e), alleging management supplied deflated revenue projections and share‑value estimates to induce shareholders to accept the Fortress tender and preserve management’s jobs (fear of a hostile bidder, "Party B").
- Finjan retained Atlas as financial adviser; Atlas’s analyses—using management‑provided revenue projections (a $166M 2020–2024 projection)—concluded $1.55 was within a reasonable valuation range, and that analysis was disclosed to shareholders.
- District court dismissed Grier’s second amended complaint for failure to plead subjective falsity (management did not actually believe the opinions) and denied leave to amend; Grier appealed.
- Ninth Circuit held that (1) statements of opinion are actionable under §14(e) only in special circumstances and require both subjective falsity and objective falsity, (2) PSLRA §78u‑4(b)(2) (the PSLRA "strong inference" scienter pleading rule) does not apply to §14(e) claims, but (3) Rule 9(b), PSLRA §78u‑4(b)(1), and Twombly/Iqbal pleading standards do apply; the court affirmed dismissal because the complaint failed to plausibly allege subjective falsity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether PSLRA §78u‑4(b)(2) (strong‑inference scienter pleading) applies to §14(e) actions | Grier pleaded that management knowingly misrepresented projections but did not assert scienter is required | Defendants argued that subjective falsity equates to scienter so PSLRA §78u‑4(b)(2) applies | Court: §78u‑4(b)(2) does not apply; Varjabedian controls—§14(e) can be satisfied without scienter; only Rule 9(b), §78u‑4(b)(1), Twombly/Iqbal apply |
| Whether statements of opinion require subjective + objective falsity to be actionable | Grier: management did not believe the projections and the projections were objectively false | Defendants: Atlas’s valuation and market process show management reasonably believed $1.55 was fair | Court: Omnicare requires both subjective falsity (speaker didn’t hold belief) and objective falsity; both are required; Grier failed to plead subjective falsity plausibly |
| Whether Grier’s allegations plausibly infer subjective falsity (that management disbelieved the opinions) | Grier pointed to motive (to avoid Party B), downward revenue inputs given to Atlas, and pre‑COVID projections that would value shares much higher | Defendants relied on Atlas’s Discounted Cash Flow, Premiums Paid, and comparable analyses, the open sale process with many bidders, COVID impacts, and market offers demonstrating arms‑length fairness | Court: Allegations do not permit a reasonable inference management disbelieved the opinions; Atlas analyses and the negotiation record undermine the inference; dismissal affirmed |
| Whether the claim required pleading with particularity under Rule 9(b) and PSLRA §78u‑4(b)(1) | Grier argued facts support fraud‑sounding allegations | Defendants argued the claim sounded in fraud and needed particularized allegations and sources | Court: Rule 9(b) and §78u‑4(b)(1) apply; complaint failed those particularity requirements as to subjective falsity |
Key Cases Cited
- Varjabedian v. Emulex Corp., 888 F.3d 399 (9th Cir. 2018) (Section 14(e) can be satisfied without scienter; negligence standard available)
- Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175 (2015) (opinion‑statement liability requires showing speaker did not hold the professed belief and that belief was objectively false)
- Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991) (undisclosed motive or mere disbelief alone insufficient for liability)
- Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir. 2009) (explaining subjective and objective falsity in securities statements)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA strong‑inference scienter standard requires an inference as cogent as nonfraudulent explanations)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (apply plausibility standard to complaint factual allegations)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (holistic assessment in evaluating inference of scienter)
- Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605 (9th Cir. 2017) (loss‑causation pleading principles)
- M.P.M. Enterprises, Inc. v. Gilbert, 731 A.2d 790 (Del. 1999) (arms‑length negotiated price is strong indicator of fair value)
- Wochos v. Tesla, Inc., 985 F.3d 1180 (9th Cir. 2021) (statements of opinion actionable only in limited circumstances)
- In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784 (9th Cir. 2017) (opinion‑statement framework and limitations)