John Loos v. Immersion Corporation
2014 U.S. App. LEXIS 17813
| 9th Cir. | 2014Background
- Immersion Corporation develops haptics technology; reported growing medical-division revenues 2007–early 2009 but later disclosed revenue irregularities.
- Plaintiffs (class of shareholders who bought between May 3, 2007 and July 1, 2009) alleged Immersion prematurely recognized medical revenue to meet profitability expectations, inflating stock price.
- On July 1, 2009 Immersion announced an internal investigation into prior medical revenue transactions; stock fell ~23% that day.
- Later disclosures: Aug. 10, 2009 statement that prior financials "should no longer be relied upon," and Feb. 8, 2010 restatement admitting premature revenue recognition and adjustments to 2006–1Q09.
- District court dismissed plaintiff’s amended complaint with prejudice for failure to plausibly plead scienter and loss causation; plaintiff appealed as to loss causation (scienter not reached by panel).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether disappointing earnings (1Q08, 2Q08, 4Q08, 1Q09) can plead loss causation | Those quarterly misses were partial disclosures that, combined with later developments, revealed the accounting fraud | Earnings misses reflect poor performance, not a revelation of fraudulent accounting practices | Held: Earnings misses alone insufficient to plead loss causation; they do not reveal fraud (following Metzler/Oracle distinctions) |
| Whether announcement of an internal investigation (July 1, 2009) alone pleads loss causation | The investigation announcement completed the market’s revelation of fraud and caused the stock decline | An investigation announcement merely notifies of a risk and does not reveal that prior statements were false | Held: Announcement of an investigation, standing alone, is insufficient to establish loss causation (market speculation ≠ corrective disclosure) |
| Whether later disclosures (Aug 10, 2009 statement and Feb 8, 2010 restatement) cure the deficiency | Those later disclosures confirmed the feared fraud and thus retroactively link the July 1 drop to actual fraudulent conduct | Plaintiff failed to allege the market impact of those later events in the complaint | Held: Plaintiff did not allege how those later disclosures affected stock price; omission fatal—loss causation not plausibly pleaded |
| Whether dismissal with prejudice (after prior leave to amend) was an abuse of discretion | Plaintiff contends leave to amend should have been granted again to fix pleading gaps | District court previously explained deficiencies; plaintiff re-pled same theories and facts | Held: No abuse of discretion; dismissal with prejudice affirmed |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for pleading scienter and collective pleading analysis)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (pleading requirement for loss causation)
- In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005) (circumstances where poor earnings disclosed facts suggestive of accounting fraud)
- Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049 (9th Cir. 2008) (earnings miss alone insufficient; market must learn of fraud)
- In re Oracle Corp. Sec. Litig., 627 F.3d 376 (9th Cir. 2010) (similar rule that disclosures must reveal fraud, not just poor performance)
- Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) (announcing an investigation alone is not a corrective disclosure)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (standards for Rule 12(b)(6) review in securities cases)
- In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir. 2010) (issue preservation and waiver principles)
- U.S. Mortgage, Inc. v. Saxton, 494 F.3d 833 (9th Cir. 2007) (district court’s discretion to deny further leave to amend)
- Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208 (9th Cir. 2009) (leave-to-amend considerations)