Retail Wholesale & Department Store Union Local 338 Retirement Fund v. Hewlett-Packard Co.
2017 U.S. App. LEXIS 955
| 9th Cir. | 2017Background
- Mark Hurd, HP’s CEO and Chairman, resigned in 2010 after an internal investigation found he lied about and doctored expense reports to conceal a personal relationship with a former contractor, Jodie Fisher.
- HP announced the investigation’s finding that Hurd violated the company’s Standards of Business Conduct (SBC); HP stock dropped after his resignation, prompting this securities-fraud class action.
- Plaintiffs (shareholders who bought during Nov. 13, 2007–Aug. 6, 2010) alleged HP and Hurd made material misrepresentations by promoting the SBC and failed to disclose Hurd’s noncompliance.
- Plaintiffs relied on HP’s public statements and SBC (including Hurd’s prefatory remarks) claiming HP had high ethical standards and zero tolerance for violations.
- The district court dismissed the complaint for failure to plead falsity and materiality; the Ninth Circuit affirmed, concluding the SBC statements were aspirational, not objectively verifiable, and no duty to disclose arose.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HP/Hurd made a materially false or misleading statement by promoting the SBC and related ethics statements during the Class Period | The public promotion of the SBC (and Hurd’s prefatory statements) constituted representations of adherence to high ethical standards; Hurd’s misconduct rendered those statements false/misleading | SBC statements were aspirational/puffery and not objectively verifiable factual claims; no actionable affirmative misrepresentation occurred | Held: Statements were aspirational and not objectively verifiable; no actionable misrepresentation |
| Whether defendants omitted material facts (Hurd’s misconduct) such that their silence was misleading | HP’s failure to disclose the CEO’s ethical violations concealed facts material to investors and violated a duty to disclose | No duty to disclose arose because prior statements did not create an impression of complete compliance; omissions not actionable under Rule 10b‑5 | Held: No duty to disclose; omissions not actionable |
| Whether any alleged misrepresentation/omission was material to reasonable investors | Plaintiffs argued the SBC and ethics promotion altered the total mix of information; the stock drop after resignation shows materiality | Defendants argued publication of SBC was mandated/regulated and could not be dispositively material; stock movement alone insufficient without actionable misstatement | Held: Even if a misstatement existed, it was immaterial — no substantial likelihood it altered the total mix |
| Pleading standards: whether plaintiff met PSLRA/Rule 9(b) particularity requirements | Plaintiffs contend they specified misleading statements and alleged why they were misleading | Defendants argue plaintiffs failed to plead an objectively false statement or identify a duty to disclose with particularity | Held: Pleading insufficient — plaintiffs failed to adequately allege falsity/materiality required by PSLRA and Rule 9(b) |
Key Cases Cited
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (Rule 10b‑5 elements and omission limits)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality = substantial likelihood of altering the total mix)
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (definition of materiality)
- Omnicare, Inc. v. NCS Healthcare, Inc., 769 F.3d 455 (statements of compliance/contextual analysis)
- Oregon Public Employees Retirement Fund v. Apollo Group, Inc., 774 F.3d 598 (puffery vs. verifiable statements)
- Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (a statement is misleading when it gives impression differing materially from actual state of affairs)
- Brody v. Transitional Hospitals Corp., 280 F.3d 997 (context for misleading impression)