Roberto Cohen v. Nvidia Corp.
2014 U.S. App. LEXIS 18976
| 9th Cir. | 2014Background
- NVIDIA disclosed product defects in 2008, followed by a $150–$200 million charge, causing a 31% drop in its stock and a $3 billion market cap decline.
- Plaintiffs, stockholders during Nov 8, 2007–Jul 2, 2008, allege NVIDIA knew of the Material Set Problem earlier but failed to disclose it.
- The Material Set Problem involved solder bump cracks due to a high-lead solder and its interaction with eutectic solder, affecting GPUs and MCPs.
- NVIDIA communicated that it could not determine a root cause or scope of costs in mid-2008 but later announced a $150–$200 million charge backed by testing data.
- Plaintiffs sued under Section 10(b) and Rule 10b-5, with a separate claim under Section 20(a) for Huang as a controlling person; the district court dismissed for lack of scienter, with leave to amend denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Item 303 disclosure duty supports Rule 10b-5 liability | Plaintiff contends Item 303 creates a disclosure duty under 10b-5. | NVIDIA argues Item 303 disclosure duty is not actionable under 10b-5. | Item 303 disclosure duty not actionable under 10b-5. |
| Holistic pleading of scienter under PSLRA | Allegations, taken together, show a strong inference of scienter. | Holistic view does not yield a strong inference. | Holistic allegations do not produce a strong inference of scienter. |
| Whether collective corporate scienter or core operations doctrine supports scienter | Plaintiffs rely on corporate scienter or core operations to show scienter. | Neither doctrine establishes a strong inference here. | Neither collective nor core operations doctrine yields a strong inference. |
| Rule 12(b)(6) standard and Tellabs framework | Tellabs requires accepting allegations as true and evaluating strong inference. | Applied correctly; allegations do not meet the strong inference standard. | Tellabs framework satisfied; complaint fails to plead strong inference. |
Key Cases Cited
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (Supreme Court 2011) (establishes implied private action and materiality framework for 10(b) claims)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Supreme Court 2007) (requires strong inference of scienter, cogent and compelling to survive)
- Hollinger v. Titan Capital Corp., 914 F.2d 1564 (9th Cir. 1990) (recklessness as scienter standard in Ninth Circuit (en banc))
- In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (deliberate recklessness standard for scienter)
- In re VeriFone Sec. Litig., 11 F.3d 865 (9th Cir. 1993) (Item 303 disclosure duties and Rule 10b-5 relation)
- Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000) (Item 303 materiality standards; disclosure duties differ from Rule 10b-5)
- Basic Inc. v. Levinson, 485 U.S. 224 (Supreme Court 1988) (materiality standard for omissions; duty to disclose not absolute)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (PSLRA heightened pleading standard and strong inference)
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (Supreme Court 2011) (see above for full context)