Tse v. Ventana Medical Systems, Inc., 297 F.3d 210

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297 F.3d 210 | 3rd Cir. | 2002

Before: BECKER, Chief Judge, McKEE, and(cid:13) BARRY, Circuit Judges.(cid:13) (Filed: July 11, 2002)(cid:13) NANCY J. SENNETT, ESQUIRE(cid:13) (ARGUED)(cid:13) Foley & Lardner(cid:13) 777 East Wisconsin Avenue(cid:13) Milwaukee, WI 53202-5367(cid:13) PATRICK J. KEARNEY, ESQUIRE(cid:13) Foley & Lardner(cid:13) 3000 K Street, NW, Suite 500(cid:13) Washington, D.C. 20007(cid:13) JOEL E. FRIEDLANDER, ESQUIRE(cid:13) Bouchard, Margules & Friedlander(cid:13) 222 Delaware Avenue, Suite 1102(cid:13) Wilmington, DE 19801(cid:13) Counsel for Appellants/Cross-(cid:13) Appellees Alex Tse, Margaret Wai(cid:13) Lam Leung, Michelle Leung and(cid:13) Ching-Shuang Shih(cid:13) STEVEN M. SCHATZ, ESQUIRE(cid:13) (ARGUED)(cid:13) DAVID J. BERGER, ESQUIRE(cid:13) ELIZABETH M. SAUNDERS,(cid:13) ESQUIRE(cid:13) STEVEN GUGGENHEIM, ESQUIRE(cid:13) Wilson, Sonsini, Goodrich & Rosati(cid:13) 650 Page Mill Road(cid:13) Palo Alto, CA 94304(cid:13) JESSE A. FINKELSTEIN, ESQUIRE(cid:13) RAYMOND J. DiCAMILLO, ESQUIRE(cid:13) Richards, Layton & Finger(cid:13) One Rodney Square(cid:13) P.O. Box 551(cid:13) Wilmington, DE 19899(cid:13) Counsel for Appellees/Cross-(cid:13) Appellants Ventana Medical Systems,(cid:13) Inc.; John Patience; Jack W. Schuler(cid:13) 2(cid:13) OPINION OF THE COURT(cid:13) BECKER, Chief Judge:(cid:13) The plaintiffs, former shareholders of Biotek Solutions,(cid:13) Inc., ("Biotek"), appeal the District Court’s order granting(cid:13) summary judgment for the defendants, Ventana Medical(cid:13) Systems, Inc. ("Ventana"), and Jack Schuler and John(cid:13) Patience, two of Ventana’s officers, in this securities action(cid:13) brought pursuant to S 10(b) of the Securities Exchange Act(cid:13) of 1934, 15 U.S.C. S 78j(b), S.E.C. Rule 10b-5, 17 C.F.R.(cid:13) S 240.10b-5, and California and North Carolina securities(cid:13) statutes. The plaintiffs’ claims rest on the defendants’(cid:13) failure to disclose to Biotek’s shareholders during(cid:13) negotiations that resulted in the merger of Ventana and(cid:13) Biotek the terms of a compensation package that Ventana(cid:13) had approved in principle for the two officer defendants.(cid:13) The District Court granted summary judgment for the(cid:13) defendants on the grounds that the plaintiffs had failed to(cid:13) demonstrate either causation or scienter. The Court(cid:13) granted summary judgment on the state law claims on the(cid:13) same grounds.(cid:13) We will affirm the District Court’s grant of summary(cid:13) judgment on the Rule 10b-5 claim because we agree that(cid:13) the plaintiffs have failed to adduce evidence establishing(cid:13) genuine issues of material fact on causation. The plaintiffs(cid:13) do not allege actual loss, but rather rely on a"lost(cid:13) opportunity" theory of causation. We have held that(cid:13) plaintiffs may rely on a "lost opportunity" theory only where(cid:13) the fact of loss is not wholly speculative, which we think it(cid:13) is in this case. We will also affirm the grant of summary(cid:13) judgment on the state law claim, albeit on a different(cid:13) ground from that relied upon by the District Court. In our(cid:13) view, California Corporate Code S 25401, the section under(cid:13) which the plaintiffs challenge the defendants’ alleged(cid:13) omission, does not cover "simple nondisclosure," or the(cid:13) mere nondisclosure of material facts. Rather, S 25401(cid:13) covers only misstatements of material fact and those(cid:13) omissions that render misleading the statements that were(cid:13) made in connection with the sale or purchase of securities,(cid:13) 3(cid:13) and the plaintiffs do not point to any such misstatements.(cid:13) Specifically, the plaintiffs contend that Ventana’s disclosure(cid:13) of the stock that it was authorized to issue at the time(cid:13) when the Biotek shareholders voted to approve the merger(cid:13) was rendered misleading by the fact that Ventana had(cid:13) preliminarily approved the sale of shares to Schuler and(cid:13) Patience, but did not disclose that preliminary approval. We(cid:13) disagree, and therefore affirm the grant of summary(cid:13) judgment to the defendants on the California law claim.(cid:13) I. Facts & Procedural History(cid:13) A. Factual Background (cid:13) The plaintiffs, Alex Tse, Margaret Wai Lam Leung,(cid:13) Michelle Leung, and Ching-Shuang Shih, were investors in(cid:13) Biotek, a closely held company that was in the business of(cid:13) developing, manufacturing, and marketing instruments(cid:13) used to diagnose cancer. Between 1992 and 1995 the(cid:13) plaintiffs made several investments in Biotek, which they(cid:13) describe as "promissory notes for their investment, along(cid:13) with stock in the form of an equity ‘kicker.’ " In total, the(cid:13) plaintiffs held approximately 9.12% of the notes and(cid:13) common stock issued by Biotek. Defendant Ventana(cid:13) Medical Systems, Inc. is a Delaware corporation(cid:13) headquartered in Tucson, Arizona. It engaged in roughly(cid:13) the same business as Biotek, and, until 1996 (when the(cid:13) two merged), was its principal competitor. Defendants Jack(cid:13) Schuler and John Patience were directors of Ventana(cid:13) during the period leading up to its merger with Biotek.(cid:13) The parties present different pictures of the events that(cid:13) led to their merger. The plaintiffs portray Ventana as a(cid:13) company that badly needed to merge with Biotek in order(cid:13) to achieve its goal of going public. To support their(cid:13) portrayal of Ventana, the plaintiffs point to the statements(cid:13) that Ventana’s investment banker, Bear Stearns, made to(cid:13) Ventana’s Board regarding its potential purchase of Biotek(cid:13) that the "strategic, financial, and synergistic benefits [of the(cid:13) merger] are compelling" and that the "synergy value" of the(cid:13) merger with Biotek was between $32 and $50 million. The(cid:13) plaintiffs also cite statements that Patience made in a(cid:13) 4(cid:13) presentation to the Ventana Board in November 1995 that(cid:13) Biotek "represents a very attractive strategic acquisition(cid:13) candidate for Ventana" and that the "acquisition will create(cid:13) significant value for Ventana’s shareholders, even if a rich(cid:13) premium is paid." Finally, the plaintiffs point to a(cid:13) statement from a memorandum written by a Ventana(cid:13) director that quoted Ventana’s attorney as stating that(cid:13) "acquiring our major competitor is a truly significant event(cid:13) which in itself will make the public offering [of Ventana](cid:13) possible."(cid:13) In contrast, the defendants portray Biotek as a company(cid:13) on the verge of bankruptcy which, but for its 1996 merger(cid:13) with Ventana, would not have been able to pay its debts.(cid:13) The defendants assert that "[b]y 1995, Biotek’s debts were(cid:13) overwhelming," pointing to a March 9, 1995 statement(cid:13) made by Biotek’s then-president Michael Miller that Biotek(cid:13) "will be out of cash on or before June 30."(cid:13) The defendants also point to a previous failed sale(cid:13) agreement that Biotek entered into with a company named(cid:13) Shandon. In a message to Biotek’s investors regarding that(cid:13) sale agreement, Biotek’s chairman Mike Danzi urged the(cid:13) investors to approve the deal because, in his view,"funding(cid:13) to allow Biotek to remain independent [wa]s not readily(cid:13) available on acceptable terms, and . . . without funding or(cid:13) a sale there [wa]s significant risk of loss of[their](cid:13) investment." The Biotek investors approved the terms of the(cid:13) sale, but Shandon backed out of the deal. Finally, the(cid:13) defendants offer Danzi’s deposition testimony that in 1995(cid:13) Biotek "did not have the capacity to repay [its] debts as(cid:13) they were coming due," and that the company had(cid:13) "explored many opportunities for an equity or debt(cid:13) infusion," including "bankruptcy . . . as a way to protect [it](cid:13) from the[ ] judgments, lawsuits, and . . . the significant(cid:13) debts coming due." The plaintiffs do not counter these(cid:13) descriptions.(cid:13) Ventana and Biotek began negotiating the terms of a(cid:13) potential merger in the fall of 1994. According to the(cid:13) deposition testimony of Patience, who was involved in(cid:13) negotiating the merger, Biotek proposed merger terms(cid:13) under which its shareholders would own 50% of the(cid:13) successor company, and later, in early 1995, revised its(cid:13) 5(cid:13) request downward, proposing that Biotek shareholders(cid:13) would own 33% of the new company. Ventana rejected both(cid:13) proposals. However, on December 19, 1995, Biotek and(cid:13) Ventana agreed upon and signed a letter of intent setting(cid:13) forth the terms of a merger plan.(cid:13) The plan provided that a wholly-owned subsidiary of(cid:13) Ventana called Ventana Acquisitions Corporation would(cid:13) merge into Biotek, leaving Biotek as the successor(cid:13) corporation, which would then become a wholly-owned(cid:13) subsidiary of Ventana. The plan provided that Biotek’s(cid:13) noteholders would exchange their notes for promissory(cid:13) notes issued by Ventana, known as "Ventana Exchange(cid:13) Notes," which would be senior for bankruptcy purposes to(cid:13) all of Ventana’s preferred and common stock. The plan also(cid:13) provided that Biotek’s noteholders would have the option to(cid:13) convert all of their Ventana Exchange Notes into Ventana(cid:13) common stock at $5.00 per share. Unless holders of the(cid:13) Ventana Exchange Notes opted not to convert any of their(cid:13) notes into common stock, 50% of their notes would(cid:13) automatically be converted at the rate of $5.00 per share.(cid:13) All of the plaintiffs but one, Shih, opted not to convert any(cid:13) of their Ventana Exchange Notes. Shih did nothing, and(cid:13) due to her decision not to opt out of the automatic(cid:13) conversion provision, 50% of her notes were converted at(cid:13) the rate of $5.00 per share. All of the plaintiffs’ non-(cid:13) converted notes have been repaid in full.(cid:13) On January 16, 1995, three days before the merger(cid:13) agreements were signed, the Ventana Board approved in(cid:13) principle a compensation package for Schuler and Patience,(cid:13) the two Ventana directors who were taking the lead in(cid:13) negotiating the Biotek merger. On February 23, 1996, the(cid:13) Ventana Board gave its final approval to the compensation(cid:13) package, which provided that Ventana would issue to(cid:13) Schuler and Patience 1.75 million shares of Ventana(cid:13) Common Stock at $.60 a share. At the January 16 meeting,(cid:13) the Board recorded its determination that $.60 per share(cid:13) was the fair market value of Ventana’s stock at that time.(cid:13) This issuance of stock to Patience and Schuler was,(cid:13) however, subject to a buyback provision until several(cid:13) conditions were met. These included that Patience and(cid:13) Schuler were required to: (1) "[s]pend 50% of their time(cid:13) 6(cid:13) working exclusively for Ventana over a period of years;" (2)(cid:13) "complete the merger between Biotek and Ventana and(cid:13) integrate the two companies;" and (3) "[i]nsure that if(cid:13) Ventana sold its stock in a public offering, that the price of(cid:13) the stock would be at $4.00 per share or above."(cid:13) In addition, Schuler was required to serve as Ventana’s(cid:13) chairman for four years, and Schuler and Patience were(cid:13) required to invest $1,000,000 in Ventana, for which they(cid:13) were to receive convertible bonds on the same terms as(cid:13) other Ventana investors. The compensation agreement(cid:13) provided that if these conditions were not met, Ventana(cid:13) could repurchase the shares at the price at which they had(cid:13) initially sold them to Patience and Schuler. Thus, the(cid:13) compensation package was structured as an incentive(cid:13) system, i.e., if Patience and Schuler could increase the(cid:13) value of the company by the specified amount, the Board(cid:13) would compensate them by selling them a large number of(cid:13) Ventana shares at what it estimated to be the current(cid:13) (comparatively low) value of Ventana stock. In this respect,(cid:13) the compensation package was not unlike the strategy that(cid:13) boards of directors commonly employ when granting(cid:13) corporate officers options to buy company stock in the(cid:13) future at a discounted price in order to provide them with(cid:13) an incentive to increase the stock’s value.(cid:13) As noted above, the disclosures that Ventana made (and(cid:13) allegedly failed to make) to Biotek regarding the stock(cid:13) issuances that it had authorized at the time of the proposed(cid:13) merger with Biotek is of particular relevance to the(cid:13) plaintiffs’ claim under California Corporate CodeS 25401.(cid:13) On February 8, 1996, Biotek’s Board of Directors sent a(cid:13) proxy letter to all Biotek investors (including holders of(cid:13) both notes and stock), requesting their approval of the(cid:13) planned merger with Ventana and explaining the terms of(cid:13) the proposed merger. An information sheet was enclosed(cid:13) with the letter, which included as one of its exhibits the(cid:13) Agreement and Plan of Reorganization ("the Agreement").(cid:13) Section 4.5 of the Agreement set forth the "authorized(cid:13) capital stock of Ventana as of the date hereof " and stated(cid:13) that Ventana had 2,110,789 shares of common stock and(cid:13) 70,089 shares of preferred stock "reserved for issuance . . .(cid:13) under its stock option and stock purchase plans." Section(cid:13) 7(cid:13) 4.5 also stated that "[p]rior to the Closing Date [of the(cid:13) merger with Biotek,] Ventana expects that its authorized(cid:13) number of shares of Common Stock, Preferred Stock and(cid:13) Series D Preferred Stock will increase due to the proposed(cid:13) issuance of warrants to purchase an aggregate of 1,860,500(cid:13) shares of Series D" Preferred Stock in connection with a(cid:13) proposed financing transaction.(cid:13) Section 4.7 of the Agreement provided:(cid:13) No representation or warranty made by Ventana in this(cid:13) Article IV or in any other Article or Section of this(cid:13) Agreement, or in any certificate, schedule, or other(cid:13) document furnished or required to be furnished by(cid:13) Ventana pursuant hereto, contains or will contain any(cid:13) untrue statement of a material fact or omits or will(cid:13) omit to state any material fact necessary to make the(cid:13) statements or facts contained herein or therein not(cid:13) misleading in light of the circumstances under which(cid:13) they are made.(cid:13) Section 6.3(a) of the Agreement provided that:(cid:13) The representations and warranties of Ventana and(cid:13) Sub [the subsidiary of Ventana that was merging into(cid:13) Biotek] set forth in Article IV of this Agreement shall be(cid:13) true and correct in all material respects on and as of(cid:13) the date of this Agreement and as of the Effective Time(cid:13) (except to the extent such representations and(cid:13) warranties speak only as of an earlier date, including,(cid:13) without limitation, Ventana’s representations as to(cid:13) outstanding capitalization), and the covenants and(cid:13) agreements of Ventana and Sub set forth herein shall(cid:13) have been complied with in all material respects and(cid:13) Bio[t]ek shall have received a certificate signed by an(cid:13) authorized officer of Ventana and Sub dated the(cid:13) Effective Time to such effect.(cid:13) None of the information concerning the Schuler and(cid:13) Patience compensation package that had been approved in(cid:13) principle on January 16 (but not yet formally approved(cid:13) until February 23) was disclosed to Biotek investors in(cid:13) this information packet. However, Ventana disclosed the(cid:13) information regarding the compensation package to its own(cid:13) shareholders in a proxy statement issued on February 2,(cid:13) 8(cid:13) 1996 in anticipation of its upcoming annual shareholders(cid:13) meeting.(cid:13) The Merger Agreement required that 90% of the(cid:13) outstanding Biotek stock had to vote in favor of the merger(cid:13) in order for it to be approved. Although the plaintiffs state(cid:13) that they were reluctant to accept the terms of the merger(cid:13) because they received no cash for their Biotek stock and(cid:13) promissory notes, all of them voted for the merger. The(cid:13) merger plan was formally approved on February 23, 1996,(cid:13) and became effective on February 26, 1996.(cid:13) B. Procedural History(cid:13) When the plaintiffs learned about the Patience and(cid:13) Schuler compensation package, they sued Ventana,(cid:13) Schuler, and Patience in the District Court for the District(cid:13) of Delaware, alleging violations of S 10(b) of the Securities(cid:13) Exchange Act of 1934, 15 U.S.C. S 78j(b), S.E.C. Rule 10b-(cid:13) 5, 17 C.F.R. S 240.10b-5, and California and North Carolina(cid:13) securities statutes.1 The complaint alleges that Ventana(cid:13) had fraudulently withheld information regarding the(cid:13) Patience and Schuler compensation packages, and that(cid:13) Ventana had failed to disclose the $.60 fair market value(cid:13) estimate for Ventana shares at which Patience and Schuler(cid:13) would be allowed to purchase Ventana shares after the(cid:13) Biotek merger. The complaint further alleges that Ventana’s(cid:13) failure to disclose this information induced the plaintiffs to(cid:13) accept the merger at terms much less favorable to Biotek’s(cid:13) investors than they could have negotiated had the terms of(cid:13) the compensation package been disclosed.(cid:13) The defendants moved to dismiss pursuant to Federal(cid:13) Rule of Civil Procedure 12(b)(6), arguing that their duty to(cid:13) disclose information did not extend to the plaintiffs. The(cid:13) District Court rejected this argument and denied the(cid:13) motion, concluding that:(cid:13) Defendants argue that where the acquirer was neither(cid:13) an insider nor a fiduciary of the target, the acquirer(cid:13) _________________________________________________________________(cid:13) 1. The plaintiffs do not appeal the District Court’s grant of summary(cid:13) judgment on the claims based on North Carolina law. Those claims are(cid:13) therefore not before us.(cid:13) 9(cid:13) owes no duty to disclose to the shareholders of the(cid:13) target. Although such . . . [an] assertion may be true,(cid:13) it is not relevant under the circumstances of the case(cid:13) at bar. In the instant action, the acquiring corporation(cid:13) traded in its own securities. By the terms of the(cid:13) Agreement, defendants were asking to become equity(cid:13) shareholders in the acquiring corporation, Ventana.(cid:13) Accordingly, as "insiders," defendants assumed an(cid:13) affirmative duty to disclose material information.(cid:13) The case was subsequently reassigned to a different judge.(cid:13) Following discovery, the defendants moved for summary(cid:13) judgment. Relying on the law-of-the-case doctrine, the(cid:13) second District Judge (1) followed the first judge’s(cid:13) conclusion that the defendants owed a fiduciary duty to the(cid:13) plaintiffs, and (2) concluded that the alleged omission was(cid:13) material. Nevertheless, the Court granted summary(cid:13) judgment on the two alternative grounds that no(cid:13) reasonable jury could find either that: (1) the plaintiffs had(cid:13) established loss causation; or that (2) the plaintiffs had(cid:13) established scienter. For the same reasons, the District(cid:13) Court concluded that the defendants were also entitled to(cid:13) summary judgment on their state law claims.(cid:13) The plaintiffs appeal, contending that the existence of(cid:13) genuine issues of material fact rendered it error for the(cid:13) District Court to grant summary judgment on either of the(cid:13) alternative grounds on which it relied with regard to its(cid:13) claims based on S 10(b), Rule 10b-5, and California law.(cid:13) The defendants cross-appeal. They argue that the first(cid:13) District Judge committed legal error when denying the(cid:13) motion to dismiss by holding that the defendants had a(cid:13) duty to disclose information to the plaintiffs regarding the(cid:13) compensation package. And they submit that the second(cid:13) District Judge erred by holding that he was bound by this(cid:13) interpretation under the law-of-the-case doctrine. Although(cid:13) the scope of the duty presents an important legal question,(cid:13) we need not resolve it in order to decide this appeal.(cid:13) The District Court had jurisdiction pursuant to 28 U.S.C.(cid:13) S 1331 and 15 U.S.C. S 78aa. It exercised pendent(cid:13) jurisdiction over the plaintiffs’ related state law claims(cid:13) pursuant to 28 U.S.C. S 1367(a) (which were also supported(cid:13) by diversity jurisdiction, 28 U.S.C. S 1332). This court has(cid:13) 10(cid:13) appellate jurisdiction to review the final order of the District(cid:13) Court pursuant to 28 U.S.C. S 1291. We exercise plenary(cid:13) review over the District Court’s grant of summary(cid:13) judgment, applying the same standards that the District(cid:13) Court should have applied in the first instance. Chisolm v.(cid:13) McManimon, 275 F.3d 315, 321 (3d Cir. 2001). Summary(cid:13) judgment is proper if there is no genuine issue of material(cid:13) fact and if, viewing the facts in the light most favorable to(cid:13) the non-moving party, the moving party is entitled to(cid:13) judgment as a matter of law. See Fed. R. Civ. P. 56(c);(cid:13) Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The judge’s(cid:13) function at the summary judgment stage is not to weigh the(cid:13) evidence and determine the truth of the matter, but to(cid:13) determine whether there is a genuine issue for trial. See(cid:13) Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).(cid:13) II. The S 10(b)/Rule 10b-5 Claim(cid:13) Section 10(b) of the Securities Act of 1934 makes it(cid:13) unlawful to "use or employ, in connection with the(cid:13) purchase or sale of any security, . . . any manipulative or(cid:13) deceptive device or contrivance in contravention of such(cid:13) rules and regulations as the Commission may prescribe."(cid:13) 15 U.S.C. S 78j(b). Rule 10b-5, which the Securities and(cid:13) Exchange Commission promulgated pursuant to S 10(b),(cid:13) makes it unlawful to "make any untrue statement of a(cid:13) material fact or to omit to state a material fact necessary in(cid:13) order to make the statements made, in light of the(cid:13) circumstances under which they were made, not misleading(cid:13) . . . in connection with the purchase or sale of any(cid:13) security." 17 C.F.R. S 240.10b-5. We have held that in order(cid:13) to prevail on a claim for securities fraud underS 10(b) and(cid:13) Rule 10b-5, "a plaintiff must show that the defendant (1)(cid:13) made a misstatement or an omission of a material fact (2)(cid:13) with scienter (3) in connection with the purchase or sale of(cid:13) a security (4) upon which the plaintiff reasonably relied and(cid:13) (5) that the plaintiff ’s reliance was the proximate cause of(cid:13) his or her injury." In re Ikon Office Solutions, Inc. Secs.(cid:13) Litig., 277 F.3d 658, 666 (3d Cir. 2002).(cid:13) The District Court concluded that the defendants were(cid:13) entitled to summary judgment because there is no triable(cid:13) issue of fact on the causation or scienter requirements. If it(cid:13) 11(cid:13) was correct with respect to either ground, the defendants(cid:13) are entitled to summary judgment on the S 10(b) and Rule(cid:13) 10b-5 claims. We turn first to the causation issue.(cid:13) A. Causation(cid:13) The causation element of our test for securities fraud(cid:13) under S 10(b) and Rule 10b-5 turns on a legal link between(cid:13) the defendants’ misstatement or omission and the plaintiffs’(cid:13) injury. Typically, this requires the plaintiff to show that he(cid:13) or she experienced an actual loss. The plaintiffs in this case(cid:13) did not experience any actual loss from their initial(cid:13) investments in Biotek. The three plaintiffs who declined to(cid:13) convert their Ventana Exchange Notes to Ventana common(cid:13) stock were repaid in full, with the interest they had(cid:13) negotiated. Shih, the plaintiff who converted half of her(cid:13) Ventana Exchange Notes into stock, had, as of the time the(cid:13) briefs were filed for this appeal, experienced a significant(cid:13) increase in the value of her shares above the rate at which(cid:13) she exercised her option to convert her notes into common(cid:13) stock.(cid:13) We have, however, recognized, at least in the context of(cid:13) claims brought pursuant to S 14(a) of the Securities Act of(cid:13) 1934 and Rule 14a-9 promulgated thereunder (which apply(cid:13) to statements made in proxy materials, see infra note 2),(cid:13) that plaintiffs may proceed on a theory of "lost opportunity"(cid:13) without demonstrating any actual loss. See Gould v.(cid:13) American-Hawaiian S.S. Co., 535 F.2d 761, 781 (3d Cir.(cid:13) 1976). The District Judge who heard the motion to dismiss(cid:13) assumed that this "lost opportunity" theory extends to Rule(cid:13) 10b-5 claims, and held that the plaintiffs had pleaded facts(cid:13) sufficient to support the causation element of their claim(cid:13) based on the lost opportunity to negotiate a merger with(cid:13) Ventana on more favorable terms. She observed that Gould(cid:13) allowed the plaintiffs to proceed on the theory that"by the(cid:13) circulation of defective proxy materials ‘plaintiffs were lulled(cid:13) to inaction and thereby suffered the loss of an opportunity(cid:13) to secure a merger agreement which would be more(cid:13) favorable to them.’ " (quoting Gould, 535 F.2d at 782.). She(cid:13) then held that because the Ventana/Biotek merger(cid:13) agreement "required a 90% affirmative vote of the(cid:13) outstanding Biotek Notes in order to consummate the(cid:13) 12(cid:13) merger," and because "[p]laintiffs owned approximately(cid:13) 9.12% of all the outstanding Biotek Notes," and thus the(cid:13) "plaintiffs were in a relatively strong bargaining position,"(cid:13) she could not "conclude, based upon the pleadings, that(cid:13) had plaintiffs not been ‘lulled into inaction’ by defendants’(cid:13) alleged omissions/misrepresentations, they would not have(cid:13) successfully prevailed upon Ventana to pay a higher price(cid:13) for Biotek."(cid:13) As explained above, the case was reassigned to a different(cid:13) judge following the denial of the motion to dismiss. That(cid:13) judge accepted the first judge’s conclusion that Gould(cid:13) provides that plaintiffs may, under some circumstances,(cid:13) establish causation for a 10b-5 claim through a"lost(cid:13) opportunity" theory, but nevertheless concluded that the(cid:13) defendants were entitled to summary judgment on the(cid:13) causation issue. In its opinion granting summary judgment,(cid:13) the District Court noted that "[u]nder Gould . . . , a plaintiff(cid:13) who cannot prove out of pocket damages may prove‘loss of(cid:13) a possible profit or benefit, [defined as] an addition to the(cid:13) value of one’s investment, unless the loss is wholly(cid:13) speculative.’ " (citing Gould, 535 F.2d at 781). The Court(cid:13) observed that "the plaintiffs want the court to hypothesize(cid:13) as to whether" they could have negotiated a more favorable(cid:13) conversion rate from Ventana "and to hypothesize as to(cid:13) what that rate would be." It concluded that this need for(cid:13) speculation by the Court renders the plaintiffs’"claim for(cid:13) lost profits . . . wholly speculative." From this, the Court(cid:13) reasoned that the plaintiffs’ claim of lost opportunity to(cid:13) negotiate better merger terms was "wholly speculative," and(cid:13) that they therefore could not rely on Gould’s "lost(cid:13) opportunity" theory. Because the plaintiffs did not(cid:13) experience any out-of-pocket losses (the other route for(cid:13) showing the loss needed to establish causation), the Court(cid:13) held that they had no avenue for demonstrating loss(cid:13) causation, and that therefore the defendants were entitled(cid:13) to summary judgment.(cid:13) Gould was a class action lawsuit brought by shareholders(cid:13) of McLean Industries against that company’s directors(cid:13) alleging, inter alia, that the directors had violated S 14(a) of(cid:13) the 1934 Act and Rule 14a-9 promulgated thereunder"in(cid:13) connection with the solicitation of proxies by McLean(cid:13) 13(cid:13) Industries for shareholders’ approval of its merger into(cid:13) Reynolds" Tobacco Company.2Gould, 535 F.2d at 765. The(cid:13) Gould plaintiffs’ claims were based on the directors’ failure(cid:13) to disclose in their proxy solicitation (which was requesting(cid:13) approval of the terms of the merger) that certain(cid:13) shareholders of McLean would be receiving a more(cid:13) favorable exchange rate than other McLean shareholders.(cid:13) The plaintiffs in Gould stipulated that they did not(cid:13) experience any out-of-pocket loss in the merger transaction(cid:13) but they claimed that had they known about the more(cid:13) favorable terms of exchange that some of their fellow(cid:13) shareholders were getting, they would have negotiated to(cid:13) receive an equal share of the surplus value that these(cid:13) shareholders were receiving. Id. at 781.(cid:13) Gould held that while the damages provision of the 1934(cid:13) Act provides that "no person permitted to maintain a suit(cid:13) for damages under the provisions of this title shall recover(cid:13) . . . a total amount in excess of his actual damages," the(cid:13) "dichotomy [that this provision draws upon] is between(cid:13) actual and punitive damages and recovery is not limited to(cid:13) out of pocket loss, a diminution in the value of one’s(cid:13) investment, but may include loss of a possible profit or(cid:13) benefit, an addition to the value of one’s investment, unless(cid:13) the loss is wholly speculative." Id. (emphasis added). Gould(cid:13) further held that "by the circulation to [the plaintiffs] of the(cid:13) defective proxy materials [they] were lulled to inaction and(cid:13) thereby suffered the loss of an opportunity to attempt to(cid:13) secure a merger agreement which would be more favorable(cid:13) to them." Id. at 782. Thus, the court agreed that the fact of(cid:13) the loss was not wholly speculative (i.e., it was fairly certain(cid:13) that the plaintiffs suffered a monetary loss of some(cid:13) amount). While the court focused on the difficulty of(cid:13) _________________________________________________________________(cid:13) 2. Parallel to S 10(b) and Rule 10b-5,S 14(a) and Rule 14a-9 prohibit the(cid:13) issuance of a proxy statement "containing any statement which, at the(cid:13) time and in the light of the circumstances under which it is made, is(cid:13) false or misleading with respect to any material fact, or which omits to(cid:13) state any material fact necessary in order to make the statements(cid:13) therein not false or misleading or necessary to correct any statement in(cid:13) any earlier communication with respect to the solicitation of a proxy for(cid:13) the same meeting or subject matter which has become false or(cid:13) misleading." 17 C.F.R. S 240.14a-9(a).(cid:13) 14(cid:13) determining the amount of the loss, it nevertheless held(cid:13) that where the fact of the loss is almost certain,"the risk(cid:13) of uncertainty as to amount of damages is cast on the(cid:13) wrongdoer and it is the duty of the fact finder to determine(cid:13) the amount of the damages as best he can from all the(cid:13) evidence in the case." Id. (cid:13) In sum, Gould holds that: (1) "lost opportunity" damages(cid:13) are available "unless the loss is wholly speculative"; and (2)(cid:13) if the fact of loss is not "wholly speculative," "the risk of(cid:13) uncertainty as to amount of damages is cast on the(cid:13) wrongdoer and it is the duty of the fact finder to determine(cid:13) the amount of the damages as best he can from all the(cid:13) evidence in the case." 535 F.2d at 781-82. Thus,"lost(cid:13) opportunity" damages are not available where the fact of(cid:13) the loss, i.e., whether there was any lost opportunity at all,(cid:13) is wholly speculative. But where the fact of lost opportunity(cid:13) is well established, it is up to the fact finder to determine(cid:13) the amount of the loss to the best of its ability. The(cid:13) defendants argue, however, that Gould’s"lost opportunity"(cid:13) approach is inapplicable to the present case because"Gould(cid:13) is a Section 14(a) case that does not even discuss the(cid:13) causation requirement in the context of Rule 10b-5," and(cid:13) its "lost opportunity" theory does not extend to Rule 10b-5(cid:13) claims.3 We will assume without deciding that Gould’s "lost(cid:13) opportunity" theory applies to Rule 10b-5 claims. Even(cid:13) assuming that it does, however, we do not think that the(cid:13) plaintiffs may proceed under that theory in this case(cid:13) because the fact of their loss is "wholly speculative." Gould,(cid:13) 535 F.2d at 781.(cid:13) _________________________________________________________________(cid:13) 3. Although we have not applied Gould’s"lost opportunity" causation(cid:13) theory to a Rule 10b-5 case, district courts from within this Circuit have(cid:13) done so. See Dofflemeyer v. W.F. Hall Printing Co., 558 F. Supp. 372, 380(cid:13) n.6 (D. Del. 1983); see also Rudinger v. Ins. Data Proc., Inc., 778 F.(cid:13) Supp. 1334, 1340 n.9 (E.D. Pa. 1991). Furthermore, the Supreme Court(cid:13) has imported standards from S 14(a) jurisprudence into its S 10(b)(cid:13) jurisprudence in other contexts, such as the test for materiality. See(cid:13) Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988) (adopting in the context(cid:13) of S 10(b) the materiality test set forth in TSC Industries, Inc. v.(cid:13) Northway, Inc., 426 U.S. 438 (1976), a S 14(a) case); but see Herskowitz(cid:13) v. Nutri/System, 857 F.2d 179, 189-90 (3d Cir. 1988) (noting that the(cid:13) mental state required for a S 14(a) violation is only "negligence," and is(cid:13) thus less stringent than the scienter requirement in a S 10(b) case).(cid:13) 15(cid:13) The plaintiffs’ main contention is that, if they had known(cid:13) the details of the compensation package that the Ventana(cid:13) Board had approved in principle, including its judgment(cid:13) that the $.60 per share figure was the stock’s "fair value,"(cid:13) they would have held out for a better exchange rate(cid:13) between Biotek stock and Ventana stock in the merger(cid:13) deal. As the defendants properly note, there are at least(cid:13) four events upon which the plaintiffs’ alleged lost(cid:13) opportunity would hinge. First, the plaintiffs would have(cid:13) had to vote against the proposed merger, and recruit at(cid:13) least some other shareholders to oppose it with them (they(cid:13) held 9.12% of the shares and would need 10% to prevent(cid:13) the merger). Second, Biotek would have had to negotiate a(cid:13) more favorable exchange rate at which its shareholders(cid:13) could exchange Ventana Exchange Notes for Ventana(cid:13) common stock. Third, the plaintiffs would have to have(cid:13) chosen to exchange their notes for common stock. Fourth,(cid:13) the plaintiffs would have to have chosen to have sold(cid:13) Ventana common stock following the IPO at a profit (i.e., in(cid:13) order to do better than the return that they got on their(cid:13) promissory notes). We will assume that the plaintiffs would(cid:13) have completed the third and fourth steps of the chain(cid:13) (exercising their conversion option and selling their stock at(cid:13) a profit). Nevertheless, we think that the Gould "wholly(cid:13) speculative" standard is not met by the first and second(cid:13) steps taken together (rejecting Ventana’s merger offer and(cid:13) negotiating a better deal).(cid:13) Regarding the first step in this chain, the plaintiffs argue(cid:13) that because they held almost 10% of the shares, the(cid:13) amount required to block the merger, they could have(cid:13) obtained the necessary additional votes and would have(cid:13) voted against the merger and negotiated more favorable(cid:13) terms for Biotek had they known about the(cid:13) Patience/Schuler compensation package. To support this(cid:13) contention, they present affidavits and testimony stating(cid:13) that they themselves would have voted against the merger(cid:13) if the information had been disclosed. They also present(cid:13) affidavits from three out of the five Biotek directors who(cid:13) voted in favor of the merger representing that they would(cid:13) have voted against the merger had the information been(cid:13) disclosed. We will assume that the plaintiffs could have(cid:13) amassed sufficient votes to block the merger, but we think(cid:13) 16(cid:13) it is highly speculative that they would have done so had(cid:13) the Ventana Board disclosed the information regarding its(cid:13) estimate of the value of Ventana stock and the terms of the(cid:13) Patience and Schuler compensation packages.(cid:13) The defendants point to evidence of significant financial(cid:13) difficulties that Biotek was facing at the time when the(cid:13) shareholders voted on the merger offer. Indeed, they adduce(cid:13) evidence that seems to demonstrate that "by October 1995,(cid:13) Biotek had no real alternative but bankruptcy." They cite a(cid:13) letter from Biotek’s Chairman, Mike Danzi, to Biotek’s(cid:13) shareholders urging them to accept a deal similar to the(cid:13) Ventana deal in August 1995, in which he wrote that(cid:13) "funding to allow Biotek to remain independent is not(cid:13) readily available on acceptable terms, and . . . without(cid:13) funding or sale there is a significant risk of loss of your(cid:13) investment." The defendants also point to the testimony of(cid:13) Danzi in which he stated that in October 1995, Biotek was(cid:13) forced to have an outside investor cover its payroll(cid:13) expenses. The defendants argue that these record(cid:13) references show that the only two options were for the(cid:13) Biotek shareholders to accept the merger, in which case(cid:13) they were likely to have their notes repaid in full, or for(cid:13) Biotek to declare bankruptcy, in which case the plaintiffs(cid:13) would almost certainly have received a less than full return(cid:13) on their promissory notes.(cid:13) The plaintiffs dispute that Biotek would have been(cid:13) required to declare bankruptcy, relying principally upon an(cid:13) affidavit from Angella Sabella, a former Biotek investor, that(cid:13) states that she would have loaned up to $2.8 million to(cid:13) Biotek in order to prevent it from going bankrupt. Such(cid:13) post hoc declarations are inevitably suspect. Moreover,(cid:13) Sabella would have extended the loan only on a "super(cid:13) priority" basis, meaning that her loan would line up before(cid:13) the plaintiffs’ notes in the case of bankruptcy, an(cid:13) arrangement that would have been extremely difficult to(cid:13) obtain. In sum, while the plaintiffs have presented(cid:13) substantial evidence that they could have rejected the(cid:13) Ventana merger on the terms on which it ultimately took(cid:13) place, we believe that it is highly speculative that they(cid:13) would have done so, even if they had known the terms of(cid:13) the compensation package, given Biotek’s shaky financial(cid:13) 17(cid:13) situation and the risk of loss of their investment in the case(cid:13) of bankruptcy.(cid:13) Regarding the second event, even if we were certain that(cid:13) the plaintiffs would have voted against the merger if the(cid:13) compensation information had been disclosed, the record(cid:13) renders it unlikely that they could have negotiated a better(cid:13) deal. Indeed, there is evidence in the record that prior to(cid:13) the final merger proposal, Biotek had attempted to(cid:13) negotiate a better exchange rate between Biotek and(cid:13) Ventana shares, but had been refused. In the fall of 1994,(cid:13) Biotek proposed a merger where its shareholders would(cid:13) hold 50% of the shares in the merged company, but(cid:13) Ventana rejected the offer. And in early 1995, Biotek(cid:13) proposed a merger arrangement where its shareholders(cid:13) would hold 33% of the merged company but Ventana(cid:13) declined.(cid:13) The plaintiffs point to information obtained through(cid:13) discovery about the importance of the Biotek merger to(cid:13) Ventana, including how crucial the merger was for Ventana(cid:13) to shore up its market position and to prepare for an IPO.(cid:13) The plaintiffs rely on the following information. First, Biotek(cid:13) relies on a presentation that Patience made to the Ventana(cid:13) Board in November 1995 regarding the potential Biotek(cid:13) merger, in which he recommended that Ventana acquire(cid:13) Biotek because:(cid:13) 1. [Biotek] represents a very attractive strategic(cid:13) acquisition candidate for Ventana; and(cid:13) 2. The acquisition will create significant value for(cid:13) Ventana’s shareholders, even if a rich premium is paid.(cid:13) To determine how rich of a premium that Ventana might(cid:13) have paid, the plaintiffs invoke a November 30, 1995(cid:13) recommendation that Ventana management made to the(cid:13) Board "that it approve discussions for the acquisition of(cid:13) Biotek on terms not to exceed $27.2 million" in stock and(cid:13) assumed liabilities.(cid:13) The plaintiffs also cite presentations delivered to Ventana(cid:13) by Bear Sterns in February 1995 that concluded that:(cid:13) 1. The acquisition of Biotek by Ventana was "of(cid:13) critical strategic importance as Ventana embarks on its(cid:13) strategy of automating IHC testing in laboratories";(cid:13) 18(cid:13) 2. The "synergy value" of the Merger was between $32(cid:13) million to $50 million; and(cid:13) 3. The "strategic, financial and synergistic benefits of "(cid:13) the Merger "are compelling."(cid:13) This information, the plaintiffs submit, shows not only that(cid:13) Biotek could have negotiated a more favorable merger deal(cid:13) from Ventana, but also establishes the bounds of how(cid:13) much more Ventana would have been willing to pay (for the(cid:13) purposes of damage calculations).(cid:13) We disagree. The plaintiffs would have the court(cid:13) reconstruct the negotiations as if Biotek had perfect(cid:13) information about Ventana’s underlying financial situation(cid:13) and how much Ventana valued Biotek and Ventana had no(cid:13) information regarding Biotek’s finances or how much it(cid:13) valued the Ventana merger. This is a highly unrealistic way(cid:13) to recreate a potential merger negotiation. Even if the(cid:13) plaintiffs had all of the information regarding the(cid:13) compensation package that they allege they should have(cid:13) been given, they still would not have known any of the(cid:13) information about the rate at which Ventana valued Biotek(cid:13) that they now cite as evidence for the proposition that they(cid:13) would have secured more favorable merger terms. This(cid:13) evidence is especially unconvincing in light of the evidence(cid:13) that Biotek attempted to secure a more favorable share(cid:13) exchange rate and failed to do so.(cid:13) The highly speculative chain of events that the plaintiffs(cid:13) ask us to infer from the evidence they have presented -- in(cid:13) particular, that Biotek would have rejected the Ventana(cid:13) offer and could have negotiated a more favorable merger(cid:13) deal -- appears to be what Gould was referring to when it(cid:13) stated that we should not apply the "lost opportunity"(cid:13) theory of causation in a situation where the loss is"wholly(cid:13) speculative." Gould, 535 F.2d at 781. We think that unlike(cid:13) Gould, where the fact of some uncertain amount of loss was(cid:13) clearly established because some shareholders received a(cid:13) more favorable share exchange rate than other similarly(cid:13) place shareholders, the very fact of loss in this case is(cid:13) "wholly speculative."4(cid:13) _________________________________________________________________(cid:13) 4. The fact of loss was also much more certain in Rudinger v. Ins. Data(cid:13) Proc., Inc., 778 F. Supp. 1334 (E.D. Pa. 1991), in which the court allowed(cid:13) 19(cid:13) The plaintiffs also make the alternative argument that(cid:13) damages could be calculated based on a disgorgement(cid:13) theory, that is, damages could be calculated by requiring(cid:13) Patience and Schuler to disgorge the profits they have(cid:13) received from their compensation package. We fail to see(cid:13) how this argument makes any less speculative the fact of(cid:13) loss. We will therefore affirm the District Court’s grant of(cid:13) summary judgment on the plaintiffs’ claims based on(cid:13) S 10(b) and Rule 10b-5 on the ground that no reasonable(cid:13) jury could find that the plaintiffs have established causation.5(cid:13) As there is no triable issue of fact with respect to the(cid:13) causation element of the plaintiffs’ 10b-5 claim, we need(cid:13) not reach the issue of scienter. Our ruling moots the(cid:13) defendants’ cross-appeal, which addresses only theS 10(b)(cid:13) and Rule 10b-5 claims.(cid:13) III. The California Corporate Code S 25401 Claim(cid:13) The plaintiffs also brought claims based on S 25401 of(cid:13) the California Corporations Code, which provides that:(cid:13) It is unlawful for any person to offer or sell a security(cid:13) in this state or buy or offer to buy a security in this(cid:13) state by means of any written or oral communication(cid:13) which includes an untrue statement of a material fact(cid:13) or omits to state a material fact necessary in order to(cid:13) make the statements made, in the light of the(cid:13) _________________________________________________________________(cid:13) the plaintiff to rely on the "lost opportunity" theory of causation, than it(cid:13) is in the present case. Rudinger involved a claim by an employee who(cid:13) chose to work for a company because he was enticed by the promise of(cid:13) stock options based on a fraudulently over-valued stock. In doing so, the(cid:13) employee gave up a definite offer from another employer that also(cid:13) included stock options (that were not fraudulently represented). The(cid:13) district court held that the fact of loss was not"wholly speculative"(cid:13) because, presented with accurate information, the employee would have(cid:13) chosen the other job. Further, the district court noted that the "lost(cid:13) opportunity" damages could be quantified because the alternative job(cid:13) offer presented "certain, fixed, and demonstrable profits thwarted by a(cid:13) defendant’s alleged fraud." Rudinger, 778 F. Supp. at 1341.(cid:13) 5. The plaintiffs did not experience any out-of-pocket loss, and the fact(cid:13) of their potential loss is too speculative to support the "lost opportunity"(cid:13) theory of causation.(cid:13) 20(cid:13) circumstances under which they were made, not(cid:13) misleading.(cid:13) Cal. Corp. Code S 25401. Specifically, the plaintiffs claim(cid:13) that Ventana’s disclosures regarding the stock issuances(cid:13) that it had approved at the time when the Biotek(cid:13) shareholders voted to approve the merger were rendered(cid:13) misleading by the fact that Ventana had preliminarily(cid:13) approved the sale of shares to Schuler and Patience, but(cid:13) did not disclose that preliminary approval. In other words,(cid:13) the plaintiffs contend that the planned sale of stock to(cid:13) Patience and Schuler was "a material fact necessary in(cid:13) order to make the statements made, in the light of the(cid:13) circumstances under which they were made, not(cid:13) misleading." Cal. Corp. Code S 25401.(cid:13) The District Court granted summary judgment for the(cid:13) defendants on the California law claim because it found(cid:13) that "it involves the same elements as the plaintiffs’ 10b-5(cid:13) claim." While we think that the District Court was incorrect(cid:13) in its conclusion that S 25401 involves the same elements(cid:13) as a Rule 10b-5 claim, we are satisfied that it was correct(cid:13) that the defendants are entitled to summary judgment on(cid:13) the California claim, albeit for somewhat different reasons(cid:13) than those relied on by the Court. See Narin v. Lower(cid:13) Merion Sch. Dist., 206 F.3d 323, 333 n.8 (3d Cir. 2000) ("An(cid:13) appellate court may affirm a decision on a ground other(cid:13) than that relied on by the district court.").(cid:13) The District Court did not provide a separate discussion(cid:13) of the claims based on California law, but granted summary(cid:13) judgment for the defendants with respect to all claims(cid:13) because it concluded that S 25401 "involves the same(cid:13) elements as the plaintiffs’ 10b-5 securities fraud claim."(cid:13) Therefore, we assume that the District Court relied on the(cid:13) same grounds, i.e. failure to adduce facts sufficient to(cid:13) establish both causation and scienter, to dismiss the(cid:13) California claims as it did to dismiss the Rule 10b-5 claims.(cid:13) To the extent that it relied on causation and scienter to(cid:13) grant summary judgment to the defendants on the(cid:13) California claim, the Court erred. Section 25401, which is(cid:13) modeled on S 12(2) of the Securities Act of 1933, has less(cid:13) stringent requirements than S 10(b) and Rule 10b-5(cid:13) regarding both scienter and causation. Section 25401 does(cid:13) 21(cid:13) not require civil plaintiffs to demonstrate the exacting(cid:13) scienter standard required for 10b-5 claims. Nor does it(cid:13) require plaintiffs in the civil context to establish causation.(cid:13) See Bowden v. Robinson, 136 Cal. Rptr. 871, 878 (Cal Ct.(cid:13) App. 1977) (noting that in a claim brought underS 25401(cid:13) "(1) proof of reliance is not required, (2) although the fact(cid:13) misrepresented must be ‘material,’ no proof of causation is(cid:13) required, and (3) plaintiff need not plead defendant’s(cid:13) negligence"). But cf. People v. Simon, 886 P.2d 1271, 1290-(cid:13) 01 (Cal. 1995) (imposing a "knowledge" mens rea(cid:13) requirement for criminal prosecutions brought under(cid:13) California Corporate Code S 25401).(cid:13) Nevertheless, the defendants are entitled to summary(cid:13) judgment on the S 25401 claim because that statute does(cid:13) not cover the activity alleged by the plaintiffs in this case.(cid:13) As noted above, S 25401 attaches liability to the buyer or(cid:13) seller of a security when he or she makes "an untrue(cid:13) statement of a material fact or omits to state a material fact(cid:13) necessary in order to make the statements made, in the(cid:13) light of the circumstances under which they were made, not(cid:13) misleading." Cal. Corp. Code S 25401. The California Court(cid:13) of Appeals has held that the statute does not cover cases of(cid:13) "simple nondisclosure." Lynch v. Cook, 196 Cal. Rptr. 544,(cid:13) 554 (Cal. Ct. App. 1983) (quoting Bowden v. Robinson, 136(cid:13) Cal. Rptr. 871 (Cal. Ct. App. 1977)); see also 1 Harold(cid:13) Marsh, Jr. & Robert H. Volk, Practice Under the California(cid:13) Securities Laws S 14.03[2][a] (2001) (stating that S 25401(cid:13) does not cover cases of "simple" or "total" nondisclosure).(cid:13) We interpret this to mean that S 25401 does not impose a(cid:13) duty on buyers or sellers to disclose information unless(cid:13) that information is material and "necessary in order to(cid:13) make [other] statements made, in light of the(cid:13) circumstances under which they were made, not(cid:13) misleading." Cal. Corp. Code S 25401.(cid:13) The plaintiffs contend that the representations that(cid:13) Ventana made about its capital structure, including its(cid:13) outstanding stock, were misleading when not accompanied(cid:13) by the disclosure of information regarding the Patience and(cid:13) Schuler compensation package.6 Thus, the question is(cid:13) _________________________________________________________________(cid:13) 6. The plaintiffs failed to raise in their opening brief, but argue in their(cid:13) reply brief, that because they included in their amended complaint(cid:13) 22(cid:13) whether the plaintiffs had to disclose the share issuance(cid:13) aspect of the compensation package in order to make the(cid:13) statement that they made at the time of the merger about(cid:13) their outstanding capital stock not misleading. The(cid:13) plaintiffs point to statements from the Reorganization(cid:13) Agreement (which contained the terms negotiated between(cid:13) Ventana and Biotek), and from the Information Statement,(cid:13) which was an additional document distributed to Biotek(cid:13) investors prior to their approval of the merger that basically(cid:13) summarized the Reorganization Agreement.(cid:13) The Reorganization Agreement provided a detailed(cid:13) account of Ventana’s capitalization structure. It stated:(cid:13) Section 4.5 Capitalization The authorized capital stock(cid:13) of Ventana as of the date hereof consists of 30,000,000(cid:13) shares of Common Stock and 18,450,000 shares of(cid:13) Preferred Stock, 750,000 share of which have been(cid:13) designated Series A Preferred Stock, 8,300,000 shares(cid:13) of which have been designated Series C Preferred Stock(cid:13) and 9,400,000 shares of which have been designated(cid:13) Series D Preferred Stock. As of the date hereof,(cid:13) 2,742,968 shares of Common Stock, 750,000 shares of(cid:13) Series A Preferred Stock, 3,083,039 shares of Series C(cid:13) Preferred Stock and 9,036,410 shares of Series D(cid:13) Preferred Stock are outstanding, and no other shares(cid:13) of capital stock are outstanding. Ventana has(cid:13) outstanding warrants to purchase an aggregate of(cid:13) 228,914 shares of Preferred Stock and has 2,110,789(cid:13) shares of Common Stock and 70,089 shares of(cid:13) Preferred Stock reserved for issuance (including both(cid:13) shares subject to outstanding options or rights and(cid:13) shares reserved for future grant) under its stock option(cid:13) _________________________________________________________________(cid:13) claims under California Corporate Code S 25402, which proscribes(cid:13) insider trading, and because, according to the plaintiffs, S 25402 does(cid:13) cover "simple nondisclosure," that the defendants are not entitled to(cid:13) summary judgment even if the plaintiffs’ claim is only one of "simple(cid:13) nondisclosure." Our jurisprudence makes clear that "an issue is waived(cid:13) unless a party raises it in its opening brief." Reform Party of Allegheny(cid:13) County v. Allegheny County Dep’t of Elections, 174 F.3d 305, 316, n.11(cid:13) (3d Cir. 1999) (citation omitted). The plaintiffs failed to raise a claim(cid:13) based on S 25402 in their opening belief and therefore may not rely on(cid:13) it now.(cid:13) 23(cid:13) or stock purchase plans. Shares of Common Stock(cid:13) issuable upon conversion of Ventana Payment Notes(cid:13) will, when issued upon any such conversion, be duly(cid:13) and validly issued, fully paid and nonassessable. Prior(cid:13) to the Closing Date, Ventana expects that its authorized(cid:13) number of shares of Common Stock, Preferred Stock and(cid:13) Series D Preferred Stock will increase due to the(cid:13) proposed issuance of warrants to purchase an(cid:13) aggregate of 1,860,500 shares of Series D Preferred(cid:13) Stock in connection with a proposed financing(cid:13) transaction. Ventana will on the Closing Date deliver an(cid:13) updated capitalization schedule as of that date.(cid:13) The plaintiffs focus on the penultimate sentence in this(cid:13) section, which we have emphasized. They argue that(cid:13) because the Reorganization Agreement disclosed the(cid:13) issuance of 1,860,500 shares connected to the financing of(cid:13) the merger that Ventana expected to issue prior to the(cid:13) closing date, but did not refer to the planned sale of 1.5 to(cid:13) 1.75 million shares of Ventana common stock to Patience(cid:13) and Schuler, that the omission of any reference to the(cid:13) compensation package makes the statement quoted above(cid:13) misleading. The defendants counter that the Reorganization(cid:13) Agreement only made representations about the stock that(cid:13) Ventana expected to issue "prior to the Closing Date." They(cid:13) contend that "[i]t is undisputed that the Compensation(cid:13) Package shares were not issued or outstanding until April(cid:13) 19, 1996, at the earliest," and that "[i]t is equally(cid:13) undisputed that the historical information in the(cid:13) Reorganization Agreement was correct."(cid:13) In our view, whether the statement quoted above is(cid:13) misleading in the absence of information regarding the(cid:13) compensation package depends largely on the timing of(cid:13) events, specifically, when the Ventana Board of Directors(cid:13) had given final approval to the compensation package(cid:13) relative to the closing date of the Ventana/Biotek merger.(cid:13) The relevant events are as follows. In November 1995, the(cid:13) Ventana Board began to negotiate a compensation package(cid:13) with Schuler and Patience. Thereafter, several relevant(cid:13) events happened at the January 16, 1996 meeting of the(cid:13) Ventana Board of Directors. First, the Ventana Board voted(cid:13) to authorize Ventana "to issue and sell an aggregate of(cid:13) 24(cid:13) 1,500,000 shares of the Corporation’s Common Stock to(cid:13) Jack Schuler and Crabtree Partners at $.60 per share"(cid:13) subject to certain conditions.7 The Board also voted to(cid:13) authorize the officers to increase the number of shares to(cid:13) be sold to Patience and Schuler to 1.75 million if needed.(cid:13) The Board also approved on January 16, 1996 the(cid:13) valuation of the company’s common stock at $.60. The(cid:13) Ventana Board of Directors did not consider its January 16(cid:13) vote to grant final approval for the compensation package,(cid:13) however, because, as noted below, it submitted the issue to(cid:13) the Ventana shareholders for approval in a proxy vote.(cid:13) The Ventana Board also approved two resolutions(cid:13) regarding the Biotek merger in its January 16 meeting.(cid:13) First, the Ventana Board signed a letter of intent to merge(cid:13) with Biotek. Second, the Ventana Board approved the(cid:13) issuance of the shares discussed in the sentence(cid:13) highlighted from Section 4.5 of the Reorganization(cid:13) Agreement, quoted above, to help finance the planned(cid:13) merger with Biotek. The Ventana Board issued the(cid:13) Reorganization Agreement and Information statement on(cid:13) January 19, 1996.(cid:13) On February 2, 1996, the Ventana Board disclosed the(cid:13) terms of the Patience/Schuler compensation plan in a(cid:13) proxy statement issued to its shareholders, and the(cid:13) shareholders approved the plan. Danzi, the Biotek(cid:13) Chairman, wrote to Biotek investors on February 8, 1996,(cid:13) calling for a special meeting to vote on whether to approve(cid:13) the merger with Ventana. He enclosed in this letter copies(cid:13) of the Reorganization Agreement and Information(cid:13) Statement. The Ventana Board of Directors voted to(cid:13) approve the "final compensation plan for Mr. Schuler, Mr.(cid:13) Patience, and Crabtree Partners which included a right to(cid:13) purchase 1,750,000 shares of the Company’s restricted(cid:13) Common Stock, subject to certain buyback provisions by(cid:13) the Company, at $.60 per share," on February 23, 1996.(cid:13) On the same day, more than 90% of Biotek investors,(cid:13) including all of the plaintiffs, voted to approve the merger(cid:13) with Ventana. As noted above, the merger transaction(cid:13) _________________________________________________________________(cid:13) 7. Crabtree Partners is a venture capital firm that was initially a(cid:13) defendant in this case, but is no longer involved.(cid:13) 25(cid:13) closed on February 26, 1996. Patience and Schuler bought(cid:13) the shares issued as part of the compensation package on(cid:13) April 19, 1996.(cid:13) The plaintiffs emphasize the proximity of the Board’s(cid:13) January 16 authorization of the compensation agreement(cid:13) and the representations made to Biotek (and through(cid:13) Biotek to its investors) in the Reorganization Agreement.(cid:13) They contend that because Ventana was clearly(cid:13) contemplating expanding its capital stock by issuing 1.75(cid:13) million shares to Patience and Schuler, it was obligated to(cid:13) include that information in the Reorganization Agreement,(cid:13) and that its failure to do so renders the statements made(cid:13) in the agreement about the currently outstanding capital(cid:13) stock misleading. The defendants counter, emphasizing(cid:13) that none of their statements in the Reorganization(cid:13) Agreement were false, and that the statements were only(cid:13) intended to apply to capital stock issuances that took place(cid:13) before the closing date for the merger. They point out that(cid:13) the final approval of the issuance of stock to Patience and(cid:13) Schuler took place after the Reorganization Agreement was(cid:13) distributed, and that Ventana did not issue the shares to(cid:13) Patience and Schuler until April 1996, almost two months(cid:13) after the closing date of the Ventana/Biotek merger.(cid:13) The question whether Ventana "omit[ted] to state a(cid:13) material fact necessary in order to make the statements(cid:13) made, in the light of the circumstances under which they(cid:13) were made, not misleading" turns largely on how broadly(cid:13) we read the term "misleading." Cal. Corp. CodeS 25401.(cid:13) Although the California courts have provided no guidance(cid:13) on the breadth of the term "misleading" inS 25401, they(cid:13) have cautioned that S 25401 should not be read to create a(cid:13) general duty of disclosure of all material information, i.e. it(cid:13) does not cover "simple nondisclosure." Lynch v. Cook, 196(cid:13) Cal. Rptr. 544, 554 (Cal. Ct. App. 1983) (quoting Bowden v.(cid:13) Robinson, 136 Cal. Rptr. 871 (Cal. Ct. App. 1977)); see also(cid:13) 1 Harold Marsh, Jr. & Robert H. Volk, Practice Under the(cid:13) California Securities Laws S 14.03[2][a] (2001) (stating that(cid:13) S 25401 does not cover cases of "simple" or "total"(cid:13) nondisclosure). That caution counsels us not to adopt a(cid:13) broad reading of the term "misleading" in this case.(cid:13) 26(cid:13) Taking the facts in the light most favorable to the(cid:13) plaintiffs, do they have an actionable claim underS 25401?(cid:13) That question hinges on whether the statement from the(cid:13) Reorganization Agreement that, "Prior to the Closing Date,(cid:13) Ventana expects that its authorized number of shares of(cid:13) Common Stock, Preferred Stock and Series D Preferred(cid:13) Stock will increase due to the proposed issuance of(cid:13) warrants to purchase an aggregate of 1,860,500 shares of(cid:13) Series D Preferred Stock in connection with a proposed(cid:13) financing transaction," was misleading because it was not(cid:13) accompanied by information regarding the prospective(cid:13) issuance of shares to Patience and Schuler. We think that(cid:13) the omission did not render the statement misleading for a(cid:13) number of reasons.(cid:13) First, the issuance of stock disclosed in the(cid:13) Reorganization Agreement (i.e., that relating to the(cid:13) financing of the merger) is sufficiently distinct from the(cid:13) issuance of stock pursuant to the compensation package(cid:13) that the omission of information regarding the second does(cid:13) not make the disclosure of information regarding the first(cid:13) misleading. The issuance of stock pursuant to the financing(cid:13) plan appears to have had final approval before the Ventana(cid:13) Board made its statement in the Reorganization Agreement,(cid:13) while the Patience/Schuler compensation package did not(cid:13) receive final approval until after the distribution of the(cid:13) Reorganization Agreement. The compensation agreement(cid:13) went to the shareholders for approval through a proxy(cid:13) statement and was subject to another vote by the Board of(cid:13) Directors before its approval was deemed final.(cid:13) Second, the Board contemplated issuing the stock for the(cid:13) financing plan before the closing date of the merger, but(cid:13) there is no indication that it contemplated issuing the stock(cid:13) for the Patience/Schuler compensation plan until after the(cid:13) merger’s closing date. Indeed, the issuance was conditioned(cid:13) on the merger’s success, and Ventana did not issue the(cid:13) stock to Patience and Schuler until April 19, 1996, about(cid:13) two months after the merger’s closing date. As the(cid:13) defendants point out, the Reorganization Agreement only(cid:13) made statements with respect to Ventana’s capitalization as(cid:13) of the date on which the Reorganization Agreement was(cid:13) issued and issuances of stock that it expected to happen(cid:13) prior to the closing date for the merger.(cid:13) 27(cid:13) Finally, it is undisputed that the Ventana Board had the(cid:13) authority to issue additional common stock at any time it(cid:13) wanted to do so after the merger. We fear that if we(cid:13) concluded that the present case falls under S 25401, we(cid:13) would come close to creating a general duty to disclose all(cid:13) information that relates to any topic mentioned in a merger(cid:13) agreement.(cid:13) Therefore, although we think that the District Court(cid:13) likely erred by granting summary judgment to the(cid:13) defendant on the claims based on California Corporate(cid:13) Code S 25401 based on scienter and causation grounds, we(cid:13) will affirm based on the alternative ground that the claims(cid:13) allege only "simple nondisclosure," which is not actionable(cid:13) under S 25401.(cid:13) The judgment of the District Court will be affirmed.(cid:13) A True Copy:(cid:13) Teste:(cid:13) Clerk of the United States Court of Appeals(cid:13) for the Third Circuit(cid:13) 28(cid:13)