Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_15-cv-04881/USCOURTS-cand-5_15-cv-04881-4/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1441 - Petition for Removal: SEC Act

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15-cv-04881-RMW

ORDER GRANTING MARVELL TECHNOLOGY GROUP, LTD.'S MOTION TO DISMISS

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Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SARATOGA ADVANTAGE TRUST 

TECHNOLOGY & COMMUNICATIONS 

PORTFOLIO,

Plaintiff,

v.

MARVELL TECHNOLOGY GROUP, 

LTD., et al.,

Defendants.

Case No. 15-cv-04881-RMW 

ORDER GRANTING MARVELL 

TECHNOLOGY GROUP, LTD.'S 

MOTION TO DISMISS

Re: Dkt. No. 31

Saratoga Advantage Trust Technology & Communications Portfolio brings this purported 

shareholder derivative suit against Marvell Technology Group, Ltd. and certain current and former 

Marvell directors and officers. Nominal defendant Marvell moves to dismiss with prejudice or, in 

the alternative, to stay the action pending resolution of the related cases consolidated under the 

case caption Luna v. Marvell Technology Group, Ltd., No. 5:15-cv-05447-RMW. Dkt. No. 31. 

Plaintiff opposes the motion. A hearing was held on March 25, 2016. Having considered the 

arguments of the parties, the court grants Marvell’s motion to dismiss with leave to amend. The 

court does not address Marvell’s request for a stay at this time. 

I. BACKGROUND

Defendant Marvell is a publicly traded semiconductor company incorporated in Bermuda. 

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Compl. ¶¶ 1, 12. Marvell’s operating subsidiary in the United States is based in Santa Clara, 

California. Id. ¶ 12. Plaintiff, an institutional investor based in Arizona, has held Marvell common 

stock since May 30, 2014. Id. ¶¶ 11, 53. On October 16, 2015, plaintiff filed suit in Santa Clara 

Superior Court against Marvell and several of Marvell’s officers and directors. See Dkt. No. 1-1. 

On October 23, 2015, Marvell removed this action to federal court; plaintiff’s motion to remand to 

state court was denied. Dkt. Nos. 1, 24. This case was deemed related to the putative securities 

class actions consolidated in Luna, et al., v. Marvell Technology Group, Ltd., et al., No. 3:15-cv05447. Dkt. No. 25. Marvell now moves to dismiss for lack of standing under Bermuda law and 

for failure to state a claim. 

Plaintiff alleges that between November 20, 2014 and September 11, 2015, Marvell and 

the individual defendants “either made, caused to be made, and/or failed to correct statements 

previously made while failing to disclose material information concerning Marvell’s business 

operations, prospects, internal controls and financial results, thus causing the Company’s stock to 

trade at artificially inflated prices.” Compl. ¶ 3. Plaintiff alleges that Marvell’s stock price later 

dropped precipitously in response to “revelatory” disclosures by Marvell. Id. ¶¶ 3, 5. Plaintiff

“brings this action for the benefit of Marvell to redress injuries suffered as a result of the 

Individual Defendants’ breaches of fiduciary duties and violations of law.”

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Id. ¶ 51. Plaintiff

asserts four causes of action against the individual defendants: breach of fiduciary duties, unjust 

enrichment, corporate waste, and aiding and abetting fiduciary violations. Id. ¶¶ 63-89.

II. STANDING TO BRING DERIVATIVE CLAIMS UNDER BERMUDA LAW

Marvell argues that plaintiff lacks standing to bring this action because the internal affairs 

doctrine requires the application of Bermuda law to plaintiff’s claims, and Bermuda law does not 

permit shareholder derivative suits. Plaintiff argues that the “internal affairs” doctrine does not 

apply to derivative actions alleging securities fraud, and that, even under Bermuda law, plaintiff 

has properly stated a derivative claim.

 

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The complaint also alleges harm to “Plaintiff and other Class members.” Compl. ¶ 5. In its 

motion to remand, however, plaintiff averred that this action “is not a class action and is not 

brought as such or impliedly intended to be such.” Dkt. No. 13 at 6 (emphasis in original).

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A. Choice of Law

“A federal court sitting in diversity must look to the forum state’s choice of law rules to 

determine the controlling substantive law.” Mazza v. Am. Honda Motor Co., 666 F.3d 581, 589 

(9th Cir. 2012) (quoting Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1187 (9th Cir.), 

opinion amended on denial of reh’g, 273 F.3d 1266 (9th Cir. 2001)). “The internal affairs doctrine 

is a conflict of laws principle which recognizes that only one State should have the authority to 

regulate a corporation’s internal affairs—matters peculiar to the relationships among or between 

the corporation and its current officers, directors, and shareholders—because otherwise a 

corporation could be faced with conflicting demands.” Edgar v. MITE Corp., 457 U.S. 624, 645 

(1982). Under this doctrine, “the rights of shareholders in a foreign company, including the right 

to sue derivatively, are determined by the law of the place where the company is incorporated.” 

Batchelder v. Kawamoto, 147 F.3d 915, 920 (9th Cir. 1998), as amended (July 15, 1998). 

California has codified the internal affairs doctrine: “The directors of a foreign corporation 

transacting intrastate business are liable to the corporation, its shareholders, creditors, receiver, 

liquidator or trustee in bankruptcy for the making of unauthorized dividends, purchase of shares or 

distribution of assets or false certificates, reports or public notices or other violation of official 

duty according to any applicable laws of the state or place of incorporation or organization, 

whether committed or done in this state or elsewhere.” Cal. Corp. Code § 2116.

Plaintiff challenges the application of the internal affairs doctrine in this case, arguing that 

“California courts often—but not always—look to the ‘internal affairs’ doctrine” to determine 

choice of law in a shareholder derivative action. Dkt No. 38 at 3. Plaintiff claims that California 

courts “clearly hold” that “the ‘internal affairs doctrine’ has no place where—as in this instance—

a shareholder derivative claim is premised factually on violations of securities law.” Id. at 2.

Plaintiff does not, however, assert any securities law cause of action—federal or state—in the 

complaint. While plaintiff’s allegations in this case rely on the same Marvell SEC disclosures that 

are the subject of a related securities class action, plaintiff represented at the hearing that plaintiff 

does not proceed on a securities fraud theory in this action. See also Dkt. No. 21, Pl’s Opp’n to 

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Mot. to Consider Whether Cases Should be Related, at 1-2 (describing case as a “derivative action 

brought exclusively under California State law being pursued by an individual shareholder for 

breaches of duty”). 

The cases cited by plaintiff do not support plaintiff’s position that the internal affairs 

doctrine is inapplicable to shareholder derivate claims for breach of duty that happen to relate to 

securities fraud claims brought by other plaintiffs. In Friese, the California Court of Appeal 

declined to apply the internal affairs doctrine, but distinguished the California securities claims at 

issue from shareholders’ claims to enforce their own rights: “[W]e do not accept defendants’

characterization of section 25502.5 as merely a device for enforcing directors’ and officers’

fiduciary duties to shareholders.” Friese v. Superior Court, 134 Cal. App. 4th 693, 709-710 

(2005), as modified on denial of reh’g (Dec. 29, 2005), as modified (Jan. 24, 2006) (noting that 

California’s securities regulations serve “broad public interests rather than the more narrow 

interests of a corporation’s shareholders”). In Vaughn, the California Court of Appeal 

distinguished Friese as applying to securities claims and proceeded to apply the internal affairs to 

shareholder derivative claims for breach of fiduciary duty where, as here, the “complaint 

parallel[ed] the allegations in several federal securities fraud class actions” that were filed around 

the same time. Vaughn v. LJ Int’l, Inc., 174 Cal. App. 4th 213, 223-25 and 218 n.5 (2009); see 

also Voss v. Sutardja, No. 14-CV-01581-LHK, 2015 WL 349444, at *7-8 (N.D. Cal. Jan. 26, 

2015) (citing Vaughn and applying internal affairs doctrine to shareholder claims of breach of duty 

and unjust enrichment by corporate officers).

Plaintiff cites several other cases holding that the internal affairs doctrine does not apply to 

claims for securities violations. See Williams v. Gaylord, 186 U.S. 157, 165 (1902) (“[W]hen a 

corporation sells or encumbers its property, incurs debts or gives securities, it does business, and a 

statute regulating such transactions does not regulate the internal affairs of the corporation.”); W. 

Air Lines, Inc. v. Sobieski, 191 Cal. App. 2d 399, 410 (1961) (“ordinarily speaking the issuance of 

capital stock or the stock structure of a corporation is an internal affair, yet the issuance and sale of 

stock within a state other than that of its organization may be regulated in order to protect the 

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residents and citizens of the former state”); State Farm Mut. Auto. Ins. Co. v. Superior Court, 114 

Cal. App. 4th 434, 447, 8 Cal. Rptr. 3d 56, 68 (2003) (noting that internal affairs doctrine governs 

choice of law for claims involving “the relationships among the corporation, its directors, officers 

and shareholders,” as distinct from claims arising out of the “sale or disposition or transfer of the 

shares of stock” and other types of corporate transactions) (citations omitted). But none of these 

cases suggests that there is an exception to the internal affairs doctrine for state law claims against 

corporate officers for breach of duty where such claims parallel securities fraud allegations made 

in another case.

At the hearing, plaintiff also cited Wilson v. Louisiana-Pac. Res., Inc., 138 Cal. App. 3d 

216, 224 (1982) and Offshore Rental Co. v. Cont’l Oil Co., 22 Cal. 3d 157 (1978) holding 

modified by I. J. Weinrot & Son, Inc. v. Jackson, 40 Cal. 3d 327 (1985). Neither case is availing. 

In Wilson, the Court of Appeal considered the constitutionality of California Corporations Code 

section 2115—a statutory exception to the internal affairs doctrine for “pseudo-foreign” 

corporations, more than half of whose outstanding voting securities are held by California 

residents.

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The Wilson court found that the internal affairs doctrine was not relevant to the 

question of section 2115’s constitutionality: “This is not a common choice-of-law question; the 

Legislature has resolved the conflicts issue by mandating application of this state’s law under 

certain conditions. The question is whether that mandate is constitutional.” 138 Cal. App. 3d at

224. The Wilson court noted that the internal affairs doctrine “has never been followed blindly in 

California,” 138 Cal. App. 3d at 224, but the court did not discuss any exception to the doctrine 

that would apply to plaintiff’s claims in this case. See also State Farm, 114 Cal. App. 4th at 447

(noting that the Wilson court criticized the internal affairs doctrine “in a single sentence of 

dictum,” but that “in the 20 years since Wilson was decided, the internal affairs doctrine has 

 

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Plaintiff does not allege in the complaint or its opposition that section 2115 applies to Marvell, 

but plaintiff seemed to suggest at the hearing that it might. The court notes that section 2115 does 

not apply to corporations “with outstanding securities listed on the New York Stock Exchange, the 

NYSE Amex, the NASDAQ Global Market, or the NASDAQ Capital Market.” See Cal. Corp. 

Code § 2115 (c).

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received broad acceptance by the courts”). Offshore Rental is wholly in apposite. The California 

Supreme Court considered a conflict of law problem in the context of a negligence action; both 

plaintiff and defendant happened to be corporations, but the internal affairs of a corporation were 

not implicated in any way. See 22 Cal. 3d at 160.

B. Exceptions to Foss Rule

The parties agree that Bermuda follows the general rule from Foss v. Harbottle, 67 Eng. 

Rep. 189 (Ch. 1843). “Under the rule in Foss, ‘the proper plaintiff in a suit addressing a wrong 

done to a company is the company itself, not the shareholder.’” Voss, 2015 WL 349444, at *10 

(quoting Erie Cnty. Emps. Ret. Sys. v. Isenberg, No. CIV.A. H–11–40522012 WL 3100463, at *3 

(S.D. Tex. July 30, 2012)). The parties also agree that “the rule in Foss ‘is subject to four 

‘exceptions’ which permit a shareholder to bring suit when the conduct at issue is: (1) ultra vires; 

(2) requires a special majority to ratify; (3) infringes a shareholder’s personal rights; or (4) 

qualifies as a ‘fraud on the minority.’” Voss, 2015 WL 349444, at *10 (quoting In re Tyco Int’l, 

Ltd., 340 F.Supp.2d 94, 98 (D.N.H. 2004)).

Plaintiff argues that three exceptions to the Foss rule apply in this case. Specifically, 

plaintiff argues that individual defendants’ conduct amounts to fraud on the minority, was ultra 

vires, and violated shareholders’ personal rights. See Dkt. No. 38 at 6-8. Plaintiff bears the burden 

of establishing a prima facie case that an exception applies. See City of Harper Woods Employees’ 

Ret. Sys. v. Olver, 589 F.3d 1292, 1298 (D.C. Cir. 2009) (“plaintiff, before proceeding with a 

derivative suit, must ‘establish a prima facie case . . . that the action falls within the proper 

boundaries of the exception to the rule in Foss v. Harbottle”) (quoting Prudential Assurance Co. 

Ltd. v. Newman Indus. Ltd. (No. 2), [1982] Ch. 204, 221-22 (C.A.)). Plaintiff has not established a 

prima facie case for any of the Foss exceptions and therefore fails to state a claim.

1. Fraud on the Minority Exception

The fraud on the minority exception requires two elements: (1) the alleged wrongdoers 

must have “control” over a majority of the stock with voting rights, and (2) the wrongdoers must 

have committed “fraud.” See Tyco, 340 F. Supp. 2d at 98. “[T]he concept of control ‘embraces a 

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broad spectrum extending from an overall absolute majority of votes at one end, to a majority of 

votes at the other end made up of those likely to be cast ... as a result of influence or apathy.’” Id.

at 99 (quoting Prudential, [1982] Ch. 204, at 219). “Fraud” does not “require proof of fraud as an 

American court would understand the term. Instead, English courts speak of fraud in this context 

in a broader equitable sense in which control is misused to benefit the wrongdoers at the 

company’s expense.” Id. at 99 (citing Konamaneni v. Rolls Royce (India) Ltd., [2002] 1 W.L.R. 

1269, at 1278 (Eng. Ch. 2001); Estmanco (Kilner House) Ltd. v. Greater London Council, [1982] 

1 All E.R. 437 (Ch. 1982)). Because plaintiff does not sufficiently allege “fraud” by the individual 

defendants, the court need not reach the question of whether plaintiff’s allegations of misconduct 

by the entire board are sufficient to establish “control.”

Plaintiff argues that the elements are met by its allegations that “Marvell’s entire board of 

directors engaged in accounting fraud and personally benefited from that fraud by artificially 

inflating Marvell’s stock price, thus fraudulently increasing their personal compensation to the 

company’s detriment.” Dkt. No. 38 at 7 (emphases omitted). To establish the “fraud” element of 

the exception, plaintiff relies on its allegations that the individual defendants received 

“compensation and benefits . . . based, at least in part, on Marvell’s artificially inflated stock price 

and inflated revenues.” Compl. ¶ 49(b). These allegations are insufficient to show misuse of 

control for personal benefit by the individual defendants. See Tyco, 340 F. Supp. 2d at 100 (“It is 

difficult to see how the receipt of stock options can constitute improper self-dealing, at least in a 

case such as this where the plaintiff does not allege either that the options were unearned or that 

the directors stood to gain in some special way from increases in the company’s stock price at the 

expense of other shareholders.”); see also Winn v. Schafer, 499 F. Supp. 2d 390, 398 (S.D.N.Y. 

2007) (finding that plaintiff failed to allege “conduct sufficient to establish the requisite selfdealing in order to invoke the fraud on the minority exception” because plaintiff did not allege 

“additional benefits that inured to the Individual Defendants ‘beyond the normal emoluments of 

office’”) (quoting Tyco, 340 F. Supp. 2d at 100 n. 7).

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2. Ultra Vires Exception

Plaintiff argues that the ultra vires exception applies because Marvell’s “shareholders 

could no more have approved the alleged securities violations in this case than they could have 

approved the use of Marvell’s assets to engage in felony theft.” Dkt. No. 38 at 6 (citing Bermuda 

Companies Act of 1981, Part II § 11(b) (“Subject to any provision of law, . . . a company has the 

capacity, rights, powers and privileges of a natural person.”). The court finds it unlikely that 

making statements about the financial condition of the company constitutes ultra vires conduct

under Bermuda law, even if such statements constitute a violation of securities law. See Harper 

Woods, 589 F.3d at 1303 (D.C. Cir. 2009) (“Whether conduct is ultra vires thus depends upon 

whether a company is capable of performing the act, as set forth in the company’s memorandum 

of association.”) (emphasis in original) (citing Rolled Steel Products (Holdings) Ltd v British Steel 

Corp., [1986] Ch 246, at 295 (U.K.)). In any case, “when a shareholder seeks to bring a derivative 

action to recover damages for past ultra vires acts, the shareholder must demonstrate that the case 

qualifies under the fraud on the minority exception.” Tyco, 340 F. Supp. 2d at 101-02 (citing Clark 

v Energia Global Ltd [2002] Bermuda LR 39 at 10-1). Plaintiff’s claims are based on past 

statements, see Compl. ¶ 3, and plaintiff has not alleged facts to show that the case qualifies under 

the fraud on the minority exception. Therefore, plaintiff may not rely on the ultra vires exception. 

3. Personal Rights Exception

Plaintiff also asserts that “Plaintiff’s and Marvell’s other shareholders’ rights have been 

violated in this case as a result of violation of the well-established right to purchase and sell 

Marvell stock free from manipulation,” citing two securities fraud class actions. Dkt. No. 38 at 7-

8. However, plaintiff brings only derivative claims on behalf of Marvell. See Compl. ¶ 51 

(“Plaintiff brings this action for the benefit of Marvell . . .”). Therefore, plaintiff’s personal rights 

as a shareholder are not implicated. See Tyco, 340 F. Supp. 2d at 98 (noting that it has been 

suggested that “personal rights” maybe not be a true exception “because a shareholder’s suit to 

protect her personal rights is not brought as a derivative action”) (citing treatises on English law). 

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III. LEAVE TO AMEND

Marvell seeks dismissal with prejudice, arguing that amendment would be futile. Plaintiff 

argues that even if its claims are dismissed, it should be granted leave to amend to “add numerous 

additional facts further demonstrating the exceptions to the Foss rule.” Dkt. No. 38 at 9. Because 

“plaintiff could conceivably allege additional facts plausibly establishing that their derivative 

claims satisfy one of the exceptions to the rule in Foss,” the court permits plaintiff leave to amend. 

Voss, 2015 WL 349444.

As an alternative basis for dismissal, Marvell further argues that an exculpatory provision 

in its charter precludes any cause of action that is not based on “fraud or dishonesty,” and that 

plaintiff fails to state any claim for “fraud or dishonesty” with the particularity required by Federal 

Rule of Civil Procedure 9(b). In its opposition brief, plaintiff argued that the allegations in the 

complaint were sufficient to allege fraud. See Dkt. No. 38 at 8-9. At the hearing, however, plaintiff 

indicated that plaintiff is not proceeding on a fraud theory of liability. It is not clear to the court 

what factual basis other than fraud would support plaintiff’s claims for breach of fiduciary duty, 

unjust enrichment, and corporate waste—especially in light of plaintiff’s argument that the 

internal affairs doctrine should not apply where, “as here,” a shareholder derivative claim “is 

tethered to a foreign defendant’s fraudulent violations of U.S. Securities law.” Dkt. No. 38 at 5.

Any amended complaint must include sufficient factual allegations for the court to understand the 

theory on which plaintiff proceeds.

IV. CONCLUSION

For the foregoing reasons, the court grants Marvell’s motion to dismiss with leave to 

amend. Should plaintiff chose to file an amended complaint, plaintiff must do so within thirty (30) 

days. Failure to amend within thirty (30) days will result in dismissal with prejudice. Having 

dismissed plaintiff’s claims, the court denies Marvell’s motion for a stay without prejudice. 

IT IS SO ORDERED.

Dated: August 16, 2016

______________________________________

Ronald M. Whyte

United States District Judge

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