Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-04194/USCOURTS-cand-3_05-cv-04194-1/pdf.json

Parties Involved:
David Eichler
Defendant
Langley Partners, L.P.
Plaintiff
Tripath Technology, Inc.
Defendant
Adya Tripathi
Defendant

Document Text:

United States District Court

For the Northern District of California

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1

 Tripath's Chairman, President and Chief Executive Officer. 

Complaint ¶ 6. 

2

 Tripath's Chief Financial Officer until his "departure on

September 15, 2004." Complaint ¶ 7. 

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

LANGLEY PARTNERS, L.P.,

Plaintiff,

v.

TRIPATH TECHNOLOGY, INC., ADYA

TRIPATHI AND DAVID EICHLER, 

Defendants. 

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No. C-05-4194 SC

ORDER GRANTING IN

PART AND DENYING IN

PART DEFENDANTS'

MOTION TO DISMISS 

 

I. INTRODUCTION

Langley Partners, L.P. ("Plaintiff") brought this action

against Adya Tripathi1 and David Eichler2 (collectively "Individual

Defendants"), Tripath Technology Inc., (collectively with

Individual Defendants, "Defendants" or "Tripath"), alleging, inter

alia, securities violations, fraud and breach of contract.

Presently before the Court is Tripath's motion to dismiss

Plaintiff's claims pursuant to Federal Rule of Civil Procedure

("FRCP") 12(b)(6).

The Court, having reviewed the parties' submissions, hereby

GRANTS IN PART and DENIES IN PART Defendants' motion to dismiss. 

II. BACKGROUND

The following allegations are taken from Plaintiff's papers

and will be assumed as true for purposes of this Order.

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3 The Honorable Harold Baer, on a motion of Tripath,

transferred this case from the Southern District of New York

because four class actions arising from the facts of this case were

pending in the Northern District of California. In December 2004,

the Honorable Saundra B. Armstrong of the Northern District

consolidated these actions. In July 2005, the parties to the class

actions filed a stipulation of settlement. Plaintiff has filed a

declaration stating that it properly and timely "opted out" of this 

settlement. 

4 Tripath is a publicly traded Delaware corporation based in

San Jose, California, and designs and markets digital chips for use

in consumer products. Compl. ¶ 5, Defs'. Mem. at 2. 

5

 Tripath securities were trading at $2.42 per share at the

time of the signing. Compl. ¶ 17. 

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Plaintiff, a Delaware limited partnership residing in New

York, first filed the Complaint in the Southern District of New

York.3 Plaintiff's central allegation is that it "purchased

Tripath securities at artificially inflated prices on August 3,

2004, and has been damaged thereby." Complaint ¶ 4 ("Compl.").4

 

On August 2, 2004, the parties entered into a stock purchase

agreement ("Purchase Agreement"), "pursuant to which Langley

purchased 1,000,000 shares of Tripath common stock at the purchase

price of $2 per share."5

 Compl. ¶ 17. In deciding to purchase

these securities, Plaintiff states that it "relied on [Tripath's]

public filings with the Securities and Exchange Commission," its

Prospectus and Prospectus Supplement, and the documents

incorporated by reference. Id. ¶ 18. 

Defendants, in a Form 10K filed on March 9, 2004 with the

Securities and Exchange Commission ("SEC"), stated that in

September 2003, Tripath had "announced the introduction of a new

breakthrough low cost power stage architecture platform...which we

call 'Godzilla' that can be used across the broad spectrum of

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audio amplifiers." Compl. ¶ 25. 

On October 22, 2004, Tripath announced that net revenues for

the third quarter of 2004 would be well below the $4-$4.5 million

Tripath had put forth as its "revenue expectation" in July 2004. 

Compl. ¶ 39. In addition, Tripath announced that it might need to

restate its revenues for the second quarter of 2004 and that its

auditor, BDO Seidman, had resigned on October 18 and had "issued a

letter asserting material weaknesses in Tripath's internal

controls concerning the effectiveness of Tripath's Audit Committee

and Tripath's ability to estimate distributor sales returns in

accordance with SFAS no. 48." Compl. ¶ 39. Tripath's stock fell

$0.75 per share from its closing price of $1.52 on October 22,

closing at $0.77 per share on October 25, the next trading day. 

Id. ¶ 40. 

On March 24, 2005, Defendants stated in an SEC filing, that

it had "introduced our lower cost 'Godzilla' architecture products

in January 2004 and began sampling them in certain customers'

products in mid-2004. However, we have not received design-wins

for these products to date." Id. ¶ 34. 

Plaintiff asserts that had it "known the truth about

Tripath's second quarter 2004 revenues, lack of internal controls,

and lack of 'design wins' for the key 'Godzilla' product,

Defendants would not have commanded anything close to the $2 per

share they conned out of Langley." Plaintiff's Memorandum in

Opposition to Motion to Dismiss at 9 ("Pl's. Mem.").

Plaintiff alleges that Defendants (1) have violated Section

10(b) and Rule 10(b)-5 of the 1934 Securities and Exchange Act

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6 This claim is asserted against only the Individual

Defendants. Compl. ¶ 64. 

7

 This claim is asserted against only the Individual

Defendants. Compl. ¶ 101.

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("1934 Act"), (2) have incurred liability as control persons under

Section 20 of the 1934 Act6, (3) have committed common law fraud,

(4) have breached their contract with Plaintiff, (5) have been

unjustly enriched, (6) should be suffered to have the Purchase

Agreement rescinded, (7) have violated Section 11 of the Act, and

(8) have violated Section 15 of the Act.7 

III. LEGAL STANDARD

"[A] complaint should not be dismissed for failure to state a

claim unless it appears beyond doubt that the plaintiff can prove

no set of facts in support of his claim which would entitle him to

relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). "In

reviewing a 12(b)(6) motion, this Court must accept the factual

allegations of the complaint as true and must draw all reasonable

inferences in favor of the plaintiff." Bernheim v. Litt, 79 F.3d

318, 321 (2d Cir. 1996); see also Usher v. City of Los Angeles,

828 F.2d 556, 561 (9th Cir. 1987). The complaint need not set out

the facts in detail; what is required is a "short and plain

statement of the claim showing that the pleader is entitled to

relief." FRCP 8(a); see also La Salvia v. United Dairymen, 804

F.2d 1113, 1116 (9th Cir. 1986). Thus, the Court's task "is

merely to assess the legal feasibility of the complaint, not to

assay the weight of the evidence which might be offered in support

thereof." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998). 

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IV. DISCUSSION

A. First Claim: Violation of Section 10(b) of the Act and

Rule 10b-5 Against All Defendants

Plaintiff contends that Defendants, having access to 

accurate inside information, knowingly made false statements about

internal controls and revenue recognition in its SEC filings. 

Compl. ¶ 52. Also, Individual Defendant Tripathi "reaped nearly

$2 million from insider sales of Tripathi shares during the second

quarter of 2004 - the very period in which he participated in the

scheme." Pl's. Mem. at 6. Individual Defendant Eichler "sold

50,000 Tripath shares on August 30, 2004, almost two months prior

to [Tripath's] revelation of its improperly reported second

quarter revenues, and just prior to his resignation and the

resignation of Tripath's auditors." Id. at 8. 

Defendants contend that Plaintiff has not met the heightened

pleading requirements under Rule 9(b) and the Private Securities

Litigation Reform Act ("PSLRA"). Defendants' Memorandum in

Support of Motion to Dismiss at 8 ("Defs'. Mem."). Specifically,

Defendants contend that "Plaintiff does nothing more than point to

Tripath's [October] 2005 announcements that it restated results

for the second quarter of fiscal 2004 - originally announced on

August 5-6, 2004." Id. 

Section 10(b) of the Act, codified at 15 U.S.C. § 78j(b),

makes it unlawful for any person to use or employ "any

manipulative or deceptive device or contrivance" in violation of

the SEC rules and regulations. SEC Rule 10b-5, promulgated under

the authority of 10(b), makes it unlawful for any person to "make

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8

 A fuller description is: "The basic elements of a Rule 10b5 claim...are (1) a material misrepresentation or omission of fact,

(2) scienter, (3) a connection with the purchase or sale of a

security, (4) transaction and loss causation, and (5) economic

loss." In re Daou Systems, Inc., 411 F.3d 1006, 1014 (9th Cir.

2005) citing Dura Pharmaceuticals, Inc. v. Broudo, 125 S.Ct. 1627,

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untrue any statement of a material fact or to omit to state a

material fact necessary in order to make the statements made, in

light of the circumstances under which they were made, not

misleading." Rule 10b-5 also makes it unlawful for any person to

"engage in any act, practice or course of business which operates

or would operate as a fraud or deceit upon any person, in

connection with the purchase or sale of any security." 

However straightforward the law and regulation may seem,

pleading securities claims under them is a difficult task. First,

such claims are subject to the heightened pleading requirements of

Rule 9(b). "Rule 9(b) requires the inclusion of specific facts

regarding the alleged fraudulent activity, such as the time, date,

places, content of each fraudulent representation, the reasons

that the representation is false, and the identity of the person

or persons engaged in the fraud." In re Autodesk, Inc. Securities

Litigation, 132 F. Supp. 2d 833, 840 (N.D. Cal. 2000), citing In

re GlenFed Securities Litigation, 42 F.3d 1541, 1547-1549 (9th

Cir. 1994). "The PSLRA added the requirement that the plaintiff

specify each statement alleged to have been misleading and the

reason or reasons why the statement is misleading." Id.

Second, a plaintiff must satisfy the requirements of the

PSLRA, pleading scienter, falsity, and loss causation with

particularity in order state a claim.8

 

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1631 (2005). Even if these elements are properly pled, the PSLRA

"carves out a safe harbor from liability if the statements at issue

were forward-looking and accompanied by meaningful risk warnings." 

In re Cooper Mountain Securities Litigation, 311 F. Supp. 2d 857,

866 (N.D. Cal. 2004). 

9

 Because the Court dismisses this claim for its failure to

meet the heightened pleading standards of PSLRA, it is unnecessary

for the Court to examine whether it meets the standards of FRCP

9(b). 

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1. Scienter and Falsity9

To establish scienter, a plaintiff "must plead particular

facts giving rise to a strong inference of deliberate

recklessness." In re Silicon Graphics, Inc. Securities

Litigation, 183 F.3d 970, 979 (9th Cir. 1999). "[R]ecklessness in

the § 10(b) context is, in the words of the Supreme Court, a form

of intentional conduct." Id. at 977 (citation removed). The

facts must demonstrate intent rather than mere motive and

opportunity. Id. at 974. "The stricter standard for pleading

scienter naturally results in a stricter standard for pleading

falsity, because falsity and scienter in private securities fraud

cases are generally strongly inferred from the same set of facts

and the two requirements may be combined into a unitary inquiry

under the PSLRA." In re Daou Systems, Inc., 411 F.3d 1006, 1015

(9th Cir. 2005). A Court will consider whether the "total of

plaintiffs' allegations, even though individually lacking, are

sufficient to create a strong inference that defendants acted with

deliberate or conscious recklessness." Id. at 1022 (citation

removed). 

Plaintiff puts forth three sets of allegations in pleading

scienter. First, Plaintiff alleges that Tripath violated

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Generally Accepted Accounting Principles ("GAAP") by recognizing

revenue "from sales that never occurred." Pl's. Mem. at 7. 

Second, Plaintiff alleges that the Individual Defendants sold

Tripath shares during the relevant period. Id. at 8. Individual

Defendant Tripathi "reaped nearly $2 million in proceeds" and

Individual Defendant Eichler "sold 50,000 Tripath shares...two

months prior to [Tripath's] revelation of its improperly reported

second quarter revenues." Id. Third, Plaintiff contends that

Defendants misrepresented the development and sales status of its

"Godzilla" product. Id. at 7. 

(a.) Violations of GAAP

Plaintiff contends that the overstatement made in violation

of GAAP "amounted to approximately 30% of Tripath's revenues for

the second quarter 2004 - revealing an overstatement of

significant magnitude that was not minor or technical in nature." 

Id. "Violations of GAAP standards can [] provide evidence of

scienter." In re Daou Systems, Inc., 411 F.3d 1006, 1016 (9th

Cir. 2005) (citation removed). However, a "general allegation

that the practices at issue resulted in a false report of company

earnings is not a sufficiently particular claim of

misrepresentation." Id. (citation removed). Plaintiffs must

allege sufficient information so that the Court "can discern

whether the alleged GAAP violations were minor or technical in

nature, or whether they constituted widespread and significant

inflation of revenue." In re McKesson HBOC, Inc. Securities

Litigation, 126 F. Supp. 2d 1248, 1273 (N.D. Cal. 2000). 

Under GAAP, "revenue must be earned before it can be

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recognized [that is,] the earnings process must be substantially

completed and an exchange must have occurred before revenue can be

recognized." Provenz v. Miller, 102 F.3d 1478, 1484 (9th Cir.

1996). 

In assessing Plaintiff's claim, Tripath's October 2, 2004

announcement is worth quoting at length: 

Shipments made to customers during the third quarter are

currently estimated to be between $1.9 million and $2.1

million. Tripath is currently reviewing the return of $1.3

million of product to a distributor in the third quarter. 

This product had been shipped to customers by the

distributor, and recognized as revenue by Tripath, in the

quarter ended June 30, 2004. The distributor paid for this

product during the third quarter. The Distributor [sic] will

not return this product to Tripath. Tripath may restate its

revenue for the quarter ended June 30, increase its sales

return reserve for the third quarter, which would reduce net

revenue in the third quarter, or make other adjustments. 

On January 31, 2005, Tripath's 8-K stated that Tripath's Audit

Committee: 

concluded that approximately $1.4 million of [the abovedescribed sale] did not meet the appropriate recognition

criteria because a former employee of [Tripath] had agreed

that the Distributor could return the product at the

Distributor's discretion...This former employee had on this

occasion agreed to a term of sale that was outside of

[Tripath's] standard practices. This term of sale was not

referenced in the documentation related to the sale submitted

to [Tripath's] finance department. 

While these statements do raise an eyebrow of concern and may

support an inference, they do not create a strong inference, of

deliberate recklessness. First, though perhaps sloppy, Tripath's

sale to the Distributor was "substantially completed." The

Distributor paid for the product and would "not return this

product to Tripath," indicating that the earnings process was

substantially completed and an exchange occurred. Second, the

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January 31st announcement makes it clear that this perhaps sloppy

accounting was an aberration from Tripath's standard practices,

which is, at its worst, an instance of negligence, rather than, as

the standard requires, an indication of "widespread and

significant inflation of revenue." 

(b.) Insider Trading by Individual Defendants

Plaintiff alleges that the Individual Defendants sold Tripath

shares during the relevant period. Pl's. Mem. at 8. Individual

Defendant Tripathi "reaped nearly $2 million in proceeds" and

Individual Defendant Eichler "sold 50,000 Tripath shares...two

months prior to [Tripath's] revelation of its improperly reported

second quarter revenues." Id. 

"Unusual trading or trading at suspicious times or in

suspicious amounts by corporate insiders has long been recognized

as probative of scienter." Greebel v. FTP Software, Inc., 194

F.3d 185, 197 (1st Cir. 1999). However, "the trading must be in a

context where defendants have incentives to withhold material,

non-public information, and it must be unusual, well beyond the

normal patterns of trading by those defendants." Id. at 198.

While Plaintiff has alleged that the trading by the

Individual Defendants occurred during an allegedly suspicious

time, it has not alleged that such trading was unusual for those

Individual Defendants. Bare-bones allegations that Defendants

were "privy to non-public information concerning its business

[and] finances" and therefore the "Individual Defendants knew or

recklessly disregarded the fact that adverse facts...had not been

disclosed to, and were being concealed from, the investing

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public," Compl. at ¶¶ 8-9, do not suffice as pleading facts with

such particularity as to give rise to a strong inference of

reckless disregard. 

(c.) Godzilla

On March 9, 2004, Tripath stated in its 10-K that it

"announced our first four amplifier devices based on the new

Godzilla, CMOS process and we are currently sampling these devices

with various customers." Compl. ¶ 25. In July 2004, Tripath

stated in its Form 8-K that it believed that it was "making good

progess in securing additional design wins...based on feedback

from various major...OEMS as well as in securing design wins with

automotive OEMS for in-dash units." Id. ¶ 28. On March 24, 2005,

Defendants stated in an SEC filing, that it had "introduced our

lower cost 'Godzilla' architecture products in January 2004 and

began sampling them in certain customers' products in mid-2004. 

However, we have not received design-wins for these products to

date." Compl. ¶ 34. 

The Court finds no plausible misrepresentation here. It

simply doesn't make sense that Tripath deceived others when it

stated in its March 2004 10-K that Tripath was sampling this

product with various customers and then announced in July 2004

that is was making progress in securing "additional design

wins...based on feedback." It does not state a claim for

misrepresentation by showing that Tripath gave a general statement

about a developing product and then, a few months later, said that

good progress was being made and feedback was sent to Tripath

regarding the sampling. 

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In sum, Plaintiff has not met the high pleading standard for

scienter, even considering all allegations together. The Court

finds that no sufficient basis exists to create a strong inference

that the Defendants acted with deliberate recklessness. 

2. Loss Causation

To establish loss causation, the PSLRA "expressly imposes on

plaintiffs the burden of proving that the defendant's

misrepresentations caused the loss for which the plaintiff seeks

to recover." Dura Pharmaceuticals, Inc., 125 S.Ct. at 1633,

quoting § 78u-4(b)(4). 

Because the Court finds that Plaintiff has not properly pled

a misrepresentation under the heightened pleading standard, the

Court finds that Plaintiff cannot properly plead loss causation. 

Based on the foregoing, the Court finds that Plaintiff has

not properly pled a violation of Section 10(b) and Rule 10(b)-5. 

Accordingly, the Court GRANTS Defendants' motion and DISMISSES

Plaintiff's claim. 

B. Second Claim: Control Person Liability under Section 20

of the Act

Plaintiff alleges that the Individual Defendants, in their

official capacities as Board members and corporate officers, "were

in a position of power and authority to cause Tripath to engage in

the wrongful acts complained of," thereby incurring liability

under Section 20 of the Act. Compl. ¶¶ 64-65.

Defendants contend that because Plaintiff has failed to

adequately plead a primary violation of Section 10(b), Plaintiff

cannot plead control person liability under Section 20. 

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10 Section 11 of the 1934 Act does not qualify as a "provision

of this title [the 1933 Act] or of any rule or regulation

thereunder." 15 U.S.C. § 78t(a). 

11 Plaintiff brings both state and federal claims. Because the

Purchase Agreement does not specify which state law applies to the

contract, the Court must decide which state law applies.

If an action is transferred to another federal district, the

receiving district must apply the choice of rules of the original

forum state. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964).

As the receiving Federal District, this Court must apply the

choice of law rules of New York State. 

New York State Courts use the "grouping of contracts" or

"center of gravity" theory, which "gives to the place 'having the

most interest in the problem' paramount control over the legal

issues arising out of particular factual context, thus allowing the

forum to apply the policy of the jurisdiction 'most intimately

concerned with the outcome of (the) particular litigation." Auten

v. Auten, 308 N.Y. 155, 160-161 (N.Y. 1954). 

The Court finds that New York law should be applied because

the contract was signed in New York, the Plaintiff resides there,

and the parties knew that the effects of the contract would be felt

in New York. 

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To be liable under Section 20(a) of the 1934 Act, plaintiffs

must be liable under another section of the Act. See Heliotrope

General, Inc. v. Ford Motor Co., 189 F.3d 971, 978 (9th Cir.

1999); 15 U.S.C. § 78t(a).10

Because Plaintiff has not established that Defendants are

liable under another section of the 1934 Act, Plaintiff cannot

state a claim under Section 20. 

Accordingly, the Court GRANTS Plaintiff's motion and

DISMISSES Plaintiff's claim under Section 20. 

C. Third Claim: Fraud

Plaintiff contends that it relied on Tripath's false

representations in deciding to purchase Tripath securities. 

Compl. ¶ 69.11

Defendants contend that Plaintiff has not pled the claim of

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fraud with particularity as required by FRCP 9(b). Defs'. Mem. at

21. 

Plaintiff has stated specific facts about who committed the

alleged fraud (the Individual Defendants and Tripath), the content

of the allegedly false representation (violations of GAAP), why it

is a false representation (failure to inform investors of relevant

information), and the identity of the persons engaged in the fraud

(the Individual Defendants and Tripath).

Because this claim is adequately pled, the Court DENIES

Defendants' motion to dismiss this claim for fraud. 

D. Fourth Claim: Breach of Contract and Rescission 

Plaintiff contends that Tripath violated Paragraph (d) of the

Purchase Agreement, thereby breaching the contract.

Defendants contend that the Complaint fails to state what act

by Tripath constituted a violation of Paragraph (d). "Paragraph

(d) is a warranty that, as of the time the agreement was signed,

there had been no material changes in the covered areas. And

nowhere in the Complaint does Plaintiff allege that one of the

material changes warranted against had occurred as of August 2,

2004." Defs.' Mem. at 22. 

Paragraph (d) of the Purchase Agreement, in relevant part,

states that "[s]ince the date of the last audited financial

statements included within the SEC Reports...there has been no

event, occurrence or development that has had or that could

reasonably be expected to result in a material adverse effect on

the Company's operations or business prospects." Declaration of

Sarah A. Good in Support of Motion to Dismiss ("Good Decl."), Ex.

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12 "...other than trade payables and accrued expenses incurred

in the ordinary course of business consistent with past practice

and liabilities [] not required to be reflected in the Company's

financial statements." Good Decl. at 2. 

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1 at 2. Paragraph (d) also asserts that Tripath has not incurred

any liabilities12, that Tripath has not altered its method of

accounting, that Tripath has not declared or made any dividend or

distribution, and that it has not issued any equity securities to

any officer or director, except pursuant to existing Tripath stock

options plans. Id. 

Plaintiff has stated a claim for breach of contract. In

addition to alleged violations of Paragraph (d), Plaintiff

incorporates by reference all preceding allegations, thereby

bringing the alleged misrepresentations and omissions into play. 

By alleging these facts, Plaintiff has properly alleged that

Defendants breached the Purchase Agreement by failing to disclose

relevant information.

Accordingly, the Court DENIES Defendants' motion to dismiss

this claim for breach of contract.

E. Fifth Claim: Unjust Enrichment and Money Had and

Received

Plaintiff alleges that Defendants have been unjustly enriched

by the $2,000,000 Plaintiff paid to Tripath. Compl. ¶¶ 79-85. 

Plaintiff contends that Tripath should restore this money to

Plaintiff. Id. ¶ 85. 

Defendants contend that a plaintiff cannot bring a claim for

unjust enrichment because the Purchase Agreement is a valid and

enforceable contract.

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"Under both California and New York law...an action in quasicontract...does not lie when an enforceable, binding agreement

exists defining the rights of the parties." Paracor Finance, Inc.

v. General Electric Capital Corp., 96 F.3d 1151, 1167 (9th Cir.

1996). 

It is not legally feasible for Plaintiff to bring these

claims. The existence of the Purchase Agreement, a valid,

enforceable contract defining the rights of the parties,

forecloses the possibility of bringing a quasi-contract claim,

such as these for unjust enrichment and money had and received. 

The Court GRANTS Defendants' motion and DISMISSES Plaintiff's

claims for unjust enrichment and money had and received. 

F. Sixth Claim: Rescission

Plaintiff alleges that had it known about Tripath's

misrepresentations, it would not have entered into the Purchase

Agreement. Compl. ¶ 91. Tripath's conduct, moreover, operated as

a fraud and deceit upon Plaintiff, depriving it of properly or

legal rights or otherwise causing injury. Id. ¶ 92. Because of

these facts, Plaintiff contends that it is entitled to rescission

of the Purchase Agreement and "other agreements." Id. ¶ 93. 

Defendants contend that because Plaintiff no longer has

Tripath stock, the parties cannot, as required by rescission, be

returned to status quo ante. Defs'. Mem. at 24. 

When a Court rescinds an agreement, it has a duty to place

the parties where they were before the contract was made. See

Vitale v. Coyne Realty, Inc., 414 N.Y.S.2d 388 (N.Y.A.D. 1979). A

suit to rescind a contract will not lie where the parties cannot

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be restored to status quo ante. See Slater v. Slater, 240 N.Y.

557 (N.Y. 1925). However, the "terms upon which rescission may be

granted where complete restoration of the parties to their former

position is impossible rests in the sounds discretion of the trial

court." Buffalo Builders' Supply Co. v. Reeb, 247 N.Y. 170, 176

(N.Y. 1928). 

Even though the specific restoration of Tripath stock cannot

be returned to Tripath, its value, if Plaintiff prevails, may be. 

Accordingly, the Court DENIES Defendants' motion.

On final note, Plaintiff asks for rescission of "other

agreements." Plaintiff has not specified what other agreements

these are, how these other agreements relate to this case, nor has

Plaintiff disclosed their subject matter or terms. Without more,

the Court cannot determine the legal feasibility of this

contention based on these facts. 

G. Seventh Claim: Section 11 of the 1933 Act

Plaintiff contends that because Defendants used improper

accounting methods and had inadequate internal accounting

controls, "Defendants lacked a reasonable basis for their

statements regarding Tripath." Compl. ¶ 96. Plaintiff was

therefore injured when it purchased Tripath stock because it

relied on the registration statements and supplements based on

these misrepresentations and failures. Compl. ¶¶ 95-98. 

Defendants challenge this claim on the same basis as it

challenged Plaintiff's claim under Section 10(b). Defs'. Mem. at

20. Specifically, Defendants ask the Court to dismiss this claim

because it fails to meet the heightened pleading requirements of

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FRCP 9(b). 

Section 11 of the 1933 Act imposes civil liability on those

who file a false registration statement. See 15 U.S.C. § 77k. 

Though not subject to the heightened pleading standards of PSLRA,

Section 11 must still be plead with particularity under FRCP 9(b). 

See Falkowski v. Imation Corporation, 309 F.3d 1123, 1133 (9th

Cir. 1996), amended by Falkowski v. Imation Corporation 320 F.3d

905 (9th Cir. 2003). "To survive dismissal, plaintiffs must

demonstrate, with particularity, (1) that the registration

statement contained an omission or misrepresentation, and (2) that

the omission or misrepresentation was material, that is, it would

have misled a reasonable investor about the nature of his or her

investment." In re Daou Sytems, Inc., 411 F.3d at 1028 (citation

omitted). It is important to note that "[n]o scienter is required

for liability under § 11; defendants will be liable for innocent

or negligent material misstatements or omissions." Id. at 1027

(citations and quotation marks removed). 

Plaintiff has plead with particularity a claim under Section

11. Specifically, as shown in the facts stated above for fraud,

Plaintiff has stated specific facts that the registration

statements allegedly omitted material facts about accounting

methods and product development. Accordingly, the Court DENIES

Defendants' motion.

H. Section 15 of the 1933 Act Against Individual Defendants

Plaintiff contends that because the Individual Defendants

"acted as a controlling person of Tripath within the meaning of 

§ 15," they were in a position to "cause Tripath to engage in the

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wrongful acts complained of herein." Compl. ¶¶ 101-102. 

Defendants contend that because Langley has failed to state a

claim under Section 11, it cannot state a claim under Section 15. 

Defs.' Mem. at 20. 

Section 15(a) of the 1933 Act "imposes joint and several

liability upon every person who controls any person liable under

sections 11 or 12." In re Daou Systems, 411 F.3d at 1029, quoting

15 U.S.C. § 77o. 

Because the Court has determined that Plaintiff stated a

claim under Section 11, it can bring a claim under Section 15(a).

Accordingly, the Court DENIES Defendants' motion to dismiss this

claim. 

V. CONCLUSION

The Court GRANTS Defendants' motion as to three of the eight

claims. Accordingly, the Court DISMISSES Plaintiff's claims for

violations of § 10(b), violations of § 20, and unjust enrichment

and money had and received. 

The Court GRANTS Plaintiff thirty days from the date of this

Order to amend the Complaint. If Plaintiff fails to amend its

claims by that date, the Court will consider these claims waived

and therefore the Court will bar Plaintiff from bringing these

claims.

IT IS SO ORDERED.

Dated: March 7, 2006 UNITED STATES DISTRICT JUDGE

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