Court Opinion

ID: 9386129
Source: CourtListenerOpinion
Date Created: 2023-04-11 16:01:11.60977+00
Date Added: 2024-06-11T17:17:47.561338
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

YORK COUNTY ON BEHALF OF                 No. 22-15501
THE COUNTY OF YORK
RETIREMENT FUND; MARYLAND                  D.C. No.
ELECTRICAL INDUSTRY                     4:20-cv-07835-
PENSION FUND, Individually and on            JSW
Behalf of All Others Similarly
Situated,
                                           OPINION
             Plaintiffs-Appellants,

 v.

HP, INC.; DION J. WEISLER;
CATHERINE A. LESJAK;
RICHARD BAILEY; ENRIQUE
LORES,

             Defendants-Appellees.

      Appeal from the United States District Court
         for the Northern District of California
       Jeffrey S. White, District Judge, Presiding

        Argued and Submitted February 6, 2023
              San Francisco, California

                 Filed April 11, 2023
2                     YORK COUNTY V. HP, INC.

     Before: Jay S. Bybee and Patrick J. Bumatay, Circuit
       Judges, and Richard D. Bennett, * District Judge.

                    Opinion by Judge Bybee

                          SUMMARY **

                         Securities Fraud

    The panel reversed the district court’s dismissal, as time-
barred, of a securities fraud action brought against HP Inc.
and remanded for further proceedings.
    Lead plaintiff Maryland Electrical Industry Pension
Fund alleged that HP and individual defendants made
fraudulent statements about HP’s printing supplies
business. The district court concluded that the complaint,
filed in 2020, was barred by the two-year statute of
limitations, 28 U.S.C. § 1658(b)(1), because the public
statements, loss in profits, and reductions in channel
inventory at the heart of Maryland Electrical’s claims had all
taken place by 2016.
    Adopting the reasoning of the Second Circuit, the panel
held that, under the discovery rule discussed in Merck & Co.,
Inc. v. Reynolds, 559 U.S. 633 (2010), a reasonably diligent
plaintiff has not “discovered” one of the facts constituting a
securities fraud violation until he can plead that fact with

*
 The Honorable Richard D. Bennett, United States District Judge for the
District of Maryland, sitting by designation.
**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                    YORK COUNTY V. HP, INC.                   3

sufficient detail and particularity to survive a motion to
dismiss for failure to state a claim. The panel held that a
defendant establishes that a complaint is time-barred under
§ 1658(b)(1) if it conclusively shows that either (1) the
plaintiff could have pleaded an adequate complaint based on
facts discovered prior to the critical date two years before the
complaint was filed and failed to do so, or (2) the complaint
does not include any facts necessary to plead an adequate
complaint that were discovered following the critical date.
    The panel held that defendants’ allegedly fraudulent
statements, on their own, were insufficient to start the clock
on the statute of limitations. Instead, Maryland Electrical
could not have discovered the facts necessary to plead its
claims, including the “fact” of scienter, until after the
publication of a Securities and Exchange Commission order
in 2020. Accordingly, the complaint was timely.

                         COUNSEL

Steven F. Hubachek (argued), Darryl J. Alvarado, Rachel A.
Cocalis, and Darren J. Robbins, Robbins Geller Rudman &
Dowd LLP, San Diego, California, for Plaintiffs-Appellants.
Brian M. Lutz (argued), Michael J. Kahn, and Macey L.
Olave, Gibson Dunn & Crutcher LLP, San Francisco,
California; Steven M. Schatz (argued), Wilson Sonsini
Goodrich & Rosati, Palo Alto, California; Sara B. Brody,
Sidley Austin LLP, San Francisco, California; Robin
Wechkin, Sidley Austin LLP, Issaquah, Washington; Lissa
M. Percopo and Andrew D. Ferguson, Gibson Dunn &
Crutcher LLP, Washington, D.C.; Katherine L. Henderson,
Wilson Sonsini Goodrich & Rosati, San Francisco,
California; for Defendants-Appellees.
4                      YORK COUNTY V. HP, INC.

                              OPINION

BYBEE, Circuit Judge:

    Plaintiffs alleging securities fraud must bring their
claims within “2 years after the discovery of the facts” that
give rise to their complaint. 28 U.S.C. § 1658(b)(1). In this
case, the district court held that Appellant Maryland
Electrical failed to meet this timeline because its claim arose
from allegedly fraudulent statements that were published
roughly five years before it filed its complaint. We disagree;
the allegedly fraudulent statements, on their own, were
insufficient to start the clock on the statute of limitations.
Instead, we conclude that Maryland Electrical could not
have discovered the facts necessary to plead its claims until
after the publication of a Securities and Exchange
Commission (“SEC”) order in 2020. As a result, we hold
that Maryland Electrical’s complaint was timely under
§ 1658(b)(1), and we reverse and remand.
                        I. BACKGROUND
A. Factual History
    In November 2015, the Hewlett-Packard Company split
into two entities: Appellee HP Inc. (“HP”) and Hewlett
Packard Enterprise. 1    HP kept the Hewlett-Packard
Company’s consumer electronics and printing business,

1
  These facts are drawn from the complaints filed in this action by
Maryland Electrical, the lead plaintiff, and York County, the original
plaintiff. We have also relied on facts in a cease-and-desist order issued
by the Securities and Exchange Commission and referred to in the
complaints. For purposes of this appeal, we must accept as true the facts
alleged in the complaint. See Bafford v. Northrop Grumman Corp., 994
F.3d 1020, 1025 (9th Cir. 2021).
                   YORK COUNTY V. HP, INC.                   5

whereas Hewlett Packard Enterprise retained the Hewlett-
Packard      Company’s       corporate-facing     technology
infrastructure and services business. The heart of the newly-
formed HP—and the source of most of its profits—is its
printing supplies business. Generally, HP sells its printers at
a loss, which it recovers over time through sale of printing
supplies like toner and ink cartridges.
    During the period relevant to this case, HP sold its
supplies through a “push model.” Under this model, HP
offered incentives to “Tier 1” distributors to purchase
printing supplies. Those Tier 1 distributors, in turn, sold to
“Tier 2” distributors who sold HP products to other resellers
or to end users.
    To measure its channel inventory—the total inventory
that HP and its distributors had in stock—HP created a
metric called Weeks of Supply (“WOS”). WOS measured
how many weeks HP could supply its products if sales
continued at the same pace as that of prior weeks. HP
calculated WOS by dividing its Tier 1 inventory by the
average number of units sold in previous weeks. Tier 2
inventory was excluded from HP’s WOS calculations.
    HP set target ranges for WOS and pressed regional
managers to stay below the upper end of those ranges.
Because WOS excluded Tier 2 inventory, sales managers
could reduce their WOS number by facilitating the sale of
inventory from Tier 1 distributors to Tier 2 distributors. By
doing so, managers could boast a WOS below the target
ceiling even if channel inventory as a whole was increasing.
    To shift more inventory from Tier 1 to Tier 2, sales
managers engaged in two practices: gray marketing and
pull-ins. Gray marketing involved selling supplies to a
distributor who would then sell those supplies outside of its
6                  YORK COUNTY V. HP, INC.

assigned territory. These sales, offered at a discount,
“cannibaliz[ed]” sales from local distributors, who would
have to lower prices to compete with marked-down goods
from other territories. Pull-ins, also known as accelerations,
were steep discounts offered by HP to encourage distributors
to take additional shipments in a given quarter. These pull-
ins left Tier 2 and other downstream distributors with a full
inventory at the beginning of the following quarter, deflating
sales and creating the expectation that HP would offer
discounts again later in the quarter. Together, these practices
allowed HP to reach quarterly sales targets to the detriment
of overall profits.
    HP did not disclose these practices to investors. Nor did
HP disclose its WOS data, WOS targets, or how it calculated
WOS. Instead, during calls with investors, HP would merely
state whether it was within or above its target WOS ranges.
As the SEC explained, because “HP did not report to the
market Tier 2 channel inventory[,] . . . disclosures about the
company’s position relative to its channel inventory ceiling
only told part of the story regarding HP’s channel health.”
    The SEC discovered these practices following a years-
long investigation into HP. As a result of the investigation,
the SEC issued an order (“SEC Order”) instituting cease-
and-desist proceedings against HP. Issued at the end of
September 2020, the SEC Order accepted a settlement offer
from HP, with HP agreeing to pay a $6 million fine without
admitting or denying the allegations contained in the order.
Chief among those allegations was that, “[b]etween
November 2015 and June 2016, HP’s disclosures regarding
channel inventory and gross margin omitted material
information . . . causing HP’s disclosures to be incomplete
and misleading.” Specifically, the SEC highlighted HP’s
failure to disclose the effects of its gray marketing and pull-
                   YORK COUNTY V. HP, INC.                 7

in practices. The SEC Order also faulted HP for its use of
the term “channel inventory” in conjunction with its WOS
metric, finding that this usage implied that WOS “included
all of HP’s channel inventory and was a measure of HP’s
overall channel health,” when, in reality, HP “included only
its Tier 1 channel inventory.” The SEC called “HP’s channel
inventory disclosures . . . materially misleading.”
B. Procedural History
    On November 5, 2020, within six weeks of the issuance
of the SEC Order, York County, a retirement fund and
purchaser of HP stock, filed a class complaint against the
Appellees, HP and a handful of its executives (jointly,
“HP”). The complaint alleged that HP’s trade practices
violated § 10(b) of the Securities Exchange Act of 1934, 15
U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-
5. The complaint also alleged that the executive defendants
violated § 20(a) of the Securities Exchange Act, 15 U.S.C. §
78t(a). These violations, the complaint alleged, injured
those who purchased HP common stock from November 6,
2015 to June 2, 2016, the class period.
    York County filed its complaint as a class action under
the Private Securities Litigation Reform Act (“PSLRA”).
The PSLRA tasks the district court with designating a lead
plaintiff. 15 U.S.C. § 78u-4(a)(3)(B). Initially, York County
sought designation as lead plaintiff. However, in January
2021, Maryland Electrical moved for appointment as lead
plaintiff, which the district court granted the following
month. Maryland Electrical filed a complaint consolidating
class claims on April 21, 2021.
   HP moved to dismiss on procedural and substantive
grounds.      Procedurally, HP claimed that Maryland
Electrical’s claims were time-barred by the two-year statute
8                  YORK COUNTY V. HP, INC.

of limitations, 28 U.S.C. § 1658(b)(1), and the five-year
statute of repose, id. § 1658(b)(2). On the merits, HP moved
to dismiss the complaint for failing to plead the elements
necessary to its claim with the particularity required by the
PSLRA and Federal Rule of Civil Procedure 9(b).
    The district court granted the motion to dismiss as time-
barred under the statute of limitations. That statute of
limitations required Maryland Electrical to bring its
complaint within “2 years after the discovery of the facts
constituting the violation[s]” that form the basis of its
securities claims. 28 U.S.C. § 1658(b)(1). The district court
found that the public statements, loss in profits, and
reductions in channel inventory at the heart of Maryland
Electrical’s claims had all taken place by 2016. Thus, the
district court reasoned, if Maryland Electrical was a
reasonably diligent plaintiff, it would have discovered the
operative facts of its complaint in 2016, more than four years
before it filed its complaint and far beyond the two-year
statute of limitations. The district court did not address HP’s
arguments under the statute of repose or Rule 9(b).
    After the district court explained that it was granting the
motion to dismiss on statute of limitations grounds, the
district court observed in a footnote that HP made some of
the statements at issue after Maryland Electrical had sold its
shares of HP stock. Reasoning that a plaintiff cannot be
harmed by misrepresentations that did not induce the
purchase or sale of stock, the district court stated that
Maryland Electrical lacked standing to assert claims for
misrepresentations that occurred after it sold that last of its
HP stock. See Shurkin v. Golden State Vintners, Inc., 471 F.
Supp. 2d 998, 1024 (N.D. Cal. 2006); ER 13.
                   YORK COUNTY V. HP, INC.                   9

  II. JURISDICTION AND STANDARD OF REVIEW
        The district court had jurisdiction under 28 U.S.C. §
1331. We have jurisdiction under 28 U.S.C. § 1291. We
review a district court’s dismissal of a claim on statute of
limitations grounds de novo. Sharkey v. O’Neal, 778 F.3d
767, 770 (9th Cir. 2015).
                     III. DISCUSSION
A. Overview of the Discovery Rule
    The statute of limitations at issue is contained in 28
U.S.C. § 1658(b)(1). It provides that private actions alleging
securities fraud must be brought no more than “2 years after
the discovery of the facts constituting the violation” of
securities laws. The Supreme Court discussed § 1658(b)(1)
at length in Merck & Co., Inc. v. Reynolds, 559 U.S. 633
(2010). The facts in Merck are not necessary to understand
its holding and application to this case. Three points from
Merck are important here.
    First, Merck reasoned that, by using the word
“discovery” in § 1658(b)(1), Congress evinced an intent to
incorporate a “discovery rule” into the statute. Id. at 646. In
the context of fraud, a discovery rule recognizes that “a
defendant’s deceptive conduct may prevent a plaintiff from
even knowing that he or she has been defrauded.” Id. at 644.
Thus, a discovery rule means that a claim does not accrue
until “the litigant first knows or with due diligence should
know facts that will form the basis for an action.” Id.
(quotation and emphasis omitted). The Court concluded that
“‘discovery’ as used in [§ 1658(b)(1)] encompasses not only
those facts the plaintiff actually knew, but also those facts a
reasonably diligent plaintiff would have known.” Id. at 648.
10                 YORK COUNTY V. HP, INC.

    Second, Merck held that the statute of limitations in §
1658(b)(1) does not begin to run until after the plaintiff has
discovered “the facts constituting the violation” and that
includes the “‘fact’ of scienter.” Id. (quoting 28 U.S.C. §
1658(b)(1)). To rule otherwise would “frustrate the very
purpose of the discovery rule” by allowing a defendant to
avoid liability upon “conceal[ing] for two years that he made
a misstatement with an intent to deceive.” Id. at 649.
    And third, Merck distinguished between the discovery
rule and inquiry notice. Under an inquiry notice system, a
claim begins to accrue once “a plaintiff possesses a quantum
of information sufficiently suggestive of wrongdoing that he
should conduct a further inquiry.” Id. at 650 (internal
quotation marks omitted). But the point at which a plaintiff
knows enough to investigate “is not necessarily the point at
which the plaintiff would already have discovered the facts
showing scienter.” If inquiry notice triggered the limitations
period, the period might run “before ‘discovery’ can take
place.” Id. at 651. The Court rejected this approach, finding
the inquiry notice rule incompatible with the statutory
language that accrual of a claim begins after discovery. Id.
    Following Merck, the Second Circuit observed that
Merck left unresolved the question of “how much
information” a reasonable investor must have about the facts
of a securities violation “before it is deemed ‘discovered’ for
purposes of commencing the statute of limitations.” City of
Pontiac Gen. Employees’ Ret. Sys. v. MBIA, Inc., 637 F.3d
169, 174 (2d Cir. 2011). As the Second Circuit queried,
“Are the facts ‘discovered’ when a reasonable investor
would suspect a violation,” or “[w]hen the reasonable
investor would become absolutely convinced that the
violation occurred,” or perhaps “[w]hen the reasonable
investor could prove in a courtroom that the violation
                    YORK COUNTY V. HP, INC.                   11

occurred?” Id. Taking cues from Merck’s reference to
pleading requirements and the “basic purpose of a statute of
limitations,” the Second Circuit held “that a fact is not
deemed ‘discovered’ until a reasonably diligent plaintiff
would have sufficient information about that fact to
adequately plead it in a complaint.” Id. at 175; see also
Merck, 559 U.S. at 649 (a § 10(b) claim is not discovered
until the “plaintiff can set forth facts in the complaint
showing that it is ‘at least as likely as’ not that the defendant
acted with the relevant knowledge or intent” (quoting
Tellabs Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 328
(2007)). The Third Circuit, as well as district courts within
our circuit, have adopted this same standard. See, e.g.,
Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Sec.
Transactions, Inc., 730 F.3d 263, 275 (3d Cir. 2013);
Rieckborn v. Jefferies LLC, 81 F. Supp. 3d 902, 915 (N.D.
Cal. 2015); Stichting Pensioenfonds ABP v. Countrywide
Fin. Corp., 802 F. Supp. 2d 1125, 1135 (C.D. Cal. 2011);
Orbis Glob. Equity Fund Ltd. v. NortonLifelock Inc., No.
CV-21-01995, 2023 WL 1800963, at *5–6 (D. Ariz. Feb. 7,
2023). Although we have recognized the impact of Merck,
we have not had occasion to address these questions. See
Strategic Diversity, Inc. V. Alchemix Corp., 666 F.3d 1197,
1206 (9th Cir. 2012); Betz v. Trainer Wortham & Co., Inc.,
610 F.3d 1169, 1171 (9th Cir. 2010). The parties advocate
for different applications of the MBIA standard to the facts
before us, but neither disputes the correctness of MBIA itself.
    We agree with the Second Circuit’s analysis in MBIA
and adopt its reasoning. Accordingly, we hold that a
“reasonably diligent plaintiff has not ‘discovered’ one of the
facts constituting a securities fraud violation until he can
plead that fact with sufficient detail and particularity to
12                     YORK COUNTY V. HP, INC.

survive a 12(b)(6) motion to dismiss.” MBIA, 637 F.3d at
175.
B. Discovery Rule at the Motion to Dismiss
     We now turn to the question of what a defendant must
show at the motion-to-dismiss stage to show that a claim is
untimely under § 1658(b)(1). Maryland Electrical argues
that dismissal under § 1658(b)(1) is only appropriate when
the defendant can “conclusively show” that the plaintiff had
discovered its claim more than two years before filing its
initial complaint. See Drew v. Equifax Info. Servs., LLC, 690
F.3d 1100, 1111 (9th Cir. 2012). To meet this burden, the
defendant would have to show the precise date that the
plaintiff learned of the facts necessary to support its claim.
Otherwise, the defendant cannot show that the plaintiff has
discovered its claim, and, consequently, that the statute of
limitations started to run. Because the district court did not
identify such a date, Maryland Electrical asks that we
remand to the district court to do so.
     We find Maryland Electrical’s reading of § 1658(b)(1)
overly rigid. See, e.g., Merck, 559 U.S. at 653–54 (rejecting
a statute of limitations defense without determining a precise
date when the plaintiffs “discovered” the facts necessary to
their claim). We think that Merck provides a better measure.
There, to evaluate whether the plaintiffs’ complaint was
time-barred, the Court first identified what it called “the
critical date,” or the date “two years before th[e] complaint
was filed.” Merck, 559 U.S. at 638. Next, the Court
determined which facts 2 the complaint alleged occurred

2
  The Court also took into account the timing of events that permitted
discovery of other facts. See id. at 641–42 (describing the publication of
                      YORK COUNTY V. HP, INC.                        13

before and after that date. Id. at 638–44. And finally, after
laying some legal groundwork, id. at 644–53, the Court
asked whether “the facts constituting the violation” were
discoverable prior to the critical date, id. at 653–54. In sum,
rather than determine exactly when the plaintiffs discovered
the facts necessary to plead their complaint, the Court
evaluated whether events preceding the critical date were
sufficient to allege “the facts constituting the violation.” 28
U.S.C. § 1658(b)(1). See 559 U.S. at 654 (holding that
because no event preceding the critical date constituted
“discovery” of facts necessary to bring the complaint, the
plaintiffs’ suit was timely).
    The Merck approach aligns with bedrock pleading
principles. Those principles permit the dismissal of a claim
under § 1658(b)(1) without selecting a precise date of
discovery. Though “ordinarily, affirmative defenses may
not be raised on a motion to dismiss,” we may “consider an
affirmative defense on a motion to dismiss when there is
some obvious bar to securing relief on the face of the
complaint.” U.S. Commodity Futures Trading Comm’n v.
Monex Credit Co., 931 F.3d 966, 972–73 (9th Cir. 2019)
(cleaned up and internal quotation marks omitted). “In other
words, dismissal based on an affirmative defense is
permitted when the complaint establishes the defense.” Id.
A complaint that pleads a securities fraud claim based only
on conduct discovered more than two years prior to the filing
of the complaint necessarily establishes a § 1658(b)(1)
statute of limitations defense. See Zarecor v. Morgan
Keegan & Co., Inc., 801 F.3d 882, 887 (8th Cir. 2015)
(declining to “pinpoint exactly when a reasonably diligent

articles in the Wall Street Journal that permitted discovery of possible
wrongdoing as “important events that occurred after the critical date”).
14                      YORK COUNTY V. HP, INC.

plaintiff would have discovered ‘the facts constituting the
violation’” when it was clear from the complaint that the
plaintiffs had done so more than two years before bringing
suit); FirstBank Puerto Rico, Inc. v. La Vida Merger Sub,
Inc., 638 F.3d 37, 40 (1st Cir. 2011) (“As Firstbank’s own
allegations leave no doubt that its suit is time-barred, the
judgment of dismissal is affirmed.”). Thus, a defendant
establishes that a complaint is time-barred under §
1658(b)(1) if it conclusively shows that either (1) the
plaintiff could have pleaded an adequate complaint based on
facts discovered prior to the critical date and failed to do so,
or (2) the complaint does not include any facts necessary to
plead an adequate complaint that were discovered following
the critical date.
C. Whether Maryland Electrical’s Claim Is Barred by §
   1658(b)(1)
     Maryland Electrical filed its complaint on April 21,
2021, making April 21, 2019 the critical date for our
inquiry. 3 If Maryland Electrical knew or reasonably could
have known of the elements of its claim before this critical
date, its claim is untimely under § 1658(b)(1). On the other
hand, if any element of the claim was discovered after the
critical date, then the claim is timely.
    As the Court did in Merck, 559 U.S. at 638–44, we divide
the facts alleged to have occurred before the critical date and
those alleged to have occurred after it. The complaint

3
  In its briefing, Maryland Electrical contends that the relevant filing date
is when York County—not Maryland Electrical—filed its complaint.
Though this question is vital to determining whether the complaint is
barred by the statute of repose, we need not answer it here because both
filing dates are within two years of the date the SEC Order was issued.
                     YORK COUNTY V. HP, INC.                    15

alleges that HP made all the false statements and
misrepresentations at issue between November 2015 and
July 2016, well before the critical date. In September 2020,
after the critical date of April 2019, the SEC issued its order
instituting cease and desist proceedings against HP.
    According to Maryland Electrical, the SEC Order put
HP’s prior statements in a new context, revealing that
ostensibly innocuous statements were actually intentional
misrepresentations. Simply put, Maryland Electrical claims
that it did not have information to plead scienter until after
the SEC Order was issued. Thus, according to Maryland
Electrical, it did not “discover[] . . . the facts constituting the
violation” until after the critical date. 28 U.S.C. §
1658(b)(1).
     In its order dismissing Maryland Electrical’s complaint,
the district court gave only passing mention to the SEC
Order. Rather than discuss the effect of the SEC Order, the
district court focused on HP’s conduct that preceded the
critical date. This misses Maryland Electrical’s real
argument—that its claim was not “discovered” until the
issuance of the SEC Order provided sufficient evidence of
scienter.
    Because Maryland Electrical has pleaded facts that post-
date the critical date, HP has two ways to show that
Maryland Electrical’s claim is barred by § 1658(b)(1). First,
HP can show that Maryland Electrical could have pleaded its
claim based solely on things that it knew or should have
known prior to the critical date. See Merck, 559 U.S. at 653–
54. Or, in the alternative, HP can show that the SEC Order
provided no information necessary to Maryland Electrical’s
claim.
16                  YORK COUNTY V. HP, INC.

     HP does not really attempt the first approach—showing
that Maryland Electrical had the facts necessary to plead its
claims prior to the critical date. Rather, like the district court
opinion, HP recites statements preceding the critical date
that Maryland Electrical claims were false or misleading.
But out of context, these statements are innocuous. For
example, one set of statements involve HP executives telling
investors that they monitored Tier 1 and Tier 2 channel
inventory levels and that those levels fell within target WOS
ranges. Without additional information, these statements
seem like standard assurances to shareholders; they could
not form the basis of a claim for securities fraud. It is only
after learning that Tier 2 channel inventory was excluded
from HP’s WOS calculations that the misleading nature of
these statements comes into view. It was the SEC Order that
revealed the extent of HP’s use of gray marketing and pull-
ins and that HP had “omitted material information regarding
the impact of [these] practices on [the WOS] metrics,
causing HP’s disclosures to be incomplete and misleading.”
HP does not explain how Maryland Electrical could have
known of these allegedly fraudulent practices prior to the
critical date. Nor does HP explain how Maryland Electrical
could have pleaded scienter without discovering these
practices. Thus, HP has failed to show that Maryland
Electrical could have pleaded an adequate complaint prior to
the critical date.
    For the same reasons, HP fails to show that the SEC
Order did not provide information necessary for Maryland
Electrical to plead an adequate complaint. HP claims that
the SEC Order actually undermines Maryland Electrical’s
complaint because it alleges only non-fraud violations and
did not find any executives acted with scienter. But the
SEC’s decision not to charge a defendant with fraud does not
                   YORK COUNTY V. HP, INC.                  17

“hurt[]” a plaintiff’s “ability to plead a strong inference of
scienter.” In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d
694, 707 n.5 (9th Cir. 2012) (internal quotation marks
omitted). The order claims that HP disclosed information
about its supply channel health that contradicted its own
internal data. The disclosure of information that contradicts
internal data creates a “strong inference” that HP
“knowingly misled” the public as to the state of the
company. Reese v. Malone, 747 F.3d 557, 572 (9th Cir.
2014), overruled on other grounds by City of Dearborn
Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
856 F.3d 605 (9th Cir. 2017) (en banc) (internal quotation
marks omitted). Although other information in the SEC
Order could suggest that HP executives lacked scienter, such
facts are irrelevant at this stage, where we must accept
Maryland Electrical’s allegations as true. See Verifone, 704
F.3d at 707 n.5; see also Tellabs, 551 U.S. at 524 (“The
inference that the defendant acted with scienter need not be
irrefutable . . . or even the most plausible of competing
inferences.” (internal quotation marks omitted)). What
matters is that Maryland Electrical has plausibly alleged that
the SEC Order provided facts and context without which it
could not have otherwise pleaded scienter.
    We conclude that HP has failed to meet its burden to
show that Maryland Electrical discovered the facts
constituting its claims more than two years prior to the filing
of its complaint. Thus, the district court erred in dismissing
Maryland Electrical’s complaint on statute of limitations
grounds.
18                    YORK COUNTY V. HP, INC.

                                  ***
     We decline to rule on Maryland Electrical’s standing as
lead plaintiff, 4 the statute of repose or the adequacy of
Maryland Electrical’s complaint. See Planned Parenthood
of Greater Wash. and N. Idaho v. U.S. Dep’t of Health &
Hum. Servs., 946 F.3d 1100, 1111 (9th Cir. 2020) (“In
general, an appellate court does not decide issues that the
trial court did not decide.”). We express no opinion on those
issues and leave them for the district court to address in the
first instance.
                       IV. CONCLUSION
   For the foregoing reasons, we reverse the district court
order and remand for further proceedings consistent with this
opinion.
     REVERSED and REMANDED.

4
  In a footnote, the district court stated that Maryland Electrical lacks
standing to challenge statements that HP made after Maryland Electrical
had sold its HP shares. But because this footnote followed the district
court’s dismissal of Maryland Electrical’s entire complaint, the footnote
did not have the effect of dismissing any claims. We therefore consider
the footnote “mere dicta.” United States v. Charette, 893 F.3d 1169,
1174 (9th Cir. 2018) (quoting United States v. Henderson, 961 F.2d 880,
882 (9th Cir. 1992)).