Court Opinion

ID: 6948671
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:28:37.225368+00
Date Added: 2024-06-11T16:08:00.389166
License: Public Domain

HAWKINS, Circuit Judge,
Concurring in Part and Dissenting in Part:
I concur in Parts II (Halotron) and III (Cross-Appeal) of the majority, but regret that I cannot embrace the affirmance of the grant of summary judgment to AmPac on the Thiokol claim.
While officials of AmPac were telling the investing public that the company was “insulated from competition” because of Thiokol’s obligation to purchase its product, AmPac insiders sold off approximately $11 million worth of stock. When the investing public learned what the insiders already knew— that Thiokol believed it would be free of the obligation upon AmPac’s prepayment of the Security Pacific obligation — AmPac’s stock plummeted in value. There may be a perfectly reasonable explanation for these events, but no jury ever heard it. The materiality of such actions, so closely related to the integrity of AmPac’s omissions, is simply inappropriate for resolution by summary judgment.
To succeed on the Thiokol claim, the plaintiff needed to demonstrate a “material” omission or misrepresentation. Gray v. First Winthrop Corp., 82 F.3d 877, 884 (9th Cir. 1996) (elements of Rule 10b-5 claim); Kaplan v. Rose, 49 F.3d 1363, 1371 (9th Cir.1994) (elements of § 77k claim). “It is a violation of the securities law to omit to state a material fact if it is ‘necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.’ ” Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir.1980) (quoting 17 C.F.R. § 240.10b-5(b) (1979); 15 U.S.C. § 78n(c)).
The district court granted summary judgment to AmPac with respect to the Thiokol claim on the ground that AmPac’s failure to disclose the Thiokol dispute did not constitute an omission of material fact. It is difficult to imagine a more fact intensive issue than materiality. Indeed, our prior eases teach us that it is an issue which should ordinarily be left to the trier of fact. See, e.g., Basic, Inc. v. Levinson, 485 U.S. 224, 239-40, 108 S.Ct. 978, 987-88, 99 L.Ed.2d 194 (1988); Kaplan, 49 F.3d at 1381; Schneider v. Vennard (In re Apple Computer Sec. Litig.), 886 F.2d 1109, 1113 (9th Cir.1989).
Summary judgment on the grounds that the alleged misstatements were not material is appropriate “only if the adequacy of the disclosure or the materiality of the statement is ‘so obvious that reasonable minds [could] not differ.’ ” Fecht v. The Price Company, 70 F.3d 1078, 1081 (9th Cir.1995) (quoting Durning v. First Boston Corp., 815 F.2d 1265, 1268 (9th Cir.1987)).
*905Abromson opposed summary judgment by arguing that AmPac’s positive statements about the Thiokol contracts were rendered materially misleading by two developments: (1) the government’s desire to force early repayment of the loan; and (2) the parties’ disagreement regarding the effect of an early repayment on Thiokol’s contractual obligations to AmPae. The majority dismisses Abromson’s contention, emphasizing that AmPac would not “foolishly” risk financial loss by prepaying the loan to Security Pacific. This ignores that there was a real live dispute as to whether NASA and/or Thiokol (in view of all the documents, not just the loan agreement between AmPac and Security Pacific) had the right to compel prepayment by AmPae. Furthermore, at the time that the government, Thiokol, and AmPac were in the midst of contract discussions over the impact of repayment, Thiokol’s announcement that it took the position that prepayment alleviated its purchase obligations, was quickly followed by several senior AmPac executives selling off large blocks of their own stock. One particularly bold executive (who had not previously owned AmPac stock) exercised his stock options and then immediately sold the stock. Cf. S.E.C. v. Texas Gulf Sulphur Co., 401 F.2d 833, 851 (2d Cir.1968) (en banc) (timing of insider trades, including trading by individuals who had not previously owned stock, constitutes “highly pertinent” “truly objective” evidence of materiality); see also Basic, 485 U.S. at 240 n. 18, 108 S.Ct. at 988 n. 18 (citing Texas Gulf Sulphur and acknowledging that insider trading can indicate materiality).
The majority’s conclusion that the Thiokol dispute was so obviously immaterial that it should not reach a jury is belied by the dramatic fall in the per share price of AmPac’s stock on the very day AmPac issued a press release revealing the Thiokol lawsuit. This precipitous drop occurred despite AmPae’s attempts to reassure the public in its press release that there was no agreement to prepay the loan and the parties could not force AmPac to do so. Yet, the majority insists that no reasonable investor would find Thiokol’s position relevant without an agreement by AmPac to prepay the loan.
The standard for materiality (as the majority itself states it) is whether a jury could find a substantial likelihood that a reasonable shareholder would consider it important to know all these matters. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). Because of the fact-specific nature of this inquiry, the standard for summary judgment on the issue of materiality is quite high: summary judgment is inappropriate unless the undisclosed matter is so obviously immaterial that reasonable minds could not differ. Fecht, 70 F.3d at 1081. In other words, the matter need not obviously be material — it is enough to survive summary judgment if reasonable minds might disagree as to materiality.
I believe the district court erred in finding the Thiokol dispute immaterial, especially when AmPac insiders, armed with knowledge the investing public lacked, avoided the very losses that befell ordinary stockholders when Thiokol’s position became publicly known. Public confidence in our securities markets is essential to investor and promoter alike. Perhaps there is a perfectly sensible explanation for the stock activities here, an explanation having nothing to do with what the AmPae insiders knew and the investing public did not. The summary judgment grant on the Thiokol claim, however, not only deprived plaintiffs of their opportunity to have a jury decide the issue, it also meant that AmPac officials could not tell their side of the story and have it tested by time-honored adversarial tools such as cross-examination. Both sides are left with more questions, and questions about their actions, than answers. Summary judgment was never meant to so short-circuit the search for truth and the average person’s day in court. I respectfully dissent from the decision to affirm summary judgment on this issue.