Court Opinion

ID: 4516716
Source: CourtListenerOpinion
Date Created: 2020-03-16 20:00:40.620668+00
Date Added: 2024-06-11T09:14:01.674466
License: Public Domain

NOT FOR PUBLICATION                          FILED
                    UNITED STATES COURT OF APPEALS                       MAR 16 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                            FOR THE NINTH CIRCUIT

DAVID HAMILTON,                                 No.    18-16953

                Plaintiff-Appellant,            D.C. No. 4:15-cv-01890-YGR

  v.
                                                MEMORANDUM*
W. MICHAEL BARNES; et al.,

                Defendants-Appellees.

JAKE HA, derivatively and on behalf of          No.    18-17005
himself and all others similarly situated,
                                                D.C. No. 4:15-cv-04485-YGR
                Plaintiff-Appellant,

  v.

JOHN E. CALDWELL; et al.,

                Defendants-Appellees.

                  Appeal from the United States District Court
                     for the Northern District of California
                Yvonne Gonzalez Rogers, District Judge, Presiding

                      Argued and Submitted February 7, 2020
                            San Francisco, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.

Panel
Before: PAEZ and BEA, Circuit Judges, and ADELMAN,** District Judge.

      David Hamilton (18-16953) and Jake Ha (18-17005) appeal the district

court’s dismissal of their Delaware-law shareholder derivative actions against

Advanced Micro Devices, Inc. (“AMD”) as a nominal party and certain of its

directors and officers (“Defendants”). We assume familiarity with the facts and

procedural history and discuss them only as necessary to explain our decision.1

      “As required by precedent, we review for abuse of discretion the district

court’s ruling dismissing this shareholder derivative suit on the ground of failure to

show demand futility.” Rosenbloom v. Pyott, 765 F.3d 1137, 1147 (9th Cir. 2014)

(citing Potter v. Hughes, 546 F.3d 1051, 1056 (9th Cir. 2008) and In re Silicon

Graphics Inc. Sec. Litig., 183 F.3d 970, 983 (9th Cir. 1999)).2 The district court’s

interpretation of stipulations and contracts are issues of law which we review de

      **
             The Honorable Lynn S. Adelman, United States District Judge for the
Eastern District of Wisconsin, sitting by designation.
1
  We grant Hamilton’s unopposed motions to take judicial notice (Dkt. Nos. 33 and
56), which seek notice of court filings in related lawsuits. See United States ex rel.
Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir.
1992).
2
  Recent Ninth Circuit panels, including Rosenbloom, have questioned whether
abuse of discretion (rather than de novo) review for dismissals of shareholder
derivative suits is appropriate, but declined to take up the issue where it would not
change the case’s outcome. Id. at 1159–60; see also Israni v. Bittman, 473 Fed.
App’x. 548, 550 n.1 (9th Cir. 2012); Laborers Int’l Union of N. Am. v. Bailey, 310
Fed. App’x. 128, 130 n.1 (9th Cir. 2009). Because we would reach the same
conclusions under either standard, we likewise decline to address this issue.

                                          2
novo. United States v. Lawton, 193 F.3d 1087, 1094 (9th Cir. 1999).

      The district court erred when it refused to consider twenty-five paragraphs in

Hamilton’s complaint on the basis that the Hatamian Protective Order prohibited

the use of such material other than in connection with the Hatamian litigation.

Reviewing de novo, we do not see a basis for the Hatamian Protective Order to

express a limitation on Hamilton’s use of the discovery materials. By its own

terms, the Hatamian Protective Order’s restrictions apply only to a “Receiving

Party,” a definition for which Hamilton does not qualify because he is not a “party

to this action.”3 To the extent the Hatamian Protective Order relates to Hamilton,

the only proper way to interpret “this case” or “this litigation” is in reference to

Hamilton’s lawsuit. See In re Dual-Deck Video Cassette Recorder Antitrust Litig.,

10 F.3d 693, 695 (9th Cir. 1993) (“For the protective order to comply with

common sense, a reasonable reading must connect its prohibitions to its purpose.”).

That being so, it was an error of law for the district court to refuse to consider the

allegations in Hamilton’s complaint that were based on information received in the

Hatamian discovery materials. We thus reverse and remand for the district court

to consider the motion to dismiss in light of all of the allegations in Hamilton’s

complaint.

3
  The Hatamian Protective Order defines “Receiving Party” as “a Party that
receives Disclosure or Discovery Material from a Producing Party.” In turn, a
“Party” is defined as “any party to this action.”

                                           3
      The district court correctly dismissed Ha’s complaint for failure to plead

demand futility with sufficient particularity. See Fed. R. Civ. P. 23.1(b)(3)(B);

Wood v. Baum, 953 A.2d 136, 140 (Del. 2008). Ha’s complaint contains almost no

particularized factual allegations related to the directors’ independence, and those

that it does include are either irrelevant or insufficient on their own. It is true that

the directors’ status as non-independent on a company’s proxy statement may be

probative of a demand futility analysis. However, when the plaintiff fails to

“specif[y] the reason for” why the directors “lack independence under [the

applicable stock exchange] rules,” “plaintiffs are [not] entitled to an inference that

[such directors] lack independence for purposes of the fact-specific demand futility

determination.” Sandys v. Pincus, 152 A.3d 124, 136 (Del. 2016) (Valihura, J.,

dissenting).

      Further, it is not sufficient merely to allege various relationships or

memberships of the Defendants—such as membership on the AMD audit

committee, employment at AMD, or directorships at an AMD subsidiary or joint

venture—without providing an explanation as to why such relationships or

memberships create a reasonable doubt of independence for the purposes of

demand futility. See, e.g., Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993) (“[A]

court must determine whether or not the particularized factual allegations of a

derivative stockholder complaint create a reasonable doubt that, as of the time the

                                            4
complaint is filed, the board of directors could have properly exercised its

independent and disinterested business judgment in responding to a demand.”);

Wood, 953 A.2d at 142 (holding “that membership on the Audit Committee is a

sufficient basis to infer the requisite scienter . . . is contrary to well-settled

Delaware law.”). Accordingly, Ha has not sufficiently pleaded demand futility—

even on a de novo standard of review. We therefore affirm the district court’s

dismissal of Ha’s complaint.

       The district court’s dismissal of Hamilton’s complaint is REVERSED and

REMANDED. The district court’s dismissal of Ha’s complaint is AFFIRMED.

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