Court Opinion

ID: 218306
Source: CourtListenerOpinion
Date Created: 2011-06-08 00:01:57+00
Date Added: 2024-06-11T17:28:35.739205
License: Public Domain

FILED
                            NOT FOR PUBLICATION                              JUN 07 2011

                                                                        MOLLY C. DWYER, CLERK
                   UNITED STATES COURT OF APPEALS                         U .S. C O U R T OF APPE ALS

                           FOR THE NINTH CIRCUIT

QUANTUM TECHNOLOGY                               No. 10-35162
PARTNERS II, L.P., a Delaware limited
partnership,                                     D.C. No. 3:08-cv-00376-BR

              Plaintiff - Appellant,
                                                 MEMORANDUM *
  v.

ALTMAN BROWNING AND
COMPANY, an Oregon corporation;
BAKER GROUP LLP; KAY E.
ALTMAN, an individual; MICHAEL J.
BAKER, an individual; DAVID M.
BROWNING, an individual; DOES, 1
through 20; APEX DRIVE
LABORATORIES, INC., nominal
defendant, a Delaware corporation,

              Defendants - Appellees.

                    Appeal from the United States District Court
                             for the District of Oregon
                     Anna J. Brown, District Judge, Presiding

                         Argued and Submitted May 3, 2011
                                 Portland, Oregon

Before:       KOZINSKI, Chief Judge, TASHIMA and IKUTA, Circuit Judges.

          *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                                                                               page 2

      1. There is complete diversity between the parties. See Johnson v. Columbia

Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006).

      2. While the bylaws of a Delaware corporation “are a contract between the

corporation and its stockholders,” Kidsco Inc. v. Dinsmore, 674 A.2d 483, 492

(Del. 1995), Quantum didn’t cite any authority holding that shareholders can sue

each other for breach of such bylaws. We conclude they cannot.

      3. Quantum didn’t allege facts showing that the representations about

Altman Browning & Company (ABCo)’s capabilities were false or misleading

when Browning and Baker made them to Dickman. See Yourish v. Cal. Amplifier,

191 F.3d 983, 993 (9th Cir. 1999). The falsity of the statements can’t be inferred

from ABCo’s failure to meet the milestones in the agreement with Apex. See

Commc’ns Grp., Inc. v. GTE Mobilnet of Or., 871 P.2d 502, 504 (Or. Ct. App.

1994); see also In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548–49 (9th Cir.

1994) (en banc).

      4. Dickman’s email to Apex’s largest shareholder, which predicted that

Quantum’s suit would make “Apex’s and possibly [the shareholder’s] fund raising

somewhat radioactive,” causing Apex not to “survive[]” for very long, is strong
                                                                                 page 3

evidence that Quantum’s interests diverged from those of Apex’s other

shareholders. See Emerald Partners v. Berlin, 564 A.2d 670, 673–74 (Del. Ch.

1989). The district court didn’t abuse its discretion in finding that Quantum wasn’t

an adequate shareholder representative. See Fed. R. Civ. P. 23.1.

      5. Quantum can’t claim demand futility because it made demand on Apex’s

board of directors. See Spiegel v. Buntrock, 571 A.2d 767, 775 (Del. 1990).

Apex’s Special Investigation Committee (SIC), which had “sole authority” to

investigate Quantum’s allegations, concluded that the “ultimate outcome” of the

challenged board actions “was fair to [Apex],” and that “the diversion of resources

to pursue litigation . . . would surely cripple [Apex].” (Emphasis added.) This

conclusion isn’t subject to judicial review, id. at 778, and Quantum hasn’t alleged

facts indicating that the SIC’s investigation was deficient, see Grimes v. DSC

Commc’ns Corp., 724 A.2d 561, 565 (Del. Ch. 1998); see also Levine v. Smith, 591

A.2d 194, 214 (Del. 1991), overruled on other grounds by Brehm v. Eisner, 746

A.2d 244, 253–54 (Del. 2000).

      AFFIRMED.