Court Opinion

ID: 3200053
Source: CourtListenerOpinion
Date Created: 2016-05-03 20:01:00.15991+00
Date Added: 2024-06-11T07:39:13.790041
License: Public Domain

FILED
                           NOT FOR PUBLICATION                             MAY 03 2016

                                                                        MOLLY C. DWYER, CLERK
                     UNITED STATES COURT OF APPEALS                      U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

CLIFF MOSCO; et al.,                             No. 13-36029

              Plaintiffs - Appellants,           D.C. No. 2:11-cv-01340-TSZ

LOBEL FAMILY,
                                                 MEMORANDUM*
              Movant - Appellant.,

  And

JOE CALLAN, individually and on behalf
of all others similarly situated,

              Plaintiff,

 v.

MOTRICITY INC; et al.,

              Defendants - Appellees,

  V.

LOBEL FAMILY,

              Movant - Appellant.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                    Appeal from the United States District Court
                      for the Western District of Washington
                  Thomas S. Zilly, Senior District Judge, Presiding

                         Argued and Submitted April 8, 2016
                                Seattle, Washington

Before: HAWKINS, RAWLINSON, and CALLAHAN, Circuit Judges.

      In this consolidated securities class action, Cliff Mosco, Rich Hardy and

Evan S. Lobel (“Plaintiffs”) appeal from two Rule 12(b)(6) orders dismissing their

Second and Third Amended Complaints against Defendants Motricity, Inc.

(“Motricity” or the “Company”) and certain of its officers and directors

(collectively, the “Motricity Defendants”), and the banks who underwrote its Initial

Public Offering (“IPO”) on June 17, 2010. We have jurisdiction under 28 U.S.C. §

1291 and review de novo, accepting all well-pleaded allegations as true. Lloyd v.

CVB Financial Corp., 811 F.3d 1200, 1205 (9th Cir. 2016). We affirm.

      1.     Counts 3 and 4 of the complaints allege that all Defendants violated

§§ 11 and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77o, and Item 303 of

Regulation S-K by preparing and filing a Registration Statement in connection

with Motricity’s IPO that: (1) misrepresented that Motricity’s product provided

access to the “entire” Internet; (2) failed to disclose a dramatic shift in the mobile

industry from carriers to smartphone manufacturers, and the corresponding high

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rate of smartphone adoption in the market; and (3) misrepresented the profitability

of Motricity’s contract with XL Axiata. These strict liability claims arise from the

same unified course of alleged conduct that forms the basis of Plaintiffs’ fraud

claims: Defendants engaged in a scheme to defraud investors by misrepresenting

facts and omitting adverse facts known to them about Motricity’s software product,

thus enabling some of the Company’s principal shareholders to sell over $11

million worth of their own Motricity stock at artificially inflated prices. See

Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct.

1318, 1323 (2015) (§ 11 claims require no proof that defendants act with intent to

deceive or defraud); In re Rigel Pharm., Inc. Secs. Litig., 697 F.3d 869, 885–86

(9th Cir. 2012) (complaint “sounds in fraud” when it alleges and relies on a

“unified course of fraudulent conduct” as the basis of a claim (quoting Rubke v.

Capitol Bancorp Ltd., 551 F.3d 1156, 1161 (9th Cir. 2009)).

      The district court properly dismissed Plaintiffs’ § 11 and Item 303 claims

under Rule 9(b) and the Private Securities Litigation Reform Act, and also under

Rule 8. Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir.

2014). First, the Registration Statement disclosed the very trend that Plaintiffs

claim Motricity hid from the market, adequately warning investors about the

potential market shift from carriers to manufacturers. Second, the Registration

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Statement adequately informed investors that the mCore platform, though capable

of providing broader access to the Internet, was designed to allow carriers to design

and customize mobile data services and Internet access according to each carrier’s

preferences. Third, the Registration Statement made no misrepresentations or

omissions about Motricity’s contract with XL Axiata, which Motricity was entitled

to tout as an example of its expanding international business and scalable platform

without detailing the contract’s terms.

      2.     Counts 1 and 2 of the complaints allege that the Motricity Defendants

violated §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§

78j(b), 78t, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, by

misrepresenting that (1) the mCore product provided access to the entire internet;

(2) the mCore Marketplace products were competitive with smartphone technology

and desirable to smartphone users; and (3) the deployment of Motricity’s software

platform for various Asian carriers was “on track.”

      Plaintiffs fail to show why these claims were false or made with scienter.

See Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804 (2011). The alleged

misrepresentations are forward-looking, too vague to be actionable, or constitute

puffery or fraud by hindsight, none of which are actionable under § 10(b). See

Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th

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Cir. 2014) (forward-looking statements); Or. Pub. Emps., 774 F.3d at 606 (vague

statements of corporate optimism); Newcal Indus., Inc. v. Ikon Office Solution, 513

F.3d 1038, 1053 (9th Cir. 2008) (puffery); Ronconi v. Larkin, 253 F.3d 423, 430

n.12 (9th Cir. 2001) (fraud by hindsight). Individually, Plaintiffs’ allegations do

not create a strong inference of scienter. See N.M. State Inv. Council v. Ernst &

Young, LLP, 641 F.3d 1089, 1095 (9th Cir. 2011) (citing Zucco Partners, LLC v.

Digimarc Corp., 552 F.3d 981, 991–92 (9th Cir. 2009)). Although Plaintiffs claim

that scienter should be inferred from certain stock trades by senior executives of

the Company, as alleged in the complaints these trades are not suspicious. See,

e.g., In re Silicon Graphics Secs. Litig., 183 F.3d 970, 986 (9th Cir. 1999). Nor is

scienter established by the confidential witnesses who simply corroborated the

disclosure that Motricity’s carrier customers could use the software it provided to

limit subscriber access to the Internet. Viewed holistically, Plaintiffs’ scienter

allegations demonstrate that Motricity entered the market expecting to excel in the

face of known trends but experienced setbacks that eventually led to significant

losses. The sum of these innocent inferences far outweighs an inference of

fraudulent intent. Zucco Partners, 552 F.3d at 991–92.

      AFFIRMED.

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