NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
JAN 08 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
In re: FINISAR CORPORATION No. 13-17199
SECURITIES LITIGATION,
D.C. No. 5:11-cv-01252-EJD
OKLAHOMA FIREFIGHTERS
PENSION AND RETIREMENT MEMORANDUM*
SYSTEM,
Plaintiff - Appellant,
v.
FINISAR CORPORATION; JERRY S.
RAWLS; EITAN GERTEL; KURT
ADZEMA,
Defendants - Appellees.
Appeal from the United States District Court
for the Northern District of California
Edward J. Davila, District Judge, Presiding
Argued and Submitted December 10, 2015
San Francisco, California
Before: GRABER, WARDLAW, and MURGUIA, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Oklahoma Firefighters Pension & Retirement System (“plaintiff”) appeals
the district court’s dismissal of its putative class action brought under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against
Finisar Corporation (“Finisar”), Eitan Gertel, Jerry S. Rawls, and Kurt Adzema
(“defendants”). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we review
the district court’s order de novo. Police Ret. Sys. of St. Louis v. Intuitive Surgical,
Inc., 759 F.3d 1051, 1057 (9th Cir. 2014). For the following reasons, we reverse
and remand for further proceedings.
Plaintiff alleged that, between September 8, 2010, and March 8, 2011,
defendants made statements denying that they knew that Finisar’s customers were
building inventory beyond actual production demand. The First Amended
Complaint alleged that these denials were materially false and misleading because,
during annual contract negotiations between defendants and Finisar’s customers,
customers would have discussed inventory levels and defendants would have
learned that customers were stockpiling inventory. The district court granted
defendants’ motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for
failure to adequately plead falsity.
We conclude, however, that plaintiff adequately pleaded falsity even under
the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and
2
the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-
4(b)(1). “To plead falsity, the complaint must ‘specify each statement alleged to
have been misleading, [and] the reason or reasons why the statement is
misleading.’” Reese v. Malone, 747 F.3d 557, 568 (9th Cir. 2014) (alteration in
original) (quoting 15 U.S.C. § 78u-4(b)(1)(B)). The First Amended Complaint
identifies specific statements in which defendants denied their knowledge of an
inventory build-up or otherwise down-played concerns of a looming inventory
bubble.1 And it identifies why those statements were misleading by alleging that
inventory levels would have been disclosed to defendants during the annual
contract negotiations. As a result, the district court erred in dismissing the First
Amended Complaint for failure to plead falsity.
We remand for the district court to consider in the first instance whether the
complaint states a claim under the remaining elements of a private federal
securities fraud action. See Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552
U.S. 148, 157 (2008) (listing elements). On remand, the district court should allow
1
Rawls’s January 11, 2011 and February 10, 2011 statements about the
strength of demand are not actionable, as they amount to corporate puffery. See
Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 606 (9th Cir. 2014)
(recognizing as puffery statements that are not capable of objective verification and
would not induce the reliance of a reasonable investor).
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leave to amend as to scienter in light of our recent discussion of deliberate
recklessness in Reese, 747 F.3d 557.2
REVERSED and REMANDED.
Each party shall bear its own costs on appeal.
2
Reese recognized that a plaintiff adequately pleads scienter if all the facts
alleged, taken collectively, give rise to the strong inference that “the defendant
made false or misleading statements either intentionally or with deliberate
recklessness.” 747 F.3d at 569 (alterations and emphases omitted) (quoting Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009)). “An actor is
deliberately reckless if he had reasonable grounds to believe material facts existed
that were misstated or omitted, but nonetheless failed to obtain and disclose such
facts although he could have done so without extraordinary effort.” Id. (alterations
omitted) (quoting Nursing Home Pension Fund, Local 144 v. Oracle Corp. (In re
Oracle Corp. Sec. Litig.), 627 F.3d 376, 390 (9th Cir. 2010)). However, while
“[f]acts showing mere recklessness or a motive to commit fraud and opportunity to
do so provide some reasonable inference of intent, [they] are not independently
sufficient.” Id.
4