Unpublished Disposition, 894 F.2d 410 (9th Cir. 1990)

MEMORANDUM^* 

Kenneth Stanford appeals the dismissal of his securities action against his former employer. Stanford contends that his employer breached an employment contract which granted Stanford an option to buy company stock and first refusal rights to purchase the company. The district court held that Stanford's rights under the employment contract were too tenuous to support the requisite "purchase" or "sale" of securities required to state a cause of action under federal law. Our review is de novo. Cantrell v. Great Republic Ins. Co., 873 F.2d 1249, 1251 (9th Cir. 1989). We affirm on an alternative ground that Stanford failed to allege any causal connection between the alleged fraud and the possible purchase or sale of stock. See Marino v. Vasquez, 812 F.2d 499, 508 (9th Cir. 1987) (appellate court may affirm on any ground supported by the record).

Both section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, require that actionable fraud be "in connection with" the purchase or sale of securities. In re Financial Corp. of Am. Shareholder Litig., 796 F.2d 1126, 1129-1130 (9th Cir. 1986). Federal law thus "requires that a certain relationship be established between the fraud and the transaction that resulted in the injury complained of." Id. at 1130.

The purported fraud in this case revolves not around the purchase or sale of a security but rather around the employer's alleged failure to honor the terms of the employment contract. Stanford has neither alleged nor shown any causal connection between the employer's putative fraud and the purchase or sale of any security. See id. at 1130-31; see also Hunt v. Robinson, 852 F.2d 786, 787 (4th Cir. 1988) (breach of employment contract involving nondelivery of company stock did not state federal securities claim). In other words, the alleged fraud in this case is in no way related to the value of the security; it simply relates to the failure to transfer the security. It is just like the failure to transfer any other asset. Thus, it is not related to the purposes of the Act, although it may spell out a common law claim. We affirm on this ground.

Stanford concedes on appeal that he has no private right of action under section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a). See In re Washington Pub. Power Supply Sys. Sec. Litig., 823 F.2d 1349, 1358 (9th Cir. 1987). He nevertheless argues that he has stated a claim under section 12 of the Act, 15 U.S.C. § 771. This possibility was not raised below and accordingly we decline to address it. See In re Southeast Co., 868 F.2d 335, 339 (9th Cir. 1989) (appellate court may decline to reach an issue raised for the first time on appeal).

Because we conclude that the district court did not err in dismissing the federal securities claims, there is no error in its decision to dismiss the pendent state claims as well. See Mace Neufeld Prods., Inc. v. Orion Pictures Corp., 860 F.2d 944, 947 (9th Cir. 1988).

AFFIRMED.