Hildes v. Arthur Andersen LLP, No. 11-56592 (9th Cir. 2013)
Annotate this CasePlaintiff sought to add a claim under Section 11 of the Securities Act of 1933, 15 U.S.C. 77k, against former outside directors of Peregrine. The district court denied leave to amend the complaint, concluding that amendment would be futile because the "negative causation" defense barred plaintiff's proposed claim. The court concluded that Section 11 imposed broad liability without regard to reliance or fraudulent intent for any material misstatements or omissions contained in a registration statement for the first year that the registration statement was available. In this instance, plaintiff sufficiently alleged that the material misstatements at issue caused his losses, and thus amending the complaint would not be futile. Accordingly, the court reversed and remanded.
Court Description: Securities. Reversing the dismissal of a securities fraud action, the panel held that the district court erred by denying the plaintiff leave to amend his complaint to add claims under § 11 of the Securities Act of 1933 against former outside directors of Peregrine Systems, Inc. The panel held that the district court erred in concluding that amendment would be futile because the “negative causation” defense barred the proposed claims. The panel held that the plaintiff sufficiently alleged that material misstatements in a registration statement caused his losses even though prior to the filing of the registration statement he had entered into an agreement that his shares in Harbinger Corp. be voted in favor of a merger between Peregrine and Harbinger. The panel reasoned that the plaintiff did not irrevocably commit to exchange his Harbinger shares for Peregrine shares prior to the filing of the registration statement. In addition, he alleged that if Peregrine’s registration statement had contained accurate information, then the merger would not have taken place, and his voting agreement and proxy would have terminated.
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