IN RE: ROBERT GRIER, ET AL V. FINJAN HOLDINGS, INC., ET AL, No. 21-16702 (9th Cir. 2023)Annotate this Case
The board of directors of Finjan Holdings, Inc., struck a deal with Fortress Investment Group LLC for Fortress to purchase all Finjan shares. Finjan’s shareholders approved the deal. Shareholder Plaintiff then sued Finjan, its CEO, and members of its board of directors, alleging that revenue predictions and share-value estimations sent by Finjan management to shareholders before the sale had been false and in violation of Section 14(e) of the Securities Exchange Act of 1934. The district court dismissed Plaintiff’s claim.
The Ninth Circuit affirmed the district court’s dismissal. The panel held that to state a claim under Section 14(e), Plaintiff was required to plausibly allege that (1) Finjan management did not actually believe the revenue protections/share-value estimations they issued to the Finjan shareholders (“subjective falsity”), (2) the revenue protections/share value estimations did not reflect the company’s likely future performance (“objective falsity”), (3) shareholders foreseeably relied on the revenue-projections/share-value estimations in accepting the tender offer, and (4) shareholders suffered an economic loss as a result of the deal with Fortress. The district court ruled that the subjective falsity element of Grier’s claim required allegations of a conscious, fraudulent state-of-mind, also called “scienter.”
The panel, however, held that, for Plaintiff’s claim under Section 14(e), scienter was not required, and his allegations need to provide only enough factual material to create a “reasonable inference,” not a “strong inference,” of subjective falsity. The panel held that, nonetheless, Plaintiff’s allegations did not create even a “reasonable inference” of subjective falsity.