Livid Holdings Ltd. v. Salomon Smith Barney, Inc.

Citation416 F.3d 940
Decision Date02 August 2005
Docket NumberNo. 03-35374.,03-35374.
PartiesLIVID HOLDINGS LTD, Plaintiff-Appellant, v. SALOMON SMITH BARNEY, INC.; Salomon Smith Barney Holdings Inc.; BNY Clearing Services LLC, Successor in interest to Schroders & Co, Inc.; Andrew Van Der Vord; Robert Chamine; Michael Dura; Robert Hamecs; William Hurst; Leon Kalvaria; Ilan Kaufthal; John O'Donogue; Herc Segalas; Jed Sherwindt; James Stone; Frederick Taylor; Samuel Weinhoff, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Marc M. Seltzer (argued), Susman Godfrey, LLP, Los Angeles, CA, and Paula K. Jacobi (on the briefs), Sugar, Friedberg & Felsenthal, LLP, Chicago, IL, for the plaintiff-appellant.

William F. Alderman, Orrick, Herrington & Sutcliffe, LLP, San Francisco, CA, for the defendants-appellees.

Appeal from the United States District Court for the Western District of Washington; John C. Coughenour, Chief Judge, Presiding. D.C. No.CV-02-01607-JCC.

Before D.W. NELSON, REINHARDT, and THOMAS, Circuit Judges.

ORDER AMENDING OPINION AND DENYING PETITION FOR REHEARING AND REHEARING EN BANC AND AMENDED OPINION

ORDER

The opinion filed on April 6, 2005, and published at 403 F.3d 1050, is AMENDED as follows.

403 F.3d at 1054, Col. 1, Ln. 17:

At the end of the first ¶ on this page add:" In addition, Livid also alleges that the Defendants' purchase of PCI stock was dependent on the occurrence of future events and that the Defendants knew that UAE was not contractually bound to purchase its share of the PCI stock."

403 F.3d at 1054, Col. 2, Ln. 8-13:

Replace the sentence beginning "Livid further alleges that all of the ..." with the following sentences: "From the pleadings, it is not clear whether the Defendants bought preferred shares of PCI stock, as UAE did, or whether they bought common shares of the stock. Even assuming arguendo that the Defendants bought common shares, this difference is of no import. Livid alleges that each of the Defendants bought stock on the same conditional terms as UAE, and therefore knew that the sale was incomplete when the notice was attached to the Memorandum for the express purpose of attracting additional investors." On Line 17, delete the sentence: "Defendants do not contest that they had such knowledge."

403 F.3d at 1056, Col. 1, Ln. 11:

After "Memorandum" and before the period insert "and its accompanying notice."

403 F.3d at 1057, Col. 1, Ln. 41:

Replace "Defendants, who purchased PCI stock on the same terms as UAE, do not contest that they" with "Livid alleges that the Defendants, who purchased PCI stock on the same terms as UAE,"

403 F.3d at 1057, Col. 2, Ln. 34:

Delete ", and Defendants do not contest,"

403 F.3d at 1057, Col. 2, Ln. 35:

Replace "they" with "the Defendants"

403 F.3d at 1058, Col. 1, Ln. 26-30:

Replace "and that the Defendants' misrepresentation induced a disparity between the transaction price and the true investment quality of the stock at the time of the transaction. See id. at 938-39." with "and that the Defendants' misrepresentation was directly related to the actual economic loss it suffered. McGonigle v. Combs, 968 F.2d 810, 821 (9th Cir.1992).1 Defendants' misrepresentation concealed PCI's financial situation. As a result of its dire financial situation, PCI eventually went bankrupt, which caused Livid to lose the entire value of its investment in PCI. See, e.g., Emergent Capital Inv. Mgmt. v. Stonepath Group, Inc., 343 F.3d 189, 198-99 (2d Cir.2003) (holding that sufficient evidence of loss causation exists when the "content of the alleged misstatements or omissions," caused the financial "harm actually suffered" by the plaintiffs (internal quotation marks omitted) (citing and quoting Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 96 (2d Cir.2001)))."

403 F.3d at 1058, Col. 1, Ln. 30-31:

Delete "Our case law requires no more."

403 F.3d at 1058, Col. 2, Ln. 14:

Delete "the Defendants do not contest" and insert "it appears" before "that Livid"

With these amendments, the panel has voted to deny the petition for rehearing. Judge Reinhardt and Judge Thomas have voted to deny the petition for rehearing en banc. Judge D.W. Nelson recommended denial of the petition for rehearing en banc.

The full court has been advised of the petition for rehearing en banc and no judge of the court has requested a vote on it.

The petition for rehearing and petition for rehearing en banc are DENIED. No further petitions for rehearing or petitions for rehearing en banc may be filed.

IT IS SO ORDERED.

OPINION

D.W. NELSON, Circuit Judge.

Livid Holdings, Ltd. ("Livid") appeals the district court's dismissal with prejudice of its complaint against the corporate successors to Schroders & Co., Inc. (collectively referred to as "Schroders" or "Defendants") under Federal Rule of Civil Procedure 12(b)(6). Livid's complaint alleges that Defendants violated: (1) § 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder; (2) the Washington Securities Act ("WSA"), Wash. Rev.Code § 21.20.010; and (3) Washington tort law. We hold that the district court erred in dismissing Livid's complaint.

FACTS AND PROCEEDINGS BELOW

Livid's claims arise out of its December 1999 purchase of $10 million worth of shares in Purely Cotton, Inc. ("PCI") stock. In January 1999, Schroders helped PCI arrange a private placement of $25 million worth of its stock. For this purpose, Schroders created a Confidential Offering Memorandum ("the Memorandum"), which outlined PCI's operations, business plan, and financial position. After the distribution of the Memorandum to potential investors, Livid alleges that UAE, a Gibralter-based company, agreed to purchase over 98% of the offering. The individual Defendants, who were directors and/or officers of Schroders, agreed to purchase the remaining stock. Livid alleges that there was never a contractual document requiring UAE to pay more than $2 million of the $25 million purchase price. In addition, Livid also alleges that the Defendants' purchase of PCI stock was dependent on the occurrence of future events and that the Defendants knew that UAE was not contractually bound to purchase its share of the PCI stock.

In September 1999, PCI asked Schroders for additional copies of the Memorandum in order to solicit additional investors. Livid alleges that before providing PCI with these extra copies, Defendant Van der Vord, the managing director at Schroders in charge of the offering, and his team amended the Memorandum by attaching the following notice:

This Memorandum was written in January 1999 and represents the original Offering Memorandum distributed to potential investors in the Company's $25 million private equity fund raising. Subsequent to the writing and distribution of this document the Company may have undergone various changes including but not limited to management changes, ownership changes and business strategy changes. This document has not been updated or amended to reflect any events that have occurred since January 1999. As such, it does not reflect the fact that the above-mentioned $25 million private equity fund raising has been completed.

(emphasis added).

Livid's claims against Defendants arise out of the last sentence of this notice. This sentence, Livid contends, implies that the proceeds of the initial $25 million sale had been received by PCI, but that the Memorandum had not yet been updated to reflect this additional capital. At the time this notice was written, however, UAE and the Defendants had actually paid less than $2 million to PCI. Livid alleges that additional payments on UAE's balance were conditional on UAE's approval of a PCI business plan and a new chief executive officer — meaning that UAE was not actually bound to pay for the PCI stock. From the pleadings, it is not clear whether the Defendants bought preferred shares of PCI stock, as UAE did, or whether they bought common shares of the stock. Even assuming arguendo that the Defendants bought common shares, this difference is of no import. Livid alleges that each of the Defendants bought stock on the same conditional terms as UAE, and therefore knew that the sale was incomplete when the notice was attached to the Memorandum for the express purpose of attracting additional investors. In addition, Livid alleges that Defendants had a motive to deceive potential investors because PCI had not yet paid Schroders for the services it provided in connection with the first fund-raising campaign. In essence, Livid contends that Defendants had a motive to try to bring additional capital into PCI — to increase the likelihood that it would be paid for past services rendered.

The district court dismissed each of Livid's claims with prejudice. With respect to the federal claim, the district court found that Livid failed to plead adequately that the notice statement was a material misrepresentation, upon which it reasonably relied in purchasing PCI stock. In addition, the district court found that Livid's complaint did not satisfy the heightened pleading standards for scienter under the 1995 Private Securities Litigation Reform Act ("PSLRA"). The district court dismissed Livid's state securities claim because it found the alleged misrepresentation immaterial, and that Defendants were not sellers of securities within the meaning of the WSA. Because the district court found that Livid's reliance on the representations in the notice was unreasonable, the court also dismissed the state tort claims. Finally, the district court refused to grant Livid leave to amend its complaint, concluding that any such attempt would be futile.

DISCUSSION
I. Standard of Review

We review dismissals for failure to state a claim pursuant to Federal Rule 12(b)(6) de novo. Decker v. Advantage...

To continue reading

Request your trial
614 cases
  • Villarino v. Comm'r: Soc. Sec. Admin.
    • United States
    • U.S. District Court — Eastern District of California
    • August 3, 2012
    ...not permit an attempt to amend if "it is clear that the complaint could not be saved by an amendment." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). A "plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than l......
  • Reyes v. City of Fresno
    • United States
    • U.S. District Court — Eastern District of California
    • May 15, 2013
    ...not permit an attempt to amend if "it is clear that the complaint could not be saved by an amendment." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). A plaintiff is obliged "to provide the 'grounds' of his 'entitlement to relief' [which] requires more ......
  • Lopez v. GMAC Mortg.
    • United States
    • U.S. District Court — Eastern District of California
    • December 5, 2011
    ...not permit an attempt to amend if "it is clear thatthe complaint could not be saved by an amendment." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). A "plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief requires more than lab......
  • Roberts v. UBS AG
    • United States
    • U.S. District Court — Eastern District of California
    • January 30, 2013
    ...not permit an attempt to amend if "it is clear that the complaint could not be saved by an amendment." Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946 (9th Cir. 2005). A plaintiff is obliged "to provide the 'grounds' of his 'entitlement to relief' [which] requires more ......
  • Request a trial to view additional results
2 books & journal articles
  • Securities fraud.
    • United States
    • American Criminal Law Review Vol. 46 No. 2, March 2009
    • March 22, 2009
    ...two rationales articulated by courts in applying the doctrine). (300.) See, e.g., Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, (9th Cir. 2005) (stating that dismissal based on the bespeaks caution doctrine requires such cautionary language that "reasonable minds could no......
  • Securities fraud.
    • United States
    • American Criminal Law Review Vol. 45 No. 2, March 2008
    • March 22, 2008
    ...two rationales articulated by courts in applying the doctrine). (308.) See, e.g., Livid Holdings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, (9th Cir. 2005) (stating that dismissal based on the "bespeaks caution" doctrine requires such cautionary language that "reasonable minds could ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT