660 F.3d 1156 (9th Cir. 2011), 10-15561, Roberts v. McAfee, Inc.

Docket Nº:10-15561, 10-15670.
Citation:660 F.3d 1156
Opinion Judge:TASHIMA, Circuit Judge:
Party Name:Kent H. ROBERTS, Plaintiff-Appellee, v. McAFEE, INC., Defendant-Appellant. Kent H. Roberts, Plaintiff-Appellant, v. McAfee, Inc., Defendant-Appellee.
Attorney:Hal K. Gillespie, Gillespie, Rozen & Watsky, PC, Dallas, TX, for the plaintiff-appellee-cross-appellant. Lynne C. Hermle, Orrick, Herrington & Sutcliffe LLP, Menlo Park, CA, for the defendant-appellant-cross-appellee.
Case Date:November 07, 2011
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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660 F.3d 1156 (9th Cir. 2011)

Kent H. ROBERTS, Plaintiff-Appellee,


McAFEE, INC., Defendant-Appellant.

Kent H. Roberts, Plaintiff-Appellant,


McAfee, Inc., Defendant-Appellee.

Nos. 10-15561, 10-15670.

United States Court of Appeals, Ninth Circuit.

November 7, 2011

Argued and Submitted Oct. 14, 2011.

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[Copyrighted Material Omitted]

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Hal K. Gillespie, Gillespie, Rozen & Watsky, PC, Dallas, TX, for the plaintiff-appellee-cross-appellant.

Lynne C. Hermle, Orrick, Herrington & Sutcliffe LLP, Menlo Park, CA, for the defendant-appellant-cross-appellee.

Appeal from the United States District Court for the Northern District of California, Phyllis J. Hamilton, District Judge, Presiding. D.C. No. 4:09 cv-4303 PJH.



TASHIMA, Circuit Judge:

Kent Roberts, the former General Counsel of McAfee, Inc. (" McAfee" ), alleges that McAfee maliciously prosecuted and defamed him in an attempt to deflect attention from large-scale backdating of stock options within the company. McAfee

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moved to strike Roberts' claims pursuant to California's anti-Strategic Litigation Against Public Participation (" anti-SLAPP" ) statute. The district court denied the motion as to Roberts' malicious prosecution claims, but granted it as to his claims for defamation and false light invasion of privacy. Both sides appeal. We conclude that Roberts has not demonstrated that his claims have the requisite degree of merit to survive McAfee's anti-SLAPP motion: McAfee had probable cause to believe Roberts was guilty of a crime, and Roberts' claims for defamation and false light invasion of privacy are time-barred. Accordingly, we affirm in No. 10-15670, and reverse in No. 10-15561.

I. Background

Sometime late in 2000, Roberts allowed Terry Davis, McAfee's Controller and Senior Vice President, to backdate 20,000 stock options that the company had issued to Roberts months earlier as a reward for a promotion (the " Promotion Grant" ).1 Backdating refers to the practice of dating an option grant retrospectively— that is, at some earlier date when the company's stock was trading at a lower price than on the date of the grant. Because an option's strike price is typically equal to the stock price at the market's close on the grant date, changing the grant date can change the strike price. Because options grow more valuable as the stock price rises above the strike price, a lower strike price increases the value of the option. In Roberts' case, the Promotion Grant was originally authorized on July 5, 2000, but dated as of February 14, 2000, the date of his promotion, when the stock was trading at $29.62. Davis changed the date of the grant from February 14 to April 14, when the stock price closed at $19.75. This effectively lowered the strike price on Roberts' options by about $10 per share.

Backdating of this sort is not illegal per se. It becomes fraudulent where the company has not authorized the practice, or where the company does not report the backdating as a compensation expense. In the first situation, backdating augments the option's value, which raises the cost of the option to the company without shareholders' permission. See United States v. Treacy, 639 F.3d 32, 38, 48 (2d Cir.2011) (affirming defendant's conviction for backdating stock options without authorization). In the second situation, backdating results in an overstatement of earnings, which misleads investors. See Reyes, 577 F.3d at 1073. The propriety of backdating the Promotion Grant turns on whether Davis and Roberts had the authority to backdate Roberts' options, and whether a compensation expense should have been recorded to account for the later-added benefit Roberts received.

Roberts' involvement in backdating the Promotion Grant came under scrutiny in 2006, during a nationwide probe into options backdating that implicated McAfee. On May 16, 2006, the Center for Financial Research and Analysis (" CFRA" ) published a report identifying seventeen companies that, judging by data showing that they had granted large numbers of options " at exercise prices and dates that matched exactly or were close to a 40-day low in the[ir] ... stock price," had likely engaged in widespread backdating. McAfee was on the list. The report identified five suspicious McAfee option grants. Within days of the report's publication, McAfee began

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an internal review of its stock option practices, and the Securities and Exchange Commission (" SEC" ) opened an investigation the following week.

The CFRA report did not mention Roberts or any other McAfee employees by name; nor did it mention the Promotion Grant or any other grant that went to Roberts. But, in conversations with McAfee's outside counsel from Wilson Sonsini, its CEO, and two members of its Board of Directors during a shareholders' meeting in New York the week after the CFRA report came out, Roberts voluntarily disclosed the revision that he and Davis had made to the Promotion Grant.

What, exactly, Roberts said in these conversations is unclear. He contends that he raised the issue of the Promotion Grant only " in the spirit of thoroughness," and to mollify McAfee's CEO, George Samenuk, who had been involved in a large options grant that Roberts had flagged as problematic and whom Roberts worried might view the investigation as a personal attack. Roberts says he did not acknowledge any problems with his Promotion Grant, and he perceived none. Rather, Roberts claims to have explained in each conversation that he believed Davis had authority to change the strike price, and that such a change was appropriate because the original grant date was incorrect.

The CEO and directors told a different story. Through lawyers at Howrey & Simon, whom a special committee of the Board retained to conduct an independent investigation of the backdating scandal, and later through deposition testimony, these individuals told the SEC and the U.S. Department of Justice (" DOJ" ) that Roberts had described " agonizing" over the issue and admitted that what he had done was wrong.

Davis had a criminal history that made Roberts' story, even his version of it, look bad. About three years after the two men modified the Promotion Grant, Davis pleaded guilty to an accounting fraud aimed principally at concealing the financial consequences of low demand for McAfee products. Roberts helped lead the internal McAfee investigation of Davis that resulted in Davis' indictment and conviction, and he does not deny that Davis was also investigated for improperly lowering the strike price on certain stock option grants. But even with the cloud of suspicion hovering over Davis, Roberts never disclosed the change Davis had " authorized" making to the Promotion Grant.

Whatever Roberts said to the CEO and directors at the May 2000 shareholders' meeting— whether he admitted culpability or not— the conversations led to his downfall at McAfee. Samenuk immediately asked Roberts to propose potential disciplinary measures; four days later, the Board voted to fire Roberts. McAfee's outside counsel informed the SEC of the termination, and the next day the company said in a press release posted on its website that Roberts had been fired because of an " improper" incident related to employee stock options. In November 2006, the Howrey lawyers, after an investigation that included periodic reports to the SEC and DOJ, presented their conclusions to the government agencies. The presentation highlighted Roberts' modification of the Promotion Grant. It also highlighted Roberts' involvement in backdating two other stock option grants approved in January 2002— a grant of 420,000 options to Samenuk (the " Samenuk Grant" ) and a grant of 500,000 options to a newly hired executive named Art Matin (the " Matin Grant" ).

In late February 2007, the DOJ procured an indictment and the SEC filed a civil complaint. Both actions focused on the Promotion Grant, but not exclusively.

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They also accused Roberts of wrongdoing in connection with the Samenuk Grant. The Board's Compensation Committee had met and approved that grant on January 15, 2002, when the stock closed at $27.19. As Corporate Secretary, Roberts attended the meeting. The next day, the stock dipped to $25.43, and, according to the indictment and SEC complaint, Roberts unilaterally decided to re-price the options to that lower price. He then allegedly falsified the Board minutes to make it appear that the Board had voted to price the options as of the 16th, rather than the 15th. An inconsistency in successive emails from Roberts— the first called January 15 the effective date, and the second called January 16 the effective date— supported these allegations.

The SEC also alleged that Roberts had acted " recklessly" in connection with the Matin Grant. According to its complaint, the Compensation Committee voted on January 15, 2002, to grant Matin the options with a strike price corresponding to the market price of October 30, 2001, even though Matin did not begin work at McAfee until December 2001 and the company's options policy prohibited option grants with effective dates before an employee's date of hire. Roberts, who attended the January 15, 2002, meeting, subsequently approved corporate disclosures that represented— incorrectly— that Matin had begun work on October 30, 2001.

A few months before Roberts' criminal trial began, the tide began to turn in his favor. The SEC's deposition of Ed Harper, a member of McAfee's Board and Compensation Committee, produced testimony that undermined the Samenuk Grant allegations. Although Harper seemed unable to remember...

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