Griggs v. Pace American Group, Inc.

• Citation: 170 F.3d 877
• Decision Date: 12 March 1999
• Docket Number: No. 97-16619,97-16619
• Parties: Fed. Sec. L. Rep. P 90,440, 99 Cal. Daily Op. Serv. 1822, 1999 Daily Journal D.A.R. 2357 H. James GRIGGS, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. PACE AMERICAN GROUP, INC., Defendant, and Coopers & Lybrand, L.L.P., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 877

170 F.3d 877

Fed. Sec. L. Rep. P 90,440, 99 Cal. Daily Op. Serv. 1822,

1999 Daily Journal D.A.R. 2357

H. James GRIGGS, on behalf of himself and all others

similarly situated, Plaintiff-Appellant, v. PACE AMERICAN GROUP, INC., Defendant, and Coopers & Lybrand, L.L.P., Defendant-Appellee.

No. 97-16619.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 13, 1999.

Decided March 12, 1999.

Brian R. Strange, Strange & Hoey, Los Angeles, California, for plaintiff-appellant H. James Griggs.

Robert J. Gibson, Snell & Wilmer, Irvine, California, for defendant-appellee Coopers & Lybrand, L.L.P.

Appeal from the United States District Court for the District of Arizona Richard M. Bilby, District Judge, Presiding. D.C. No. CV-96-00277-RMB.

Before: RUGGERO J. ALDISERT, ^* HERBERT Y.C. CHOY, and STEPHEN S. TROTT, Circuit Judges.

CHOY, Circuit Judge:

In this case, we examine the issue of whether a former shareholder who exchanges his stock for contingent rights to receive stock, has standing to sue as a purchaser of stock for purposes of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Exercising our jurisdiction under 28 U.S.C. § 1291, we determine that standing does exist under such circumstances. We therefore reverse the decision of the district court and remand the case for further proceedings.

Factual and Procedural Background

Plaintiff-appellant H. James Griggs ("Griggs") appeals the district court's grant of the motion for summary judgment made by defendant-appellee Coopers & Lybrand, L.L.P. ("Coopers"), and the court's denial of his own motions, one for leave to file a third amended complaint, the other for reconsideration. These motions all relate to a putative class action securities fraud lawsuit, which Griggs brought on behalf of the class of persons who were former shareholders of Bancroft Holdings, Inc. ("BHI"), an insurance holding company that merged with Pace American Group, Inc. ("PAG").

PAG acquired BHI on March 15, 1993, pursuant to a written merger agreement. As provided by that agreement, BHI shareholders had the option of receiving cash, PAG stock, or both, as well as rights to additional PAG stock if BHI's former subsidiaries met certain performance criteria ("PAG stock earn out"). Griggs received cash and PAG stock earn out, but no PAG stock-a fact which would not become known to anyone except Griggs, until January of 1997.

In January of 1994, PAG's president and chief executive officer and its chief financial officer were suspended from their duties while PAG investigated allegations that the two officers had engaged in improper transactions involving PAG's business. Upon disclosure of these suspensions, the price of PAG's stock declined precipitously. The price of PAG's stock again declined on July 11, 1994, when PAG issued a press release indicating that it intended to restate its revenues for 1992 and the first quarter of 1993, thereby changing stated earnings of $3M into a loss.

Griggs filed the present putative class action in the United States District Court for the Northern District of California on July 10, 1995. In his complaint, Griggs stated claims for federal law securities fraud and for state law negligent misrepresentation, against PAG, various officers and directors of PAG, and Coopers, which was PAG's auditor. More specifically, Griggs alleged that the defendants misrepresented the financial condition of PAG, thereby inducing the then-BHI shareholders to approve the merger, and subsequently preventing them from unwinding the merger, which ultimately proved detrimental to their interests. Griggs brought the action on behalf of all former BHI shareholders who had acquired PAG stock in connection with the merger between BHI and PAG.

On motion of PAG, the Griggs action was transferred to the United States District Court for the District of Arizona, where a related action was pending before the Honorable Richard M. Bilby.

The Griggs action continued without incident until January of 1997, when Griggs's counsel advised Coopers's counsel that, in fact, Griggs had not received any PAG stock in the Merger. This advisement came only after Coopers had served discovery requests to Griggs on August 15, 1996, asking for document production and interrogatory responses that would establish Griggs's ownership of PAG stock, allegedly received in the PAG-BHI merger. Moreover, the advisement came after Griggs already had been permitted to amend his complaint twice, once in the Northern District of California, and once in the District of Arizona, neither time having corrected the false statement that he owned PAG stock, a fact that the district court would find to be "most significant."

At a hearing on May 5, 1997, Judge Bilby stated his tentative decision to grant both Coopers's motion for summary judgment and Griggs's motion to amend. However, the court then entered an order on May 12, 1997, denying Griggs's but granting Coopers's motion. In granting Coopers's motion, the court ruled that Griggs lacked the requisite standing to assert his federal securities fraud claims because he had not received any PAG stock in the merger and therefore was neither a "purchaser" nor a "seller" of securities for purposes of both § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In denying Griggs's motion, the court concluded that the limitation period was not tolled by a suit brought by a nominal plaintiff who lacked standing and that because the applicable limitation period had elapsed for the claims of the other putative class members, neither intervention by them nor further amendment of the complaint to include them would cure Griggs's (the putative class representative's) lack of standing. On May 13, 1997, the court entered its final judgment.

Griggs's counsel subsequently filed a motion for reconsideration (reserving the right to appeal the court's grant of Coopers's motion) on May 22, 1997. The court rejected this motion because Griggs had not presented any valid reason, newly discovered evidence, or other extraordinary circumstance that might have justified reconsideration.

Standards of Review

We review a grant of a summary judgment motion de novo. See Roberts v. Peat, Marwick, Mitchell & Co., 857 F.2d 646, 649 (9th Cir.1988) (reviewing a standing issue in the Rule 10b-5 context). Viewing the evidence in the light most favorable to the non-moving party, Griggs, we must determine whether there are any genuine issues of material fact remaining, and importantly, whether the district court correctly applied the relevant law. See Margolis v. Ryan, 140 F.3d 850, 852 (9th Cir.1998).

We review for an abuse of discretion, a denial of a motion for leave to amend. See United States v. Webb, 655 F.2d 977, 980 (9th Cir.1981). The trial court's discretion to deny the motion is particularly broad where, as here, a plaintiff previously has been granted leave to amend. See Sisseton-Wahpeton Sioux Tribe v. United States, 90 F.3d 351, 355 (9th Cir.1996); Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir.1990) (denying leave to amend where new theories were sought to be added). Yet, "dismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment." Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir.1998) (internal quotation omitted).

Discussion and Analysis

I. Motion for Summary Judgment (Standing to Bring a Rule 10b-5 Claim)

Applying the rule of Birnbaum v. Newport Steel Corp., the Supreme Court has held that a plaintiff has standing to bring an action under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 only if he or she was an actual purchaser or seller of securities. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). The district court, concluding that Griggs was neither an actual purchaser nor an actual seller of securities for purposes of the federal securities laws, held that Griggs lacked standing to bring his class action claims, and it therefore granted Coopers's motion for summary judgment. However, because we conclude that Griggs had standing as a purchaser of securities, ¹ we reverse that decision and remand the case for further proceedings.

It is undisputed that pursuant to his election under terms of the merger agreement, Griggs received cash and PAG stock earn out (i.e., contingent rights to receive additional PAG stock) but no PAG stock. Thus, since Griggs did not receive any PAG stock, and because the district court agreed with Coopers that with respect to the PAG stock earn out, "Griggs had nothing more than a contingency to PAG stock which never ripened," the district court ruled that Griggs lacked standing under the federal securities laws as a purchaser of stock.

However, at least one other court of appeals squarely has held that there is no good reason why the attachment of a contingency to a contractual right to receive stock "should remove that right from securities law coverage simply because it increases the risk that [the] plaintiff will not obtain the shares." Yoder v. Orthomolecular Nutrition Inst., Inc., 751 F.2d 555, 559 & n. 4 (2d Cir.1985) (Friendly, J.). That holding is consistent with our prior decision that acquisitions of contractual rights to receive stock in the future are to be included in the definition of "purchases" for purposes of the Securities Exchange Act. See Securities Investor Protection Corp. v. Vigman, 803 F.2d 1513, 1518 (9th Cir.1986).

Although we have not addressed this particular issue previously, there is no reason for us to create a new exception to the general rule that contractual rights (contingent or otherwise) are within the coverage of the Securities Exchange Act, especially in light of the broad reading that has been given to the Act. See id. Moreover, we point out that if Congress intended to draw a distinction between...