Hanon v. Dataproducts Corp.

Citation976 F.2d 497
Decision Date28 September 1992
Docket NumberNo. 90-55966,90-55966
Parties, Fed. Sec. L. Rep. P 97,021, 23 Fed.R.Serv.3d 786 David HANON, Plaintiff-Appellant, v. DATAPRODUCTS CORPORATION; Jack C. Davis, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Kevin J. Yourman, Law Offices of Joseph H. Weiss, Los Angeles, Cal., for plaintiff-appellant.

Thomas P. Lambert, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: D.W. NELSON and THOMPSON, Circuit Judges, and LYNCH, District Judge. *

DAVID R. THOMPSON, Circuit Judge:

David Hanon sued Dataproducts Corporation, a manufacturer of computer printers, and its chief executive officer, Jack C. Davis, under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. 1 Hanon owned ten shares of Dataproducts stock. He alleged Dataproducts misled the market about one of its new product lines and concealed strategic decisions to discontinue two printers and to close a production facility.

The district court denied Hanon's motion for class certification. Subsequently, after approximately thirty depositions had been taken and thousands of documents had been produced, the district court granted Dataproducts' motion for summary judgment with respect to Hanon's individual claims.

Hanon appeals from the district court's denial of class certification and its summary judgment. We have jurisdiction under 28 U.S.C. § 1291. We affirm the denial of class certification, affirm the summary judgment in part, reverse in part and remand for further proceedings.


Summary judgment is reviewed de novo. In re Apple Computer Sec. Litig., 886 F.2d 1109, 1112 (9th Cir.1989), cert. denied sub nom. Schneider v. Apple Computer, 496 U.S. 943, 110 S.Ct. 3229, 110 L.Ed.2d 676 (1990). We may affirm on any basis supported by the record. Id.

Summary judgment may be granted if "there is no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). This rule does not require that there be no factual dispute. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. at 2510. Conversely, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.' " Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

Although "[m]ateriality and scienter are both fact-specific issues which should ordinarily be left to the trier of fact," "summary judgment may be granted in appropriate cases." Apple Computer, 886 F.2d at 1113. Summary judgment may be defeated in a securities fraud derivative suit "only by showing a genuine issue of fact with regard to a particular statement by [the company] or its insiders." Id. at 1118.

A. Material Misrepresentations and Omissions

"[A]n issuer's public statements cannot be analyzed in complete isolation." In re Convergent Technologies Sec. Litig., 948 F.2d 507, 512 (9th Cir.1991). In order to survive summary judgment, Hanon "must demonstrate that a particular statement, when read in light of all the information then available to the market, or a failure to disclose particular information, conveyed a false or misleading impression." Id.

1. Disclosures Regarding Solid Ink Technology

Hanon contends Dataproducts misled the market by issuing two overly optimistic press releases that neglected to reveal severe problems with solid ink technology. 2 The first press release, issued May 3, 1988, states that "Solid ink jet is widely endorsed as the future technology for office and color printing."

"[P]rojections and general expressions of optimism may be actionable under the federal securities laws." Apple Computer, 886 F.2d at 1113; see also Virginia Bankshares, Inc. v. Sandberg, --- U.S. ----, ---- - ----, 111 S.Ct. 2749, 2756-61, 115 L.Ed.2d 929 (1991) (knowingly false statements of reasons, opinion, or belief, even though conclusory in form, may be actionable as misstatements of material fact). In this circuit, a projection or statement of belief may be actionable to the extent that one of three implied factual assertions is inaccurate: "(1) that the statement is genuinely believed, (2) that there is a reasonable basis for that belief, and (3) that the speaker is not aware of any undisclosed facts tending to seriously undermine the accuracy of the statement." Apple Computer, 886 F.2d at 1113.

There is no evidence in the record to show that Dataproducts did not genuinely believe its statement regarding solid ink technology, or that its optimistic belief in solid ink was unreasonable. Hanon has not shown that solid ink technology as a whole, or with respect to color printing, encountered problems which would seriously undermine the accuracy of the May 3 press release. Furthermore, the statement does not guarantee success of solid ink color printers, but recognizes only that Dataproducts' research is progressing.

The other alleged misrepresentation as to solid ink technology occurred on May 4, 1989, when Dataproducts publicly stated: "Solid Ink is the best way to deliver high quality, low cost color printing to the market and our development program in this area is progressing."

We need not determine whether this statement is misleading because it was issued after Hanon bought his stock and thus could not have affected his stock's April 14, 1989 market price or his decision to buy on that date. 3 See Williams v. Sinclair, 529 F.2d 1383, 1389 (9th Cir.1975) (allegedly fraudulent acts which occur after a plaintiff's purchase of stock cannot form the basis of a section 10(b) claim because the acts were not performed in connection with the purchase or sale of securities), cert. denied, 426 U.S. 936, 96 S.Ct. 2651, 49 L.Ed.2d 388 (1976); Raschio v. Sinclair, 486 F.2d 1029, 1030 (9th Cir.1973).

2. Disclosures Regarding the SI 480 Printer

Hanon contends Dataproducts misled the market by improperly touting its SI 480 printer when it was aware the printer had severe technological problems. Hanon relies on a press release issued by Dataproducts on May 20, 1988:

the SI 480 office printer ... has received strong interest and high acclaim from users and analysts alike during the subsequent months. This printer, with quiet operation and ultra-high print quality, emulates IBM's Quietwriter II, ... Its flexible paper handling (both tractor feed and cut sheet), coupled with its extensive library of fonts, is rapidly making this printer one of the most popular in Dataproducts' office printer line.

Hanon also points to statements made in Dataproducts' first quarter report, dated June 15, 1988: "The SI 480 is compact. It's quieter than dot matrix and daisy wheel printers and faster than most. The print quality is superior to laser printers, ... Unlike other non-impact technologies, ... solid ink is insensitive to media, handling all types of papers, ... with virtually no variation in print quality."

Hanon argues he has raised a genuine issue of material fact as to whether the May 20, 1988 press release and the statements in the June 15, 1988 first quarter report praising the SI 480 were false and misleading because they were made when Dataproducts knew the printer had severe technical problems. We agree.

This case is similar to Apple Computer in which we held that genuine issues of material fact existed with respect to whether a new disk-drive's technical problems constituted material facts tending to undermine the unqualified optimism of Apple's positive statements about the product. See Apple Computer, 886 F.2d at 1115-16. In Apple Computer, Apple issued a press release stating that Twiggy, a newly developed computer disk-drive, " 'ensures greater integrity of data than the other high density drives by way of a unique, double-sided mechanism designed and manufactured by Apple.' " Id. at 1115. Apple also claimed that Twiggy " 'represents three years of research and development and has undergone extensive testing and design verification during the past year.' " Id. At the time these statements were made, internal tests conducted by Apple indicated some slowness and unreliability in Twiggy's information-processing capabilities. Id. Further evidence showed that, two weeks before the press release was issued, top executives were warned Twiggy's reliability problems would require Apple to delay the introduction of another new product, the Lisa computer. Id.

Here, there is at least a triable issue of whether technical problems with the SI 480 were material facts tending to undermine the optimism of Dataproducts' public statements. In March 1988, approximately two months before the press release was issued, Robert Kilcullen, senior vice president and business manager for line printers, stated in his corporate diary, "SI 480--cannot build it reliable [sic]." On September 16, 1988, Kilcullen wrote, "Si 480--reputation in field bad." On a page of the diary dated October 14, 1988, Kilcullen listed various aspects of a particular "cold start problem" with the SI 480. On October 8, 1988, Kilcullen noted an ink durability problem with the SI 480, which caused the ink on printed pages to crack and fall off when the page was folded.

From this evidence, a reasonable jury could conclude that Dataproducts publicly released...

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