Krieger v. Atheros Communications Inc.

• Decision Date: 04 March 2011
• Docket Number: Case No. 11–CV–00640–LHK.
• Citation: 776 F.Supp.2d 1053
• Parties: Joel KRIEGER, Individually and on Behalf of All Others Similarly Situated, Plaintiff,v.ATHEROS COMMUNICATIONS, INC., Dr. Willy C. Shih, Dr. Teresa H. Meng, Dr. Craig H. Barratt, Andrew S. Rappaport, Dan A. Artusi, Charles E. Harris, Marshall L. Mohr, Christine King, Qualcomm Incorporated, and T Merger Sub, Inc., Defendants.
• Court: U.S. District Court — Northern District of California

776 F.Supp.2d 1053

Joel KRIEGER, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.ATHEROS COMMUNICATIONS, INC., Dr. Willy C. Shih, Dr. Teresa H. Meng, Dr. Craig H. Barratt, Andrew S. Rappaport, Dan A. Artusi, Charles E. Harris, Marshall L. Mohr, Christine King, Qualcomm Incorporated, and T Merger Sub, Inc., Defendants.

Case No. 11–CV–00640–LHK.

United States District Court, N.D. California,San Jose Division.

March 4, 2011.

Vahn Alexander, Faruqi & Faruqi LLP, Los Angeles, CA, for Plaintiff.David Malcolm Furbush, Pillsbury Winthrop Shaw Pittman LLP, Palo Alto, CA, David Allen Priebe, DLA Piper LLP, East Palo Alto, CA, for Defendants.

ORDER STAYING STATE LAW CLAIMS; DENYING MOTION FOR PRELIMINARY INJUNCTION

LUCY H. KOH, District Judge.

This case is before the Court on Plaintiff's motion for preliminary injunction to enjoin a shareholder vote currently scheduled for March 7, 2011. In their opposition papers, Defendants Qualcomm Incorporated and T Merger Sub, Inc. asked the Court to stay this matter in deference to similar proceedings currently underway in the Delaware Court of Chancery. The Court heard oral argument on March 3, 2011. Having considered the submissions and arguments of the parties, the Court finds it appropriate to stay Plaintiff's state-law class action claims pursuant to the Colorado River doctrine. Because Plaintiff's motion for preliminary injunction relies on the merits of the stayed state-law claims and does not address Plaintiff's individual federal claims, the Court denies Plaintiff's motion for preliminary injunction.

I. Background

This action arises out of the proposed merger of Atheros Communications, Inc. (“Atheros”) and Qualcomm Incorporated (“Qualcomm”). Atheros, a Delaware corporation headquartered in California, is a leading provider of innovative technologies for wireless and wired communications products. Compl. ¶ 11. Qualcomm, also a Delaware corporation headquartered in California, designs and manufactures semiconductors for wireless phones and other equipment for advanced commercial wireless applications. Compl. ¶ 21. Atheros and Qualcomm have a longstanding relationship and have engaged in strategic collaboration for the development of wireless communications technology since at least 2006. Compl. ¶¶ 21, 45–48, 53–56.

On January 5, 2011, Atheros and Qualcomm issued a press release announcing that they had entered into a merger agreement in which Qualcomm would acquire Atheros in a deal valued at approximately $3.2 billion. Compl. ¶ 2. Under the terms of the merger, Atheros shareholders will receive $45.00 in cash for each share of Atheros that they own. Id. Officers and directors of Atheros and Qualcomm described the merger as a natural extension of the companies' prior collaboration and an opportunity for the companies to build upon each others' strengths. Compl. ¶¶ 69–70. Despite these positive public statements, Plaintiff claims that the merger is fundamentally unfair to Atheros stockholders and that individual Atheros directors failed to take steps to maximize the value of Atheros to its public shareholders. Compl. ¶ 71, 127. Specifically, Plaintiff alleges that the $45 per share offer undervalues Atheros stock, Compl. ¶¶ 71–85; that the officers and directors who negotiated the merger have conflicts of interest, Compl. ¶¶ 89–94; and that the Atheros Board never seriously considered bids from other prospective bidders, but instead employed preclusive deal protection devices to prevent an open auction of the company, Compl. ¶¶ 97–103. Plaintiff claims, further, that the Proxy Statement Atheros filed with the SEC fails to provide material information that shareholders require in order to make an informed decision on whether to vote their shares in favor of the merger. Compl. ¶ 105. In particular, Plaintiff alleges that the Proxy fails to fully describe the sales process leading up to the merger and fails to disclose the underlying methodologies and data relied upon by Atheros's financial advisor in recommending the deal. Compl. ¶¶ 105–06.

On February 10, 2011, Plaintiff filed a complaint detailing these allegations in the Northern District of California. The Complaint names eleven corporate and individual defendants, including: Atheros Communications, Inc.; Atheros directors Dr. Willy Shih, Dr. Teresa Meng, Dr. Craig Barratt, Andrew Rappaport, Dan Artusi, Charles Harris, Marshall Mohr, and Christine King (collectively, the “Individual Defendants”); Qualcomm Incorporated; and T Merger Sub, Inc., a wholly-owned subsidiary of Qualcomm. Plaintiff brings the case both as an individual action and a shareholder class action on behalf of the public shareholders of Atheros. Compl. ¶ 1. Specifically, Plaintiff brings two federal causes of action as individual claims only: (1) a claim against Atheros and the Individual Defendants for violations of Sections 14(a) and 14(e) of the Securities Exchange Act; and (2) a claim against the Individual Defendants for violations of Section 20(a) of the Securities Exchange Act. Plaintiff also brings two state-law causes of action on behalf of himself and the proposed class of Atheros shareholders: (1) a claim against the Individual Defendants for breach of fiduciary duties; and (2) a claim against Atheros and Qualcomm for aiding and abetting the Individual Defendants' breach of fiduciary duty. Plaintiff seeks to maintain a class action only with regard to the state-law claims.

On February 11, 2011, Atheros filed a Definitive Proxy with the SEC that set a shareholder vote on the proposed merger for March 7, 2011. On February 15, 2011, Plaintiff responded by filing a motion for preliminary injunction to enjoin the scheduled shareholder vote and to order expedited discovery. ¹ The Court initially set a hearing on the preliminary injunction motion for March 1, 2011. Subsequently, however, the Court learned that Defendants were already involved in similar litigation in both the Delaware Court of Chancery and the Superior Court of Santa Clara County. Defendants informed the Court that Vice Chancellor John Nobel had consolidated the five cased filed in the Delaware court and set a preliminary injunction hearing in those cases for March 1, 2011. Based on the pending Delaware action, Defendants requested a brief continuance of the motion hearing and sought permission to request a stay, pursuant to Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), in their opposition briefs. The Court granted Defendants' requests and continued the hearing to March 3, 2011. The Court will first address Defendants' request to stay this action and then turn to Plaintiff's motion for preliminary injunction.

II. Colorado River Abstention

In their opposition brief, Defendants Qualcomm Incorporated and T Merger Sub, Inc. (the “Qualcomm Defendants”) argue that this Court should abstain from hearing Plaintiff's claims and stay this action pursuant to the doctrine articulated in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). The Qualcomm Defendants represent that since January 5, 2011, when Atheros announced the merger agreement with Qualcomm, thirteen separate class action complaints have been filed against Atheros, its directors, and the Qualcomm Defendants. Between January 5 and January 19, 2011, seven class action complaints were filed in the Santa Clara County Superior Court. Between January 6 and January 18, 2011, five similar class action complaints were filed in the Delaware Court of Chancery. The instant federal action, in contrast, was not filed until over a month after the merger announcement, on February 10, 2011.

The Qualcomm Defendants claim that the Delaware actions have proceeded expeditiously: the Court of Chancery has consolidated the five cases and appointed lead Plaintiffs and co-lead counsel; the lead Plaintiffs have filed an amended consolidated complaint; the parties have agreed to the scope of expedited discovery and negotiated a protective order; and fact discovery is underway. The Qualcomm Defendants argue that the Delaware actions will provide the full measure of relief sought by Plaintiff in this federal action, and they therefore urge this Court to abstain from hearing the federal case pursuant to the Colorado River doctrine. They suggest that, at a minimum, the Court should abstain from hearing Plaintiff's state-law claims, which the parties agree are controlled by Delaware law. Plaintiff opposes Defendants' request to stay the federal action and argues that abstention under Colorado River is not appropriate in this case.

A. Legal Standard

Under the Colorado River doctrine, a federal court may abstain from exercising its jurisdiction in favor of parallel state proceedings where doing so would serve the interests of “[w]ise judicial administration, giving regard to the conservation of judicial resources and comprehensive disposition of litigation.” Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 15, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). “Exact parallelism” between the state and federal actions is not required; it is enough if the two actions are “substantially similar.” Nakash v. Marciano, 882 F.2d 1411, 1416 (9th Cir.1989). Nonetheless, the Ninth Circuit has emphasized that “the Colorado River doctrine is a narrow exception to ‘the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them.’ ” Holder v. Holder, 305 F.3d 854, 867 (9th Cir.2002) (quoting Colorado River, 424 U.S. at 817, 96 S.Ct. 1236). Accordingly, a stay of proceedings pursuant to the Colorado River doctrine is appropriate only where “exceptional circumstances” are present. Id.

Colorado River and subsequent cases set forth seven factors, that, although not...