Appeal from the United States District Court for the Northern District of California Jeremy D. Fogel, District Judge, Presiding. D.C. No. 5:06-CV-05208-JF.
The opinion of the court was delivered by: Thompson Senior Circuit Judge
Argued and Submitted October 7, 2009-San Francisco, California
Before: David R. Thompson and Sidney R. Thomas, Circuit Judges, and Ann Aldrich,*fn1District Judge.
This litigation arises out of the issuance of an allegedly false and misleading proxy solicitation for a stock option plan. Plaintiff-appellant New York City Employees' Retirement System ("NYCERS") alleged that the false solicitation denied it its right to an informed shareholder vote and caused it to suffer economic loss through share dilution. The district court dismissed NYCERS' consolidated complaint. The court determined that: (1) NYCERS' claim was derivative, not direct, and (2) stock dilution, alone, did not establish economic loss.
We have jurisdiction under 28 U.S.C. § 1291, and we affirm the district court's dismissal of NYCERS' consolidated complaint. NYCERS pled a direct injury, but failed to assert any cognizable economic loss.
NYCERS also appeals the district court's denial of leave to amend its consolidated complaint to reallege a claim that was asserted in the initial complaint, but which it omitted from the consolidated complaint. The district court, applying Federal Rule of Civil Procedure 15(a), concluded that no factors weighed against further amendment, but nonetheless determined that by not realleging the claim in the consolidated complaint, NYCERS had "waived" it. We conclude that the district court erred in applying a "waiver" rule to the omitted claim, and, because the district court determined that leave to amend should otherwise be granted, a ruling not challenged in this appeal, we grant NYCERS leave to amend to reallege the omitted claim.
NYCERS is a public pension fund that manages retirement assets for over 200,000 current and former employees of the City of New York. Apple Inc. is a California corporation based in Cupertino, California.
Plaintiffs Vogel and Mahoney, individual Apple shareholders, filed the original complaint in this action, alleging claims under §§ 10(b), 14(a), and 20(a) of the Securities Exchange Act ("SEA"). NYCERS was appointed lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA") and filed a consolidated class action complaint against Apple and fourteen of its officers and directors. The consolidated complaint alleges: (1) direct class claims under §§ 14(a) and 20(a) of the SEA for a misleading 2005 proxy solicitation; and (2) a state law claim for breach of the fiduciary duty of candor for various proxy solicitations, Form 10-K annual reports, and registration statements. NYCERS bases its allegations on the backdating of stock options by Apple.*fn2
According to NYCERS, Apple shareholders suffered injury through impairment of their right to a fully informed vote and substantial dilution of their shares. NYCERS asserts that, from 1996 to 2005, shareholders "unwittingly" authorized issuance of a total of 205 million shares, or 20% of Apple's stock. The consolidated complaint prays for rescission of the votes, compensatory damages for share dilution, an order for an accounting, a declaration of defendants' liability, and attorney fees and costs.
For the § 14(a) claim, NYCERS alleges three falsities in Apple's 2005 proxy solicitation. First, the solicitation states that Apple's compensation practices "align[ed]" the interests of employees and stockholders, because stock options would "have value . . . only if the Company's stock price increases." NYCERS alleges falsity because backdated options can have value even if Apple's stock price does not increase, thereby decoupling employee and shareholder interests. Second, the solicitation states that granted options "did not make up for the below market . . . cash compensation . . . paid to executive officers." NYCERS alleges misrepresentation because back-dating can surreptitiously increase compensation. Third, the solicitation states that in March 2003, Steve Jobs, Apple's current Chairman and CEO, cancelled his outstanding options in exchange for ten million (split adjusted) shares of restricted stock. NYCERS alleges misrepresentation because some of the cancelled options were backdated, improperly ...