Wpee Pension Fund v. Mentor Graphics Corp. ( 2019 )

FILED
NOT FOR PUBLICATION
DEC 18 2019
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
WESTERN PENNSYLVANIA No. 18-35693
ELECTRICAL EMPLOYEES PENSION
FUND, Individually and on Behalf of All D.C. No. 3:16-cv-00470-PK
Others Similarly Situated,
Plaintiff-Appellant, MEMORANDUM*
v.
MENTOR GRAPHICS CORPORATION;
WALDEN C. RHINES; GREGORY K.
HINCKLEY; JOSEPH REINHART,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Oregon
Anna J. Brown, District Judge, Presiding
Argued and Submitted November 7, 2019
Portland, Oregon
Before: GILMAN,** PAEZ, and RAWLINSON, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Ronald Lee Gilman, United States Circuit Judge for
the U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
Western Pennsylvania Electrical Employees Pension Fund (WPEE) appeals
the district court’s dismissal of its complaint for failure to adequately plead
scienter and loss causation under § 10(b) of the Securities Exchange Act of 1934
(the Exchange Act) and Rule 10b-5. We have jurisdiction under 28 U.S.C. § 1291,
and review de novo. See New Mexico State Inv. Council v. Ernst & Young LLP,
641 F.3d 1089, 1094 (9th Cir. 2011).
A party asserting a securities fraud claim must meet the heightened pleading
standards of Rule 9(b) of the Federal Rules of Civil Procedure and the additional
requirements set forth in the Private Securities Litigation Reform Act. See Oregon
Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 604 (9th Cir. 2014).
Under Rule 9(b), a party alleging fraud or mistake “must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). To state a
claim under § 10(b) of the Exchange Act, WPEE was required to allege “(1) a
material misrepresentation or omission by the defendant; (2) scienter; (3) a
connection between the misrepresentation or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or omission; (5) economic loss;
and (6) loss causation.” Schueneman v. Arena Pharm., Inc., 840 F.3d 698, 704
(9th Cir. 2016) (citation omitted) (emphasis added).
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WPEE alleged the following: 1) Mentor was aware of 50-80% of its
revenues by the first day of its fiscal quarter; 2) Mentor was aware that Synopsys’s
new acquisition and emulator constituted a significant threat to Mentor’s business
and sales; 3) Mentor was aware by May, 2013, of a $80 million decrease in sales to
Intel; 4) Mentor was aware that increased semiconductor consolidations could
decrease demand for Mentor products; and 5) Mentor was aware that Cadence’s
anticipated emulator product would reduce Mentor’s market share.
The district court did not err in concluding that WPEE failed to plead
sufficient allegations giving rise to a strong inference of scienter. See Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009), as amended.
Scienter encompasses not only “intent to deceive, manipulate, or defraud, but also
deliberate recklessness.” In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1144
(9th Cir. 2017) (citation and internal quotation marks omitted). “A complaint will
survive . . . only if a reasonable person would deem the inference of scienter cogent
and at least as compelling as any opposing inference one could draw from the facts
alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007)
(footnote reference omitted).
The district court appropriately considered the non-culpable alternative
inferences, including Mentor’s optimism for an upturn in business despite its early
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disclosure that Mentor would fail to meet projected sales in the fourth quarter of
2016. Mentor also publicly alluded to a decrease in sales due to a rise in
competition, and disclosed the loss of its single-largest emulator customer in early
2015. Mentor’s statements during the post-class period did not compel a strong
inference of scienter, as they were consistent with declarations made during the
class period. See Ronconi v. Larkin, 253 F.3d 423, 432 (9th Cir. 2001). Thus, the
inference of scienter was not as compelling as the plausible inference of Mentor’s
confidence of an increase in revenue. See Tellabs, 551 U.S. at 323 (“[T]he court
must take into account plausible opposing inferences. . . .”). Given that WPEE has
not adequately pled scienter, this court need not address the loss causation issue.
See Oregon Pub. Emps. Ret. Fund, 774 F.3d at 609 (stating that scienter and loss
causation are “independent bases on which to dismiss the Plaintiffs’ claims” ).
AFFIRMED.
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