York County v. Hp, Inc. ( 2023 )


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  •                 FOR PUBLICATION
    UNITED STATES COURT OF APPEALS
    FOR THE NINTH CIRCUIT
    YORK COUNTY ON BEHALF OF                 No. 22-15501
    THE COUNTY OF YORK
    RETIREMENT FUND; MARYLAND                  D.C. No.
    ELECTRICAL INDUSTRY                     4:20-cv-07835-
    PENSION FUND, Individually and on            JSW
    Behalf of All Others Similarly
    Situated,
    OPINION
    Plaintiffs-Appellants,
    v.
    HP, INC.; DION J. WEISLER;
    CATHERINE A. LESJAK;
    RICHARD BAILEY; ENRIQUE
    LORES,
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Northern District of California
    Jeffrey S. White, District Judge, Presiding
    Argued and Submitted February 6, 2023
    San Francisco, California
    Filed April 11, 2023
    2                     YORK COUNTY V. HP, INC.
    Before: Jay S. Bybee and Patrick J. Bumatay, Circuit
    Judges, and Richard D. Bennett, * District Judge.
    Opinion by Judge Bybee
    SUMMARY **
    Securities Fraud
    The panel reversed the district court’s dismissal, as time-
    barred, of a securities fraud action brought against HP Inc.
    and remanded for further proceedings.
    Lead plaintiff Maryland Electrical Industry Pension
    Fund alleged that HP and individual defendants made
    fraudulent statements about HP’s printing supplies
    business. The district court concluded that the complaint,
    filed in 2020, was barred by the two-year statute of
    limitations, 
    28 U.S.C. § 1658
    (b)(1), because the public
    statements, loss in profits, and reductions in channel
    inventory at the heart of Maryland Electrical’s claims had all
    taken place by 2016.
    Adopting the reasoning of the Second Circuit, the panel
    held that, under the discovery rule discussed in Merck & Co.,
    Inc. v. Reynolds, 
    559 U.S. 633
     (2010), a reasonably diligent
    plaintiff has not “discovered” one of the facts constituting a
    securities fraud violation until he can plead that fact with
    *
    The Honorable Richard D. Bennett, United States District Judge for the
    District of Maryland, sitting by designation.
    **
    This summary constitutes no part of the opinion of the court. It has
    been prepared by court staff for the convenience of the reader.
    YORK COUNTY V. HP, INC.                   3
    sufficient detail and particularity to survive a motion to
    dismiss for failure to state a claim. The panel held that a
    defendant establishes that a complaint is time-barred under
    § 1658(b)(1) if it conclusively shows that either (1) the
    plaintiff could have pleaded an adequate complaint based on
    facts discovered prior to the critical date two years before the
    complaint was filed and failed to do so, or (2) the complaint
    does not include any facts necessary to plead an adequate
    complaint that were discovered following the critical date.
    The panel held that defendants’ allegedly fraudulent
    statements, on their own, were insufficient to start the clock
    on the statute of limitations. Instead, Maryland Electrical
    could not have discovered the facts necessary to plead its
    claims, including the “fact” of scienter, until after the
    publication of a Securities and Exchange Commission order
    in 2020. Accordingly, the complaint was timely.
    COUNSEL
    Steven F. Hubachek (argued), Darryl J. Alvarado, Rachel A.
    Cocalis, and Darren J. Robbins, Robbins Geller Rudman &
    Dowd LLP, San Diego, California, for Plaintiffs-Appellants.
    Brian M. Lutz (argued), Michael J. Kahn, and Macey L.
    Olave, Gibson Dunn & Crutcher LLP, San Francisco,
    California; Steven M. Schatz (argued), Wilson Sonsini
    Goodrich & Rosati, Palo Alto, California; Sara B. Brody,
    Sidley Austin LLP, San Francisco, California; Robin
    Wechkin, Sidley Austin LLP, Issaquah, Washington; Lissa
    M. Percopo and Andrew D. Ferguson, Gibson Dunn &
    Crutcher LLP, Washington, D.C.; Katherine L. Henderson,
    Wilson Sonsini Goodrich & Rosati, San Francisco,
    California; for Defendants-Appellees.
    4                      YORK COUNTY V. HP, INC.
    OPINION
    BYBEE, Circuit Judge:
    Plaintiffs alleging securities fraud must bring their
    claims within “2 years after the discovery of the facts” that
    give rise to their complaint. 
    28 U.S.C. § 1658
    (b)(1). In this
    case, the district court held that Appellant Maryland
    Electrical failed to meet this timeline because its claim arose
    from allegedly fraudulent statements that were published
    roughly five years before it filed its complaint. We disagree;
    the allegedly fraudulent statements, on their own, were
    insufficient to start the clock on the statute of limitations.
    Instead, we conclude that Maryland Electrical could not
    have discovered the facts necessary to plead its claims until
    after the publication of a Securities and Exchange
    Commission (“SEC”) order in 2020. As a result, we hold
    that Maryland Electrical’s complaint was timely under
    § 1658(b)(1), and we reverse and remand.
    I. BACKGROUND
    A. Factual History
    In November 2015, the Hewlett-Packard Company split
    into two entities: Appellee HP Inc. (“HP”) and Hewlett
    Packard Enterprise. 1    HP kept the Hewlett-Packard
    Company’s consumer electronics and printing business,
    1
    These facts are drawn from the complaints filed in this action by
    Maryland Electrical, the lead plaintiff, and York County, the original
    plaintiff. We have also relied on facts in a cease-and-desist order issued
    by the Securities and Exchange Commission and referred to in the
    complaints. For purposes of this appeal, we must accept as true the facts
    alleged in the complaint. See Bafford v. Northrop Grumman Corp., 
    994 F.3d 1020
    , 1025 (9th Cir. 2021).
    YORK COUNTY V. HP, INC.                   5
    whereas Hewlett Packard Enterprise retained the Hewlett-
    Packard      Company’s       corporate-facing     technology
    infrastructure and services business. The heart of the newly-
    formed HP—and the source of most of its profits—is its
    printing supplies business. Generally, HP sells its printers at
    a loss, which it recovers over time through sale of printing
    supplies like toner and ink cartridges.
    During the period relevant to this case, HP sold its
    supplies through a “push model.” Under this model, HP
    offered incentives to “Tier 1” distributors to purchase
    printing supplies. Those Tier 1 distributors, in turn, sold to
    “Tier 2” distributors who sold HP products to other resellers
    or to end users.
    To measure its channel inventory—the total inventory
    that HP and its distributors had in stock—HP created a
    metric called Weeks of Supply (“WOS”). WOS measured
    how many weeks HP could supply its products if sales
    continued at the same pace as that of prior weeks. HP
    calculated WOS by dividing its Tier 1 inventory by the
    average number of units sold in previous weeks. Tier 2
    inventory was excluded from HP’s WOS calculations.
    HP set target ranges for WOS and pressed regional
    managers to stay below the upper end of those ranges.
    Because WOS excluded Tier 2 inventory, sales managers
    could reduce their WOS number by facilitating the sale of
    inventory from Tier 1 distributors to Tier 2 distributors. By
    doing so, managers could boast a WOS below the target
    ceiling even if channel inventory as a whole was increasing.
    To shift more inventory from Tier 1 to Tier 2, sales
    managers engaged in two practices: gray marketing and
    pull-ins. Gray marketing involved selling supplies to a
    distributor who would then sell those supplies outside of its
    6                  YORK COUNTY V. HP, INC.
    assigned territory. These sales, offered at a discount,
    “cannibaliz[ed]” sales from local distributors, who would
    have to lower prices to compete with marked-down goods
    from other territories. Pull-ins, also known as accelerations,
    were steep discounts offered by HP to encourage distributors
    to take additional shipments in a given quarter. These pull-
    ins left Tier 2 and other downstream distributors with a full
    inventory at the beginning of the following quarter, deflating
    sales and creating the expectation that HP would offer
    discounts again later in the quarter. Together, these practices
    allowed HP to reach quarterly sales targets to the detriment
    of overall profits.
    HP did not disclose these practices to investors. Nor did
    HP disclose its WOS data, WOS targets, or how it calculated
    WOS. Instead, during calls with investors, HP would merely
    state whether it was within or above its target WOS ranges.
    As the SEC explained, because “HP did not report to the
    market Tier 2 channel inventory[,] . . . disclosures about the
    company’s position relative to its channel inventory ceiling
    only told part of the story regarding HP’s channel health.”
    The SEC discovered these practices following a years-
    long investigation into HP. As a result of the investigation,
    the SEC issued an order (“SEC Order”) instituting cease-
    and-desist proceedings against HP. Issued at the end of
    September 2020, the SEC Order accepted a settlement offer
    from HP, with HP agreeing to pay a $6 million fine without
    admitting or denying the allegations contained in the order.
    Chief among those allegations was that, “[b]etween
    November 2015 and June 2016, HP’s disclosures regarding
    channel inventory and gross margin omitted material
    information . . . causing HP’s disclosures to be incomplete
    and misleading.” Specifically, the SEC highlighted HP’s
    failure to disclose the effects of its gray marketing and pull-
    YORK COUNTY V. HP, INC.                 7
    in practices. The SEC Order also faulted HP for its use of
    the term “channel inventory” in conjunction with its WOS
    metric, finding that this usage implied that WOS “included
    all of HP’s channel inventory and was a measure of HP’s
    overall channel health,” when, in reality, HP “included only
    its Tier 1 channel inventory.” The SEC called “HP’s channel
    inventory disclosures . . . materially misleading.”
    B. Procedural History
    On November 5, 2020, within six weeks of the issuance
    of the SEC Order, York County, a retirement fund and
    purchaser of HP stock, filed a class complaint against the
    Appellees, HP and a handful of its executives (jointly,
    “HP”). The complaint alleged that HP’s trade practices
    violated § 10(b) of the Securities Exchange Act of 1934, 15
    U.S.C. § 78j(b), and SEC Rule 10b-5, 
    17 C.F.R. § 240
    .10b-
    5. The complaint also alleged that the executive defendants
    violated § 20(a) of the Securities Exchange Act, 15 U.S.C. §
    78t(a). These violations, the complaint alleged, injured
    those who purchased HP common stock from November 6,
    2015 to June 2, 2016, the class period.
    York County filed its complaint as a class action under
    the Private Securities Litigation Reform Act (“PSLRA”).
    The PSLRA tasks the district court with designating a lead
    plaintiff. 15 U.S.C. § 78u-4(a)(3)(B). Initially, York County
    sought designation as lead plaintiff. However, in January
    2021, Maryland Electrical moved for appointment as lead
    plaintiff, which the district court granted the following
    month. Maryland Electrical filed a complaint consolidating
    class claims on April 21, 2021.
    HP moved to dismiss on procedural and substantive
    grounds.      Procedurally, HP claimed that Maryland
    Electrical’s claims were time-barred by the two-year statute
    8                  YORK COUNTY V. HP, INC.
    of limitations, 
    28 U.S.C. § 1658
    (b)(1), and the five-year
    statute of repose, 
    id.
     § 1658(b)(2). On the merits, HP moved
    to dismiss the complaint for failing to plead the elements
    necessary to its claim with the particularity required by the
    PSLRA and Federal Rule of Civil Procedure 9(b).
    The district court granted the motion to dismiss as time-
    barred under the statute of limitations. That statute of
    limitations required Maryland Electrical to bring its
    complaint within “2 years after the discovery of the facts
    constituting the violation[s]” that form the basis of its
    securities claims. 
    28 U.S.C. § 1658
    (b)(1). The district court
    found that the public statements, loss in profits, and
    reductions in channel inventory at the heart of Maryland
    Electrical’s claims had all taken place by 2016. Thus, the
    district court reasoned, if Maryland Electrical was a
    reasonably diligent plaintiff, it would have discovered the
    operative facts of its complaint in 2016, more than four years
    before it filed its complaint and far beyond the two-year
    statute of limitations. The district court did not address HP’s
    arguments under the statute of repose or Rule 9(b).
    After the district court explained that it was granting the
    motion to dismiss on statute of limitations grounds, the
    district court observed in a footnote that HP made some of
    the statements at issue after Maryland Electrical had sold its
    shares of HP stock. Reasoning that a plaintiff cannot be
    harmed by misrepresentations that did not induce the
    purchase or sale of stock, the district court stated that
    Maryland Electrical lacked standing to assert claims for
    misrepresentations that occurred after it sold that last of its
    HP stock. See Shurkin v. Golden State Vintners, Inc., 
    471 F. Supp. 2d 998
    , 1024 (N.D. Cal. 2006); ER 13.
    YORK COUNTY V. HP, INC.                   9
    II. JURISDICTION AND STANDARD OF REVIEW
    The district court had jurisdiction under 
    28 U.S.C. § 1331
    . We have jurisdiction under 
    28 U.S.C. § 1291
    . We
    review a district court’s dismissal of a claim on statute of
    limitations grounds de novo. Sharkey v. O’Neal, 
    778 F.3d 767
    , 770 (9th Cir. 2015).
    III. DISCUSSION
    A. Overview of the Discovery Rule
    The statute of limitations at issue is contained in 
    28 U.S.C. § 1658
    (b)(1). It provides that private actions alleging
    securities fraud must be brought no more than “2 years after
    the discovery of the facts constituting the violation” of
    securities laws. The Supreme Court discussed § 1658(b)(1)
    at length in Merck & Co., Inc. v. Reynolds, 
    559 U.S. 633
    (2010). The facts in Merck are not necessary to understand
    its holding and application to this case. Three points from
    Merck are important here.
    First, Merck reasoned that, by using the word
    “discovery” in § 1658(b)(1), Congress evinced an intent to
    incorporate a “discovery rule” into the statute. Id. at 646. In
    the context of fraud, a discovery rule recognizes that “a
    defendant’s deceptive conduct may prevent a plaintiff from
    even knowing that he or she has been defrauded.” Id. at 644.
    Thus, a discovery rule means that a claim does not accrue
    until “the litigant first knows or with due diligence should
    know facts that will form the basis for an action.” Id.
    (quotation and emphasis omitted). The Court concluded that
    “‘discovery’ as used in [§ 1658(b)(1)] encompasses not only
    those facts the plaintiff actually knew, but also those facts a
    reasonably diligent plaintiff would have known.” Id. at 648.
    10                 YORK COUNTY V. HP, INC.
    Second, Merck held that the statute of limitations in §
    1658(b)(1) does not begin to run until after the plaintiff has
    discovered “the facts constituting the violation” and that
    includes the “‘fact’ of scienter.” Id. (quoting 
    28 U.S.C. § 1658
    (b)(1)). To rule otherwise would “frustrate the very
    purpose of the discovery rule” by allowing a defendant to
    avoid liability upon “conceal[ing] for two years that he made
    a misstatement with an intent to deceive.” 
    Id. at 649
    .
    And third, Merck distinguished between the discovery
    rule and inquiry notice. Under an inquiry notice system, a
    claim begins to accrue once “a plaintiff possesses a quantum
    of information sufficiently suggestive of wrongdoing that he
    should conduct a further inquiry.” 
    Id. at 650
     (internal
    quotation marks omitted). But the point at which a plaintiff
    knows enough to investigate “is not necessarily the point at
    which the plaintiff would already have discovered the facts
    showing scienter.” If inquiry notice triggered the limitations
    period, the period might run “before ‘discovery’ can take
    place.” 
    Id. at 651
    . The Court rejected this approach, finding
    the inquiry notice rule incompatible with the statutory
    language that accrual of a claim begins after discovery. 
    Id.
    Following Merck, the Second Circuit observed that
    Merck left unresolved the question of “how much
    information” a reasonable investor must have about the facts
    of a securities violation “before it is deemed ‘discovered’ for
    purposes of commencing the statute of limitations.” City of
    Pontiac Gen. Employees’ Ret. Sys. v. MBIA, Inc., 
    637 F.3d 169
    , 174 (2d Cir. 2011). As the Second Circuit queried,
    “Are the facts ‘discovered’ when a reasonable investor
    would suspect a violation,” or “[w]hen the reasonable
    investor would become absolutely convinced that the
    violation occurred,” or perhaps “[w]hen the reasonable
    investor could prove in a courtroom that the violation
    YORK COUNTY V. HP, INC.                   11
    occurred?” 
    Id.
     Taking cues from Merck’s reference to
    pleading requirements and the “basic purpose of a statute of
    limitations,” the Second Circuit held “that a fact is not
    deemed ‘discovered’ until a reasonably diligent plaintiff
    would have sufficient information about that fact to
    adequately plead it in a complaint.” 
    Id. at 175
    ; see also
    Merck, 
    559 U.S. at 649
     (a § 10(b) claim is not discovered
    until the “plaintiff can set forth facts in the complaint
    showing that it is ‘at least as likely as’ not that the defendant
    acted with the relevant knowledge or intent” (quoting
    Tellabs Inc. v. Makor Issues & Rts., Ltd., 
    551 U.S. 308
    , 328
    (2007)). The Third Circuit, as well as district courts within
    our circuit, have adopted this same standard. See, e.g.,
    Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Sec.
    Transactions, Inc., 
    730 F.3d 263
    , 275 (3d Cir. 2013);
    Rieckborn v. Jefferies LLC, 
    81 F. Supp. 3d 902
    , 915 (N.D.
    Cal. 2015); Stichting Pensioenfonds ABP v. Countrywide
    Fin. Corp., 
    802 F. Supp. 2d 1125
    , 1135 (C.D. Cal. 2011);
    Orbis Glob. Equity Fund Ltd. v. NortonLifelock Inc., No.
    CV-21-01995, 
    2023 WL 1800963
    , at *5–6 (D. Ariz. Feb. 7,
    2023). Although we have recognized the impact of Merck,
    we have not had occasion to address these questions. See
    Strategic Diversity, Inc. V. Alchemix Corp., 
    666 F.3d 1197
    ,
    1206 (9th Cir. 2012); Betz v. Trainer Wortham & Co., Inc.,
    
    610 F.3d 1169
    , 1171 (9th Cir. 2010). The parties advocate
    for different applications of the MBIA standard to the facts
    before us, but neither disputes the correctness of MBIA itself.
    We agree with the Second Circuit’s analysis in MBIA
    and adopt its reasoning. Accordingly, we hold that a
    “reasonably diligent plaintiff has not ‘discovered’ one of the
    facts constituting a securities fraud violation until he can
    plead that fact with sufficient detail and particularity to
    12                     YORK COUNTY V. HP, INC.
    survive a 12(b)(6) motion to dismiss.” MBIA, 
    637 F.3d at 175
    .
    B. Discovery Rule at the Motion to Dismiss
    We now turn to the question of what a defendant must
    show at the motion-to-dismiss stage to show that a claim is
    untimely under § 1658(b)(1). Maryland Electrical argues
    that dismissal under § 1658(b)(1) is only appropriate when
    the defendant can “conclusively show” that the plaintiff had
    discovered its claim more than two years before filing its
    initial complaint. See Drew v. Equifax Info. Servs., LLC, 
    690 F.3d 1100
    , 1111 (9th Cir. 2012). To meet this burden, the
    defendant would have to show the precise date that the
    plaintiff learned of the facts necessary to support its claim.
    Otherwise, the defendant cannot show that the plaintiff has
    discovered its claim, and, consequently, that the statute of
    limitations started to run. Because the district court did not
    identify such a date, Maryland Electrical asks that we
    remand to the district court to do so.
    We find Maryland Electrical’s reading of § 1658(b)(1)
    overly rigid. See, e.g., Merck, 
    559 U.S. at
    653–54 (rejecting
    a statute of limitations defense without determining a precise
    date when the plaintiffs “discovered” the facts necessary to
    their claim). We think that Merck provides a better measure.
    There, to evaluate whether the plaintiffs’ complaint was
    time-barred, the Court first identified what it called “the
    critical date,” or the date “two years before th[e] complaint
    was filed.” Merck, 
    559 U.S. at 638
    . Next, the Court
    determined which facts 2 the complaint alleged occurred
    2
    The Court also took into account the timing of events that permitted
    discovery of other facts. See 
    id.
     at 641–42 (describing the publication of
    YORK COUNTY V. HP, INC.                        13
    before and after that date. 
    Id.
     at 638–44. And finally, after
    laying some legal groundwork, 
    id.
     at 644–53, the Court
    asked whether “the facts constituting the violation” were
    discoverable prior to the critical date, 
    id.
     at 653–54. In sum,
    rather than determine exactly when the plaintiffs discovered
    the facts necessary to plead their complaint, the Court
    evaluated whether events preceding the critical date were
    sufficient to allege “the facts constituting the violation.” 
    28 U.S.C. § 1658
    (b)(1). See 
    559 U.S. at 654
     (holding that
    because no event preceding the critical date constituted
    “discovery” of facts necessary to bring the complaint, the
    plaintiffs’ suit was timely).
    The Merck approach aligns with bedrock pleading
    principles. Those principles permit the dismissal of a claim
    under § 1658(b)(1) without selecting a precise date of
    discovery. Though “ordinarily, affirmative defenses may
    not be raised on a motion to dismiss,” we may “consider an
    affirmative defense on a motion to dismiss when there is
    some obvious bar to securing relief on the face of the
    complaint.” U.S. Commodity Futures Trading Comm’n v.
    Monex Credit Co., 
    931 F.3d 966
    , 972–73 (9th Cir. 2019)
    (cleaned up and internal quotation marks omitted). “In other
    words, dismissal based on an affirmative defense is
    permitted when the complaint establishes the defense.” 
    Id.
    A complaint that pleads a securities fraud claim based only
    on conduct discovered more than two years prior to the filing
    of the complaint necessarily establishes a § 1658(b)(1)
    statute of limitations defense. See Zarecor v. Morgan
    Keegan & Co., Inc., 
    801 F.3d 882
    , 887 (8th Cir. 2015)
    (declining to “pinpoint exactly when a reasonably diligent
    articles in the Wall Street Journal that permitted discovery of possible
    wrongdoing as “important events that occurred after the critical date”).
    14                      YORK COUNTY V. HP, INC.
    plaintiff would have discovered ‘the facts constituting the
    violation’” when it was clear from the complaint that the
    plaintiffs had done so more than two years before bringing
    suit); FirstBank Puerto Rico, Inc. v. La Vida Merger Sub,
    Inc., 
    638 F.3d 37
    , 40 (1st Cir. 2011) (“As Firstbank’s own
    allegations leave no doubt that its suit is time-barred, the
    judgment of dismissal is affirmed.”). Thus, a defendant
    establishes that a complaint is time-barred under §
    1658(b)(1) if it conclusively shows that either (1) the
    plaintiff could have pleaded an adequate complaint based on
    facts discovered prior to the critical date and failed to do so,
    or (2) the complaint does not include any facts necessary to
    plead an adequate complaint that were discovered following
    the critical date.
    C. Whether Maryland Electrical’s Claim Is Barred by §
    1658(b)(1)
    Maryland Electrical filed its complaint on April 21,
    2021, making April 21, 2019 the critical date for our
    inquiry. 3 If Maryland Electrical knew or reasonably could
    have known of the elements of its claim before this critical
    date, its claim is untimely under § 1658(b)(1). On the other
    hand, if any element of the claim was discovered after the
    critical date, then the claim is timely.
    As the Court did in Merck, 
    559 U.S. at
    638–44, we divide
    the facts alleged to have occurred before the critical date and
    those alleged to have occurred after it. The complaint
    3
    In its briefing, Maryland Electrical contends that the relevant filing date
    is when York County—not Maryland Electrical—filed its complaint.
    Though this question is vital to determining whether the complaint is
    barred by the statute of repose, we need not answer it here because both
    filing dates are within two years of the date the SEC Order was issued.
    YORK COUNTY V. HP, INC.                    15
    alleges that HP made all the false statements and
    misrepresentations at issue between November 2015 and
    July 2016, well before the critical date. In September 2020,
    after the critical date of April 2019, the SEC issued its order
    instituting cease and desist proceedings against HP.
    According to Maryland Electrical, the SEC Order put
    HP’s prior statements in a new context, revealing that
    ostensibly innocuous statements were actually intentional
    misrepresentations. Simply put, Maryland Electrical claims
    that it did not have information to plead scienter until after
    the SEC Order was issued. Thus, according to Maryland
    Electrical, it did not “discover[] . . . the facts constituting the
    violation” until after the critical date. 
    28 U.S.C. § 1658
    (b)(1).
    In its order dismissing Maryland Electrical’s complaint,
    the district court gave only passing mention to the SEC
    Order. Rather than discuss the effect of the SEC Order, the
    district court focused on HP’s conduct that preceded the
    critical date. This misses Maryland Electrical’s real
    argument—that its claim was not “discovered” until the
    issuance of the SEC Order provided sufficient evidence of
    scienter.
    Because Maryland Electrical has pleaded facts that post-
    date the critical date, HP has two ways to show that
    Maryland Electrical’s claim is barred by § 1658(b)(1). First,
    HP can show that Maryland Electrical could have pleaded its
    claim based solely on things that it knew or should have
    known prior to the critical date. See Merck, 
    559 U.S. at
    653–
    54. Or, in the alternative, HP can show that the SEC Order
    provided no information necessary to Maryland Electrical’s
    claim.
    16                  YORK COUNTY V. HP, INC.
    HP does not really attempt the first approach—showing
    that Maryland Electrical had the facts necessary to plead its
    claims prior to the critical date. Rather, like the district court
    opinion, HP recites statements preceding the critical date
    that Maryland Electrical claims were false or misleading.
    But out of context, these statements are innocuous. For
    example, one set of statements involve HP executives telling
    investors that they monitored Tier 1 and Tier 2 channel
    inventory levels and that those levels fell within target WOS
    ranges. Without additional information, these statements
    seem like standard assurances to shareholders; they could
    not form the basis of a claim for securities fraud. It is only
    after learning that Tier 2 channel inventory was excluded
    from HP’s WOS calculations that the misleading nature of
    these statements comes into view. It was the SEC Order that
    revealed the extent of HP’s use of gray marketing and pull-
    ins and that HP had “omitted material information regarding
    the impact of [these] practices on [the WOS] metrics,
    causing HP’s disclosures to be incomplete and misleading.”
    HP does not explain how Maryland Electrical could have
    known of these allegedly fraudulent practices prior to the
    critical date. Nor does HP explain how Maryland Electrical
    could have pleaded scienter without discovering these
    practices. Thus, HP has failed to show that Maryland
    Electrical could have pleaded an adequate complaint prior to
    the critical date.
    For the same reasons, HP fails to show that the SEC
    Order did not provide information necessary for Maryland
    Electrical to plead an adequate complaint. HP claims that
    the SEC Order actually undermines Maryland Electrical’s
    complaint because it alleges only non-fraud violations and
    did not find any executives acted with scienter. But the
    SEC’s decision not to charge a defendant with fraud does not
    YORK COUNTY V. HP, INC.                  17
    “hurt[]” a plaintiff’s “ability to plead a strong inference of
    scienter.” In re VeriFone Holdings, Inc. Sec. Litig., 
    704 F.3d 694
    , 707 n.5 (9th Cir. 2012) (internal quotation marks
    omitted). The order claims that HP disclosed information
    about its supply channel health that contradicted its own
    internal data. The disclosure of information that contradicts
    internal data creates a “strong inference” that HP
    “knowingly misled” the public as to the state of the
    company. Reese v. Malone, 
    747 F.3d 557
    , 572 (9th Cir.
    2014), overruled on other grounds by City of Dearborn
    Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
    
    856 F.3d 605
     (9th Cir. 2017) (en banc) (internal quotation
    marks omitted). Although other information in the SEC
    Order could suggest that HP executives lacked scienter, such
    facts are irrelevant at this stage, where we must accept
    Maryland Electrical’s allegations as true. See Verifone, 
    704 F.3d at
    707 n.5; see also Tellabs, 
    551 U.S. at 524
     (“The
    inference that the defendant acted with scienter need not be
    irrefutable . . . or even the most plausible of competing
    inferences.” (internal quotation marks omitted)). What
    matters is that Maryland Electrical has plausibly alleged that
    the SEC Order provided facts and context without which it
    could not have otherwise pleaded scienter.
    We conclude that HP has failed to meet its burden to
    show that Maryland Electrical discovered the facts
    constituting its claims more than two years prior to the filing
    of its complaint. Thus, the district court erred in dismissing
    Maryland Electrical’s complaint on statute of limitations
    grounds.
    18                    YORK COUNTY V. HP, INC.
    ***
    We decline to rule on Maryland Electrical’s standing as
    lead plaintiff, 4 the statute of repose or the adequacy of
    Maryland Electrical’s complaint. See Planned Parenthood
    of Greater Wash. and N. Idaho v. U.S. Dep’t of Health &
    Hum. Servs., 
    946 F.3d 1100
    , 1111 (9th Cir. 2020) (“In
    general, an appellate court does not decide issues that the
    trial court did not decide.”). We express no opinion on those
    issues and leave them for the district court to address in the
    first instance.
    IV. CONCLUSION
    For the foregoing reasons, we reverse the district court
    order and remand for further proceedings consistent with this
    opinion.
    REVERSED and REMANDED.
    4
    In a footnote, the district court stated that Maryland Electrical lacks
    standing to challenge statements that HP made after Maryland Electrical
    had sold its HP shares. But because this footnote followed the district
    court’s dismissal of Maryland Electrical’s entire complaint, the footnote
    did not have the effect of dismissing any claims. We therefore consider
    the footnote “mere dicta.” United States v. Charette, 
    893 F.3d 1169
    ,
    1174 (9th Cir. 2018) (quoting United States v. Henderson, 
    961 F.2d 880
    ,
    882 (9th Cir. 1992)).