GATUBHAI MISTRY, Lead Plaintiff; et. al. v. Qualcomm, Inc.;

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
GATUBHAI MISTRY, Lead Plaintiff;
et. al.,
Plaintiffs - Appellants,
v.
QUALCOMM, INC.; et al.,
Defendants - Appellees.
No. 20-56178
D.C. No. 3:18-cv-01208-CAB-
AHG
MEMORANDUM*
Appeal from the United States District Court
for the Southern District of California
Cathy Ann Bencivengo, District Judge, Presiding
Argued and Submitted November 16, 2021
Pasadena, California
Before: BYBEE and BENNETT, Circuit Judges, and BATAILLON,** District
Judge.
Court-appointed lead plaintiff, Gatubhai Mistry and other Qualcomm
investors (Investors), appeal the district court’s dismissal under Federal Rule of Civil
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Joseph F. Bataillon, United States District Judge for the
District of Nebraska, sitting by designation.
FILED
FEB 8 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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Procedure 12(b)(6) of their second amended complaint (SAC) alleging violations of
Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission Rule 10b-5. We review Rule 12(b)(6) dismissals de novo. In re
Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1140 (9th Cir. 2017). We have
jurisdiction under 28 U.S.C. § 1291, and we affirm.
This action involves an unsuccessful bid by a Singapore chipmaker,
Broadcom, to acquire Qualcomm, a United States chipmaker. The Investors
generally allege that false or misleading statements or omissions by Qualcomm in
connection with an unsuccessful hostile take-over bid—a deal that was eventually
blocked by regulatory action and an executive order from then-President Donald
Trump—resulted in a drop in Qualcomm’s stock share price.
Broadcom offered to acquire Qualcomm in November 2017, for a share price
that was approximately 30% over Qualcomm’s share price at the time. Although
Qualcomm’s board rejected the offer, Broadcom persisted in efforts to acquire the
company. Broadcom launched a proxy fight, writing to shareholders and urging
them to vote to replace Qualcomm’s board of directors. The Investors contend that
Qualcomm engaged in a secret scheme to interfere with Broadcom’s attempted
acquisition by lobbying lawmakers and complaining to the Committee on Foreign
Investment in the United States (CFIUS), a federal interagency committee that
evaluates the national security implications of foreign investments in U.S.

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companies, while outwardly assuring shareholders and potential investors that it was
pursuing the merger in good faith.
On appeal, the Investors argue that the district court erred in dismissing their
securities fraud class action for failure to adequately plead falsity, scienter, and loss
causation.
1. “To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). Federal Rule of Civil Procedure 9(b) requires
that a party “state with particularity the circumstances constituting fraud.” To state
a claim in a private civil action under Section 10(b) and Rule 10b–5, a plaintiff must
allege “(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful
state of mind; (3) a connection with the purchase or sale of a security; (4) reliance .
. . ; (5) economic loss; and (6) ‘loss causation,’ i.e., a causal connection between the
material misrepresentation and the loss[.]” Dura Pharms., Inc. v. Broudo, 544 U.S.
336, 341–42 (2005) (citations omitted). These allegations “are subject to heightened
pleading requirements” imposed by Federal Rule of Civil Procedure 9(b) and the
Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. § 78u-4(b)(1)–(2)(A).
Nguyen v. Endologix, Inc., 962 F.3d 405, 414 (9th Cir. 2020).

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2. We find no error in the district court’s finding that the Investors failed
to allege falsity in their SAC.
[T]o properly allege falsity, a securities fraud complaint must . . .
“specify each statement alleged to have been misleading, the reason or
reasons why the statement is misleading, and, if an allegation regarding
the statement or omission is made on information and belief, . . . state
with particularity all facts on which that belief is formed.”
In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 877 (9th Cir. 2012) (third
alteration in original) (quoting 15 U.S.C. § 78u-4(b)(1)).
The Investors allege facts in their SAC showing that Qualcomm made it clear
from the outset that its directors and officers opposed the deal. On November 12,
2017, in a press release, Qualcomm stated “the Board has concluded that
Broadcom’s proposal dramatically undervalues Qualcomm and comes with
significant regulatory uncertainty.” Qualcomm told shareholders and potential
investors that Broadcom’s offer “pose[d] unacceptable regulatory risks, and
significant regulatory uncertainty[,]” “regulatory approval was highly uncertain; at
least [an] 18 month process[,]” “Broadcom’s opportunistic proposal dramatically
undervalues Qualcomm and there is significant doubt about whether it can ever be
completed[,]” and explicitly informed them that “any divestiture to a non-U.S. buyer
must be approved by the Committee on Foreign Investment in the United States
(CFIUS).”

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We reject the Investors’ argument that, despite these statements, Qualcomm
downplayed the risk of regulatory oversight by CFIUS. Negotiating in good faith is
not necessarily incompatible with having sincere regulatory, antitrust, and national
security concerns. Also, Qualcomm’s statements regarding good faith negotiations
came with significant qualifications and caveats. CFIUS’s and the administration’s
subsequent actions were not foreseeable in a way that would have given rise to a
duty to provide any more definite qualifying statements.
3. We also find no error in the district court’s finding that the Investors
failed to plead scienter. To satisfy the requisite state of mind element, a complaint
must allege that the defendant made false or misleading statements either
intentionally or with deliberate recklessness. In re VeriFone Holdings, Inc. Sec.
Litig., 704 F.3d 694, 701 (9th Cir. 2012). A complaint will survive a Rule 12(b)(6)
motion to dismiss “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 & Rts., Ltd., 551 U.S. 308, 324
(2007). The Investors have not alleged facts from which a reasonable person could
draw equally plausible opposing inferences of Qualcomm’s intent.
4. We further find no error in the district court’s conclusion that the
Investors failed to adequately plead loss causation. Loss causation is shorthand for
the requirement that “investors must demonstrate that the defendant’s deceptive

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conduct caused their claimed economic loss.” Erica P. John Fund, Inc. v.
Halliburton Co., 563 U.S. 804, 807 (2011). The Investors have not alleged a causal
connection between the allegedly wrongful statements and omissions in late 2017
and early 2018 and the stock-price drop. They allege the public learned of a U.S.
Senator’s letter to the Treasury Secretary urging a CFIUS review via a national news
report on February 26, 2018. On March 4, 2018, CFIUS ordered Qualcomm to
postpone its board elections for 30 days. The stock did not drop appreciably until
one week later, and dropped again after then-President Trump issued the Executive
Order blocking the deal on March 12, 2018.
AFFIRMED.

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