Compartment It2, Lp; v. FIR TREE, INC., DBA Fir Tree Partners;

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
COMPARTMENT IT2, LP; et al.,
Plaintiffs-Appellants,
v.
FIR TREE, INC., DBA Fir Tree Partners; et
al.,
Defendants-Appellees.
No. 18-15753
D.C. No.
2:17-cv-01035-MMD-VCF
MEMORANDUM*
Appeal from the United States District Court
for the District of Nevada
Miranda M. Du, District Judge, Presiding
Argued and Submitted July 12, 2019
Portland, Oregon
Before: TASHIMA, GRABER, and OWENS, Circuit Judges.
The IT Funds appeal from the Rule 12(b)(6) dismissal of their Nevada-law
stockholder claims against the former majority shareholder—Fir Tree, Inc.—and
individual directors of CIG Wireless, Inc. (CIGW). The district court dismissed
the IT Funds’ claims because they failed to either (1) state direct stockholder
claims or (2) comply with Federal Rule of Civil Procedure 23, which is a
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
JUL 23 2019
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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prerequisite for bringing a derivative claim. The IT Funds contend that the district
court erred because their complaint stated two direct stockholder claims alleging
unlawful equity expropriation and challenging the validity of CIGW’s cash-out
merger. We affirm.
The IT Funds failed to state a “dual” direct and derivative claim of equity
expropriation. Parametric Sound Corp. v. Eighth Jud. Dist. Ct., 401 P.3d 1100,
1109 (Nev. 2017) (citing Gentile v. Rossette, 906 A.2d 91, 99–100 (Del. 2006)).
Equity expropriation claims are “a species of corporate overpayment claim[s]” that
arise when a controlling shareholder “causes the corporation to issue ‘excessive’
shares of its stock in exchange for assets of the controlling stockholder that have a
lesser value.” Gentile, 906 A.2d at 99–100. The IT Funds failed to allege that
CIGW issued excessive shares of its stock to Fir Tree in exchange for lower-valued
assets. The IT Funds pled only that Fir Tree obtained additional grants of preferred
stock without providing further financing to CIGW. However, the IT Funds did
not allege that these grants constituted an overpayment or that CIGW was owed
any “further financing” for the issuance of these shares. The IT Funds’ complaint
acknowledged that these grants of shares were made in lieu of cash dividends and
triggered by Fir Tree’s contractual anti-dilution protections.
The IT Funds also failed to state a direct claim challenging CIGW’s cash-out
merger. To challenge the validity of a merger directly, a shareholder must plead

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“wrongful conduct that goes to the approval of the merger,” Parametric, 401 P.3d
at 1106 (citation omitted), which causes “harm that is not dependent on any injury
to the corporation,” id. at 1108. Here, the IT Funds do not allege that they suffered
harm independent of the corporation’s. Rather, the IT Funds identified the harm as
the abandonment of “any effort to build CIGW’s value,” arguing that the value of
CIGW—and, incidentally, the common stock—might have increased but for the
merger. Accordingly, the IT Funds failed to plead that the merger caused them
independent harm.
AFFIRMED.

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