Desaigoudar v. Meyercord

Aarathi Desaigoudar (plaintiff) was the trustee of the Chan Desaigoudar Charitable Foundation (the foundation), which owned shares of California Micro Devices Corporation (CMD) stock. In September 1994, CMD entered into a contract with CellAccess, Inc., a company developing a special technology for electronically transferring information. CMD agreed to pay CellAccess $90,000 per month for one year in exchange for a 56 percent interest in the technology and the option to renew the contract. In April 1995, CMD terminated the monthly payments, relinquished its interest, and received a $1.5 million termination fee. Thereafter, in anticipation of the annual meeting in September 1995 to vote on the reelection of certain CMD officials (the CMD officials) (defendants), a proxy solicitation was posted stating that CMD had registered a quarterly profit for the first time in two years. In November 1995, FORE Systems, Inc., acquired CellAccess for $60 million. Desaigoudar subsequently sued the CMD officials for securities fraud pursuant to § 14(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 14a-9. During the proceedings, Desaigoudar filed a second amended complaint (the complaint) alleging three grounds: first, that the CMD officials misled shareholders by announcing a quarterly profit because CMD would have lost money but for the terminated contract with CellAccess, which allegedly proved to be unwise; second, that the proxy materials failed to disclose one CMD official’s purported conflict of interest based on the official’s position with the Pittsburgh High Technology Council without any facts demonstrating that the official personally or financially benefited from the termination of the contract; and third, that the same CMD official was falsely held out as a director of a measurement-test company without any allegations as to why that background may have been important to voters. The district court dismissed the complaint with prejudice for repeated failure to comply with the pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (the PSLRA). Desaigoudar appealed.