Pinto v. Aggarwal

1

2

3 UNITED STATES DISTRICT COURT

4 NORTHERN DISTRICT OF CALIFORNIA

5 SAN JOSE DIVISION

6

7 LEONARD R PINTO, Case No. 19-cv-03354-BLF

8 Plaintiff,

ORDER GRANTING MOTION TO

9 v. DISMISS

10 ARLO TECHNOLOGIES, INC., et al., [Re: ECF No. 37]

11 Defendants.

12

13 Plaintiff Leonard R. Pinto brings this shareholder derivative suit against Nominal

14 Defendant Arlo Technologies, Inc. (“Arlo” or the “Company”) and six members of Arlo’s board

15 of directors (“Director Defendants”) (collectively “Defendants”) for allowing allegedly false and

16 misleading statements to be made in relation to Arlo’s August 2018 initial public offering (“IPO”).

17 Plaintiff’s Second Amended Verified Shareholder Derivative Complaint (“SAC”) alleges three

18 state causes of action for breach of fiduciary duty, waste of corporate assets, and unjust

19 enrichment, as well as one federal cause of action under Section 21D of the Exchange Act for a

20 private right of contribution. SAC ¶¶ 168-191, ECF No. 34.

21 Presently before the Court is Defendants’ Motion to Dismiss (“Motion”) the SAC on Rules

22 12(b)(1), 12(b)(6), and 23.1 grounds. See generally Mot. Dismiss (“Mot.”), ECF No. 37. On July

23 28, 2022, the Court heard oral arguments from the parties. For the reasons raised on the record at

24 the hearing and as set forth below, Defendants’ Motion is GRANTED.

25 I. BACKGROUND

26 A. Factual Background

27 Arlo is a provider of home security and monitoring systems whose products include Wi-Fi

1 On August 6, 2018, in anticipation of its IPO, Arlo filed its Prospectus with the SEC,

2 which was incorporated into the Registration Statement for the IPO. Id. Plaintiff alleges that the

3 Registration Statement was negligently prepared, contained untrue statements of material fact,

4 omitted other facts necessary to make the statements not misleading, and not prepared in

5 accordance with relevant rules and regulations. Id. ¶ 63. Plaintiff also alleges that each of the

6 Director Defendants approved or permitted the false statements to be made in the Registration

7 Statement and disseminated to the public. Id. ¶ 137.

8 After its IPO in August 2018, Arlo made several announcements and disclosures that

9 indicated concerning trends in the Company’s performance. Id. ¶¶ 90-118. By February 2019,

10 Arlo’s share price was trading under $4 per share, an approximately 75% decline from its IPO

11 price. Id. ¶ 113. Following the poor post-IPO performance, several putative class action suits

12 were filed in state and federal courts. Mot. 6.

13 B. Procedural History

14 On June 13, 2019, Plaintiff filed the initial Shareholder Derivative Complaint. ECF No. 1.

15 Plaintiff is a current owner of Arlo stock and alleges that he did not make a demand on the

16 Company board of directors to initiate this suit because such demand would have been futile.

17 SAC ¶¶ 129, 132. All six Director Defendants were members of Arlo’s seven-member board of

18 directors at the time Plaintiff filed this derivative action. Id. ¶ 133.

19 On August 20, 2019, the Court ordered the present derivative action to be stayed pending

20 the resolution of a related federal securities class action. ECF No. 21. This stay was lifted on

21 April 8, 2021, after the final class settlement was approved in the related action. ECF No. 26.

22 On August 23, 2021, Plaintiff filed the current Second Amended Verified Shareholder

23 Derivative Complaint, with slight modifications to the federal contribution claim. ECF No. 34;

24 see also Mot. 7-8. On December 17, 2021, Defendants filed the instant Motion to Dismiss on

25 Rule 12(b)(1), 12(b)(6) and 23.1 grounds.

26 C. Related Litigation

27 On January 22, 2019, plaintiff Spencer Wong filed a putative class action complaint

1 Act (the “Related Federal Action”). See Class Action Compl., Wong v. Arlo Technologies, Inc., et

2 al., Case No. 5:19-cv-00372-BLF (N.D. Cal. Jan. 22, 2019). On March 25, 2021, this Court

3 approved the final class action settlement, with a later amended order and judgment on April 19,

4 2021. Am. Order Granting Pl.’s Mot. Final Approval Class Action Settlement, Wong v. Arlo

5 Technologies, Inc., et al., Case No. 5:19-cv-00372-BLF (Apr. 19, 2021), ECF No. 152.

6 In addition to the Federal Action, six putative securities class action lawsuits were filed

7 against Arlo, which were subsequently consolidated in the Santa Clara County Superior Court (the

8 “State Action”). Consolidated Compl., In re Arlo Technologies, Inc. Shareholder Litigation, No.

9 18CV339231 (Cal. Super. Ct. May 1, 2019).1 The consolidated complaint in the State Action

10 alleged violations of Sections 11, 12(a)(2), and 15 of the Securities Act for allegedly false or

11 misleading statements in Arlo’s Registration Statement. Id. The State Action was initially stayed

12 pending resolution of the Federal Action but, following the Federal Action’s settlement, it then

13 proceeded to a dismissal on forum non conveniens grounds. Order re: Mot. Dismiss Forum Non

14 Conveniens, In re Arlo Technologies, Inc. Shareholder Litigation, No. 18CV339231 (Cal. Super.

15 Ct. Sept. 9, 2021). The State Action plaintiffs filed a Notice of Appeal on November 16, 2021.

16 See Pham, et al. v. Arlo Technologies, Inc., et al., No. H049577 (Cal. Ct. App. Nov. 23, 2021).

17 II. DISCUSSION

18 Defendants move to dismiss the SAC for lack of subject matter jurisdiction, lack of

19 derivative standing, and failure to state a claim. Mot. 1. For the reasons discussed below, the

20 Court GRANTS Defendants’ motion to dismiss for lack of subject matter jurisdiction and does not

21 reach Defendants’ other arguments. See Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577

22 (1999) (“[J]urisdiction generally must precede merits in dispositional order.”).

23 As an initial point, both parties have requested judicial notice of various exhibits to their

24

25 1 Defendants cite and summarize the status of the State Action in their motion (Mot. 2 n.1, 6-7),

26 and the Court takes judicial notice sua sponte of the State Action’s filings. See Cherewick v. State

27 Farm Fire & Cas., 2022 WL 80429, at *14 (S.D. Cal. Jan. 7, 2022) (“It is well-established that

1 briefing. ECF Nos. 37-1; 40-1. The Court’s opinion does not rely on any of the appended exhibits

2 and, therefore, the Court DENIES both parties’ requests as moot.

3 A. Legal Standard

4 A party may challenge the Court’s subject matter jurisdiction by bringing a motion to

5 dismiss under Federal Rule of Civil Procedure 12(b)(1). “A Rule 12(b)(1) jurisdictional attack

6 may be facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004).

7 In a facial attack, the movant asserts that the lack of subject matter jurisdiction is apparent from

8 the face of the complaint. Id. In a factual attack, the movant disputes the truth of allegations that

9 otherwise would give rise to federal jurisdiction. Id. “In resolving a factual attack on jurisdiction,

10 the district court may review evidence beyond the complaint without converting the motion to

11 dismiss into a motion for summary judgment.” Id. “The court need not presume the truthfulness

12 of the plaintiff's allegations.” Id. If the moving party presents evidence demonstrating the lack of

13 subject matter jurisdiction, the party opposing the motion must present affidavits or other evidence

14 sufficient to establish subject matter jurisdiction. Id.

15 B. Lack of Subject Matter Jurisdiction

16 Plaintiff alleges that subject matter jurisdiction is proper before this Court because he

17 asserts a federal claim (Count IV) pursuant to Sections 10(b) and 21D of the Exchange Act, which

18 provide for a private right of contribution. SAC ¶ 11 (citing 15 U.S.C. § 78u-4(f)). Plaintiff also

19 asserts that supplemental jurisdiction exists over his state claims. Id. (citing 28 U.S.C. § 1367).

20 i. Contribution from Related Federal Action

21 Although Section 21D of the Exchange Act provides a private right of action for

22 contribution, that right relies on a “final judgment [being] entered in a private action” and the

23 “trier of fact specifically determine[ing] that [the defendant in the private action] knowingly

24 committed a violation of the securities laws.” 15 U.S.C. § 78u-4(f)(2). Furthermore, if the

25 underlying action settles “at any time before final verdict or judgment,” the settling party “shall be

26 discharged from all claims for contribution brought by other persons.” 15 U.S.C. § 78u-4(f)(7).

27 First, Plaintiff acknowledged but did not oppose Defendants’ argument that his

1 20-21 (only addressing Defendants’ contribution arguments as to State Action); see Jones v.

2 Regents of Univ. of California, No. 21-CV-07844-JSW, 2022 WL 1137089, at *2 (N.D. Cal. Apr.

3 18, 2022) (viewing plaintiff’s “failure to oppose Defendants’ arguments as a concession that those

4 claims should be dismissed”). Second, as pled in the SAC and established in § 78u-4(f)(7),

5 Plaintiff may not pursue a Section 21D claim for contribution from a settled party to a securities

6 action. See Corrected Judgment, Wong v. Arlo Technologies, Inc., et al., Case No. 5:19-cv-00372-

7 BLF (Apr. 19, 2021), ECF No. 153; 15 U.S.C. § 78u-4(f)(7) (“A covered person who settles any

8 private action at any time before final verdict or judgment shall be discharged from all claims for

9 contribution brought by other persons.”). To the extent Plaintiff seeks contribution from

10 Defendant McRae for damages from the Related Federal Action, Plaintiff’s claim is barred by

11 Defendant McRae’s settlement in that case. SAC ¶¶ 185-87.

12 ii. Contribution from State Action

13 To the extent Plaintiff seeks to assert a federal contribution claim against defendants

14 arising out of the State Action, Plaintiff’s claim is not ripe. The SAC specifically emphasizes that

15 the State Action is “active.” SAC ¶ 188. Federal courts have routinely dismissed Section 21D

16 contribution claims on ripeness grounds where the underlying private action that may give rise to a

17 contribution claim is still pending. See, e.g., In re Wells Fargo & Co. S'holder Derivative Litig.,

18 No. 20-CV-08750-MMC, 2022 WL 345066, at *7 (N.D. Cal. Feb. 4, 2022) (dismissing Section

19 21D claim in part because it was “contingent upon the outcome of a separate, pending lawsuit”);

20 DiBattista v. Greco, 2021 WL 327399, at *7 (D. Del. Jan. 31, 2021), adopted, 2021 WL 5061720

21 (D. Del. Feb. 17, 2021) (“[B]ecause Plaintiff is attempting to bring a contribution claim that is

22 contingent upon a finding of liability in the related Securities Action, the injury (and availability

23 of a contribution claim) depends upon the results in the related action, making the contribution

24 claim not ripe.”) (internal quotation marks and brackets omitted) (quoting Pall v. KPMG, LLP,

25 2006 WL 2800064, at *3 (D. Conn. Sept. 29, 2006)).

26 In his opposition, Plaintiff does not rebut the federal cases Defendants cite but instead

27 relies on Delaware state court opinions for the proposition that “Delaware courts allow

1 Opp. 20-21 (quoting In re Am. Int'l Grp., Inc. (“In re AIG”), 965 A.2d 763, 803 (Del. Ch. 2009);

2 citing Pfeiffer v. Toll, 989 A.2d 683, 708 (Del. Ch. 2010)). Be that as it may, those cases involve

3 Delaware state courts opining on issues of Delaware state law, and neither bears upon this Court’s

4 Article III obligation to only adjudicate live cases or controversies. Opp. 20-21; see, e.g., Bishop

5 Paiute Tribe v. Inyo Cnty., 863 F.3d 1144, 1153 (9th Cir. 2017) (“Pursuant to Article III of the

6 U.S. Constitution, federal courts can only adjudicate live cases or controversies.”).

7 Because the SAC admits that the State Action is still “active” and thereby has not reached

8 a final judgment (and indeed may very well settle), Plaintiff currently has no federal claim for

9 contribution against Defendants McRae, Carter, Faison, and Summers arising from the State

10 Action. SAC ¶ 188. Accordingly, Plaintiff’s sole federal claim (Count IV) is barred as to

11 contribution from the Related Federal Action and unripe as to contribution from the pending State

12 Action. Plaintiff’s Count IV is DISMISSED without prejudice.

13 C. Supplemental Jurisdiction

14 Because the Court has dismissed all claims over which it has original jurisdiction (i.e.,

15 Count IV), it declines to exercise supplemental jurisdiction over Plaintiff’s remaining state law

16 claims (Counts I, II, and III). See 28 U.S.C. 1367(C)(3). Plaintiff’s Counts I, II, and III are

17 DISMISSED without prejudice.

18 D. Leave to Amend

19 Although leave to amend is freely given, Fed. R. Civ. P. 15(a), “dismissal without leave to

20 amend is proper if it is clear that the complaint could not be saved by amendment.” Zixiang Li v.

21 Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (citing Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051

22 (9th Cir.2008)) (citations and internal quotation marks omitted). Here, Plaintiff has requested

23 leave to amend, but no factual amendment can remedy the ripeness defects or circumvent Section

24 21D’s settlement bar. Accordingly, the Court DENIES Plaintiff’s request for leave to amend.

25 III. ORDER

26 For the foregoing reasons, IT IS HEREBY ORDERED that Defendants’ Motion to

27 Dismiss the SAC is GRANTED. The SAC is DISMISSED without leave to amend and without

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2 || Dated: August 8, 2022

3 cep)

BETH LABSON FREEMAN

4 United States District Judge

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