Andrew Roth v. Foris Ventures, LLC

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ANDREW E. ROTH, Nos. 22-16632

22-16633

Plaintiff-Appellee /

Cross-Appellant, D.C. No. 4:21-cv-

v. 04288-YGR

FORIS VENTURES, LLC; VALLEJO

VENTURES TRUST U/T/A 2/12/96; OPINION

L. JOHN DOERR; ANN DOERR;

AMYRIS, INC.,

Defendants-Appellants /

Cross-Appellees.

Appeal from the United States District Court

for the Northern District of California

Yvonne Gonzalez Rogers, District Judge, Presiding

Argued and Submitted July 17, 2023

San Francisco, California

Filed November 13, 2023

Before: KIM MCLANE WARDLAW and MILAN D.

SMITH, JR., Circuit Judges, and DOUGLAS L. RAYES, *

District Judge.

*

The Honorable Douglas L. Rayes, United States District Judge for the

District of Arizona, sitting by designation.

2 ROTH V. FORIS VENTURES, LLC

Opinion by Judge Milan D. Smith, Jr.

SUMMARY **

Securities Law

The panel affirmed in part and reversed in part the

district court’s order denying defendants’ motion to dismiss

a derivative action brought by a shareholder of Amyris, Inc.,

under § 16(b) of the Securities Exchange Act of 1934, which

imposes liability for sales and purchases of securities

between an issuer of securities and a beneficial owner,

director, or officer of that issuer that occur within six months

of each other and realize a profit.

Securities and Exchange Rule 16b-3(d)(1) exempts from

liability under § 16(b) transactions between an issuer and a

director where the issuer’s board approves the

transaction. Agreeing with the Second Circuit, the panel

held that Rule 16b-3(d)(1) does not require the board of

directors to approve a transaction for the specific purpose of

exempting it from liability.

The panel held that the district court erred by imposing a

purpose-specific approval requirement. However, the

district court did not err in finding that the Amyris board was

aware that defendant John Doerr had an indirect pecuniary

interest in the challenged transactions when it approved

them. The panel left it for the district court on remand to

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

ROTH V. FORIS VENTURES, LLC 3

address whether defendant Foris Ventures, LLC, a beneficial

owner of Amyris, was a director by deputation and thus

eligible for the Rule 16b-3(d)(1) exemption.

COUNSEL

Michael D. Celio (argued), Jessica Valenzuela, Kevin J.

White, and Paul J. Collins, Gibson Dunn & Crutcher LLP,

Palo Alto, California; Jonathan A. Shapiro, Goodwin Procter

LLP, San Francisco, California; Robert M. Tiefenbrun,

Goodwin Procter LLP, Los Angeles, California; Grant P.

Fondo, Goodwin Procter LLP, Redwood City; Daniel R.

Adler, Gibson Dunn & Crutcher LLP, Los Angeles,

California; for Defendant-Appellant.

Glenn F. Ostrager (argued) and Joshua S. Broitman,

Ostrager Chong Flaherty & Broitman PC, New York, New

York; William F. Jonckheer and Robert C. Schubert,

Schubert Jonckheer & Kolbe LLP, San Francisco,

California; for Plaintiff-Appellee.

Kerry J. Dingle, Senior Appellate Counsel; Dominick V.

Freda, Assistant General Counsel; Michael A. Conley,

Solicitor; Securities & Exchange Commission, Washington

D.C.; for Amicus Curiae Securities and Exchange

Commission.

4 ROTH V. FORIS VENTURES, LLC

OPINION

M. SMITH, Circuit Judge:

Section 16(b) of the Securities Exchange Act of 1934

imposes liability for sales and purchases of securities

between an issuer of securities and a beneficial owner,

director, or officer of that issuer that occur within six months

of each other and realize a profit. 15 U.S.C. § 78p(b). The

statute authorizes the Securities and Exchange Commission

(SEC) to exempt certain transactions from liability pursuant

to that section. Id. Pursuant to this authority, the SEC

promulgated Rule 16b-3, which exempts transactions

between an issuer and a director where the issuer’s board

approves the transaction. 17 C.F.R. § 240.16b-3(d)(1).

The primary question presented in this appeal is whether

Rule 16b-3 requires the board of directors to approve a

transaction for the specific purpose of exempting it from

liability. We hold that it does not. 1

STATUTORY AND REGULATORY BACKGROUND

Section 16(b) provides, in relevant part:

For the purpose of preventing the unfair use

of information which may have been

1

This appeal has been held in abeyance as to Amyris since August 14,

2023, due to the automatic stay imposed by 11 U.S.C. § 362. See Docket

Entry No. 49. The Clerk will administratively close this appeal as to

Amyris. No mandate will issue in connection with this administrative

closure, and this opinion does not constitute a decision on the merits as

to Amyris. Within 28 days after any change to the automatic stay’s effect

in this appeal, any party may notify this court and move to reopen the

appeal as to Amyris or for other appropriate relief.

ROTH V. FORIS VENTURES, LLC 5

obtained by such beneficial owner, 2 director,

or officer by reason of his relationship to the

issuer, any profit realized by him from any

purchase and sale, or any sale and purchase,

of any equity security of such issuer (other

than an exempted security) . . . within any

period of less than six months . . . shall inure

to and be recoverable by the issuer . . . .

15 U.S.C. § 78p(b). This allows securities issuers and their

shareholders to file suit for disgorgement of profits from

potentially exploitative transactions between the issuer and

corporate insiders. Dreiling v. Am. Online, Inc., 578 F.3d

995, 1001 (9th Cir. 2009). The provision imposes strict

liability as a prophylactic rule against such abuse. Id.

However, Congress also granted the SEC the authority

to make rules exempting certain transactions from liability

when strict application of Section 16(b) would not serve its

intended purpose. 15 U.S.C. § 78p(b). Pursuant to this

authority, the SEC promulgated Rule 16b-3, which exempts

“[t]ransactions between an issuer and its officers or

directors,” that are “approved by the board of directors of the

issuer.” 17 C.F.R. § 240.16b-3(d)(1). As we have

recognized, the SEC exempted these transactions because

they “‘do not appear to present the same opportunities for

insider profit on the basis of non-public information as do

market transactions by officers and directors.’” Dreiling v.

Am. Online, Inc., 458 F.3d 942, 948 (9th Cir. 2006) (quoting

Ownership Reports and Trading by Officers, Directors and

Principal Security Holders, Exchange Act Release No. 34-

2

A “beneficial owner” is a person or entity that owns “more than 10

percent of any class of any equity security.” 15 U.S.C. § 78p(a)(1).

6 ROTH V. FORIS VENTURES, LLC

37260, 61 Fed. Reg. 30376-01, 1996 WL 324486, at *30377

(June 14, 1996)).

FACTUAL AND PROCEDURAL BACKGROUND

Amyris is a publicly traded biotechnology company that

operates out of California. John Doerr is a member of the

Amyris board of directors. Doerr and his wife, Ann Doerr,

are also trustees of Vallejo Ventures Trust (Vallejo), which

is the member of Foris Ventures, LLC (Foris)—a private

investment company that owns over 10% of Amyris

common stock and related derivative securities. Doerr

indirectly owns all membership interests in Foris.

Foris and Amyris entered into several transactions

involving Amyris stock, warrants, and debt between April

2019 and January 2020. 3 The Amyris board of directors

approved each of those transactions.

The following year, Andrew Roth, an Amyris

shareholder, filed a derivative lawsuit on behalf of Amyris

against the Doerrs, Foris, and Vallejo, alleging that those

transactions violated Section 16(b) and seeking

disgorgement of profits. 4 Defendants moved to dismiss on

the basis that, inter alia, the relevant transactions were

exempt from Section 16(b) liability pursuant to Rule 16b-3

because they were approved by the Amyris board. The

district court denied the motion. Relying on an SEC no-

action letter, the district court first opined that Rule 16b-3’s

3

The district court determined that Roth adequately pled that the

transactions constituted purchases and sales pursuant to Section 16(b).

No party challenges that finding on appeal.

4

Roth also sued Barbara Hager, a special trustee of Vallejo and manager

of Foris, but the claims against her were subsequently dismissed and are

not at issue in this appeal.

ROTH V. FORIS VENTURES, LLC 7

exemption covers transactions in which a director has an

indirect pecuniary interest, such as those between Amyris

and Foris. See Am. Bar Assoc., 1999 WL 61837, at *2 (Feb.

10, 1999). However, the district court held that these

transactions were not exempt because the board did not

approve the transactions for the specific purpose of

exempting them under Rule 16b-3.

The district court subsequently granted a certificate of

interlocutory appealability on the sole issue of whether Rule

16b-3 requires a board of directors to explicitly approve

transactions for the purpose of exempting them under the

Rule. We granted Defendants’ petition to appeal (as well as

Roth’s petition to conditionally cross-appeal).

JURISDICTION AND STANDARD OF REVIEW

We have interlocutory jurisdiction pursuant to 28 U.S.C.

§ 1292(b). This jurisdiction “permits [us] to address any

issue fairly included within the certified order because it is

the order that is appealable, and not the controlling question

identified by the district court . . . .’” Deutsche Bank Nat.

Trust Co. v. FDIC, 744 F.3d 1124, 1134 (9th Cir. 2014)

(quoting Nevada v. Bank of Am. Corp., 672 F.3d 661, 673

(9th Cir. 2012)). “We review a district court’s decision to

grant or deny a motion to dismiss pursuant to Rule 12(b)(6)

de novo.” Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078,

1079 (9th Cir. 2005); see also Drieling, 458 F.3d at 954

(reviewing eligibility for Rule 16b-3 exemption to Section

16(b) liability de novo).

ANALYSIS

I

Defendants challenge the district court’s holding that, for

Rule 16b-3(d) to apply, a board of directors must approve a

8 ROTH V. FORIS VENTURES, LLC

transaction for the specific purpose of exempting it from

Section 16(b) liability. This is the rare case where all parties

involved agree that we must reverse. Both Roth and the

SEC—which filed an amicus brief in this case—

acknowledge that Rule 16b-3 lacks a purpose-specific

approval requirement. We agree.

The district court derived its purpose-specific approval

requirement from an SEC no-action letter stating that board

must specify that its approval was “granted for purposes of

making the transaction exempt under Rule 16b-3.” Am. Bar

Assoc., 1999 WL 61837, at *2. However, courts generally

do not defer to no-action letters. See Gryl v. Shire Pharms.

Grp. PLC, 298 F.3d 136, 145 (2d Cir. 2002) (“SEC no-action

letters constitute neither agency rule-making nor

adjudication and thus are entitled to no deference beyond

whatever persuasive value they might have.”); N.Y.C.

Emps.’ Ret. Sys. v. SEC, 45 F.3d 7, 12, 14 (2d Cir. 1995)

(explaining that SEC no-action letters “do not bind . . . the

courts”). And, in any event, the SEC subsequently

disavowed the purpose-specific approval requirement in

amicus briefs filed before both the Second Circuit, see Brief

of the Securities and Exchange Commission, Amicus

Curiae, Gryl, 298 F.3d 136 (No. 01-9139), 2002 WL

32625905, at *24, and our court in this case.

Rightly so. The text of Rule 16b-3 does not include a

purpose-specific approval requirement. The Rule states, in

relevant part, that “[a]ny transaction . . . involving an

acquisition from the issuer . . . shall be exempt if . . . [t]he

transaction is approved by the board of directors of the

issuer.” 17 C.F.R. § 240.16b-3(d)(1). Simply put, nothing in

the regulation indicates that the board must approve the

transaction for the specific purpose of exempting it from

Section 16(b) liability.

ROTH V. FORIS VENTURES, LLC 9

When presented with this same issue, the Second Circuit

rejected the argument that Rule 16b-3(d) requires purpose-

specific approval of a transaction for the exemption to apply.

Gryl, 298 F.3d at 144–45 (“We find wholly unpersuasive the

artificial imposition of purpose-specific approval on the

Board Approval Exemption . . . .”). In so doing, the court

observed that “the text of the rule itself contains no

suggestion that [a purpose-specific] requirement exists” and

“mentions nothing about the subjective motivations of the

approving body.” Id. at 145. Therefore, the court explained,

the requirements of the exemption are satisfied “[s]o long as

the relevant securities transaction is between an issuer and

insider, and so long as the terms and conditions of that

transaction receive advance approval by the board of

directors.” Id. at 145–46. We find this interpretation

persuasive and hold that Rule 16b-3 does not include a

purpose-specific approval requirement.

II

Notwithstanding that Rule 16b-3 lacks a purpose-

specific approval requirement, Roth argues that this case

should be remanded for two other reasons. First, Roth

argues that remand is required to determine whether the

Amyris board knew about and acknowledged Doerr’s

pecuniary interest in the challenged transactions when

approving them. But the district court explicitly found that

the Amyris board evinced awareness of the existence and

extent of Doerr’s indirect interest in the transactions. SEC

regulations define “pecuniary interest” as “the opportunity,

directly or indirectly, to profit or share in any profit derived

from a transaction.” 17 C.F.R. § 240.16a-1(a)(2)(i). The

complaint straightforwardly recognizes that “[Doerr]

indirectly owns all membership interests in [Foris.]”

Furthermore, SEC filings show that the Amyris board

10 ROTH V. FORIS VENTURES, LLC

considered Doerr’s indirect ownership of all of the

membership interests in Foris when approving the

transactions. Those filings also include Amyris shares

owned by Foris in calculating Doerr’s beneficial ownership

of the company. This is sufficient to establish the board’s

knowledge of Doerr’s indirect pecuniary interest in the

challenged transactions. The district court did not err in so

finding.

Second, the parties dispute whether Rule 16b-3 exempts

Foris—a beneficial owner of Amyris—from Section 16(b)

liability in the first place. Roth argues that because Section

16(b) imposes liability for transactions between issuers and

beneficial owners while Rule 16b-3(d) exempts transactions

between issuers and directors or officers (but not beneficial

owners), Foris is only eligible for the exemption if it can

show that it is a “director by deputization.” “[A] corporation

may be a virtual director, and thus an insider for purposes of

§ 16(b) liability, by deputizing a natural person to perform

its duties on the board.” Dreiling, 458 F.3d at 952 (citation

omitted). Because companies may incur Section 16(b)

liability as directors by deputization, our court has

recognized that they may also invoke the Rule 16b-3(d)

exemption where the board is aware of the deputization. Id.

at 953–54. However, “[w]hether a company is a director by

deputization is a question of fact to be settled case by case

and not a conclusion of law.” Id. at 952 (quotation marks

and citation omitted); see also Strom v. United States, 641

F.3d 1051, 1060 (9th Cir. 2011) (“[T]he applicability of

§ 16(b) often will turn on factual issues not appropriately

resolved on a motion to dismiss.”). The district court

determined that the complaint and the judicially noticed

documents did not suffice to show that Foris was a director

by deputization at the motion to dismiss stage. We agree and

ROTH V. FORIS VENTURES, LLC 11

therefore remand the case to the district court for further

proceedings to determine whether Foris was a director by

deputization.

We do not now address the related issue of whether the

challenged transactions are exempt under Rule 16b-3

regardless of whether Foris is a director by deputization

because Rule 16b-3(d) exempts entire transactions, rather

than specific defendants, from Section 16(b) liability. This

argument was never squarely addressed by the district court.

“The matter of what questions may be taken up and resolved

for the first time on appeal is one left primarily to the

discretion of the courts of appeals.” Singleton v. Wulff, 428

U.S. 106, 121 (1976). “As a federal court of appeals, we

must always be mindful that we are a court of review, not

first view.” Shirk v. United States ex rel. Dep’t of Interior,

773 F.3d 999, 1007 (9th Cir. 2014) (quotations and citations

omitted). Accordingly, we leave it to the district court to

address this potentially dispositive issue in the first instance.

See Detrich v. Ryan, 740 F.3d 1237, 1248–49 (9th Cir. 2013)

(en banc) (“A standard practice . . . is to remand to the district

court for a decision in the first instance without requiring any

special justification for so doing.”).

CONCLUSION

The district court erred by imposing a purpose-specific

approval requirement in its Rule 16b-3(d) exemption

analysis. However, contra Roth’s argument, it did not err in

finding that the Amyris board was aware that Doerr had an

indirect pecuniary interest in the challenged transactions

when it approved them. Finally, because the issue of

whether Foris is a director by deputization is a question of

fact, we remand the case, except as to Amyris, to the district

court for further proceedings to determine whether Foris was

12 ROTH V. FORIS VENTURES, LLC

a director by deputization. The appeal as to Amyris is closed

for administrative purposes.

AFFIRMED IN PART AND REVERSED AND

REMANDED IN PART.

The parties shall bear their own costs.