# Opposition Brief — Simmonds v. Credit Suisse Securities (USA) LLC

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_1085%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2011
- **Citation:** 564 U.S. 1046

## Text

No. 40-1218 mene Court US.

IN THE MAY 26 2011
Supreme Court of the Mnited Stetee—

VANESSA SIMMONDS,
Petitioner,
v.
CREDIT SUISSE SECURITIES (USA) LLC, et al.,
Respondents.

a

On PerrriON FoR A Wait or CERTIORARS TO THE
Unrrep Stares COURT OF APPEALS FOR THE NINTH CiRCUIT

MOVING ISSUER RESPONDENTS’
BRIEF IN OPPOSITION

Davin H. KisTENBROKER
Counsel of Record
JONI S. JACOBSEN
KatTTeN Mucgiw RosenmAN LLP
525 West Monroe Street
Suite 1900
(312) 902-5200
david. kistenbroker@kattenlaw.com

Liaison Counsel for Moving
May 26, 2011 Issuer.Respondents

[Additiond! Counsel Listed on Signature Page]

236181 F

COUNSEL PRESS
(800) 274-8821 * (800) 859-6859

7

QUESTIONS PRESENTED

1. Whether the Ninth Circuit properly held that
Petitioner’s statutorily mandated pre-suit demand letters
were inadequate given that the letters failed to identify
the wrongdoing allegedly perpetrated and the legal action
Petitioner wanted the Moving Issuers’ boards to take on
the respective corporation’s behalf.’

2. Whether the Ninth Circuit properly rejected
Petitioner’s argument that demand should be excused as
futile given that a shareholder may not invoke the demand
futility exception after submitting a demand to the board.

3. Whether the Ninth Circuit properly converted
dismissal of Petitioner’s claims from without prejudice
to with prejudice given that the actual pre-suit demand
letters were considered by the court and found to be
inadequate, and thus any amendment would be futile.

12
RULE 29.6 DISCLOSURE STATEMENT

Pursuant to Rule 29.6 of the Rules of the Supreme
Court of the United States, the undersigned counsel
submits the Corporate Disclosure Statement for the
Moving Issuer Respondents set forth below:

Akamai Technologies, Inc. has no parent corporation
and no publicly held company owns 10% or more of its
stock.

Ariba, Inc. has no parent corporation and no publicly
held company owns 10% or more of its stock.

Asialnfo-Linkage, Inc., formerly known as AsiaInfo
Holdings, Inc., has no parent corporation and no publicly
held company owns 10% or more of its stock.

Aspect Medical Systems, Inc. is a wholly owned
subsidiary of Covidien PLC, a publicly held company.

Audible, Inc. is a wholly owned subsidiary of Amazon.
com, Inc., a publicly held company.

Capstone Turbine Corporation has no parent
corporation and no publicly held company owns 10% or
more of its stock.

CoSine Communications, Ine. has no parent
corporation and no publicly held company owns 10% or
more of its stock.

L-1 Secure Credentialing, Inc., formerly known as
Digimare Corporation, is a wholly owned subsidiary of
L-1 Identity Solutions Operating Company, which is a

a0

subsidiary of L-1 Identity Solutions, Inc., a publicly traded
company (“L-1”). On September 20, 2010, L-1 publicly
announced it had entered into an agreement under which
Safran, a French company, will acquire L-1 following the
sale of L-1’s government/intelligence services business to
BAE Systems. In February 2011, L-1 consummated the
sale of the stock and membership interests of the entities
comprising the L-1 Intel Business to BAE Systems. The
acquisition by Safran is subject to a number of conditions,
including, but not limited to, prior review by the U.S.
Committee on Foreign Investment in the United States
(CFIUS). In connection with the pending acquisition of
L-1 by Safran SA, the CFIUS informed L-1 on May 4,
2011 that it had accepted the refiled joint notification
which provides additional time to negotiate the terms
of a definitive mitigation agreement. This acceptance
commenced a new 30-day review period scheduled to
expire on June 2, 2011. L-1 expects the parties to work
diligently in an effort to finalize the agreement as quickly
as practicable; however, there can be no assurance that
a definitive mitigation agreement will be executed. L-1
expects the closing of the acquisition to occur within 30
to 40 days from the May 4, 2011 acceptance by CFIUS of
the refiling of the joint notification. The closing is subject
to the timing and successful completion of the CF IUS
process and assumes satisfaction or waiver of all other
applicable conditions.

Finisar Corporation has no parent corporation and
no publicly held company owns 10% or more of its stock.

InterNAP Network Services Corporation has no
parent corporation and no publicly held company owns
10% or more of its stock.

lw

Intersil Corporation has no parent corporation. There
are only two publicly traded companies that own 10% or
more of Intersil Corporation’s common stock, namely, T.
Rowe Price Associates, Inc. and FMR L.L.C.

Martha Stewart Living Omnimedia, Inc. has no
parent corporation and no publicly held company owns
10% or more of its stock.

Maxygen, Inc. has no parent corporation and no
publicly held company owns 10% or more of its stock.

NaviSite, Inc. was acquired by Time Warner Cable,
Ine. on April 21, 2011. Time Warner Cable, Inc., a publicly
traded company, is the sole shareholder of NaviSite, Inc.

On February 22, 2011, Occam Networks, Inc. was
acquired by Calix, Ine., a publicly traded Delaware
corporation. In the course of the acquisition (a “reverse-
triangular merger”), Occam Networks, Inc. was merged
into Oecam Networks, LLC, with Occam Networks, LLC
being the surviving entity. Occam Networks, ILC is a
wholly owned subsidiary of Calix, Inc.

Onvia, Inc. has no parent corporation and no publicly
held corporation currently owns 10% or more of its stock.

Openwave Systems, Inc. has no parent corporation
and no publicly held company owns 10% or more of its
stock.

Oplink Communications, Inc. has no parent corporation
and no publicly held company owns 10% or more of its
stock.

v

Packeteer, Inc. is a wholly owned subsidiary of Blue
Coat Systems, Inc., a publicly held company.

Perot Systems Corporation is a wholly owned
subsidiary of Dell, Inc., a publicly held company.

Priceline.com Incorporated has no parent corporation
and no publicly held company owns 10% or more of its
stock.

Red Hat, Ine. has no parent corporation and no
publicly held company owns 10% or more of its stock.

Saba Software, Inc. has no parent corporation. The
only publicly traded corporation that owns 10% or more
of Saba Software, Inc.’s common stock is T. Rowe Price
Associates, Ine.

Selectica, Inc. has no parent corporation and no
publicly held company owns 10% or more of its stock.

Silicon Laboratories, Inc. has no parent corporation
and no publicly held company owns 10% or more of its
stock.

Soapstone Networks Ine., formerly known as Avici
Systems, Inc., has no parent corporation and no publicly
held corporation owns 10% or more of its stock. Soapstone
Networks Inc. has been dissolved pursuant to Section
275 of the General Corporation Law of the State of
Delaware by the filing of a Certificate of Dissolution with
the Secretary of State of Delaware. The Certificate of
Dissolution became effective July 31, 2009, and the period
for winding up the affairs of Soapstone Networks Inc.
thereupon began.

ve?

Sonus Networks, Inc. has no parent corporation and
no publicly held company owns 10% or more of its stock.

Sycamore Networks, Inc. has no parent corporation
and no pubhely held company owns 10% or more of its
stock.

TheStreet.com, Inc. has no parent corporation and
no publicly held company owns 10% or more of its stock.

TiVo Inc. has no parent corporation. The only publicly
traded corporation that owns 10% or more of TiVo Inc.’s
common stock is Blackrock, Ine.

On July 21, 2009, Open Text Corporation, a publicly
traded Canadian corporation, acquired through an
indirect wholly owned subsidiary all of the issued and
outstanding common shares of Vignette Corporation.

vee

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED ..................
RULE 29.6 DISCLOSURE STATEMENT... ... TT
Meneses We CONTENTS . 00.60. ceccccasceees Vil
TABLE OF CITED AUTHORITIES ........... ix
5 te Os 8) ee nee I
COUNTER-STATEMENT OF THE CASE ..... 3
1. THE POLICIES UNDERLYING
BERS EMON IGLD) ow nici issn cswuneen 3
Il. BRIEF FACTUAL BACKGROUND ..... 4
Il. THE DISPOSITION BELOW ........... G
REASONS FOR DENYING THE PETITION .. i)
1. THE NINTH CIRCUIT'S DECISION
REGARDING PETITIONER'S
INADEQUATE DEMAND LETTERS
WAS PROPER AND DOES NOT
CONFLICT WITH ANY OTHER
EUSERUINIES vv ica cusdvscus vn sameeeun Fy)

A. The Ninth Circuit Is the Only Circuit
that Has Addressed the Substantive
Requirements of a Section 16(b)
Pa LCE eck bs soc xan i)

v2

Table of Contents

Page
B. The Ninth Circuit's Application of
AaMen Was PYODE? oss. cee cans 10
C. Petitioner’s Arguments Regarding
Kamen and Delaware's Pre-Suit
Demand Standard Are Unavailing
eee NE itn NE MRS ean 13
D. Rule 23.1's “Procedural Dictates”
Were Irrelevant to the Ninth Circuit's
ERRNO ote eee eee 15
Kk. The Ninth Circuit's Decision Does
Not Reward Insiders or Impede
Congressional Intent ............... 17
Fk. The Ninth Circuit’s Demand Ruling
Presents No Issue of Widespread
Application that Warrants the
(AOUTUS ARON ck ie ees cae ss 19
Il. THE NINTH CIRCUIT'S DECISION
REGARDING DEMAND FUTILITY
WAS PROPER AND DOES NOT
CONFLICT WITH ANY OTHER
SPI ein a eee eae ek 20
Il. THE NINTH CIRCUIT'S DECISION
REGARDING DISMISSAL WITH
PREJUDICE WAS PROPER AND
DOES NOT CONFLICT WITH ANY
tse ih Ob oe arr 23

CAPO Ee UII Sh ok oo dv ee on da eee sk eas oan es 2%

ww

TABLE OF CITED AUTHORITIES

Page

FEDERAL CASES
Blau v. Mission Corp.,

Bee Pigs (1 Gem Re 1OON) one eck tea eun 16
Burks v. Lasker,

ae vi | 7) a eo 1]
Colan v. Monumental Corp.,

o24 F’. Supp. 1023 (N.D. Ill. 1981) ............. 3,13
Coran v. Snap-on Tools Corp.,

408 F. Supp. 1060 (E.D. Wis. 1976)... 2.2... .. 20-21
Cramer v. Gen. Tel. & Elec. Corp,

Soc P.ce coe Oe Cir. YOTS).... 22... we cca 17
Daily Income Fund, Inc. v. Fox,

oe ee 2 | ar ee 15
Dottenheim v. Murchison,

cei F.20 (ot (oth Civ, IOK6) |... ck cee cece 16
Dreiling v. Am. Express Travel Related Servs.,

351 F. Supp. 2d 1077 (W.D. Wash. 2004),

revd on other grounds, 458 F.3d 942

RU IE, SI as oes eke ee eee ee ee 85S 9

Dreiling v. Am. Online Inc.,
578 F.30 995 Oth Cir. 2009)... .... 2... 000s 4

I

Cited Authorities

Page

Foman v. Davis,

Pee Mies PRED 25. 50o sk kde eae ee 24-25
Foremost-McKesson, Inc. v. Provident Sec. Co.,

Me W9e. ID) so os nies bac ncuseaevesneds 4
Gaubert v. Fed. Home Loan Bank Bad.,

De Bae OO CRIA, CAN. TI) ong ks oe cet nice ns 24
Grossman v. Johnson,

674 F.2d 115 (ist Cir. 1982)....... 2.0... eee 14, 17
Henss v. Schneider,

132 F. Supp. 60 (S.D.N.Y. 1955). ........ 3, 18, 18, 20
Heublein, Inc. v. Gen. Cinema Corp.,

Cae Vee (EL AE, Fe oc oh os ccc uscupeuns 4
In re Kauffman Mutual Fund Actions,

479 #20 257 (ist Cir. 1973) .. occ ee cs 23-24, 26
In re Silicon Graphics Inc. Sec. Litig.,

183 F.3d 970 (Oth Cir. 19909) . . ... 2... wanes 24
Kamen v. Kemper Fin. Servs., Inc.,

Se We ONE? oo te ke caer cee passim

Kanter v. Barella,
Seo ee 170 Ge Cir. S007). os iv aces cuscccuu us 24

x2

Cited Authorities

Page

Kern Cnty. Land Co. v.

Occidental Petroleum Corp.,

RRR LEED 5 on ccc ceewewees sense 4
Levner v. Saud,

903 F. Supp. 452 (S.D.NLY. 1994).............. 21
Lopez v. Smith,

203 F.3d 1122 (9th Cir. 2000)................. 25
Mendell v. Gollust,

909 F.2d 724 (2d Cir. 1990), affad,

PE Wit SOA EOPED, os cakes ecvncccnecevavese 22
Pellegrino v. Nesbit,

203 F.2d 463 Oth Cir. 1953)... 2... ccc ce ees 22
Potter v. Hughes,

546 F.3d 1051 (9th Cir. 2008)................. 14
Rothenberg v. United Brands Co.,

No. 74 Civ. 5735, 1977 WL 1014 (S.D.N.Y.

May 11, 1977), affd, 573 F.2d 1295

I Ee er. ow ciba bese eeu ees 22
Shlensky v. Dorsey,

574 F.2d 131 (Sd Cir. 1978) ... 0... ccc cee 25

Starrels v. First Nat'l Bank of Chicago,
Bro ©.00 1165 (itn Cir, 1969) . eee 24

X12

Cited Authorities

Page

Tellabs, Inc. v. Makor Issues & Rights,

Oe 8 TD ok eka ara e eee kee ake ee 24
STATE CASES
DiLorenzo v. Edgar,

No. Civ. 03-841-SLR, 2004 WL 609374

LER Ben. SE Bs EE as 5b ce va baer kee es 17, 22-23
FLI Deep Marine LLC v. McKim,

C.A. No. 4138-VCN, 2009 WL 1204363

EPUE: Somes Ue, Oe Es cs wc eee uS cece cacnee e's 8,16
Gatz v. Ponsoldt,

Civ. A. 174-N, 2004 WL 3029868

(EP: Ore, PO By OO nc eds coh es ve wlcavccsess 16
Khanna v. McMinn,

No. Civ. A 20545-NC, 2006 WL 1888744

(Es Se SE ok os pene see ae saueens 16
Segen v. Comvest Venture Partners, LP,

No. Civ. A. 04-822-JJF, 2005 WL 1320875

CER Ree. I a, NY sc 50s Choo Gee eae ee aws i eo
Spiegel v. Buntrock,

BT Re TOF CI BOO oc is eee wccswatss 3, 13, 21

Yaw v. Talley,
Civ, A. No. 12882, 1994 WL 89019
(idea. Ce, BR, , SO no oo uo os oe OS a ewe 12, 16

X12

Cited Authorities
Page

FEDERAL STATUTES
Section 16(a) of the Securities Exchange Act

of 1064, 16 U.S.A). 9 TOG a cosassdeazeeee 17, 18
Section 16(b) of the Securities Exchange Act

of 1964, 16 UA. § TOMS «sie cee eee passim
RULES
Federal Rule of Civil Procedure 23.1 .......... passim
Supreme Court Rule 30 .... 40005 ue esses 19, 22
OTHER AUTHORITIES

Peter Romeo & Alan Dye, Section 16 Treatise and
Reporting Guide (3d ed. 2008) ........... 14, 15, 22

]

INTRODUCTION

There is no conflict among federal courts on any
of the questions presented by Petitioner. Indeed, no
other circuit court has addressed the substantive
requirenients of a pre-suit demand under Section 16(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b)
(“Section 16(b)”). The Ninth Circuit faithfully applied
this Court’s instruction to determine “the contours of
the demand requirement” by applying the law of the
Moving Issuers’ state of incorporation, here Delaware.
Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991).
And, the Ninth Circuit’s application of Delaware law to
evaluate the content of Petitioner’s Section 16(b) demand
letters was plainly correct. Noting that Petitioner’s
demand letters make no reference to the transactions on
which her complaints are based, Appendix to the Petition
(“Appendix” or “Pet. App.”) at 6la, the Ninth Circuit held
that the demand letters are inadequate because they fail
to identify the wrongdoing allegedly perpetrated and
the legal action she wanted the boards to take. Jd. at 59a.
In these circumstances, there is no issue worthy of this
Court’s review.

Petitioner does not challenge the Ninth Circuit’s
conclusion that her demand letters are inadequate under
Delaware law and explicitly acknowledges that “[n]o
decision from this Court, or any circuit court before
the Ninth Circuit decision, has ever addressed the
requirements of a Section 16(b) pre-suit demand.” Pet.
at 17. Petitioner nevertheless hopes to obtain the Court’s
review by creating a conflict where none exists. In fact,
her entire Petition is based on the false premise that the
Ninth Circuit’s decision “subjects Section 16(b) claims to

2

the procedural dictates of Rule 23.1” and thus conflicts
with decisions of other circuit courts. /d. at 16. Contrary
to Petitioner’s assertion, the Ninth Circuit specifically
refrained from deciding whether Rule 23.1 applies to
Section 16(b) claims, because that issue was not relevant
to its analysis. Pet. App. at 51a n.7. Petitioner’s purported
conflict is thus nonexistent and the Petition should be
denied.

Petitioner also seeks review of the Ninth Circuit’s
rejection of her attempt to excuse the inadequate
demand letters by arguing demand futility. Despite the
unambiguous opinion of the Ninth Circuit, she again
claims that the court erroneously “allowed Rule 23.1 to
govern its analysis” and that this creates a circuit split
worthy of review. Pet. at 28. As with the issue of adequacy
of demand, Petitioner’s attempt to obtain review based on
this false conflict must be rejected.

Finally, Petitioner seeks review of the Ninth Circuit’s
decision to dismiss the cases involving the Moving Issuers
with prejudice, rather than without prejudice. As the
Ninth Circuit made clear, dismissal with prejudice is
appropriate where amendment would be futile.

The Ninth Circuit’s decision to affirm the district
court’s dismissal of Petitioner’s complaints for failure to
make an adequate demand was proper. And, Petitioner
cannot show that the Ninth Circuit’s decision regarding
her demand letters is contrary to any prior decisions of
this Court or those of any other circuit court. For these
reasons and the reasons set forth below, the Petition
should be denied.

3
COUNTER-STATEMENT OF THE CASE
I. THE POLICIES UNDERLYING SECTION 16(b)

Petitioner’s complaints allege that the Underwriters’
violated Section 16(b) by engaging in prohibited “short-
swing” transactions in connection with the Initial Public
Offerings (IPOs) of the fifty-four Issuers between 1999
and 2000. See 15 U.S.C. § 78p(b).

Congress specifically included a demand requirement
in Section 16(b) and provided a sixty-day period during
which a corporation’s board has the opportunity to
investigate and initiate suit, if appropriate. Jd. (Section
16(b) suit may be brought by shareholder only “if the
issuer shall fail or refuse to bring such suit within sixty
days after request”). The policy behind the demand
requirement “‘is to assure that the stockholder affords
the corporation the opportunity to address an alleged
wrong without litigation, to decide whether to invest the
resources of the corporation in litigation, and to control
any litigation which does occur.” Pet. App. at 54a (quoting
Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990)); see also
Henss v. Schneider, 132 F. Supp. 60, 62 (S.D.N.Y. 1955)
(“The sixty day [demand] provision [in Section 16(b)] was
enacted for the benefit of the corporation and to afford it a
reasonable opportunity to assert and prosecute its claim in
its own name for the recovery of profits from the insider.”);
Colan v. Monumental Corp., 524 F. Supp. 1023, 1027 (N.D.
Ill. 1981) (Section 16(b)’s demand requirement allows a
corporation “to address shareholder complaints prior to
resorting to judicial intervention.”) (citation omitted).

2. “Underwriters” refers to the Underwriter Defendants
listed in the Petition at iii.

4

Section 16(b) is designed to protect investors, the
market, and issuers themselves from abuses by corporate
insiders’ speculative short-swing trading based on inside
information. See Kern Cnty. Land Co. v. Occidental
Petroleum Corp., 411 U.S. 582, 594-95 (1973). Because
Section 16(b) applies harshly to hold statutorily defined
insiders strictly liable for short-swing profits, this Court
has narrowly construed Section 16(b)’s reach. Foremost-
McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 251-
52 (1976) (“[Section 16(b)] imposes liability without fault
within its narrowly drawn limits”). See also Dreiling v.
Am. Online Inc., 578 F.3d 995, 997, 1005 (9th Cir. 2009)
(noting the “narrow interpretation generally given Section
16(b) by Congress and all judicial precedent thus far”
and rejecting plaintiff's “novel theory of liability” which
would impermissibly “expand Section 16(b) beyond its
previously-established boundaries”). Section 16(b) “was
not intended to remedy all wrongs” and “is simply not
an antidote to all the ills that may plague the securities
market.” Heublein, Inc. v. Gen. Cinema Corp., 722 F.2d
29, 31 (2d Cir. 1983).

Il. BRIEF FACTUAL BACKGROUND

In July 2007 — eight years after the relevant IPOs
described in the Petition — Petitioner sent so-called
demand letters to the fifty-four Issuers’ boards of
directors. Pet. App. at 93a-94a. The nearly identical
demand letters each describe the alleged wrongful acts
and purported damages to be sought by the Issuers in a
single paragraph:

Notwithstanding the short-swing trading
prohibition of Section 16, the group, through
iis members engaged in purchase and sales

5

of company shares within periods of less than
six months during [the one-year relevant
period]. Additionally, despite the reporting
requirements of Section 16(a), neither the group
nor its members filed Section 16(a) reports
for these purchase and sale transactions. The
group members should therefore be compelled
to disgorge the profits they made through the
purehase and sale of Company Stock during
[the one-year relevant period].

Id. at 97a. Of the fifty-four Issuers that received Petitioner's
boilerplate demand letters, none brought suit. Pet. at 12.

In October 2007, Petitioner — who apparently acquired
shares of the Issuers at the direction of her father, a
securities attorney with experience in Section 16(b)
litigation — filed fifty-four separate complaints alleging
violations of Section 16(b). The complaints were “based
on the same set of facts as presented in [/n re Initial
Public Offering Securities Litigation, No. 21 MC 92
(SAS) (S.D.N.Y,)].” Pet. App. at 85a; see also id. at 83a.
In her complaints, Petitioner articulated a novel and
complex theory of liability that bears no resemblance to
the Section 16(b) claim contained in the demand letters.
See id. at 61a. Specifically, Petitioner’s complaints allege
that the Underwriters violated Section 16(b) by engaging
in the following alleged “Short-Swing Transactions”:
(1) sharing the profits of customers to whom they made
IPO allocations; (2) allocating shares of the Issuers’
stock to executives and other high-level insiders of other
companies, from which the Underwriters expected to
receive investment banking opportunities in return; and
(3) creating opportunities for other members of the alleged
group to profit from the sale of the Issuers’ stock in return

ERE

6

for future banking opportunities. /d. at 45a-46a. None of
these transactions are mentioned in the demand letters.

Il. THE DISPOSITION BELOW

On July 25, 2008, the Moving Issuers jointly filed
a motion to dismiss, arguing that Petitioner had failed
to serve the Moving Issuers with adequate pre-suit
demand letters and that her claims were time-barred.
Id. at 46a-47a. The Underwriters filed a separate motion
to dismiss, arguing that Petitioner’s claims were time-
barred, that her complaints failed to state a cause of
action under Section 16(b), and that the Underwriters
are protected by various exemptions from Section 16(b).
Id. at 46a.

On March 12, 2009, the district court granted the
Moving Issuers’ Joint Motion to Dismiss, holding that
Petitioner failed to serve adequate demand letters and
thus lacked standing to pursue claims arising from the
Moving Issuers’ IPQOs.* The district court correctly
found that Petitioner’s fifty-four nearly identical demand
letters “do not describe the same alleged wrongdoing that
she later describes in her complaints,” which the court
observed were based on a “complex and novel” theory
of liability. Jd. at 98a, 10la. Accordingly, the demand

3. The district court’s opinion is reported at 602 F. Supp.
2d 1202, and reprinted in the Appendix at 79a-113a. The district
court did not reach the Moving Issuers’ argument that Petitioner's
claims are barred by the two-year statute of limitations. The
district court did, however, reach the limitations issue in ruling
on the Underwriters’ motion to dismiss, holding that the claims
against the Underwriters based on the Non-Moving Issuers’ [POs
are time-barred. /d. at 105a-11 1a.

7

letters “did not put the Issuer Defendants on notice that
| Petitioner] was demanding that the corporation compel
the Underwriter Defendants to disgorge profits they
earned when customers to whom they allocated IPO
shares sold such shares in the aftermarket.” /d. at 98a. In
short, “nothing in the demand letters sent to the Issuer
Defendants, nor in any of the follow-up letters, explains
| Petitioner’s] multi-layered theory of recovery of profits
from short-swing trades.” /d. at 10la. The district court
concluded that the claims were “premised upon mere
suspicion,” “based almost entirely on conjecture,” and
were not of the type that “would further the congressional
intent of [Section 16(b)].” /d. at 98a n.13, 99a, 110a. The
court also rejected Petitioner’s attempt to excuse her
inadequate demand letters by arguing demand futility.
Id. at 102a-103a.

On appeal, the Ninth Circuit affirmed the district
court’s ruling that Petitioner’s demand letters are
insufficient because none of the transactions on which
Petitioner bases her complaints are “referenced in any
way” in her demand letters. /d. at 6la, 64a.‘ Specifically,
Petitioner’s “demand letters claimed that the Underwriters

4. The Ninth Circuit’s opinion, as amended by the order
denying the petitions for rehearing en banc, is reported at __
F.3d __, 2011 WL 135693, and is reprinted in the Appendix at
la-7Xa. The Ninth Circuit reversed the district court’s holding
that Petitioner's claims are barred by the applicable statute of
limitations. On April 15, 2011, the Underwriters filed a petition
for writ of certiorari with the Court on this issue in those cases
involving the Non-Moving Issuers’ IPOs (No. 10-1261). Because
the Ninth Circuit did not reach the statute of limitations in the
cases involving the Moving Issuers’ I POs, those cases are not part
of Underwriters’ petition.

8

directly bought and sold the Issuing Companies’ shares,
and accordingly requested that the Issuing Companies
seek disgorgement of the Underwriters’ trading profits,”
while her complaints seek the disgorgement of indirect
profits that the Underwriters received from “their
customers’ purchases and sales of the Issuing Companies’
shares.” /d. at 60a-61a (emphasis in original). Simply put,
“(t]he garden-variety Section 16(b) claim made out in these
demand letters bears no resemblance to the elaborate
scheme described in { Petitioner’s] Complaints.” /d. at 6la.

The Ninth Circuit, like the district court, also rejected
Petitioner’s argument that “the demand requirement
should be excused as futile,” ruling that “shareholders
may not invoke the futility exception after submitting a
demand to the board.” /d. at 64a (citing F'L/ Deep Marine
LLC v. McKim, C.A. No. 4138-VCN, 2009 WL 1204363, at
*3 n.17 (Del. Ch. Apr. 21, 2009)). In concluding, the Ninth
Circuit held that Petitioner “is barred from relitigating
issues relating to the adequacy of the demand letters,”
which were “litigated fully on the merits,” and instructed
the district court to dismiss the cases involving the Moving
Issuers’ IPOs with prejudice. Pet. App. at 71a.

9
REASONS FOR DENYING THE PETITION

I. THE NINTH CIRCUIT'S DECISION REGARDING
PETITIONER’S INADEQUATE DEMAND
LETTERS WAS PROPER AND DOES NOT
CONFLICT WITH ANY OTHER DECISION.

A. The Ninth Circuit Is the Only Circuit that Has
Addressed the Substantive Requirements of a
Section 16(b) Demand Letter.

There is no circuit split on any issue presented in
the Petition, including the required contents of a Section
16(b) demand letter, thus the Petition should be denied.
Petitioner concedes, as she must, that “[n]o decision from
this Court, or any circuit court before the Ninth Circuit
decision, has ever addressed the requirements of a Section
16(b) pre-suit demand when the insiders have failed to
comply with Section 16(a).” Pet. at 17. In fact, no circuit
court prior to the Ninth Circuit has ever addressed the
requirements of a Section 16(b) demand letter in any
context.® By definition, then, the Ninth Circuit’s decision
eannot conflict with the law of any other circuit.

Dissatisfied that both the Ninth Circuit and the
district court found her demand letters inadequate,
Petitioner now hopes to obtain this Court’s review

5. Moving Issuers are aware of only one district court opinion
(aside from the opinion below) that addresses the substantive
requirements of a Section 16(b) demand letter. See Dretling v. Am.
Express Travel Related Servs., 351 F. Supp. 2d 1077, 1085 (W.D.
Wash. 2004) (applying law of state of incorporation to evaluate
sufficiency of demand letter), rev'd on other grounds, 458 F.3d
942 (9th Cir. 2006).

a

10

by manufacturing a circuit split out of whole cloth.
Specifically, Petitioner claims that “the Ninth Circuit
decision subjects Section 16(b) to the procedural dictates
of Rule 23.1” in contravention of decisions from other
circuit courts which have held that Rule 23.1 does not apply
to Section 16(b) claims. /d. at 16. Petitioner’s assertion
misrepresents the Ninth Circuit’s holding, in which the
court explicitly refrained from deciding whether Rule
23.1 applies to Section 16(b) actions. Pet. App. at 5la n.7.
Rather, the Ninth Circuit relied on substantive state law
to evaluate the sufficiency of Petitioner’s demand letters.
Id. at 51a-52a (citing Kamen, 500 U.S. at 108). Accordingly,
Petitioner’s cases — none of which address the sufficiency
of a Section 16(b) demand or the propriety of looking to
state law for the required substance of a Section 16(b)
demand letter — in no way conflict with the Ninth Cireuit’s
decision. See Section D, infra.

B. The Ninth Circuit’s Application of Kamen Was
Proper.

The Ninth Circuit appropriately followed the
principles set forth in Kamen, 500 U.S. 90, in evaluating
the substance of Petitioner’s demand letters. In Kamen,
the Court considered whether it “should fashion a federal
common law rule obliging the representative shareholder
in a derivative action founded on the Investment Company
Act of 1940 to make a demand on the board of directors
even when such a demand would be excused as futile under
state law.” /d. at 92 (citation omitted). In answering this
question, the Court observed that although Rule 23.1
sets forth pleading requirements, it “does not create a
demand requirement of any particular dimension.” /d.
at 96 (emphasis in original). Rather, “the function of the

1]

demand doctrine in delimiting the respective powers of
the individual shareholder and of the directors to control
corporate litigation clearly is a matter of ‘substance,’
not ‘procedure.” /d. at 96-97. Thus, it was necessary to
“identify the source and content of the substantive law
that defines the demand requirement.” /d. at 97.

Reaffirming the teaching from its earlier decision,
Burks v. Lasker, 441 U.S. 471 (1979),® the Court explained:
“(Where a gap in the federal securities laws must be
bridged by arule that bears on the allocation of governing
powers within the corporation, federal courts should
incorporate state law into federal common law unless
the particular state law is inconsistent with the policies
underlying the federal statute.” Kamen, 500 U.S. at 108
(emphasis in original). Applying this principle, the Court
held that “the contours of the demand requirement,”
including the standards governing demand futility, must
be determined by the law of the state of incorporation.
Id. at 101.

As the Ninth Circuit held, this case fits squarely
within the holding of Kamen. Section 16(b) requires a
shareholder to make a demand on a corporation’s board
of directors and to wait sixty days before she is permitted
to sue, 15 U.S.C. § T8p(b), but “does not set forth any

6. In Burks, the Court stated that “‘[cjorporations are
creatures of state law,’ and it is state law which is the font of
corporate directors’ powers.” 441 U.S. at 478 (citation omitted).
Federal legislation “is generally enacted against the background
of existing state law; Congress has never indicated that the entire
corpus of state corporation law is to be replaced simply because
a plaintiffs cause of action is based upon a federal statute.” /d.
(citations omitted).

12
additional details regarding the nature and scope of this
statutory demand requirement.” Pet. App. at 5la. In
light of this silence, the Ninth Circuit turned to the law
of Delaware — the state of incorporation for each Moving
Issuer — to ascertain the substantive requirements for a
pre-suit demand. /d. at 5la-52a (citing Kamen, 500 U.S.
at 108).

Under Delaware law, a pre-suit demand letter must
“specifically state (i) the identity of the alleged wrongdoers,
(ii) the wrongdoing they allegedly perpetrated and the
resultant injury to the corporation, and (iii) the legal
action the shareholder wants the board to take on the
corporation’s behalf.’”’ Pet. App. at 55a (quoting Yaw
v. Talley, Civ.A. No. 12882, 1994 WL 89019, at *7 (Del.
Ch. Mar. 2, 1994). Applying this standard, the Ninth
Circuit correctly held that Petitioner’s demand letters
were inadequate because they failed to identify “‘the
wrongdoing . . . allegedly perpetrated’” and “‘the legal
action the shareholder wants the board to take on the
corporations’ behalf.” Pet. App. at 59a (quoting Yaw, 1994
WL 89019, at *7). Likewise, the follow-up letters that
Petitioner sent to twenty-five of the Issuers “completely
failed to provide sufficiently detailed information to permit
the boards to conduct a good faith inquiry into the alleged
wrongdoing.” Pet. App. at 6la-62a.

7. However, the Ninth Circuit explained that, in the Section
16(b) context, “a shareholder’s demand need not identify any
corporate injury in order to satisfy the demand requirement”
because “this requirement ‘frustrate[s] specific objectives’ of
Section 16(b) by adding an additional element to the Section 16(b)
cause of action.” Pet. App. at 60a n.18 (quoting Kamen, 500 U.S.
at 98).

13

C. Petitioner’s Arguments Regarding Kamen and
Delaware’s Pre-Suit Demand Standard Are
Unavailing.

Petitioner does not challenge the Ninth Circuit’s
conclusion that her demand letters are insufficient under
Delaware’s pre-suit demand standard. Rather, Petitioner
contends that the Ninth Circuit erred by following Kamen
and incorporating the substantive demand requirements
applied in traditional derivative actions because, she
argues, “Rule 23.1 demands differ materially from Section
16(b) demands in at least two respects.” Pet. at 18-19.

First, Petitioner claims that “in a Rule 23.1 suit,
the pre-suit demand is meant to ‘afford the directors
an opportunity to exercise their reasonable business
judgment,” whereas in a Section 16(b) suit, the “business
judgment of an issuer’s board is irrelevant.” Jd. at 19
(citations omitted). Yet Petitioner blatantly ignores that
the Ninth Circuit considered the differences between
Section 16(b) cases and traditional derivative cases and
also noted the similarities in the policies underlying the
demand requirements. Pet. App. at 54a-56a.

The Ninth Circuit emphasized the primary policy
underlying the pre-suit demand requirement: “‘[T Jo
assure that the stockholder affords the corporation
the opportunzty to address an alleged wrong without
litigation, to decide whether to invest the resources of
the corporation in litigation, and to control any litigation
which does occur.” /d. at 54a (quoting Spiegel, 571 A.2d
at 773 (emphasis added)). This policy is served by the
demand requirement in both the Rule 23.1 and Section
16(b) contexts. See supra at 3-4 (citing Henss, 132 F. Supp.
at 62; Colan, 524 F. Supp. at 1027).

14

The proceeding policy would be frustrated if, as
here, a shareholder could file and control a Section 16(b)
lawsuit after submitting a pro forma demand letter that
makes no mention of the alleged short-swing transactions
or legal theory she intends to pursue. See Pet. App. at
61a (wrongdoing and transactions alleged in Petitioner’s
complaints are not referenced in her demand letters); see
also id. at 63a (“were we to adopt Simmonds’s proposed
approach, Delaware’s demand standard would be
eviscerated”). While the business judgment rule may not
shield the board’s refusal to act on an adequate Section
16(b) demand letter, the board must still be given the
opportunity to investigate and pursue the claim in the
first instance. See Grossman v. Johnson, 674 F.2d 115, 120
(ist Cir. 1982) (“If anything, that special demand provision
(in Section 16(b)] indicates that Congress considered
a demand essential for a shareholder suit even though
Congress may have dispensed with other aspects of what
is now Rule 23.1.”).8 Thus, Petitioner’s argument provides
no justification for this Court’s review.

Second, Petitioner claims, for the first time, that
Kamen was misapplied because Section 16(b) “states
the demand requirement explicitly in the statute,” and

8. As explained by the Ninth Circuit, the “demand rule
‘is not merely a technical or unimportant requirement,” and is
“particularly relevant in the Section 16(b) context.” Pet. App.
at 55a (quoting Potter v. Hughes, 546 F.3d 1051, 1058 (9th Cir.
2008)). ““Anecdotal evidence suggests that well over 90 percent of
all Section 16(b) claims are settled privately without any lawsuit
being filed,” but this figure most certainly would be lower if

boards were not afforded the opportunity to address allegations
of short-swing trading. Pet. App. at 55a (quoting Peter Romeo &
Alan Dye, Section 16 Treatise and Reporting Guide § 9.01 [7]{c]
(3d ed. 2008)).

15

thus there is no gap to bridge. Pet. at 20. Yet Petitioner
acknowledges that “Section 16(b) does not set out
any requirements for the demand itself.” Jd. at 4. In
acknowledging the statute’s silence, Petitioner advocates
for deriving the substantive requirements for a pre-suit
demand letter from a treatise’s summary of what “usually
will” be contained in a demand letter in a typical Section
16(b) case. /d. at 17 (citing Peter Romeo & Alan Dye,
Section 16 Treatise and Reporting Guide § 9.02[4] (3d ed.
2008)). But Romeo & Dye does not even purport to set out
the “requirements” for Section 16(b) demand letters. Nor
does Petitioner cite any case law holding that courts should
incorporate a treatise, as opposed to state law, into federal
common law to bridge a gap in the federal securities laws.
In any event, the pro forma demand letter requirements
for which Petitioner claims to find support in a treatise
would be a particularly poor fit for the novel and complex
theory of liability on which her complaints are based. See
Section F, infra.

D. Rule 23.1’s “Procedural Dictates” Were
Irrelevant to the Ninth Circuit’s Decision.

Petitioner also claims that the Ninth Circuit
“{iJmpos[ed] heightened procedural rules” and “subject{ed|]
Section 16(b) to the procedural dictates of Rule 23.1.” Pet.
at 16, 19. This argument is patently false and conflates
Rule 23.1’s procedural requirements and the substantive
requirements of a pre-suit demand under Delaware law,
which are two separate and distinct concepts. See Section
B, supra; see also Daily Income Fund, Inc. v. Fox, 464
U.S. 523, 543 (1984) (Stevens, J., concurring) (“Rule 23.1
is not the source of [the demand] requirement”). The
Ninth Circuit did not hold (and Moving Issuers have

never argued) that Rule 23.1 applies to Section 16(b)
\

16

claims or otherwise controls the substance of a Section
16(b) demand letter. See Pet. App. at 5la n.7 (“(T]}wo of
our sister circuits have suggested that Rule 23.1 does not
apply in Section 16(b) actions. ... We refrain from deciding
this question because it is not relevant to our analysis”)
(citations omitted).

Despite Petitioner’s complaint that the Ninth Circuit
“relied on Rule 23.1 cases to conclude that Petitioner's
demands were not sufficient,” Pet. at 21, the court did not
rely on those cases for their application of Rule 23.1 or its
state counterpart. Rather, the decisions were relevant
to the Ninth Circuit’s opinion only in that they set forth
substantive Delaware law governing the contents of a pre-
suit demand letter. Pet. App. at 55a-56a, 56a n.13 (citing
FLI, 2009 WL 12043683, at *1 n.6 (setting forth Delaware’s
substantive requirements for a pre-suit demand letter);
Khanna v. McMinn, No. Civ.A. 20545-NC, 2006 WL
1388744, at *13 (Del. Ch. May 9, 2006) (same); Gatz v.
Ponsoldt, No. Civ.A. 174-N, 2004 WL 3029868, at *5 (Del.
Ch. Nov. 5, 2004) (same); Yaw, 1994 WL 8909, at *7 (same)).
See Section C, supra.

The Ninth Circuit’s decision, therefore, does not
conflict with any of the circuit court decisions cited by
Petitioner. Petitioner’s cases do not address the content
of a Section 16(b) demand letter, let alone suggest that the
Ninth Circuit was wrong when it turned to state law — not
Rule 23.1 — to determine the required contents of such
a letter. See Pet. at 22-24 (citing Blau v. Mission Corp.,
212 F.2d 77, 79 (2d Cir. 1954) (compliance with Rule 23.1’s
requirement that a shareholder plead contemporaneous
ownership is not required for Section 16(b) claims);
Dottenherm v. Murchison, 227 F.2d 737 (5th Cir. 1956)

17

(same); Grossman, 674 F.2d at 120 (in deciding whether
Rule 23.1 applies to Section 36(b) claims under Investment
Company Act, court rejected analogy between Section
36(b) and Section 16(b) because the latter contains its own
express demand requirement); Cramer v. Gen. Tel. & Elec.
Corp, 582 F.2d 259, 276 (8d Cir. 1978) (business judgment
rule inapplicable in Section 16(b) context)).’ Petitioner’s
attempt to fabricate a conflict should be rejected.

E. The Ninth Circuit’s Decision Does Not Reward
Insiders or Impede Congressional Intent.

Petitioner argues that the Ninth Circuit’s decision
will impede the enforcement scheme Congress designed
because without a Section 16(a) report, no outsider has
access to information required by the Ninth Circuit’s
decision. Pet. at 10. Petitioner is wrong. The information the
Ninth Circuit held was missing from Petitioner’s demand
letters — the “wrongdoing . . . allegedly perpetrated”
and “’the legal action the shareholder wants the board to
take on the corporation’s behalf” — would not have been
reflected in the Section 16(a) reports that Petitioner claims
should have been filed. Pet. App. at 59a (citation omitted);

9. For the same reasons, there is no conflict between the
Ninth Circuit’s decision and either of the district court decisions
cited by Petitioner. See Pet. at 23-24 (citing Segen v. Comvest
Venture Partners, LP, No. Civ.A. 04-822-JJF, 2005 WL 1320875,
at *4 (D. Del. June 2, 2005) (business judgment rule inapplicable
in Section 16(b) context); DiLorenzo v. Edgar, No. Civ. 03-841-
SLR, 2004 WL 609374, at *3 (D. Del. Mar. 24, 2004) (noting
business judgment rule and Rule 23.1’s pleading requirement of
contemporaneous ownership do not apply to Section 16(b) claims)).
See also infra at 24 (purported conflict with district court does
not warrant review by this Court).

1s

see id. at 6la. Under Petitioner’s theory of liability, the
persons who made the challenged purchases and sales
are not statutory insiders, officers, directors and major
shareholders whose trades would appear on Section 16(a)
reports, but rather customers of the Underwriters. See id.
(“According to the Complaints, the Underwriters violated
Section 16(b) when they profited indirectly through their
customers’ purchases and sales of the Issuing Companies’
shares”) (emphasis in original). Nor would a Section 16(a)
report reflect the indirect “profits the Underwriters
received through their investment banking operations,”
which Petitioner seeks to disgorge in her complaints." See
id. at 60a. I[t is telling that Petitioner was able to bring her
complaints despite the fact that no Section 16(a) reports
have ever been filed.

The requirement that a pre-suit demand letter contain
certain basic information to allow a corporation the fair
opportunity to act does not “reward insiders” or in any
way hinder a shareholder’s ability to proceed with the
suit once she has served a proper demand letter and the
sixty-day period expires. Instead, a standard requiring
sufficient information is necessary to protect the rights
afforded issuers by Section 16(b)’s demand requirement.
After making a sufficient demand, a shareholder is free
to pursue a Section 16(b) claim if the board declines to do
so. See, ¢.g., Henss, 182 F. Supp. at 62.

10. Even according to Petitioner, Section 16(a) reports are
only required to set forth “the short swing trading details, identify
the insiders and group members, specify the shares in which
the insiders have or share a pecuniary interest, and permit the
computation of the profits to be disgorged.” Pet. at 25

19

Petitioner also claims that the Ninth Circuit’s decision
to permit the Underwriters to challenge the adequacy of
the pre-suit demand letters through a motion to dismiss is
contrary to congressional intent. Pet. at ii, 26-27; see also
Pet. App. at 71a n.22. Petitioner, however, has identified no
circuit cases in conflict with the Ninth Circuit’s holding;
thus this issue does not warrant review by this Court. See
Supreme Court Rule 10.

F. The Ninth Circuit’s Demand Ruling Presents
No Issue of Widespread Application that
Warrants the Court’s Attention.

While application of Section 16(b)’s statute of
limitations has generated a significant division among the
circuits with far reaching implications, see Underwriters’
petition for writ of certiorari, No. 1261, the scope of Section
16(b)’s demand requirements has not. Thus, Petitioner not
only fails to identify a conflict, she also fails to identify
an issue of widespread application worthy of the Court’s
review.

In a typical Section 16(b) action, a shareholder
demands disgorgement of short-swing profits in company
stock from corporate insiders; thus the sufficiency of the
shareholder’s demand letter is rarely at issue. Petitioner,
however, seeks disgorgement from Underwriters of profits
earned “indirectly through their customers’ purchases
and sales of the Issuing Companies’ shares.” Pet. App. at
6la (emphasis tn original). Because Petitioner’s demand
letters vaguely describe “a garden-variety Section 16(b)
claim” that “bears no resemblance to the elaborate
scheme” alleged in her complaints, id., the adequacy of
Petitioner’s demand letters was unusually important in

4

20

this case. Thus, the district court and the Ninth Circuit
were required to ascertain and apply the applicable
standard for evaluating the contents of those letters. For
these reasons, Petitioner’s challenge to the Ninth Circuit’s
analysis of her demand letters does not involve an issue of
widespread application to which this Court should devote
its resources.

ll. THE NINTH CIRCUIT’S DECISION REGARDING
DEMAND FUTILITY WAS PROPER AND DOES
NOT CONFLICT WITH ANY OTHER DECISION.

The Ninth Circuit properly rejected Petitioner's
attempt to excuse her inadequate demand letters
by arguing demand futility. Petitioner attempts to
manufacture a conflict by arguing that the “Ninth Circuit
erred in its brief analysis of demand futility because,
again, it allowed Rule 23.1 to govern its analysis.” Pet. at
28. As with the issue of adequacy of demand, Petitioner’s
purported conflict is illusory. As its decision reflects,
the Ninth Circuit did not apply Rule 23.1, which “speaks
only to the adequacy of the shareholder representative’s
pleadings.” Kamen, 500 U.S. at 96; see also Section A,
supra. Instead, the Ninth Circuit properly considered law
from the Moving Issuers’ state of incorporation, Delaware,
in addressing Plaintiff’s unpled arguments regarding
demand futility and waiver. See Section B, supra; see also
Pet. App. at 52a (citing Kamen, 500 U.S. at 108)."'

11. It is important to note that Petitioner does not allege
demand futility in her complaints; she raised demand futility for
the first time in her Opposition Brief before the district court. See
Henss, 132 F. Supp. at 62-63 (dismissing Section 16(b) action where
shareholders failed to allege facts to justify filing suit before 60
day period expired); Coran v. Snap-on Tools Corp., 408 F. Supp.

21

Petitioner’s only retort is that substantive law from
Delaware is inapplicable because the business judgment
rule does not apply to Section 16(b) claims, Pet. at 28-
29, a point acknowledged in the Ninth Circuit’s opinion,
Pet. App. at 54a n.9. Unlike the Ninth Circuit, however,
Petitioner ignores that the demand requirement in both
16(b) and Delaware derivative cases provides a corporation
with the opportunity to evaluate a demand and initiate
suit on its own. See Section C, supra. In both contexts, a
shareholder who makes a demand waives the argument
of demand futility, because the law will not presume that
parties act in a meaningless way — that they undertook
futile actions. See, e.g., Spiegel, 571 A.2d at 775. By making
her demands, Petitioner waived any argument that
the Moving Issuers’ boards were incapable of properly
considering the respective demands and should have been
deprived of this opportunity. Levner v. Saud, 903 F. Supp.
452, 457 (S.D.N-Y. 1994).

There is no conflict or inconsistency between the Ninth
Circuit’s decision and the cases cited by Petitioner for the
proposition that Rule 23.1 does not apply to Section 16(b)

1060, 1061 (E.D. Wis. 1976) (Section 16(b) demand only excused
where demand futility facts “then known” to plaintiff are alleged
in complaint). And, while Petitioner claims she has “demonstrated
demand futility” in her briefs, Pet. at 27, she apparently bases this
conclusion on the fact that Moving Issuers challenged the adequacy
of the demand letters — a right to which they are entitled under
16(b) preeedent, as Petitioner acknowledges. /d. at 26. Moving
Issuers’ request to terminate the actions with prejudice also
cannot demonstrate futility, id. at 27, because Petitioner concedes
that dismissal on statute of limitations grounds (an argument
Moving Issuers presented in the distriet court and on appeal)
“should result in dismissal with prejudice.” /d. at 30 n.10.

99
nee

claims, and regardless, all of the cases cited by Petitioner
are factually inapposite. See Pet. at 29. In Pellegrino v.
Nesbit, 203 F.2d 463 (9th Cir. 1953), for example, the court
did not address demand futility; rather, the language
Petitioner quotes is from the court’s discussion of whether
an appellant can intervene, as a matter of right. Pet. at
29 (citing Pellegrino, 203 F.2d at 466-67). The fact that
a Shareholder may be entitled to intervene in an issuer’s
Section 16(b) suit does not alter the legal principle that
demand futility is judged at the time the complaint is filed,
not based on hindsight. See Rothenberg v. United Brands
Co., No. 74 Civ. 5735, 1977 WL 1014, at *3 (S.D.N-Y. May 11,
1977), aff'd, 573 F.2d 1295 (2d Cir. 1977); Romeo & Dye, §
9.03[2]{b]{iii] (demand futility in a §16(b) case “is measured
as of the date the complaint is filed”). Here, the Moving
Issuers never had the opportunity to evaluate whether
they should file suit because Petitioner failed to serve
adequate demand letters - a fact Petitioner repeatedly
ignores. Thus, this case has no relationship to those where
a company brought suit but later failed to prosecute.

Petitioner’s other cases fare no better. The only
other circuit court decision cited by Petitioner, Mendell
v. Gollust, 909 F.2d 724 (2d Cir. 1990), aff'd, 501 U.S. 115
(1991), addressed whether the plaintiff had standing after
a corporate merger, not demand futility. The remaining
two cases upon which Petitioner relies are district court
opinions that do not give rise to a cognizable conflict
within the meaning of Supreme Court Rule 10 and, in
any event, are inapposite. See Pet. at 29 (citing Segen
v. Comvest Venture Partners, LP, No. Civ.A. 04-822-
JJF, 2005 WL 1320875, at *2 (D. Del. June 2, 2005)
(addressing an adequate demand that was wrongfully
refused, not demand futility) and DiLorenzo v. Edgar,

23

No. Civ. 03-841-SLR, 2004 WL 609374, at *4 (D. Del. Mar.
24, 2004) (plaintiff specifically pled demand futility in his
complaint)). The Ninth Circuit’s rejection of Petitioner’s
demand futility argument was proper and her Petition
should be denied.

Ill. THE NINTH CIRCUIT’S DECISION REGARDING
DISMISSAL WITH PREJUDICE WAS PROPER
AND DOES NOT CONFLICT WITH ANY OTHER
DECISION.

The Ninth Circuit properly held that Petitioner's
claims should be dismissed with prejudice, and Petitioner
fails to identify any conflict or other justification to grant
her Petition on this issue.” Petitioner argues that the
Ninth Circuit’s decision to dismiss the cases with prejudice
(i) conflicts with the view that courts should “grant leave
to amend ‘freely,”” suggesting that she could have cured
the deficiencies through amendment, Pet. at 30-31; and
(ii) conflicts with Jn re Kauffman Mutual Fund Actions,

12. Contrary to Petitioner’s suggestion that the Ninth
Circuit’s decision to dismiss with prejudice was sua sponte, the
Moving Issuers and the Underwriters argued that amendment
of the complaint would be futile. See Moving Issuers-Appellees’
Principal Brief at 1 (“re-filing would be futile because the District
Court specifically held that Simmonds could not serve demand
letters while these actions were pending”); see also Underwriter
Defendants-Appellees-Cross-Appellants' Reply Brief at 7-9 (all
54 claims should be dismissed with prejudice because petitioner
failed to demonstrate how defects in her pre-suit demands could be
remedied by granting leave to amend); Underwriter Defendants-
Appellees-Cross-Appellants’ Brief at 55 (“if the Court affirms the
District Court’s decision —- either on statute of limitations grounds
or on any other alternative grounds presented — it should convert
the without prejudice dismissals to with prejudice dismissals”).

24

479 F.2d 257 (1st Cir. 1973), one of the very cases upon
which the Ninth Circuit relied in converting the dismissal
io “with prejudice.” Pet. at 31-32. Petitioner is wrong on
both counts.

First, the Ninth Circuit noted that it has “previously
held that a complaint may be dismissed with prejudice
on account of the plaintiff's failure to satisfy the demand
requirement, ...and various other circuits have reached
the same conclusion. . . . [The] decision to convert the
dismissal is not unprecedented.” Pet. App. at 70a. Other
than Kauffman, discussed below, Petitioner ignores the
numerous cases cited by the Ninth Circuit — all of which
are in the demand context and consistent with its holding.'®
Instead, Petitioner argues that the decision to dismiss her
claims with prejudice conflicts with the general proposition
that amendment be freely granted. But the cases she cites
all recognize that leave to amend may be denied for a
myriad of reasons, including where amendment of the
complaint would be futile. Pet. at 30-31 (citing Foman v.
Davis, 371 U.S. 178, 182 (1962) (rejecting the “outright
refusal to grant [ ] leave without any justifying reason,”

13. See Pet. App. at 70a, 70a n.21 (citing /m re Silicon
Graphics Inc. Sec. Litig., 183 F.3d 970, 990-91 (9th Cir. 1999),
abrogated on other grounds by Tellabs, Inc. v. Makor Issues &
Rights, 551 U.S. 308, 322-24 (2007) (upholding dismissal without
leave to amend where plaintiff failed to identify how deficiencies
could be cured and where such amendment would be futile); Kanter
vw. Barella, 489 F.3d 170, 181 (38d Cir. 2007) (same); Starrels v. First
Nat'l Bank of Chicago, 870 F.2d 1168, 1172 (7th Cir. 1989) (same);
Gaubert v. Fed. Home Loan Bank Bd., 863 F.2d 59, 69 (D.C. Cir.
1988) (same; citing Foman v. Davis, 371 U.S. 178, 182 (1962), for
the proposition that such a dismissal is warranted where “the
amendments would not serve any purpose’”)).

25

but noting amendment may be denied where it would be
futile) and Lopez v. Smith, 203 F.3d 1122 (9th Cir. 2000)
(reversing the denial of leave to amend on account of a
mere technical error by a pro se plaintiff, but noting that
court may dismiss with prejudice where defects cannot
be cured through amendment)).

Here, dismissal with prejudice was appropriate
because Petitioner cannot cure the deficiencies identified
by the Ninth Circuit. The actual] demand letters (as
opposed to Petitioner's allegations regarding the content
of the demand letters) were properly considered by
the district court and reviewed by the Ninth Circuit,
which characterized the contents of the demand and
“follow-up” letters as “bearing no resemblance to the
elaborate scheme described in Simmonds’s complaint”
and “completely fail{ing] to provide sufficiently detailed
information to permit the boards to conduct a good
faith inquiry,” respectively. Pet. App. at 61a-62a. Thus,
Petitioner cannot amend her complaints to provide
additional allegations relating to the content of the demand
letters; the defects are in the demand letters themselves.
Moreover, Shlensky v. Dorsey, a Third Circuit decision
relied upon by the Ninth Circuit, specifically holds that
an inadequate demand cannot be cured by serving a new
demand letter after the filing of the complaint. 574 F.2d
131, 141-42 (8d Cir. 1978) (affirming dismissal without
leave to amend). Indeed, the district court ruled that
it would “not permit [Petitioner] to amend her demand
letters while pursuing this action,” as to do so after the suit

14. The Ninth Circuit reviewed the district court’s dismissal
for failure to comply with the demand requirements for abuse of
discretion. Pet. App. at 48a.

26

had been initiated would reduce the demand requirement
to a “meaningless formality.” Pet. App. at 102a (citation
omitted).

Second, despite Petitioner’s attempt to manufacture
a circuit split, the Ninth Circuit and the First Circuit
in Kauffman both held that where the issue of demand
has been litigated and further amendment would be
futile, dismissal may be with prejudice as to that issue.
Indeed, the First Circuit explained that “[t]he dismissal
is with prejudice on the issue of the obligation to make a
demand on the directors with respect to that substantive
complaint,” noting that the plaintiff “is precluded from
relitigating the very question which was litigated in
the prior action.” Kauffman, 479 F.2d at 267 (citations
omitted) (emphasis added). Far from being in conflict with
Kauffman, the Ninth Circuit specifically held that “[w]e
agree with the First Circuit’s approach in Kauffman.
Simmonds is barred from relitigating issues relating
to the adequacy of the demand letters. ... As with any
issue litigated fully on the merits, shareholders may
not endlessly relitigate the adequacy of their pre-suit
demand.” Pet. App. at 71a. Because Petitioner provides no
reason to justify this Court’s review, the Petition should
be denied.

15. The First Circuit specifically noted that “[iJn affirming
we must, however, comment upon one phrase in the order of the
district court granting the motion to dismiss, that it is ‘without
prejudice.’ This must mean without prejudice as to the substantive
cause of action.” Kauffman, 479 F.2d at 267.

27

CONCLUSION

For the foregoing reasons, the Court should deny the

Petition.
May 26, 2011

ANDREW H. PontTious
JOHN V. ERICKSON
TimMoTHY M. Wonc
COLLETTE ERICKSON
FARMER AND O’NEILL LLP
235 Pine Street

San Francisco, CA 94904

John H. Chun

Summit Law Group
315 Fifth Avenue South
Seattle, WA 98104

Counsel for Respondent
Cosine Communications,
Ine.

L. REx SEARS

WorRKMAN NYDEGGER
1000 East Gate Tower
60 East South Temple
Salt Lake City, UT 84111

Respectfully submitted,

Davip H. KISTENBROKER
Counsel of Record
JONI S. JACOBSEN
MICHAEL J. LOHNES
AHARON S. KAYE
KATTEN MucHIN
RosENMAN LLP
525 West Monroe Street
Chicago, IL 60661
(312) 902-5200
david.kistenbroker@
kattenlaw.com

THoMAS M. JONES
BENJAMIN J. STONE
Cozen O’ Connor
1201 Third Avenue
Seattle, WA 98101

Liason Counsel for
Respondent Moving
Issuers

Counsel for Respondents
Akamai Technologies,
Inc., Ariba, Inc., Asialnfo
Holdings, Inc., Aspect
Medical Systems,

STEPHEN J. KENNEDY
ATER WyYnnE LLP
Two Union Square
601 Union Street
Seattle, WA 98101

Counsel for Respondent
Finisar Corporation

MICHAEL CHARLSON
RoBIN EvE WECHKIN
Hocan Lovetts US LLP
525 University Avenue
Palo Alto, CA 94301

Counsel for Respondent
Maxygen, Inc.

JOHN C. TANG

LATHAM & WaTKINS LLP
140 Seott Drive

Menlo Park, CA 94025

STEPHEN P. CaPLow
Davis WRIGHT TREMAINE
1201 Third Avenue
Seattle, WA 98101

Counsel for Respondent
TiVo Inc.

28

Audible, Inc., Avici
Systems, Inc., Capstone
Turbine Corporation,
Digimarc Corporation,
InterNAP Networks
Service Corporation,
Intersil Corporation,
Martha Stewart Living
Omnimedia, Inc., NaviSite
Inc., Occam Networks, Inc.,
Onvia, Inc., Openwave
Systems Inc., Oplink
Communication, Inc.,
Packeteer Inc., Perot
Systems Corporation,
priceline.com
Incorporated, RedHat,
Inc., Saba Software, Inc.,
Selectica, Inc., Silicon
Laboratories, Inc., Sonus
Networks, Inc., Sycamore
Networks, Inc., TheStreet.
Com, Inc., Vignette
Corporation

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_1085%3A2. Public record. Not legal advice.