Li v. Arcsoft, Inc.

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LEI LI, et al., Case No. 19-cv-05836-JSW

8 Plaintiffs, ORDER DENYING DEFENDANTS' 9 v. RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW 10 ARCSOFT, INC., et al., Re: Dkt. No. 382 Defendants. 11

12 13 Now before the Court is the renewed motion for judgment as a matter of law filed by 14 Defendants ArcSoft, Inc. (“ArcSoft”) and Michael Deng (collectively, “Defendants”). The Court 15 finds that this matter is appropriate for disposition without oral argument. See N.D. Civ. L. R. 7- 16 1(b). Having reviewed the parties’ papers, relevant legal authority, and the record in this case, the 17 Court hereby DENIES Defendants’ motion. 18 BACKGROUND 19 Plaintiffs Lei Li, Strong Wealth Limited, and Pacific Smile Limited (collectively, 20 “Plaintiffs”) brought suit for damages that arose from or related to a management-led buyout of 21 Plaintiffs’ shares in ArcSoft in 2017 (the “Buyout”). Defendants argued in their summary 22 judgment motion and in their pretrial filings that California Corporations Code section 1312 was a 23 complete bar to relief, because that statute limits relief to appraisal for former shareholders who 24 challenge buyouts after their completion. (See, e.g., Dkt. Nos. 210, 230, 261.) The Court rejected 25 Defendants’ argument and found that California courts recognize a non-statutory exemption to 26 Section 1312 where the facts from which the claims arise were not known to the plaintiffs prior to 27 consummation of the buyout. (See Dkt. No. 262, at 30.) 1 presentation. (Dkt. No. 360, at 1176.) The Court reserved ruling. (See id. at 1166.) 2 Plaintiffs obtained a jury verdict in their favor and against Defendants for their claims of 3 negligent misrepresentation, concealment, and, as against Deng, breach of fiduciary duty. (See 4 Dkt. No. 381.) The jury found in favor of Defendants on Plaintiffs’ claims of intentional 5 misrepresentation and, as against ArcSoft, breach of contract. (Id.) The jury was asked to answer 6 the following questions regarding Section 1312: 7 Question #5. Have Defendants proven by a preponderance of the evidence that Plaintiff Lei Li was aware of all material facts underlying her alleged intentional misrepresentation, 8 negligent misrepresentation, or concealment claims when she consented to the Buyout? 9 Question #8. Have Defendants proven by a preponderance of the evidence that Plaintiff Lei Li was aware of all material facts underlying her alleged breach of fiduciary duty claim when 10 she consented to the Buyout? 11 Question #12. Have Defendants proven by a preponderance of the evidence that Plaintiff Lei Li was aware of all material facts underlying her alleged breach of contract claim when 12 she consented to the Buyout? 13 (Dkt. No. 372.) The same questions were repeated for Plaintiffs Strong Wealth Limited and 14 Pacific Smile Limited. (Id., questions 27, 30, 34, 49, 52, 56.) As to the misrepresentation, 15 concealment, and breach of fiduciary duty claims, the jury found that Defendants did not prove the 16 Plaintiffs were aware of all material facts underlying their claims. (Id.) The jury left blank the 17 Section 1312 questions relating to breach of contract, which Plaintiffs failed to prove. (Id.) 18 Defendants now renew their motion for judgment as a matter of law on the basis of Section 19 1312. Defendants do not argue that the jury erroneously found that Plaintiffs were not aware of all 20 material facts prior to the consummation of the merger. Instead, they ask the Court to revisit its 21 prior ruling and find that Section 1312 bars Plaintiffs’ claims as a matter of law, without respect to 22 Plaintiffs’ knowledge of the facts underlying their claims at the time of the Buyout. 23 ANALYSIS 24 A. Applicable Legal Standards. 25 A party suffering an adverse verdict that moved for judgement as a matter of law prior to 26 the verdict “may file a renewed motion for judgment as a matter of law” within 28 days after the 27 entry of judgment. Fed. R. Civ. Proc. 50(b). Judgment as a matter of law is proper if “the 1 reasonable conclusion, and that conclusion is contrary to that of the jury.” Alaska Rent-A-Car, 2 Inc. v. Avis Budget Grp., Inc., 738 F.3d 960, 970 (9th Cir. 2013). “This standard largely ‘mirrors’ 3 the summary-judgment standard, the difference being that district courts evaluate Rule 50[] 4 motions in light of the trial record rather than the discovery record.” Dupree v. Younger, 598 U.S. 5 729, 731-32 (2023) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51 (1986)). 6 Challenges involving purely legal questions resolved at summary judgment need not be 7 renewed in a post-trial motion in order for the challenger to raise the issue on appeal. Id. at 733. 8 Nevertheless, a party “can raise legal issues in a Rule 50 motion,” even if doing so largely entails 9 “a copy and paste of summary-judgment motions into post-trial format.” Id. at 737 (emphasis in 10 original). 11 B. California Courts Recognize a Non-Statutory Exception to Section 1312 in the Event 12 of Fraud Where the Plaintiffs Were Unaware of All Facts Prior to the Merger. 13 As the Court ruled in its order resolving the parties’ cross-motions for summary judgment, 14 California courts recognize a non-statutory exception to Section 1312. The California Supreme 15 Court and Court of Appeal have noted the potential existence of an exception in these 16 circumstances. See Steinberg v. Amplica, 42 Cal.3d 1198, 1207 (1986) (limiting ruling to 17 circumstances of “a minority shareholder who is aware of the facts underlying his claim of breach 18 of fiduciary duty” prior to merger); Singhania v. Uttarwar, 136 Cal. App. 4th 416, 434-35 (2006) 19 (declining to address whether statute applies if “the facts of [fraud or breaches of fiduciary duty] 20 were unknown to the shareholder before the buyout”); see also In re Hot Topic, Inc. Sec. Litig., 21 No. CV 13-02939 SJO JCX, 2014 WL 7499375, at *14 (C.D. Cal. May 2, 2014) (considering 22 fraud exception to Section 1312 but finding plaintiff had not alleged the misstatements were 23 unknown to it at the time of the shareholder vote). Relying on the foregoing, at least one 24 California court has declined to apply Section 1312 to bar a claim for damages where the plaintiff 25 alleged “that he would have exercised his dissenters’ rights had defendants timely disclosed their 26 misconduct.” Max v. 8E6 Corp., 2022 WL 909907, at *12 (unpub. Cal. App. Mar. 29, 2022). 27 The Court continues to find that California courts are likely to permit an exception to ] were unknown to the plaintiff at the time of the transaction. Here, the jury found that all of the 2 || material facts underlying Plaintiffs’ breach of fiduciary duty, negligent misrepresentation, and 3 concealment claims were not known to Plaintiffs prior to the Buyout. Plaintiffs may therefore 4 || recover monetary damages for those claims. 5 CONCLUSION 6 For the foregoing reasons, the Court DENIES Defendants’ renewed motion for judgment 7 || asa matter of law. 8 IT IS SO ORDERED. a | 9 || Dated: May 3, 2024 ff | | ff tt 10 : JEFFREW &./WHI 11 (PieyPes Diséfict Judge 3 12 { / po

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