Miller v. Thane International, Inc

615 F.3d 1095 (9th Cir. 2010)

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Nature of the Case

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Facts

D and Reliant Interactive Media Corp. (Reliant) agreed to merge. Reliant shareholders were to receive shares of D for their shares of Reliant. The 'imputed merger price' was approximately $7.00. The prospectus stated that D stock, which had not been publicly traded previously, was 'approved for quotation and trading on the NASDAQ (NMS) upon completion of the merger, subject to D's compliance with the minimum bid price requirements of $5.00 per share.' After the merger was consummated D shares commenced trading not on the NASDAQ but on the NASDAQ Over-the-Counter Bulletin Board (OTCBB). For the next twelve trading days, D's shares traded between $8.50 and $7.00. But on June 24, 2002, the stock closed at $6.00. The next day D reported disappointing earnings and the stock closed at $ 5.25. It soon dropped below $5.00, never to rise again above that minimum price for listing on the NMS. D shares tumbled to $1.95 by August 16, 2002. In February 2004, D bought out existing shareholders at a price of $ 0.35 per share. Ps, a class of individual Reliant investors who acquired shares of D in the merger filed suit against D and four of its executives. The district court held that D did not violate section 12(a)(2). Eventually, it held that any misleading representations were not material because D's stock price did not depreciate below the merger price after the market became aware of the truth. The court held there could be no loss causation if the stock price did not drop below $7.00 after reacting to the nonlisting on the NMS. The district court focused on whether the stock price 'impounded,' i.e., absorbed, the nonlisting on NMS in the twelve trading days. Ps appealed.