Greenfield v. Criterion Capital Management, LLC et al

Northern District of California, cand-4:2015-cv-03583

ORDER by Judge Hamilton granting {{73}} Motion to Dismiss; terminating {{82}} Motion for Leave to File. (pjhlc1, COURT STAFF)

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6 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 STACEY GREENFIELD, Case No. 15-cv-3583-PJH 8 Plaintiff, 9 v. ORDER GRANTING MOTION TO DISMISS SECOND AMENDED 10 CRITERION CAPITAL MANAGEMENT, COMPLAINT LLC, et al., 11 Defendants. 12 Northern District of California United States District Court 13 14 Defendants' motion pursuant to Federal Rule of Civil Procedure 12(b)(6) to 15 dismiss the second amended complaint ("SAC") for failure to state a claim came on for 16 hearing before this court on December 7, 2016. Plaintiff appeared by her counsel Glenn 17 F. Ostrager, Paul D. Wexler, and Willem F. Jonckheer. The Criterion defendants 18 appeared by their counsel Michael Swartz and Roger Mead. Nominal defendant Veeva 19 Systems Inc. appeared by its counsel Kelley Kinney. Having read the parties' papers and 20 carefully considered their arguments and the relevant legal authority, the court hereby 21 GRANTS the motion. 22 BACKGROUND 23 Plaintiff Stacey Greenfield brings this shareholder derivative action under § 16(b) 24 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78p(b), on behalf 25 of nominal defendant Veeva Systems, Inc. ("Veeva"). "Congress passed § 16(b) of the 26 1934 Act to 'prevent the unfair use of information which may have been obtained by [a] 27 beneficial owner, director, or officer by reason of his relationship to the issuer."' Gollust v. 28 Mendell, 501 U.S. 115, 122 (1991) (quoting 15 U. S. C. § 78p(b)). 6 1 Section 16(b) permits the issuer to recover any profit realized by an "insider" from 2 "any purchase and sale, or any sale and purchase, of any equity security of such issuer 3. . . within any period of less than six months." 15 U.S.C. § 78p(b); Strom v. United 4 States, 641 F.3d 1051, 1056 (9th Cir. 2011) ("Section 16(b) . . . is a prophylactic rule 5 prohibiting corporate insiders from profiting on 'short-swing' securities trades-specifically, 6 on a purchase and a sale of their company's securities made within any period of less 7 than six months."); Dreiling v. Am. Online Inc., 578 F.3d 995, 1001 (9th Cir. 2009) (under 8 § 16(b), any "beneficial owner" of more than ten percent of any class of equity securities 9 issued by an entity that issues registered equity securities – or any officer, or director of 10 such an entity – must disgorge to the issuer any profit realized from the purchase and 11 sale, or sale and purchase, within a six-month period, of any equity security by the 12 issuer). Northern District of California United States District Court 13 In the present case, none of the defendants is an officer or director of Veeva, and 14 thus the question of liability under § 16(b) turns in part on each defendant's status as a 15 "beneficial owner" of more than ten percent of a class of Veeva securities. The Exchange 16 Act does not define what makes a person a "beneficial owner" as the term is used in 17 § 16(b). For purposes of § 16, SEC Rule 16a-1 defines "beneficial owner" of more than 18 ten percent of any class of equity securities as meaning "any person who is deemed a 19 beneficial owner" pursuant to § 13(d) of the Exchange Act and the rules promulgated 20 thereunder. See 17 C.F.R. § 240.16a-1(a)(1). SEC Rule 13d-3, which was promulgated 21 to implement and clarify § 13(d), defines "beneficial owner" as "any person who[ ] directly 22 or indirectly. . . has or shares: (1) [v]oting power which includes the power to vote, or to 23 direct the voting of, such security; and/or (2) [i]nvestment power which includes the power 24 to dispose, or to direct the disposition of, such security." 17 C.F.R. § 240.13d-3(a)(1), (2). 25 While Rule 16a-1 defines "beneficial ownership" by reference to § 13(d), it also 26 removes from § 16's reach certain categories of persons who otherwise would be 27 covered by § 13(d). Of relevance here, under Rule 16a-1(a)(1), neither a registered 28 investment adviser nor a parent holding company or "control person" will be deemed the 2 6 1 beneficial owner of securities held "for the benefit of third parties or in customer or 2 fiduciary accounts in the ordinary course of business," as long as such shares are 3 acquired "without the purpose or effect of influencing control of the issuer or engaging in 4 any arrangement subject to Rule 13d-3(b)." 17 C.F.R. § 240.16a-1(a)(1)(v), (vii). 5 Additionally, to be exempt, a control person may not own more than 1% of the 6 outstanding shares of the relevant issuer, either directly or indirectly by subsidiaries or 7 affiliates. See Rule 16a-1(a)(1)(vii). 8 Section 13(d) also provides that in certain circumstances, where shares are 9 beneficially owned by more than one person or entity, those persons or entities may be 10 considered together as a "group," and the shares will be aggregated for purposes of 11 determining whether § 16's ten-percent beneficial-ownership threshold is reached. That 12 is, "[w]hen two or more persons act as a. . . group for the purpose of acquiring, holding, Northern District of California United States District Court 13 or disposing of securities of an issuer, such. . . group shall be deemed a 'person' for 14 purposes of" determining beneficial ownership. 15 U.S.C. § 78m(d)(3). Congress 15 intended this provision to prevent insiders from evading the disclosure requirement by 16 pooling their voting or other interests in the securities of the issuer. Dreiling, 578 F.3d at 17 1002. 18 "[C]ourts have concluded that the key inquiry in determining whether a group 19 existed such that beneficial ownership could be imputed to certain shareholders is 20 whether the parties 'agree[d] to act together for the purpose of acquiring, holding, voting, 21 or disposing of' a firm's securities." Id. (citing Morales v. Quintel Entm't, Inc., 249 F.3d 22 115, 122-23 (2nd Cir. 2001) (citing 17 C.F.R. § 240.13d-5(b)(1)) (emphasis added). 23 Thus, Rule 13d-5 expressly requires an "agreement" as a condition to formation of a 24 "group." Id. at 1003 (citation omitted). 25 Plaintiff, an investor who holds shares of Veeva Class A common stock, filed this 26 suit after Veeva rejected her demand to bring suit directly against the defendants. SAC 27 ¶¶ 6, 53. Plaintiff seeks disgorgement of "short-swing" profits which she alleges were 28 recovered by the "Criterion defendants." Plaintiff asserts that these defendants acted 3 6 1 together as a "group" to realize short-swing profits in trading Veeva Class A common 2 stock, in violation of § 16(b). SAC ¶¶ 1, 18, 27-33. 3 The Criterion defendants are Criterion Capital Management, LLC ("Criterion 4 Capital"); three individual members of Criterion Capital – Christopher H. Lord, David 5 Riley, and Tomoko Fortune; three hedge funds organized as Cayman Islands exempted 6 limited partnerships – Criterion Capital Partners Master Fund, L.P. ("Partners Master 7 Fund"), Criterion Horizons Master Fund, L.P. ("Horizons Master Fund"), and Criterion 8 Vista Master Fund, L.P. ("Vista Master Fund") (collectively, the "Master Funds"), allegedly 9 established by Criterion Capital and the three individual defendants; and three Cayman 10 Islands corporations, each serving as the general partner of the corresponding limited 11 partnership Master Funds – Criterion Master Partners Master Fund GP, Ltd. ("Partners 12 GP," general partner of Partners Master Fund), Criterion Horizons Master Fund GP, Ltd. Northern District of California United States District Court 13 ("Horizons GP," general partner of Horizons Master Fund), and Criterion Vista Master 14 Fund GP, Ltd. ("Vista GP," general partner of Vista Master Fund. See SAC ¶¶ 8-16. 15 Criterion Capital is a California limited liability company, and is registered as an 16 investment adviser (or "RIA") with the SEC. SAC ¶ 8. The individual defendants are 17 members and portfolio managers of Criterion Capital, SAC ¶ 16, but neither the individual 18 defendants nor Criterion Capital serves as a general partner (or as a director of a general 19 partner) of any of the Master Funds. SAC ¶¶ 10, 12, 14, 15. Each of the three defendant 20 general partners is managed by the same group of directors – nonparties Philip Cater, 21 John Ackerley, and Darren Stainrod. SAC ¶ 15. 22 During the relevant time period, Criterion Capital and the Master Funds were 23 parties to investment management agreements ("standard IMAs"), pursuant to which the 24 Master Funds held title to various securities investments that Criterion Capital held in 25 "discretionary" accounts. See SAC ¶¶ 2, 17-18, 27, 29. Pursuant to those contracts, 26 Criterion Capital had "discretionary" authority over the Master Funds' assets, including 27 the Veeva securities at issue in this litigation, and made all the investment decisions on 28 behalf of the Master Funds. See Criterion Capital's 3/31/2015 Form ADV, Declaration of 4 6 1 Michael E. Swartz ("Swartz Decl."), Exh. C. However, Criterion Capital and its members 2 held only 2%, 5%, and 12%, of the respective Master Funds. SAC ¶ 20. That is, 98% of 3 the investors in the Partners Master Fund were unrelated to Criterion Capital; 95% of the 4 investors in the Horizons Master Fund were unrelated to Criterion Capital; and 88% of the 5 investors in the Vista Master Fund were unrelated to Criterion Capital. 6 The SAC also includes allegations relating to certain entities through which 7 investors could invest capital in the Master Funds – the six "Feeder Funds." According to 8 plaintiff, each Master Fund is associated with a "Domestic Feeder Fund" (organized as a 9 Delaware limited partnership) and an "Offshore Feeder Fund" (organized as a Cayman 10 Islands exempted company). SAC ¶¶ 17, 22, 25. Plaintiff alleges that the Feeder Funds 11 invest "substantially all" their assets in the Master Funds that respectively bear their 12 common names, SAC ¶ 25 & Exh. A. Plaintiff does not allege that the Feeder Funds hold Northern District of California United States District Court 13 title to any securities or that they make any investment decisions. Criterion Capital 14 allegedly serves as investment adviser to the Feeder Funds. SAC ¶ 22. There is no 15 allegation that this structure is illegal; moreover, the Feeder Funds are not parties to this 16 lawsuit, and are not alleged to be the beneficial owners of any Veeva securities. 17 Criterion Capital also allegedly serves as the general partner of the Domestic 18 Feeder funds, which are limited partnerships. SAC ¶ 26. According to plaintiff, this 19 means that the members of Criterion Capital (i.e., the three individual defendants) and 20 the Domestic Feeder Funds were "affiliates" of each other. Id. However, defendants 21 assert in their motion to dismiss that the Feeder Funds simply serve as the entry point for 22 investors into the Master Funds. 23 The original complaint was filed on June 24, 2015, in the U.S. District Court for the 24 Southern District of New York. On August 3, 2015, pursuant to stipulation, the case was 25 ordered transferred to this district. Defendants filed a motion to dismiss on November 19, 26 2015. In response, on December 9, 2015, plaintiff filed the FAC. On February 1, 2016, 27 defendants filed a motion to dismiss the FAC, for failure to state a claim, and for failure to 28 allege fraud with particularity. 5 6 1 In the FAC, plaintiff asserted claims under § 16(b) against Criterion Capital, the 2 three individual defendants, the three Master Funds, and the three general partners of 3 the Master Funds. They alleged that the Criterion defendants collectively constituted a 4 "group" ("the Criterion Group") for purposes of determining "beneficial ownership" under 5 § 13(d)(3) and § 16(b), and which they alleged was a greater than ten percent beneficial 6 owner of Veeva's Class A common stock; and that defendants had, in essence, 7 structured Criterion Capital and the various funds as part of a scheme to conceal their 8 short-swing trades and profits and to make beneficial ownership of millions of shares of 9 Veeva stock disappear from regulatory oversight. 10 In their motion to dismiss, defendants argued, first, that the allegations of fraud 11 were not pled with particularity as required by Federal Rule of Civil Procedure 9(b); 12 second, that Criterion Capital and the three individual defendants are outside the reach of Northern District of California United States District Court 13 § 16(b) and cannot be considered "beneficial owners," because they are exempt under 14 the RIA exemption and the control-person exemption, respectively; third, that the FAC did 15 not allege facts sufficient to show the existence of a § 13(d) "group" for purposes of 16 determining "beneficial ownership;" fourth, that the Veeva Class A and Class B shares 17 should be considered together when determining ownership percentage; and fifth, that 18 the FAC did not state a claim under § 16(b) because it did not allege specific purchases 19 that matched sales occurring within six months, but instead alleged only amounts of 20 purchases and amounts of sales. 21 In an order issued on July 5, 2016, the court granted the motion as to the first 22 three arguments and denied the motion as to the fourth and fifth arguments. The 23 dismissal was with leave to amend to plead facts sufficient to create a plausible inference 24 that the RIA exemption does not apply to Criterion Capital, and that the control-person 25 exemption does not apply to the individual defendants; to allege facts sufficient to support 26 a plausible inference that there was an "agreement" among the members of the "group," 27 to "act together for the purpose of acquiring, holding, voting, or disposing of" Veeva's 28 securities; and to delete allegations of fraud, including allegations of a "fraudulent" 6 6 1 conspiracy, based on the representation by plaintiff's counsel that plaintiff was not 2 asserting a claim of fraud. 3 Plaintiff filed the second amended complaint ("SAC") on July 29, 2016, alleging 4 two causes of action under § 16(b), as in the FAC – a claim for relief against the 5 "Criterion Group" (all ten defendants), and a claim for relief against Criterion Capital, the 6 three general partners, and the individual defendants. Defendants filed the present 7 motion on September 21, 2016, seeking an order dismissing the SAC for failure to state a 8 claim, without further leave to amend. 9 DISCUSSION 10 A. Legal Standard 11 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal 12 sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, Northern District of California United States District Court 13 1199-1200 (9th Cir. 2003). Review is limited to the contents of the complaint. Allarcom 14 Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 385 (9th Cir. 1995). To 15 survive a motion to dismiss for failure to state a claim, a complaint generally must satisfy 16 only the minimal notice pleading requirements of Federal Rule of Civil Procedure 8, which 17 requires that a complaint include a "short and plain statement of the claim showing that 18 the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). 19 The allegations in the complaint "must be enough to raise a right to relief above 20 the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations 21 and quotations omitted). A complaint may be dismissed under Rule 12(b)(6) for failure to 22 state a claim if the plaintiff fails to state a cognizable legal theory, or has not alleged 23 sufficient facts to support a cognizable legal theory. Somers v. Apple, Inc., 729 F.3d 953, 24 959 (9th Cir. 2013). While the court is to accept as true all the factual allegations in the 25 complaint, legally conclusory statements, not supported by actual factual allegations, 26 need not be accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009); see also In re 27 Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 28 A motion to dismiss should be granted if the complaint does not proffer enough 7 6 1 facts to state a claim for relief that is plausible on its face. See Twombly, 550 U.S. at 2 558-59. A claim has facial plausibility when the plaintiff pleads factual content that allows 3 the court to draw the reasonable inference that the defendant is liable for the misconduct 4 alleged." Iqbal, 556 U.S. at 678 (citation omitted). "[W]here the well-pleaded facts do not 5 permit the court to infer more than the mere possibility of misconduct, the complaint has 6 alleged – but it has not 'show[n]' – 'that the pleader is entitled to relief.'" Id. at 679. In the 7 event dismissal is warranted, it is generally without prejudice, unless it is clear the 8 complaint cannot be saved by any amendment. See Sparling v. Daou, 411 F.3d 1006, 9 1013 (9th Cir. 2005). 10 Although the court generally may not consider material outside the pleadings when 11 resolving a motion to dismiss for failure to state a claim, the court may consider matters 12 that are properly the subject of judicial notice. Knievel v. ESPN, 393 F.3d 1068, 1076 Northern District of California United States District Court 13 (9th Cir. 2005); Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir. 2001). Additionally, the 14 court may consider exhibits attached to the complaint, see Hal Roach Studios, Inc. v. 15 Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989), as well as 16 documents referenced extensively in the complaint and documents that form the basis of 17 the plaintiff's claims. See No. 84 Employer-Teamster Jt. Counsel Pension Trust Fund v. 18 Am. W. Holding Corp., 320 F.3d 920, 925 n.2 (9th Cir. 2003). 19 B. Defendants' Motion 20 In the present motion, defendants contend that the SAC does not correct the 21 deficiencies noted by the court in the order granting the motion to dismiss the FAC. The 22 elements of a claim under § 16(b) are (1) a purchase and (2) a sale of securities (3) by an 23 officer or director of the issuer or by a shareholder who owns more than ten percent of 24 any one class of the issuer's securities (4) within a 6-month period (5) resulting in profit. 25 Dreiling, 578 F.3d at 1001. Defendants argue that the SAC does not allege facts 26 sufficient to show that Criterion Capital and the individual defendants are beneficial 27 owners under § 16(b) (owners of more than ten percent of Veeva Class A common 28 stock), and does not allege facts sufficient to show the existence of a "group." They 8 6 1 contend that the SAC should be dismissed with prejudice, as this is plaintiff's third 2 attempt to state a claim. 3 1. Application of exemptions 4 Defendants argue that Criterion Capital and the individual defendants are not 5 deemed to be beneficial owners by operation of the RIA exemption and the control 6 person exemption, respectively. 7 Plaintiff does not dispute that Criterion Capital is registered as an investment 8 adviser under § 203 of the Investment Advisers Act, and does not claim that Criterion 9 acquired shares of Veeva in an attempt to change or influence control of Veeva. Plaintiff 10 alleges, however, that Criterion is not entitled to avail itself of the RIA exemption because 11 it held substantial ownership interests in the Master Funds and thus did not trade for the 12 benefit of third parties in the ordinary course of business. SAC ¶¶ 3, 21. Northern District of California United States District Court 13 The court finds that the SAC does not allege facts sufficient to show that Criterion 14 Capital does not trade for the benefit of third parties in the ordinary course of business. 15 The court notes that plaintiff does not allege facts showing that Criterion had any 16 governance relationship or control of the Master Funds themselves. Plaintiff asserts that 17 as of the March 28, 2014, filing of Criterion's Form ADV, Criterion and its members 18 beneficially owned 2% of the Partners Master Fund, 5% of the Horizons Master Fund, 19 and 12% of the Vista Master Fund. SAC ¶ 20. Plaintiff also alleges that "[t]he Master 20 Funds act only through Criterion Capital and Criterion Capital acted only for each of the 21 Master Funds in their purchases and sales of Veeva Class A common stock." SAC ¶ 18. 22 The members of Criterion Capital are the three individual defendants. Each of the 23 Master Funds is a limited partnership with a general partner, which in turn has an 24 independent board of directors. While Criterion Capital has an investment management 25 agreement with each of the Master Funds, neither Criterion Capital nor the three 26 individual defendants (who control Criterion Capital) is a general partner or a member of 27 the board of directors of the general partner of any of the Master Funds. Moreover, as of 28 March 28, 2014, 98% of the shares in the Partners Master Fund, 95% of the shares in the 9 6 1 Horizons Master Fund, and 88% of the shares in the Vista Master Fund were owned by 2 entities unrelated to Criterion Capital. Thus, Criterion Capital manages the Master Funds 3 for the benefit of third parties. 4 There is no requirement in Rule 16a-1 that RIAs hold shares solely for the benefit 5 of third parties (as plaintiff seems to be arguing), and the court finds no basis for 6 expanding the scope of § 16(b) liability, particularly given the strict liability nature of the 7 statute. See Dreiling, 578 F.3d at 1001. Indeed, the Supreme Court has advised courts 8 to be wary of expanding the scope of § 16(b) liability on the basis of unclear language. 9 See Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 251-52 (1976). 10 Plaintiff also asserts that the three individual defendants – the members of the 11 Criterion Capital LLC – are not entitled to the "control person" exemption because they 12 have "affiliate" relationships with the non-party "Domestic Feeder Funds," which plaintiff Northern District of California United States District Court 13 asserts had a greater than 1% "indirect beneficial ownership" of Veeva Class A common 14 stock. Plaintiff appears to base this claim on the fact that Criterion Capital is the general 15 partner of Domestic Feeder Funds. SAC ¶¶ 3, 23, 26. 16 Under Rule 16a-1, the "control person" exemption does not apply where "the 17 aggregate amount" held "directly or indirectly" by the "affiliates" of the control person 18 "exceed[s] one percent of the securities of the subject class." 17 C.F.R. § 240.16a- 19 1(a)(1)(vii). Rule 16 does not define "affiliate" or "control." Under SEC Rule 12b, an 20 "affiliate" is an entity "that directly, or indirectly through one or more intermediaries, 21 controls or is controlled by, or is under common control with, the person specified." 17 22 C.F.R. § 240.12b-2(3)(iv). The term "control" means "the possession, direct or indirect, of 23 the power to direct or cause the direction of the management and policies of [an entity], 24 whether through ownership of voting securities, by contract, or otherwise." Id. 25 Defendants contend that the "control person" exemption applies to the individual 26 defendants because as the members of Criterion Capital, an RIA, they are also the 27 control persons under Rule 16a-1(a)(1)(vii), and thus exempt from § 16's definition of 28 "beneficial ownership." Plaintiff, however, appears to be asserting that because the non- 10 6 1 party Domestic Feeder Fund limited partnerships are "affiliates" of Criterion Capital 2 (based on Criterion Capital's status as general partner of each of the limited 3 partnerships), they are also necessarily "affiliates" of the three members of the Criterion 4 limited liability company, and that the Domestic Feeder Funds' alleged ownership of more 5 than 1% of Veeva securities should be attributed to the individual defendants. 6 The court finds plaintiff's argument unpersuasive. Plaintiff does not allege that any 7 of the individual defendants personally hold more than 1% of Veeva stock, but only that 8 the individual defendants are "affiliates" of the Domestic Feeder Funds, which allegedly 9 have "a greater than 1% indirect beneficial ownership of Veeva Class A common stock." 10 See SAC ¶ 26 ("Because Criterion Capital served as the general partner of the Domestic 11 Feeder Funds, the [individual defendants] and the Domestic Feeder Funds were affiliates 12 of each other.") However, plaintiff also acknowledges that the Domestic Feeder Funds Northern District of California United States District Court 13 do not actually hold assets, but instead invest assets directly into the Master Funds. See 14 SAC ¶ 25 ("Criterion Capital caused the. . . Feeder Funds to invest substantially all their 15 assets in the Master Funds. . ."). Thus, even if the holdings of the non-party Domestic 16 Feeder Funds could somehow be imputed to the individual defendants, there are no facts 17 alleged showing that those Feeder Funds beneficially own any Veeva stock. 18 2. Allegations showing the existence of an agreement to act as a group 19 Defendants assert that plaintiff has not alleged facts sufficient to show the 20 existence of a § 13(d) "group" for purposes of determining beneficial ownership. The key 21 inquiry in determining whether a group exists such that beneficial ownership can be 22 imputed to certain shareholders is whether the parties "agree[d] to act together for the 23 purpose of acquiring, holding, voting or disposing of" a company's securities. See 24 Dreiling, 578 F.3d at 1002-03 (citing 17 C.F.R. § 240.13d-5(b)(1)). Generally, courts 25 have concluded that whether such an agreement existed is a question of fact. See id. at 26 1003 (citing Morales, 249 F.3d at 124). The agreement "may be formal or informal and 27 may be proved by direct or circumstantial evidence." Id. Nevertheless, a plaintiff must 28 still plead sufficient facts supporting such an agreement, given that "threadbare recitals of 11 6 1 the elements of the claim for relief, supported by mere conclusory statements," are not 2 taken as true. Twombly, 550 U.S. at 555. 3 The court finds that the plaintiff has not alleged facts sufficient to show the 4 existence of a § 13(d) group. Here, plaintiff refers to the alleged "agreement" among the 5 members of the purported "Criterion Group" in three specific paragraphs of the SAC. 6 First, plaintiff alleges that "[a]n agreement among the Criterion Group members and 7 group conduct is properly inferred" from the following: (1) Criterion Capital (an RIA) acted 8 as the "common investment adviser" to the Master Funds and the non-party Feeder 9 Funds; (2) Criterion Capital "caused" the non-party Feeder Funds to invest all their 10 investible capital in the Master Funds; (3) Criterion Capital "determined all investments 11 and strategies" on the part of the Master Funds; (4) each of the Master Funds entered 12 into an investment management agreement with Criterion Capital; (5) Criterion Capital Northern District of California United States District Court 13 "employed a common investment strategy" in managing the portfolio investments of the 14 Master Funds; (6) the Master Funds' purchases/sales of Veeva securities "were made in 15 virtual lockstep" and were "coordinated by Criterion Capital; (7) each of the Master Funds 16 used the same address in the Cayman Islands, and employed the same auditor, brokers, 17 and custodians, in San Francisco, and the same administrator; (8) Criterion Capital acted 18 as the "agent" of all the Master Funds and their general partners in preparing and filing 19 SEC reports in connection with the Master Funds' purchases and sales of Veeva 20 securities; and (9) the Master Funds' general partners and the non-party Offshore Feeder 21 Funds had the same directors. SAC ¶ 2. 22 Second, plaintiff alleges Criterion Capital's decisions when purchasing and selling 23 Veeva Class A common stock for the accounts of the Master Funds "necessarily involved 24 concerted group action" because Criterion was "coordinating concurrently timed 25 purchases and sales for the account of the Master Funds." SAC ¶ 18. Plaintiff asserts 26 that "[t]his coordinated activity impels the conclusion that the Master Funds had agreed 27 with Criterion Capital and that, through Criterion Capital, the Master Funds had agreed 28 amongst each other 'to act together for the purpose of acquiring, holding, voting, or 12 6 1 disposing' of" the Veeva Class A common stock. Id. 2 Third, plaintiff alleges that "[g]roup activity from which an agreement can be 3 inferred is particularly manifest in the purchases and sales of Veeva Class A common 4 stock by the Master Funds." SAC ¶ 41. Plaintiff adds that "[t]he virtual lockstep activity, 5 from which an agreement to act in concert may be inferred," is shown by the positions 6 and changes in positions in Veeva Class A common stock reported in the Schedule 13G 7 and Schedule 13G amendments filed with the SEC jointly (but not as members of a 8 Group) by Criterion, the individual defendants, the Master Funds, and the general 9 partners of the Master Funds, in 2014 and 2015. SAC ¶ 41(i)-(v) (citing Declaration of 10 Glenn F. Ostrager in support of opposition to motion to dismiss FAC, Exhs. 1-5). 11 The court previously held, in the July 5, 2016 order regarding defendants' motion 12 to dismiss the FAC, that the allegations regarding the investment structure – that is, the Northern District of California United States District Court 13 Master Funds (referred to as "the Hedge Funds" in the prior order) acting together 14 through Criterion Capital, their common investment adviser, and an appointed agent, to 15 manage the Master Funds' trading in Veeva's Class A common stock – are not sufficient 16 to support a claim that all ten defendants constituted a "group" for purposes of 17 determining beneficial ownership. See July 5, 2016, Order at 15-17. 18 The allegations in the SAC are little changed from the allegations in the FAC, and 19 the SAC plainly does not allege facts sufficient to show that the defendants "agreed 20 amongst each other 'to act together for the purpose of acquiring, holding, voting, or 21 disposing' of" shares of Veeva Class A common stock. The allegations in the SAC (as in 22 the FAC) boil down to a claim that because the Master Funds were clients of, and 23 entered into an IMA with, Criterion Capital, and because the individual defendants, as 24 "portfolio managers," "directed" the purchases and sales of Veeva stock, all ten 25 defendants necessarily entered into an "agreement" to act together "for the purpose of 26 acquiring, holding, voting, or disposing of" Veeva stock. 27 These allegations are insufficient to state a plausible claim of beneficial 28 ownership under the "group" theory. First, as indicated above, plaintiff asserts that 13 6 1 because Criterion Capital, as the common investment manager for the Master Funds, 2 was also "coordinating concurrently timed purchases and sales for the accounts of the 3 Master Funds," this "impels the conclusion" that the Master Funds and Criterion Capital 4 "had agreed" to act together with regard to "acquiring, holding, voting, or disposing" of 5 Veeva stock. See SAC ¶ 18. Carried to its logical conclusion, plaintiff's theory would 6 necessarily lead to the result that anyone who enters into an investment advisory 7 agreement with an RIA would form a Rule 13(d) group with the RIA and any other clients 8 of the RIA who purchased shares of the same company's stock. This is plainly not what 9 is set forth in § 13(d) or Rule 13d-5. 10 Second, there are no allegations in the SAC that Criterion Capital was part of any 11 "agreement" between or among the Master Funds and their general partners. Allegations 12 of parallel investment activity, such as appear in the SAC, are insufficient to allege an Northern District of California United States District Court 13 "agreement" to combine efforts in furtherance of a commonly held objective. Plaintiff 14 alleges that Criterion entered into IMAs with each of the Master Funds, SAC ¶ 29, but 15 does not allege that the Master Funds entered into agreements with each other, or that 16 they entered into a single agreement or contractual arrangement with Criterion.1 The 17 assertion that Criterion "employed a common investment strategy in managing the 18 portfolio investments of the Master Funds," see id., does not plead facts showing the 19 existence of an agreement to engage in group activity specifically with regard to Veeva 20 securities. 21 Finally, the court finds that the cases on which plaintiff relies in the opposition are 22 inapposite. Plaintiff argues in the opposition that "[t]he cases that have considered the 23 issue on a motion to dismiss have uniformly found that allegations of group conduct 24 among an investment manager and its managed investment pools are sufficient" to 25 26 1 Moreover, if, as plaintiff alleges, all the trading discretion lies exclusively with Criterion 27 Capital, see SAC ¶¶ 2, 17, 18, 29, then the Master Funds could not have made a decision to enter into an "agreement" with other defendants with regard to Veeva 28 securities. 14 6 1 withstand dismissal. Pltf's Opp. at 8 (citing Goldstein v. QVT Assocs. GP LLC, 2010 WL 2 4058157 (S.D.N.Y. Oct. 5, 2010); Donoghue v. Genomica Corp., 2003 WL 1609191 3 (S.D.N.Y. March 6, 2003); Hollywood Casino Corp. v. Simmons, 2002 WL 1610598 (N.D. 4 Tex. July 18, 2002); Lerner v. Millenco LP, 23 F.Supp. 2d 337 (S.D.N.Y. 1998); Strauss v. 5 Am. Holdings, Inc., 902 F.Supp. 475, 479-80 (S.D.N.Y. 1995)). Plaintiff adds that the 6 recent case of Greenfield v. Cadian Capital Mgmt, LP, 2016 WL 5793416 (S.D.N.Y. Sept. 7 30, 2016) is "directly on point." However, the cases cited by plaintiff are distinguishable. 8 For example, the courts in Hollywood Casino, Lerner, and Strauss each found an 9 "agreement" with respect to the securities of the issuer, but there was no involvement at 10 all by an RIA. In Hollywood Casino, the alleged "group" consisted of former officers of 11 the issuer-corporation and outside investors who sought to take control of the 12 corporation. See id., 2002 WL 1610598 at *1. In Lerner, several corporations were Northern District of California United States District Court 13 alleged to have formed a "group" with each other because they coordinated their 14 investments "for the purpose of artificially maintaining the market price" of the issuer's 15 securities. See id., 23 F.Supp. 2d at 338-39, 343-44. In Strauss, an individual (Koether) 16 was alleged to have formed a "group" with two entities – a corporation (Amhold) and a 17 partnership (Shamrock) – and the court found that because Koether was the president 18 and CEO of Amhold, and the sole general partner of Shamrock, he was necessarily the 19 only one who could direct the trading activities of both, and that an agreement could be 20 inferred from that fact. See id., 902 F.Supp. at 476. 21 The other cases plaintiff relies on are also distinguishable, in that the managed 22 funds were controlled by a single individual who served both as an investment manager 23 for the funds and as a managing director of the general partner – unlike here, where the 24 funds are governed by an independent Board, with no overlap between the RIA (Criterion 25 Capital) and the general partners. 26 In Cadian, a single individual was alleged to be the sole managing member of both 27 the Cadian funds' general partner and the Cadian RIA's general partner. The court found 28 sufficient allegations of group conduct because the individual (Bannisch) was "the sole 15 6 1 decision maker for each of the Cadian Entities and effected all of their trades in [the 2 issuer's] common stock." See id., 2016 WL 5793416 at *7. In Goldstein, a single 3 individual was a managing member of the investment manager, in addition to being a 4 managing member of the investment funds' shared general partner. See id., 2010 WL 5 4058157 at *5. In Genomica, a single individual was alleged to be the president, sole 6 director, and sole stockholder of the RIA, which was also alleged to be the general 7 partner of the investment funds. See id., 2003 WL 1609191 at *3. 8 Here, unlike in Cadian, Goldstein, and Genomica, neither Criterion Capital nor any 9 of the individual defendants are alleged to have served as the general partner of any of 10 the Master Funds, or as a director of any of the general partners. Plaintiff has not alleged 11 any overlap in personnel between Criterion and the general partners, and the court finds 12 that this case is not "just like" Cadian or the other cases cited by plaintiff in the Northern District of California United States District Court 13 opposition. 14 CONCLUSION 15 In accordance with the foregoing, defendants' motion to dismiss the SAC is 16 GRANTED. To be plausible on its face, a claim must be more than merely possible or 17 conceivable. See Iqbal, 556 U.S. at 678-79. Plaintiff has not alleged facts sufficient to 18 create a plausible inference that that any defendant is a beneficial owner of more than 19 ten percent of Veeva Class A common stock, or to create a plausible inference that 20 defendants agreed to act as a group "for the purpose of acquiring, holding, or disposing 21 of" shares of Veeva securities. Plaintiff has added little to the SAC that was not also 22 alleged in the FAC, and the court finds that further leave to amend would be futile. 23 24 IT IS SO ORDERED. 25 Dated: June 23, 2017 26 __________________________________ PHYLLIS J. HAMILTON 27 United States District Judge 28 16