Hamilton v. Barnes et al

Filing 76

ORDER by Judge Yvonne Gonzalez Rogers granting (61) Motion to Dismiss with Leave to Amend in case 4:15-cv-01890-YGR; granting (32) Motion to Dismiss with Leave to Amend in case 4:15-cv-04485-YGR. Amended Pleadings due by 9/11/2018. Defendants to file response no later than 9/25/2018. If no amended complaint is filed, the action shall be dismissed effective 9/12/2018. (fs, COURT STAFF) (Filed on 8/24/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Case No.: 15-CV-1890 YGR
DAVID HAMILTON,
Plaintiff,

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vs.

DKT. NO. 61

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W. MICHAEL BARNES, ET AL.,

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Defendants.

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United States District Court
Northern District of California

ORDER GRANTING MOTIONS TO DISMISS
WITH LEAVE TO AMEND

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Case No. 15-CV-4485 YGR

JAKE HA,
Plaintiffs,

DKT. NO. 32
vs.

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JOHN E. CALDWELL, ET AL.,
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Defendants
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Plaintiffs David Hamilton and Jake Ha bring these related shareholder derivative actions on

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behalf of nominal defendant Advanced Micro Devices, Inc., a Delaware corporation (“AMD” or

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the “Company”), against certain of its officers and directors. Hamilton brings claims for violations

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of state law, including breach of fiduciary duties, unjust enrichment, and waste of corporate assets.

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Ha alleges claims for breach of fiduciary duties, violations of Section 14(a) of the Exchange Act

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(15 U.S.C. § 78n(a)) and U.S. Securities and Exchange Commission (“SEC”) Regulations (17

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C.F.R. § 240.14a-9(a)), abuse of control, and gross mismanagement. Defendants have filed

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motions to dismiss the amended complaints in both actions for failure to allege demand futility

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adequately. Defendants also contend that plaintiff Ha’s Section 14(a) claims are time-barred.

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Having carefully considered the papers submitted, the matters judicially noticeable, and the

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pleadings in this action, and for the reasons set forth below, the Motions to Dismiss are GRANTED

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WITH LEAVE TO AMEND as stated herein.

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I.

BACKGROUND

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A.

SUMMARY OF ALLEGATIONS

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AMD is a major semiconductor company that designs, develops, and sells microprocessors

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and accelerated processing units (APUs) for inclusion in desktop personal computers, notebooks,

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tablets, hybrids, servers, and embedded products. The Company sells its central processing units

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(CPUs) and APUs directly to Original Equipment Manufacturers (“OEMs”), and also to third-party

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distributor “channel” partners. Channel partners resell AMD products to other customers.

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(Hamilton Amended Complaint, Dkt. No. 51-4 [“Hamilton AC”] ¶ 2.)

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Between April 4, 2011 and October 18, 2012, AMD is alleged to have issued false and
misleading statements concerning the AMD’s first generation APU, marketed as the “Llano.” (Id.

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United States District Court
Northern District of California

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¶ 3.) The Llano contains a series of 64-bit microprocessors designed to act as a CPU and graphics

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accelerator (GPU) on a single silicon chip. (Id.) AMD touted the Llano as the “next generation of

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computing,” declaring it “an inflection points for AMD and . . . perhaps the industry’s biggest

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architectural change since the invention of the microprocessor.” (Id.)

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During the period from April 4, 2011 and October 18, 2012, AMD represented to the public

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that there was “strong” and “significant” interest in and demand for the Llano, and that demand was

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“higher than anticipated.” (Id. ¶ 4.) AMD concealed from investors that demand for the Llano

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actually was much weaker than expected, and that problems existed with the production process

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and product yield. (Id. ¶ 5.) AMD prioritized providing Llanos to OEMs, such that it did not have

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sufficient supplies for its channel partners. (Id.)

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In March 2, 2009, AMD formed GlobalFoundries, Inc. (“GF”), a manufacturing joint

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venture for the manufacture of semiconductor products and foundry services. (Id. ¶ 39.) AMD then

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entered into a Wafer Supply Agreement (“WSA”) with GF, which governed the terms by which

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AMD purchased chips manufactured by GF. (Id.) Pursuant to the WSA, AMD was required to

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purchase all of its microprocessor unit and APU product requirements from GF, with certain

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limited exceptions. AMD’s ownership interest in GF was divested in March 2012, but AMD

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thereafter remained highly dependent on GF for the components it needed to create its APUs.

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The Llano was originally set for release in 2010, but problems arose with the yield of usable

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chips produced by GF. (Id. ¶ 42.) AMD reset the launch date for the second quarter of 2011. (Id.)

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During the intervening months, AMD misrepresented to the public that production problems were

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resolved, and that there was strong and significant interest in and demand for Llano APUs. (Id.

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¶ 3.) In April 2011, AMD executives represented that the Llano yield issues were “behind” AMD

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and there would be “ample . . . product” of the Llano for sale and that AMD “very strong channel

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business.” (Id. ¶¶ 45, 48.)

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On June 14, 2011, AMD launched the Llano with much fanfare. (Id. ¶ 50.) On July 21,
2011, AMD issued a press release reporting revenue of $1.57 billion, and net income of $61
million, or $0.08 per share for the second quarter of 2011. (Id. ¶ 52.) At that time, AMD

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Northern District of California

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executives stated that “as the Llano APU penetration continues, we expect to increasingly

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participate in mainstream and performance notebook market segments,” and Llano sales were

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strong. (Id.) AMD executives again expressed that AMD was “satisfied with the yield and the

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support [it] was getting from [GF]” and the Llano yield issues were in the past. (Id. ¶ 52.)

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On August 25, 2011, Defendant Read was named AMD’s President, CEO, and a member of

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the board. Defendant Read was quickly brought up to speed concerning AMD’s continuing serious

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struggles relating to the Llano. (Hamilton AC ¶ 55.)

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On September 28, 2011, the Individual Defendants were forced to admit, partially, that the

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Company was still struggling with Llano supply issues. Specifically, AMD announced that the

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Company would miss revenue guidance for the third quarter of 2011 by between 4-6% and that

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margins were now expected to be only 44% to 45%, instead of the previously forecasted 47%. The

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Company primarily blamed the shortfalls on a “less-than-than expected supply of ‘Llano’” due to

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“yield, ramp and manufacturing issues at [GF].” (Id. ¶ 57.) However, AMD continued to tout

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publicly the success of its Llano APUs and, on October 27, 2011, to report revenue increases, and

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predict an increase of 3% sequentially for revenue for the 2011 fourth quarter based on the strong

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adoption of its APUs. (Id. ¶ 61.) AMD executives continued to dismiss concerns about Llano yield

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problems. (Id. ¶ 62.)

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In its November 9, 2011 Form 10-Q, AMD acknowledged that GF experienced yield and

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manufacturing difficulties “which adversely impacted our ability to fulfill customer demand.” (Id.

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¶ 63.) On February 2, 2012, defendant Su stated that AMD’s APUs had “great customer reception”

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and growing momentum, but omitted that demand for the Llano had actually decreased due to

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supply constraints. (Id. ¶ 69.) Later that month, on February 24, 2012, director defendants Barnes,

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Caldwell, Chow, Claflin, and Donofrio signed off on a Form 10-K for the fourth quarter of 2011

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which stated that AMD had “experienced strong customer demand, especially for . . . our AMD A-

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Series APUs, codenamed “Llano.” (Id. ¶ 71.) AMD’s February 24, 2012 Annual Report

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highlighted the importance of the Llano to the company. (Ha Amended Complaint, Dkt. 25, [“Ha

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Northern District of California

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AC”] ¶ 69.)
By the time the production issues were remedied in mid-2012, demand for the Llano was

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faltering and AMD had already announced plans to launch a second generation APU, leaving AMD

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with an inventory of Llanos that it could not sell. (Hamilton AC ¶ 6.) AMD boasted that it had

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“ample” supply to meet “very strong” demand, and that the Llano was a “huge success,” while

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privately bemoaning that AMD was “struggling” to sell the Llano in the channel market and had an

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“excess supply.” (Id. ¶ 8.) Hamilton alleges that documents in defendants’ possession confirm that

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the individual defendants had knowledge of the problems with the Llano every step of the way but

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repeatedly offered the public positive projections. (Id. ¶ 7.)

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On May 9, 2012, AMD filed its Form 10-Q for the first quarter ended March 31, 2012. The

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Form 10-Q failed to furnish information about the effects that the prior Llano APU supply

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disruptions were then having on the Company’s current operating results. (Id. ¶ 79.) Persistent and

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ongoing Llano issues only began to emerge publically when AMD issued a press release on July 9,

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2012 regarding its preliminary second quarter financial results for the period ended June 30, 2012,

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revealing that revenue was less than expected due to low channel sales. (Id. ¶ 84.) Likewise, in a

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July 19, 2012 earnings call, defendant Su stated that:

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[w]e got ourselves a bit out of position admittedly and that’s a big reason for our
shortfall. But when we look forward, it’s really the focus on sellout velocity and
getting the overall positioning correct with both the CPUs as well as the
motherboards. And we think we’re doing that.

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(Ha AC ¶ 118.) This statement was contrary to the truth: that Llano was not close to reaching

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“sellout velocity” but instead had an inventory increase to $833 million, up from $248 million in

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the prior quarter. (Id. ¶119.) AMD did not reveal that it had a glut of Llano stock that would

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become unsalable with AMD’s release of its next generation of APUs. (Hamilton AC ¶¶ 88, 89.)

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Finally, on October 18, 2012, AMD issued a press release regarding its third quarter results

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for 2012 reporting a net loss of $157 million in revenue, and a $100 million inventory write-down

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mainly attributable to its overstated value of the Llano APU inventory. (Id. ¶ 90.) Thus, AMD’s

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stock price dropped $6.17, or nearly 74%, from a high of $8.35 on March 27, 2012, to a low of

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$2.18 a share by October 18, 2012. (Id. ¶¶ 9, 93.)
On January 15, 2014, purchasers of AMD stock sued AMD and certain of its officers in this

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United States District Court
Northern District of California

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Court, asserting claims for violations of the federal securities laws based on the foregoing facts and

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disclosures regarding the Llano, in an action entitled Hatamian v. Advanced Micro Devices, Inc., et

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al., 4:14-cv-226-YGR. (Id. ¶ 92.)1 In its March 31, 2015 Order denying the motion to dismiss the

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amended complaint in that action, the Court found that plaintiffs therein had alleged falsity

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sufficiently, stating as follows:

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Plaintiffs allege that defendants concealed the facts that (i) yield problems still
existed and had persisted since 2010, and (ii) AMD was significantly supplyconstrained. (CCAC ¶ 10.) Due to the supply issues, AMD only shipped Llanos to
top-tier OEM customers; channel customers received no Llanos. (Id.) Plaintiffs
allege that despite the critical decision not to supply channel customers with
Llanos, defendants continually represented that the Llano devices were faring
well in the market. Furthermore, the CCAC alleges that former employees from
AMD and GF confirmed that the Llano yield was “horrible” during the class
period and that defendants were fully informed of the yield issues. (CCAC ¶¶ 11–
12.)
Plaintiffs allege that in a series of disclosures, starting in September 2011, AMD
began to inform the market of the Llano yield problem and its effects. On
September 28, 2011, defendants admitted that AMD would miss its revenue
guidance by four to six percent due to “less than expected supply.” (CCAC ¶ 13.)
Defendants nonetheless touted “strong” customer demand despite the fact that

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Defendants in the Hatamian action were: Advanced Micro Devices, Inc., Richard A.
Bergman, Rory P. Read, Thomas J. Seifert, and Lisa T. Su. Of these defendants, only Su served as
a director during the relevant time period here.

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supply could not meet the demand due to the compromising yield problem. (Id.)
Defendants continued to downplay the existence and effects of the yield problem
during a subsequent earnings call with analysts in October of 2011, although they
admitted that there had been some issues with yield that had impacted revenues to
that point, maintained that AMD was working with its foundry partner, GF, to
solve the yield problems, and continued to state that they were expecting
increasing shipments of the Llano. (CCAC ¶¶ 14; 207- 216.) Defendants made
similar statements in the months the followed.

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Plaintiffs allege that such statements were materially untrue, because AMD did
not begin shipping Llanos to third party channel distributors until December of
2011, and by then, demand had dwindled. (CCAC ¶¶ 15–16.) By that point, Llano
had missed the back-to-school tech boom and the market had started to shift focus
away from designing products compatible with Llano. (Id.) Other vendors moved
on to prepare for other, newer emerging technologies, such as AMD’s “Trinity”
APU, and thus had stopped creating component parts that would be compatible
with Llano. (Id.) The result was an inventory glut of Llanos, AMD’s highest
inventory in years. Nonetheless, AMD continued to represent that channel sales
were strong.

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United States District Court
Northern District of California

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Defendants allegedly made additional public disclosures starting in mid-2012. In
July 2012, AMD announced it would miss second quarter revenue guidance by
14% due to softer than anticipated channel sales in China and Europe, and the
impact of weaker than expected consumer buying in AMD’s OEM business.
(CCAC ¶ 18.) Ten days later, on an earnings call, defendants admitted that the
“soft” channel sales were due to Llano supply chain problems, which was “largely
in AMD’s control.” (CCAC ¶ 19.) AMD nonetheless maintained that the Llano
was a good product, and that it would sell well in the coming quarters. (CCAC ¶
20.) Plaintiffs claim that such statements were knowingly misleading, because in
the context of a one-year lifecycle (which is allegedly the case for
microprocessors like Llano), by missing substantially its slated launch date, the
damage to Llano sales had been done. (CCAC ¶ 21.)

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Finally, in October 2012, AMD revealed that it was writing down $100 million of
Llano inventory because it was not salable. (CCAC ¶ 22.) This would account for
8% of a 15% quarter over quarter decline in gross margin. (Id.) The stock price
fell accordingly. In total, AMD’s stock price dropped $6.17 (nearly 74%) during
the class period. (CCAC ¶ 24.) Plaintiffs attribute this decline to defendants’
allegedly false and misleading statements.

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(Id.)
On March 16, 2016, the Court certified a class in the Securities Class Action, consisting of
all purchasers of AMD stock during the period from April 4, 2011 through October 18, 2012. (Id.

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¶ 96.) On March 2, 2018, the Court issued an order finally approving the class action settlement for

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$29.5 million, and it entered judgment thereafter on March 6, 2018.
PROCEDURAL HISTORY OF THE INSTANT ACTION

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B.

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Plaintiff Hamilton filed his original complaint on April 27, 2015. On June 4, 2015, the

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Court entered an Order Granting Corrected Stipulation to Temporarily Stay Civil Action. (Dkt. No.

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32 [“Hamilton Stay Order”].) On December 21, 2017, defendants moved to dismiss the original

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complaint. Hamilton moved to strike the motion to dismiss as having been filed in contravention of

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the Hamilton Stay Order (Dkt. No. 43). The Court denied the motion to strike and permitted the

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motion to dismiss to go forward. (Dkt. No. 46.) Thereafter, Hamilton filed an amended complaint

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on February 9, 2018.
Plaintiff Ha filed his original complaint on September 29, 2015. The Court related this

United States District Court
Northern District of California

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matter to the pending Hamilton matter by Order issued December 1, 2015. (Dkt. No. 8.) On

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December 22, 2015, the Court entered an Order Granting Stipulation to Stay Action. (Dkt. No. 11

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[“Ha Stay Order”].) As in the Hamilton action, on December 21, 2017, defendants moved to

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dismiss the original complaint. (Dkt. No. 20.) Thereafter on February 2, 2018, Ha filed his

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amended complaint.

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II.

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APPLICABLE STANDARD
A shareholder derivative suit is an action brought by a shareholder on behalf of a

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corporation. See Tindall v. First Solar Inc., 892 F.3d 1043, 1044–46 (9th Cir. 2018). Before

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bringing the complaint, the shareholder must “demand action from the corporation’s directors or

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plead with particularity the reasons why such demand would have been futile.” La. Mun. Police

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Emps.’ Ret. Sys. v. Wynn, 829 F.3d 1048, 1057 (9th Cir. 2016), quoting Rosenbloom v. Pyott, 765

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F.3d 1137, 1148 (9th Cir. 2014). The law of the state of incorporation governs whether a demand

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would have been futile. Arduini v. Hart, 774 F.3d 622, 628 (9th Cir. 2014). Here, the parties agree

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that Delaware law applies.

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Under Delaware law “pre-suit demand is excused [when] the directors are deemed

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incapable of making an impartial decision regarding the pursuit of the litigation.” Wood v. Baum,

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953 A.2d 136, 140 (Del. 2008). Delaware has two tests for demand futility—the Aronson test and

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the Rales test. Wood v. Baum, 953 A.2d 136, 140 (Del. 2008) (citing Aronson v. Lewis, 473 A.2d

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805 (1984) and Rales v. Blasband, 634 A.2d 927 (Del. 1993)).

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The Aronson test permits a plaintiff to demonstrate futility by alleging particularized facts

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creating a reason to doubt either: (1) that the directors are disinterested and independent with

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respect to the challenged transaction; or (2) that “the challenged transaction was otherwise the

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product of a valid exercise of business judgment.” Wood, 953 A.2d at 140, quoting Aronson, 473

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A.2d at 814 (emphasis supplied); see Rales 634 A.2d at 933 (Aronson test looks to whether the

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directors are disinterested and independent with respect to financial benefits of a challenged

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transaction). The Aronson test for demand futility focuses on allegations raising a doubt as to the
directors’ independent judgment with respect to a particular business transaction or decision. “The

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United States District Court
Northern District of California

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essential predicate for the Aronson test is the fact that a decision of the board of directors is being

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challenged in the derivative suit.” Rales, 634 A.2d at 933 (emphasis in original).

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By contrast, under the Rales test, the court considers “whether or not the particularized

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factual allegations . . . create a reasonable doubt that, as of the time the complaint is filed, the board

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of directors could have properly exercised its independent and disinterested business judgment in

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responding to a demand.” Id. at 934 (emphasis supplied). The Court must determine whether a

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majority of the members of the board at the time of the pre-suit demand could be expected to “act

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free of personal financial interest and improper extraneous influences.” Id. at 935.

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Which test applies depends upon whether the plaintiff contends that the relevant directors

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could not have exercised their independent and disinterested business judgment with respect to a

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particular business transaction, or with respect to the litigation demand itself. Wood, 953 A.2d at

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140 (Aronson test applies to “claims involving a contested transaction,” while Rales test requires

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showing reason to doubt “independent and disinterested business judgment in responding to a

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demand”). “In order to determine whether the Board could have impartially considered a demand

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at the time [plaintiff’s] complaint was filed, it is appropriate to examine the nature of the decision

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confronting it.” Rales, 634 A.2d at 935.

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The task of a board of directors in responding to a stockholder demand letter is a
two-step process. First, the directors must determine the best method to inform
themselves of the facts relating to the alleged wrongdoing and the considerations,
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both legal and financial, bearing on a response to the demand. If a factual
investigation is required, it must be conducted reasonably and in good faith.
Second, the board must weigh the alternatives available to it, including the
advisability of implementing internal corrective action and commencing legal
proceedings. In carrying out these tasks, the board must be able to act free of
personal financial interest and improper extraneous influences.
Id. at 935 (internal citations omitted). “A director is considered interested where [the director] will
receive a personal financial benefit from a transaction that is not equally shared by the stockholders
. . . [or] a corporate decision will have a materially detrimental impact on a director, but not on the
corporation and the stockholders.” Id. at 936, citing Aronson, 473 A.2d at 812. When such
circumstances are alleged, “a director cannot be expected to exercise [] independent business
judgment without being influenced by the adverse personal consequences resulting from the
decision.” Id.
Thus, when the board at the time of the pre-suit demand is not involved in a challenged
business decision, the Aronson test does not apply and courts instead look to the Rales test. So, for
instance, the Rales test would apply “(1) where a business decision was made by the board of a
company, but a majority of the directors making the decision have been replaced; (2) where the
subject of the derivative suit is not a business decision of the board; and (3) where . . . the decision
being challenged was made by the board of a different corporation.” Id. at 933-34. The Aronson
test cannot logically apply in these circumstances because “the essential inquiry contemplated by
Aronson—whether the directors have acted in conformity with the business judgment rule in
approving the challenged transaction”—cannot be answered “[w]here there is no conscious
decision by directors to act or refrain from acting.” Id. at 933 (emphasis supplied). Where a
complaint “charges the director defendants with breach of their duty of attention or care in
connection with the on-going operation of the corporation’s business” by failing to be “active
monitors of corporate performance,” because there is no business decision or transaction at issue,
courts apply the Rales test. In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 967 (Del. Ch.
1996); see Tindall v. First Solar Inc., 892 F.3d 1043, 1046 (9th Cir. 2018). “[A]bsent grounds to
suspect deception, neither corporate boards nor senior officers can be charged with wrongdoing
simply for assuming the integrity of employees and the honesty of their dealings on the company’s

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behalf.” In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 969 (Del. Ch. 1996). In these

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situations, the Rales test is the appropriate test for demand futility.

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A claim that the defendants “knew or should have known about illegal conduct and made a

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conscious choice to turn a blind eye can be characterized either as a Caremark-type oversight claim

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or as an Aronson[-]type allegation of considered board action.” Rosenbloom v. Pyott, 765 F.3d

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1137, 1151 (9th Cir. 2014). “[E]ither way, demand is excused if [p]laintiffs’ particularized

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allegations create a reasonable doubt as to whether a majority of the relevant [board] faces a

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substantial likelihood of liability for failing to act in the face of a known duty to act.” Rosenbloom,

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765 F.3d at 1151. “If the directors face a ‘substantial likelihood’ of personal liability, their ability
to consider a demand impartially is compromised under Rales, excusing demand.” Id. If the

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United States District Court
Northern District of California

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directors “fail to act in the face of a known duty to act, thereby demonstrating a conscious disregard

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for their responsibilities,” such a failure to act would give rise to substantial liability for breach of

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the duty of loyalty, and therefore excuse demand as well. Id.

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Thus, in Rosenbloom, the Ninth Circuit held that allegations that the board was on notice of

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serious misconduct and failed to investigate would be sufficient to allege that a demand on the

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board was futile. Id. at 1151, 1154 (“If a majority of the Board had actual or constructive

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knowledge of violations of the law . . . and did nothing, it violated its duty of loyalty and faces a

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substantial likelihood of liability.”) In determining whether the allegations of the complaint

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sufficiently allege demand futility, the court must consider whether the particularized allegations,

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individually or in combination, support a plausible “inference of conscious inaction” or wrongdoing

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by a majority of the board members. Rosenbloom, 765 F.3d at 1155-56. Plaintiff must undertake a

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“director-by-director analysis” to show that a majority of the directors was incapable of objectively

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evaluating a demand. Raul v. Rynd, 929 F. Supp. 2d 333, 346 (D. Del. 2013).

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Where the complaint alleges that the directors are “interested” because they face a

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substantial likelihood of liability for breach of fiduciary duties, the court must also consider

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whether, as here, the company’s certificates of incorporation contain an exculpatory clause limiting

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their liability under Delaware law to those situations where plaintiff “allege[s] particularized facts

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showing that the directors engaged in ‘disloyal,’ ‘fraudulent, illegal or bad faith conduct,’ and

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‘acted with scienter,’” rather than merely negligent or reckless conduct. In re Paypal Holdings,

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Inc. S’holder Derivative Litig., No. 17-CV-00162-RS, 2018 WL 466527, at *3 (N.D. Cal. Jan. 18,

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2018) (citing Wood v. Baum, 953 A.2d 136, 141 (Del. 2008) and McPadden v. Sidhu, 964 A.2d

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1262, 1274-75 (Del. Ch. 2008)).

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III.

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DISCUSSION
Plaintiffs’ complaints each take a different approach with respect to the allegations against

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the Board. The Hamilton complaint alleges that a majority of the AMD Board, as constituted on

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April 27, 2015, was aware of and participated in the alleged wrongful acts. (Hamilton AC ¶¶ 24,

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106.) Hamilton contends that the wrongful acts alleged were the knowing or reckless dissemination
of materially false and misleading statements to the public, and failure to prevent breaches of

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United States District Court
Northern District of California

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loyalty. (Id. ¶¶ 24, 110.) Hamilton contends that defendant board members Barnes, Caldwell, Chu,

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Claflin, Donofrio, Harding, and Su were all aware of and failed to correct materially false and

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misleading statements regarding the Llano made by AMD officers, and also authorized and

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benefitted from those statements. (Id. ¶¶ 24, 106.) Thus, the Hamilton complaint alleges that the

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relevant board members had “potential individual financial exposure” and were not capable of

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making a disinterested, independent decision with respect to a pre-suit demand. (Id. ¶ 106.)

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The Ha amended complaint alleges that demand would have been futile because, as of

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September 29, 2015, a board majority: (1) was conflicted through employment by AMD, status as

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“non-independent” directors, or their interlocking interests due to board service, financial

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payments, business conducted with AMD, and service to AMD subsidiary companies such as

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Advanced Research; and (2) had “demonstrated an inability to act in compliance with their

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fiduciary obligations and/or to sue themselves and/or their fellow directors for the violations of

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law” stated therein, i.e. informing shareholders about the materially false and misleading

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statements. (Ha AC ¶¶ 4, 147 (a)(b).) The Ha AC alleges that a majority of the eleven members of

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the relevant board were incapable of independently considering a demand: four defendants were

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non-independent directors (Su, Yahia, Edelman, and Harding) and six defendants were on the Audit

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and Governance committees (Caldwell, Chow, Householder, Inglis, Denzel and Donofrio).

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A.

Relevant Demand Board

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Defendants move to dismiss both amended complaints on the grounds that plaintiffs have

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failed to allege demand futility as to the relevant board of directors which, from defendants’

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perspective, is the board in place at the time of the filing of plaintiffs’ amended complaints in

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February 2018. By contrast, each of the amended complaints alleges futility with respect to the

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board as comprised at the time of the filing of plaintiffs’ original complaints.

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As a general rule, for purposes of determining demand futility, “[t]he relevant board is the

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board as it was constituted when the shareholders filed their amended complaint.” Louisiana Mun.

9

Police Employees’ Ret. Sys. v. Wynn, 829 F.3d 1048, 1058 (9th Cir. 2016) (quoting Braddock v.
Zimmerman, 906 A.2d 776, 786 (Del. 2006)). This rule is an outgrowth of the basic principle that

11

United States District Court
Northern District of California

10

unless a derivative claim is “validly in litigation,” a board of directors has a “right and duty to

12

control corporate litigation . . . to ensure that through derivative suits shareholders do not

13

improperly seize corporate powers.” Braddock, 906 A.2d at 785 (quoting Harris, 582 A.2d at 230).

14

Voluntarily amending the complaint will “trigger a new requirement to make demand if the earlier

15

complaint could not have survived a motion to dismiss, even if it had not actually been dismissed.”

16

In re Nyfix, Inc. Derivative Litig., 567 F. Supp. 2d 306, 311 (D. Conn. 2008).

17

Both amended complaints allege that the relevant board is the board composition at the time

18

of the filing of the original action. They do so based upon nearly identical stipulations in each case

19

which provide:

20
21
22
23
24
25
26
27
28

The composition of AMD’s Board of Directors that will be considered in
connection with determining whether Plaintiffs have pled facts sufficient to raise
a reasonable doubt that a pre-litigation demand on the Company’s Board of
Directors would have been futile shall be the composition of the Board of
Directors as of . . . the date this action was initiated.
(Hamilton Dkt. No. 32 at ¶ 6; Ha Dkt. No. 11 at ¶ 5.) Thus, the Hamilton AC alleges:
[a]s set forth in the Corrected Stipulation and Order to Temporarily Stay Civil
Action, dated June 4, 2015 ([Hamilton] Dkt No. 32), the relevant board of AMD
for assessing demand futility consists of the following twelve individuals who
comprised AMD’s board on April 27, 2015, the date this action was filed:
Defendants Claflin, Barnes, Caldwell, Chow, Donofrio, Harding and Su, and nondefendants Nora M. Denzel, Martin Edelman, Joseph A. Householder, Michael J.

12

1

Inglis, and Ahmed Yahia (the “Demand Board”). A majority of directors on the
Demand Board (seven of twelve directors) are defendants in this action.

2

(Hamilton AC ¶ 105.) Ha does not specifically allege reliance on the stipulated stay order in the

3

Ha action (Ha Dkt. No. 11), but nevertheless contends that the relevant board for purposes of

4

demand is the board as it was composed on September 29, 2015. (Ha AC ¶ 4; Oppo. at 11.)

5

Defendants argue that the stipulations are merely retrospective, meaning that they “froze the

6

status quo and prevented Defendants from arguing that subsequent changes to AMD’s Board

7

composition could negate the futility allegations in Plaintiffs’ original complaints.” (Reply at fn.

8

1.) They contend that plaintiffs offer “no citations to the record of negotiations between the

9

parties” to support an interpretation that demand futility would be assessed against the boards at the
time the action was initiated, regardless of any amendment to the complaints. By the same token,

11

United States District Court
Northern District of California

10

defendants offer no extrinsic evidence to support their interpretation of the stipulation either.2

12

On a motion to dismiss, defendants have the burden to show that plaintiffs’ allegations are

13

insufficient to state a basis for demand futility. Defendants argue that the benefit of the bargain in

14

the stipulations was limited to providing plaintiffs a seat at the mediation table in the Hatamian

15

action and enough shared discovery to make mediation meaningful. However, these arguments

16

merely serve to highlight the conflict in the parties’ interpretations of a stipulation that is, at best,

17

ambiguous. Further, defendants offer no authority to support their suggestion that, in the absence

18

of a stipulation, any “subsequent changes to AMD’s Board composition could negate the futility

19

allegations in Plaintiffs’ original complaints.” (Reply at fn. 1.) At the pleading stage, when all

20

reasonable inferences must be drawn in favor of plaintiffs, the unqualified statement that the

21

relevant board “shall be the composition of the Board of Directors as of . . . the date this action was

22

initiated,” is sufficient to state a plausible basis for considering demand futility in relation to the

23

board at the time of the filing of the original complaints here. Accordingly, for purposes of a

24

motion to dismiss, the Court will consider the board composition to be that of the filing of the

25

original complaint.

26
2

27
28

To the extent there are factual issues to be resolved in order to determine the meaning of
the stipulation with respect to the allegations here, it would not appear that a motion to dismiss is
the proper procedural vehicle for so doing.

13

1

B.

2

Next, defendants contend that the Court should disregard those paragraphs in the Hamilton

3

AC which are based upon discovery in the related Hatamian securities action, which was provided

4

to plaintiffs under the terms of their stipulation with defendants. Hamilton counters that the

5

stipulation placed no restriction on the use of the discovery other than compliance with the

6

protective order in that case. The Hatamian protective order provided, in pertinent part:

7
8
9
10

Use of Hatamian Discovery

A Receiving Party may use Protected Material that is disclosed or produced by
another Party or by a Non-Party in connection with this case only for prosecuting,
defending, or attempting to settle this litigation. Such Protected Material may be
disclosed only to the categories of persons and under the conditions described in
this Order. When the litigation has been terminated, a Receiving Party must
comply with the provisions of section 13 below (FINAL DISPOSITION).

United States District Court
Northern District of California

11

(Hatamian v. Advanced Micro Devices, Inc. et al., 14-cv-226 YGR, Dkt. No. 136 at ¶ 7.1

12

[“Hatamian Protective Order”], emphasis supplied.) First, the reference to “this case” is to the

13

Hatamian action. Second, section 13 of the Hatamian Protective Order provided that a Receiving

14

Party must return or destroy all Protected Material within 60 days of the disposition of the

15

Hatamian action. While the Hamilton AC was filed prior to the final disposition of the Hatamian

16

litigation on March 6, 2018, the Court cannot find that Hamilton’s amendment of his complaint

17

using information obtained from documents covered under the terms of the Hatamian Protective

18

Order was permitted by its terms. Although the stipulation did not articulate limits on plaintiff, the

19

Hatamian Protective Order did. Plaintiff Hamilton cannot rely on the information learned through

20

the discovery provided in Hatamian to augment his complaint.

21

Thus, the Court will not consider the allegations of the unredacted Hamilton AC set forth in

22

the following paragraphs in determining whether plaintiffs have alleged demand futility

23

sufficiently: 8 (partial), 43 (partial), 44, 46, 47, 48 (partial), 49 (partial), 51, 53, 55 (partial), 56, 58,

24

59, 60, 62 (partial), 70, 71 (partial), 74, 75, 78 (partial), 80, 81, 82, 83, and 107 (partial).3

25

//

26
3

27
28

Stated otherwise, the allegations that the Court will consider in connection with the motion
to dismiss are those allegations contained in the redacted public version of the Hamilton Amended
Complaint, filed at Hamilton Docket No. 56.

14

1

C.

1.

2
3

Sufficiency of Allegations of Futility
Hamilton Amended Complaint

Defendants argue that plaintiffs have not alleged fraud and scienter in more than a

4

conclusory way, so they have failed to allege demand futility as well. Defendants argue that, even

5

if the statements alleged in Hatamian were materially misleading, plaintiffs here have not alleged

6

facts alleged showing that the directors knew or should have known the same. The Court agrees.

7

Once the allegations impermissibly relying on the Hatamian discovery are discounted, the

8

Hamilton AC does not offer particularized allegations to establish that a majority of the relevant

9

board was aware that the SEC filings, press releases, and other public statements were materially

10

United States District Court
Northern District of California

11

misleading.
To establish demand futility based upon breach of loyalty, plaintiff must allege with

12

particularity that the directors “fail[ed] to act in the face of a known duty to act, thereby

13

demonstrating a conscious disregard for their responsibilities.” Rosenbloom, 765 F.3d at 1150-51

14

(emphasis supplied). Plaintiff must offer facts to show that the board was on notice of serious

15

misconduct and failed to investigate in order to establish a substantial likelihood of liability, and

16

resulting demand futility. Id. at 1151, 1154 (“If a majority of the Board had actual or constructive

17

knowledge of violations of the law . . . and did nothing, it violated its duty of loyalty and faces a

18

substantial likelihood of liability.”)

19

Here, the Hamilton AC alleges in a generalized, conclusory manner that the director

20

defendants authorized and benefitted from misstatements in AMD’s 10-K filings, press releases and

21

public statements, and that they were “aware of and failed to correct materially false and

22

misleading statements and omissions regarding the Llano made by Officer Defendants.” (Hamilton

23

AC ¶¶ 23-28.) The Hamilton AC merely alleges that board members authorized the February 24,

24

2012 Form 10-K, which stated there had been “strong customer demand” for the Llano. (Id. ¶¶ 71,

25

107.) Hamilton also alleges that director defendants Barnes, Caldwell, Chow, Claflin, and

26

Donofrio signed the 10-K filing. (Id.) However, these do not constitute particularized allegations

27

that these defendants knew the 10-K was materially misleading.

28

15

Second, Hamilton alleges that the board defendants “received numerous and regular updates

2

concerning significant Llano production, supply, and demand problems [and t]he Llano issues were

3

emphasized to the board throughout the Relevant Period in presentations, emails, and board

4

meetings.” However, Hamilton is unable to allege any particularized facts to support this

5

conclusory allegation. He merely alleges that defendants Claflin, Barnes, Caldwell, Chow,

6

Donofrio and Harding authorized, permitted, and “repeatedly acquiesced to the making of improper

7

statements about: (i) AMD’s failure to acknowledge the known yield problems and supply

8

constraints at GF that affected production of the Llano APU throughout the entirety of 2011; (ii) the

9

decrease in demand for the Llano APU that was likely the result of the delay caused by the supply

10

constraints; (iii) the failure to acknowledge that the introduction of the Trinity APU would reduce

11

United States District Court
Northern District of California

1

demand for the Llano; and (iv) the failure to acknowledge that the introduction of the Trinity APU

12

would require price cuts for the Llano APU, which would affect gross margins and the value of

13

AMD inventory.” (Id.¶ 108.) Without the aid of the information obtained in the Hatamian

14

discovery, Hamilton is unable to allege that any of those defendants were aware of the falsity of

15

any of the statements.

16

Third, the Hamilton AC alleges that certain defendants were members of committees

17

charged with oversight concerning dissemination of truthful statements to the public, and that they

18

failed in those duties. With respect to the Audit and Finance Committee, Hamilton alleges that

19

defendants Barnes, Caldwell, Chow, and Harding, as members thereof, were charged with oversight

20

of AMD’s press releases regarding its financial condition, and breached their fiduciary duties of

21

loyalty and good faith because they knowingly or recklessly caused the dissemination of misleading

22

statements to the public. (Id. ¶ 110.) With respect to the Nominating and Corporate Governance

23

Committee, Hamilton further alleges that defendants Barnes, Caldwell, Chow, Claflin, Donofrio,

24

and Harding were members thereof charged with oversight of board and management, but took no

25

action to ensure that a system of internal controls was in place, and failed to make accurate, truthful

26

public statements. (Id. ¶ 111.)4

27
28

4

To the extent that Hamilton alleged compensation paid to Board members created a
reasonable doubt that they could exercise independent, disinterested business judgment (Hamilton
(cont’d . . . )
16

1

The permissible allegations here do not offer any particularized facts to show that

2

defendants Barnes, Caldwell, Chow, Claflin, Donofrio, and Harding had actual or constructive

3

knowledge of materially misleading statements in AMD’s SEC filings, press releases, and public

4

statements.5 “In the context of a pre-suit demand, directors are entitled to a presumption that they

5

fulfilled their fiduciary duties, and ‘the burden is upon the plaintiff in a derivative action to

6

overcome that presumption’ with particularized factual allegations.” In re Bidz.com, Inc. Deriv.

7

Litig., 773 F. Supp. 2d 844, 850 (C.D. Cal. 2011) (quoting Beam ex rel. Martha Stewart Living

8

Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048-49 (Del. 2004)).

9

Having failed to plead facts showing that a majority of the directors acted fraudulently,
knowingly, or in bad faith, the Hamilton AC fails to allege a basis for excusing the demand

11

United States District Court
Northern District of California

10

requirement. See In re Yahoo! Inc. S’holder Derivative Litig., 153 F. Supp. 3d 1107, 1120 (N.D.

12

Cal. 2015); In re Paypal Holdings, Inc. S’holder Derivative Litig., No. 17-CV-00162-RS, 2018 WL

13

466527, at *3 (N.D. Cal. Jan. 18, 2018) (“a serious threat of liability may only be found to exist if

14

the plaintiff pleads a non-exculpated claim,” which requires plaintiffs to allege particularized facts

15

showing that the directors engaged in “disloyal,” “fraudulent, illegal or bad faith conduct,” and

16

“acted with scienter” and “negligent or even reckless conduct is insufficient”) (citing Wood, 953

17

A.2d at 141, McPadden v. Sidhu, 964 A.2d 1262, 1274-75 (Del. Ch. 2008)). Consequently, based

18

upon the foregoing, the Hamilton amended complaint fails to allege demand futility with sufficient

19

particularity and the motion to dismiss on these grounds must be granted.

20
21
22
23
24
25
26
27
28

( . . . cont’d)
AC ¶ 112(a)), the Court finds that the bare allegation of compensation is insufficient to excuse
demand. See Grobow v. Perot, 539 A.2d 180, 188 (Del.1988), overruled on other grounds by
Brehm v. Eisner, 746 A.2d 244 (Del.2000) (allegations “that directors are paid for their services as
directors . . . without more, do not establish any financial interest.”); In re Sagent Tech., Inc.,
Derivative Litig., 278 F. Supp. 2d 1079, 1089 (N.D. Cal. 2003) (demand futility cannot be
established merely on the grounds that a director is compensated or would want to preserve their
position, otherwise “every inside director would be disabled from considering a pre-suit demand”).
5

While the allegations are sufficiently particular as to the knowledge and participation of
defendant Su, who was both a Board member and AMD officer during the Relevant Period (see
Hamilton AC ¶ 19, 69), particularized allegations as to only one member of the Board is
insufficient for demand futility purposes.

17

1
2

2. Ha Amended Complaint
The Ha AC relies on two theories of liability: (1) the entire Board, and members of the

3

Audit and Finance Committee in particular, failed to “establish or enforce internal policies” and

4

“failed to disclose the weaknesses in AMD’s internal controls leading to the dissemination of

5

misstatements and material omissions” relating to Llano, which exposed AMD to liability in the

6

Hatamian action (Ha AC ¶¶ 136-141, 147(a)); and (2) a majority of the Board was unable to

7

exercise independent business judgment due to conflicts of interest (i.e., through their employment

8

by AMD, their status as “non-independent” directors, interlocking interests board service and

9

financial payments, business conducted with AMD, service to AMD subsidiary companies such as

10

United States District Court
Northern District of California

11

Advanced Research). (Id. ¶ 147(b).)
Ha’s first theory fails for the same reasons that the Hamilton’s allegations are insufficient.

12

Ha alleges that Board members were “charged with oversight,” or “knew or should have known” of

13

Llano’s failures, through their board and/or committee positions. (Id. ¶¶ 107(i), (j), 148-158.)

14

Thus, Ha alleges that a majority of board members “knowingly permit[ted] the making of improper

15

statements in AMD’s Forms 10-Q, press releases, and other public statements regarding AMD’s

16

business prospects, financial guidance, and comments to financial analysts.” (Id. ¶ 108.)

17

These allegations are insufficient to meet the requirement that plaintiff allege particularized

18

facts as to each member that would establish the knowledge required to create a substantial

19

likelihood of liability. “To excuse demand based on an asserted Caremark claim, Plaintiffs must

20

plead particularized facts to show that ‘(a) the directors utterly failed to implement any reporting or

21

information system or controls; or (b) having implemented such a system or controls, consciously

22

failed to monitor or oversee its operations, thus disabling themselves from being informed of risks

23

or problems requiring their attention.’” In re Yahoo!, 153 F. Supp. 3d at 1121 n.7 (quoting Stone ex

24

rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006)). “In either case, imposition

25

of liability requires a showing that the directors knew that they were not discharging their fiduciary

26

obligations.” Stone, 911 A.2d at 370 (emphasis supplied). Here, Ha has failed to allege with

27

sufficient particularity that a majority of the board knew they were not discharging their fiduciary

28

obligations. There are no facts alleged with particularity that give rise to a reasonable inference

18

1

that the members of the Board, other than defendant Su, were aware of facts that rendered the SEC

2

filings and public statements materially false and misleading.

3

Ha’s second theory, that board members were conflicted or lacked independence, fails as

4

well. “A director is considered interested where [the director] will receive a personal financial

5

benefit from a transaction that is not equally shared by the stockholders . . . [or] a corporate

6

decision will have a materially detrimental impact on a director, but not on the corporation and the

7

stockholders.” Rales, 634 A.2d at 936 (citing Aronson, 473 A.2d at 812). When such

8

circumstances are alleged, “a director cannot be expected to exercise [] independent business

9

judgment without being influenced by the adverse personal consequences resulting from the
decision.” Id. “Independence is a fact-specific determination made in the context of a particular

11

United States District Court
Northern District of California

10

case.” Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049–50

12

(Del. 2004). For purposes of demand futility, “plaintiff has the burden to plead particularized facts

13

that create a reasonable doubt sufficient to rebut the presumption” of independence, that is facts

14

that “create a reasonable doubt” as to whether a director is “beholden” to others on the board and

15

could not give unbiased consideration to a demand. Id.; Grobow v. Perot, 539 A.2d 180, 189 (Del.

16

1988) (to plead that a director is not independent, plaintiff must allege with particularity that a

17

director was “dominated” or “controlled” by an individual or entity interested in the subject

18

transaction), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244, 253 (Del. 2000).

19

“[M]ere personal friendship or a mere outside business relationship, standing alone, are insufficient

20

to raise a reasonable doubt about a director’s independence. Beam ex rel. Martha Stewart Living

21

Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004).

22

Here, Ha alleges that: (1) Su, Yahia, Edelman, and Harding were non-independent directors;

23

(2) Caldwell, Chow, Clafin, Donofrio, Edelman, Harding, Su, and Yahia were governing persons of

24

AMD Advanced Research LLC; (3) Caldwell, Chow, Householder, Inglis, Denzel, and Donofrio

25

were members of the Audit and/or Governance committees; and (4) Yahia, Edelman, Donofrio, and

26

Denzel had a variety of interlocking relationships with other board members or organizations that

27

would have interfered with independent judgment about whether to bring suit in response to a

28

demand. The Court considers each alleged conflict of interest in turn.

19

1
2

a.

Non-Independent Director Designation

Ha argues that four of the eleven AMD directors--defendants Su, Yahia, Edelman, and
Harding-- are not considered independent members of the AMD Board, and these allegations are

4

based on AMD’s own proxy statement. A corporation’s admission that certain of its directors are

5

not independent is highly probative of whether that director is capable of independently considering

6

a shareholder demand. Sandys v. Pincus, 152 A. 3d 124 (Del. 2016); Countrywide, 554 F. Supp. 2d

7

at 1062, 1081 (directors not independent for demand purposes where identified as not independent

8

in proxy statement). While defendants are correct that being designated as non-independent per the

9

NASDAQ rules for disclosure in SEC filings is not the same as lacking independence for purposes

10

of demand futility, the Delaware courts have recognized that they are closely related, or that being

11

United States District Court
Northern District of California

3

so designated can inform the determination at the demand futility stage. Sandys, 152 A.3d at 131

12

(“the criteria NASDAQ has articulated as bearing on independence are relevant under Delaware

13

law and likely influenced by our law . . . the NASDAQ rules’ focus on whether directors can act

14

independently of the company or its managers has important relevance to whether they are

15

independent for purposes of Delaware law”). However, the fact of their designation, without more,

16

is insufficient to establish lack of independence.

17
18

b.

AMD Advanced Research, LLC

Ha alleges that eight of the eleven Ha directors (Su, Yahia, Harding, Edelman, Donofrio,

19

Caldwell, Chow, Claflin) are “governing persons” of AMD Advanced Research, LLC. Ha

20

contends that, because these directors’ positions, compensation, and responsibilities as “governing

21

persons” of AMD Advanced Research are undisclosed, their status as “governing persons” is

22

enough to raise an inference that they lack independence to consider a demand against AMD.

23

Other than alleging that AMD Advanced Research, LLC is a private subsidiary of AMD, the Ha

24

AC is devoid of any other factual allegations regarding the business. (Ha AC ¶¶ 147(b), 148.)

25

Defendants contend that this allegation is insufficient to indicate that there would be divided

26

loyalties or domination by the AMD executives by virtue of these directors’ relationship with a

27

private AMD subsidiary. The Court agrees.

28

20

1

Ha has not alleged any facts, or offered any argument to suggest that these directors could

2

not make an independent determination as to a demand on AMD beyond the bare assertion that

3

they are also “governing persons” of an AMD subsidiary. “[A] plaintiff charging domination and

4

control of one or more directors must allege particularized facts manifesting a direction of

5

corporate conduct in such a way as to comport with the wishes or interests of the [person] doing the

6

controlling.” In re Bidz.com, Inc. Derivative Litig., 773 F. Supp. 2d 844, 853 (C.D. Cal. 2011)

7

(citing Aronson, 473 A.2d at 816.) “Demand futility cannot be ple[aded] merely on the basis of

8

allegations that directors acted or would act to preserve their positions” or else “every inside

9

director would be disabled from considering a pre-suit demand.” In re Sagent Tech., Inc.,
Derivative Litig., 278 F. Supp. 2d 1079, 1089 (N.D. Cal. 2003) (citing Grobow v. Perot, 539 A.2d

11

United States District Court
Northern District of California

10

180, 188 (Del.1988), overruled on other grounds, 746 A.2d 244 (Del.2000)). In the absence of

12

more particular allegations that these directors’ relationship with AMD Advanced Research would

13

create a conflict of interest, or show domination and control by AMD, the Court finds the

14

allegations regarding relationships with this subsidiary to be insufficient to excuse demand.

15

c.

Committee Membership

16

With respect to the committee membership, again, the Court finds the allegations

17

insufficient to raise an inference that the board member defendants could not have considered a

18

demand impartially. While it is true that committee members could be charged with a duty to

19

investigate and take action based on that membership, as well as a duty of candor, the allegations of

20

the Ha AC are not sufficient to allege knowledge of any false or misleading statements. For

21

instance, the Ha AC does not allege that committee members were directly involved in preparation

22

of any financial statements that were materially misleading. Cf. Rattner v. Bidzos, No. CIV.A.

23

19700, 2003 WL 22284323, at *12 (Del. Ch. Sept. 30, 2003) (complaint failed to allege demand

24

futility where it was “wanting of any facts regarding the Board’s involvement in the preparation of

25

the financial statements and the release of financial information to the market”). In the absence of

26

such knowledge, it is difficult to discern how they could be liable for breaching such duties. In

27

contrast to the cases cited by Ha, such as Rosenbloom, In re Countrywide, and In re Wells Fargo,

28

the allegations here do not provide facts from which the Court can infer that the directors (other

21

1

than Su) had knowledge of red flags or warning signs concerning the alleged false and misleading

2

statements. Cf. In re Countrywide Fin. Corp. Derivative Litig., 554 F. Supp. 2d 1044, 1063 (C.D.

3

Cal. 2008) (“the facts pled give rise to a compelling inference that Credit Committee members

4

recognized the exponentially rising negative amortization . . . and the yearly doubling and tripling

5

of delinquency rates . . . as serious warning signs . . . . [and] proceeded with deliberate recklessness

6

in the face of these warning signs.”); In re Wells Fargo & Co. S’holder Derivative Litig., 282 F.

7

Supp. 3d 1074, 1093–95 (N.D. Cal. 2017) (complaint alleged “extensive and detailed allegations”

8

that directors knew of the improper account creation scheme and made disclosures in SEC filings

9

that they knew were false or misleading).6
d.

10

Finally, Ha alleges the following business relationships that he contends would prevent

United States District Court
Northern District of California

11
12
13

Other Alleged Interlocking Relationships

directors from exercising independent judgment:


Donofrio was on the board of Liberty Mutual Holding Company, which conducted business

14

with AMD; and was a director at the National Association of Corporate Directors

15

(“NACD”), which received payments from AMD. (Ha AC ¶ 152.)

16



Denzel was a director at NACD, which received payments from AMD. (Id. ¶ 153)

17



Yahia was a director of both AMD and GlobalFoundries, Inc., and was CEO of Mubadala, a

18

company for which defendant Edelman himself provided senior advisory services. (Id. ¶¶

19

149, 151.)

20

The Court agrees that the allegations here do not establish a reasonable doubt as to the

21

independence of these directors. While Ha alleges business relationships between board members,

22

as well as relationships between AMD and organizations for which certain defendants act as

23

directors, there are no specific allegations to suggest how those relationships would have affected

24
25
26
27
28

6

To the extent Ha alleges that Board membership alone would have had a different
financial interest than the shareholders based solely on the fact of a demand for litigation, that
allegation would be insufficient. See In re CNET Networks, Inc. S’holder Deriv. Litig., 483 F.
Supp. 2d 947, 963 (N.D. Cal. 2007) (“Mere membership on a committee or board, without specific
allegations as to defendants’ roles and conduct, is insufficient to support a finding that directors
were conflicted.”).

22

1

these board members’ ability to make an independent decision if presented with a litigation

2

demand. Ha does not meet the burden of pleading particularized facts to show that any of these

3

directors was “beholden,” controlled, or dominated by virtue of the alleged relationships. Grobow,

4

539 A.2d at 189; see also Beam, 845 A.2d at 1050 (personal friendship or outside business

5

relationship, without more, is insufficient).

6

D.

Section 14(a) Claims In Ha Are Time-Barred

7

In addition to the demand futility grounds, defendants argue that Ha’s claims under Section

8

14(a) alleged should be dismissed as untimely. Defendants argue that Ha’s Section 14(a) claims

9

were not lodged until nearly two years after the first Hatamian complaint, which comprehensively
disclosed the “occurrences giving rise to” any Section 14(a) claim based on AMD’s alleged false

11

United States District Court
Northern District of California

10

statements regarding Llano. The Court agrees.

12

“The limitations period for a § 14(a) claim is ‘one year after the plaintiff discovers the facts

13

constituting the violation, and in no event more than three years after such violation.’” In re

14

Verisign, Inc., Derivative Litig., 531 F. Supp. 2d 1173, 1212 (N.D. Cal. 2007) (quoting

15

Westinghouse Elec. Corp. by Levit v. Franklin, 993 F.2d 349, 353 (3d Cir.1993)); see also Dekalb

16

Cty. Pension Fund v. Transocean Ltd., 817 F.3d 393, 409-10 (2d Cir. 2016). “[W]hen the

17

circumstances would suggest to an investor of ordinary intelligence the probability that she has

18

been defrauded, a duty of inquiry arises, and knowledge will be imputed to the investor who does

19

not make such an inquiry.” Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993). Moreover,

20

“[e]quitable tolling will stay the running of the statute of limitations only so long as the plaintiff has

21

‘exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud.’).

22

Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993) (quoting Morgan v. Koch, 419 F.2d 993,

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997 (7th Cir.1969)).

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The original Ha Complaint, filed September 29, 2015, alleged that AMD’s proxy statements

25

should have disclosed “the weaknesses in AMD’s internal controls that led to the dissemination of

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the” allegedly false statements regarding Llano. (Ha Complaint, Dkt. No. 1, ¶ 141.) The Hatamian

27

complaint put Ha on notice of the alleged misrepresentations sufficient to alert an investor that the

28

proxy statements did not disclose AMD’s alleged internal control problems. Ha was on inquiry

23

1

notice of concerns from the time that AMD was sued in Hatamian (January 4, 2014) and

2

shareholders were notified of the pendency of the litigation in AMD’s Annual Report, Form 10-K,

3

filed with the SEC on February 18, 2014. (Whitworth Decl., Hamilton Dkt. No. 62, Exh. 4 at p.

4

4.)7 While the Form 10-K by AMD downplayed the significance of the Hatamian suit, it notified

5

investors that the company was alleged to have made “materially misleading statements and/or

6

material omissions by us and the individual officers regarding our 32nm technology and “Llano”

7

product, which statements and omissions, the plaintiffs claim, allegedly operated to inflate

8

artificially the price paid for our common stock during the period.” (Id.) That the company offered,

9

in that same 10-K, an unqualified opinion by its auditors that its internal controls were sufficient,
was not enough to obscure the alleged fraudulent conduct and to toll the statute of limitations.

11

United States District Court
Northern District of California

10

As a consequence, the motion to dismiss the Section 14(a) claims is GRANTED.

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13

IV.

CONCLUSION
For the foregoing reasons, the motions to dismiss the Hamilton AC and Ha AC are

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GRANTED WITH LEAVE TO AMEND. The Court allows such leave because plaintiffs have not

15

indicated whether they can allege any facts from sources not otherwise covered by the Hatamian

16

Protective Order to augment their complaints.

17

Any amended complaint must be filed no later than September 11, 2018. If an amended

18

complaint is filed, defendants shall file their response no later than September 25, 2018. If no

19

amended complaint is filed, the action shall be dismissed effective September 12, 2018.

20
21
22
23

This terminates Docket No. 61 in the Hamilton action (15-cv-1890-YGR) and Docket No.
32 in the Ha action (15-cv-4485-YGR).
IT IS SO ORDERED.
Date: August 24, 2018

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_______________________________________
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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26
7

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The Court takes judicial notice of documents filed with the SEC for the fact of their filing,
not the truth of the matters stated therein. The request for judicial notice of this document (Dkt.
No. 63) is GRANTED.

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