Haroutunian v. Mentor Graphics Corporation et al

Filing 84

ORDER: Adopting the Magistrate's Findings and Recommendation 72 . The Court Grants in Part and Denies in Part Defendants' Motion to Dismiss 50 as indicated in the Findings and Recommendation. The Court also Grants Defend ants' Requests for Judicial Notice 52 & 64 and Denies Plaintiffs' Motion to Strike 54 . Accordingly, the Court Dismisses without prejudice Plaintiffs' Amended Complaint and Grants Plaintiffs leave to amend their Complaint. The Court returns this matter to the Magistrate Judge to set a deadline for Plaintiffs to file an amended Complaint and for further handling consistent with this Order. Signed on 8/23/17 by Judge Anna J. Brown. (gm)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

WESTERN PENNSYLVANIA
ELECTRICAL FUND and GEORGE
HAROUTUNIAN,

3:16-cv-00470-PK
ORDER

Plaintiffs,

v.
MENTOR GRAPHICS CORPORATION,
WALDEN C. RHINES, GREGORY K.
HINCKLEY, and JOSEPH REINHART,
Defendants.

BROWN, Judge.
Magistrate Judge Paul Papak issued Findings and
Recommendation (#72) on June 2, 2017,

in which he recommends the

Court grant in part and deny in part the Motion (#50) to Dismiss
filed by Defendants Mentor Graphics Corporation, Walden C.
Rhines, Gregory K. Hinckley, and Joseph Rienhart; grant
Defendants' Requests

(#52, #64)

for Judicial Notice; and deny the

Motion (#54) to Strike filed by Plaintiffs Western Pennsylvania
Electrical Fund and George Haroutunian.

The parties each filed

timely Objections to the Findings and Recommendation.

1 - ORDER

The matter

is now before this Court pursuant to 28 U.S.C. § 636(b) (1) and
Federal Rule of Civil Procedure 72(b).
When any party objects to any portion of the Magistrate
Judge's Findings and Recormnendation, the district court must make
a de novo determination of that portion of the Magistrate Judge's
report.

28

u.s.c.

§ 636(b) (1).

See also Dawson v. Marshall,

561

F.3d 930, 932 (9th Cir. 2009); United States v. Reyna-Tapia, 328
F. 3d 1114, 1121 (9th Cir. 2003) (en bane).

DISCUSSION

Plaintiffs allege Defendants violated federal securities
laws by disseminating materially false and misleading statements
and concealing material adverse facts regarding Mentor Graphics
Corporation's then-current financial condition and growth
prospects.
Defendants move to dismiss Plaintiffs' Amended Complaint
(#47) on the grounds that Plaintiffs' allegations fail to meet
the pleading requirements of Federal Rule of Civil Procedure
8 (a) .

In the alternative, Defendants contend the Court should

dismiss Plaintiffs' First Claim for violations of§ lO(b) of
the Securities and Exchange Act of 1934 (the Act), 15 U.S.C.
§ 78j (b), and Rule lOb-5, 17 C.F.R. § 240.lOb-5, on the grounds
that (1) twenty of Defendants' forty-nine statements alleged by
Plaintiffs to have been false or misleading are not actionable

2 - ORDER

pursuant to the safe-harbor provision of the Private Securities
Litigation Reform Act (PSLRA), 15 U.S.C. § 78u-5;

(2) none of the

challenged statements were, in fact, materially false or
misleading;

(3) Plaintiffs fail to plead adequately Defendants'

scienter, a necessary element of a Rule lO(b) claim; and
(4) Plaintiffs fail to plead adequately loss causation, also a
required element of a Rule lO(b) claim.

In addition, Defendants

contend Plaintiffs fail to state a claim against Defendant
Reinhart.

Fihally, Defendants contend the Court should dismiss

Plaintiffs' Second Claim for violation of§ 20(a) of the Act on
the ground that it is derivative of Plaintiffs' failed First
Claim.
In the Findings and Recommendations the Magistrate Judge
recommends this Court deny in part Defendants' Motion to Dismiss
based on the fact that Plaintiffs' allegations comply with the
requirements of Federal Rule of Civil Procedure B(a).

The

Magistrate Judge also recommends this Court deny in part
Defendants' Motion on the ground that the Court cannot determine
at this stage whether certain statements were false or misleading
as a matter of law and that this issue presents questions for a
jury.

The Magistrate Judge further recommends this Court deny

Defendants' Motion as to Plaintiffs' claim against Reinhart on
the ground that Plaintiffs have stated a plausible claim against
Reinhart.

3 - ORDER

The Magistrate Judge also recommends this Court grant in
part Defendants' Motion to Dismiss on the ground that Plaintiffs
fail to state adequately facts that support the requisite
scienter as to Plaintiffs' First Claim.

The Magistrate Judge

also recommends this Court grant in part Defendants' Motion on
the ground that Plaintiffs fail to allege adequately loss
causation premised on Defendants' alleged misrepresentations or
omissions regarding Mentor's loss of Intel's emulation business.
The Magistrate Judge also recommends this Court grant Defendants'
Motion as to Plaintiffs' Second Claim on.the ground that it is
derivative of Plaintiffs' First Claim.
Although the Magistrate Judge recommends granting in part
and denying in part Defendants' Motion to Dismiss, the Magistrate
Judge, nevertheless, also recommends this Court dismiss without
prejudice Plaintiffs' Amended Complaint in its entirety on the
grounds that Plaintiffs have failed to allege adequately facts
that support the requisite scienter as to Plaintiffs' First Claim
pursuant to§ lO(b) and Rule lOb-5 of the Act and Plaintiffs'
Second Claim is derivative of Plaintiffs' First Claim.

The

Magistrate Judge recommends, however, the Court grant Plaintiffs
leave to amend their Complaint.
Even though both parties filed Objections to the Findings
and Recommendations and Plaintiffs submitted supplemental
authority in support of their Objections, the parties primarily

4 - ORDER

reiterate the arguments made in their original papers.
Defendants, however, also challenge the Findings and
Recommendations on the ground that the Magistrate Judge did not
address Plaintiffs' failure to allege the risks set forth in
their SEC filings had fully materialized.

The Court disagrees.

The Magistrate Judge, relying on Ninth Circuit authority,
concluded Plaintiffs sufficiently alleged the risk factor claims
and a jury question remained whether such warning was misleading.
This Court has carefully reviewed the record, considered the
parties' Objections, and concludes the Objections do not provide
a basis to modify the Magistrate Judge's Findings and
Recommendation.

The Court also has reviewed the pertinent

portions of the record de nova and does not find any error in the
Magistrate Judge's Findings and Recommendation.

CONCLUSION

The Court ADOPTS Magistrate Judge Papak's Findings and
Recommendation (#72), and the Court GRANTS in part and DENIES in
part Defendants' Motion (#50) to Dismiss as indicated in the

Findings and Recommendation.
Requests (#52, #64)

The Court also GRANTS Defendants'

for Judicial Notice and DENIES Plaintiffs'

Motion (#54) to Strike.

Accordingly, the Court DISMISSES without

prejudice Plaintiffs' Amended Complaint and GRANTS Plaintiffs

leave to amend their Complaint.
5 - ORDER

The Court returns this matter to the Magistrate Judge to set
a deadline for Plaintiffs to file an amended Complaint and for
further handling consistent with this Order.
IT IS SO ORDERED.
DATED this

f~,
day of August, 2017.

ANNA J. BROWN)
United States Senior District Judge

6 - ORDER