UFCW Local 1500 Pension Fund v. Mayer

895 F.3d 695

UFCW LOCAL 1500 PENSION FUND, on behalf of itself and all others similarly situated, Plaintiff-Appellant,

v.Marissa MAYER; David Filo ; Sue James; Thomas J. McInerney; Charles R. Schwab; H. Lee Scott, Jr.; Kenneth A. Goldman; Ronald S. Bell ; Henrique De Castro; Max R. Levchin; Jane E. Shaw; Maynard Webb, Jr.; Yahoo! Inc., Nominal Defendant, Defendants-Appellees.

No. 17-15435

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 13, 2018—San Francisco, California

Filed July 12, 2018

Richard L. Stone (argued), Blackner Stone & Associates PA, Palm Beach, Florida; Ira M. Press and Peter S. Linden, Kirby McInerney LLP, New York, New York; for Plaintiff-Appellant.

Mark R. S. Foster (argued), Joshua A. Korr, and Jordan Eth, Morrison & Foerster LLP, San Francisco, California, for Defendants-Appellees.

OPINION

OWENS, Circuit Judge:

Plaintiff-Appellant UFCW Local 1500 Pension Fund ("UFCW") appeals from the district court’s dismissal of a lawsuit bringing derivative claims against Yahoo! Inc.’s board of directors and certain corporate officers, as well as one direct claim against Yahoo!. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

I. BACKGROUND

A. Yahoo!, Alibaba, and the ICA

Back in 1995, Yahoo! helped pioneer what the Supreme Court calls "the Cyber Age." Packingham v. North Carolina , ––– U.S. ––––, 137 S.Ct. 1730, 1736, 198 L.Ed.2d 273 (2017). Using (for its time) cutting-edge technology, Yahoo! enabled people to visit websites previously inaccessible except to the most internet savvy. Its promise as an internet search company was so bright, in fact, that the 2000 movie Frequency featured Yahoo! as the stock for the next millennium.

Of course, Hollywood doesn’t always get it right. Although Yahoo! has fared better than dot-com busts like eToys and Pets.com, Yahoo!’s search engine technology turned out to be closer in value to the Ark of the Covenant at the end of Raiders of the Lost Ark than the Apple stock that Lieutenant Dan purchased in Forrest Gump . Today we "Google" things—we do not "Yahoo!" them (or "Alta Vista," "Excite," or "Dogpile" them for that matter). But during its marketplace decline this century, Yahoo! made a savvy $1 billion investment in Alibaba.com, a Chinese retail website.

Alibaba burgeoned into a behemoth. Alibaba was so successful that by 2012 Yahoo! was able to sell just over half of its Alibaba stock for $7.1 billion. And when Alibaba conducted its initial public offering in 2014, $9.4 billion more flowed into Yahoo!’s coffers essentially overnight. By 2016, Yahoo!’s remaining stake in Alibaba was worth some $27 billion. That figure dwarfed the value of Yahoo!’s internet business.

Investments in Alibaba and other ventures (such as Yahoo! Japan) would normally subject Yahoo! to the requirements of the Investment Company Act of 1940 ("ICA"). The ICA permits the Securities and Exchange Commission ("the SEC" or "the Commission") to regulate more rigorously the activities of enterprises that qualify as investment companies under section 3(a) of the statute. See Northstar Fin. Advisors, Inc. v. Schwab Invs. , 615 F.3d 1106, 1109–12 (9th Cir. 2010) (detailing the ICA and describing it as "provid[ing] comprehensive regulation of investment companies and the mutual fund industry"); see also 15 U.S.C. § 80a-3(a). Such enterprises must register with the SEC. If they do not, section 7(a) forbids them from, among other things, "engag[ing] in any business in interstate commerce." Id. § 80a-7(a)(4).

Any would-be investment company can try to avoid the ICA’s registration requirements, however. Section 3(b)(2) empowers the SEC, "upon application," to exempt such a company from the ICA’s requirements, if the SEC "finds and by order declares" the company "to be primarily engaged in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in securities." Id. § 80a-3(b)(2). But what the SEC giveth, the SEC taketh away. Section 3(b)(2) further provides that, "[w]henever the Commission, upon its own motion or upon application, finds that the circumstances which gave rise to the issuance of an order granting an application [for an ICA exemption] no longer exist, the Commission shall by order revoke" the exemption. Id.

After entering into a joint venture to create Yahoo! Japan, Yahoo! applied for an ICA exemption from the SEC. The SEC granted Yahoo! a "temporary exemption" in April 2000 and then issued a "permanent order" exempting Yahoo! from the ICA a few months later. Yahoo!’s ICA exemption came with strings attached. Yahoo! could only make investments "for bona fide business purposes" and had to "refrain from investing or trading in [securities] for short-term speculative purposes." Despite those conditions, Yahoo!’s investment in Alibaba, and filings detailing Yahoo!’s Alibaba holdings, the SEC has not revoked Yahoo!’s ICA exemption.

B. This Litigation

UFCW sued in January 2016, alleging that Yahoo! had violated the conditions of its ICA exemption by investing in Alibaba and, as a result, that Yahoo! had "been operating as an unregistered investment company" in violation of the ICA since at least 2013. Based on that allegation, UFCW brought derivative claims against an array of Yahoo! higher-ups, and one direct claim against Yahoo! itself. UFCW sought to (1) rescind the higher-ups’ employment contracts, (2) enjoin Yahoo! from further performing contracts signed in violation of the ICA and from selling any material assets, and (3) recover damages for unjust enrichment.

Despite acknowledging that exempted companies must comply with the conditions of their ICA exemptions, the district court concluded that the ICA provides "no role for the courts to find, in the first instance, that a company should be stripped of its exemption and therefore deemed an unregistered investment company." For that reason, the district court held that UFCW’s claims "all fail as a matter of law" and dismissed UFCW’s suit.

II. DISCUSSION

UFCW conceded below and acknowledges on appeal that its claims all rely on the allegation that Yahoo! violated the conditions of its ICA exemption by investing in Alibaba. But because no provision of the ICA establishes a private right of action for challenging the continued validity of an ICA exemption, UFCW’s claims fizzle faster than Flooz.com.¹

A. Standard of Review

We review de novo a "decision involving interpretation of a federal statute," In re Digimarc Corp. , 549 F.3d at 1229, as we do a dismissal for failure to state a claim, Metzler Inv. GMBH v. Corinthian Colls., Inc. , 540 F.3d 1049, 1061 (9th Cir. 2008). In this posture, we must accept as true the operative complaint’s allegations and construe them in favor of the nonmoving party, UFCW. See id. Our review "is limited to the complaint, materials incorporated into the complaint by reference, and matters of which [we] may take judicial notice." Id.

B. The ICA Does Not Establish A Private Right of Action to Challenge the Continued Validity of an ICA Exemption

"Like substantive federal law itself, private rights of action to enforce federal law must be created by Congress." Alexander v. Sandoval , 532 U.S. 275, 286, 121 S.Ct. 1511, 149 L.Ed.2d 517 (2001). Congress may so empower litigants expressly or implicitly. Northstar , 615 F.3d at 1115. But even in the latter circumstance, the "judicial task" remains "to interpret the statute Congress has passed to determine whether it displays an intent to create not just a private right but also a private remedy." Sandoval , 532 U.S. at 286, 121 S.Ct. 1511. Without evidence of a congressional intent to create both a private right and a private remedy, a private right of action "does not exist and courts may not create one, no matter how desirable that might be as a policy matter, or how compatible with the statute." Id. at 286–87, 121 S.Ct. 1511.

To create a private right, a statute must use rights-creating language. See id. at 288, 121 S.Ct. 1511. Language that "focus[es] on the person regulated rather than the individuals protected" will not do. Id. at 289, 121 S.Ct. 1511. Rather, the statute must place "an unmistakable focus " on the latter group. Ball v. Rodgers , 492 F.3d 1094, 1106 (9th Cir. 2007) (quoting Gonzaga Univ. v. Doe , 536 U.S. 273, 284, 122 S.Ct. 2268, 153 L.Ed.2d 309 (2002) ); accord AlohaCare v. Hawaii, Dep’t of Human Servs. , 572 F.3d 740, 746 (9th Cir. 2009). And to create a private remedy, a statute must (at the very least) avoid remedy-foreclosing language. See In re Digimarc , 549 F.3d at 1231. Language establishing an express "remedial scheme[ ]" may "foreclose a[n implied] private [right] of action to enforce even those statutes that admittedly create substantive private rights." Sandoval , 532 U.S. at 290, 121 S.Ct. 1511. That is because providing for "one method of enforcing" a private right "suggests that Congress intended to preclude others." Id. ; see also Middlesex Cty. Sewerage Auth. v. Nat’l Sea Clammers Ass’n , 453 U.S. 1, 14–15, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981) (observing that "elaborate enforcement provisions" mean that "it cannot be assumed that Congress intended to authorize by implication additional judicial remedies").

The ICA provisions related to SEC registration and ICA exemptions do not have rights-creating language. Section 7(a) of the ICA commands that "[n]o investment company" shall, among other things, "engage in any business in interstate commerce" unless it registers with the SEC. 15 U.S.C. § 80a-7(a)(4). That language mirrors section 13(a)’s command that "[n]o registered investment company" shall, among other things, "change the nature of its business"—a command that we have already held lacks rights-creating language. Northstar , 615 F.3d at 1109–10 (quoting 15 U.S.C. § 80a-13(a) ); id. at 1115.

Section 3(b)(2) of the ICA is "yet a step further removed" from having rights-creating language, for that provision "focuses neither on the individuals protected nor even on the [par...