Pinto v. Aggarwal

Background

Leonard R. Pinto brought a verified shareholder derivative action against nominal defendant Arlo Technologies, Inc. and six Arlo directors. He alleged that Arlo’s registration statement for its August 2018 initial public offering contained untrue or misleading statements and omitted material information.

Pinto asserted three state-law claims: breach of fiduciary duty, waste of corporate assets, and unjust enrichment. He also asserted a federal claim under Section 21D of the Securities Exchange Act seeking contribution for damages connected to related securities class actions. Pinto alleged that making a demand on Arlo’s board to bring the lawsuit would have been futile.

Motion to Dismiss

The defendants moved to dismiss under Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 23.1. Rule 12(b)(1) concerns subject-matter jurisdiction—the court’s authority to hear a case. The court granted the motion based on lack of subject-matter jurisdiction and did not reach the defendants’ other arguments.

Federal Contribution Claim

The court explained that Section 21D permits a contribution claim only when a final judgment has been entered in a private action and the factfinder has determined that the defendant knowingly violated the securities laws. The statute also provides that a party that settles before a final verdict or judgment is discharged from contribution claims brought by others.

As to contribution connected to the related federal class action, the court held that Pinto could not pursue the claim against defendant McRae because McRae’s liability in that action had been resolved by settlement. As to contribution connected to the state court action, the court held that the claim was not ripe, meaning that the dispute was not yet sufficiently developed for judicial decision. The complaint described that action as still active, so no final judgment had established a basis for contribution. The court therefore held that Count IV was barred as to the settled federal action and unripe as to the pending state action, and dismissed Count IV without prejudice.

State-Law Claims and Leave to Amend

After dismissing the only claim over which it had original federal jurisdiction, the court declined to exercise supplemental jurisdiction over the remaining state-law claims. Counts I, II, and III were dismissed without prejudice.

The court denied Pinto’s request for leave to amend. It concluded that no factual amendment could cure the ripeness problem or avoid Section 21D’s settlement bar. The court’s order granted the defendants’ motion to dismiss and dismissed the Second Amended Verified Shareholder Derivative Complaint without leave to amend.

Disposition

The defendants’ motion to dismiss was GRANTED. Count IV and Counts I through III were each DISMISSED without prejudice, and Pinto’s request for leave to amend was DENIED. The complaint was dismissed without leave to amend.