Howard v. Tanium, Inc.

Background

Daniel Howard sued his former employer, Tanium, Inc., for fraud under California law. He alleged that, during Tanium’s effort to hire him in 2016, James Evans told him that 30,000 Tanium restricted stock units would vest over four years and had a current fair market value of $5 per share, for a stated current value of $150,000. Howard said he accepted Tanium’s offer because that equity value exceeded the approximately $90,000 value of unvested equity he would give up at Fortinet.

Tanium’s written offer listed Howard’s salary, 30,000 restricted stock units, and bonus terms, but did not include a share valuation. The related stock-unit agreement stated that the shares’ future value was unknown and could not be predicted. Tanium was a private company. A Grant Thornton memorandum issued before Howard accepted the offer valued Tanium common stock at $2.01 per share as of December 31, 2015, for financial reporting and tax-compliance purposes. Tanium’s executives maintained that a prior private-investor transaction, adjusted for a stock split, supported a $5-per-share value in March 2016.

Legal standard and analysis

Tanium moved for summary judgment under Federal Rule of Civil Procedure 56. Summary judgment is appropriate when the evidence shows no genuine dispute over a fact that could affect the outcome and the moving party is entitled to judgment as a matter of law. For intentional misrepresentation, California law requires proof that the defendant made an important factual representation, the representation was false, the defendant knew it was false or made it recklessly, the defendant intended reliance, the plaintiff reasonably relied, the plaintiff suffered harm, and the reliance substantially caused that harm.

Whether the statement was a fact or opinion

The court held that a reasonable jury could treat Evans’s $5-per-share statement as a factual representation rather than merely an opinion. Evans described the shares as having a current value, Tanium had private-company valuation information that Howard could not independently verify through a public market, and Evans multiplied the stated share price by the number of shares to present the equity as a $150,000 component of the compensation package.

Whether the statement was false or misleading

The court also found a genuine dispute over whether the statement was false or misleading. Tanium argued that the $5 figure accurately reflected the most recent private-investor transaction after adjusting for a stock split. Howard relied on the separate $2.01 valuation. The court concluded that the record did not establish, as a matter of law, that the last transaction price was the true value or that the tax-related valuation necessarily had no relevance to fair market value.

Knowledge of falsity

The court held, however, that Howard lacked sufficient evidence on the required knowledge element. Evans, the person who made the statement to Howard, did not know about the $2.01 valuation and testified that he relied on the most recent equity transaction. The court found no evidence that Tanium believed the $5 figure was false or misleading, instructed hiring managers to use a known false figure, or recklessly disregarded the truth. The existence of the $2.01 report, without more, did not establish that Tanium knew its approach was wrong.

The court also rejected Howard’s argument that Tanium’s failure to disclose the $2.01 valuation supported an inference of knowledge. It found no evidence of a special duty requiring Tanium to disclose all information during the employment negotiations and no evidence that Tanium intentionally concealed a material fact.

Intent, reliance, and damages

The court concluded that a reasonable jury could find Tanium intended Howard to rely on the share valuation when deciding whether to change jobs. The court also found factual disputes about Howard’s actual and reasonable reliance. The agreement’s warning concerned the shares’ future value, not their current value, so it did not eliminate the possibility of reasonable reliance as a matter of law.

The court ruled that Howard could not recover benefit-of-the-bargain damages based on the eventual value of the Tanium shares because the shares later became worth more than the stated $5 per share. But the court held that his theory of damages based on income he allegedly lost by leaving Fortinet could potentially be recoverable under California law if the other fraud elements were established. Howard testified that he would have made approximately $1.4 million more at Fortinet, although the court did not decide the ultimate amount of damages.

Disposition

Despite the factual disputes concerning the nature of the statement, falsity, intent, reliance, and harm, the court held that Howard could not prove Tanium knew the statement was false or made it recklessly. Judge Jacquelyn Corley therefore granted Tanium’s motion for summary judgment. The order disposed of Docket No. 44.