Li v. Arcsoft, Inc.

Background

Lei Li, Strong Wealth Limited, and Pacific Smile Limited sued ArcSoft, Inc. and Michael Deng for damages arising from or related to a 2017 management-led buyout of the plaintiffs’ ArcSoft shares. The defendants argued during summary judgment proceedings and before trial that California Corporations Code section 1312 completely barred the plaintiffs’ claims because the statute limits former shareholders who challenge completed buyouts to appraisal relief.

The court had previously rejected that argument. It concluded that California courts recognize a non-statutory exception to section 1312 when the facts underlying the claims were unknown to the plaintiffs before the buyout.

Jury Verdict and Renewed Motion

The jury found for the plaintiffs on negligent misrepresentation and concealment claims, and against Michael Deng on a breach-of-fiduciary-duty claim. It found for the defendants on the plaintiffs’ intentional-misrepresentation claims and on the breach-of-contract claim against ArcSoft.

The jury was also asked whether the defendants proved that each plaintiff knew all material facts underlying the relevant claims when consenting to the buyout. For the negligent misrepresentation, concealment, and breach-of-fiduciary-duty claims, the jury found that the defendants had not proved that the plaintiffs had such knowledge. The jury left blank the section 1312 questions concerning breach of contract because the plaintiffs had not proved that claim.

The defendants renewed their request for judgment as a matter of law under Federal Rule of Civil Procedure 50(b). They did not argue that the jury’s findings about the plaintiffs’ lack of knowledge were erroneous. Instead, they asked the court to return to its earlier legal ruling and hold that section 1312 barred the plaintiffs’ claims regardless of what the plaintiffs knew before the buyout.

Court’s Analysis

A renewed motion for judgment as a matter of law may be filed after an adverse verdict when the moving party previously sought judgment as a matter of law before the case went to the jury. The court may grant the motion only when the evidence permits only one reasonable conclusion and that conclusion contradicts the jury’s verdict. Legal issues may also be raised in such a motion.

The court again concluded that California courts recognize a non-statutory exception to section 1312 when shareholders were unaware of the facts underlying fraud or breach-of-fiduciary-duty claims before a merger or buyout. The court relied on California decisions discussing that potential exception and on a California appellate decision declining to apply section 1312 where the plaintiff alleged that timely disclosure of misconduct would have led the plaintiff to exercise dissenters’ rights.

Applying that interpretation, the court held that the jury’s findings supported the exception. The jury found that the material facts underlying the plaintiffs’ breach-of-fiduciary-duty, negligent-misrepresentation, and concealment claims were not known to the plaintiffs before the buyout. The plaintiffs could therefore recover monetary damages on those claims.

Disposition

The court DENIED the defendants’ renewed motion for judgment as a matter of law.