IN RE SHANDA GAMES LIMITED SECURITIES LITIGATION

Background

The court had previously dismissed the plaintiff’s amended complaint. The plaintiff then moved for reconsideration or, alternatively, for permission to amend the complaint again.

The case involved Shanda Games, which the opinion describes as a video game company incorporated and headquartered in the Cayman Islands. Shanda announced a transaction to go private, and its proxy statements included projections for the unreleased game Mir II Mobile. Shareholders approved the transaction, under which stockholders received $3.55 per share and American depositary share owners received $7.10 per American depositary share. Some dissenting shareholders pursued appraisal proceedings in the Cayman Islands, where the Court of Appeal determined the fair value of the shares to be $12.84 per American depositary share.

Reconsideration standard

The court described reconsideration as an extraordinary remedy generally available only when the moving party identifies a change in controlling law, new evidence, or a need to correct clear error or prevent manifest injustice. The standard is strict, and reconsideration is generally limited to exceptional circumstances.

Reliance and efficient market

The plaintiff asked the court to reconsider its earlier conclusion that the plaintiff had not adequately pleaded an efficient market and therefore could not use the presumption that investors relied on the integrity of the market price. The court found no clear error in that conclusion.

The court reasoned that the plaintiff’s allegations pointed toward an inefficient market. Analyst coverage had been discontinued after the proposed transaction was announced, and the plaintiff did not identify a stock-price increase associated with public statements about the expected success of Mir II Mobile. The stock price allegedly remained between $6.07 per share and $6.98 during the class period and did not exceed the $7.10 per American depositary share transaction price. The court therefore denied reconsideration on the reliance issue.

Insider-trading claims

The court granted reconsideration to address the plaintiff’s insider-trading arguments because its earlier opinion had overlooked them. The plaintiff asserted claims under Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5, and Section 20A.

The court explained that a Section 20A claim requires a properly pleaded underlying insider-trading violation and facts showing that the defendant traded contemporaneously with the plaintiff. The plaintiff argued that Shanda was the purchaser in the going-private transaction. But the plaintiff admitted that Shanda was not the entity that paid for the shares. The proxy statement and merger agreement identified Capitalhold Limited and Capitalcorp Limited as the entities that made the payments.

The court also rejected the plaintiff’s argument that Shanda became the purchaser because it survived the merger. It concluded that the relevant commitment to sell or seek appraisal occurred before the merger, when Shanda had not yet become the surviving entity in the way the plaintiff alleged. The plaintiff also failed to plead facts showing why a purchase by Capitalhold or Capitalcorp was a purchase by Shanda. The court held that the plaintiff had not pleaded contemporaneous trading and that the Section 10(b), Rule 10b-5, and Section 20A insider-trading claims were properly dismissed. Because the plaintiff had not pleaded insider trading by Shanda, the court also rejected the related argument that Shanda had an insider-trading duty to disclose the Mir II Mobile data.

Cayman Islands disclosure duty

The court also reconsidered the plaintiff’s argument that Cayman Islands law required Shanda to disclose enough information for shareholders to understand the transaction, including a meaningful valuation of their shares. The plaintiff relied on a decision discussing a duty to provide sufficient information when directors issue an information statement about a merger.

The court interpreted that authority more narrowly. It concluded that the duty concerned whether an information statement was misleading when directors made statements to shareholders, not whether Cayman Islands law imposed an affirmative duty to disclose information as a pure omission. The court had already concluded that the alleged omission of the Mir II Mobile data was not misleading, and it saw no reason that an analogous Cayman Islands framework would produce a different result. It therefore found the plaintiff’s proposed Cayman Islands disclosure theory without merit.

Disposition

The court’s conclusion was that the plaintiff’s motion for reconsideration was denied in part and granted in part. The arguments considered on reconsideration were found to lack merit. The court directed the clerk to terminate the motions identified as ECF Nos. 66 and 68 and stated that it would issue a scheduling order to consider granting the plaintiff leave to amend. The order did not itself grant leave to amend.