On July 15, 2025, Judge Cathy A. Bencivengo of the United States District Court for the Southern District of California dismissed with prejudice a putative securities class action against an U.S.-based telecommunications company ("Telecom Company"), a Taiwanese microchip manufacturer ("Microchip Company"), and several of their executives (together, "Defendants"), that asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10(b). Water Is. & Event-Driven Fund v. MaxLinear, Inc., No. 3:23-cv-1607-CAB-VET (S.D. Cal.). Plaintiffs alleged that Defendants made false and misleading statements about the status and prospects of a $3.8 billion merger between the two companies. In an earlier decision, the Court dismissed the claims against the Telecom Company for lack of standing, and in the instant decision reaffirmed that holding and also dismissed the claims against the Microchip Company for failure to plead falsity or scienter adequately.
The case arose from a $3.8 billion merger announced in 2022, under which the Telecom Company would acquire the Microchip Company, subject to regulatory approvals. Plaintiffs alleged that Defendants made statements expressing their commitment to the transaction and optimism about its progress in the period leading up to the merger's planned closing. However, in July 2023, after obtaining Chinese antitrust approval, the Telecom Company allegedly terminated the transaction, citing an alleged breach of the merger agreement by its counterpart from months earlier. Plaintiffs claimed these events rendered prior statements by both Defendants misleading and caused a decline in the value of their ADS. Both Defendants moved to dismiss. The Court, in August 2024, dismissed claims against the Telecom Company for lack of standing under the Ninth Circuit's "purchase-seller" rule, which requires a plaintiff to have purchased the securities about which the alleged misrepresentations were made. The court held that plaintiffs lacked standing because they purchased ADS issued by the target Microchip Company while the alleged misstatements were about the acquiring Telecom Company. Plaintiffs filed an amended complaint and Defendants again moved to dismiss.
The Court reaffirmed its standing decision. In so holding, it rejected plaintiffs' argument that the Telecom Company's alleged misstatements about the merger's prospects really concerned the target because the statements could impact the target's stock. The Court disagreed, holding again that the alleged misstatements concerned the acquiring Telecom Company.
The Court also held that plaintiffs failed to allege falsity as to any alleged misstatement allegedly made by the Microchip Company about the merger or that the Microchip Company acted with scienter in failing to disclose facts plaintiffs claimed would have signaled the merger was in jeopardy. Plaintiffs challenged three categories of statements: (1) that the merger was pending satisfaction of closing conditions, including antitrust approval; (2) that Defendants were pursuing antitrust approval; and (3) the Microchip Company would not hold an earnings call due to merger restrictions. The Court held that the allegedly misleading statements accurately reflected the conditional nature of the merger.
The Court turned next to plaintiffs' claims based on a theory of omission. The Court held that, even assuming the Microchip Company failed to disclose its alleged breach of the merger agreement or the Telecom Company's alleged lack of pre-merger integration planning, plaintiffs still failed to allege facts giving rise to an inference that either the Microchip Company or its executives knew of these issues. With respect to the alleged breach, the Court cited the lack of factual allegations suggesting the Microchip Company and its executives knew it breached the agreement, finding it significant that plaintiffs affirmatively alleged that the Telecom Company unilaterally determined there had been a breach without providing notice to the Microchip Company. Similarly, the Court rejected plaintiffs' "core operations" theory—that the Microchip Company and its executives allegedly knew of the Telecom Company's lack of pre-merger integration planning—finding that complaint did not include facts sufficient to support such an assertion. It noted that the lone allegation plaintiffs proffered in support of this theory was that the Telecom Company declined the Microchip Company's offer to translate contracts. This, the Court held, failed to bridge the gap between the Telecom Company's internal conduct and the Microchip Company's management's knowledge, rendering the scienter allegations insufficient.
The Court also dismissed plaintiffs' Section 20(a) claims for lack of a predicate violation. The Court dismissed the case with prejudice, finding leave to replead a third time would be futile.
Links & Downloads
Water Is. & Event-Driven Fund v. MaxLinear, Inc – First MTD order
Water Is. & Event-Driven Fund v. MaxLinear, Inc – Second MTD order
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