Grossman v. Novell, Inc.

Grossman v. Novell, Inc.

Opinion

 [*1115]  EBEL, Circuit Judge.

Plaintiff-Appellant Brad Grossman brought this putative shareholder class action in the District of Utah based on alleged statements by Novell, Inc. ("Novell"), a Utah-based company and leading provider of computer network operating software, and by some of its officers, regarding Novell's merger with WordPerfect Corp. ("WordPerfect"), another Utah company and the producer of a [**2]  leading word processing application. Grossman alleged violations of §§ 10(b) and 20(a) of the Securities Exchange Act and common law fraud arising out of a seven percent decline in the price of Novell stock after the company announced disappointing earnings for the third quarter of its 1994 fiscal year. The District Court granted Novell's motion to dismiss, ruling that Plaintiff had failed to allege a materially misleading statement or omission, that Novell had disclosed the risks of the merger, and that Plaintiff had not pled fraud with sufficient particularity. Additionally, the district court denied Plaintiff's request to amend his complaint pursuant to Fed. R. Civ. P. 15(a). Plaintiff now appeals pursuant to 28 U.S.C. § 1291. We affirm.

Background

This case concerns statements made by defendants, Novell, Inc. and several of its present and past officers and directors, ¹ relating to the merger between Novell and WordPerfect and the effect of the merger on Novell's business prospects. Novell, a public company headquartered in Provo, Utah, was the world's leading provider of network operating software. In March 1994, Novell announced it would acquire and merge with WordPerfect,  [**3]  a privately held company based in Orem, Utah. WordPerfect developed and sold software applications, including a leading word processing program. To complete the WordPerfect merger, Novell issued stock, which it exchanged for the outstanding WordPerfect shares. In connection with the issuance of this stock, Novell filed a registration statement with the Securities and Exchange Commission ("SEC") on April 22, 1994, and filed three amendments to the registration statement in June 1994. During this same time Novell purchased the Quattro Pro spreadsheet program from Borland, Inc. for approximately $ 145 million in cash.

 [**4]  [*1116]   The registration statement included a warning that the integration of Novell and WordPerfect could be difficult due to intense competition in WordPerfect's market sector and the company's declining financial performance, and cautioned that Novell's earnings and stock price could fluctuate in the quarters following the merger. The registration statement further cautioned that the acquisitions of WordPerfect and Quattro Pro could be difficult because they were large acquisitions in new markets where Novell did not have management or marketing experience. The registration statement warned that no assurance could be given that the various businesses could be successfully integrated. Also, the dominant competition expected from Microsoft was stressed. In addition, Novell warned that the merger and acquisition would lead to higher expenditures in sales, marketing and support, and higher other costs. Novell predicted that its future earnings and stock prices could be subject to "significant volatility, particularly on a quarterly basis" and warned that WordPerfect's market was "characterized by severe competitive pressure" that could "materially adversely affect Novell." ²

Full case includes Shepard's, Headnotes, Legal Analytics from Lex Machina, and more.