Litigation

No private right of action under Sarbanes-Oxley section 304, Ninth Circuit holds

By Lori Bauman

In a case originating in the District of Oregon, the Ninth Circuit recently held there is no private right of action under Section 304 of the Sarbanes-Oxley Act, which provides for the forfeiture of bonuses and profits when corporate officers fail to comply with securities law reporting requirements.  In Diaz v. Davis, plaintiff asserted shareholder derivative claims against Digimarc Corporation and its officers and directors arising from accounting errors and a resulting restatement of earnings.  The Ninth Circuit is the first federal circuit court to address whether Section 304 creates a private right of action.

The Ninth Circuit also resolved an issue of subject matter jurisdiction in a derivative case.  While District Court Judge Ancer Haggerty correctly held that plaintiff had no claim under Section 304, the Ninth Circuit concluded that he erred in aligning the corporation with the plaintiffs, thereby eliminating diversity jurisdiction of the remaining state law claims.  Assessing the facts as of the date the suit was filed, the Ninth Circuit held there was antagonism between the derivative plaintiffs and the controlling members of Digimarc which required Digimarc to continue as a defendant.

Full post as published by Northwest Business Litigation Blog on December 24, 2008 (boomark / email).