The Ninth Circuit Court of Appeals recently reversed the 2005 defense verdict in Miller v. Thane Int’l, Inc., one of the only instances to date in which a securities class action had actually been tried to a verdict.

The underlying dispute in the case arose out of the 2001 merger between Thane International and Reliant Interactive Media Corp., pursuant to which Reliant became a Thane subsidiary. Thane had initially communicated to shareholders that, as a condition of the merger, the merged corporation’s stock would be publicly traded on the NASDAQ. Subsequent communications, however, including the final prospectus, stated only that the corporation’s stock had been approved for NASDAQ listing. Ultimately, the stock was never listed on the NASDAQ and shareholders allegedly suffered substantial losses as a result.

After a bench trial, the Central California federal district court found that Thane’s statements were not misrepresentations because the company did in fact obtain NASDAQ approval. The district court further held that investors should have noticed the omitted listing condition in the final prospectus by comparing it to earlier drafts. Finally, and in the alternative, the district court ruled that, even if Thane did misrepresent its intent to list its stock on NASDAQ, such a misrepresentation was not material.

The Ninth Circuit disagreed. First, the appellate court held that the final prospectus' strong suggestion of actual listing amounted to misrepresentation. Although statements concerning NASDAQ approval were literally true, the “context and manner of presentation” constituted misrepresentation as to whether the stock would actually be listed. Second, in a matter of first impression before any federal appeals court, the Ninth Circuit found that misrepresentations as to NASDAQ listings are material. In the words of the court, “there can be no dispute that NASDAQ listing carries objective benefits that directly and positively affect corporate earnings, investor returns, and a stock’s pool of potential shareholders.”

The case has been remanded back to the district court for further proceedings on loss causation issues. A full copy of the court's decision is available here.