On November 14, 2007, federal court judge Jeremy Fogel, sitting in the district court of the Northern District of California, dismissed a purported class action brought by Apple shareholders against Steve Jobs and other Apple D&Os. Vogel, et al. v. Jobs, et al., 5:06-cv-05208-JF. Plaintiffs had based their class action claims on §14(a) of the Securities Exchange Act, alleging that the defendants made false and misleading statements in connection with proxy statements soliciting approval for certain stock options grants.

Judge Fogel principally held that this claim was derivative in nature and cannot survive as a direct action under California law. Under California law, an action must be brought as a derivative claim unless individual shareholders can allege injuries that are “independent” of injuries to the corporation. The court held that this claim was no different from a typical corporate overpayment claim, in which the injury to individual shareholders arises directly from the injury to the corporation. The court further held that although the alleged misconduct may have diluted plaintiffs’ stock holdings, this injury “is merely the unavoidable result (from an accounting standpoint) of the reduction in value of the entire corporate entity,” and thus does not allege a direct claim upon which relief can be granted.

As an alternative basis for his holding, Judge Fogel held that plaintiffs failed to adequately allege loss causation for their §14(a) claims. The court held that the plaintiffs failure to plead a drop in Apple’s stock price resulting from alleged misstatements was fatal to the claims, and accordingly rejected plaintiffs’ argument that dilution in Apple’s stock can demonstrate loss causation.

A full copy of the court's opinion can be found here.