Intermix Court Ruling

Case 2:06-cv-03731-GHK-JTL Document 110 Filed 07/14/2008 Page 1 of 10
UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

Case No. CV 06-3731-GHK (JTLx) Date July 14, 2008
Title Jim Brown v. Brett C. Brewer, et al.
Presiding: The Honorable GEORGE H. KING, U. S. DISTRICT JUDGE
Beatrice Herrera N/A N/A

Deputy Clerk Court Reporter / Recorder Tape No.
Attorneys Present for Plaintiff: Attorneys Present for Defendants:

None None
Proceedings: (In Chambers) Order Re: Defendants’ Motions to Dismiss
This matter is before the Court on Defendants’ Motions to Dismiss (the “Motions”)1 Plaintiff’s
Consolidated Second Amended Complaint (“CSAC”). Plaintiff Jim Brown is the purported
representative of a class of common stockholders of Intermix Media, Inc., formerly known as eUniverse,
Inc. (“Intermix”),2 and acquired by News Corporation (“News Corp.”) in 2005. Defendants are
directors, officers, banks and institutional investors of and in Intermix from periods prior to its
acquisition by News Corp. We have considered the papers filed in support of and in opposition to these
Motions, and deem this matter appropriate for resolution without oral argument. L.R. 7-15. As the
parties are familiar with the facts, we will not restate them except as necessary.
I. Count One
In December 2003, Intermix filed a Proxy statement (the “2003 Proxy”) with the SEC and
disseminated it to shareholders in connection with a shareholder vote to be held in 2004. The vote was
for elections to the Board of Directors and to obtain approval of the terms of an investment in Intermix
by Defendant VantagePoint Venture Partners (“VantagePoint”), a venture capital firm. Count One of
the CSAC alleges violations of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78n(a), and Rule 14a-9, promulgated thereunder, in connection with the filing and dissemination of the
2003 Proxy. Count One is alleged against Defendants Brett C. Brewer, Daniel L. Mosher, Lawrence
Moreau, Jeffrey Scott Edell (“Edell”), Bradley G. Ward (“Ward”), David S. Carlick (“Carlick”),
Andrew Sheehan (“Sheehan”), Christopher S. Lipp (collectively, the “2003 Individual Defendants”) and
VantagePoint.
1
The Motions include Defendants’ Motion to Dismiss Counts One and Six of the CSAC,
Defendants’ Motion to Dismiss Count Two of the CSAC, as well as, with respect to Counts Three, Four,
and Five, Defendants’ former Motion to Dismiss the Consolidated First Amended Complaint (“CFAC”).
2
For the sake of simplicity, all references in this order will be to Intermix, although the name
change from eUniverse to Intermix occurred during the events discussed herein.
CV-90 (06/04) CIVIL MINUTES - GENERAL Page 1 of 10


//
In our January 17, 2008 Order Re: Defendants’ Motion to Dismiss (the “1/17 Order”), we
dismissed Count One of the CFAC as barred by the statute of limitations in light of Plaintiff’s admission
that he was alleging only negligence. In the 1/17 Order, we held that the applicable statute of
limitations for a 14(a) claim is typically the lesser of one year from discovery or three years from the
violation. Plaintiff conceded in briefing on Defendants’ Motion to Dismiss the CFAC that his claim
under Count One is not timely under a 1/3 limitations period.3 However, the 1/17 Order granted
Plaintiff leave to amend. We instructed Plaintiff that, under the Sarbanes-Oxley Act of 2002, a 14(a)
claim sounding in fraud may be entitled to an extended statute of limitations period of the earlier of two
years from discovery or five years from the violation. 28 U.S.C. § 1658(b).4 However, as we further
instructed, any complaint pleading fraud must also meet the requirements of Fed. R. Civ. P. 9(b) as well
as the general requirements of particularity and the specific state of mind requirements of the Private
Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4. “Pursuant to the PSLRA, a complaint
must specify each statement alleged to have been misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or omission is made on information and belief,
the complaint shall state with particularity all facts on which that belief is formed. The complaint must
also ‘state with particularity facts giving rise to a strong inference that the defendant acted with the
required state of mind.” Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir. 2001) (quotations omitted).
In order to plead a violation of 14(a) and Rule 14a-9, Plaintiff must allege that the 2003 Proxy
“contains either (1) a false or misleading declaration of material fact, or (2) an omission of material fact
that makes any portion of the statement misleading.” Desaigoudar v. Meyercord, 223 F.3d 1020, 1022
(9th Cir. 2000). “An omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.” TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976). “In addition, a Section 14(a), Rule 14a-9 plaintiff must demonstrate that
the misstatement or omission was made with the requisite level of culpability and that it was an essential
link in the accomplishment of the proposed transaction.” Desaigoudar, 223 F.3d at 1022 (citing TSC
Industries, 426 U.S. at 444 & n.7).
The alleged fraudulent omission of material fact in the 2003 Proxy lies in its purported failure to
explain that the transaction with VantagePoint would force Intermix to forfeit tax credits from Net
3
Plaintiff conceded that he was on notice of the allegedly false and misleading statements in the
2003 Proxy by no later than February 14, 2005. (October 11, 2007, J.Br. 8:19–22.) This suit was filed
on June 14, 2006, at least sixteen months after Plaintiff had actual notice of the claim in Count One.
4
There is no binding authority on this issue, and although several courts have concluded that
Sarbanes-Oxley does not apply to a 14(a) claim, we are not persuaded by the reasoning of such
decisions. The Ninth Circuit has held that a 14(a) claim may sound in fraud. See Desaigoudar v.
Meyercord, 223 F.3d 1020, 1022–23 (9th Cir. 2000). By its plain language, § 1658(b) applies to “a
private right of action that involves a claim of fraud, deceit, manipulation, or contrivance . . . .” We
need not decide the issue here, however, as we hold that Plaintiff has failed to state a claim for fraud.


Operating Losses (“NOLs”). Plaintiff alleges that “[t]he 2003 Proxy was false and misleading in that it
failed to disclose that the VantagePoint Transactions, if approved, would virtually eliminate the
Company’s ability to use over $60 million worth of Intermix’s valuable federal and state NOLs.”
(CSAC ¶¶ 65, 74(h).) The 2003 Proxy allegedly omitted that, by accepting the VantagePoint financing,
Intermix would sacrifice “over 90%” of federal NOLs and “almost 75%” of state NOLs. (CSAC ¶ 65.)
As Defendants argue, based on the SEC filings on which Plaintiff purports to base this
allegation, the CSAC appears to misstate the level of the loss of NOLs. In a 10-Q filed on February 14,
2005, Intermix disclosed that roughly $40 million in NOLs subject to annual limitations, and $7.7
million in NOLs not subject to annual limitation, were still available after the financing. (Defendants’
Request for Judicial Notice,5 Ex. 10 at 372–373.) However, as this 10-Q was issued long after the 2003
Proxy, it is clear this information was not part of the “total mix” of information available to investors
considering the 2003 Proxy. See In re Stac Electronics Securities Litigation, 89 F.3d 1399, 1408 (9th
Cir. 1996) (citing Basic, Inc. v. Levinson, 485 U.S. 224, 231 (1988)). Further, at the pleading stage, we
conclude that a dispute over the degree of this purported omission is insufficient to render such omission
immaterial as a matter of law. A reasonable shareholder may have considered even a smaller loss of
NOLs to be “important in deciding how to vote.”
However, Plaintiff fails to plead the requisite level of scienter regarding the purported omission
in the 2003 Proxy. While the CSAC details behavior that Plaintiff attempts to characterize as
fraudulent, merely painting a picture of fraud is insufficient under the PSLRA and Rule 9(b), as we
stated in the 1/17 Order. Plaintiff fails to state with particularity facts giving rise to a strong inference
that the alleged omission regarding the loss of NOLs was more than negligent. Plaintiff makes a
number of allegations in the CSAC purporting to show fraud. (See CSAC ¶ 74.) The bulk of these
allegations involve a fight for board control and the purportedly “manipulative” conduct of Defendants
in approving certain prior VantagePoint financing over other options allegedly more favorable to
shareholders. (Id.) However, the pleading does not state, nor even suggest, any relation between this
allegedly fraudulent conduct and the purported omission of the loss of NOLs from the 2003 Proxy. We
conclude, based on the facts pled, that it is no more than speculative that Defendants were aware of the
purported omission of the NOLs, or the impact of the VantagePoint transactions on Intermix’s NOLs at
the time of the 2003 Proxy. The facts pled simply do not give rise to a “strong inference” that the
Defendants acted with the required state of mind. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127
S.Ct. 2007, 2504–05 (2007). As such, Plaintiff has failed to plead scienter to the required level of
specificity.
In light of our conclusion regarding the inadequacy of Plaintiff’s pleading of scienter, we need
not decide whether the CSAC adequately pleads the other requisite elements of Count One. Due to this
failure to plead scienter for fraud, Plaintiff cannot benefit from the 2/5 limitations period of 28 U.S.C.
§ 1658(b). Count One is thus time-barred, and Defendants’ Motions are GRANTED as to Count One.
5
Hereinafter, “RJN.”


II. Count Two
Count Two alleges violations of § 14(a) and Rule 14a-9 in connection with a Proxy statement
filed by Intermix in August 2005 (the “2005 Proxy”). It was filed with the SEC and disseminated to
shareholders in connection with a shareholder vote to consider approval of the sale of Intermix to News
Corp. Unlike Count One, Defendants do not argue that Count Two is untimely, but rather that the
CSAC fails to state a claim. Thus, the elements enumerated above for Count One are also applicable to
Count Two, with the exception that Plaintiff is not required to plead fraud to meet the statute of
limitations. To state a claim, Plaintiff must therefore allege that the 2005 Proxy contained a false or
misleading statement or omission of material fact, made with at least negligence, that was an essential
link in accomplishing the News Corp. transaction. See Desaigoudar, 223 F.3d at 1022.
As we reasoned in the 1/17 Order, the plain language of the PSLRA seems to demand a
heightened pleading standard for 14(a) claims even in the context of negligence. As we stated in that
Order, at least one court in this circuit has held that heightened pleading standards apply to claims of
negligence under 14(a). See In re McKesson HBOC, Inc. Securities Litigation, 126 F.Supp.2d 1248,
1266–67 (N.D.Cal. 2000). Moreover, by its plain language the PSLRA applies “in any private action”
arising under the ‘34 Act and alleging that a defendant “made an untrue statement of material fact” or
“omitted to state a material fact necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading.” 15 U.S.C. § 78u-4(b)(1). Thus, to meet the
requirements of the PSLRA, a pleading must specify “each statement alleged to have been misleading”
and “the reason or reasons why the statement is misleading.” Id.
A. Montgomery and Weisel
Defendants Thomas Weisel Partners Group, Inc., Thomas Weisel Partners LLC (collectively,
“Weisel”), and Montgomery & Co., LLC (“Montgomery,” and collectively, with Weisel, the
“Investment Banks”) allegedly issued false and misleading fairness opinions in connection with News
Corp.’s acquisition of Intermix. (CSAC ¶ 172.) These fairness opinions were included with the 2005
Proxy, and stated that the transaction with News Corp. was fair from a financial point of view. (Id.)
In order to state a claim, Plaintiff must plead both subjective and objective falsity regarding the
claim against the Investment Banks. McKesson, 126 F.Supp.2d at 1265 (citing Virginia Bankshares,
Inc. v. Sandberg, 501 U.S. 1083 (1991) and Freedman v. Value Health, Inc., 958 F.Supp. 745
(D.Conn.1997)). Plaintiff does not dispute this requirement, but rather argues that the CSAC adequately
pleads both subjective and objective falsity. We conclude, however, that the CSAC fails to plead
subjective falsity with the requisite particularity. Despite the instructions in our 1/17 Order, the CSAC
relies solely on conclusory allegations, such as that, “the Investment Banks were aware that the merger
price was not a fair price based on the non-public MySpace financial information and projections and
other information they had in their possession at the time of the issuance of their opinion.” (CSAC
¶ 159.) Such allegations offer an inadequate showing of subjective falsity, even at the pleading stage.


Plaintiff argues that the subjective falsity requirement does not require a pleading of more than
negligence. However, even were we to ignore the questionable epistemology of “negligent subjective
falsity,” Plaintiff would still be required to plead “factual specificity regarding the ‘neutral
circumstances’ of the alleged misstatement (the ‘who, what, where, when, and how’).” McKesson, 126
F.Supp.2d at 1266. As to the Investment Banks, the CSAC fails to make sufficient, concrete allegations
regarding even the “neutral circumstances” of subjective falsity.
Absent a more concrete pleading, there is no information by which we can consider, nor the
Investment Banks can defend, the allegations of subjective falsity. As such, Defendants’ Motions are
GRANTED on Count Two with respect to the Investment Banks.
B. VantagePoint and the 2005 Individual Defendants
As to the remaining Defendants under Count Two, however, Plaintiff has followed our
instructions in the 1/17 Order, and has adequately stated a claim against such Defendants. These
Defendants include Brett C. Brewer, Daniel L. Mosher, Lawrence Moreau, Christopher S. Lipp, James
Quandt, William Woodward, Richard Rosenblatt, Carlick, Sheehan, (collectively, the “2005 Individual
Defendants”), and VantagePoint.
Unlike the claim against the Investment Banks, Plaintiff is not required to plead both subjective
and objective falsity in stating a claim against VantagePoint and the 2005 Individual Defendants.
However, Plaintiff still must plead with specificity any alleged material misstatements or omissions in
the 2005 Proxy. Plaintiff also has “the burden of proving that the act or omission of the defendant
alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.” 15
U.S.C. § 78u-4(b)(4).
The CSAC specifies five alleged omissions or misstatements in the 2005 Proxy. First, the 2005
Proxy allegedly failed to disclose the current revenues and profits of MySpace, purportedly Intermix’s
“crown jewel” asset. (CSAC ¶¶ 130–33.) Second, the 2005 Proxy allegedly failed to disclose internal
management projections forecasting the growth of Intermix and MySpace from 2005 through 2009.
(CSAC ¶¶ 134–42.) Third, the 2005 Proxy allegedly failed to disclose/misrepresented Defendants’
outstanding liability in derivative lawsuits, and the effect of the deal with News Corp. on such liability.
(CSAC ¶¶ 142–45.) Fourth, the 2005 Proxy allegedly misrepresented the extent of Viacom’s interest in
acquiring Intermix, and Defendants’ efforts to foreclose any competing bid. (CSAC ¶¶ 146–48.) Fifth,
and finally, the 2005 Proxy allegedly misrepresented the nature of the “MySpace option,”6 and the
ability of some of the Defendants to preclude any exercise of such option in a manner potentially
6
Intermix had previously sold a minority stake in MySpace, and the “MySpace option”
purportedly allowed Intermix to repurchase that minority stake if certain conditions—foremost, a
legitimate offer for Intermix—were met, though also purportedly foreclosing such repurchase if other
conditions—foremost, a legitimate offer for MySpace—were met instead.


harmful to Intermix. (CSAC ¶¶ 149–51.)
Regarding the first three alleged omissions, at the pleading stage7 we cannot conclude that such
omissions are immaterial as a matter of law. Viewed in the light most favorable to Plaintiff, a
reasonable shareholder may have considered the allegedly omitted information important in deciding
how to vote. Individually, each of these specific allegations presents a close call. Together, we find that
these alleged omissions adequately plead material omissions from the 2005 Proxy.
The first of these allegations regards the failure of the 2005 Proxy to include specific financial
information showing the rapid growth of MySpace. Defendants argue that such allegations are
unnecessary, in that the 2005 Proxy incorporated by reference Intermix’s 10-Q for the quarter ending
June 30, 2005, which disclosed the growth of Intermix (RJN, Ex. 36 at 886–87). However, the omission
of financial data concerning MySpace was more significant than the “detailed breakdown of the
company’s region by region or month by month sales,” that the Ninth Circuit suggested, in dicta, would
be immaterial in Brody v. Transitional Hospitals Corp., 280 F.3d 997, 1006 n.8 (9th Cir. 2002). Rather,
we find the omission of such data to be more closely analogous to the improper omission of data
concerning a “crown jewel” asset considered in Lockspeiser v. Western Maryland Co., 768 F.2d 558
(4th Cir. 1985). There is a reasonable likelihood that a reasonable shareholder would have considered
such specific financial information regarding a critical asset important in deciding how to vote. As such,
we conclude that these allegations adequately plead a material omission from the 2005 Proxy.
The allegations concerning the failure of the 2005 Proxy to disclose internal management
projections for 2005–2009 also adequately plead a material omission. The existence of such projections
is mentioned within the 2005 Proxy. (RJN, Ex. 35 at 770.) However, the details of these projections are
not disclosed. As the Ninth Circuit has stated, “investors are concerned, perhaps above all else, with the
future cash flows of the companies in which they invest. Surely, the average investor’s interest would
be piqued by a company’s internal projections . . . .” United States v. Smith, 155 F.3d 1051, 1064 n.20
(9th Cir. 1998).
We also conclude that Plaintiff’s allegations concerning the derivative suit adequately plead a
misleading omission. We dismissed one such derivative suit, LeBoyer v. Greenspan, et al., No. CV 03-
7
In deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can
be granted, we must accept the allegations of fact in the complaint as true and construe them in the light
most favorable to the Plaintiff. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir.
2003). “[O]f course, a well-pleaded complaint may proceed even if it strikes a savvy judge that actual
proof of those facts is improbable, and that a recovery is very remote and unlikely.” Bell Atlantic Corp.
v. Twombly, 127 S.Ct. 1955, 1965 (2007) (internal quotation marks omitted). Claims should be
dismissed only when there is either a “lack of a cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.
1990).


5603-GHK (JTLx), for lack of standing in a May 22, 2007 Order. Our dismissal relied upon the fact
that plaintiff LeBoyer no longer held Intermix stock subsequent to the consummation of the merger with
News Corp. As dismissal was not merely a remote possibility, we are unwilling to conclude that
Defendants here were unable to include more detailed information about the likely effect of the News
Corp. merger on such derivative suits. As such, we conclude that the purported omissions of details
from the 2005 Proxy concerning the derivative suits were not immaterial as a matter of law.8
Defendants also argue that Plaintiff has failed to plead causation. However, “[w]here there has
been a finding of materiality, a shareholder has made a sufficient showing of causal relationship
between the violation and the injury for which he seeks redress if . . . he proves that the proxy
solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in
the accomplishment of the transaction.” Mills v. Electric Auto-Lite Co., 396 U.S. 375, 385 (1970).
Contrary to Defendants’ arguments, there is no suggestion that the causation standard in Mills was
abrogated by the Supreme Court’s decision in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336
(2005), a § 10(b) case. In Dura, the plaintiff purchased stock on a public securities market and alleged
that misrepresentations by the company had inflated the price of the shares on the date of purchase,
thereby amounting to “loss causation.” See id. at 338–39. As many factors can influence the price paid
for a security on the open market, the Court held that it was insufficient for a plaintiff to show merely
that a misstatement “touches upon” a loss. Id. at 342–43. Unlike in the 10(b) context, however, where
the market sets the price a plaintiff pays or receives for securities, here the price paid to Plaintiff was
established by the merger terms. The 2005 Proxy was essential to the approval of those terms. As such,
it would be improper to read Dura as having changed the causation standard for a 14(a) claim
established in Mills. Plaintiff here has adequately pled that the 2005 Proxy was an essential link in the
approval of the Intermix merger with News Corp. Shareholder approval was required for consummation
of that transaction. As such, we conclude that the CSAC adequately pleads causation.
In light of these findings and conclusions, Defendants’ Motions are DENIED as to Count Two
with respect to VantagePoint and the 2005 Individual Defendants.
III. Count Three
Count Three alleges violations of § 20(a) of the ‘34 Act, 15 U.S.C. § 78t(a), for “control person”
liability. Count Three is alleged against VantagePoint, the 2003 Individual Defendants, and the 2005
Individual Defendants. Defendants Edell and Ward are the only Defendants alleged to have served on
the Intermix board at the time of the dissemination of the 2003 Proxy, but not the 2005 Proxy, and so the
only 2003 Individual Defendants not also among the 2005 Individual Defendants. As such, Count Three
pertains to Edell and Ward solely in connection with the actions alleged in Count One. In respect to the
8
In light of our findings and conclusions on Plaintiff’s allegations concerning the value of
MySpace, the internal management projections, and the derivative suits, we need not consider the
remaining allegations of the CSAC concerning the purported interest from Viacom and the MySpace
option. We intimate no opinion as to the merits of these latter allegations at this time.


other Defendants named in Count Three, the actions in connection with the 2005 Proxy alleged in Count
Two are also relevant.
Section 20(a) provides that “Every person who, directly or indirectly, controls any person liable
under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and
severally with and to the same extent as such controlled person to any person to whom such controlled
person is liable, unless the controlling person acted in good faith and did not directly or indirectly
induce the act or acts constituting the violation or cause of action.” 15 U.S.C. § 78t(a). Defendants
challenge Count Three on the sole basis that Plaintiff has failed to plead any underlying violation of the
securities laws. Because we have dismissed Count One, there is no underlying violation as to
Defendants Edell and Ward, and so Defendants’ Motions are GRANTED as to Edell and Ward on
Count Three. However, as we hold that Plaintiff has adequately pled a violation of § 14(a) in Count
Two, Defendants’ Motions are DENIED as to the remaining Defendants in Count Three.
IV. Counts Four and Five

Counts Four and Five of the CSAC allege state law violations for breach of fiduciary duty and
for aiding and abetting a breach of fiduciary duty in connection with the sale of Intermix to News Corp.
Count Four, for breach of fiduciary duty, is alleged against the 2005 Individual Defendants. Count Five,
for aiding and abetting, is alleged against VantagePoint. These claims are governed by Delaware law.
Cal. Corp. Code § 2116. Under Delaware law, “the effect of untainted stockholder approval of [a]
Merger is to invoke the protection of the business judgment rule and to insulate the Merger from all
attacks other than on the ground of waste.” Harbor Finance Partners v. Huizenga, 751 A.2d 879, 890
(Del. Ch. 1999). However, in light of our conclusion that Count Two is adequately pled, we cannot find
untainted stockholder approval of the merger here.
Defendants argue that Count Four fails to state a claim even absent shareholder approval.9
However, Defendants’ argument begins with a misunderstanding of the applicable law. Specifically,
they argue that, in the sale of a company, “[t]he court engages in ‘enhanced scrutiny’ of the allegations
to determine if the directors’ conduct in the sale was ‘within the range of reasonableness’ and, if so, the
business judgment rule applies, ending further scrutiny.” (October 11, 2007, J.Br. 50:9–12; emphasis
added.) In a sale or change of control transaction it is the actions of the board, rather than the
allegations in a complaint, that are subject to enhanced judicial scrutiny. See Paramount
Communications Inc. v. QVC Network Inc., 637 A.2d 34, 45 (Del. 1994). As Count Four is not subject
to heightened pleading requirements, but need only meet the requirements of Rule 8(a), we conclude
9
Defendants do not re-brief this issue with respect to the CSAC, and instead rely on and
incorporate by reference their arguments for the dismissal of Counts Four and Five from the CFAC.
Defendants followed the same approach with respect to Count Three. However, although Defendants
expressed a willingness to re-brief these issues in their Motions, we reject this piecemeal approach, and
decline to order re-briefing.


that the CSAC adequately states a claim for breach of fiduciary duty in Count Four.10 Defendants’
Motions are therefore DENIED with respect to Count Four.11
Regarding Count Five, in order to state a claim for aiding and abetting a breach of fiduciary
duty, Plaintiff must plead: “(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s
duty, and (3) knowing participation in that breach . . . [and (4)] damages.” In re Lukens Inc.
Shareholders Litigation, 757 A.2d 720, 734 (Del.Ch. 1999). Defendants argue that Plaintiff fails to
plead knowing participation by VantagePoint in the alleged breach of fiduciary duty. “Knowing
participation, though it need not be pleaded with particularity, must be reasonably inferred from the
facts alleged in the complaint.” Id. at 734–35. However, the CSAC includes numerous allegations
against Carlick and Sheehan, purported managing directors of VantagePoint. “It is the general rule that
knowledge of an officer or director of a corporation will be imputed to the corporation.” Teachers’
Retirement System of Louisiana v. Aidinoff, 900 A.2d 654, 671 n.23 (Del.Ch. 2006). VantagePoint is
therefore fairly charged with the knowledge of Carlick and Sheehan. As such, Defendants’ Motions are
DENIED with respect to Count Five.
V. Count Six
The final Count of the CSAC alleges that Defendants Carlick and Sheehan, members of the
Intermix board as well as the principals of Defendant VantagePoint, were unjustly enriched as a result of
numerous benefits they secured from the events described in the CSAC. Under Delaware law, a claim
of unjust enrichment requires: “(1) an enrichment, (2) an impoverishment, (3) a relation between the
enrichment and impoverishment, (4) the absence of justification and (5) the absence of a remedy
provided by law.” Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 585 (Del.Ch. 1998). The claim of
unjust enrichment need only meet the minimal requirements of Fed. R. Civ. P. 8(a). The purported
enrichment is the premium paid by News Corp. for Intermix preferred shares, while the purported
impoverishment is the lower price paid for Intermix common shares held by Plaintiff. Defendants
primarily argue that Count Six fails to allege a relation between the purported enrichment and
impoverishment. As Defendants argue, however, the CSAC alleges that News Corp. offered $12 per
share for common shares on July 12, 2005 (CSAC ¶ 96), and then later, on July 17, 2005, agreed to the
premium paid for preferred shares (CSAC ¶ 104). These allegations, on their face, undermine any
inference of a relation between the purported enrichment and impoverishment. Construed in the light
most favorable to Plaintiff, we might otherwise infer that $580 million offer from News Corp. was a
firm cap, with Carlick and Sheehan dividing that pool to the benefit of the preferred shareholders, and
10
Plaintiff alleges that the omissions from the 2005 Proxy were made in bad faith, and further
alleges numerous acts of intentional misconduct and violations of the duty of loyalty. As such, at this
stage Defendants are not shielded by the exculpatory provision in the Intermix certificate of
incorporation. See 8 Del. C. § 102(b)(7).
11
Because we conclude that Count Four is adequate on other grounds, we intimate no opinion as
to the legitimacy of the deal protection devices at this time.


thus to the detriment of Plaintiff and other common shareholders. However, the above allegations in the
CSAC specifically undermine such an inference. Such allegations state that the prices paid for common
and preferred shares were arrived at independently, and that any purported enrichment related to the
preferred shares was agreed to only after the common share price was set. Hence, at least the third
element of an unjust enrichment claim has not been adequately pled. As such, Plaintiff has failed to
plead a claim for unjust enrichment as to Defendants Carlick and Sheehan. The Motions are therefore
GRANTED with respect to Count Six.
VI. Conclusion
The Motions are GRANTED in part, and DENIED in part. As we have afforded Plaintiff
sufficient opportunities to amend, and as we find and conclude that Count One is barred by the statute of
limitations, Count One of the CSAC is DISMISSED, with prejudice. With respect to Defendants Edell
and Ward, as Count Three of the CSAC rests on the dismissed allegations of Count One, Count Three is
DISMISSED, with prejudice, as to Edell and Ward. With respect to the Investment Banks, Count Two
of the CSAC is also DISMISSED, with prejudice. Count Six of the CSAC is inadequate on its face, and
thus is also DISMISSED, with prejudice. Defendants’ Motions are DENIED in all other respects. The
remaining Defendants shall answer the remaining counts of the CSAC WITHIN TWENTY (20) DAYS
HEREOF.
IT IS SO ORDERED.
:
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Case 2:06-cv-03731-GHK-JTL Document 110 Filed 07/14/2008 Page 1 of 10

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

Presiding: The Honorable GEORGE H. KING, U. S. DISTRICT JUDGE

Beatrice Herrera N/A N/A

Attorneys Present for Plaintiff: Attorneys Present for Defendants:

Proceedings: (In Chambers) Order Re: Defendants’ Motions to Dismiss

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

II. Count Two

A. Montgomery and Weisel

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

B. VantagePoint and the 2005 Individual Defendants

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CIVIL MINUTES - GENERAL

harmful to Intermix. (CSAC ¶¶ 149–51.)

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

IV. Counts Four and Five

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CIVIL MINUTES - GENERAL

UNITED STATES DISTRICT COURT

CIVIL MINUTES - GENERAL

CV-90 (06/04) CIVIL MINUTES - GENERAL Page 10 of 10

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