In a dramatic turn, the Ninth Circuit delivered a published opinion on Monday that breathes new life into a derivative shareholder suit against biotech giant Amyris. The suit, spearheaded by Andrew Roth, accuses Amyris board director John Doerr and his investment entity, Foris Ventures LLC, of reaping short-swing profits without necessary approvals.

Unanimous Decision on Short-Swing Profits

The three-judge panel unanimously resurrected portions of Roth's suit, challenging the lower court's decision that demanded Amyris' board approval for transactions aimed at shielding it from liability. The revived suit seeks disgorgement of alleged short-swing gains, particularly spotlighting Doerr and Foris Ventures, a substantial 10% owner of Amyris.

Amyris Shareholder Suit : Remand on SEC's Rule

However, the panel remanded a crucial element back to the lower court. It instructed the court to determine whether Foris qualifies for an exemption under the U.S. Securities and Exchange Commission's (SEC) short-swing profits rule, adding a layer of perplexity to the legal proceedings.

Short-Swing Profits and SEC's Role

Short-swing profits, a contentious practice, involve insiders trading company stock within a six-month period. The 1934 Securities Exchange Act, in Section 16(b), deems such trading inappropriate due to the presumed possession of material, nonpublic information by company insiders.

Yet, the statute offers an exemption to 16(b) transactions if the issuer's board approves the transaction, according to the opinion.

Challenge to Board Approval Requirement

The defendants contested the lower court's stance that the Amyris board had to greenlight transactions with the specific intent of evading Section 16(b) liability. The panel countered, asserting that the district court had erroneously leaned on an SEC no-action letter, emphasizing that such letters do not constitute binding regulations.

"The exemption does not include a purpose-specific approval requirement," emphasized U.S. Circuit Judge Milan D. Smith Jr., writing for the panel. "Simply put, nothing in the regulation indicates that the board must approve the transaction for the specific purpose of exempting it from Section 16(b) liability."

Amyris Shareholder Suit : Rare Consensus Among Parties

Judge Smith noted the rarity of unanimous agreement among the involved parties, with both Roth and the SEC acknowledging the absence of a purpose-specific approval requirement. The panel's decision, echoing this sentiment, adds to the legal burstiness of the case.

Allegations and Board Knowledge

Roth initiated the derivative suit in June 2021, targeting John Doerr and his wife, Ann Doerr, trustees of Vallejo Ventures Trust, a Foris Ventures member. The suit alleges that Amyris' board greenlit multiple transactions between April 2019 and January 2020, leading to purported short-swing profits of at least $6.4 million.

The panel supported the district court's finding that the board was aware of Doerr's indirect pecuniary interest in the transactions when granting approval. SEC filings indicated the board's consideration of Doerr's indirect ownership in Foris during the approval process.

Lingering Dispute on Exemption

The parties remain at odds on Foris' eligibility for exemption. Roth contends that Section 16(b) does not shield beneficial owners like Foris from liability. The panel upheld the district court's decision, remanding the case for further assessment on whether Foris could be considered a "director by deputization."

Counsel for the parties has yet to comment on the Ninth Circuit's decision.