Hildes Ex Rel. David & Kathleen Hildes 1999 Charitable Remainder Unitrust v. Arthur Andersen LLP

David Hildes appeals from a district court order denying leave to amend his complaint. Hildes sought to add a claim under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, against former outside directors of Peregrine Systems, Inc. (“Peregrine”). The district court concluded that amendment would be futile because the “negative causation” defense barred Hildes’ proposed claim. It noted that Hildes entered into a Voting Agreement and Irrevocable Proxy with Peregrine, which required that Hildes’ shares in Harbinger Corporation (“Harbinger”) be voted in favor of a merger between the two companies. Because that agreement was executed before Peregrine filed an S-4/A registration statement (“Registration Statement”) with the SEC that is alleged to contain various omissions and misstatements, the district court concluded that any misrepresentations in the Registration Statement could not have caused Hildes’ losses.

We reject this reasoning. Section 11 imposes broad liability without regard to reliance or fraudulent intent for any material misstatements or omissions contained in a registration statement for the first year that the registration statement is available. 15…