Falkowski v. Imation Corp., 309 F.3d 1123 (9th Cir. 2002)

This class action litigation arose from a merger in which Imation Corporation, a publicly traded company, acquired Cemax-Icon, a closely held company in the medical information management business. A year after the merger, Imation sold the Cemax subsidiary to Eastman Kodak Company. The plaintiffs are a group of former Imation employees who alleged breach of contract and fraud in connection with their employee stock options. The employees claimed that Imation fraudulently induced them to remain with Cemax by misrepresenting the value of Imation stock and options. Although the employees filed suit in California state court, Imation removed the action to federal court on the ground that the fraud claims were completely preempted by the Securities Litigation Uniform Standards Act of 1998. The Ninth Circuit held that Imation’s removal of the action to federal court was proper because “representations about the value of the stock and the terms on which the plaintiffs will be able to purchase the stock are properly subject to uniform federal standards.” However, the Court reversed the dismissal of the breach of contract claims given the ambiguity of the contract language about whether the transfer of the employees to Kodak constituted a termination of their “continuous status as employees.” Finally, the Court affirmed dismissal of the alleged California Labor Code violations because “options are not wages” and of the federal securities act claims given their lack of specificity.