Court rejects suit against HP over scandal

Shareholders of the former Hewlett-Packard Co. can’t sue the Palo Alto technology company or its successor firms for securities fraud under former CEO Mark Hurd, who resigned over a 2010 scandal involving an actress that sent HP’s stock price plunging, a federal appeals court ruled Thursday.

Although Hewlett-Packard, and Hurd himself, had touted the company’s ethical standards as a central element of its character, its code of conduct was “aspirational” — merely a goal, not a binding promise to shareholders, said the Ninth U.S. Circuit Court of Appeals in San Francisco.

Allowing a suit over a company’s failure to live up to its proclaimed values “could turn all corporate wrongdoing into securities fraud,” Dana Christensen, a federal judge from Montana temporarily assigned to the court, said in

the 3-0 ruling. The panel upheld a 2014 ruling by U.S. District Judge Jon Tigar of San Francisco dismissing the suit. Hewlett-Packard split into two firms, HP Inc. and Hewlett Packard Enterprise, in 2015.

The lead plaintiff in the proposed class-action suit, the retirement fund of Retail Wholesale & Department Store Union Local 338, said revelations of Hurd’s conduct and his resignation cost shareholders $10 billion.

Hurd became HP’s chief executive officer in 2005 and avoided implication in a 2006 controversy over the company’s surveillance of its employees. HP then proclaimed a renewed commitment to ethical behavior, with Hurd writing in a preface to the company’s code of conduct that employees must “build trust in everything we do by living our values.”

In 2010, actress Jodie Fisher, who had worked for HP as an independent contractor introducing Hurd to new clients, accused Hurd of sexually harassing her, and also alleged that he had given her confidential information about an impending merger.

Investigators hired by the company’s board rejected those allegations — without interviewing Fisher— but found that Hurd had lied to the board about his relationship with Fisher and had doctored expense reports about their meetings. Hurd acknowledged violating HP’s ethical standards and was allowed to resign, with a $36 million severance package. He was quickly hired as co-president of Oracle Corp., where he is now one of two CEOs.

Arguing for the right to sue for securities fraud, the plaintiff ’s lawyers said HP’s proclamations of its strong code of conduct had proven to be both false and “material” to its stock value. The drop in stock prices after Hurd’s departure “confirms the market’s view of materiality,” lawyers said in a court filing.

But Christensen, in Thursday’s ruling, said the company’s statements — like its commitment to live by its values — were commonplace in the business world and were neither “capable of objective verification” nor “material to stockholder decision-making.”