237 F. Supp. 3d 163
D. Vt.2017Background
- Keurig developed a new cold-beverage system, Keurig Kold, invested >$125M, and had a strategic partnership with Coca-Cola; management publicly expressed optimism about Kold before launch.
- JAB Holdings negotiated to acquire Keurig in late 2015; after offers and counteroffers, JAB agreed to buy at $92 per share and the Keurig board unanimously approved the merger in December 2015.
- Keurig issued a proxy on January 12, 2016 presenting financial projections (including a 50% probability weighting applied to Kold in later years), fairness analyses by BofA Merrill Lynch and Credit Suisse, and the Board’s recommendation to approve the merger.
- Plaintiff Montanio sued under Section 14(a) and Section 20(a), alleging the proxy was materially false or misleading in five ways (chiefly the 50% probability weighting and omitted background about that decision and alternative scenarios), and sought class relief for shareholders.
- The court considered the PSLRA heightened pleading standards and Virginia Bankshares principles for opinions, heard argument, and allowed supplemental briefing; the proxy’s supplemental disclosures and other materials were considered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of Board’s 50% probability weighting (opinion falsity) | Weighting was selected after deal price agreed and served to depress value to justify JAB’s price; therefore subjectively and objectively false | Board honestly believed 50% adjustment was appropriate given Kold was an untested startup and used to adjust discounting | Court: Allegations suffice for subjective falsity but fail to plead objective falsity — no provable facts showing the 50% weighting was incorrect; claim dismissed |
| Omissions re: background discussions and alternatives for Kold/valuation | Proxy omitted material details of board discussions, alternative scenarios, and basis for adopting 50% weighting, misleading shareholders | Proxy disclosed the recommendation, explained rationale for 50% weighting, and need not catalog every alternative or discussion; projections carried cautionary language | Court: Disclosure was sufficient; absence of more detail not materially misleading under Section 14(a); claim dismissed |
| Omission re: other potential buyers (Party X) | Proxy failed to explain why other parties would not pay more despite Party X’s earlier interest | Supplemental disclosures showed Party X had withdrawn interest; plaintiff did not press claim | Court: Claim inadequately alleged and largely mooted by supplemental disclosures; dismissed |
| Section 20(a) control/derivative liability | Directors, CEO and acquiring entities are culpable participants and controllers deriving liability from Section 14(a) violations | If no primary violation under Section 14(a), Section 20(a) claim fails; additional control arguments advanced by Maple | Court: Because Section 14(a) claims fail, Section 20(a) derivative claims also fail; dismissed |
Key Cases Cited
- Subaru Distribs. Corp. v. Subaru of Am., Inc., 425 F.3d 119 (2d Cir.) (standards for considering documents incorporated into complaints)
- Bond Opportunity Fund v. Unilab Corp., 87 Fed. App’x 772 (2d Cir.) (elements of a Section 14(a) claim)
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (Supreme Court) (materiality standard for omissions in proxy solicitations)
- Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (Supreme Court) (treatment of board statements of belief/opinion as actionable only if both subjectively and objectively false)
- Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir.) (applying Virginia Bankshares framework to plead falsity of opinions)
- Smith v. Robbins & Myers, Inc., 969 F. Supp. 2d 850 (S.D. Ohio) (discussing when omission of strategic alternatives can be material in a proxy)
- City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir.) (when optimistic opinion statements become actionable in face of contrary objective evidence)