OFI Asset Management v. Cooper Tire & Rubber
2016 U.S. App. LEXIS 15337
| 3rd Cir. | 2016Background
- Cooper Tire (U.S. company) entered a June 12, 2013 merger agreement to be acquired by Apollo Tyres; Cooper had a profitable Chinese JV (Cooper Chengshan Tire, “CCT”) in which Chengshan owned 35% and Cooper 65%.
- Negotiations occurred amid uncertainty about CCT chairman Che’s reaction and possible labor issues (both at CCT and with the U.S. United Steelworkers). Cooper and Apollo executed a Merger Agreement and issued related public filings (10-Q, Proxy, 8-Ks).
- After the announcement, workers at CCT initiated strikes and later denied Cooper access to the facility and financial data; the USW filed grievances in the U.S., and an arbitrator barred sale of certain plants absent agreements with the USW.
- Apollo sought a price reduction following the arbitration; Cooper refused and later sued Apollo in Delaware Chancery Court to compel closing; the merger ultimately terminated in December 2013.
- OFI (plaintiff) filed a securities class action alleging Cooper and officers made material misrepresentations/omissions in the Merger Agreement, 10-Q, Proxy, and 8-Ks in violation of §§ 10(b), 14(a), and 20(a). The District Court dismissed for failure to plead falsity and scienter under the PSLRA and the appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Merger Agreement warranties (exclusive possession, effective internal controls, no threatened strikes) were false | Warranties were false because Chengshan effectively controlled CCT, CCT had separate systems and had at times denied Cooper access, and strikes were foreseeable | Warranties were time-limited to signing/closing dates, referred to possession of real property, and facts alleged were too vague to show falsity on June 12, 2013 | Court: Not false or not pleaded with PSLRA particularity; claims dismissed |
| Whether 10-Q misrepresented internal controls and strike characterization | 10-Q misled by asserting internal controls unchanged and calling CCT stoppage "temporary," while Cooper allegedly already lacked access to CCT financials | 10-Q covered quarter ending June 30; loss of access occurred after quarter; strike-related language was forward-looking and accompanied by cautionary disclosures | Court: Plaintiffs failed to plead falsity/scienter; forward-looking statements protected by PSLRA safe harbor |
| Whether Proxy projections and statements about strike/Party C were misleading | Projections were more optimistic than internal forecasts; Proxy understated strike risk and failed to identify Party C as Chengshan | Projections were expressly disclaimers/aspirational and accompanied by cautionary language; Proxy disclosed strike facts; omission of Party C identity did not render statements misleading | Court: Projections and strike statements fall within safe harbor and were adequately cautioned; no actionable omission as pleaded |
| Whether September 8-Ks failed to disclose that Apollo sought price reduction (material omission) | 8-Ks omitted that Apollo demanded a price cut and that merger was imperiled; omission was material and misleading | No demand for reduction was shown to exist before the 19 Sept. 8-K; disclosure of such a demand was not required and, even if known, facts did not support scienter | Court: No particularized allegation of an omission or strong inference of scienter; claims dismissed |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (controls the standard for assessing whether complaint gives rise to a "strong inference" of scienter)
- Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009) (PSLRA particularity and scienter pleading standards for securities fraud)
- Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) (elements of a § 10(b) claim including loss causation and reliance-related principles)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings under Rule 12(b)(6))
- Kanter v. Barella, 489 F.3d 170 (3d Cir. 2007) (standard for accepting complaint allegations at motion to dismiss)
- Winer Family Trust v. Queen, 503 F.3d 319 (3d Cir. 2007) (framework for § 10(b) motions to dismiss)
- In re Suprema Specialties, Inc. Secs. Litig., 438 F.3d 256 (3d Cir. 2006) (PSLRA pleading requirements summarized)
- GSC Partners CDO Fund v. Washington, 368 F.3d 228 (3d Cir. 2004) (cautionary statements must be substantive and tailored for PSLRA safe harbor)
- In re Westinghouse Sec. Litig., 90 F.3d 696 (3d Cir. 1996) (district court discretion to manage and dismiss unduly verbose or unclear complaints)