IN RE ALLERGAN, INC. STOCKHOLDER LITIGATION
Date Submitted: August 14, 2014
Stuart M. Grant, Michael J. Barry, Aaron W. Stewart and Bernard C. Devieux of GRANT & EISENHOFER, P.A., Wilmington, Delaware; Mark Lebovitch, David L. Wales and Edward G. Timlin of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Co-Lead Counsel for Co-Lead Plaintiffs.
Brian J. Robbins, Stephen J. Oddo, Edward B. Gerard and Justin D. Rieger of ROBBINS ARROYO LLP, San Diego, California; Additional Counsel for The Police Retirement System of St. Louis.
Lisa A. Schmidt, Raymond J. DiCamillo, Susan M. Hannigan and Rachel E. Horn of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Peter A. Wald of LATHAM & WATKINS LLP, San Francisco, California; Blair G. Connelly and Virginia F. Tent of LATHAM & WATKINS LLP, New York, New York; Michele D. Johnson and Kristin N. Murphy of LATHAM & WATKINS LLP, Costa Mesa, California; William Savitt and Bradley R. Wilson of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Counsel for Defendants.
Last April, Valeant Pharmaceuticals International, Inc. ("Valeant") publicly disclosed its interest in acquiring Allergan, Inc. ("Allergan") in a merger transaction. Pershing Square Capital Management, L.P. ("Pershing Square"), a well-known hedge fund, has been working with Valeant as a co-bidder to consummate such a transaction. In furtherance of their efforts, PS Fund 1, LLC ("PS Fund 1"), a joint entity created by Pershing Square and Valeant that has acquired a significant position in Allergan, filed two separate lawsuits in this Court seeking judicial declarations in aid of their desire to run a proxy contest against the Allergan board of directors. Following preliminary hearings, the parties settled both cases. PS Fund 1 currently is soliciting proxies to remove six of the nine members of the Allergan board at a special meeting of Allergan's stockholders scheduled for December 18, 2014.
In this action, stockholders of Allergan who have been monitoring these events believe that a better strategy for Pershing Square and Valeant – one they have chosen not to pursue – would be to remove and replace the entire Allergan board at the same special meeting of stockholders. This strategy implicates a provision found in Allergan's certificate of incorporation and its Bylaws known as the "Similar Item" provision. In a supplemental proxy statement issued earlier this year (the "Supplemental Proxy"), Allergan stated that the Similar Item provision would permit stockholders to remove directors by written consent (and presumably at a special meeting) but not to elect their successors by written consent if an election of directors had occurred within one year of the Company's receipt of a request to take action by written consent.
Presently before the Court is plaintiffs' motion for partial summary judgment on the first two of the five claims in their consolidated complaint. Plaintiffs seek (1) a declaration that the Similar Item provision would not prohibit the stockholders of Allergan from removing the entire board at a special meeting and simultaneously electing at the same special meeting a new slate of individuals to replace them as long as those same individuals had not been up for election by the Allergan stockholders within the preceding year, and (2) entry of a judgment that the directors of Allergan breached their fiduciary duties in connection with the issuance of the Supplemental Proxy by falsely characterizing the meaning of the Similar Item provision.
For the reasons explained below, I conclude that plaintiffs' request for declaratory relief seeks an advisory opinion concerning a hypothetical proxy strategy that is not ripe for review. I also conclude that plaintiffs, who have not taken discovery and have not presented a factual record concerning the circumstances surrounding the issuance of the Supplemental Proxy, have failed to establish that the Allergan board breached its fiduciary duties. Accordingly, plaintiffs' motion for summary judgment is denied.
A. The Parties
Plaintiffs City of Westland Police & Fire Retirement System, City of Riviera Beach Police Officers Pension Fund and The Police Retirement System of St. Louis have been stockholders of Allergan at all relevant times.
Defendant Allergan, a Delaware corporation, is a multi-specialty healthcare company focused on developing and commercializing pharmaceuticals, biologics, medical devices and over-the-counter products. Allergan develops and commercializes a wide range of products for the ophthalmic, neurological, medical aesthetics, medical dermatology, breast aesthetics, urological, and other specialty markets in more than 100 countries around the world. Allergan was founded in 1950 and is listed under the symbol "AGN" on the New York Stock Exchange.
Defendants David E.I. Pyott, Michael R. Gallagher, Deborah Dunsire, Trevor M. Jones, Louis J. Lavigne, Jr., Peter J. McDonnell, Timothy D. Proctor, Russell T. Ray, and Henri A. Termeer were the nine members of Allergan's board of directors in April 2014, when the Supplemental Proxy was issued.
B. Allergan Amends its Certificate and Bylaws to Permit Special Meetings of Stockholders and Action by Written Consent
Before 2013, Allergan's certificate of incorporation ("Certificate") did not permit the calling of special meetings of stockholders or the taking of action by written consent.
On March 8, 2013, in connection with Allergan's annual stockholder meeting scheduled for April 30, 2013, Allergan filed a definitive proxy statement with the Securities and Exchange Commission ("SEC") that included a proposal to amend its Certificate to allow stockholders to call special meetings of stockholders upon the written request of stockholders holding 25% of Allergan's outstanding shares of common stock. The proxy statement disclosed that if stockholders approved this amendment to the Certificate, Allergan's Bylaws also would be amended. The proposed amendment to the Bylaws contained, in relevant part, a "Similar Item" provision. It provided that special meeting requests would not be permitted if "an identical or substantially similar item" to that included in the special meeting request had been presented at a stockholder meeting during the previous year:
(1) The Secretary shall not accept, and shall consider ineffective, a Special Meeting Request if . . . (c) an identical or substantially similar item (a "Similar Item") to that included in the Special Meeting Request was presented at any meeting of stockholders held within one year prior to receipt by the Corporation of such Special Meeting Request.
In response to Allergan's proxy statement, Institutional Shareholder Services Inc. ("ISS") issued a report addressing the special meeting proposal. ISS noted that the Similar Item provision could make it difficult for stockholders to elect directors at a special meeting:
[T]he restriction limiting the type of business that may be covered to those items not covered at an annual or special meeting within the last year could make it difficult for shareholders to bring matters to a special meeting that are generally routine items on an annual meeting agenda, such as director elections.
Nonetheless, ISS recommended that Allergan stockholders approve the proposal,  which they did at the ...