United States District Court, D. Delaware
Joel Friedlander, Esq., Christopher M. Foulds, Esq., Benjamin P. Chapple, Esq., Friedlander & Gorris, P.A., Wilmington, DE; Andrew J. Entwistle, Esq. (argued), Vincent R. Cappucci, Esq., Robert N. Cappucci, Esq., Jonathan H. Beemer, Esq., Alexander F. Schlow, Esq., Entwistle & Cappucci LLP, New York, NY; Gerald H. Silk, Esq., James A. Harrod, Esq., Lauren McMillen Ormsbee, Esq., Bernstein Litowitz Berger & Grossmann LLP, New York, NY, attorneys for Plaintiffs.
Stephen C. Norman, Esq., John A. Sensing, Esq., Christopher N. Kelly, Esq., Potter Anderson & Corroon LLP, Wilmington, DE; Geoffrey J. Ritts, Esq. (argued), Adrienne Ferraro Mueller, Esq., James M. McWeeney II, Esq., Jones Day, Cleveland, OH; Marjorie P. Duffy, Esq., Jones Day, Columbus, OH, attorneys for Defendants.
RICHARD G. ANDREWS, District Judge.
Presently before the Court is Defendants' motion to dismiss the amended complaint. (D.I. 53). The matter has been fully briefed. (D.I. 54, 56, 57). The Court heard oral argument on March 11, 2015. (D.I. 62 [hereinafter, "Tr."]).
On January 17, 2014, Plaintiffs OFI Risk Arbitrages, OFI Risk Arb Absolu, and Timber Hill LLC filed this securities class action against Cooper Tire and Rubber Company, Roy Armes, and Bradley Hughes. (D.I. 1). Mr. Armes was Cooper's CEO and Mr. Hughes was Cooper's CFO during the relevant period. (D.I. 54 at p. 2). Plaintiffs filed an amended complaint on October 15, 2014. (D.I. 51). The complaint alleges violations of§§ 10(b), 20(a), and 14(a) of the Securities Exchange Act of 1934. (D.I. 51 at 85-93).
For the reasons discussed below, the Court will grant Defendants' motion to dismiss.
Cooper is a leading tire manufacturer with multiple international operations. (D.I. 54 at p. 3). One of Cooper's largest operations was Cooper Chengshen (Shandong) Tire Co., Ltd. ("CCT"), located in China. (D.I. 56 at 9). CCT was a joint venture between Cooper and the Chengshen Group, which was led by Chairman Che Hongzhi. ( Id. ).
On June 12, 2013, Cooper entered into an agreement to be acquired by Apollo Tyres Ltd. for $35 per share, a deal totaling $2.5 billion. (D.I. 54 at p. 4). After the merger was announced, CCT workers went on strike on June 21, 2013. ( Id. at p. 6). CCT employees returned to work on June 28, but went on strike again on July 13, 2013. ( Id. ). The employees again returned to work on August 17, but denied Cooper access to the facility and stopped producing Cooper tires. ( Id. ). The merger announcement also resulted in the United Steelworkers union ("USW") filing two grievances alleging that the merger violated successorship provisions in its collective bargaining agreements. ( Id. at p. 8). Cooper and USW entered into an agreement scheduling expedited arbitration on July 8, 2013. (Tr. 66). USW filed official grievances on August 1, 2013. (D.I. 54 at p. 8). In September 2013, Apollo requested a price reduction, which Cooper refused. (D.I. 51 at 49-50).
Cooper shareholders approved the merger on September 30, 2013. ( Id. ). When Cooper began to suspect that Apollo was pulling back from the deal, it filed a lawsuit in the Delaware Chancery Court requesting specific performance. ( Id. ). On November 8, 2013, the Chancery Court denied the request for specific performance and held that Apollo did not breach the Merger Agreement. (D.I. 56 at 17). This lawsuit followed.
To state a claim for securities fraud under§ 10(b), a plaintiff must plead: (1) a material misrepresentation (or omission) in connection with the purchase or sale of a security; (2) scienter, i.e., a wrongful state of mind; (3) reliance; (4) economic loss; and (5) "loss causation, ' i.e., a causal connection between the material misrepresentation and the loss." Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005); see also In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 275 (3d Cir. 2006). To survive a motion to dismiss, a plaintiff alleging securities fraud must satisfy Rule 8's requirement of factual allegations sufficient to "state a claim to relief that is plausible on its face, " Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007), and the "heightened pleading requirement[s]" imposed by the Private Securities Litigation Reform Act of 1995 ("PSLRA") and Rule 9(b). In re Suprema Specialties, 438 F.3d at 276.
The purpose of the PSLRA is "to restrict abuses in securities class-action litigation.'" Id. at 276 n.8 (quoting In re Advanta Corp. Sec. Litig., 180 F.3d 525, 531 (3d Cir. 1999)). The PSLRA requires that the complaint "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." Id (quotation omitted). The complaint must also allege, with particularity, facts giving rise to a "strong inference" that each defendant acted with scienter, that is, a "mental state embracing intent to deceive, manipulate, or defraud." 15 U.S.C. § 78u-4(b)(2); Tellabs, Inc. v. Makar Issues & Rights, Ltd., 551 U.S. 308, 319 (2007) (quotations omitted). In addition, the PSLRA "immunizes from liability any forward-looking statement" if it is "accompanied by meaningful cautionary language; or it is immaterial; or the plaintiff fails to show the statement was made with actual knowledge of its falsehood." Institutional Investors Group v. Avaya, Inc., 564 F.3d 242, 254 (3d Cir. 2009).
A. Section 10(b)
At the Court's request, Plaintiffs submitted a letter with the five most salient alleged misrepresentations and omissions, as well as the particularized allegations with respect to those statements demonstrating falsity and a strong inference of scienter. (D.I. 61). I will address these statements in turn.
1. "[T]he Company or one of its Subsidiaries has exclusive possession of each Owned Real Property and Leased Real Property." (D.I. 51 ¶ 163)
This statement is a warranty in the Merger Agreement attached to the June 12, 2013 merger announcement and repeated in the August 30, 2013 Proxy. (D.I. 61 at 2 n.2). Plaintiffs argue that the above statement is false because (1) Chengshan had denied Cooper access to the CCT facility at least once in the past, (2) Chengshan had "deep ties" to the Chinese government and closely controlled CCT, and (3) CCT and Cooper had separate financial systems, and Cooper could not control or access CCT's system. ( Id. at 2).
Defendants note that the Merger Agreement's representations and warranties were required to be true as of only two points in time: (1) June 12, 2013, when the Merger Agreement was signed, and (2) at the closing of the deal, which never occurred. (Tr. 7-8). Defendants further note that the above statement refers to possession of real property, not internal controls generally. ( Id at 8). Defendants argue that there are no facts in ...