United States District Court, D. Oregon
ELIA AZAR and DEAN ALFANGE, on behalf of themselves and all others similarly situated, Plaintiffs,
BLOUNT INTERNATIONAL, INC., JOSHUA L. COLLINS, DAVID A. WILLMOTT, ROBERT E. BEASLEY, JR., RONALD CAMI, ANDREW C. CLARKE, NELDA J. CONNORS, E. DANIEL JAMES, HAROLD E. LAYMAN, MAX L. LUKENS, and DANIEL J. OBRINGER, Defendants.
J. McGaughey, McGaughey Erickson Lead Counsel for Plaintiffs.
M. Sasaki and Ian Christy, Of Attorneys for Defendants Blount
International, Inc., Robert E. Beasley, Jr., Ronald Cami,
Andrew C. Clarke, Nelda J. Connors, E. Daniel James, Harold
E. Layman, Max L. Lukens, and Daniel J. Obringer.
A. Bornstein, Cravath, Swaine & Moore LLP Of Attorneys
for Defendants Blount International, Inc., Andrew C. Clarke,
Nelda J. Connors, E. Daniel James, and Harold E. Layman.
Lawrence J. Portnoy and Rebecca L. Martin, Davis Polk &
Wardwell LLP Of Attorneys for Defendants Robert E. Beasley,
Jr., Ronald Cami, Max L. Lukens, and Daniel J. Obringer.
John Casey, K&L Gates LLP, Jay P. Lefkowitz and Nathaniel
J. Kritzer, Kirkland & Ellis LLP Of Attorneys for
Defendants Joshua L. Collins and David A. Willmott.
OPINION AND ORDER
Michael H. Simon United States District Judge
former stockholders of Defendant Blount International, Inc.
(“Blount” or the “Company”), bring
this putative class action lawsuit primarily under §
14(a) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78n(a), seeking to rescind Blount's merger (the
“Merger”) with American Securities, LLC and P2
Capital Partners LLC (collectively, the
“Buyers”). In the alternative, Plaintiffs seek
money damages arising out of the Merger. Defendants Blount,
Joshua L. Collins, David A. Willmott, Robert E. Beasley Jr.,
Ronald Cami, Andrew C. Clarke, Nelda J. Connors, E. Daniel
James, Harold E. Layman, Max L. Lukens, and Daniel J.
Obringer (collectively, “Defendants”) have moved
to dismiss Plaintiffs' Amended Class Action Allegation
Complaint (“Amended Complaint” or “Am.
Compl.”), under Rule 12(b)(6) of the Federal Rules of
Civil Procedure. For the reasons that follow, the Court
DENIES Defendants' motion.
motion to dismiss for failure to state a claim may be granted
only when there is no cognizable legal theory to support the
claim or when the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief.
Shroyer v. New Cingular Wireless Servs., Inc., 622
F.3d 1035, 1041 (9th Cir. 2010). In evaluating the
sufficiency of a complaint's factual allegations, the
court must accept as true all well-pleaded material facts
alleged in the complaint and construe them in the light most
favorable to the non-moving party. Wilson v.
Hewlett-Packard Co, 668 F.3d 1136, 1140 (9th Cir. 2012);
Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d
992, 998 (9th Cir. 2010). To be entitled to a presumption of
truth, allegations in a complaint “may not simply
recite the elements of a cause of action, but must contain
sufficient allegations of underlying facts to give fair
notice and to enable the opposing party to defend itself
effectively.” Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011). All reasonable inferences from the
factual allegations must be drawn in favor of the plaintiff.
Newcal Indus. v. Ikon Office Solution, 513 F.3d
1038, 1043 n.2 (9th Cir. 2008). The court need not, however,
credit the plaintiffs legal conclusions that are couched as
factual allegations. Ashcroft v. Iqbal, 556 U.S.
662, 678-79 (2009).
complaint must contain sufficient factual allegations to
“plausibly suggest an entitlement to relief, such that
it is not unfair to require the opposing party to be
subjected to the expense of discovery and continued
litigation.” Starr, 652 F.3d at 1216. “A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl Corp. v. Twombly, 550 U.S. 544, 556
(2007)). In addition, as discussed more fully below, under
the Private Securities Litigation Reform Act
(“PSLRA”), class-action claims under § 14(a)
must meet heightened pleading standards. 15 U.S.C. §
78u-4(a)(1); Police Ret. Sys. of St. Louis v. Intuitive
Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014)
(“The PSLRA . . . imposes more exacting pleading
requirements . . . .” (quotation marks omitted)).
is a Delaware corporation that manufactures and markets
replacement parts, equipment, and accessories for consumers
and professionals in the forestry, lawn and garden, farm,
ranch, agriculture, and construction industries. Am. Compl.
¶¶ 2, 17. Before the Merger, Defendants Collins and
Willmott were the Chief Executive Officer and Chief Operating
Officer of Blount, respectively. Id. ¶ 18.
Blount's Board of Directors (the “Board”)
consisted of ten members: Collins, Willmott, and eight
independent directors, Defendants Beasley, Cami, Clarke,
Connors, James, Layman, Lukens, and Obringer. Id.
¶¶ 20-28. At all relevant times, Plaintiffs were
Blount stockholders. Id. ¶¶ 1, 16.
Capital Partners LLC (“P2”) approached Collins in
early 2015 about partnering with another investor to acquire
the Company and take it private. Id. ¶ 3. P2
eventually teamed with American Securities, LLC
(“American Securities”) and worked with Collins
and Willmott to effect that purchase and sale. Id.
August 6, 2015, the Buyers submitted an informal indicative
proposal to acquire the Company at a price range of $11.00 to
$12.50 per share, and stated that they intended to retain
Collins and Willmott as managers. Id. ¶ 42.
Plaintiffs allege that Collins and Willmott thus were
conflicted because of this potential post-transaction
employment, giving them an interest in the Merger separate
from those of other Blount shareholders. Id.
¶¶ 42-43. Despite this alleged conflict, Collins
and Willmott worked with the Buyers to close the deal to sell
the Company. Id. ¶ 43.
September 9, 2015, because the Buyers wanted to retain
Company management, the Board formed a “Special
Committee” to negotiate, evaluate, and provide
recommendations to the Board regarding any acquisition
proposals. Portnoy Decl. ¶ 2, Ex. A, “Blount
International Inc.'s Definitive Proxy Statement”
(“Proxy”) at 35, ECF 57-1.
process leading to the Merger, Blount's management
created certain sets of financial projections, generated as
early as September 2015, which Plaintiffs refer to as the
“September Projections.” Am. Compl. ¶¶
55, 58 & n.2. These projections “forecasted the
Company's financial performance for several years into
the future” and “purportedly exhibited
management's expectations regarding Blount's future
financial performance.” Id. ¶¶ 8,
September 9, 2015, the Board met to discuss the Buyers'
offer. Id. ¶¶ 58, 59. Goldman, Sachs &
Co. (“Goldman Sachs”), one of the Board's
financial advisors, attended the meeting and presented to the
Board preliminary financial analyses of the Merger; Goldman
Sachs used the September Projections in performing these
analyses. Id. ¶¶ 8, 58, 59. Plaintiffs
allege that Goldman Sachs also was conflicted, due to its
previous ties to American Securities and P2. Id.
¶¶ 73-87. On October 8, 2015, the Buyers submitted
a non-binding indication of interest to acquire the Company
for between $8.25 and $8.50 per share, which the Special
Committee rejected the next day. Proxy at 37.
October 12, 2015, the Buyers submitted a revised proposal of
$9.75 to $10.00 per share. Id. With this higher
price on the table, the Special Committee obtained its own
financial advisor, Greenhill & Co.
(“Greenhill”), and own legal advisors.
Id. at 38-40. Goldman Sachs continued to advise the
Special Committee. Id. at 38. During negotiations,
the Buyers' indicative price range rose as high as $10.55
to $10.80 per share. Id. at 41.
October 15, 2015, the independent members of the Board held
an executive session, with Goldman Sachs attending. Am.
Compl. ¶ 58. Blount management (specifically, Collins
and Hall, 629 F.3d at 998. The court “may
treat such a document as part of the complaint, and thus may
assume that its contents are true for purposes of a motion to
dismiss under Rule 12(b)(6).” Marder v. Lopez,
450 F.3d 445, 448 (9th Cir. 2006) (quotation marks omitted).
Because the Amended Complaint relies on the Proxy (see,
e.g., Am. Compl. ¶¶ 10-12, 48, 53, 55-72), the
Court will consider it in ruling on Defendants' motion to
previously had told Goldman Sachs that the September
Projections “were no longer current” and that
management would need to revise the projections downward.
Id. ¶ 60. In response, Goldman Sachs told the
Board at the October 15, 2015 meeting of the need for
downward revisions to the projections. Id.
¶¶ 60-61. According to Plaintiffs, “[i]nstead
of inquiring directly with Blount's management, the Board
relied upon Goldman Sachs' questionable hearsay and
decided that management should prepare updated financial
projections.” Id. ¶ 62.
management (Collins and Willmott) subsequently created new
financial projections for the years 2015 through 2020, which
significantly downgraded the Company's financial outlook.
Id. ¶ 9. These projections, created in November
and December 2015, are the “November Projections”
and “December Projections, ” respectively.
Id. Management allegedly created these more
pessimistic projections in order to support a reduced
per-share merger price. Id. Plaintiffs allege that
the September Projections more accurately reflected
Blount's short- and long-term prospects than did later
projections, and that the November and December Projections
were misleading as to management's true views of the
Company's prospects. Id. ¶ 10.
November 9, 2015, Blount reported financial results from
third quarter 2015. Id. ¶ 65. These results
showed gains across several key metrics from second quarter
2015. Id. ¶ 66. The Company “did not
publicize any information that would warrant slashing its
financial projections, ” i.e., revising downward the
September Projections. Id. ¶ 65. The Proxy
stated that in October 2015, management had told the Buyers
that it “anticipated improved third quarter results and
provided greater certainty that the Company would meet
year-end targets as compared with the preliminary reports
provided to the [Buyers] prior to October 8, 2015.”
Id. ¶ 67 (quoting Proxy at 37). Plaintiffs
allege that “[t]hese statements belie the notion that
Blount needed to reduce its 5-year financial projections
based on any objective measure of the Company's financial
performance.” Id. ¶ 68.
December 4, 2015, the Buyers reduced their proposed purchase
price to $9.85 per share. Proxy at 46. The Special Committee
countered at $10.30 per share. Id. at 47. The Buyers
then countered with a “best and final offer” of
$10.00 per share on December 7, 2015. Id. On
December 10, 2015, “following months of negotiations
led by Collins and Willmott with minimal Board involvement,
Blount announced that it had entered into an Agreement and
Plan of Merger, ” by which P2 and American Securities
would acquire all outstanding shares of Blount common stock
for $10.00 per share. Am. Compl. ¶ 4.
allege that the $10.00 per share was a “fire sale
price” that benefited Collins and Willmott at Blount
shareholders' expense. Id. ¶¶ 69, 72.
Goldman Sachs and Greenhill had rendered a fairness opinion
based on the more pessimistic projections that recommended
the “materially inadequate” $10.00 per share
price to shareholders. Id. ¶ 71. “Blount
stockholders should have been given the earlier set(s) of
financial projections in order to gain an accurate view of
the Company's prospects, and the failure to disclose such
information rendered the Proxy Statement materially
misleading and inadequate.” Id. ¶ 72.
January 12, 2016, Blount filed a preliminary proxy statement
with the Securities and Exchange Commission
(“SEC”); on February 16, 2016, Blount filed an
amended preliminary proxy statement with additional
disclosures. See Portnoy Decl. ¶ 3, Ex. B, ECF
57-2. On March 9, 2016, Blount filed its Definitive Proxy
Statement with the SEC. Am. Compl. ¶ 6. On April 7,
2016, a majority of ...