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Montanio v. Keurig Green Mountain, Inc.

United States District Court, D. Vermont

August 29, 2017

KYLE MONTANIO, Individually and on Behalf of All Others Similarly Situated, Plaintiff,


          Geoffrey W. Crawford, Judge United States District Court.

         This is a direct shareholder class action lawsuit in which the lead plaintiff, Kyle Montanio, a former shareholder of Keurig Green Mountain, Inc. ("Keurig"), has sued Keurig, Keurig's former CEO, members of Keurig's former Board of Directors, and the corporate investors that bought out Keurig in a deal completed in March 2016. Plaintiff alleges that, in connection with the proposed merger, Defendants disseminated a materially false and misleading proxy statement, in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(a), 78t(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9.

         Defendants moved to dismiss the first amended complaint for failure to state a claim. (Docs. 27, 32.) The court granted the motions, dismissed the case, and entered judgment. (Docs. 52, 53.)

         Plaintiff has now moved for reconsideration, or, in the alternative, for the court to reopen the judgment and permit Plaintiff to file a second amended complaint. (Doc. 55.) The court assumes familiarity with its prior Opinion and Order (Doc. 52). Montanio v. Keurig Green Mountain, Inc., 237 F.Supp.3d 163 (D. Vt. 2017).

         Motion for Reconsideration

         A court may consider a motion for reconsideration filed under Federal Rule of Civil Procedure 59(e). Assoc, for Retarded Citizens of Conn., Inc. v. Thome, 68 F.3d 547, 553 (2d Cir. 1995). Motions for reconsideration should not be used to repackage arguments previously rejected. Robinson v. Disney Online, 152 F.Supp.3d 176, 185 (S.D.N.Y. 2015). Rule 59(e) is not intended to provide "a second bite at the apple." Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 53 (2d Cir. 2012). A motion for reconsideration under Rule 59(e) is properly brought under one of four theories: the judgment depends upon a manifest error of fact or law, there is newly discovered or previously unavailable evidence, it is necessary to prevent a manifest injustice, or there has been an intervening change in controlling law. Charles Alan Wright, et al., 11 Federal Practice & Procedure § 2810.1 (3d ed. 2012).

         Plaintiffs motion for reconsideration focuses on one aspect of the court's prior opinion: its conclusion that the complaint failed to allege any basis to conclude that the Board's opinion in favor of applying a 50% probability weighting to its projections for Keurig Kold was objectively false (Doc. 52 at 12-16). The motion for reconsideration argues that the court overlooked important facts alleged in the complaint and therefore incorrectly distinguished the complaint in this case from the one at issue in In re Hot Topic, Inc. Securities Litigation, No. CV 13-02939, 2014 WL 7499375 (CD. Cal. May 2, 2014).

         The court considers the arguments in the order they are presented in the motion. But first, it discusses an issue relevant to the analysis of nearly every argument presented: what facts must be alleged in a complaint to sufficiently state that a belief or opinion asserted in a proxy statement is objectively false?

         I.Pleading Standard for Section 14(a) and Rule 14a-9 and Alleging Objective Falsity

         To state a claim under Section 14(a) and Rule l4a-9(a), a plaintiff must allege that: "(1) a proxy statement contained a material misrepresentation or omission, which (2) caused plaintiffs' injury, and (3) that the proxy solicitation itself, rather than the particular defect in the solicitation materials, was an essential link in the accomplishment of the transaction." Bond Opportunity Fund v. Unilab Corp., 87 F.App'x 772, 773 (2d Cir. 2004); accord Police & Fire Ret. Sys. of Detroit v. SafeNet, Inc., 645 F.Supp.2d 210, 226 (S.D.N.Y. 2009).

         A statement of belief or opinion-such as the financial projections at issue in this case- does not get a free pass in the world of proxy litigation. Such a statement may constitute a material misrepresentation, if it is both subjectively false-in that it misstates the actual opinions, beliefs, or motivation of the speaker-and objectively false-in that it is "false or misleading with respect to the underlying subject matter [the statement] address[es]." Fait v. Regions Fin. Corp., 655 F.3d 105, 111 (2d Cir. 2011) (citing Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1091-96 (1991)).

         Additionally, claims under Section 14(a) are subject to a heightened pleading standard under the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b). See Bond Opportunity Fund, 87 F.App'x at 773. Under that statute, a complaint alleging that defendants "made an untrue statement of material fact" or material omission must: (1) "specify each statement alleged to have been misleading"; (2) "the reason or reasons why the statement is misleading"; and (3) "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." 15 U.S.C. § 78u-4(b)(1).

         One court has summarized these standards in this way: a claim under Section 14(a) "charging that a statement of opinion ... is materially misleading must allege with particularity provable facts to demonstrate" both subjective and objective falsity. Fisher v. Kanas, 461 F.Supp.2d 275, 282 (E.D.N.Y. 2006) (internal quotation marks omitted). What constitutes a "provable fact" that "demonstrates objective falsity"? The court turns to cases evaluating allegations of objective falsity in similar contexts: claims of securities fraud under Section 10(b), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.

         The objective falsity of a financial projection frequently depends upon pleading and proof of the use of underlying cost or revenue figures which are untrue or inconsistent with the real figures. For instance, in In re NovaGold Resources Inc. Securities Litigation, 629 F.Supp.2d 272, 276 (S.D.N.Y. 2009), the court evaluated whether cost estimates for a copper and gold mining project were false or misleading. In a "final feasibility study" for the project, released in late 2006, the company estimated that the project would cost $2.2 billion.[1] Id. at 278. The company continued to tout and publicly rely on that estimate through fall 2007. Id. at 277-78, 299. But according to the complaint, the plaintiffs had learned from confidential informants that internal cost estimates were $2.7 billion in early 2006, and by summer 2007, "construction managers were discussing costs approaching $3.7 billion." Id. at 299. At the end of November 2007, the company belatedly revised the cost estimate, increasing it to $5 billion. Id. The court concluded that, based on these allegations, "[t]he plaintiff has pleaded with sufficient particularity facts supporting an inference that [the company] knew that... its cost estimate of [$2.2 billion was] unreliable and misleading shortly after release, if not at release." Id.

         In Allstate Life Ins. Co. v. Robert W. Baird & Co., 756 F.Supp.2d 1113 (D. Ariz. 2010), the complaint alleged that projections regarding future events and attendance at a proposed convention center were false or misleading. The official projections announced by the defendants were that the event center would average 133 events annually with a total attendance of 480, 000. Id. at 1133. The court found that the complaint sufficiently alleged this projection to be objectively misleading or false because the projections "omitted critical information contained" in two other reports, which relied on demographic data and other information. Id. at 1132-33. Those reports, which the defendants had either commissioned or otherwise had knowledge of, "tend[ed] to indicate that the [metro area in question] could not be expected to generate the number of events and attendees that were projected." Id. at 1132-33. One report estimated that the event center would "draw approximately 78 events per year with an annual attendance of approximately 202, 500." Id. The other estimated 97 to 102 annual events with total attendance of 321, 000. Id. at 1133. In light of these allegations, the court concluded, the defendants "may have disregarded [the other reports] and made event, attendance, and revenue projections (predicated on event and attendance calculations) that were unreasonable in light of the internal data at their disposal." Id.

         In comparison, allegations of objective falsity are insufficient when they fail to identify particular facts that undermine or contradict the basis for the projection at issue. In In re Salomon Analyst Level 3 Litigation, 350 F.Supp.2d 477, 481 (S.D.N.Y. 2004), the complaint alleged that market research reports produced by a financial analyst were false and misleading in their rosy predictions of future success for specific broadband companies and their recommendations to buy stock in those companies. The court concluded that the plaintiffs had failed to allege objective falsity because the plaintiffs "[had] not identified any objective facts or data that are misrepresented in the reports." Id. at 491, 498. The court rejected as insufficient allegations relating to emails written by other employees months or years after the reports were issued:

Furthermore, plaintiffs' efforts to undermine the analysis or models employed by [the analyst] as false or objectively unreasonable are either refuted on the face of the reports themselves, or rely entirely on mischaracterizations of emails written by other SSB employees months or even years after the allegedly false research reports, which is plainly insufficient to adequately plead that the analysis or models were objectively false or misrepresented the true opinions of Grubman or his staff at the time the reports were issued.

         Id. at 491. Other allegations-including that the analyst's belief in the demand for internet bandwidth proved wrong, that his valuation models "predicted very high return rates, " that he was compensated handsomely for "his role as evangelist for the broadband future, " and that there were significant conflicts of interest between the research and investment banking arms of his employer-were also insufficient. Id. at 492-93. At best, the court concluded, these allegations "accuse[d] [the analyst] of being unduly, even egregiously, optimistic about the future prospects of these companies, " and that he "was incompetent, a bad analyst, even careless." Id. at 491- 92.[2]

         In Frazier v. VitalWorks, Inc., 341 F.Supp.2d 142, 158 (D. Conn. 2004), the complaint alleged that VitalWorks, a software company, issued projections for future revenues for upcoming fiscal years that were false and misleading. Id. But the complaint did not identify any facts or data regarding the expected or actual sales for the two product lines at issue that would have undermined the company's statements about current growth and the revenue projections premised on those statements. Id. at 154, 156-57. As the court explained: "The issue is whether there exist underlying facts that gave defendants reason to know that their projections were false and misleading. Financial projections can be fraudulent if the company bases them upon sales data or other numbers-current or historical material facts-that the company knows to be false or inaccurate." Id. at 158. Because the complaint "fail[ed] to allege facts showing that the underlying statements were false, " it failed to state a claim that the future projections were misleading or fraudulent. Id. at 158-59.

         These cases illustrate the principle that a sufficient allegation of objective falsity requires the pleading of particular facts that, if themselves proven, would show that the opinion or projection was based on assumptions contradicted by real-world facts or on other inaccurate data. It is insufficient to allege facts which merely suggest the possibility that the projection might be incorrect. The allegations must identify with specificity the false data from which the defendant derived a misleading ...

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