United States District Court, W.D. Kentucky, Louisville Division
LABORERS’ LOCAL #231 PENSION FUND and DANIEL RIORDAN, Individually and on Behalf of All Others Similarly Situated, Plaintiffs
PHARMERICA CORPORATION, FRANK E. COLLINS, W. ROBERT DAHL, JR., MARJORIE W. DORR, PATRICK G. LEPORE, GEOFFREY G. MEYERS, ROBERT A. OAKLEY, GREGORY S. WEISHAR, KOHLBERG KRAVIS ROBERTS & CO. L.P. and WALGREENS BOOTS ALLIANCE, INC., Defendants
MEMORANDUM OPINION AND ORDER
Rebecca Grady Jennings, District Judge, United States
District Court Judge.
matter is before the Court on two motions to dismiss. The
first is filed by PharMerica Corporation and Kohlberg Kravis
Roberts & Co. L.P. [DE 55]. The second is filed by
PharMerica’s Board of Directors, Frank E. Collins, W.
Robert Dahl, Jr, Marjorie W. Dorr, Patrick G. Lepore,
Geoffrey G. Meyers, Robert A. Oakley, Gregory S. Weishar
(collectively, the “Board of Directors”). [DE
56]. Plaintiffs, Laborer’s Local #231 Pension Fund and
Daniel Riordan, on behalf of himself and those similarly
situation, responded and request oral argument. [DE 59].
These issues have been extensively briefed. Thus, the Court
finds oral argument unnecessary. Plaintiffs’ request
for oral argument is DENIED, and for the reasons below, both
motions to dismiss, [DE 55, 56], are GRANTED.
Laborer’s Local #231 Pension Fund and Daniel Riordan,
were both shareholders of the PharMerica Corporation
(“PharMerica” or the “Company”)
before affiliates of Kohlberg Kravis Roberts & Co. L.P.
(“KKR”) and Walgreen Boots Alliance, Inc.
(“Walgreens”) acquired the Company through a
cash-out merger. [DE 1, Complaint at 1, ¶1; 7,
¶23]. Plaintiffs bring this putative class action
lawsuit, against PharMerica and its Board of Directors, KKR,
and Walgreens, under the Securities Exchange Act Section
14(a) and SEC Rule 14a-9 promulgated thereunder alleging that
the Proxy Statement (the “Proxy”) contained both
affirmative material misleading statements and material
omissions. [Id. at 35–37]. Plaintiffs also
seek to hold PharMerica’s Board of Directors, KKR, and
Walgreens, liable as control persons under the Securities
Exchange Act Section 20(a). [Id. at 37–39].
PharMerica’s Acquisitional Growth
was a publicly traded Fortune 1000 company. [Id. at
10, ¶44]. It was the second largest institutional
pharmacy company in the United States. [Id.]
PharMerica’s headquarters was in Louisville, Kentucky.
[Id. at 7, ¶24]. PharMerica had a three-part
growth plan. [Id. at 28, ¶135]. One of those
parts was growth through acquisitions. [Id.].
PharMerica had successfully grown through acquisition before
the merger and made many public statements about its intent
to continue to grow in this way, including in its SEC
filings. [Id. 10–20].
of America Merrill Lynch (“BAML”) and UBS
Securities LLC (“UBS”) Facilitate
PharMerica’s Merger with KKR and Walgreens
engaged BAML and UBS to explore potential business
combinations and act as financial advisors. [Id. at
21, ¶95]. In January 2016, BAML and UBS began discussing
with KKR and Walgreens the potential acquisition of
PharMerica. [Id.]. Both BAML and UBS had previous
relationships with KKR and Walgreens. [Id. at
21–23]. BAML earned roughly $74 million in fees from
KKR and roughly $49 million in fees from Walgreens in the two
years before the merger. [Id. at 21, ¶97].
Similarly, UBS earned roughly $125 million in fees from KKR
and Walgreens in the two years before the merger.
[Id. at 22, ¶103]. Both BAML and USB stood to
earn far less money from the merger than the money they had
earned from their relationships with KKR and Walgreens.
[Id. at 22, ¶98; 23, ¶104].
with their previous relationship, BAML also had an ongoing
relationship with KKR and Walgreens during the merger.
[Id. at 22, ¶99]. For example, a senior member
of the BAML team working on the merger was also a member of
the coverage team for Walgreens and a member of the financial
advisory team advising Walgreens on other acquisitions.
[Id. at 22, ¶100].
September 14, 2016, KKR and Walgreens submitted a tentative
proposal to purchase PharMerica in a cash-out merger for
$28.75 per share. [Id. at 24, ¶111]. Upon,
receiving price feedback from UBS, KKR, and Walgreens orally
increased their price to $29.25 per share on September 19,
2016. [Id. at 24, ¶¶112-13]. On April 27,
2017, KKR and Walgreens formalized the $29.25 per share
offer. [Id. at 24, ¶117].
the sales process PharMerica’s management periodically
prepared financial forecasts for the Company (the
“Projections”). [Id. at 29, ¶138].
Projections were created in 2015, April 2016, September 2016,
April 2017, and July 2017. [Id. at 24, ¶119].
The Projections- except the July 2017 Projections-contained
two scenarios: one scenario assumed future acquisitions, and
one scenario assumed no future acquisitions. [Id.].
The July 2017 Projections, however, contained only the
scenario assuming no future acquisitions. [Id.;
Id. at 25, ¶125]. The July 2017 Projections
included a footnote stating that they excluded acquisitions.
[Id. at 27, ¶131].
August 1, 2017, PharMerica’s Board of Directors met
with UBS and BAML to review the formal offer from KKR and
Walgreens. [Id. at 26, ¶126]. While PharMerica
included all five sets of projections in its Proxy statement,
the Company only approved the July 2017 Projections for UBS
and BAML to use for their fairness opinions. [Id. at
28, ¶132]. Based on the July 2017 Projections and other
provided information, BAML and UBS issued fairness opinions,
which stated that the $29.25 per share price was fair from a
financial standpoint. [Id. at 26, ¶126].
Relying in part upon these fairness opinions, the Directors
determined that the merger was “fair to and in the best
interests” of the Company’s stockholders and
voted to approve the merger and executed the Merger
Agreement. [Id. at 26, ¶127].
October 3, 2017, Defendants published the Proxy.
[Id. at 27, ¶130]. Two lawsuits were filed, one
of which alleged that “the Preliminary Proxy did not
disclose sufficient information relating to (i)
PharMerica’s financial projections, (ii) the analysis
underlying UBS’s and BAML’s fairness opinions,
and (iii) the potential conflicts of interest of
PharMerica’s management” and another that
“added allegations related to UBS’s potential
conflicts of interest.” [DE 55, Def. Mot. to Dismiss,
at 381]. On October 27, 2017, Defendants supplemented the
Proxy. [Id. at 384]. After the additional
disclosures, plaintiffs in the two lawsuits dismissed the
suits. [Id.]. The approximately 100-page Proxy
recommends that shareholders vote for adopting the Merger
Agreement and states that the contemplated merger is
“fair to and in the best interests of the Company and
its Shareholders.” [DE 55-2, Proxy Statement, at 408].
The Proxy also states that the $29.25 per share price is fair
to and in the best interest of PharMerica stockholders.
[Id. at 444–45].
Proxy contains summaries of all five sets of projections.
[Id. at 462–63]. It also discloses that the
July 2017 Projections excluded acquisitions. [Id. at
463]. The Proxy also states that the financial advisors
relied on the July 2017 Projections in their evaluation of
the merger and the formation of their fairness opinions.
[Id.]. Finally, the Proxy contains a long disclaimer
stating that stockholders should not rely on the Projections
as suggesting the occurrence of future events, and that the
Projections may not be accurate. [Id. at 461].
Conflicts of Interest
Proxy disclosed information about each financial
advisor’s relationship with KKR and Walgreens and
stated that those relationships were disclosed to the
PharMerica Board of Directors before voting on the merger.
[Id. at 454, 459–60]. The Proxy disclosed that
UBS had provided services to, and received compensation from,
Walgreens and KKR, respectively, on other matters and
occasions, including multi-billion-dollar transactions.
[Id. at 454]. The Proxy also stated that UBS
collected $125 million in fees from KKR and Walgreens
combined in roughly the past two years. [Id.].
Similarly, the Proxy stated that BAML had collected about $74
million from KKR and $49 million from Walgreens in fees over
the past two years. [Id. at 460]. The Proxy also
disclosed that members of the BAML team advising PharMerica
had also worked for or sought to work for KKR and Walgreens.
[Id. at 443]. Finally, the Proxy states that, with
the aid of its outside counsel, the PharMerica Board of
Directors specifically evaluated UBS’s and BAML’s
potential conflicts of interest and determined that those
potential conflicts would not prevent BAML and UBS from
properly advising PharMerica about the merger. [Id.
at 437–38, 445].
with disclosing the potential conflicts described above, the
Proxy also disclosed that during the merger process, KKR and
Walgreens had discussions with PharMerica’s executive
officers. [Id. at 472]. The Proxy states that those
discussions involved post-merger employment and retention
agreements. [Id.]. The Proxy also states that these
discussions were disclosed to the Board prior to the
Board’s approval of the merger. [Id. at 443].
Proxy incorporates by reference PharMerica’s SEC
filings, including PharMerica’s 10-K filed on February
24, 2017 and PharMerica’s 10-Q filed on August 2, 2017.
[Id. at 510]. The Proxy provided the stockholders
with instructions on how to access these documents.
[Id.]. The 2017 10-K states that PharMerica’s
growth plan includes acquisitional growth. [DE 55-6, 2017
10-K, at 781, 808].
considering a motion to dismiss, the Court must accept as
true all factual allegations set forth in the complaint and
make all reasonable inferences in favor of the non-moving
party. Davis v. Prison Health Servs., 679 F.3d 433,
440 (6th Cir. 2012). To survive a motion to dismiss, the
plaintiff must allege “enough facts to state a claim to
relief that is plausible on its face.” Traverse Bay
Area Intermediate Sch. Dist. v. Mich. Dep’t of
Educ., 615 F.3d 622, 627 (6th Cir. 2010) (internal
quotation marks omitted) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d
929 (2007)). A claim becomes plausible “when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550
U.S. at 556). A complaint will be dismissed “if no law
supports the claim made, if the facts alleged are
insufficient to state a claim, or if the face of the
complaint presents an insurmountable bar to relief.”
Southfield Educ. Ass’n v. Southfield Bd. of
Educ., 570 Fed.Appx. 485, 487 (6th Cir. 2014) (citing
Twombly, 550 U.S. at 561–64).
alleging that misleading statements have violated securities
laws are subjected to a heightened pleading standard under
the Private Securities Litigation Reform Act (the
“PSLRA”). 15 U.S.C. § 78u-4(b)(1); see
Kugelman v. PVF Capital Corp., 972 F.Supp.2d 993, 999
(N.D. Ohio 2013). Such complaints “shall 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.” 15 U.S.C.A. § 78u-4(b)(1). The purpose of
this heightened pleading standard is “to curb
frivolous, lawyer-driven litigation, while preserving
investors’ ability to recover on meritorious
claims.” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322, (2007).
and KKR, move to dismiss the claims against them, arguing
that Plaintiffs’ Section 14(a) claims should be
dismissed for three reasons. First, Plaintiffs fail to
identify a materially false or misleading statement or
omission contained in or left out of the Proxy. [DE 55 at
388–96]. Second, Plaintiffs fails to allege scienter.
[Id. at 396–98]. Third, Plaintiffs fail to
sufficiently plead loss causation. [Id. at
398–99]. Arguing that there is no underlying Section
14(a) violation and that Plaintiffs fail to allege adequate
control, KKR and also move to dismiss Plaintiffs’
Section 20(a) claims. [Id. at 399–401].
Individual Defendants filed a separate motion to dismiss in
which they incorporate by reference PharMerica’s and
KKR’s arguments described above, [DE 56 at 1215] and
offered additional arguments on scienter [id. at
1216–19] and control person liability [id. at
1219–22]. As the Section 20(a) claims depend on the
Section 14(a) claims, the Court will start with Section
Plaintiffs’ Section 14(a) Claim
Securities Exchange Act Section 14(a) grants the SEC power to
promulgate rules and regulations for soliciting proxies with
respect to any registered security. 15 U.S.C. § 78n(a).
It also makes it unlawful to solicit any proxy in
contravention of those rules and regulations. Id.
“The purpose of § 14(a) is to prevent management
or others from obtaining authorization for corporate action
by means of deceptive or inadequate disclosure in proxy
solicitation, ” and provides a private right of action.
J.I. Case Co. v. Borak, 377 U.S. 426, 431 (1964).
SEC Rule 14a-9 prohibits soliciting a proxy through
materially false or misleading statements or omissions. 17
C.F.R. § 240.14a-9. A Section 14(a) claim for an SEC
Rule 14a-9 violation has four basic elements: (i) the proxy
statement contains a material misrepresentation or omission;
(ii) defendants were at least negligent; (iii) the
misrepresentations or omissions caused plaintiffs alleged
loss; and (iv) the proxy statement was an essential link in
the completion of the transaction. Smith v. Robbins &
Myers, Inc., 969 F.Supp.2d 850, 868 (S.D. Ohio 2013)
(quoting Lane v. Page, 727 F.Supp.2d 1214,
1227–28 (D.N.M. 2010)).
misrepresentation or omission is material when there is a
substantial likelihood that a reasonable shareholder would
consider it important in deciding how to vote. TSC
Indus., Inc. v. Northway, Inc.,426 U.S. 438, 449
(1976). In other words, the fact at issue must significantly
alter the “total mix” of information in the proxy
statement. Id. Whether a statement ...