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Kuebler v. Vectren Corp.

United States District Court, S.D. Indiana, Evansville Division

September 6, 2019

MICHAEL KUEBLER, et al. Plaintiffs,
VECTREN CORPORATION, et. al. Defendants. Year Ended December 31. 2018 2019 2020 2021 2022 2023 2024 2023 2026 2027 (in thousands)



         Students throughout the country returned to school this month. Some were excited. Others were disappointed. Many will study math this year. And most who do will bemoan missing points on their test because they did not “show their work” even if their answer was otherwise correct.

         This securities case is more or less about that: showing your work. In 2018, Vectren Corporation (“Vectren”) and CenterPoint Energy, Inc. (“CenterPoint”) entered into a merger agreement, under which Vectren shareholders were paid seventy-two dollars per share. As required by federal securities law, Vectren filed a proxy statement with the SEC in connection with the merger. However, according to this purported class action brought by shareholders, Vectren failed to show all of its work related to the merger: the proxy statement omitted the unlevered cash flow that Vectren was forecasted to generate between 2018 and 2028 and the financial projections for each of Vectren's three main business lines. This critical information, the shareholders insist, was necessary for them to sufficiently assess the values of their shares, and without it, the proxy statement is misleading in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78a et seq. and the SEC's implementing Rule 14a-9, 17 C.F.R. § 240.14a-9 (“Rule 14a-9”).

         But the Exchange Act only applies if the omissions are material and actually cause some economic loss. Considering all the other financial information in the proxy statement, the disclosure of unlevered cash flow and the business-line projections would not have made a difference to a reasonable shareholder. And even if it would have, the shareholders have not sufficiently alleged that the omissions actually caused the harm for which they seek damages. Consequently, the shareholders' claims must be dismissed.

         I. Legal Standard

         The dismissal rules for failure to state a claim are well-known. Rule 12(b)(6) authorizes a court to dismiss a complaint that fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12. To survive a Rule (12)(b)(6) motion, a plaintiff must allege “‘enough facts to state a claim to relief that is plausible on its face.'” O'Boyle v. Real Time Resolutions, Inc., 910 F.3d 338, 342 (7th Cir. 2018) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. Alarm Detection Systems, Inc. v. Village of Schaumburg, 930 F.3d 812, 821 (7th Cir. 2019). The case moves forward if the complaint plausibly suggests the plaintiff is entitled to relief; if not, dismissal is appropriate. Id.

         There are additional rules for pleadings in securities actions. The Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. §§ 78u-4(b), imposes heightened pleading requirements on securities plaintiffs. Trahan v. Interactive Intelligence Group, Inc., 308 F.Supp.3d 977, 986 (S.D. Ind. 2018) (citing Beck v. Dobrowski, 559 F.3d 680, 681 - 82 (7th Cir. 2009)). Specifically, plaintiffs alleging a proxy statement is misleading due to an omission must identify each statement alleged to have been misleading, the reason why each statement is misleading, and all of the relevant facts that support that conclusion. § 78u-4(b)(1); Trahan, 308 F.Supp.3d at 968. They must also allege that the omission caused some type of economic loss. § 78u- 4(b)(4); Grace v. Rosenstock, 228 F.3d 40, 46 - 47 (2d Cir. 2000) (noting loss causation must be shown in a cause of action under Section 14(a)). Only particularly pled allegations count under the PSLRA; the court does not consider blanket or catch-all assertions. Campbell v. Transgenomic, Inc., 916 F.3d 1121, 1124 (8th Cir. 2019).

         Lastly, a few words about what the court will consider. Ordinarily, a court only considers the pleading when ruling on a motion to dismiss. Jackson v. Curry, 888 F.3d 259, 263 (7th Cir. 2018) (citation omitted). “Ordinarily” is the key qualifier: a court can consider certain outside materials that the are referred to in the complaint and central to plaintiff's claim. See Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002). Two materials outside the Complaint are worth discussing here: the proxy statement attached by Defendants in their motion to dismiss and the affidavit of the initial findings of Plaintiffs' financial expert included in the Complaint.

         The court considers the proxy statement; the court does not consider the expert affidavit. Although both are referred to in the Complaint, only the proxy statement is central to Plaintiffs' claims. See Tierney, 304 F.3d at 738. Much like how a breach of contract suit depends on the contract, Plaintiffs' securities claim depends on a false or misleading proxy-it is an element of the claim. City of St. Clair Shores General Employees Retirement System v. Inland Western Retail Real Estate Trust, Inc., 635 F.Supp.2d 783, 790 (N.D. Ill. 2009) (citing Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384 - 85 (1970)). Moreover, courts are permitted to consider proxy statements when ruling on a 12(b)(6) motion without converting it to summary judgment because proxy statements are public disclosure documents, required by law to be filed with the SEC. See Financial Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006) (noting district courts may consider public disclosure documents that have been filed with the SEC in securities actions when deciding a Rule 12 motion). That does not mean the court necessarily accepts everything in the Proxy Statement as true, but it does mean that the court can consider the contents of the Proxy Statement when analyzing the shareholders' claims. See City of Sterling Heights General Employees' Retirement System v. Hospira, Inc., No. 11-C-8332, 2013 WL 566805, at *11 (N.D. Ill. Feb. 13, 2013) (St. Eve, J.) (collecting cases).

         On the other hand, the expert affidavit is not central to Plaintiffs' claims: it does not form the basis of the claims nor is it relevant to establishing the facts necessary for Plaintiffs to state a claim. See Northern Indiana Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 455 - 57 (7th Cir. 1998) (reversing district court that considered improper documents-those that did not form the basis of a plaintiff's claims-when ruling on a Rule 12(c) motion). The affidavit is merely evidence, which makes it irrelevant in determining whether Plaintiffs have stated a claim. See Financial Acquisition Partners LP, 440 F.3d at 286 (holding district court in securities action did not abuse its discretion in refusing to consider opinions and conclusions in expert affidavit because opinions cannot substitute for facts under the PSLRA). With those observations, the court now turns to the history of this case.

         II. Background

         A. The Merger

         On April 21, 2018, Vectren and CenterPoint entered into a merger agreement. (See Filing No. 64, Consolidated Amended Class Action Complaint (the “Complaint”) ¶ 2). Vectren is a gas and electric company[1] that provides energy for much of Southern Indiana and part of Ohio. (Id. ¶ 13). CenterPoint is a public utility holding company incorporated in Texas. (Filing No. 68-2, Definitive Proxy Statement (the “Proxy Statement”) at 1). Under the agreement, Vectren agreed to become a CenterPoint company and agreed to pay its shareholders seventy-two dollars ($72.00) in cash for each share of common stock owned. (Complaint ¶ 2). Vectren publicly announced the merger two days later on April 23, 2018. (Proxy Statement at 28).

         As required by federal securities law, Vectren filed the Proxy Statement with the SEC on July 16, 2018. (Complaint ¶ 2). The Proxy Statement is over 170 pages and discusses the background and financial ramifications of the merger. (See Proxy Statement at 16 - 41). Most relevant here, the Proxy includes the Board of Director's recommendation and reasons for the merger (id. at 28 - 32), the opinion of Vectren's financial advisor-Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BAML”) (id. at 32 - 39), and a financial chart summarizing certain financial information prepared by Vectren's management. (Id. at 40 - 41). The projections include Net Income, Depreciation and Amortization, EBITDA, and Capital Expenditures. (Id. at 40).

         On August 28, 2018, Vectren held a meeting for the shareholders to vote on the merger. (Complaint ¶ 7). The merger was approved by sixty-one percent (61%) of Vectren's outstanding shares. (Id.). The merger closed in the first quarter of 2019. (See id.).

         B. The Litigation

         After announcing the merger, Vectren filed a preliminary proxy statement on June 18, 2018. (Filing No. 58, Order Denying Preliminary Injunction at 2). Several shareholders sued-six to be precise. (Id. at 2 n. 1). The shareholders alleged, albeit in different ways, the preliminary proxy statement was misleading because it omitted key pieces of information. (Id. at 2). Another plaintiff joined the fray after Vectren filed its definitive proxy (this is the one the court refers to as the “Proxy ...

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