United States District Court, S.D. Indiana, Evansville Division
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)
ENTRY ON MOTION TO DISMISS
RICHARD L. YOUNG, JUDGE, UNITED STATES DISTRICT COURT
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.
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”).
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.
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.
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).
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
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).
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
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 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).
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.
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.).
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