OFI Asset Mgmt. v. Cooper Tire & Rubber

• Citation: 834 F.3d 481
• Decision Date: 22 August 2016
• Docket Number: No. 15–2664,15–2664
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Parties: OFI Asset Management ; Timber Hill LLC, individually and on behalf of all others similarly situated, Appellants v. Cooper Tire & Rubber; Roy Armes; Bradley Hughes

834 F.3d 481

OFI Asset Management ; Timber Hill LLC, individually and on behalf of all others similarly situated, Appellants
v.
Cooper Tire & Rubber; Roy Armes; Bradley Hughes

No. 15–2664

United States Court of Appeals, Third Circuit.

Argued March 1, 2016
Opinion Filed: August 22, 2016

Jonathan H. Beemer, Vincent R. Cappucci, Andrew J. Entwistle, Entwistle & Cappucci, 299 Park Avenue, 20th Floor, New York, NY 10171, James A. Harrod [ARGUED], Lauren A. Ormsbee, Bernstein Litowitz Berger & Grossmann, 1251 Avenue of the Americas, 44th Floor, New York, NY 10020, Counsel for Appellants

Marjorie P. Duffy, Jones Day, 325 John H. McConnell Boulevard, Suite 600, P.O. Box 165017, Columbus, OH 43215, Stephen C. Norman, John A. Sensing, Potter, Anderson & Corroon, 1313 N. Market Street, 6th Floor, Wilmington, DE 19801, Adrienne F. Mueller, Geoffrey J. Ritts [ARGUED], Jones Day, 901 Lakeside Avenue, North Point, Cleveland, OH 44114, Counsel for Appellees

Before: AMBRO, JORDAN, and SCIRICA, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This suit is what remains from a failed merger between Cooper Tire & Rubber Company (“Cooper”) and Apollo Tyres Ltd. (“Apollo”). OFI Asset Management and Timber Hill LLC—purporting to act for themselves and other similarly situated investors (collectively, “OFI”)¹ —filed this securities class action in the United States District Court for the District of Delaware against Cooper and two of its officers. OFI

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claims that, during the course of merger negotiations between Cooper and Apollo, the defendants made material misrepresentations in statements to investors, resulting in violations of federal securities laws. The District Court dismissed OFI's complaint in its entirety. OFI now appeals, complaining that the District Court improperly managed the presentation of arguments and wrongly dismissed the case. Because we conclude that the District Court acted within its discretion on case management and was correct in its decision that OFI failed to allege sufficient facts to support its claims, we will affirm.

I. BACKGROUND

A. FACTUAL BACKGROUND ²

Cooper is a one-hundred-year-old tire manufacturer based in Findlay, Ohio. The individual defendants, Roy Armes and Bradley Hughes, were, respectively, Cooper's Chief Executive Officer and Chief Financial Officer during the time relevant to this action. Cooper's international operations included Cooper Chengshan Tire Company, Ltd. (“CCT”) in China, a joint venture formed in 2006, 65% of which was owned by Cooper. Chengshan Group (“Chengshan”), led by Chairman Che Hongzhi (“Che”), owned the remaining 35% of CCT. As of mid-2013, CCT was Cooper's most profitable manufacturing facility, contributing approximately 25% of Cooper's revenue and profits.

Cooper's presence in China was a key motivation behind Apollo's efforts to merge with Cooper. Those efforts began in August 2012, when Apollo suggested the possibility of buying Cooper for $22.75 per share. Flirtation progressed to “serious” discussions in January 2013. (J.A. at 55, ¶ 48). Between late 2012 and June 2013 (the “negotiation period”), Cooper explored merger opportunities with Apollo as well as other parties. In January 2013, Chengshan indicated that it, with unidentified partners, might submit a bid for Cooper.

On March 7, 2013, Cooper met with Apollo to discuss the details of a potential deal, including Che's possible reaction to the merger. Armes asserted that “Cooper did not know how Chairman Che would react” and that his reaction could be anything from favorable to antagonistic; it was possible he would “really support it,” “sell his 35% stake,” or “try to undermine” it. (J.A. at 41, 55-56, ¶¶ 8, 50.) Cooper and Apollo also addressed (among other contingencies) the possibility that a union representing Cooper employees, the United Steelworkers Union (“USW”), would file grievances if a transaction were announced.

On April 10, “Party C,” which allegedly was a consortium including Chengshan, communicated that it intended to make a proposal to purchase Cooper. While Party C was in frequent communication with Cooper during the negotiation period, it never made a definitive proposal. During this period, Apollo and Cooper met with Che, who expressed opposition to a merger between Cooper and Apollo and suggested that he would prefer to “keep things going the way that [they] were.” (J.A. at 41, ¶ 8.)

On June 12, Cooper and Apollo announced that they had entered into an agreement whereby Apollo would acquire Cooper for approximately $35 per share, a figure amounting to some $2.5 billion and representing a 40% premium over Cooper's thirty-day volume-weighted average price.

The Merger Agreement contained several disclaimers, one of which noted that the

834 F.3d 487

“representations and warranties ... set forth herein shall be true and correct in all respects ... both when made ... and as of the Closing Date.” (J.A. at 169.) The SEC Form 8–K that accompanied the Agreement warned against reliance on the Agreement, saying “[t]he Merger Agreement contains representations and warranties made by [Cooper] and the Apollo Parties to, and solely for the benefit of, each other.... You should not rely on the representations and warranties in the Merger Agreement as characterizations of the actual state of facts about the Company or the Apollo Parties.” (Opening Brief in Support of Motion to Dismiss, Ex. G, at 3, OFI Risk Arbitrages v. Cooper Tire & Rubber Co ., No. 14–cv–68–RGA (D. Del. Dec. 15, 2014), ECF No. 54.)

The Merger Agreement also included an extensive series of warranties. Those warranties provided, among other things, that Cooper “or one of its Subsidiaries has exclusive possession of each Owned Real Property and Leased Real Property” referenced in the Agreement (J.A. at 165), that there was no “pending or ... threatened ... labor strike or lock-out or any material dispute, walk-out, work stoppage or slow-down involving [Cooper] or any of its Subsidiaries” (J.A. at 164), and that Cooper maintained “effective” “internal control over financial reporting” (J.A. at 162).

The reaction at CCT's facility to the merger announcement was negative. CCT workers went on strike on June 21. Although they returned to work on June 28, they resumed their strike a few weeks later on July 13. The workers finally returned to work on August 17 but they denied Cooper officials access to the facility, and they also stopped producing Cooper-branded tires. By August 19, CCT had stopped providing financial information to Cooper. Cooper disclosed that fact in its next public filing, the August 30 Proxy Statement. In the meantime, on August 9, Cooper filed its 10–Q for the quarter ending June 30. That document disclosed a “temporary work stoppage” and a complaint filed by CCT's union. Cooper reported no material changes to its internal controls during that quarter, but it warned that the as-yet “temporary” CCT strike could hurt future performance if it persisted. (J.A. at 141.)

The merger announcement also elicited a labor dispute in the United States. On August 1, the USW filed grievances alleging that the proposed merger violated its collective bargaining agreements. Cooper and Apollo sought expedited arbitration to preserve the timeline for closing the merger. The arbitrator ultimately ruled in favor of the USW and barred Cooper from selling two of its plants to Apollo, “unless and until the [USW] ha[s] entered into agreements with” Apollo. (J.A. at 149). Cooper disclosed the arbitration result to shareholders in an 8–K filing on September 19, 2013, and it included assurances that it and Apollo were “continuing discussions with the [USW] with an aim of reaching an amicable resolution quickly to minimize any impact on the original closing schedule” and that the two companies “remain firmly committed to the strategic rationale for the Merger ... and are optimistic that a mutually beneficial settlement can be reached.” (J.A. at 149.) As a result of this new hurdle, Apollo asked Cooper on September 25 to accept a price reduction. Cooper declined. That fact was not disclosed to shareholders, even though they were slated to vote on the merger five days later.

On August 30, Cooper issued its Proxy Statement, which described its intent to “work toward resolving [the CCT labor] issues and returning the facility to full, normal operation again as soon as possible.” (J.A. at 201.) Although Cooper

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warned that it could not “assure [investors] that any of our expectations ... will be achieved,” the Proxy nevertheless concluded that “[n]either the [CCT] strike nor the plant slowdown are expected to have an effect on the consummation of the merger.” (J.A. 182, 201.)

The Proxy also detailed the events leading up to the Merger Agreement, identifying all suitors other than Apollo by pseudonyms. It did not identify Party C as being affiliated with Chengshan. The Proxy included projections that Cooper had shared with Apollo and other potential purchasers during the negotiation period, as well as projections Cooper provided to its bankers to form a fairness opinion regarding the merger. But the Proxy was explicit that the projections were included “only because this...