Calleros v. Fsi Int'l, Inc.

• Decision Date: 18 September 2012
• Docket Number: Civ. No. 12–2120 (RHK/AJB).
• Citation: 892 F.Supp.2d 1163
• Parties: Adrian CALLEROS, Plaintiff, v. FSI INTERNATIONAL, INC., et al., Defendants.
• Court: U.S. District Court — District of Minnesota

892 F.Supp.2d 1163

Adrian CALLEROS, Plaintiff,

v.FSI INTERNATIONAL, INC., et al., Defendants.

Civ. No. 12–2120 (RHK/AJB).

United States District Court,

D. Minnesota.

Sept. 18, 2012.

Shawn M. Perry, Perry & Perry, PLLP, Minneapolis, MN, Juan E. Monteverde, Faruqi & Faruqi, LLP, New York, NY, for Plaintiff.

Wendy J. Wildung, Leif T. Simonson, Justin P. Krypel, Jeffrey P. Justman, Faegre Baker Daniels LLP, Minneapolis, MN, for Defendants FSI International, Inc., Donald S. Mitchell, James A. Bernards, Terrence W. Glarner, Stan K. Yarbro, and David V. Smith.

Richard G. Wilson, Emily M. Rome, Maslon Edelman Borman & Brand, LLP, Minneapolis, MN, Michael L. Davitt, Thomas R. Jackson, Jones Day, Dallas, Texas, for Defendants RB Merger Corp. and Tokyo Electron Limited.

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, District Judge.

INTRODUCTION

Plaintiff Adrian Calleros, a shareholder in Defendant FSI International, Inc. (“FSI”), alleges in this action that FSI and certain of its officers and directors have violated the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78a et seq., and breached their fiduciary duties by making incomplete and misleading disclosures in connection with a proposed tender offer by, and subsequent merger with, Defendant Tokyo Electron Limited (“TEL”). Presently before the Court is Calleros's Motion for a Temporary Restraining Order (Doc. No. 23). For the reasons that follow, the Motion will be denied.¹

BACKGROUND

FSI is a Minnesota corporation that supplies surface conditioning and cooling technology to companies engaged in microelectronics manufacturing. (Compl. ¶ 35.) On August 13, 2012, FSI and TEL, a Japanese corporation, issued a joint press release announcing that they had reached an agreement for TEL to acquire FSI. ( Id. ¶ 2.) Pursuant to that agreement, TEL—through its wholly owned subsidiary, Defendant RB Merger Corp. (“RB”)—would make a tender offer of $6.20 per share of FSI stock.² ( Id.) Following the stock purchase, RB would be merged into FSI and it (FSI) would become a wholly owned subsidiary of TEL. ( Id. ¶ 3.) The tender offer is scheduled to expire on September 24, 2012. ( Id. ¶ 5.)

Litigation quickly ensued following the press release.³ Indeed, four days later, a putative class-action lawsuit was filed by an FSI shareholder in state District Court in Carver County, Minnesota, the location of FSI's headquarters. ( See Doc. No. 12 Ex. 3.) That lawsuit alleges, inter alia, that FSI's officers and directors violated their fiduciary duties by making incomplete and misleading disclosures in connection with the proposed transaction. Two additional putative class actions, asserting similar claims, were filed in the Carver County District Court on August 20 and September 10, respectively. ( See id. Exs. 4–5.)

Calleros, too, raced to the courthouse, filing a Complaint against the instant Defendants on August 22, 2012, only nine days after the press release. But Calleros raced to the wrong courthouse, apparently on the mistaken belief that FSI is a Delaware corporation—he commenced his action in the Delaware Chancery Court. After being informed of his error, he voluntarily dismissed that case. He then filed the instant action on August 28, 2012, alleging breaches of fiduciary duties similar to the aforementioned state-court cases. Yet, he also added claims under the Exchange Act based on purported omissions from a document FSI had filed with the Securities and Exchange Commission known as a Schedule 14D–9 or “Recommendation Statement.” See17 C.F.R. § 240.14d–101. This 46–page, single-spaced document, together with a slew of exhibits, provided a bevy of information regarding FSI's business operations, the proposed transaction, and the reasons FSI's Board of Directors had opted to approve it. (Doc. No. 12 Ex. 8.) The document also contained a unanimous recommendation from the Board that shareholders tender their shares pursuant to the tender offer. Lastly, it contained pages of detailed financial analyses by Barclays Capital, Inc. (“Barclays”), FSI's outside financial advisor, as well as Barclays's opinion (with supporting data) that $6.20 per share represented a fair price for FSI's stock.

The gravamen of Calleros's claims in this action is that FSI's shareholders have not been provided sufficient information to determine whether the tender-offer price represents a fair offer. ( See Compl. ¶ 57 (asserting that the “misrepresentations and omissions in the Recommendation Statement are material ... and ... will ... deprive[ ] [Calleros] of his entitlement to make a fully informed decision” on the tender offer).) ⁴ As a result, he filed the instant Motion on September 13, 2012. Arguing that the Recommendation Statement is “wrought with material deficiencies and fails to provide FSI shareholders with the necessary information required by law to make an informed decision about the Tender Offer” (Pl. Mem. at 2), he seeks a temporary restraining order “enjoin[ing] the consummation of the transaction until at least adequate disclosures are made” ( id. at 17). Defendants filed their Memorandum in Opposition to the Motion on September 18, 2012. The Motion is now ripe for disposition.

STANDARD OF DECISION

As the Supreme Court recently emphasized, injunctive relief “is an extraordinary remedy never awarded as a matter of right.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). This Court must consider four factors to determine whether such relief is warranted here: (1) Calleros's likelihood of success on the merits; (2) the threat of irreparable harm in the absence of injunctive relief; (3) the balance between that harm and the harm injunctive relief would cause Defendants; and (4) the public interest. E.g., Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir.2003) (quoting Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 114 (8th Cir.1981) ( en banc )).⁵ When analyzing these factors, the Court must “flexibly weigh the case's particular circumstances to determine whether the balance of equities so favors the movant that justice requires the court to intervene.” Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir.1999). The burden of establishing that these factors weigh in favor of relief lies with Calleros. Watkins, 346 F.3d at 844.

ANALYSIS

Calleros's Motion must be denied for two independently sufficient reasons: (1) the Court should abstain in favor of the state-court litigation and (2) Calleros has failed to show irreparable harm absent injunctive relief.

I. Abstention

Tellingly absent from Calleros's Motion papers is any reference to the state-court cases raising nearly identical issues to the instant action. Indeed, those cases allege, among other things, that FSI's officers and directors breached their fiduciary duties by failing to “provide[ ] full and complete disclosure[s]” concerning the transaction, thereby “depriv[ing]” the plaintiffs “of their ability to make intelligent and informed decisions about whether to tender their shares.” (Doc. No. 12 Ex. 4, ¶¶ 92–93; accord id. Ex. 3, ¶¶ 92–93; id. Ex. 5, ¶¶ 92–93.) Moreover, the docket in those actions (which have been consolidated) reflects that the plaintiffs have moved for a temporary restraining order enjoining the proposed transaction, similar to that sought by Calleros here, which is scheduled to be heard on September 19, 2012.

Putting aside whether Calleros's counsel have violated their duty of candor to the Court,⁶ the related litigation raises the specter of duplication of judicial effort and inconsistent results. And it is well-settled that when such possibilities arise, a federal court “may abstain from exercising jurisdiction in favor of [the] concurrent and parallel state proceedings where doing so would serve the interests of ‘wise judicial administration, giving regard to the conservation of judicial resources.’ ” Giles v. ICG, Inc., 789 F.Supp.2d 706, 712 (S.D.W.Va.2011) (quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 818, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976)). In the Court's view, abstention is appropriate here.

A. Parallel proceedings

A threshold issue when considering Colorado River abstention is whether the pending state and federal proceedings are parallel. Fru–Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527, 535 (8th Cir.2009). State and federal cases are parallel when “a substantial similarity exist[s] between” them, which occurs when there is “a substantial likelihood that the state proceeding will fully dispose of the claims presented in the federal court.” Id. While the standard is one of “substantial similarity,” the proceedings need not be identical, and the presence of additional parties or issues “does not necessarily preclude a finding that [proceedings] are parallel.” Bank of Okla., N.A. v. Tharaldson Motels II, Inc., 671 F.Supp.2d 1058, 1062 (D.N.D.2009); accord, e.g., In re Novell, Inc. Shareholder Litig., Civ. A. No. 10–12076, 2012 WL 458500, at *7 (D.Mass. Feb. 10, 2012) (“[T]he case law does not require absolute identity of the parties and issues, only substantial similarity.”).

Substantial similarity exists here. The factual basis for the claims in the state cases and the claims asserted here is the same, essentially charging FSI's Board and senior management with failing to make adequate disclosures to shareholders in connection with the tender offer, and all of the cases assert nearly identical claims for breach of fiduciary duty. The Complaint in each case seeks immediate injunctive relief halting the pending transaction. The defendants are the same in every action, and the plaintiffs are individual owners of FSI stock purporting to act on behalf of a class of all FSI shareholders. This is more than sufficient to establish parallelism. See, e.g., In re Novell, 2012 WL 458500, at *7;In re Countrywide Fin. Corp. Derivative Litig., 542 F.Supp.2d 1160, 1170 ...