Finnerty v. Stiefel Labs., Inc.
| Decision Date | 30 June 2014 |
| Docket Number | Nos. 12–13947,12–15642.,12–15060,s. 12–13947 |
| Citation | 756 F.3d 1310 |
| Parties | Timothy FINNERTY, Plaintiff–Appellee, v. STIEFEL LABORATORIES, INC., a Delaware Corporation, Charles W. Stiefel, Defendants–Appellants. Timothy Finnerty, Plaintiff–Appellee, v. Stiefel Laboratories, Inc., a Delaware Corporation, Charles W. Stiefel, Defendants–Appellants. Timothy Finnerty, Plaintiff–Appellee, v. Stiefel Laboratories, Inc., a Delaware Corporation, Charles W. Stiefel, Defendants–Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
OPINION TEXT STARTS HERE
Peter Prieto, Stephen F. Rosenthal, Aaron S. Podhurst, Ramon A. Rasco, Matthew P. Weinshall, Podhurst Orseck, PA, Miami, FL, Melissa Alagna, Norman S. Segall, Segall Gordich, PA, Miami, FL, for Plaintiff–Appellee.
Elliot H. Scherker, Hilarie Fran Bass, Rachel Ann Canfield, Brigid F. Cech Samole, Monica Janette Chaplin, David A. Coulson, Lindsey C. Edelmann, Greenberg Traurig, LLP, Miami, FL, Peter N. Hall, Todd David Wozniak, Greenberg Traurig, LLC, Atlanta, GA, for Defendant–Appellant.
Appeals from the United States District Court for the Southern District of Florida. D.C. Docket No. 1:09–cv–21871–JLK.
Before ANDERSON, Circuit Judge, and MOODY* and SCHLESINGER, ** District Judges.
Plaintiff Timothy Finnerty filed this lawsuit against Stiefel Laboratories, Inc. (“SLI”) and its chief executive officer, Charles Stiefel (hereinafter jointly referred to as “SLI”), alleging violations of § 10(b) of the Securities Exchange Act of 1934 and accompanying Rule 10b–5. The allegation is that SLI withheld material information about preliminary merger negotiations that it was obliged to disclose. The case was tried before a jury which returned a verdict for Finnerty. The district court subsequently denied SLI's renewed motion for judgment as a matter of law and alternative motion for a new trial. SLI appeals from that denial, arguing principally that it had no duty to disclose the merger negotiations, that the negotiations were immaterial, and that the district court erroneously refused to give a request to charge to the jury. For the reasons that follow, we affirm.
SLI was a privately-held pharmaceutical company controlled by the Stiefel family from its founding in 1847 until 2009, when it merged with GlaxoSmithKline (“GSK”). SLI took great pride in its privately-held status; the Stiefel family brought up this fact at nearly every company meeting and impressed upon employees their commitment to keeping SLI under the family's control.
In August 2007, SLI announced a $500 million minority investment by The Blackstone Group (“Blackstone”). Under the terms of the investment, Blackstone purchased preferred shares at approximately $60,000 per share. Additionally, in connection with the investment, Blackstone acquired the right to name one member of SLI's board of directors. Sometime in 2008, Blackstone named Anjan Mukherjee, a managing director at Blackstone, to SLI's board.
Anticipating the speculation that might result from Blackstone's investment, on August 9, 2007, SLI issued a press release that stated: “[SLI] ... will continue to be privately held, and the Stiefel family will retain control and continue to hold a majority-share ownership of the company.” That same day, Charles Stiefel sent an e-mail to SLI employees assuring them that “[SLI] will continue to be a privately held company operating under my direction as Chairman, Chief Executive Officer, and President.” A “Frequently Asked Questions” document attached to the e-mail further informed employees:
Will [SLI] be going public?
There are currently no plans for [SLI] to become a publicly traded company. Blackstone will have a defined exit arrangement with [SLI] at the end of eight years, at which point [SLI] may choose to buy back its shares or exercise other options, one of which might be an initial public offering. Senior management continues to evaluate all options when looking at the long-term financial needs of the company.
Finnerty worked as a sales representative for SLI from 1986 until he was terminated on August 29, 2008, along with numerous others in a reduction of force. As an employee, Finnerty participated in SLI's Employee Stock Bonus Plan (“ESBP”). Upon termination of employment, ESBP participants became entitled to a distribution of the vested benefits in their accounts paid in the form of SLI stock. Participants also received a “put” option on the distributed stock, which allowed them to require SLI to buy back the stock at a fair market value during a certain window of time.
Although Finnerty was eligible for his vested ESBP benefits after his termination, he initially elected to defer the distribution. But in November 2008, Finnerty received a letter from SLI announcing major changes to the ESBP. Shortly thereafter, Finnerty received another letter reminding him of the opportunity to take a distribution and providing him with the necessary paperwork. Concerned about the impending changes, on January 6, 2009, Finnerty executed a form irrevocably electing to receive his distribution of SLI stock and to “put” the stock to SLI at the then-effective fair market value of $16,469 per share. SLI completed this transaction on February 13, 2009.
Unknown to Finnerty, the Stiefel family had been exploring the possibility of selling SLI since November of 2008. Earlier that month, Mukherjee learned that the pharmaceutical giant Sanofi–Aventis was interested in an acquisition. Mukherjee advised the Stiefels that they should “either sell [SLI] right now or wait five years,” and he estimated that the acquisition price could be as high as “3–5 times sales,” with the price that Blackstone paid ($60,000 per share) as the floor. On November 26, 2008, Charles Stiefel met with his sons and they decided to “move on” the sale.
On December 8, 2008, a team from Blackstone Advisory Services, an affiliate of Blackstone, presented to the Stiefels a marketing strategy and timeline for pursuing a sale, including a list of potential acquirers and a valuation analysis. The analysis suggested that the potential acquisition price could be in the range of $2.25 to $4 billion (around 2.5 to 4.5 times revenue). Later that month, Charles Stiefel met with the chief executive officer of Sanofi–Aventis to discuss how the two companies could operate together. No discussion of prices or terms took place at this meeting. Thereafter, around December 30, 2008, SLI hired Blackstone Advisory Services to advise on a potential sale.
In January 2009, SLI executed a confidentiality agreement with Sanofi–Aventis and contacted several other pharmaceutical companies to gauge their interest. Eventually, two companies—Sanofi-Aventis and GSK—submitted non-binding bids for SLI. On April 20, 2009, SLI and GSK agreed to a transaction in which holders of SLI stock received approximately $68,515.29 per share, with the possibility of another $7,186.91 per share if certain performance conditions were met—more than four times the value received by Finnerty when he exercised his “put” option.
Finnerty brought suit against SLI on January 14, 2011, alleging violations of the Employee Retirement Income Security Act (“ERISA”) and § 10(b) of the Securities Exchange Act of 1934.2 The securities fraud count was tried in May of 2012 on the theory that SLI had a duty to disclose to Finnerty information relating to its merger negotiations with Sanofi–Aventis but failed to do so.
At trial, the district court allowed Finnerty to elicit testimony that SLI had on occasion suspended the distribution of benefits from the ESBP (i.e., imposed a “blackout”). SLI argued that this testimony misled jurors into believing that it could have refused to honor Finnerty's “put” election and thus prejudiced its defense on the element of scienter. SLI sought to refute by testimony about its legal obligations under the terms of the ESBP and applicable federal law, but the district court excluded the testimony as impermissible legal opinion. However, SLI did introduce other testimony to the effect that it could not have imposed a “blackout” because it did not have time for the required thirty days' notice and because it believed it could not disclose the reasons for the “blackout.” SLI also requested a jury instruction on its legal obligations—“With certain limited exceptions not applicable to this case, under federal law and the terms of the ESBP, [SLI] was required to purchase [Finnerty's] shares of stock from him as soon as he exercised his irrevocable put right on January 6, 2009”—which the district court denied.
The jury returned a verdict in favor of Finnerty and awarded him compensatory damages of $1,502,484.90. The district court subsequently denied SLI's renewed motion for judgment as a matter of law and alternative motion for a new trial. This timely appeal followed.
SLI argues that the district court erred in denying his motion for judgment as a matter of law. We review de novo the district court's decision on this question. Myers v. TooJay's Mgmt. Corp., 640 F.3d 1278, 1287 (11th Cir.2011). Our task is to consider whether the evidence, viewed in the light most favorable to Finnerty, is legally sufficient to support the verdict in his favor. See id. Only if no reasonable jury could have found for Finnerty will we reverse. See id.
To succeed on a § 10(b) securities fraud claim, “a plaintiff must establish (1) a false statement or omission of material fact (2) made with scienter (3) upon which the plaintiff justifiably relied (4) that proximately caused the plaintiff's injury.” Robbins v. Koger Props., Inc., 116 F.3d 1441, 1447 (11th Cir.1997). “[A] defendant's omission to state a material fact is proscribed only when the defendant has a duty to disclose.” Rudolph v. Arthur...
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