Gumm v. Molinaroli

Decision Date03 November 2021
Docket NumberCase No. 16-cv-1093-pp
Citation569 F.Supp.3d 806
Parties Arlene D. GUMM, et al., Plaintiffs, v. Alex A. MOLINAROLI, et al., Defendants.
CourtU.S. District Court — Eastern District of Wisconsin

Gregg M. Fishbein, Vernon J. Vander Weide, Lockridge Grindal Nauen PLLP, Minneapolis, MN, Shauna D. Manion, K. Scott Wagner, Mallery SC, Milwaukee, WI, for Plaintiffs.

Ben M. Germana, Claire E. Addis, Jonathan M. Moses, Wachtell Lipton Rosen & Katz, New York, NY, Kate E. Gehl, Thomas L. Shriner, Jr., Bryan B. House, Philip C. Babler, Foley & Lardner LLP, Milwaukee, WI, for Defendants Alex A. Molinaroli, Brian J. Stief, Greg Guyett, David P. Abney, Natalie A. Black, Julie L. Bushman, Raymond L. Conner, Richard Goodman, Jeffrey A. Joerres, Estate of William H. Lacy, Johnson Controls Inc., Jagara Merger Sub LLC.

Kate E. Gehl, Thomas L. Shriner, Jr., Bryan B. House, Philip C. Babler, Foley & Lardner LLP, Milwaukee, WI, for Defendants Juan Pablo del Valle Perochena, Mark P. Vergnano.

Bryan B. House, Philip C. Babler, Foley & Lardner LLP, Milwaukee, WI, for Defendants Johnson Controls International PLC, Steven Janowski.


PAMELA PEPPER, Chief United States District Judge

The plaintiffs are a group of former shareholders of Johnson Controls, Inc. (JCI). In August 2016, they brought this class action suit against JCI, its officers and directors, the Irish corporation Tyco (with which JCI since has merged to form a new company) and Merger Sub (the subsidiary through which the merger was effectuated). Dkt. No. 1. The 134-page complaint alleged that JCI and its leadership, as well as the entities with whom it (at that time) intended to merge, had (in various combinations) violated federal and state securities laws and federal tax laws, breached fiduciary duties to the plaintiffs, been unjustly enriched, committed state-law conversion, conspired, committed tortious interference with contract and breach of contract and breached the covenant of good faith and fair dealing. Id. In January 2017, the court denied the plaintiffsmotion for a preliminary injunction, dkt. no. 52, after which the plaintiffs amended the complaint, dkt. no. 53. On April 3, 2017, the defendants moved to dismiss the amended complaint for failure to state a claim. Dkt. No. 55. They seek dismissal with prejudice. Dkt. No. 56 at 48.

The motion was fully briefed by June 15, 2017. See Dkt. No. 60 (defendants’ reply brief in support of their motion to dismiss). The court, however, did not rule. In fact, it took over two years for the court to hold oral argument on the motion to dismiss; the court held that hearing on October 17, 2019. Dkt. Nos. 67-69.

At the end of the hearing, the court took the motion to dismiss under advisement. Dkt. No. 69. It had planned to contact the parties "shortly" to schedule a date for the court to issue an oral ruling on the motion to dismiss, and it told the parties as much. Id. But although at the October 17, 2019 hearing, the court had apologized to the parties for the already-extensive delay in addressing the motion, the court did not act "shortly," or promptly. It did not rule, either orally or in writing. It has been over two years since that hearing with no ruling on the motion, even though the plaintiffs since have filed a motion for leave to file a supplemental brief, dkt. no. 71, a motion to modify the stay of the discovery under the Private Securities Litigation Reform Act, dkt. no. 76, and a Civil Local Rule 7(h) (E.D. Wis.) expedited, non-dispositive motion to serve subpoenas, dkt. no. 82.

This delay finally prompted the plaintiffs to petition for mandamus from the Seventh Circuit Court of Appeals. Dkt. No. 88. While the court has explanations for the delay, they are of no moment or succor to the parties. There is no excuse for the court having delayed this long in ruling on the motion to dismiss, or the other pending motions. The court will dismiss Counts I and II with prejudice, dismiss Counts III through XII without prejudice and dismiss the case.

I. The Amended Complaint
A. Context

The court stated the following in its January 25, 2017 order denying the plaintiffsmotion for a preliminary injunction:

Generations of Wisconsin citizens are familiar with a company called, until recently, Johnson Controls. Born in Wisconsin in the 1880s, for much of its lifespan the company manufactured, installed and serviced thermostats—actually, devices that could control the temperature in commercial buildings. In January 2016, the Wisconsin company announced that it was going to merge with an Irish company called Tyco. Among other things, the merger agreement would move the company headquarters from Wisconsin to Ireland. The named plaintiffs hold shares of common stock in the merged company (now called "Johnson Controls, Inc." or "JCI",1 ), and they hold those shares in taxable accounts. They challenge the tax structure that resulted from the merger—one that, they argue, improperly places the tax burden on them, rather than on the newly-formed company.

Dkt. No. 52 at 1-2.

B. The Players

Prior to January 2016, Johnson Controls, Inc. was a corporation organized under Wisconsin law and headquartered on Green Bay Avenue in Milwaukee; it was publicly traded on the New York stock exchange. Dkt. No. 53 at ¶46. Tyco International plc had its U.S. headquarters in Princeton, New Jersey. Id. at ¶47. Defendant Merger Sub was a limited liability subsidiary of Tyco used to effectuate the January 2016 merger of JCI and Tyco. Id. at ¶48. The entity that resulted from the merger was incorporated and is headquartered in Ireland and is known as Johnson Controls International plc (the plaintiffs sometimes refer to it as "Tyco/JCplc"). Id. at ¶47.

There are forty-six named plaintiffs, id. at ¶¶28-30; the amended complaint asserts that as of January 25, 2016 (the day after the merger agreement was executed), they and their immediate family members held more than 1.2 million shares of JCI "representing tens of millions of dollars of taxable capital gain and/or ordinary income and millions of dollars of capital gain, ordinary income, and other taxes," id. at ¶31.

Defendants Molinaroli, Stief, Guyett and Janowski were officers of JCI; Abney, Black, Bushman, Conner, Goodman, Joerres, William H. Lacy (now represented by his estate), del Valle Perochena and Vergnano were directors. Id. at ¶¶32-44.

The plaintiffs allege that the corporate entities had several financial and legal advisors helping them in the months leading up to the merger: U.S.-registered broker/dealers Centerview Partners LLC and Barclays Capital, LLC, whom the plaintiffs assert were financial advisors to JCI; Wachtell, Lipton, Rosen & Katz (the firm representing the defendants in this litigation) and A&L Goodbody, whom the plaintiffs assert were legal advisors to JCI; Lazard Freres & Co. and Goldman Sachs, whom the plaintiffs assert were financial advisors to Tyco; and Simpson Thacher & Bartlett and Arthur Cox, whom the plaintiffs alleged were Tyco's legal advisors. Id. at ¶¶50-57.

C. Chronology of Events

The plaintiffs allege that on July 24, 2015, JCI announced that it planned to separate its "Automotive Experience business" from Johnson Controls proper "by means of a spin-off of a newly formed company, to be named Adient." Id. at ¶¶176, 194(h). The amended complaint cites a July 24, 2015 news release indicating that the spin-off was to be "tax free." Id. at ¶176 and n.55. The plaintiffs assert that Adient "represented over half of JCI's market capitalization." Id.

The amended complaint alleges that on November 25, 2015, the JCI board of directors had a telephonic board meeting with representatives of financial advisor Centerview and legal counsel Wachtell Lipton in attendance, discussing the progress of the merger discussions with Tyco and the "potential synergies" from the merger, including JCI management's estimates of hundreds of millions in operational and U.S. tax "synergies." Id. at ¶209(b).

On December 8, 2015, JCI's executive director of corporate development (defendant Guyette) and representatives from Centerview met with someone named "Mr. Armstrong"—presumably from Tyco—and representatives of Tyco's financial advisor Lazard Freres to discuss the merger, including stock exchange ratios for the stockholders of each company. Id. at ¶236(c).

On December 10, 2015, the JCI board of directors held another telephonic board meeting, attended by representatives from Centerview and Wachtell Lipton, where the board was updated on the discussions with Tyco and the proposed method of calculating the stock exchange ratio. Id.

On December 11, 2015, defendants Molinari (CEO of JCI) and Guyette had a phone call with "Messrs. Oliver2 and Armstrong" to discuss "key terms of the potential business combination," including the exchange ratio and the assumptions underlying it. Id.

On December 16, 2015, JCI's counsel, Wachtell Lipton, sent a draft merger agreement and term sheet to Simpson Thacher (Tyco's legal counsel); according to the plaintiffs, the defendants described the agreement as providing for a merger that would be structured as a " ‘reverse merger,’ in which Tyco would be the parent entity of the combined company and Johnson Controls would be merged with a wholly owned subsidiary of Tyco." Id. Between December 18, 2015 and January 23, 2016, there was a series of phone calls and meetings—internal to each entity and between entities—discussing the structure of...

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