Heinze v. Tesco Corp.
| Decision Date | 19 August 2020 |
| Docket Number | No. 19-20298,19-20298 |
| Citation | 971 F.3d 475 |
| Parties | Norman HEINZE, Plaintiff-Appellant, v. TESCO CORPORATION; Fernando R. Assing; John P. Dielwart; R. Vance Milligan; Douglas R. Ramsay; Rose M. Robeson; Elijio V. Serrano; Michael W. Sutherlin; Nabors Industries, Limited, Defendants-Appellees. Norman Heinze, Plaintiff-Appellant, v. Tesco Corporation; Michael W. Sutherlin; Fernando R. Assing; John P. Dielwart; R. Vance Milligan; Douglas R. Ramsay; Rose M. Robeson; Elijio V. Serrano, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Miles Dylan Schreiner, Monteverde & Associates, P.C., New York, NY, Thomas Emerson Bilek, Bilek Law Firm. L.L.P., Houston, TX, for Plaintiff-Appellant.
Gerard Pecht, Norton Rose Fulbright US, L.L.P., Houston, TX, Peter Andrew Stokes, Norton Rose Fulbright US, L.L.P., Austin, TX, for Defendants-Appellees Tesco Corporation, Fernando R. Assing, John P. Dielwart, R. Vance Milligan, Douglas R. Ramsay, Rose M. Robeson, Elijio V. Serrano, Michael W. Sutherlin.
Alan J. Stone, Milbank, L.L.P., New York, NY, Brian Frederick Antweil, Katten Muchin Rosenman, L.L.P., Houston, TX, for Defendant-Appellee Nabors Industries, Limited.
Before OWEN, Chief Judge, and SOUTHWICK and OLDHAM, Circuit Judges.
Norman Heinze brings this putative class action on behalf of himself and other former shareholders of Tesco Corporation against Tesco, former members of Tesco's board of directors, and Nabors Industries, Ltd. Heinze alleges that the defendants’ omissions from a proxy statement led Tesco shareholders to approve an all-stock acquisition by Nabors. The district court dismissed all claims against all defendants, and Heinze appealed. We hold that Heinze failed to state a claim upon which relief can be granted. Therefore, we affirm.
Tesco provided certain technologies related to the drilling, servicing, and completion of wells for the upstream energy industry. On July 6, 2017, Tesco received an acquisition offer from Nabors, a company that provides drilling and drilling-related services for oil and gas wells. Nabors proposed an all-stock acquisition with an exchange ratio of 0.62 Nabors shares for each outstanding share of Tesco common stock.
On July 12, Tesco engaged J.P. Morgan Securities LLC to analyze the offer. During July and August 2017, Tesco and J.P. Morgan contacted various parties who were potentially interested in acquiring Tesco. None expressed an interest in doing so. Based on the lack of interest from third parties, Tesco's board focused on negotiations with Nabors.
On August 3, Tesco's board met to consider the Nabors proposal. The board determined that the 0.62 ratio was insufficient. Later that night, Nabors proposed a new ratio of 0.66 Nabors shares for each outstanding share of Tesco common stock. Tesco's board rejected that offer the following day.
Over the next several days, the two companies continued negotiating. On August 8, Nabors revised its proposal to 0.68 Nabors shares for each outstanding share of Tesco common stock. On August 9, the Tesco board considered the offer and determined that it was acceptable. On August 13, J.P. Morgan presented its oral opinion to the Tesco board that the proposed transaction would provide Tesco shareholders with fair consideration. Tesco and Nabors signed the agreement that evening and publicly announced the transaction the following morning on August 14. The transaction valued Tesco at $4.62 per share, which represented a 19% premium over Tesco's closing price on the last trading day before the transaction's announcement.
Because Tesco was incorporated under Alberta law, the Court of Queen's Bench of Alberta had to approve the transaction. On October 18, the Alberta court issued an interim order approving a special meeting of Tesco shareholders and requiring a two-thirds majority vote of common shares, stock options, and restricted stock units represented at the meeting. Dissenting shareholders had the right under Alberta law to obtain an alternate payment based on a judicial valuation of their shares by the Alberta court. The interim order also called for the dissemination of a Schedule 14A proxy statement. Tesco filed its final proxy statement on October 26. At the special meeting on December 1, Tesco's shareholders approved the transaction with the required voting majority. The Alberta court approved it too.
Norman Heinze brought claims on behalf of himself and all other former Tesco shareholders against Tesco, former members of Tesco's board of directors, and Nabors.1 He alleged that the defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 ("1934 Act") and SEC Rule 14a-9. Specifically, Heinze alleged that the defendants made a number of omissions in the proxy statement that rendered the proxy statement misleading. The district court granted the defendants’ Rule 12(b)(6) motion and dismissed all claims against all defendants. Heinze timely appealed.
We review de novo a district court's grant of a Rule 12(b)(6) motion to dismiss. See Whitley v. BP, P.L.C. , 838 F.3d 523, 526 (5th Cir. 2016). We "accept all well-pleaded facts as true and construe the complaint in the light most favorable to the plaintiff." In re Great Lakes Dredge & Dock Co. , 624 F.3d 201, 210 (5th Cir. 2010). But we "do not accept as true ‘conclusory allegations, unwarranted factual inferences, or legal conclusions.’ " Ibid. (quoting Ferrer v. Chevron Corp. , 484 F.3d 776, 780 (5th Cir. 2007) ).
To withstand a motion to dismiss, a complaint must allege "more than labels and conclusions," as "a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). It must state a "plausible claim for relief," rather than facts "merely consistent with" liability. Ashcroft v. Iqbal , 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ).
The heightened pleading requirements of the Private Securities Litigation Reform Act ("PSLRA") apply to this case. Heinze's amended complaint alleges that the defendants "omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading." 15 U.S.C. § 78u-4(b)(1)(B). Therefore, the PSLRA says the complaint must "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." Id. § 78u-4(b)(1). If the complaint fails to meet these requirements, "the court shall, on the motion of any defendant, dismiss the complaint." Id. § 78u-4(b)(3)(A).
Heinze has two causes of action. The first arises under Section 14(a) of the 1934 Act. He claims that the proxy statement was misleading because it omitted certain material facts. The second arises under Section 20(a) of the 1934 Act. He claims that the individual defendants are liable for any violations of Section 14(a) committed by people they controlled. We examine Heinze's allegations in turn and conclude that he failed to state a claim upon which relief can be granted.
We start with Section 14(a) of the 1934 Act, which makes it unlawful for any person "to solicit or to permit the use of his name to solicit any proxy or consent or authorization" in violation of the rules of the Securities and Exchange Commission ("SEC"). 15 U.S.C. § 78n(a). Heinze alleges that the defendants violated SEC Rule 14a-9, which states:
No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.
The text of SEC Rule 14a-9 makes it clear that vague allegations about the gestalt of a proxy statement will not suffice. Even for omission-based claims, the plaintiff must identify specific "statements therein" that are rendered "false or misleading" by the alleged omissions. This requirement accords with the PSLRA, which requires the complaint to "specify each statement alleged to have been misleading" and "the reason or reasons why the statement is misleading." 15 U.S.C. § 78u-4(b)(1).
Heinze's amended complaint identifies the following parts of the proxy statement as allegedly misleading: (A) the statement on page 37 that Tesco shareholders would receive a "significant" 19% premium over Tesco's closing price on the last day of trading before the transaction's announcement; (B) the table on page 43 containing Tesco management's projections for revenue and Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA") in 2017 and 2018; and (C) the summary on pages 44–48 of the results of J.P. Morgan's fairness opinion. We examine these statements in turn.
Heinze first claims that it was misleading to state on page 37 of the proxy statement that Tesco shareholders would receive a "significant" 19% premium. For a statement to be actionable under SEC Rule 14a-9, it must be "material." See 17 C.F.R. § 240.14a-9(a). A statement is material only if "there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." Va. Bankshares, Inc. v. Sandberg , 501 U.S. 1083, 1090, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991) (quoting TSC Indus., Inc. v. Northway, Inc. , 426 U.S. 438, 449,...
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