In re Tangoe, Inc.

• Decision Date: 31 July 2018
• Docket Number: Lead Case No. 3:17-cv-00832
• Citation: 333 F.Supp.3d 77
• Parties: IN RE TANGOE, INC. STOCKHOLDERS LITIGATION
• Court: U.S. District Court — District of Connecticut

333 F.Supp.3d 77

IN RE TANGOE, INC. STOCKHOLDERS LITIGATION

Lead Case No. 3:17-cv-00832

United States District Court, D. Connecticut.

Signed July 31, 2018

RULING AND ORDER ON MOTION TO DISMISS

THE HONORABLE VICTOR A. BOLDEN, UNITED STATES DISTRICT JUDGE

Plaintiffs, owners of shares of Tangoe common stock, filed a consolidated class action Complaint ("CAC") against David Coit, James D. Foy, Gary Golding, Ronald Kaiser, Jackie R. Kimzey, Gerald D. Kokos, Richard Pontin, Tangoe, Inc., and Noah Walley ("Defendants"), alleging violations of Sections 14(e), 14(d)(4), and 20(a) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. §§ 78n(d)(4), 78t(a), and SEC Rule 14d-9, in connection with a tender offer for the sale of outstanding shares of Tangoe in 2017.¹ CAC ¶¶ 1, 11, ECF No. 46.

Defendants have moved to dismiss this case, arguing that Plaintiffs failed to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b), as well as under the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(2). Mot. Dismiss, ECF No. 47.

For the reasons that follow, Defendants' motion to dismiss is GRANTED .

To the extent that the deficiencies identified in this ruling can be addressed, Plaintiffs may file a motion for leave to amend the Complaint by September 7, 2018.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Allegations

1. The Parties

Plaintiffs bring claims against the following Defendants:

• Tangoe, a Delaware Corporation and a "global telecom expense management solutions company." CAC ¶ 12. Previously based in Connecticut and now based in New Jersey, Mot. Dismiss at 2, Tangoe's stock traded on the National Association of Securities Dealers Automated Quotations ("NASDAQ"), under the symbol "TNGO," until NASDAQ delisted it on March 14, 2017. CAC ¶ 12.

• James D. Foy, who allegedly served as Tangoe's Chief Executive Officer ("CEO") since May 2, 2016, and as a member of its Board of Directors (the "Board") since March 2014. Id. ¶ 13.

• Gerald G. Kokos, who allegedly served as a member of Tangoe's Board since September 2002, and as its Lead Director and Executive Chairman since May 2, 2016. Id. ¶ 14.

• David M. Coit, who allegedly has served as a member of the Board since August 2006. Id. ¶ 15.

• Gary Golding, who allegedly has served as a member of the Board since September 2002. Id. ¶ 16.

• Ronald W. Kaiser, who allegedly has served as a member of the Board since January 2009. Id. ¶ 17.

• Jackie R. Kimzey, who allegedly has served as a member of the Board since March 2008. Id. ¶ 18.

• Richard S. Pontin, who allegedly has served as a member of the Board since March 2007. Id. ¶ 19.

• Noah J. Walley, who allegedly has served as a member of the Board since July 2008. Id. ¶ 20.

2. Securities and Exchange Commission ("SEC") and NASDAQ Filings

Plaintiffs allege that, on March 7, 2016, Defendants announced that Tangoe's financial statements for 2013, 2014, and the first three quarters of 2015 needed revision because of "errors in recognizing revenue, primarily non-recurring revenue." CAC ¶ 33. The announcement allegedly assured investors that Tangoe's core operations and cash flow would be "minimally affected or unaffected." Id. Tangoe's stock price allegedly immediately dropped after the announcement, but "several analysts maintained price targets ranging from $7.00 to $14.00 per share." Id.

On March 15, 2016, in a Form 12b-25,² Tangoe allegedly reported that it would not timely file its Form 10-K.³ Id. ¶ 34.

Tangoe allegedly stated that "[a]lthough the Company cannot at this time estimate when it will complete the Restatement and file its restated financial statements and its Form 10-K for the year ended December 31, 2015, it is diligently pursuing completion of the Restatement and intends to file the Form 10-K as soon as reasonably practicable." Id. ¶ 34 (emphasis added by Plaintiffs in CAC). NASDAQ allegedly responded by informing Tangoe that it was in violation of NASDAQ rules and could be delisted if it did not comply by May 20, 2016. Id.

In April 2016, Tangoe allegedly replaced its Chief Financial Officer ("CFO") Gary P. Martino with an interim CFO, Jay Zager. Id. ¶ 35. In early May, Tangoe allegedly replaced its Chairman and CEO, Albert R. Subbloie, Jr., with an interim CEO, James D. Foy, and an interim Chariman, Gerald G. Kokos. Id. On May 16, 2016, Tangoe allegedly engaged Mr. Stifel as its advisor. Id.

On May 19, 2016, Tangoe allegedly announced that it had received a second notice from NASDAQ, indicating it was not in compliance with NASDAQ's rules requiring periodic financial reporting with the SEC. Id. ¶ 36. Plaintiffs allege that, "[a]gain, the Company stressed that they were diligently pursuing completion of the Restatement and intended to file its 10-Q for the quarterly period ended March 31, 2016, as soon as reasonably practicable."⁴ Id.

On August 10, 2016, Tangoe allegedly filed another Form 12b-25, stating that its quarterly Form 10-Q for the period ending on June 30, 2016, would not be timely filed. Id. ¶ 37. Plaintiffs allege that "[t]he Company went on to explain that the amount of misstated revenue was significantly more than previously announced," and that "the Restatement would not be completed prior to September 12, 2016." Id. Tangoe allegedly sought another extension from NASDAQ to regain compliance with the filing requirements, and NASDAQ stated that, if Tangoe did not "submit an updated plan for the Restatement," by August 30, 2016, it would be delisted. Id.

On September 13, 2016, NASDAQ allegedly sent Tangoe a letter with a plan to delist Tangoe's stock as a result of its repeated violations of filing requirements. Id. ¶ 38. NASDAQ allegedly indicated that the stock would be suspended starting September 22, 2016, and that NASDAQ would file a Form 25-NSE with the SEC, which would remove the company's listing from NASDAQ. Id. Tangoe stated that it planned to appeal the decision, submit an amended plan to deal with the Restatement, and request a maximum extension to file until March 2017. Id.

On November 9, 2016, NASDAQ allegedly granted Tangoe a maximum extension until March 10, 2017, to finish the Restatement and come up to date with all required filings. Id. ¶ 39. Plaintiffs allege that "[t]he Company stated that it was hopeful that it would regain compliance with Nasdaq's filing requirement, but made no assurances." Id.

On November 10, 2016, Tangoe allegedly filed another Form 12b-25, indicating that it would not timely file a quarterly Form 10-Q for the period ending on September 30, 2016. Id. ¶ 40. Plaintiffs allege that "[t]his time, the Company indicated that the misstated revenue was nearly double the amount originally represented, and that operating income would be substantially affected." Id. (emphasis added by Plaintiffs in CAC). Tangoe also allegedly stated:

The internal investigation overseen by the Audit Committee in connection with the Restatement is substantially complete. The Company has also substantially completed its internal review of the financial statements for the periods being restated and is currently working with the Company's independent registered public accounting firm as it audits the restated year-end financial statements. In addition, the Company is completing its closing procedures and preparing interim financial statements for its quarters ending March 31, 2016, June 30, 2016 and September 30, 2016, after which it will work with its independent registered public accounting firm as it reviews the interim financial statements.

Id. (emphasis added by Plaintiffs in CAC).

Plaintiffs alleged that, on December 14, 2016, "[d]ue to the potential uncertainty of holding an annual [stockholder] meeting without the ability to solicit proxies, the Board concluded that they did not want to risk losing their seats at an election solely voted on by stockholders in attendance at the meeting." Id. ¶ 41.

On December 20, 2016, the Audit Committee allegedly told the Board that "it was not practical to complete the Restatement by the March 10 delisting deadline," and, on December 28, 2016, the Audit Committee allegedly confirmed that it could not "conclude with any degree of reliability that the Restatement would be complete by the March 10, 2017 deadline at any reasonable cost." Id. ¶¶ 42–43. On January 3, 2017, Tangoe allegedly "notified Nasdaq that it was unlikely to complete the Restatement by the March 10, 2017 deadline." Id. ¶ 44. Plaintiffs allege that "[a]ccording to the Recommendation Statement, it was at this point that the Board noted the potential for an acquisition transaction in the near term may obviate the need to complete a Restatement." Id. Plaintiffs also allege that "[t]he Recommendation Statement also revealed that despite the Company's statements in its November press release that things were ‘substantially complete,’ Tangoe had not begun to implement the audit plan of its independent registered accounting firm," and therefore "the Board decided to shift focus to producing a quality of earnings report to help execute a potential transaction." Id.

On January 4, 2017, NASDAQ allegedly informed Tangoe that its stock could be delisted for failure to hold an annual stockholder meeting. Id. ¶ 45. Plaintiffs allege that "[g]iven this additional basis to delist Tangoe, it appears that the decision to shift focus to selling the Company was not the result of the inability to timely complete the Restatement, but a consequence of the Board's selfish decision to avoid being ousted at an annual stockholder meeting." Id.

On March 10, 2017, Tangoe informed stockholders that NASDAQ had made a final determination to delist the company's common stock, and, four days later, trading of Tangoe's shares ended. Id. ¶ 46.

Plaintiffs allege that "during the course of these efforts, the Company devoted significant internal resources to pursue the Restatement, expended approximately $16 million in costs in 2015 and 2016 for outside assistance on the Restatement, yet failed to ever issue a...