In re Willis Towers Watson PLC Proxy Litig.

• Decision Date: 31 January 2020
• Docket Number: Civil Action No. 1:17-cv-1338 (AJT/JFA)
• Court: U.S. District Court — Eastern District of Virginia
• Parties: IN RE WILLIS TOWERS WATSON PLC PROXY LITIGATION

439 F.Supp.3d 704

IN RE WILLIS TOWERS WATSON PLC PROXY LITIGATION

Civil Action No. 1:17-cv-1338 (AJT/JFA)

United States District Court, E.D. Virginia, Alexandria Division.

Signed January 31, 2020

MEMORANDUM OPINION AND ORDER

Anthony J. Trenga, United States District Judge

In this putative class action, Plaintiff Regents of the University of California ("Plaintiff") alleges violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78a et seq. , in connection with proxy solicitations for the merger between Towers Watson & Co. ("Towers") and Willis Group Holdings plc ("Willis") resulting in merged entity Willis Towers Watson plc ("WTW").¹

By Order dated July 11, 2018, this Court dismissed the Amended Complaint [Doc. 49] ("Amended Complaint" or "Am. Compl.") based on the statute of limitations and a failure to adequately allege that the relied upon misrepresentations and omissions were material. See In re Willis Towers Watson plc Proxy Litig. , 2018 WL 3423859 (E.D. Va. July 11, 2018) (" July 11 Order"). Plaintiff appealed and on August 30, 2019, the United States Court of Appeals for the Fourth Circuit reversed and vacated this Court's July 11 Order. In re Willis Towers Watson plc Proxy Litig. , 937 F.3d 297, 309 (4th Cir. 2019). In its opinion, the Fourth Circuit concluded, inter alia , that the Plaintiff's claims were not barred by the applicable statute of limitations and that materiality had been adequately pleaded. It therefore remanded this action for further proceedings and identified the following three "issues of first impression in this circuit" under the Exchange Act and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4, which were preserved on appeal and previously un-addressed by this Court:

(1) Does a Section 14(a) claim that sounds in fraud require a particularized pleading of scienter?

(2) Can a Section 14(a) claim sound in negligence instead of fraud?

(3) If a Section 14(a) claim does sound in negligence, must the complaint nonetheless include particularized allegations of negligence? Id. at 307-08.

Following remand, Defendants' renewed their pending motions to dismiss. Specifically, those motions are:

(1) the Renewed Motion to Dismiss the Amended Complaint [Doc. 89] by Defendants Towers, Willis, WTW, Haley, and Casserly (collectively, the "TW/Willis Defendants") (the "TW Motion"); and

(2) the Renewed Motion to Dismiss the Amended Complaint [Doc. 87] by ValueAct and Ubben (collectively, the "ValueAct Defendants") (the "VA Motion"). In these motions, the TW/Willis Defendants contend that the action should be dismissed based on the issues raised by the Fourth Circuit. The ValueAct Defendants separately contend that, even if the Court denies the TW Motion and permits Plaintiff's Section 14(a) claim to proceed, Plaintiff has nevertheless failed to state a plausible claim against either ValueAct or Ubben for "control person" liability under Section 20(a).

For the reasons stated below, the Court concludes as follows:

(1) a Section 14(a) claim that "sounds in fraud" does not require a particularized pleading of scienter?

(2) a Section 14(a) claim can sound in "negligence" rather than fraud; and

(3) a Section 14(a) claim does not need to include particularized allegations of negligence.

Based on these conclusions of law, when applied to the allegations in the Amended Complaint, Plaintiff has adequately pled its Section 14(a) and 20(a) claims; and the TW Motion and the VA Motion are DENIED .

I. BACKGROUND²

The Court incorporates herein by reference its recitation of the alleged facts, as set forth in its July 11, 2018 Order [Doc. 49]. Briefly summarized, after negotiations between Towers and Willis during the first half of 2015, the Towers board unanimously agreed to a merger with Willis and on June 30, 2015, Towers and Willis publicly announced a merger of the two companies, which was described as a "merger of equals." Am. Compl. at ¶ 2. Reflecting previous discussions, the merging companies also agreed that Defendant Haley would serve as the CEO of WTW, the merged company, and Defendant Ubben, CEO of ValueAct and a major investor in Willis, would serve as a director of WTW and on its compensation committee. Am. Compl. at ¶¶ 57-58, 85.

On September 10, 2015, weeks before a planned shareholder vote on the proposed merger, Haley and Ubben met to discuss Haley's potential compensation as CEO of WTW. Id. at ¶ 80. At this meeting, Haley and Ubben confidentially negotiated a compensation package for Haley which included performance incentives of restricted stock "that could multiply 300% based on whether the company achieved certain benchmarks in its stock price performance," and, assuming the new company hit its financial targets, was worth up to $165 million over three years, more than double Haley's then-compensation of $25 million per year as Towers' CEO. Id. The then-chair of the Willis Board's Compensation Committee was not fully aware of these negotiations until ten days after the Towers shareholders approved the merger, id. at ¶ 86; and Haley never disclosed the compensation plan to either Towers' shareholders or the Towers board prior to the merger vote, id. at ¶ 87.

On October 13, 2015, Towers filed its initial proxy statement ("Proxy") regarding the proposed merger with the SEC. Id. at ¶ 97. However, that "Proxy omitted to disclose anything about Haley's compensation agreement with ValueAct and Willis, including the material fact that Haley had worked with ValueAct and Willis to secure a compensation package valued at up to $165 million over the next three years." Id. at ¶ 98. Additionally, that Proxy "falsely assured investors that the Towers Board was ‘aware of’ and had ‘considered conflicts of interests,’ " even though Haley had not disclosed the alleged $165 million compensation plan to the board. Id. at ¶ 99.

After Towers filed its Proxy, analysts and investors heavily criticized the proposed merger. One major investor, Driehaus Capital Management, was especially outspoken in its disapproval, raising questions about the fairness of the deal to Towers' shareholders and about Haley's personal interest in the deal. Id. at ¶ 90. Against this backdrop and to avoid the risk of a failed shareholder vote, on November 10, 2015, Haley approached Ubben, a key negotiator working on behalf of Willis, to propose an increase in the special dividend to the Towers shareholders from $4.87 per share to $10 per share. Id. at ¶ 124. This amount, however, was not the maximum Haley believed he could obtain for Towers' shareholders, but only "the minimum that [was] need[ed] to have a reasonable expectation of shareholder approval." Id. According to Haley's notes at the time, the $10 figure "[d]idn't trouble [Ubben]." Id. at ¶ 125.

On November 19, 2015, Towers announced the revised terms of the merger, which reflected the $10 per share special dividend for Towers' shareholders. Id. at ¶ 142. On November 27, 2015, Towers and Willis jointly-filed a proxy update ("Proxy Update") with the SEC. The Proxy Update included a summary purporting to disclose the further negotiations that occurred between Towers and Willis after the merger was initially proposed; however, "[n]owhere did the Proxy Update disclose Haley's compensation arrangement or conflict of interest, or that, upon renegotiating the deal, he sought only the minimum additional consideration." Id. at ¶¶ 146-47. On December 11, 2015, the Towers shareholders voted to approve the merger, which officially closed on January 4, 2016. Id. at ¶ 152.

On November 21, 2017, the Plaintiff filed the initial complaint, which was later amended on March 9, 2018. See [Doc. 49]. In the Amended Complaint, Plaintiff asserts two counts. Under Count I, Plaintiff alleges that WTW, Towers, Willis, Haley, and Casserley "were at least negligent in filing the Proxy, Proxy Update, and proxy solicitations" by failing to disclose Haley's conflict of interest, his compensation package, his failure to negotiate for more than the minimum necessary special dividend, and Ubben's involvement in the negotiation process. Id. at ¶ 231. In Count II, Plaintiff asserts supervisory liability for the Sections 14(a) violations against Haley, Casserly, Ubben, and ValueAct.

Id. at ¶ 237. As relief, Plaintiff seeks, inter alia , compensatory damages, declaratory judgment that Defendants violated Sections 14(a) and 20(a) of the Exchange Act, and Plaintiff's attorneys' fees and costs. Id. at ¶¶ 75-76.

II. LEGAL STANDARD

A. Federal Rule of Civil Procedure 12(b)(6)

A motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P.") constitutes an assertion by a defendant that, even if the facts alleged by the plaintiff are true, the complaint fails as a matter of law "to state a claim upon which relief can be granted." Thus, a claim should be dismissed only "if, after accepting all well-pleaded allegations in the plaintiff's complaint as true" and construing the complaint liberally in favor of the plaintiff, "it appears certain that the plaintiff cannot prove any set of facts in support of his claim entitling him to relief." Edwards v. City of Goldsboro , 178 F.3d 231, 244 (4th Cir. 1999) ; see also Trulock v. Freeh , 275 F.3d 391, 405 (4th Cir. 2001).

In addition, unless otherwise required, a motion to dismiss must be assessed in light of Rule 8's liberal pleading standards, which require only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8. However, while Rule 8 does not require "detailed factual allegations," a plaintiff must still provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (the complaint "must be enough to raise a right to relief above the speculative level" to one that is "plausible on its face").

B. Federal Rule of Civil Procedure 9(b)

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