Kuebler v. Vectren Corp.

• Decision Date: 13 September 2021
• Docket Number: No. 19-2973,19-2973
• Citation: 13 F.4th 631
• Parties: Michael KUEBLER, et al., Plaintiffs-Appellants, v. VECTREN CORPORATION, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

13 F.4th 631

Michael KUEBLER, et al., Plaintiffs-Appellants,

v.VECTREN CORPORATION, et al., Defendants-Appellees.

No. 19-2973

United States Court of Appeals, Seventh Circuit.

Argued September 18, 2020

Decided September 13, 2021

Guri Ademi, Attorney, Ademi & O'Reilly, Cudahy, WI, Juan E. Monteverde, Attorney, Monteverde & Associates PC, New York, NY, Jason A. Shartzer, Attorney, Shartzer Law Firm, LLC, Indianapolis, IN, for Plaintiffs-Appellants.

Matthew Allen, Attorney, Allen & Havens LLP, Houston, TX, Daniel David, Amy P. Hefley, Attorneys, Baker Botts LLP, Houston, TX, for Defendants-Appellees.

Before Sykes, Chief Judge, and Hamilton and St. Eve, Circuit Judges.

Hamilton, Circuit Judge.

This securities case arose from the 2018 merger between Vectren Corporation, an Indiana public utility and energy company, and CenterPoint Energy, Inc., a public utility holding company. CenterPoint eventually acquired all Vectren stock for $72.00 per share in cash. In the meantime, however, several Vectren shareholders filed this suit alleging violations of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78a et seq.

First, the shareholders tried to enjoin the shareholder vote on the merger. The district court denied that request. The shareholders then filed an amended complaint alleging that Vectren's Proxy Statement was misleading in violation of Section 14(a) of the Exchange Act, § 78n(a). Plaintiffs argued that the Proxy Statement should have included two omitted financial metrics used by Vectren's financial advisor in its analysis leading to its opinion that the merger terms were fair to Vectren shareholders. The first omitted metric, Unlevered Cash Flow Projections, forecast the gross after-tax annual cash flow for Vectren between 2018 and 2027. The second omitted metric, Business Segment Projections, showed separate financial projections for each of Vectren's three main business lines.

Without this information, the shareholders allege, they were unable to assess the fair value of their Vectren shares because they could not replicate the adviser's valuation analysis. In other words, the shareholders believe that the adviser undervalued their Vectren shares, and they wanted to double-check its work. The district court granted Vectren's motion to dismiss, finding that the shareholders had failed to allege adequately both materiality of the omissions and any resulting economic loss. We affirm.

I. Factual Background

A. The Merger

We review de novo a district court's decision on a motion to dismiss for failure to state a claim under Rule 12(b)(6), treating plaintiffs’ well-pleaded factual allegations as true and giving the plaintiffs the benefit of reasonable inferences from them. Manistee Apartments, LLC v. City of Chicago , 844 F.3d 630, 633 (7th Cir. 2016).

In late 2017, Vectren began to explore the possibility of a strategic merger. In January 2018, Vectren retained Merrill Lynch as its financial advisor and directed it to contact parties who might be interested in acquiring Vectren. Vectren's board of directors told Merrill Lynch to tell potential buyers that the board strongly preferred a transaction in which a substantial portion of the consideration would be paid in cash rather than other securities.

By February 2018, Vectren had narrowed the pool of interested buyers to four serious contenders: CenterPoint and three others that we refer to as Bidders A, B, and D. On February 21, all four submitted non-binding proposals. CenterPoint proposed an all-cash transaction at $70.00 per share. Bidder A proposed a price of $72.50 per share with up to 83 percent in cash and the remainder in common stock of Bidder A. Bidder B proposed an all-cash price range of $73.00 to $75.00. Bidder D proposed a price range of $65.00 to $70.00 paid in an unspecified combination of cash and stock of Bidder D. Through late February and March, Vectren negotiated with all four toward the end of inviting binding offers to acquire Vectren.

In early April, CenterPoint and Bidder A submitted new offers. Bidder A proposed $70.50 per share with a mix of 83 percent cash and 17 percent common stock of Bidder A. CenterPoint proposed $70.00 per share, all cash. Bidders B and D declined to submit binding offers. The Vectren board told management to continue negotiating with both Bidder A and CenterPoint and to tell them that the board was not ready to move forward at less than $72.00 per share and strongly preferred an all-cash or substantially all-cash deal.

On April 16, CenterPoint and Bidder A submitted their "best and final" offers. Bidder A offered $71.00 per share, with the initial 83 percent to 17 percent cash-stock mix unchanged. CenterPoint increased its offer to $71.50, all cash. On April 18, Merrill Lynch told CenterPoint that Vectren wanted to move forward if CenterPoint was willing to negotiate on the final price per share and on certain other terms (primarily related to operational restrictions, financing covenants, and termination fees). Merrill Lynch also said that the board continued to push for a final offer of at least $72.00 per share. CenterPoint said it was prepared to offer that price, and over the next three days, CenterPoint and Vectren hammered out the remaining issues in the merger agreement.

On April 21, 2018, the Vectren board met to consider the final terms of CenterPoint's offer at $72.00 per share, all cash. The $72.00 per share was a 17.4 percent premium over the stock's closing price on August 21, 2017, the last day before the first media reports about a possible takeover of Vectren. Following the meeting, Merrill Lynch reviewed the financial aspects of the transaction and provided the board with its fairness opinion. The opinion said that as of April 21, subject to various assumptions and limitations described in the opinion, Merrill Lynch deemed the $72.00 per share price to be fair. Later that day, the Vectren board unanimously adopted the merger agreement, and Vectren and CenterPoint executed the agreement. On April 23, the merger was announced publicly.

B. The Lawsuit

On June 18, 2018, Vectren filed its preliminary proxy statement. In response, six shareholders sued Vectren and its board alleging that the preliminary proxy statement was misleading because it omitted key information. A seventh shareholder filed suit after Vectren filed its definitive proxy statement with the U.S. Securities and Exchange Commission on July 16.

All seven suits alleged violations of Section 14(a) of the Exchange Act. When two of the seven shareholders moved to enjoin the planned shareholder vote on the merger, the district court consolidated the seven suits and appointed Michael Kuebler, James Danigelis, and Michael Nisenshal as lead plaintiffs. Following a hearing, the district court denied a preliminary injunction. Shareholders voted on August 28. The merger was approved by 61.6 percent of Vectren's outstanding shares, which amounted to more than 95 percent of the total shares voted. Vectren and CenterPoint announced the completion of their merger on February 1, 2019.

After their effort to block the merger failed, plaintiffs amended their complaint to ask for damages based on the omission of two allegedly material financial metrics that they alleged rendered the Proxy Statement "misleadingly incomplete" in violation of Section 14(a) of the Exchange Act and the SEC's implementing Rule 14a-9, 17 C.F.R. § 240.14a-9. The first category of omitted metrics, Unlevered Cash Flow Projections, showed the gross after-tax cash flow that Vectren was forecast to generate annually between 2018 and 2027. The second category, Business Segment Projections, reflected individual financial projections for Vectren's three main business lines: gas, electric, and non-regulated (engineering and construction). The district court granted the defendants’ motion to dismiss for failure to state a claim. Kuebler v. Vectren Corp. , 412 F. Supp. 3d 1000 (S.D. Ind. 2019).

Before diving into the law of Section 14(a), we address a procedural wrinkle that arose in the district court. Plaintiffs sought to bolster their allegations by attaching to the amended complaint an affidavit from a financial expert, M. Travis Keath. The district court did not consider the Keath affidavit on the ground that it did not form the basis of plaintiffs’ claims but was "merely evidence ." Id. at 1004. For that reason, the court explained, the Keath affidavit was irrelevant in determining whether plaintiffs had stated a claim. On this procedural point, we respectfully disagree.

A plaintiff opposing a Rule 12(b)(6) motion to dismiss may submit evidence to illustrate allegations without turning that motion into a Rule 56(a) motion for summary judgment. A defendant filing a motion under Rule 12(b)(6) or 12(c) can base its motion on only "the complaint itself, documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice." Geinosky v. City of Chicago , 675 F.3d 743, 745 n.1 (7th Cir. 2012).

In opposing such a motion, however, a plaintiff enjoys much more flexibility. In the wake of Ashcroft v. Iqbal , 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), and Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), a plaintiff who is opposing a Rule 12(b)(6) or Rule 12(c) motion and who can "show a court that there is likely to be some evidentiary weight behind the pleadings the court must evaluate" may find it beneficial to do so. Geinosky , 675 F.3d at 745 n.1, quoting Roe v. Bridgestone Corp. , 492 F. Supp. 2d 988, 1007 (S.D. Ind. 2007) ; see also Peterson v. Wexford Health Sources, Inc. , 986 F.3d 746, 752 n.2 (7th Cir. 2021) ("In ‘opposing a Rule 12(b)(6) motion,’ Peterson was free to ‘elaborate on his factual allegations so long as the new elaborations are consistent with the pleadings.’ "), quoting Geinosky , 675 F.3d at 745 n.1 ; Bell v. Publix Super Markets,...