McKenna v. Smart Techs. Inc.
| Decision Date | 03 April 2012 |
| Docket Number | 11 Civ. 7673 (KBF) |
| Parties | THOMAS MCKENNA, individually and on behalf of itself and all others similarly situated, Plaintiffs, v. SMART TECHNOLOGIES INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Lead Plaintiff the City of Miami General Employees' and Sanitation Employees' Retirement Trust ("plaintiff" or "City of Miami") brings this putative class action against defendants SMART Technologies, Inc. ("SMART"), various of SMART's officers and directors, and SMART's co-founders (who, as minority shareholders prior to the initial public offering ("IPO"), appointed one member each to SMART's four-person pre-IPO board of directors)--i.e., Intel Corporation ("Intel") and Apax Partners L.P. with Apax Partners Europe Managers Ltd. (collectively, "Apax" or the "Apax Defendants"). Plaintiff alleges that the registration statement (the "Registration Statement") and prospectus (the "Prospectus" and collectively with the Registration Statement, the "Offering Documents") filed in connection with SMART's July 14, 2010 initial public offeringcontained materially false and misleading statements in violation of sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the "Securities Act").
Defendants have jointly moved to dismiss plaintiff's Amended Complaint pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure.
For the reasons that follow, defendants' motion is GRANTED IN PART and DENIED IN PART.
For purposes of ruling on the motion to dismiss, the Court accepts as true all well-pleaded allegations in the Amended Complaint and draws all reasonable inferences in plaintiff's favor. See Levy v. Southbrook Int'l Invs., Ltd., 263 F.3d 10, 14 (2d Cir. 2001). The Court also considers the Securities and Exchange Commission ("SEC") filings that plaintiff references in the Amended Complaint--namely, SMART's Prospectus relating to the IPO, filed with the SEC on July 15, 2010. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
Lead Plaintiff City of Miami manages pension assets on behalf of Miami's municipal general and sanitation employees.(Am. Compl. (Dkt. No. 81) ¶ 17.) City of Miami purchased SMART common stock in the IPO and in the post-IPO secondary market or traceable to the Offering Documents, over the period of time from July 14, 2010 through December 14, 2010. .)
Defendant SMART is a Canadian corporation that designs, develops, and sells interactive technology products and solutions. (Am. Compl. ¶ 18.) See also SMART Techs. Inc., Prospectus (Form 424B4) at 1 (July 15, 2010) (hereinafter "Prosp.") . SMART is best known for its interactive whiteboards--the "core" of SMART's interactive technology solutions. (Am. Compl. ¶ 18.) See also Prosp. at 1. By SMART's own account, interactive whiteboards, which SMART introduced in 1991, "combine the simplicity of a whiteboard and the power of a computer," and allow the user via touch to "control computer applications, access the Internet, write in digital ink and save and share work." Prosp. at 1.
The "Individual Defendants"--Nancy L. Knowlton, G.A. (Drew) Fitch, David A. Martin, Salim Nathoo, Arvind Sodhani, Michael J. Mueller, and Robert C. Hagerty--are SMART's current or former officers and directors. During the relevant time period, Knowlton was SMART's Chief Executive Officer; Fitch was SMART'sChief Financial Officer and principal financial and accounting officer; Martin was Chairman of SMART'S Board of Directors; and Nathoo, Sodhani, Mueller, and Hagerty were directors on SMART'S board. (Am. Compl. ¶¶ 19-25.) Each signed the Registration Statement, except for Mueller and Hagerty who were named therein with consent "as about to become [] director[s]" of SMART. (Id. ¶¶ 19-25.)
The Apax Defendants advised or managed funds that held more than 56 million shares of SMART stock prior to the IPO, which amounted to approximately 47 percent of SMART's total voting power at the time of the IPO. (Am. Compl. ¶ 27.) Apax sold almost 20 million of its shares in the IPO. (Id.) Defendant Nathoo was one of Apax's partners. (Id.)
Intel owned more than 27 million shares of SMART's pre-IPO stock, which amounted to 23.5 percent of SMART's total pre-IPO voting power. (Id. ¶ 28.) Intel sold 10 million of its shares in the IPO. (Id.)
The third primary shareholder of SMART's pre-IPO stock was the wholly-owned company of SMART's co-founders, IFF Holdings Inc. ("IFF"), which held shares totaling just under 30 percent of SMART's total voting power. Prosp. at 100. IFF is not a party to this action.
On July 14, 2010, SMART announced that it would offer to the public 38.83 million shares of Class A Subordinate Voting Shares at $17.00 per share, with trading on the NASDAQ to begin the following day. (Am. Compl. ¶ 32.) SMART offered the shares pursuant to (a) the Registration Statement filed with the SEC on June 24, 2010, amended initially on June 28, 2010 and then again on July 12, 2010, and effective July 14, 2010; and (b) the July 14, 2010 Prospectus which was incorporated into the Registration Statement and filed with the SEC on July 15, 2010. (Id. ¶ 33.) SMART did not itself sell the shares to the public, but rather sold them to a syndicate of underwriters--Morgan Stanley & Co., Inc., Deutsche Bank Securities Inc., and RBC Dominion Securities Inc--who offered them to the public.1 Prosp. at 129-30. III. THE ALLEGED MISREPRESENTATIONS AND OMISSIONS
Plaintiff alleges that the Offering Documents contained material misstatements of fact or omitted material facts regarding four topics: (a) demand for SMART's "core" interactive whiteboards; (b) the demand for and benefits of SMART's then recently-acquired NextWindow business; (c) SMART's ability to sell its whiteboards to corporate or foreign clients; and (d) the status of SMART's internal enterprise resourcesplanning system ("ERP"). Plaintiff's essential claim is that defendants were aware of specific facts regarding the four topics, but failed to disclose them in the Offering Documents, rendering the Offering Documents false and misleading.
Plaintiff alleges that the Offering Documents contained positive statements regarding the growing demand for SMART whiteboards when, at the time of the IPO, defendants affirmatively knew that demand for whiteboards was already materially declining. (Am. Compl. ¶¶ 63-64.)
Specifically, plaintiff alleges that SMART benefitted from the American Recovery and Reinvestment Act of 2009 ("ARRA"),2 which sought to "preserve and create jobs and promote economic recovery," among other things, by infusing public funds into the economy--most relevant here, financial aid for local school districts, including for Enhanced Education Through Technology Program. See Pub. L. 111-5, § 3(a)(1). (Am. Compl. ¶ 45.) According to plaintiff, although schools used government stimulus funds to purchase SMART's interactive whiteboards (usually only once) (Am. Compl. ¶¶ 45, 46, 65), the Prospectus allegedly failed to disclose the "known trend" (as of the IPO) of decreased educational spending as ARRA funding began to dryup. (Am. Compl. ¶¶ 37, 65.) See also Prosp. at 44, 50 () (emphasis added).
Plaintiff alleges, through four confidential witnesses ("CWs"), that as much as a year prior to the IPO and by at least March 2010--four months prior to the IPO--SMART was encountering a "'big slowdown'" in sales, which was confirmed by a "decrease in forecasted revenues from SMART'S training group in July 2010"--i.e., the month SMART made its public offering. (Am. Compl. ¶¶ 40, 46 (quoting CWs); see generally id. ¶¶ 40-46.) According to CW4, each school used ARRA funding to purchase interactive whiteboards once, and thus, as ARRA funding wound down prior to the IPO, SMART's sales already had decreased. (Id. ¶ 43.) On those grounds, as alleged through CW1, SMART "knew that the future of the [stimulus] program was uncertain," and thus, that the sales growth SMART had enjoyed prior to the IPO "wasn't going to continue." (Id. ¶ 46 (emphasis added).)
Immediately following the allegedly misleading "demand" language, the Prospectus discloses that "the education market, which represents an estimated 85% of our revenue base, has been aided by various government economic stimulus programs in fiscal 2010 as governments undertook spending initiatives . . . ." Prosp. at 50. SMART credits those initiatives with"support[ing] the growth in technology spending in education and the adoption of [its] technology in several markets." Id.; see also id. at 16.
SMART cautioned investors that a decrease in "technology spending in education" "may adversely impact [its] revenue." Prosp. at 16; see also id. at 4. SMART acknowledged that ARRA funding was limited, warning, "If state and local governments are unable to secure an alternative source of funds upon the depletion of the funds provided under the ARRA, we could experience a slowdown of revenue growth as a result of that lack of funding." Id. at 16.
Three months prior to the IPO, in April 2010, SMART acquired Next Holdings Limited ("NextWindow"), a company that "designs and manufactures interactive touch components to manufacturers of interactive displays and PCs," for $82 million. (Am. Compl. ¶ 54.) See also Prosp. at 4, 45. Plaintiff alleges that the acquisition was motivated by SMART's desire to resolve a patent dispute with NextWindow--a fact never disclosed in the Offering Documents. (Am. Compl. ¶¶ 54, 83.)
As of July 14, 2010,...
To continue reading
Request your trial