United States District Court, D. Massachusetts
MAZ PARTNERS LP, Individually and on Behalf of Others Similarly Situated, Plaintiff,
BRUCE SHEAR, et al., Defendants.
MEMORANDUM AND ORDER
B. Saris Chief United States District Judge.
shareholder class action arises from a corporate merger. This
Court assumes familiarity with its prior rulings and the
factual record of this case. MAZ Partners LP v.
Shear (MAZ I), No. CV 11-11049, 2016 WL 183519
(D. Mass. Jan. 14, 2016) (order on class certification);
MAZ Partners LP v. Shear (MAZ II), No. CV
11-11049, 2016 WL 4574640 (D. Mass. Sept. 1, 2016) (order on
MAZ Partners LP (“MAZ”) moves to modify this
Court's January 14, 2016 order on class certification.
The defendants oppose modification and move to reconsider a
portion of this Court's September 1, 2016 order on
reasons stated, the defendants' motion for partial
reconsideration (Docket No. 285) is ALLOWED in part
and DENIED in part. MAZ's motion to modify
(Docket No. 271) is DENIED.
January 14, 2016, this Court certified a class defined as
All Class A shareholders of PHC, Inc., who either abstained
from voting or voted against the PHC-Acadia merger in the
October 26, 2011 shareholder vote, who held their Class A
shares immediately prior to October 26, 2011, and whose
shares were converted to Acadia shares after the effective
merger date, except Defendants and any person, firm, trust,
corporation, or other entity related to, or affiliated with,
any of the Defendants.
MAZ I, 2016 WL 183519, at *9.
sought a broader class definition that also included Class A
shareholders who had voted for the merger, but this Court
held that MAZ was not typical of such shareholders because
those shareholders faced an acquiescence defense that MAZ did
not. Id. at *4-6. This Court rejected MAZ's
argument that omissions in the proxy made the shareholders
who voted for the merger so poorly informed that the
acquiescence defense would not apply. Id. at *6.
This Court did, however, note that: “If, after ruling
on the parties' motions for summary judgment, the Court
concludes that the Class A shareholders were not fully
informed based on material omissions in the proxy, the
plaintiff may ask this Court to revisit the issue of
typicality and the Court may indeed acquiesce.”
Id. at *6 n.6.
September 1, 2016, this Court stated in its order on summary
judgment that there was a triable issue of whether there was
a material nondisclosure in the proxy. MAZ II, 2016
WL 4574640, at *5 (“The plaintiff has presented
evidence from which a jury could find that the defendants
failed to fully inform the shareholders that the SRR fairness
opinion did not address the $5 million Class B payment or the
$90 million pre-merger dividend. The Final Proxy itself was
over 200 pages long and over 500 pages long with attachments.
What shareholder is going to wade through the proxy and then
jump into the attachments? Even Grieco was confused about the
scope of the fairness opinion.”).
moves to modify the order on class certification on the basis
that this Court's finding of a triable issue of
inadequate disclosure supports an expansion of the class
definition to include Class A shareholders who voted for the
merger. In response, the defendants move for reconsideration
of this Court's statement in the summary judgment order
that there is a triable issue of whether the scope of the
Stout Risius Ross, Inc. (“SRR”) fairness opinion
was adequately disclosed. The defendants' motion for
reconsideration also asks the Court to rule as a matter of
law that the proxy fully and adequately disclosed all
Disclosure of the Scope of the SRR Fairness
Court's summary judgment order found that the proxy
inadequately disclosed the scope of the SRR fairness opinion.
While the fairness opinion was attached in full to the proxy,
this Court was concerned that the proxy itself failed to
adequately disclose the fact that the SRR did not address the
fairness of the $5 million paid directly to Class B Common
proxy initially stated that SRR was asked to evaluate the
fairness “to the holders of PHC's Class A Common
Stock and Class B Common Stock . . ., of the merger
consideration to be received by such holders (in the
aggregate), and to the holders of PHC's Class A Common
Stock, of the merger consideration to be received by such
holders (in the aggregate).” Docket No. 187, Ex. A, at
2-3. A later portion of the proxy, in bold and italic font,
stated: “Although the PHC board of directors received a
‘fairness opinion' with respect to some aspects of
the merger consideration, the opinion is limited and does not
address the ‘fairness' of all aspects of the
merger.” Id. at 20. The proxy then added that
“SRR was not requested to opine as to, and its opinion
does not in any manner address . . . the amount of the merger
consideration to be paid to holders of PHC's Class B
Common Stock, the amount of any distribution paid to Acadia
stockholders, the allocation of the merger consideration
among the PHC stockholders or the amount per share of the
merger consideration, [or] the amount of the merger
consideration paid to the holders of PHC's Class A Common
Stock relative to the merger consideration paid to the
holders of PHC's Class B Common Stock or relative to the
merger consideration paid to all holders of PHC common
the language on Pages 2 and 3 of the proxy is opaque and
confusing, the above-quoted disclosure on Page 20 of the
proxy (which was not flagged in the initial briefing) was
adequate to clarify to shareholders that the SRR opinion did
not separately address the fairness of the $5 million merger
this disclosure does not end the analysis because MAZ
strenuously contends that the proxy improperly failed to
disclose that the Board had no basis whatsoever for opining
on the fairness of the $5 million Class B payment. MAZ argues
that the proxy was misleading because it stated on Page 2
that “[a]fter careful consideration, the PHC board of
directors . . . determined that the merger agreement is fair
to, and in the best interests of, the stockholders of
PHC” while failing to disclose it had no basis for its
opinion that the $5 million Class B payment was fair.
relies primarily on Omnicare, Inc. v. Laborers District
Council Construction Industry Pension Fund, 135 S.Ct.
1318 (2015). In Omnicare, a company's
registration statement had stated essentially: “[W]e
believe we are obeying the law.” Id. at 1327.
The Supreme Court suggested that if that statement had been
made without having consulted a lawyer or if that statement
had been made in the face of contrary legal advice, the
statement might be misleading through omission. Id.
the Omnicare Court also stated that to succeed in
proving a misleading omission through this theory, “the
investor cannot just say that the issuer failed to reveal its
basis [for an opinion statement].” Id. at
1332. In other words, it is not enough to say in a conclusory
fashion that the Board “omitted to state facts
necessary to make the statements made not misleading”
or that the Board lacked “reasonable grounds for the
belief” it expressed. Id. at 1333. Rather,
“[t]he investor must identify particular (and material)
facts going to the basis for the issuer's opinion --
facts about the inquiry the issuer did or did not conduct or
the knowledge it did or did not have --whose omission makes
the opinion statement at issue misleading to a reasonable
person reading the statement fairly and in context.”
Id. at 1332. In Omnicare, the Court flagged
a specific possible omission: that an attorney had warned the
defendant about a particular legal exposure. Id. at
1333. The Court instructed the trial court on remand to
examine the attorney's warning, with a focus on the
attorney's “status and expertise” and the
context of the statements. Id. Omnicare provides the
blueprint for this Court's analysis.
initial matter, this Court rejects the defendants'
argument that the logic of Omnicare does not apply
because Omnicare was a case under Section 11 of the
Securities Act of 1933, which is not pleaded in this case.
Section 11 attaches liability to a registration statement
that “omit[s] to state a material fact . . . necessary
to make the statements therein not misleading.” 15
U.S.C. § 77k(a). While there is no such statutory
definition of materiality in this case, the standard for
materiality here similarly allows for an omission of certain
facts from corporate disclosures to be material. See MAZ
II, 2016 WL 4574640, at *4 (quoting Malpiede v.
Townson, 780 A.2d 1075, 1086 (Del. 2001)); see also
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del.
1985). Also, Omnicare addressed registration
statements, which are “formal documents” for
which readers “do not, and are right not to, expect
opinions contained in those statements to reflect baseless,
off-the-cuff judgments, of the kind that an individual might
communicate in daily life.” Omnicare, 135
S.Ct. at 1330. Proxy statements fit that description as well.
Omnicare's logic can be extended to the context
of this case.
defendants argue that even if the logic of Omnicare
applies, a reasonable reader of the proxy would not
understand there to be any misleading omission. See
Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016)
(“The core inquiry [under Omnicare] is whether
the omitted facts would ‘conflict with what a
reasonable investor would take from the statement
itself.'” (quoting Omnicare, 135 S.Ct. at
1329)). Page 2 of the proxy stated that “[a]fter
careful consideration, the PHC board of directors . . .
determined that the merger agreement is fair to, and in the
best interests of, the stockholders of PHC.” Docket No.