United States District Court, D. Massachusetts
LEE VARDAKAS, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
AMERICAN DG ENERGY INC., JOHN N. HATSOPOULOS, GEORGE N. HATSOPOULOS, et. al., Defendants.
ORDER ON MOTION TO DISMISS
Sorokin United States District Judge.
class action case, brought by and on behalf of William Chase
and other similarly situated holders (“the Vardakas
class”) of the common stock of American DG Energy Inc.
(“American DG”), alleges American DG; Tecogen;
Tecogen.ADGE Acquisition Corp. (“Merger Sub”);
Cassel Salpeter & Co., LLC (“Cassel”); and
various individuals violated securities laws and state common
law duties all in connection with the merger of American DG
and Tecogen. The Defendants filed a joint Motion to Dismiss,
Doc. No. 41, and May, on behalf of May and the Vardakas
class, opposed, Doc. No. 45.
February 15, 2017, Vardakas commenced this class action,
essentially alleging the merger between Defendants American
DG and Tecogen was the result of a conflicted sales process,
which undervalued the common stock of American DG, and that
the Defendants disseminated a misleading Form S-4
Registration Statement containing material omissions in order
to convince American DG's unaffiliated shareholders to
vote in favor of the unfair transaction.
April 21, 2017, William Chase May and Lee Vardakas jointly
moved to appoint May as lead plaintiff in the action, Doc.
No. 18, and on May 2, 2017, the Court granted their motion,
Doc. No. 25. Thereafter, on June 19, 2017, May filed an
amended class action complaint (“the Complaint”),
identifying May as the lead plaintiff. Doc. No. 34.
19, 2017, the Defendants filed a motion to dismiss the
amended complaint. Doc. No. 41.
THE COMPLAINT'S ALLEGATIONS
Complaint alleges five counts against Defendants all arising
from the proposed (now consummated) merger of American DG and
Tecogen. Doc. No. 34. First, the Complaint alleges all
Defendants violated Section 14(a) of the Exchange Act of 1934
(“Exchange Act”), 15 U.S.C. § 78n(a), and
Rule 14a-9 promulgated thereunder, 17 CFR § 240.14a-9,
by preparing, reviewing, and disseminating an incomplete and
misleading proxy statement to shareholders (Count I). Doc.
No. 34 at ¶¶ 113-25. Second, it alleges the
Director and Officer Defendants violated Section 20(a) of the
Exchange Act, 15 U.S.C. § 78t(a), by exercising control
over American DG and Tecogen during which time American DG
and Tecogen violated the Exchange Act (Count II).
Id. at ¶¶ 126-33. Third, it claims that
the Director and Officer Defendants, as well as John and
George Hatsopoulos, breached their common law fiduciary
duties owed to American DG shareholders by virtue of their
positions as directors and officers, and as control group,
respectively (Counts III and IV). Id. at
¶¶ 134-41. Finally, the Complaint alleges George
Hatsopoulos, Tecogen, and Merger Sub are liable for aiding
and abetting the Director and Office Defendants in breaching
their common law fiduciary duties (Count V). Id. at
survive a motion to dismiss, a complaint “must provide
fair notice to the defendants” and “contain
sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face.” Bruns v.
Mayhew, 750 F.3d 61, 71 (1st Cir. 2014) (citation and
internal quotation marks omitted); Ashcroft v.
Iqbal, 556 U.S. 662, 678 (citation and internal
quotation marks omitted). “The plausibility standard is
not akin to a ‘probability requirement, ' but it
asks for more than a sheer possibility that a defendant has
acted unlawfully.” Iqbal, 556 U.S. at 678
(citation omitted); see also id. at 679 (noting that
a complaint must “permit the court to infer more than
the mere possibility of misconduct”) (citation
omitted). “Determining whether a complaint states a
plausible claim for relief will . . . be a context-specific
task that requires the reviewing court to draw on its
judicial experience and common sense.” Id. at
679 (citation omitted).
Section 14(a)/Rule 14a-9 Claims
Rule 14a-9, promulgated pursuant to Section 14(a) of the
Exchange Act, prohibits solicitation by means of a proxy
statement containing “any statement which, at the time
and in the light of the circumstances under which it is made
. . . omits to state any material fact necessary in order to
make the statements therein not false or misleading.”
17 CFR § 240.14a-9(a).
prevail on a claim under SEC Rule 14a-9, a plaintiff must
show “(1) the proxy statement contained a material
misstatement or omission, which (2) caused plaintiff's
injury, and (3) that the proxy solicitation . . . was an
essential link in the accomplishment of the
transaction.” In re JP Morgan Chase Secs.
Litig., 363 F.Supp.2d 595, 636 (S.D.N.Y. 2005).
omitted fact is material if there is a substantial likelihood
that a reasonable shareholder would consider it important in
deciding how to vote.” TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 449 (1976). “It does
not require proof of a substantial likelihood that disclosure
of the omitted fact would have caused the reasonable investor
to change his vote . . . [but just that it] would have
assumed actual significance in the deliberations of a
reasonable shareholder . . . [i.e., ] would have been viewed
by the reasonable investor as having significantly altered
the ‘total mix' of information made
available.” Id. “The ‘total
mix' of information available to a shareholder may
include information outside of the proxy statement itself
where, given the particular solicitation, a reasonable
investor would be likely to consider such outside
information.” Kaplan v. First Hartford Corp.,
447 F.Supp.2d 3, 8 (D. Mass. 2006). With respect to the
causation element, “[s]o long as the misstatement or
omission was material, the causal relation between violation
and injury is sufficiently established” if “the
proxy solicitation itself . . . was an essential link in the
accomplishment of the transaction.” TSC
Indus., 426 U.S. at 444.
“under the additional pleading requirements imposed by
the Private Securities Litigation Reform Act
(“PSLRA”), in order to survive a motion to
dismiss, the plaintiff must specify each statement alleged to
have been misleading [or rendered misleading by a material
omission] and the reason or reasons why the statement is
misleading.” Ganem v. InVivo Therapeutics Holdings
Corp., 845 F.3d 447, 454-55 (1st Cir. 2017) (quotation
omitted); 15 U.S.C. § 78u-4 (“In any private
action arising under [the Exchange Act] in which the
plaintiff alleges that the defendant . . . (B) omitted to