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 FOR JUDGMENT
Sorokin United States District Judge
class action case, brought by and on behalf of William Chase
and other similarly situated holders (“the May
class”) of the common stock of American DG Energy Inc.
(“American DG”), arises out of the 2017 merger of
American DG and Tecogen Inc. (“Tecogen”). Doc.
No. 34. The case essentially alleges that the merger of
American DG and Tecogen (“the merger”) was the
result of a conflicted sales process that undervalued the
common stock of American DG. See id. On March 2,
2018, the Court dismissed May's federal securities law
claims. Doc. No. 55. Remaining are Counts III, IV, and V,
which allege that the directors, co-CEOs, and certain
controlling shareholders of American DG and
Tecogen breached their fiduciary duties in
connection with the merger (Counts III and IV); and that
George Hatsopoulos, former American DG chairperson and
Tecogen director, and certain entities aided and abetted
in that breach (Count V). Doc. No. 34 ¶¶ 134-45.
Now, the defendants have moved for judgment on the pleadings
under Rule 12(c) of the Federal Rules of Civil Procedure as
to all remaining counts. Doc. No. 71. Plaintiffs have
opposed. Doc. No. 77.
DG and Tecogen are energy companies with complementary
businesses. American DG distributes and operates on-site
combined heat and power systems and natural gas powered
cooling systems. Doc. No. 34 ¶ 24. Tecogen designs,
manufactures, and sells combined heat and power systems.
Id. ¶¶ 25, 50. Prior to the merger, the
companies were “affiliated, ” id. ¶
47; they shared co-founders, brothers John Hatsopoulos
(“J. Hatsopoulos”) and George Hatsopoulos
(“G. Hatsopoulos”); co-CEOs, John Hatsopoulos and
Benjamin Locke; certain members of senior management,
directors, and ownership; and office space. Id.
¶¶ 3, 27-28, 50. In 2014 and 2015, nearly 10
percent of Tecogen's total revenues came from sales of
cogeneration parts and services to American DG. Id.
2010, American DG established EuroSite Power
(“EuroSite”), a subsidiary of American DG.
Id. ¶ 72. As was the case with American DG and
Tecogen, the leadership and ownership of American DG and
EuroSite overlapped. Id. ¶¶ 72-73. Between
2011 and 2012, American DG issued convertible debentures to
J. Hatsopoulos and two other owners of Tecogen common stock
in an amount of $19.4 million, which remained outstanding
until early 2016. Id. ¶ 75.
of a merger between the two companies began in early 2016.
Id. ¶ 63. The initial discussions took place
informally and included J. Hatsopoulos, Benjamin Locke, and
outside counsel for both companies, as well as the management
teams of both companies. Id. ¶¶ 63-64.
These initial meetings were not disclosed to either
company's board of directors at the time that the
meetings were ongoing. Id. In March 2016, J.
Hatsopoulos and Locke informed the board of directors of each
company of the merger discussions, leading each board to
create a committee of independent directors to negotiate the
merger. Id. ¶ 65. The committees were solely
tasked with evaluating the Tecogen-American DG merger and did
not run a competitive auction or otherwise explore other
potential acquirors. Id. ¶ 68. During the first
month after its formation, the American DG committee
discussed on several occasions a transaction that would
eliminate the American DG convertible debt. Id.
¶ 77. On April 25, 2016, following these discussions,
the board of American DG approved a transaction in which the
convertible debt of American DG was exchanged for shares of
EuroSite with an exchange price of $0.575 per share of
EuroSite stock used to calculate the number of EuroSite
shares exchanged for the convertible debt. Id.
¶ 77-78. (At the time, the market price per share of
EuroSite was $0.75 per share. Id. ¶ 78.)
American DG and Tecogen independent committees continued to
meet discuss, evaluate, and negotiate the merger of American
DG and Tecogen until October 31, 2016 when a merger agreement
was negotiated. See Doc. No. 73-3 at 102-109. The agreement
reflected the committees ultimately negotiated purchase price
of $0.38 per share of Tecogen, which the parties settle upon
after discussing prices ranging from $0.29 to $0.41 per
share. Id. Each committee of independent directors
recommended the merger to their respective boards of
directors. Id. at 108-09. Following these
recommendations, each company's board of directors
unanimously approved the merger. Id. at 109-10. On
November 1, 2016, the agreement of merger was executed by
American DG and Tecogen, and, on November 2, 2016, American
DG and Tecogen announced their plan of merger, upon the
consummation of which Merger Sub, a wholly owned subsidiary
of Tecogen formed for the purpose of effecting the merger,
merged with and into American DG, with American DG continuing
as the surviving corporation as a wholly owned subsidiary of
Tecogen. See Doc. No. 34 ¶ 2; 73-3 at 2.
time the merger was announced, co-founders J. and G.
Hatsopoulos each had leadership roles in the companies. J.
Hatsopoulos was the co-CEO of both companies and served as
director of each, while G. Hatsopoulos was a technical
advisor to American DG and had previously served as
chairperson of the board of directors for American DG and on
the board of directors for Tecogen. Doc. No. 34 ¶ 4. The
two brothers, together with their families, also beneficially
owned or controlled more than 34 percent of American DG stock
and more than 23 percent of Tecogen common stock.
Id. ¶ 5. As of March 9, 2017, the Hatsopoulos
brothers collectively held 17.4 million shares of American DG
common stock and 4.6 million shares of Tecogen common stock.
Id. ¶ 51. By virtue of their ownership
interests in American DG and Tecogen, the brothers,
“with a small group of other major shareholders, ha[d]
the ability to control various corporate decisions, including
[the two companies'] direction and policies, the election
of directors, the content of [the] charter and bylaws and the
outcome of any other matter requiring shareholders'
approval, including a merger.” Id.
proxy statement issued to shareholders described the merger
agreement negotiation process and the two companies'
overlapping leadership and ownership. See Doc. No.
73-3 at 101-09, 112. Stockholders overwhelmingly voted in
favor of the merger, and, on May 18, 2017, the merger was
executed. Doc. No. 73-4.
12(c) of the Federal Rules of Civil Procedure provides,
“After the pleadings are closed-but early enough not to
delay trial-a party may move for judgment on the
pleadings.” Fed.R.Civ.P. 12(c). “The standard of
review of a motion for judgment on the pleadings under
Federal Rule of Civil Procedure 12(c) is the same as that for
a motion to dismiss under Rule 12(b)(6).”
Marrero-Gutierrez v. Molina, 491 F.3d 1, 5 (1st Cir.
2007). To survive a motion to dismiss under Rule 12(b)(6) of
the Federal Rules of Civil Procedure, a complaint must
contain sufficient factual matter, accepted as true, to
“state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). The Court “must take the allegations
in the complaint as true and must make all reasonable
inferences in favor of the plaintiff.” Watterson
v. Page, 987 F.2d 1, 3 (1st Cir. 1993). “[F]actual
allegations” must be separated from “conclusory
statements in order to analyze whether the former, if taken
as true, set forth a plausible, not merely a conceivable,
case for relief.” Juarez v. Select Portfolio
Servicing, Inc., 708 F.3d 269, 276 (1st Cir. 2013)
(internal quotations omitted). This highly deferential
standard of review “does not mean, however, that a
court must (or should) accept every allegation made by the
complainant, no matter how conclusory or generalized.”
United States v. AVX Corp., 962 F.2d 108, 115 (1st
Cir. 1992). Dismissal for failure to state a claim is
appropriate when the pleadings fail to set forth
“factual allegations, either direct or inferential,
respecting each material element necessary to sustain
recovery under some actionable legal theory.”
Centro Medico del Turabo, Inc. v. Feliciano de
Melecio, 406 F.3d 1, 6 (1st Cir. 2005) (quoting
Berner v. Delahanty, 129 F.3d 20, 25 (1st Cir.
Breach of Fiduciary Duty against J. and G. Hatsopoulos in
Their Capacity as Control Group
IV alleges that J. and. G. Hatsopolous breached their
common-law “fiduciary duties of loyalty, care, and good
faith owed to [American DG's] unaffiliated shareholders
by placing their personal interests ahead of the interests
of” May and similarly situated shareholders “and
foisting an unfair transaction, both in terms of process and
price” on them. Doc. No. 34 ¶ 139. “Because
they acted in concert as a control group and stood on both
sides of the [m]erger, ” May claims that they