On September 18, 2019, Judge Charles P. Kocoras of the United States District Court for the Northern District of Illinois dismissed a putative class action against a pharmaceutical company asserting claims under Section 10(b) of the Securities Exchange Act and Section 14(e) of the Williams Act. Walleye Trading LLC v. AbbVie, Inc., No. 18 C 05114, 2019 WL 4464392 (N.D. Ill. Sept. 18, 2019). Plaintiff alleged that the company’s statement announcing the preliminary results of a tender offer contained misrepresentations regarding the number of shares tendered and the price per share at which the tendered shares would be acquired, which later had to be corrected in a revised statement. The Court held that plaintiff failed to allege that the alleged misrepresentation was false when made or to adequately allege a strong inference of scienter.
The Court first determined that plaintiff failed to identify an actionable false statement for purposes of Section 10(b) of the Exchange Act. Id. at *3. The Court emphasized that the factual allegations in the complaint “contradict any reasonable inference that [the company] knew its statements were false when made,” as the complaint alleged that the depositary for the tender offer notified the company of the error after the initial tender offer statement was issued. Id. at *4. The Court stressed that the fact that the initial tender offer statement later had to be corrected did not show that it was false when made. Id.
The Court also concluded that plaintiff failed to allege any facts supporting an inference of scienter. Id. The Court rejected plaintiff’s argument that, because the company allegedly had access to the depositary’s information, it could have verified the accuracy of the information it received and was reckless in failing to do so. Id. The Court emphasized that this argument was based on allegations regarding the “typical” practice by depositaries to advise issuers respecting the number of shares tendered and therefore did not satisfy the PSLRA’s pleading standard to state with particularity facts giving rise to a strong inference of scienter. Id.
The Court also dismissed plaintiff’s claim under Section 14(e) of the Williams Act, which the Court emphasized was a “broad antifraud provision … designed to ensure that shareholders confronted with a tender offer have adequate and accurate information on which to base the decision of whether or not to tender their shares.” Id. (citing Panter v. Marshall Field & Co., 646 F.2d 271, 283 (7th Cir. 1982)). The Court held that because the tender offer had already expired by the time of the alleged misstatements, it was not possible for plaintiff to have relied on them in making the decision to tender or not. Id. at *4-5. In this regard, the Court rejected plaintiff’s argument that it was sufficient under Section 14(e) that the alleged fraud “coincided” with the transaction.