Allergan Inc et al v. Valeant Pharmaceuticals International Inc et al

Filing 48

ORDER by Judge David O. Carter, Denying EX PARTE APPLICATION to Expedite Proceedings 11 . (twdb)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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SOUTHERN DIVISION

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ALLERGAN, INC., et al.,

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Plaintiffs,
vs.

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VALEANT PHARMACEUTICALS
INTERNATIONAL, INC., et al.
Defendants.

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) Case No.: SACV 14-1214 DOC(ANx)
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) ORDER DENYING MOTION FOR
) EXPEDITED PROCEEDINGS
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Before the Court is Plaintiffs’ request for expedited proceedings. Allergan, Inc.

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(“Allergan”) and Karah M. Parschauer (collectively, “Plaintiffs”) initially filed an ex parte

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application for expedited proceedings on Aug. 4, 2014 (“Ex Parte App.”) (Dkt. 11). Valeant

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Pharmaceuticals International, Inc., Valeant Pharmaceuticals International, and AGMS, Inc.

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(“Valeant”) and Pershing Square Capital Management, LP, PS Management, GP, LLC, PS Fund

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1, LLC, and William A. Ackman (“Pershing Square”) (collectively, “Defendants”) jointly

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opposed the application (“Ex Parte Opp.”) (Dkt. 15). This Court issued a minute order on Aug.

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7, 2014 denying the ex parte application, and construing it instead as a motion for an expedited
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schedule (Dkt. 24). Defendants filed another opposition (“Rule 57 Opp.”) (Dkt. 34) and

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Plaintiffs filed a reply (“Reply”) (Dkt. 37). Defendants then filed a sur-reply (“Sur-Reply”) (Dkt.

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38). After reviewing the papers and considering the arguments at the hearing, the Court DENIES

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the motion.

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I.

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This case arises out of Plaintiffs’ allegations that Defendants violated federal securities

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laws and regulations in connection with Valeant’s tender offer for Allergan and in connection

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with Valeant’s and Pershing Square’s proxy solicitations.

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Background

A. Alleged Securities Law Violations
Plaintiffs’ core allegations are based on Section 14(e) of the Williams Act, 15 U.S.C. §

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78n(e). Compl. ¶ 52. Section 14(e) prohibits “fraudulent, deceptive, or manipulative acts or

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practices, in connection with any tender offer.” Rule 14e-3(a), 17 CFR 240.14e-3(a), provides

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that when an “offering person” “has taken a substantial step or steps to commence . . . a tender

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offer,” it shall be unlawful for “any other person” to purchase or sell securities or options if 1)

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he receives nonpublic, material information about the tender offer directly or indirectly from the

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offering person, and 2) the information has not been publicly disclosed. Relatedly, Rule 14e-

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3(d), 17 CFR 240.14e-3(d), makes it unlawful for an “offering person” to communicate

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“material, nonpublic information relating to a tender offer to any other person under

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circumstances in which it is reasonably foreseeable that such communication is likely to result in

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a violation of this section.”

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Plaintiffs allege that the Pershing Square Defendants acquired their 9.7% stake in

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Allergan after Valeant gave them confidential information about its plans to make a tender offer

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for Allergan. Plaintiffs allege that Valeant was an “offering person” because Valeant had already

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begun hiring lawyers and having board committee meetings to discuss a transaction with

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Allergan. Compl. ¶ 52, 54. Defendants respond that Valeant and Pershing Square cannot be

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considered an “offering person” and “any other person,” respectively, because Valeant and

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Pershing Square were co-bidders acting through PS Fund 1, a joint venture. Ex Parte Opp. at 4;

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Rule 57 Opp. at 3.
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Plaintiffs also allege that the Defendants made various material misstatements and

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omissions related to Valeant’s tender offer and Valeant’s and Pershing Square’s proxy

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solicitations in violation of Sections 13(d), 14(a), and 14(e) of the Securities Exchange Act of

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1934 and regulations issued thereunder. Compl. ¶ 132-158.

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B. Hostile Takeover Context

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Valeant is currently attempting a hostile takeover of Allergan. Allergan’s board has

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already rejected several bids by Valeant and has enacted a “poison pill” stockholder rights plan

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that prevents any one group of stockholders, e.g., PS Fund 1, from accumulating a larger stake

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in Allergan. Ex Parte App. (Dkt. 11), at 4. In order to remove the poison pill so that it can

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proceed with its tender offer, Valeant is now appealing directly to Allergan’s shareholders to

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replace six of nine Allergan board members with directors who are friendlier to Valeant’s

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acquisition. Id. at 1-2.

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Under Allergan’s bylaws, a special shareholders meeting shall be called if holders of 25%

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of Allergan’s shares submit valid request forms. Allergan cannot call a meeting if federal

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securities laws were violated in soliciting the request forms. Id. at 2. Defendants represented to

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this Court at oral argument that they have collected the required number of forms and intend to

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request a special meeting. Hr’g Tr. 64:18-24, Aug. 20, 2014. Once the request has been made,

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Allergan’s directors have a “reasonable period of time” within which to decide whether a special

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meeting should be called. Ex Parte App. at 2. Plaintiffs represented at oral argument that they

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believe 120 days to be a reasonable time; Defendants similarly interpret Allergan’s bylaws to

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require a decision within 120 days. Hr’g Tr. 99; Ex Parte Opp. at 3.

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Pursuant to Federal Rule of Civil Procedure 57, Plaintiffs seek a quick resolution of

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whether the Valeant Defendants violated federal securities laws in their actions related to the

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tender offer and proxy solicitations thus far, so that its directors will be able to make an

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informed decision about whether to call the special meeting. Ex Parte App. at 9-10.

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II.

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Under Federal Rule of Civil Procedure 57, “[t]he court may order a speedy hearing of a

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Legal Standard

declaratory judgment action.” A declaratory judgment allows a party to seek a ruling on his
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prospective rights before an “actual controversy . . . has . . . reached a stage at which either party

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may seek a coercive remedy and in cases where a party who could sue for coercive relief has not

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yet done so.” Seattle Audubon Soc. v. Moseley, 80 F.3d 1401, 1405 (9th Cir. 1996). Declaratory

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judgment allows the party to clarify what his obligations are, so that he can avoid future

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lawsuits. Id. A declaratory judgment is appropriate “whether or not further relief is or could be

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sought.” 28 U.S.C. § 2201; Fed. R. Civ. P. 57 (“The existence of another adequate remedy does

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not preclude a declaratory judgment that is otherwise appropriate.”).

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“[D]istrict courts possess discretion in determining whether and when to entertain an
action under the Declaratory Judgment Act.” See Wilton v. Seven Falls Co., 515 U.S. 277, 282

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(1995); see also Fed. R. Civ. P. 57 (“The court may order a speedy hearing of a declaratory-

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judgment action.”) (emphasis added). One factor that a district court may consider is whether

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declaratory judgment would “terminate the controversy” or at least substantially narrow the

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issues. Fed. R. Civ. P. 57 Advisory Committee Notes; Klungvedt v. Unum Grp., No. 2:12-CV-

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00651 JWS, 2012 WL 2368623, at *3 (D. Ariz. June 21, 2012) (granting speedy hearing under

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Rule 57 on ERISA claim because it would be dispositive as to state law claims); Chevron Corp.

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v. Donziger, 800 F. Supp. 2d 484, 491 (S.D.N.Y. 2011) (explaining that decision on

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enforceability of judgment “probably would be dispositive of the unjust enrichment count,

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dramatically narrow or eviscerate the RICO and fraud claims . . . .”). Other factors include

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whether there is a pending state court proceeding, Wilton, 515 U.S. at 283; whether the facts are

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relatively undisputed; and whether the plaintiff shows the need for urgency. See Fed. R. Civ. P.

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57 Advisory Committee Notes (“A declaratory judgment is appropriate when it will ‘terminate

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the controversy’ giving rise on undisputed or relatively undisputed facts.”); Anderson v.

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Pictorial Prods., Inc., 232 F. Supp. 181, 182 (S.D.N.Y. 1964) (denying request for speedy

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hearing because plaintiff’s delay in filing the lawsuit showed that the matter was not urgent);

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Tri-State Generation & Transmission Ass’n, Inc. v. BNSF Ry. Co., CV08-272-PHX-MHM, 2008

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WL 2465407, at *6-7 (D. Ariz. June 17, 2008) (granting request for speedy hearing where

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resolution of plaintiff’s declaratory judgment claim was likely dispositive of the matter and

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where the claim was fairly straightforward and simple).
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III.

Discussion

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The parties have two core areas of disagreement: 1) whether declaratory judgment

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is available in this case, i.e., whether Rule 57 applies to this case, as a legal matter; and,

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2) even if so, whether a speedy hearing is appropriate, which is a matter of discretion for

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the Court. For the reasons discussed below, the Court finds that Rule 57 does apply.

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However, the Court declines to exercise its discretion to order expedited proceedings.
i. Whether Rule 57 Applies

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Defendants argue that declaratory judgment is inappropriate altogether because

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Plaintiffs are not seeking a declaration of future rights in a context where Plaintiffs’

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obligations are unclear. Defendants contend that Plaintiffs’ claims are based on past

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wrongs, are already ripe, and that their claims to damages and injunctive relief have

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already accrued. See Rule 57 Opp. at 12-13.

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However, under the case law and the plain language of Rule 57’s advisory notes

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and 28 U.S. § 2201, Plaintiffs’ claims for damages and injunctive relief are not a barrier

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to declaratory relief. Plaintiffs seek declaratory judgment in order to clarify its future

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obligations under Allergan’s bylaws, so that Allergan’s board will not take an invalid

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action that will expose Allergan to future litigation. See Ex Parte App. 9-10. This is the

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purpose of declaratory judgments. Seattle Audubon Soc., 80 F.3d at 1405. Thus, Rule 57

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applies.

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ii. Whether a Speedy Hearing is Merited
As discussed above, Plaintiffs seek a speedy hearing so that Allergan’s board can make

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an informed decision as to whether a special meeting should be called. Plaintiff also claims that

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the expedited schedule will help stabilize Allergan’s stock price and prevent harm to Allergan’s

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current and potential investors. Mot. at 11.

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Defendants’ argue that an expedited schedule is not needed because Plaintiffs’ delay in

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filing the complaint shows that their claims are not urgent. Defendants claim that if Plaintiffs

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were truly interested in expediting proceedings, they would not have waited to file a complaint

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until August even though they have known since June 2014 about Valeant’s tender offer and the
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insider trading events they complained about happened mostly in February and April 2014. Rule

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57 Opp. at 7. Defendants assert that, although Plaintiffs claim to seek speedy resolution of their

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claims, Plaintiffs are actually trying to delay holding the shareholder meeting. On August 1,

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2014, the same day that Plaintiff Allergan filed its complaint in this Court, Allergan wrote a

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letter to the Chancery Court in Delaware notifying that court of Allergan’s action in this Court

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and stating its position that it believes that the Delaware court should decide any Delaware state

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law questions (such as interpretation of the bylaws). Id. Ex. 5 at 94. Defendants interpret the

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letter as an implied request for the Delaware court to stay anticipated litigation in Delaware

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pending this Court’s resolution of Allergan’s federal securities law claims. If the Delaware court

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decides to stay its own proceedings, then Allergan will have incentive to delay this Court’s

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proceedings as much as possible. Id. at 17-18.

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The Court finds neither side’s arguments entirely persuasive. Complaints take time to

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investigate and develop; filing a complex case within a few months of discovering a harm does

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not necessarily mean that a matter is not urgent, especially when there appear to be new

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developments every few days in this live battle for corporate control.

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On the other hand, although potentially imminent, neither the formal request for a special

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meeting nor the actual shareholder meeting has happened yet. It is also not clear that Allergan’s

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bylaws require Allergan’s directors to wait for the Court to resolve the claims before they can

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act. Since the parties have not sought the Court’s interpretation of the bylaws and in fact insist

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that such interpretation is a matter for the Delaware state court, Rule 57 Opp., Ex. 5, at 94; Ex

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Parte Opp. at 3 n.2, the Court will refrain from opining on what Allergan’s bylaws mean. Even

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if the bylaws did have such a requirement, however, the Court would be reluctant to create a

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precedent that allows corporations to demand at will the immediate attention and input of the

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federal courts in order to resolve intra-corporate disputes that might be better left to the dynamic

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free market or to the state court.

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The Court is also concerned that the facts in this case are complex and “vigorously”

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disputed. Ex Parte Opp. at 4. For instance, in order to resolve the Section 14(e) insider trading

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claims, the Court would have to determine whether Valeant and Pershing Square were acting as
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co-bidders through PS Fund 1, which Defendants claim is a joint venture, or whether Valeant

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and Pershing Square were acting as separate “person[s]” within the meaning of the Securities

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Exchange Act § 14(e). This is likely a fact-intensive question that would benefit from more than

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limited discovery.

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The Court appreciates the seriousness of Plaintiffs’ federal securities laws claims.

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However, the Court does not see sufficient justification at this time for accelerating Plaintiffs’

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case over all the others waiting in the docket.

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IV.

Disposition

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Thus, the Court DENIES Plaintiff’s motion for expedited proceedings.

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DATED:

August 21, 2014
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DAVID O. CARTER
UNITED STATES DISTRICT JUDGE

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