Montanio v. Keurig Green Mountain, Inc. et al
OPINION AND ORDER granting 27 Motion to Dismiss; granting 32 Motion to Dismiss for Failure to State a Claim. Signed by Judge Geoffrey W. Crawford on 2/16/2017. (esb)
U.S. DISTRICT COURT
DISTRICT Of VERMONT
UNITED STATES DISTRICT COURT
DISTRICT OF VERMONT
KYLE MONTANIO, Individually and on
Behalf of All Others Similarly Situated,
KEURIG GREEN MOUNTAIN, INC.,
BRIANP. KELLEY, NORMANH.
WESLEY, BARBARA D. CARLINI, JOHN
D. HAYES, A.D. DAVID MACKAY,
MICHAEL J. MARDY, HINDA MILLER,
DAVIDE. MORAN, JOSE OCTAVIO
REYES LAGUNES, SUSAN SALTZBART
KILSBY, ROBERT A. STEELE, JAB
HOLDINGS B.V., ACORN HOLDINGS
B.V., and MAPLE HOLDINGS
2011 FEB 16 PH 2: 26
Case No. 5:16-cv-19
OPINION AND ORDER ON MOTIONS TO DISMISS
(Docs. 27, 32)
This is a direct shareholder class action lawsuit in which the lead plaintiff,
Kyle Montanio, a former shareholder ofKeurig Green Mountain, Inc. ("Keurig"), has sued
Keurig, Keurig's former CEO, members ofKeurig's former Board of Directors, and the
corporate investors that bought out Keurig in a deal completed in March 2016. He alleges that,
in connection with the proposed merger, Defendants disseminated a materially false and
misleading proxy statement, in violation of Sections 14(a) and 20(a) of the Securities Exchange
Act of 1934, 15 U.S.C. §§ 78n(a), 78t(a), and Rule 14a-9, 17 C.F.R. § 240.14a-9. Defendants
have moved to dismiss the complaint for failure to state a claim. (Docs. 27, 32.)
The court held a hearing on the motion on September 14, 2016. Counsel was allowed
until September 26 to file posthearing memoranda. No supplemental filings were made and the
motion was taken under advisement on September 26, 2016.
The complaint names the following defendants: Keurig Green Mountain, Inc.; Brian
Kelley (former CEO ofKeurig and a former member of its Board); Norman Wesley (former
Chairman of the Board); the following former members of the Board: Barbara Carlini, John
Hayes, A.D. David Mackay, Michael Mardy, Hinda Miller, David Moran, Jose Reyes Lagunes,
Susan Kilsby, and Robert Steele; JAB Holdings B.V. (the company that bought Keurig); Acom
Holdings B.V. (a subsidiary of JAB Holdings); and Maple Holdings Acquisition Corp. (a
subsidiary of Acom). (Doc. 22 ,-i,-r 21-37.)
The following facts are taken from the complaint and the documents incorporated by
reference into the complaint (primarily the proxy statement in question). See Subaru Distribs.
Corp. v. Subaru ofAm., Inc., 425 F.3d 119, 122 (2d Cir. 2005).
Keurig is best known for its line ofKeurig Hot brewing systems-countertop kitchen and
office appliances that brew single servings of coffee, tea, and other beverages through the use of
small "K-Cup" pods filled with coffee grounds, tea leaves, or other bases. (Doc. 22 ,-i 40.) The
Keurig hot brewers were quite successful, and through 2014, the company's financial prospects
were bright. In the fourth quarter of fiscal year 2014, Keurig achieved 14% revenue growth for
the quarter and 8% for the year. Its stock reached a high of $154.27 per share in November
2014. (Id. 42-45.)
During 2014 Keurig began developing a new appliance, dubbed Keurig Kold, that would
allow consumers to make cold beverages instantly from single-serving pods. (Doc. 22 if 47.)
The Kold was to be "game changing" with a "rapid chilling system" and a "carbonation
process." (Id.) Like the K-Cups for the hot brewers, single-serving pods for the Keurig Kold
would be available from a variety of popular soft drink brands. (Id.) The company invested
more than $125 million in the development of the Kold system. (Id.
Coca-Cola was particularly interested in Keurig and the Keurig Kold system. In
February 2014, it acquired a 10% stake in Keurig (it would later increase its stake to 17.4%,
becoming Keurig's largest shareholder) and signed a 10-year agreement to develop Coca-Cola
branded products for the Kold system. (Doc. 22 iii! 46-48.)
Throughout 2014 and early 2015, Keurig's management, including its CEO Brian Kelley,
were optimistic about the future success ofKold. According to the complaint, they "heavily
hyped" the Kold system in quarterly and yearly earnings announcements. (Doc. 22 iii! 49-53,
59-62.) At the same time, however, those statements reported weaker-than-expected revenue
from the Keurig hot brewers and pods. (Id.
if 58.) The statements emphasized that the lower
revenue was based only on transitory factors. (Id.
In January 2015, "Party X" approached Kelley about a possible merger with Keurig.
(Doc. 22 if 54.) Party X offered to pay a premium over Keurig's stock price-then $129.00-but
Keurig's management and Board of Directors declined to seriously consider the offer, in light of
the "value creation potential from the long-term growth of the Keurig hot system, the anticipated
launch of the Keurig Kold system later in 2015 and subsequent opportunities to provide products
in other high-margin cold beverage categories using the Kold system." (Doc. 22 if 54.) 1 Party X
The complaint frequently uses typeface that is both italicized and bolded. The court has
followed the italics, but has omitted the bold typeface for the sake of clarity. The court also
omits intellectual property symbols from any passages quoted from either the complaint or the
again inquired about acquiring Keurig on June 22, but Kelley again "dismissed Party X in light
of the projected success ofKeurig Kold." (Id.
A month later, Olivier Goudet, the CEO of JAB Holdings, inquired about acquiring
Keurig. (Doc. 22 if 64.) At a meeting on July 21, 2015, Goudet told Kelley and Frances Rathke,
Keurig's Chief Financial Officer, that "further developing a relationship with Keurig was a top
priority of JAB Holding." (Id.
On August 26 and 27, 2015, members of the Board met with senior management to
discuss Keurig's difficulties in 2015 and anticipated challenges in 2016. At this meeting,
management provided the Board with updated "financial projections that had initially been
prepared for and shared only with financing sources in connection with Keurig's new credit
facility earlier in 2015." (Doc. 28-2 at 43; accord Doc. 22 if 67.) The projections estimated that
the revenue from Keurig Kold would grow substantially and that by 2022, it would even surpass
the expected revenues for Keurig hot brewers. (Doc. 22 if 56.) At a meeting on August 28,
Goudet again told Kelley and Rathke that JAB Holdings still wanted to "develop a relationship
with Keurig," but Kelley informed him that Keurig was not for sale. (Id.
if 68; Doc. 28-2 at 43.)
On September 11, at a meeting between representatives ofKeurig and Party X, a
representative of Party X stated that it was no longer interested in acquiring Keurig. (Doc. 22
if 99; Doc. 28-19 at 3.)
Keurig formally launched Keurig Kold on September 29, 2015. (Doc. 22 if 57.)
A little more than a week later, Goudet telephoned Kelley asking to meet for dinner
because he had a "'very compelling' proposal to make." (Doc. 22 if 69.) At the dinner, on
October 15, Goudet made his initial offer: JAB Holdings would acquire Keurig for $85.00 in
cash per share. (Id.) The Board rejected the offer as too low at a meeting on October 19, and
eight days later, Goudet increased the offer to $88.00 per share. (Id.
representatives also specified that it would withdraw the offer ifKeurig attempted to generate
competing bids. (Doc. 28-2 at 46.)
According to Plaintiff, this offer "was nowhere near the ballpark of fair value for
Keurig," and the Board members knew it. (Doc. 22 iii! 72-73.) Party X had been willing in June
to pay more than $129.00 per share for the company. Because the Board was now interested in
selling the company to JAB Holdings, they needed "to develop a creative way to artificially
lower the Company's value in order to support a deal price that JAB Holdings would be willing
to pay." (Id.
"Keurig management discovered that by applying a range of probability
weighting percentages to the success ofKeurig Kold, they could arbitrarily slash their own
projections of the future value of the Keurig Kold line, thereby dropping the value of the
Company overall, in order to support virtually any price that JAB Holdings would ultimately
agree to pay." (Id.
But, Plaintiff alleges, the Board did not embrace a particular
probability scenario ''until after the parties agreed on the ultimate deal price," thereby ensuring
that the estimated value of the company would be commensurate with the final share price
offered by JAB Holdings. (Id.)
The Board first considered the $88.00 per share offer at an in-person meeting on
November 12, 2015. (Doc. 28-2 at 46.) Together with senior management, the Board reviewed
"ten-year financial projection materials, which were based on the August 2015 financial
projections made available to the Board but had been revised to reflect management's
preliminary fiscal 2016 budget ... and updated views on Keurig's fiscal 2016 and longer-term
financial performance." (Doc. 28-2 at 46.) Then, with Keurig's financial advisors-Bank of
America Merrill Lynch ("BofA Merrill Lynch") and Credit Suisse-the Board "began to discuss
'preliminary financial perspectives regarding ... Keurig' s Kold business based on different
probability scenarios regarding the success of that new business,"' and authorized continued
negotiations with JAB Holdings. (Doc. 22 if 75; Doc. 28-2 at 46.)
JAB Holdings increased their offer price to $92.00 per share on November 29 after a
week of negotiation. (Doc. 22 if 76.) On December 1, the Board and management considered
the offer and returned to the question of the appropriate "probability weighting" for Keurig
Kold's future success. (Doc. 28-2 at 49.) With a final offer price in hand, "[m]anagement
recommended a 50% probability weighting for Keurig's Kold business in the fiscal year ending
September 25, 2021 and subsequent fiscal years as an appropriate adjustment given the risks
associated with the launch of the new platform," and the Board agreed. (Doc. 28-2 at 49;
Doc. 22 if 76.) It "directed BofA Merrill Lynch and Credit Suisse to use the 50% probability
weighting" for their financial analyses of the deal. (Doc. 22 if 76.)
At a board meeting on December 6, BofA Merrill Lynch and Credit Suisse both informed
the Board that, based on the Board's preferred 50% probability weighting and other factors, the
offer of $92.00 per share was "fair, from a financial point of view," to holders ofKeurig
common stock. 2 (Doc. 28-2 at 50.) The Board then unanimously approved the merger and the
deal was announced the next day. (Id.)
Keurig issued a proxy statement to obtain shareholder support of the merger on
January 12, 2016. (Doc. 22 if 92; Doc. 28-2.) The proxy statement outlines the merger
agreement, provides background information on the negotiations of the merger, details the
conduct of senior management and the Board during those negotiations, includes the financial
projections for Keurig (both with and without the 50% probability weighting applied), includes
The offer of $92.00 per share was a 78% premium over the stock price on December 5.
(Doc. 28-2 at 51.)
financial analyses of the proposed merger by Keurig's two financial advisors (BofA Merrill
Lynch and Credit Suisse), and includes the Board's recommendation that shareholders vote in
favor of the merger. (Doc. 28-2.)
Two weeks later, Plaintiff filed suit, alleging that the proxy statement was materially
false and misleading. (Doc. 1.) Keurig issued supplemental disclosures on February 16.
(Doc. 28-19; Doc. 22 ,-i 99.) The deal was approved by shareholders on February 24, and on
March 3, the merger was officially consummated. (Doc. 22 ,-i 104.) Plaintiff filed an amended
complaint, the one at issue here, on April 27. (Doc. 22.)
The complaint alleges five specific ways in which the proxy statement was materially
false and misleading: (1) the Board's recommendation of the 50% probability weighting was
false and misleading and the proxy failed to disclose a sufficient basis or enough background
supporting that recommendation (Doc. 22 ,-i,-i 78-79, 95-96); (2) the proxy failed to disclose "any
details or discussions" regarding the Board's consideration of alternative scenarios for Keurig
(Id. ,-r 97); (3) it failed to disclose any basis for the Board's belief that other parties would not be
able to offer a higher price for Keurig, even though Party X had made such an offer in June 2015
(Id. ,-i,-i 98-99); (4) it failed to "disclose any details of management's discussions with Goudet"
and whether management had discussed continued roles with Keurig or opportunities to invest
after the buyout (Id. ,-i,-i 100-02); and (5) it failed to disclose the meaning of "Keurig forecasts" in
its summary of the financial analyses ofBofA Merrill Lynch and Credit Suisse, and so made it
unclear whether that term refers to the "Financial Projections" disclosed earlier in the proxy or to
a different, undisclosed set of financial forecasts (Id. ,-i,-i 103-05).
Applicable Legal Standards
Before reaching the merits of the parties' arguments, the court addresses two initial
issues: elements of claims under Section 14(a) and Section 20(a) of the Securities Exchange Act
of 1934, and the elevated pleading standard required by the Private Securities Litigation Reform
Act ("PSLRA"), 15 U.S.C. § 78u-4(b)(l).
Section 14(a) prohibits the solicitation of proxies "in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate in the public interest or
for the protection of investors." 15 U.S.C. § 78n(a). Rule 14a-9(a) prohibits solicitations
"containing any statement which, at the time and in the light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or which omits to state any
material fact necessary in order to make the statements therein non false or misleading."
17 C.F.R. § 240.14a-9(a).
To state a claim under these provisions (collectively "Section 14(a)"), a plaintiff must
allege that: "(1) a proxy statement contained a material misrepresentation or omission, which
(2) caused plaintiffs' injury, and (3) that the proxy solicitation itself, rather than the particular
defect in the solicitation materials, was an essential link in the accomplishment of the
transaction." Bond Opportunity Fund v. Uni/ab Corp., 87 F. App'x 772, 773 (2d Cir. 2004);
accord Police & Fire Ret. Sys. ofDetroit v. SafeNet, Inc., 645 F. Supp. 2d 210, 226 (S.D.N.Y.
"An 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); accord Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1090
(1991). In other words, "there must be a substantial likelihood that the disclosure of the omitted
fact would have been viewed by the reasonable investor as having significantly altered the 'total
mix' of information made available." TSC Indus., 426 U.S. at 449.
A statement of a corporate board's reasoning, belief, or opinion can also be actionable as
a material misrepresentation under Section 14(a). Va. Bankshares, 501 U.S. at 1095-96. The
Supreme Court recognized in Virginia Bankshares that such statements "are factual in two
senses: as statements that the directors do act for the reasons given or hold the belief stated and
as statements about the subject matter of the reason or belief expressed." Id. at 1092. The Court
held that such statements are "knowingly false or misleadingly incomplete" only if they are false
in both senses. Id. at 1095-96. The statements must be subjectively false-they misstate the
actual opinions, beliefs, or motivation of the speaker-and they must be objectively false"false or misleading with respect to the underlying subject matter [the statements] address." Fait
v. Regions Fin. Corp., 655 F.3d 105, 111 (2d Cir. 2011) (citing Va. Bankshares, 501 U.S.
at 1091-96); accord Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 153-54 (S.D.N.Y.
Claims under Section 14(a) are also subject to the heightened pleading standard imposed
by the PSLRA, 15 U.S.C. § 78u-4(b). Bond Opportunity Fund, 87 F. App'x at 773; In re AOL
Time Warner, Inc. Sec. & "ERISA "Litig., 381 F. Supp. 2d 192, 213 (S.D.N.Y. 2004). That
section requires that a complaint alleging that defendants "made an untrue statement of material
fact" or omitted material facts, thereby making their statements misleading, must: (1) "specify
each statement alleged to have been misleading"; (2) "the reason or reasons why the statement is
misleading"; and (3) "if an allegation regarding the statement or omission is made on
information and belief, the complaint shall state with particularity all facts on which that belief is
formed." 15 U.S.C. § 78u-4(b)(l).
Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a), establishes
derivative liability for any person who controls another person who violates securities laws. 3 To
state a claim, a complaint must allege (1) "a primary violation by the controlled person";
(2) "control of the primary violator by the targeted defendant"; and (3) "that the controlling
person was in some meaningful sense a culpable participant in the fraud perpetrated by the
controlled person." SEC v. First Jersey Sec., Inc., 101F.3d1450, 1472 (2d Cir. 1996) (internal
quotation marks and alterations omitted). Because plaintiffs must adequately allege a "primary
violation"-here the plaintiffs claim under Section 14(a)-a failure to do so necessarily means
that any related claims under Section 20(a) also fail. Special Situations Fund III QP, L.P. v.
Deloitte Touche Tohmatsu CPA, Ltd., 33 F. Supp. 3d 401, 437 (S.D.N.Y. 2014); Wilson v.
Dalene, 699 F. Supp. 2d 534, 550 (E.D.N.Y. 2010).
Allegations in the Complaint
The court now turns to the merits of the claims as they appear in the First Amended
Complaint. (Doc. 22.) The court's task is to review the allegations critically for detail and
substance under the PSLRA and then to square the allegations against the elements of the cause
of action for false statements made in a proxy filing.
In support of his claim under Section 14(a), Plaintiff alleges five categories of
misrepresentations or omissions of material fact. The court will take each category in tum.
"Person" is defined to include non-corporeal entities, including companies, political
subdivisions, and government agencies. 15 U.S.C. § 78c(a)(9).
The 50% Probability Weighting
The complaint's allegations can be understood as alleging two distinct, but related, ways
in which the proxy is materially false and misleading with regard to the Board's recommendation
of the 50% probability weighting. First, they can be interpreted as allegations that the Board's
recommendation of the weighting was a false and misleading opinion-that it was subjectively
false (the Board did not actually believe that the 50% probability weighting was appropriate) and
that it was objectively false (the 50% probability weighting was an incorrect characterization of
Keurig Kold's future prospects). Second, the allegations suggest that material omission of
certain background facts and discussions relating to the 50% probability weighting render
specific statements in the proxy misleading.
Falsity of Opinion
To adequately allege that a statement of opinion is materially misleading, a complaint
"must allege[,] with particularity[,] provable facts to demonstrate that the statement of opinion is
both objectively and subjectively false." Fisher v. Kanas, 467 F. Supp. 2d 275, 282 (E.D.N.Y.
2006) (internal quotation marks omitted); see also In re Sanofi Sec. Litig., 87 F. Supp. 3d 510,
528 (S.D.N.Y. 2015). In other words, the complaint must allege "that [Defendants] did not
actually hold the belief or opinion stated, and that the opinion stated was in fact incorrect."
Fisher, 467 F. Supp. 2d at 282 (internal quotation marks omitted).
The complaint alleges that the probability weighting was nothing more than a "creative
way to artificially lower the Company's value in order to support a deal price that JAB Holding
would be willing to pay." (Doc. 22 if 73.) The probability weighting was designed to "arbitrarily
slash [management's] own projections of the future value of the Keurig Kold line." (Id.
And, while the Board began discussing various probability weightings while negotiating the
buyout, it "did not decide on an exact probability ... until after the parties agreed on the ultimate
deal price." (Id.
if 75.) Nor, according to the complaint, did the Board's recommendation of the
50% probability weighting have any "basis in logic or fact." (Id.
if 78.) In "the 19 months
leading up to the heavily hyped launch ofKeurig Kold, Defendants gave no inclination that they
doubted the success ofKeurig Kold for one second." (Id.) Management and Kelley were so
confident that in June, Kelley had rejected a substantially higher offer from Party X "based on
'the anticipated launch of the Keurig Kold system."' (Id.)
The court begins with the question of whether the complaint adequately alleges that the
opinion in favor of the 50% probability weighting was subjectively false. The complaint alleges
that the Board began considering different probability scenarios only when faced with JAB
Holdings' merger offer, and only decided "on an exact probability ... after the parties agreed on
the ultimate deal price." (Doc. 22 if 75.) Thus, according to Plaintiff, the 50% probability
weighting was selected, not for its accuracy, but because it made the final offer from
JAB Holdings appear fair. (Id.
if 73) The allegations in the complaint-and in particular the fact
that the probability weighting was not selected until after the final offer from JAB Holdings-are
sufficient to meet this standard. See In re Hot Topic, Inc. Sec. Litig., No. CV 13-02939,
2014 WL 7499375, at *7 (C.D. Cal. May 2, 2014).
The court next addresses the question of whether the opinion in favor of the
50% probability weighting was objectively false. Plaintiff directs the court's attention to
In re Hot Topic, 2014 WL 7499375. (Doc. 33 at 14--16.) In that case, the court evaluated
whether a Board's endorsement in a proxy of newer, less-optimistic financial projections in
recommending a buyout was a material misstatement when several factors showed that older
financial projections were more accurate and reliable. Id. at *5. In 2010, Hot Topic (a company
that operates a variety of retail stores primarily aimed at the teen market), "embarked on a plan to
revitalize the company." Id. at * 1-2. During this period, the company "consistently met or
exceeded its own projections and goals," including those laid out in the company's "LRP
Projections." Id. at *2. Then, after an offer to buy the company in late 2012, board members
realized the LRP Projections were too optimistic and "would be problematic in any change-ofcontrol situation." Id. Working with a financial advisor, the board created the "Revised
Projections," which "assumed a slower build out of new stores" and lowered estimates of growth
in various categories. Id. Although the board provided the buyout group with the more
favorable LRP Projections, it directed its financial advisor to use the Revised Projections in
reaching an opinion on the fairness of the proposal. Id. at *2, 6. The proxy statement
recommending the buyout "described the Revised Projections as 'better reflect[ing] what
management believed the Company would be able to achieve during the next five years
compared to the LRP Projections."' Id. at *2-3.
The Hot Topic court concluded that these allegations stated a claim under Section 14(a).
Id. at *5-8. In concluding that the board's statement-that the Revised Projections were more
accurate than the LRP Projections-was objectively false, the court relied on allegations of
several "flawed and inaccurate assumptions" underlying the Revised Projections: (1) the Revised
Projections "moderated downwards" estimates of growth of Torrid, a division of Hot Topic
whose growth had previously been praised as "the major highlight" in quarterly reports; (2) the
Revised Projections "assumed a slower build out of stores than the LRP projections," which was
"contrary to the Company's stated goals to continue to open" new stores; (3) the Revised
Projections lowered estimates of gross revenue growth, despite "the Company's strong
improvements in this area between 2010 and 2012." Id. at *6. Additionally, Hot Topic provided
the buyers with the LRP Projections, but not the Revised Projections. Id.
Similar factors do not demonstrate that Defendants' opinion regarding the 50%
probability weighting as an appropriate adjustment was objectively false. In Hot Topic, the
company measured its success in light of the LRP projections and the company frequently met or
exceeded those projections. But in this case, the earlier projections (those without the
50% probability weighting), were never actually used as a benchmark for the company's success
(because Keurig Kold had not yet been released). Consequently, application of the
50% probability weighting did not (and could not) contradict a recent history of success. In
comparison, in Hot Topic, the Revised Projections contained reduced estimates of growth which
were contrary to recent stated success.
It is true, as Plaintiff argues, that the 50% probability weighting is in tension with earlier
statements made in quarterly earnings disclosures that Keurig was optimistic about the
"opportunity" that Keurig Kold's introduction presented. 4 But these general statements are not
"provable facts" that could demonstrate that the endorsement of the probability weighting was
objectively false. Moreover, they were all made before Keurig Kold was placed on the market,
and were frequently accompanied by statements cautioning against overreliance on the "forward4
In August 2014, Kelley stated that"[ w ]e also are excited about ... our progress on the
new Keurig Cold beverage system." (Doc. 22 if 52; Doc. 28-12 at 2.) In November 2014, Kelley
stated that "we remain focused on what we believe is a significant opportunity to grow and
premiumize home beverages in both our hot and cold platforms." (Doc. 22 if 53; Doc. 28-6 at 2.)
In February 2015, Kelley stated that "we remain very enthusiastic about our opportunity to grow
and premiumize at-home beverages across both our hot and cold platforms." (Doc. 22 if 60; Doc.
28-7 at 2.) In May 2015, Kelley stated that "[c]ombined with the upcoming launch of our Keurig
KOLD system, we expect the Keurig brand to further expand and globalize while continuing to
transform the premium home beverage experience for consumers." (Doc. 22 if 61; Doc. 28-11
at 2.) In August 2015, Kelley stated that, "the upcoming launch of our Keurig KOLD system
creates an even larger opportunity for long-term growth and value creation." (Doc. 22 if 62;
Doc. 28-10 at 2.)
looking statements" in the disclosures and statements that the company had not met certain
earnings goals. (See, e.g., Doc. 28-6 at 3; Doc. 28-7 at 2-3; Doc. 28-11 at 2-3.)
To prove that a projection of future performance-in this case, performance commencing
five years in the future-is objectively false requires allegations of specific, provable facts to the
contrary. See Ridler v. Hutchinson Tech. Inc., -F. Supp. 3d-, 2016 WL 6246767, at *6
(D. Minn. Oct. 25, 2016) (holding that plaintiffs failed to allege objective falsity because they
"point to no objective flaw in Merrill Lynch's analysis, but only to a disagreement over
subjective valuation methodology"). In Hot Topic, the court found such allegations in the
manipulation of multiple assumptions and variables to support the insiders' preferred projections.
There are no similar allegations here. Like any other figure, an estimate can be objectively false.
A Vermont resident could publish an estimate that temperatures will be in the low 80s next
January, but that estimate is objectively false because it flies in the face of years oflived
experience. Here, there was neither past experience with the Kold product line nor other relevant
information supporting the claim that the 50% probability weighting was objectively false.
Cf City ofMonroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 671-72 (6th Cir. 2005)
(concluding that statement by a tire manufacturer that "objective data clearly reinforces our
belief that these are high-quality, safe tires" was actionable statement of opinion when, at the
time of the statement, consumers had filed several lawsuits alleging that the tires in question
malfunctioned and caused rollovers and automobile safety advocates had urged recall of cars
outfitted with tires (internal quotation marks omitted)). Regardless of its members' subjective
motives, the Board cannot be plausibly accused of concealing or making up information because
no such information has been identified by Plaintiff. Instead, the 50% probability weighting is a
warning that projected earnings in the period 5-10 years from the date of the proxy must be
treated with caution and significantly discounted as a basis for valuation due to the untried nature
of the product. Accordingly, the court concludes that the complaint fails to allege that
Defendants' use of the 50% probability weighting was objectively false. The complaint therefore
fails to allege that Defendants' use of the 50% probability weighting was materially misleading.
The court now addresses the related challenge to the 50% probability weighting-that the
proxy materially omits background facts that rendered important statements in the proxy
materially misleading. In support of this conclusion, the complaint alleges that "[t]he Proxy is
utterly devoid of any information or discussions regarding the critical decision regarding the
probability weighting to be applie[d] to Keurig Kold." (Doc. 22 if 77.) The complaint identifies
the following specific omissions: the different probability weightings management considered
appropriate prior to JAB Holdings' initial offer, the "range of [probability] scenarios" considered
by the Board, and any "factors or discussions" that supported management's recommendation of
a 50% probability weighting and the Board's adoption of that recommendation at the
December 1, 2015 meeting. (Id.
According to the complaint, these omissions
rendered the following statements materially misleading: that management recommended the
50% probability weighting, that the Board agreed with that recommendation, that the Board
believed the buyout to be fair, and that the Board therefore recommended that shareholders vote
in favor of the buyout. (Id.)
First, as Defendants point out, the proxy actually does provide some explanation for
management's recommendation of a 50% probability weighting. (Doc. 28 at 20-21; Doc. 51
at 16.) The proxy describes the discussion on December 1 regarding the 50% probability
weighting as follows:
The Board then focused on the probability weighting used in connection with
scenarios regarding Keurig's Kold business. Management recommended a 50%
probability weighting for Keurig's Kold business in the fiscal year ending
September 25, 2021 and subsequent fiscal years as an appropriate adjustment
given the risks associated with the launch of the new platform. The 50%
probability-weighted scenario was also deemed by senior management to be
appropriate to adjust for the application ofKeurig 's discount rate (9% to 11 %) in
calculating the discounted cash flow valuation of the Kold business, which was
essentially a start-up business (and, thus, would normally be ascribed a much
higher discount rate). The Board agreed with management's recommendation
and directed BofA Merrill Lynch and Credit Suisse to use the 50% probability
weighting for Keurig's Kold business as discussed in connection with their
respective financial analyses and opinions.
(Doc. 28-2 at 49 (emphasis added).) When the complaint quotes from this paragraph, it omits
the italicized text. (Doc. 22 iii! 76, 96.)
This explanation is sufficient. Proxy statements need not be, and indeed, should not be,
an exhaustive catalog of all information that might conceivably be helpful to a shareholder.
See TSC Industries, 426 U.S. at 448 (explaining that materiality standard cannot be
''unnecessarily low," otherwise management might simply "bury the shareholders in an
avalanche of trivial information"). As a general matter, courts have concluded that "financial
projections, forward-looking statements, puffing, or other soft financial information need not be
disclosed." Brown v. Brewer, No. CV 06-3731, 2010 WL 2472182, at *20 (C.D. Cal. June 17,
2010) (internal quotation marks omitted); accord In re Ford Motor Co. Sec. Litig., Class Action,
381 F.3d 563, 569 (6th Cir. 2004); Himmel v. Bucyrus Int'!, Inc., Nos. 10-C-1104, 10-C-1106,
10-C-1179, 2014 WL 1406279, at *15 (E.D. Wis. Apr. 11, 2014); !BEW Local 98 Pension Fund
v. Cent. Vt. Pub. Serv. Corp., No. 11-cv-222, 2012 WL 928402, at *12 (D. Vt. Mar. 19, 2012).
Where valuation information or financial projections are disclosed, however, "that information
must be complete and accurate." Himmel, 2014 WL 1406279, at *15. But Plaintiffs do not
allege that the projections included are incomplete or inaccurate. They instead allege that the
proxy should have included "the range of [probability] scenarios reviewed," "discussions ...
regarding the different probability scenarios," and any other "details regarding the factors and
discussions" that supported the 50% probability weighting. (Doc. 22 ~~ 95-96.)
The absence of this information does not render any statements in the proxy misleading.
A reasonable shareholder would be unlikely to put much faith in the financial projections for a
new product line, with or without the application of the 50% probability weighting. Ten-year
projections are generally speculative, see Himmel, 2014 WL 1406279, at *16, and here, the
probability weighting applied only to the last five years of the projections and then, only to the
projected "unlevered free cash flow" for one untested product line-Keurig Kold. (Doc. 28-2
at 58.) Moreover, the proxy listed the assumptions on which the projections relied and warned
shareholders of their limited value in any event: "You are cautioned not to place undue reliance
on the financial projections ... they are susceptible to multiple interpretations and frequent
revisions based on actual experience and business developments." (Doc. 28-2 at 56-57.)
There is another reason that the absence of more background information on the adoption
of the 50% probability weighting does not render any statements in the proxy misleading. The
probability weighting was the adjustment of only a single variable-the probable likelihood of
the company meeting its projections for Keurig Kold five to ten years in the future. It is not the
case, as it was in Hot Topic, that the Board adopted new projections that included adjustments in
multiple variables and assumptions-including the rate of "build out of new stores," "the growth
of outlet stores, gross margin expansion, and revenue and margin contributions from new
concepts"-and then justified the new projections with an unsupported statement that the newer
projections "better reflect what management believed the Company would be able to achieve"
in comparison to the older ones. 2014 WL 7499375, at *2-3, 6. In that context, a reasonable
shareholder would have found "the relative accuracy and achievability of the two projections
helpful. Id. at *8. Here, in comparison, the proxy offers a reasoned justification for the single
adjustment embodied in the 50% probability weighting-it was "deemed ... to be appropriate to
adjust for the application ofKeurig's discount rate (9% to 11 %) in calculating the discounted
cash flow valuation of the Kold business, which was essentially a start-up business (and, thus,
would normally be ascribed a much higher discount rate)." (Doc. 28-2 at 49.)
Nor is this a case in which underlying projections or assumptions have been omitted from
a proxy that includes valuation information or financial projections. For instance, the proxy did
not omit the financial projections on which the fairness analysis by a financial advisor was based.
See Smith v. Robbins & Myers, Inc., 969 F. Supp. 2d 850, 874 (S.D. Ohio 2013); Brown, 2010
WL 2472182, at *20-21.
Plaintiff insists that the explanation offered in the proxy is insufficient in light of "all
other public statements made about the Company and Kold, as well as management's repeated
reliance on the Kold Projections up until JAB submitted its first low offer." (Doc. 33 at 13.) As
noted in the previous section, in several announcements of quarterly financial results in 2014 and
2015, Kelley expressed optimism regarding the future success ofKeurig Kold. Throughout the
complaint, Plaintiff relies on these announcements to illustrate Keurig's enthusiasm and
optimism for the upcoming release ofKeurig Kold, and to frame the 50% probability weighting
in opposition to that optimism. And to demonstrate the Board's reliance on the projections, the
complaint cites a meeting on August 26 and 27, 2015, at which management provided the Board
with an "updated" version of the "financial projections" that would later be subject to the
50% probability weighting. (Doc. 22 ,-i 67; Doc. 28-2 at 44.)
The court is unpersuaded. First, as Defendants point out, the quarterly announcements
also contain cautionary language regarding the "risks and uncertainties" that the forward-looking
statements are subject to, as well as the fact that Keurig was not meeting its revenue goals.
(See, e.g., Doc. 28-8 at 2, 4; Doc. 28-10 at 2, 5; Doc. 28-11 at 2-3.) Plaintiff responds, citing
United Paperworkers International Union v. International Paper Co., 985 F.2d 1190, 11991200 (2d Cir. 1993), and Koppel v. 4987 Corp., 167 F.3d 125, 132 (2d Cir. 1999), that those
statements should not be considered part of the "total mix of information reasonably available"
to shareholders because they were not distributed to the shareholders voting on the proposal in
the proxy. (Doc. 33 at 17 (internal quotation marks omitted)).
The disclosure of "factors and discussions" regarding the adoption of the 50% probability
weighting would not have "significantly altered" the "total mix" of information available to
shareholders, regardless of whether these statements are included or excluded from the "total
mix." If the optimistic statements regarding Keurig Kold from the quarterly disclosures are
included, then so are the statements cautioning against overreliance on them, which reduces any
conflict between the optimistic statements and the probability weighting. If the statements are
excluded, then the total mix does not contain any tension that would need to be resolved by
disclosure of the "factors and discussions." Nor does the fact that the Board previously
discussed or considered the financial projections mean that the Board must extensively justify in
the proxy its decision to apply a probability weighting to part of those projections.
The court concludes that the complaint fails to state a claim that the proxy materially
omitted any background information or discussions relating to the adoption of the 50%
probability weighting by the Board.
Alternative Scenarios to the Buyout
Second, the complaint alleges that the proxy statement failed to disclose the details of the
Board's various discussions on November 12, 2015, November 30, and December 1, regarding
"potential alternatives for a return to capital to Keurig's stockholders," "alternative valuation
scenarios" for Keurig Kold, and "alternative standalone scenarios" for Keurig compared to the
buyout. (Doc. 22
if 97.) These omissions, Plaintiff alleges, rendered the proxy's
recommendation of the buyout misleading because shareholders "were unable to assess Keurig's
inherent value and future prospects as a standalone company." (Id.
The court notes that the proxy is not quite as bare regarding alternative scenarios as
Plaintiff asserts. It is true, as the complaint states, that in the section of the proxy entitled
"Background of the Merger," the proxy only mentions that various alternatives were considered.
(Doc. 28-2 at 46, 48-49.) But in a subsequent section, entitled "Reasons for Recommending the
Adoption of the Merger Agreement," the proxy specifies what kinds of alternative scenarios
were considered and specifies the various aspects of those scenarios discussed:
The Board considered other potential strategic alternatives available to Keurig,
including alternative standalone operating strategies and potential strategic
partnerships, in each case, considering the potential stockholder value that might
result from such alternatives, as well as the feasibility of such alternatives and the
risks and uncertainties associated with pursuing such alternatives.
(Doc. 28-2 at 52.)
Defendants argue that the absence of additional facts or background in the proxy
regarding the Board's discussion of various alternatives to the buyout-including Keurig's
potential value as a standalone corporation-is not a material omission from the proxy. (Doc. 28
at 24-25.) They contend that proxies need not disclose every strategic alternative.
The weight of authority agrees with this proposition. See City ofSt. Clair Shores Gen.
Emps. Ret. Sys. v. Inland W Retail Real Estate Tr., Inc., 635 F. Supp. 2d 783, 795 (N.D. Ill.
2009) ("Section 14(a) and Rule 14a-9 do not require corporate officers and directors to present
every strategic alternative to the recommended transaction."); Kahn v. Wien, 842 F. Supp. 667,
677 (E.D.N.Y. 1994) ("The securities laws do not require that a proxy solicitation discuss all of
the arguments against, or all of the alternatives to, the proposed course of action."); Umbriac v.
Kaiser, 467 F. Supp. 548, 553 (D. Nev. 1979) ("[M]anagement is not required to discuss the
panoply of possible alternatives to the course of action it is proposing, absent perhaps some
suggestion that the route not chosen was so well recognized and legally sound that the failure to
pursue it demands consideration.").
Plaintiff argues that the complaint "does not seek a discussion of the 'panoply of possible
alternatives,"' but "only an accurate portrayal of the alternatives to the Buyout, and the Proxy
disclosed none." (Doc. 33 at 19 n.11.) He directs the court's attention to Smith v. Robbins &
Myers, Inc., 969 F. Supp. 2d 850 (S.D. Ohio 2013). In that case, according to the allegations,
senior management, on its own initiative, actively sought to shop the company or make other
significant changes to its structure. Id. at 857. Management, without the Board's knowledge or
authorization, received detailed presentations from two different financial advisors on strategic
alternatives. Id. One advisor presented two alternatives (selling the company or acquiring other
businesses) and the other advisor presented four alternatives and provided a per-share discounted
cash flow valuation for each of those alternatives: selling the company ($71.46), acquiring other
businesses ($69.45), share repurchases ($65.14), and a "reverse Morris Trust" ($73.77). Id.
Over the next several months, management pursued a sale of the company to the exclusion of
alternative strategies, repeatedly overstepped the board's directives, and continually failed to
inform the board of its conduct. Id. The board eventually recommended a buyout that would
pay $60 per share. Id. at 856.
In addition to several other material misrepresentations or omissions, the court in Smith
found that the proxy had materially omitted information regarding the strategic alternatives. Id.
at 869-70. Specifically, the court concluded that the proxy had failed to disclose "the extent to
which the Board was aware of and disregarded" the second financial advisor's presentation of
four strategic alternatives, and "that the Board deliberately disregarded its duty to analyze the
value of the strategic alternatives in comparison to the $60 Merger consideration." Id. at 869.
These specifically-alleged omissions "demonstrated that the Company could pursue strategic
alternatives that promised greater long-term value" than the $60 per share consideration of the
buyout, and made it impossible to determine "whether the Board was fully informed about the
fairness of the Merger consideration." Id. at 869-70.
Plaintiffs complaint in this case makes no such specific allegations. The complaint
alleges only that the proxy "fail[ ed] to disclose any details or discussions regarding potential
alternatives, ... alternative valuation scenarios for Keurig's Kold business, or alternative
standalone scenarios" considered by the Board. (Doc. 22 ,-i 97 (internal quotation marks omitted,
emphasis added).) Plaintiff has not identified any specific fact that it believes was omitted.
Merely asking for more detail or background regarding a particular decision is insufficient.
See Washtenaw Cty. Emps. 'Ret. Sys. v. Wells Real Estate Inv. Tr., Inc., No. 1:07-CV-862, 2008
WL 2302679, at *9 (N.D. Ga. Mar. 31, 2008) ("Shareholders were informed that after
considering alternatives such as continuing as a going concern, potential liquidation of assets, or
potential Listing, the Board recommended the Internalization. It appears that the plaintiff is
merely arguing that more detail should have been given about the viability of the alternatives to
listing. The court finds, however, that the Proxy disclosed all material information on the
consideration of alternatives for the Company." (citation omitted)); see also meVC Draper
Fisher Jurvetson Fund L Inc. v. Millennium Partners, L.P., 260 F. Supp. 2d 616, 635 (S.D.N.Y.
2003) (concluding that allegation was insufficient to state claim under§ 14(a) where Plaintiff
wanted proxy to "include a detailed plan outlining their vision for MVC's future," but did not
"suggest any specific information or facts that were omitted" from the proxy materials with the
exception of the identity of a "potential investment adviser") .
Accordingly, the court finds that the complaint fails to state a claim that there were
material omissions from the proxy related to any strategic alternatives or alternative scenarios
considered by the Board.
Other Potential Buyers
The third material omission specified in the complaint concerns the absence of any basis
supporting the proxy's statement that the Board did not believe that "other potentially interested
parties" would offer to buy Keurig at a higher price than JAB Holdings had offered. (Doc. 22
In light of Party X's offer in January 2015 to buy Keurig at a price of $129.00 per share
and Party X's expression of interest again in June 2015, Plaintiff asserts that this omission
rendered materially misleading the proxy's statement that other parties would not be interested in
buying Keurig. (Id.
But the amended complaint characterizes this claim as "partially mooted," in light of the
supplemental disclosures made after the filing of the first complaint in this case, without saying
what aspects of the claim remain viable. (Doc. 22 if 99.) Those disclosures state that, at a
meeting on September 11, 2015, Party X informed Keurig that it was no longer interested in
acquiring Keurig. (Id.
if 99; Doc. 28-19 at 3.)
Additionally, Plaintiff did not defend this claim in
his briefing or at argument, where his counsel stated that "the real issue here ... is the
probability weighting." (Doc. 33; Doc. 51 at 53.)
The court discerns no sufficient allegations regarding material omissions relating to the
Board's statement that it did not believe that other parties would offer a higher price than the
$92.00 per share offered by JAB Holdings.
Management's Motivations for Recommending the Buyout
The fourth asserted material omission concerns the absence of "any details of
management's discussions with Goudet" in the summer of 2015 when the proposed buyout was
still in its infancy. (Doc. 22 if 100.) According to the complaint, this omission renders the
proxy's statement that Kelley and Goudet spoke only of"Keurig's partnership with Peet's and
Caribou with respect to K-Cup pods" materially misleading because shareholders were unable to
assess whether management had negotiated the merger with an eye toward protecting their
continued employment with Keurig or the possibility of investing in Keurig alongside
JAB Holdings after the merger. (Id.
But this issue too, according to the amended complaint, has been "partially mooted" by
the supplemental disclosures, which provided details regarding the meeting on October 15, 2015
between Keurig and JAB Holdings and the Board's meeting on December 6, 2015. (Doc. 22
iii! 101-02; Doc. 28-19 at 3--4.) On October 15, according to the supplemental disclosure,
representatives of JAB Holdings informed Kelley (Keurig's CEO) and Wesley (the Chairman of
Keurig's Board) that JAB Holdings "may or may not retain existing management" of businesses
it buys. (Doc. 22 if 101; Doc. 28-19 at 3.) At the December 6 meeting, Kelley "confirmed to the
Board that neither he nor any member of management had engaged in any discussions about a
post-closing role with Keurig, nor a rollover of their equity positions." (Doc. 22 if 101;
Doc. 28-19 at 4.)
As with the third category of alleged material omissions, Plaintiff did not defend these
allegations in either his briefing or at argument.
The supplemental disclosures were directly responsive to Plaintiffs concerns. The
complaint does not identify specific omissions relating to conversations between management
and JAB Holdings and management's motivations for recommending the buyout.
"Keurig Forecasts" and "Financial Projections"
Finally, the complaint alleges that the proxy is misleading because the proxy's summary
of the financial analyses of both BofA Merrill Lynch and Credit Suisse states that the analyses
are based on the "Keurig Forecasts," while "the only projections disclosed in the proxy are titled
'Financial Projections."' (Doc. 22 if 103 (citation omitted).) According to the complaint, the
"repeated reference to 'Keurig Forecasts' renders the Proxy's disclosure of the 'Keurig
Projections' materially false and misleading" because it is impossible to determine whether the
advisors' analyses were "based on the Financial Projections disclosed in the Proxy or on an
undisclosed set" of different financial forecasts. (Id.)
But the proxy makes clear that there is no distinction between "Keurig Forecasts," as that
term is used by the financial advisors, and the "Financial Projections" included in the proxy. The
proxy states that the "financial projections" were prepared by management and provided to the
Board, and "also provided to BofA Merrill Lynch and Credit Suisse for their use and reliance in
connection with their respective financial analyses and opinions. (Doc. 28-2 at 55.) In BofA's
financial opinion, the "Keurig Forecasts" are defined as "certain financial forecasts related to
Keurig prepared by the management ofKeurig." (Id. at 60.) In Credit Suisse's opinion, the
"Keurig Forecasts" are defined as "financial forecasts ... relating to Keurig prepared by the
management of Keurig." (Id. at 70.)
Accordingly, the complaint does not allege that the proxy was materially misleading
regarding which financial forecasts were used by the financial advisors in their opinions.
Conclusion Regarding Section 14(a) Claim
The court concludes that the complaint fails to state a claim against any Defendants under
The court need not consider Defendants' other arguments: that the complaint fails to
adequately plead loss causation (Doc. 28 at 23-25) or that the complaint fails to state a claim
against Defendant Maple Holdings specifically because Maple did not "solicit" the proxies in
question (Doc. 32-1 at 7-10).
As noted above, a complaint must plausibly allege a "primary violation" to establish
derivative liability under Section 20(a), 15 U.S.C. § 78t(a). Because the complaint fails to allege
a claim under Section 14(a), Plaintiff also fails to state a claim under Section 20(a). See Special
Situations Fund, 33 F. Supp. 3d at 437.
The court need not consider Defendant Maple's argument that it lacked the control over a
primary violator required for liability under Section 20(a). (Doc. 32-1 at 10-15.)
The court concludes that the amended complaint fails to state a claim against Defendants.
Accordingly, Defendants' Motions to Dismiss (Docs. 27, 32) are GRANTED. The case is
DISMISSED WITH PREJUDICE.
Dated at Rutland, in the District of Vermont, this ~ay of February, 2017.
Geoffrey W. Crawford, Judge
United States District Court
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