Opinion
09 Civ. 8262 (PGG).
July 13, 2010
MEMORANDUM DECISION ORDER
In this action, Plaintiffs Taro Pharmaceutical Industries Ltd. ("Taro") and its American subsidiary, Taro Pharmaceuticals U.S.A., Inc., assert claims against Defendant Sun Pharmaceutical Industries ("Sun") and its affiliate Alkaloida Chemical Company Exclusive Group, Ltd. ("Alkaloida") for violations of Sections 14(d) and (e) of the Williams Act. 15 U.S.C. §§ 78n(d) 78n(e), arising out of Sun's tender offer for all outstanding shares of Taro. Taro also asserts state law claims against Sun and its affiliated corporations Alkaloida, Aditya Acquisition Company, Ltd. ("Aditya"), and Caraco Pharmaceuticals Laboratories, Ltd. ("Caraco") (collectively "Defendants"), for breach of contract, misappropriation and misuse of trade secrets, unfair competition, tortious interference with business relationships, fraud, and unjust enrichment. The Complaint seeks, inter alia, to enjoin Sun's pending tender offer until Sun makes certain disclosures that Plaintiffs argue are required by the Williams Act. (Cmplt. ¶ 7)
Defendants have moved to dismiss the Complaint in its entirety pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). (Docket No. 27) Plaintiffs have moved for an order granting leave to conduct expedited discovery. (Docket No. 21) For the reasons set forth below, Defendants' motion to dismiss will be granted pursuant to Fed.R.Civ.P. 12(b)(1), and Plaintiffs' motion for expedited discovery will be denied.
BACKGROUND
Plaintiff Taro is an Israeli pharmaceutical company that develops, manufactures, and markets proprietary and generic prescription and over-the-counter pharmaceuticals primarily in the United States, Canada and Israel. Its stock is publicly traded in the United States. (Cmplt. ¶ 8) Defendant Sun is an Indian corporation with its principal place of business in Mumbai. Sun develops and markets generic pharmaceuticals in the United States and elsewhere. (Id. ¶ 10) This action arises from Sun's attempted acquisition of Taro, initially through a merger, and later through a tender offer. Sun's efforts to obtain control over Taro have sparked a flurry of suits and countersuits in Israel, in New York state court, and now in this Court.
I. EVENTS LEADING UP TO THE INSTANT ACTION
A. Sun's Efforts to Acquire Taro in 2006-2007
In December 2006, Taro was facing serious liquidity issues and began to seek out a buyer. (Id. ¶ 30) Multiple companies expressed interest, and five firms — including Sun — submitted bids. After entering into a confidentiality agreement with Taro, each of the bidders — including Sun — then conducted due diligence concerning Taro's operations. (Id. ¶ 38; Fortinsky Aff. Ex. B ("Feb. 17, 2007 Confidentiality Agreement")). Under the terms of the confidentiality agreement, Sun could use Taro's confidential information only for the purpose of evaluating a possible transaction with Taro. (Id. ¶ 38; Feb. 17, 2007 Confidentiality Agreement ¶ 2).
The Complaint sets forth extensive allegations concerning Sun's alleged misuse of Taro's confidential information. These allegations are relevant only to Taro's state law claims, and do not affect resolution of Sun's motion to dismiss Taro's Williams Act claim.
On May 16, 2007, Taro's Board of Directors met to consider three proposals to address Taro's need for a capital infusion. (Id. ¶ 42) Sun's proposal contemplated an initial purchase of Taro stock followed by a merger of Taro and a Sun affiliate. (Id. ¶ 43) Taro's Board authorized management to conduct further negotiations with Sun. (Id. ¶ 45)
Sun and Taro subsequently entered into a merger agreement — subject to approval by Taro's shareholders — pursuant to which Sun would acquire all outstanding Taro shares at a price of $7.75 per share ("the Merger Agreement"). In the Merger Agreement, Taro agreed to merge with Aditya, with the merged entity then becoming a wholly-owned subsidiary of Alkaloida. (Id. ¶ 49) The parties further agreed that Sun would purchase from Taro, at or about the time of contract, $45 million worth of Taro stock at $6 per share and a warrant for an additional 7.5 million shares ("the Share Purchase Agreement"). (Id. ¶ 46)
Aditya Acquisition Company is an Israeli entity controlled by Sun that was organized solely for the purpose of entering into a merger agreement with Taro. (Cmplt. ¶ 13)
Sun also entered into an option agreement ("the Option Agreement") with Taro's controlling shareholders — Barrie Levitt, Jacob Levitt, Tal Levitt, Daniel Moros and certain entities under their control ("the Optioners"). This agreement granted Sun an option to purchase the Optioners' controlling interest for $7.75 per share in the event that the merger could not be consummated. (Id. ¶ 47) This agreement further provided, however, that — should the merger not be consummated and Sun exercised its option — Sun would also commence a tender offer for all outstanding shares of Taro stock at a price of $7.75 per share. (Id.)
The Levitt family controls approximately 43% of Taro's "voting power" and Moros controls an additional 2%. (Cmplt. ¶ 47)
On May 18, 2007, Taro's Board approved the Merger Agreement, the Share Purchase Agreement, and the Option Agreement, and each of these agreements was executed by the parties. (Id. ¶¶ 48-49)
B. The Merger Is Not Consummated, Taro Terminates the Merger Agreement, and Taro Commences an Action in Israel
On May 21, 2007, one of Taro's largest minority shareholders — Franklin Advisors Inc. and Templeton Asset Management, Ltd. (collectively "Templeton") — brought suit in Israel seeking to enjoin shareholder approval of the merger between Sun and Taro and to invalidate the issuance of shares to Sun. Templeton argued, inter alia, that the proposed transaction was unfair to minority shareholders. (Id. ¶ 54) Templeton's application for a temporary injunction was denied. Accordingly, pursuant to the Share Purchase Agreement, Taro issued to Sun and Sun purchased 6,787,500 shares of Taro stock for an aggregate price of $40.725 million. (Id. ¶ 55) On August 2, 2007, Sun also partially exercised its warrant rights under the Share Purchase Agreement and purchased an additional 3 million shares of Taro stock for $18 million. (Id. ¶ 56)
On August 16, 2007, Taro announced that a September 25, 2007 shareholders' meeting to consider the proposed merger would be adjourned pending receipt of updated financial information requested by certain shareholders. (Id. ¶ 58)
On May 28, 2008, Taro terminated the Merger Agreement. (Id. ¶ 59) That same day, Taro and the directors of the company who were not members of the Levitt and Moros families ("the outside directors") filed an action in Tel Aviv District Court seeking a declaratory ruling that Sun was required — should it seek to purchase shares representing more than 45% of Taro's voting rights — to comply with special tender offer rules under Israeli law. (Id. ¶ 61)
C. Sun Exercises Its Option and Announces Tender Offer
On June 25, 2008, Sun attempted to exercise its right under the Option Agreement to acquire the Optioners' shares. In accordance with the Option Agreement, Sun also commenced a tender offer for all outstanding shares of Taro at a price of $7.75 per share. (Id. ¶ 98) In connection with the tender offer, Sun filed a statement under Section 14(d)(1) and 13(e)(1) of the Williams Act. In its 14(d) statement, Sun represented that "the business and operations of the Company will . . . be continued substantially as they are currently being conducted. . . ." (Id. ¶ 100) Sun further represented that it did not then foresee "any extraordinary transaction, such as a merger, reorganization or liquidation of the Company . . . [or] any purchase sale or transfer of a material amount of assets of the Company. . . ." (Id.)
On July 10, 2008, Taro filed its form 14D-9, which recommended that Taro shareholders reject the tender offer. Taro's Board stated, inter alia, that "Sun's offer [was] absurdly low" and that it did not comply with Israeli law designed to protect minority shareholders. (Id. ¶ 101)
D. The Supreme Court of Israel Stays Sun's Tender Offer
After Sun commenced its tender offer, Taro filed a motion for a temporary injunction in Tel Aviv District Court seeking an order barring Sun from pursuing the tender offer and seeking enforcement of the Option Agreement. (Id. ¶ 62) The court denied the motion for a temporary injunction, however, determining that Sun was not required to comply with Israel's special tender offer rules. (Id.) Taro appealed, and on September 1, 2008, the Supreme Court of Israel issued an order barring Sun from pursuing the tender offer until the Supreme Court resolves Taro's appeal. (Id. ¶ 102) Nearly two years later, Taro's appeal is still pending in the Supreme Court of Israel and the stay remains in place. (Id. ¶ 63)
E. Sun Commences Action in New York Supreme Court
On June 25, 2008, Sun, Alkaloida, and certain other Sun affiliates filed suit against Taro, its board of directors, and certain affiliates in New York Supreme Court asserting claims for fraudulent inducement and breach of contract with respect to the Merger Agreement. (Id. ¶ 64; Fortinsky Aff. Ex. E ("Sun Complaint")) Sun's suit also asserts claims against the Levitt and Moros families related to the Option Agreement (Sun Complaint ¶¶ 129-45). In the New York suit, Sun seeks, inter alia, to enjoin Taro from selling its facility in Ireland and from taking any other steps to dispose of its assets before Sun can obtain control of Taro (Id. ¶¶ 96, 157-59), and a declaratory judgment that the Merger Agreement was improperly terminated by Taro. (Id. ¶¶ 88-97)
II. THE INSTANT ACTION
On September 30, 2009, Taro commenced this action seeking,inter alia, to enjoin Sun's tender offer on the basis of Sun's alleged Williams Act violations. Taro claims that Sun violated Sections 14(d) and (e) of the Williams Act by failing to disclose, or by materially misrepresenting, certain material information in its tender offer materials, including:
1. information regarding FDA violations committed by Caraco, Sun's affiliate;
2. information regarding an FDA seizure action brought against Caraco in the summer of 2009;
3. alleged securities law violations committed by Caraco's management; and
4. Sun's intention to close Taro's facilities in Israel and move its production lines to India.
(Id. ¶¶ 106-08).
The Complaint sets forth an extremely detailed account of the material facts that Taro claims Sun failed to disclose in its tender offer. Because Sun annexed the Complaint in this action as an amendment to its tender offer (Fortinsky Aff., Ex. K (Amended Form SC TO-TA OF Alkaloida Chemical Company Exclusive Group, Ltd. dated September 30, 2009)), the adequacy of Sun's disclosures turns in large part on the contents of the Complaint. Accordingly, the Court will discuss the Complaint's allegations in some detail. A. The Complaint's Allegations Regarding Caraco's FDA Violations
Thirteen paragraphs of the Complaint are devoted to discussing Caraco's past FDA violations. (Cmplt. ¶¶ 82-95) This portion of the Complaint begins with a discussion of the FDA regulations concerning the manufacture of drug products and notes that violation of these regulations can lead to seizure of drug products as adulterated or defective. (Id. ¶¶ 82-84) The Complaint then turns to a Warning Letter the FDA sent to Caraco on October 31, 2008, and quotes extensively from that communication. The Complaint explains that the Warning Letter stemmed from FDA inspections of Caraco facilities in June 2008. The inspection "revealed serious and systemic compliance problems and violations" of FDA regulations concerning drug manufacturing. (Id. ¶ 86) The Complaint quotes paragraphs from the Warning Letter in which the FDA states that Caraco's failure to abide by FDA regulations has caused "the drug products being manufactured at your facility to be adulterated." The FDA notes that it has documented "significant . . . deficiencies" at Caraco in the past, and that Caraco's practices present a serious "risk to consumers . . . involving product contamination." (Id. ¶¶ 87-88)
The Complaint alleges that Sun is the beneficial owner of 74% of Caraco stock and that Sun directs and controls Caraco. The Complaint further alleges that "Caraco develops, manufactures, markets, and distributes generic pharmaceuticals to wholesalers, distributors, drugstore chains, and managed-care providers," and that Caraco is "a major distributor of Sun products in the U.S." (Cmplt. ¶ 14)
The Complaint then quotes at length from the portion of the FDA Warning Letter that describes Caraco's numerous process failures, including repeated contamination of drug products, improper maintenance of equipment, failure to investigate likely contamination of drug products, and lack of quality control. (Id. ¶ 89) The FDA warned Caraco at that time that its failure to correct these violations "may result in legal action without further notice, including, without limitation, seizure and injunction." (Id. ¶ 90)
The Complaint goes on to disclose that Caraco's failure to correct the deficiencies in its manufacturing processes led to a host of drug recalls by Caraco in 2009, including a recall of Digoxin tablets on March 31, 2009, and a recall of Clonazepam and Metroprolol Tartrate tablets on April 17, 2009. (Id. ¶¶ 91-92) The Complaint notes that deficiencies in Caraco's manufacturing processes led to the production of pills containing a higher than labeled dosage of the active ingredient, exposing patients to a risk of renal failure, cardiac instability, and death. (Id. ¶ 91)
The Complaint next describes a June 25, 2009 lawsuit filed by the United States against Caraco which resulted in the seizure of $20 million in drug products and raw material on the grounds that these materials were adulterated. The Complaint goes on to disclose that "[s]hortly after the raid, Caraco ceased all manufacturing operations and cut its work force in half. At the same time, Caraco announced that JPMorgan Chase Bank, N.A. had terminated its $10 million line of credit." (Id. ¶¶ 93-94)
B. The Complaint's Allegations Regarding Caraco and Sun Corporate Mismanagement
The Complaint also sets forth detailed allegations of corporate mismanagement at Sun and Caraco. Taro alleges that on September 20, 2009, the chairman of the independent directors committee of Caraco's board resigned, "citing `fundamental disagreements with the majority shareholder, Sun . . . and senior management of Caraco . . . over issues of corporate governance and the fiduciary role of independent directors.'" (Id. ¶ 95) The Complaint quotes the chairman's statements objecting to "` management's and the majority shareholder's absolute refusal to permit a focused independent look at corporate governance matters to determine if they contributed to the events leading up to the FDA seizure.'" (Id. ¶ 95) (emphasis in Complaint)
The Complaint also discloses that in July 2009, Caraco's shareholders sued the company's CEO and CFO in the United States District Court for the Eastern District of Michigan alleging,inter alia, that they had committed securities fraud by "concealing and failing to disclose [Caraco's] systematic failure to comply with FDA regulations" in press releases and SEC filings. (Id. ¶ 97)
The Complaint further alleges that Sun dominates Caraco's Board of Directors and forces Caraco to "enter into arrangements on terms highly favorable to Sun[,] . . . impos[ing] hundreds of millions of dollars of obligations on Caraco while significantly diluting Caraco's minority shareholders." (Id. ¶ 3) The Complaint states that Sun has forced Caraco to "purchase products . . . from Sun on terms that leave handsome profits in Sun but impose staggering debt on Caraco," and that as a result of Sun's dominant role "Caraco's gross profit is well below the industry average and its share price has plummeted." (Id. ¶ 3)
C. The Complaint's Allegations Regarding Sun's Undisclosed Intentions Concerning Taro's Manufacturing Facilities
The Complaint alleges that Sun's tender offer materials misrepresent and conceal its plan to close Taro's Israeli manufacturing facilities and move the company's production lines to India. (Id. ¶ 108)
III. SUN ANNEXES THE COMPLAINT TO ITS TENDER OFFER
Since announcing its tender offer in June 2008, Sun has filed numerous amendments to its tender offer. On September 30, 2009, immediately after Taro filed its Complaint in this action, Sun amended its tender offer to disclose the existence of this action and annexed a copy of the Complaint to the amendment. Sun's filing includes the following statement concerning the instant action:
Sun notes that many of the amendments relate to the stay granted by the Israeli Supreme Court, which has required repeated postponements of the expiration date for the tender offer. (Defs. Br. 7 n. 6)
The following paragraph is hereby added after the last paragraph of Section 15(IV) entitled "Relevant Litigation":
"On September 29, 2009, the Company and Taro USA filed a complaint in the United States District Court for the Southern District of New York against Sun, Purchaser, Aditya and Caraco Pharmaceutical Laboratories, Ltd. ("Caraco"), a majority-owned subsidiary of Sun. The complaint alleges, among other things, inadequate disclosure in Purchaser's Schedule TO, breach of contract, misappropriation and misuse of trade secrets, unfair competition, tortious interference, fraud and unjust enrichment and seeks as a remedy, among other things, additional disclosure by Sun, compensatory and punitive damages and an injunction to prevent Sun from taking further steps to consummate the Offer. Sun and Purchaser believe that these allegations are without merit and intend to vigorously contest them."
(Fortinsky Aff., Ex. K (Amended Form SC TO-TA of Alkaloida Chemical Company Exclusive Group, Ltd., September 30, 2009)).
DISCUSSION
Sun has moved to dismiss, arguing that Taro's Williams Act claim is now moot because of Sun's "curative disclosure" in the form of annexing the Complaint to an amendment to its tender offer. Sun further contends that this Court should not exercise supplemental jurisdiction over Taro's state law claims once the Williams Act claim — the sole federal claim — is dismissed.
Taro argues that although a copy of the Complaint is now annexed to Sun's tender offer, the tender offer materials remain false and misleading. Taro further contends that even if its Williams Act claim is dismissed, the remaining state law claims should proceed, based on diversity jurisdiction.
I. MOTION TO DISMISS STANDARD
"To survive a motion to dismiss, 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, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 129 S. Ct. at 1949.
"In considering a motion to dismiss . . . the court is to accept as true all facts alleged in the complaint," Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007) (citing Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83, 87 (2d Cir. 2002)), and must "draw all reasonable inferences in favor of the plaintiff." Id. (citing Fernandez v. Chertoff, 471 F.3d 45, 51 (2d Cir. 2006)). Where a complaint's allegations do not demonstrate an "entitlement to relief," however, or where a plaintiff has "not nudged [her] claims across the line from conceivable to plausible, the [] complaint must be dismissed." Twombly, 550 U.S. at 558, 570.
Here, Taro's claim under Section 14(e) of the Williams Act is subject to a heightened pleading standard pursuant to Fed.R.Civ.P. 9(b) and the Private Securities Litigation Reform Act ("PSLRA"). See Telenor E. Invest AS v. Altimo Holdings Invs. Ltd., 567 F. Supp. 2d 432, 444 (S.D.N.Y. 2008) ("As the claims pertaining to § . . . 14(e) . . . specifically invoke anti-fraud provisions of the Exchange Act, I subject them to the heightened standard of the PSLRA and Fed.R.Civ.P. 9(b)."); Gas Natural v. E.ON AG, 468 F. Supp. 2d 595, 603 (S.D.N.Y. 2006) ("The heightened pleading standards of Rule Fed.R.Civ.P. 9(b), and the PSLRA apply to claims brought under Section 14(e)."); In re Digital Island Sec. Litig., 357 F.3d 322, 328-29 (3d Cir. 2004) (applying PSLRA pleading standard to Section 14(e) claim); Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002) (same); Conn. Nat'l Bank v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987) (applying Rule 9(b) to Section 14(e) claim)). In addition, "[t]o the extent a Section 14(d) claim is `premised on allegations of fraud,' . . . it will also be subject at the very least to Rule 9(b)'s criteria." Gas Natural, 468 F. Supp. 2d at 603 (quoting Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004)).
Sun argues that Taro has failed to "delineate between its Section 14(d) and Section 14(e) claims" and has "never explain[ed] how its Section 14(d) claim arises other than from the same facts that purportedly give rise to its claim under Section 14(e)." (Defs. Br. 14 n. 10) Section 14(d) relates to the procedural requirements for making a tender offer. 15 U.S.C. § 78(n)(d)(1). The parties dispute whether Taro is required to allege fraud in connection with its § 14(d) claim, but it is unnecessary to resolve this issue. As discussed below, Taro's Williams Act claims are moot regardless of whether they are both subject to Rule 9(b)'s heightened pleading standard.
Rule 9(b) states in pertinent part that "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). However, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Id. Rule 9(b) requires that a complaint "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006). "[P]laintiffs must allege facts that give rise to a strong inference of fraudulent intent." Id. at 290 (citation omitted). "The requisite `strong inference' of fraud may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Id. at 290-91 (citation omitted).
"The PSLRA requires that any `securities fraud' claims brought under the [the Williams Act] `specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, 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.'" Gas Natural, 468 F. Supp. 2d at 602-603 (quoting 15 U.S.C. § 78u-4(b)(1)). "No claim should be filed unless and until it can be supported by specific factual allegations." Lentell v. Merrill Lynch Co. Inc., 396 F.3d 161, 168 (2d Cir. 2005).
II. TARO'S WILLIAMS ACT CLAIMS
A. Sections 14(d) and (e) of the Williams Act
The Complaint alleges that Sun's tender offer violates Sections 14(d) and (e) of the Williams Act. (Cmplt. ¶¶ 103-05) The Williams Act regulates tender offers with "the twin aims of, first, maintaining neutrality between bidders and target companies and, second, protecting target shareholders by requiring that bidders make certain disclosures." Billing v. Credit Suisse First Boston Ltd., 426 F.3d 130, 158 (2d Cir. 2005) (citation omitted). The Williams Act was adopted by Congress "in response to the growing use of cash tender offers as a means for achieving corporate takeovers," a device "which . . . removed a substantial number of corporate control contests from the reach of existing disclosure requirements of the federal securities laws." Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 22 (1977). "Congress designed the Williams Act to make `disclosure, rather than court-imposed principles of "fairness" or "artificiality," . . . the preferred method of market regulation.'" United States v. O'Hagan, 521 U.S. 642, 668 (1997) (quoting Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 9 n. 8 (1985)).
Section 14(e) of the Williams Act makes it:
unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.15 U.S.C. § 78n(e). "In order to prove a violation of [Section] 14(e), a party must establish: (1) that the defendant made an untrue statement of fact or omitted to state a fact necessary to make statements made not misleading in connection with a tender offer; (2) that the misstatement or omission was material; and (3) that the defendant acted with either `knowledge of falsity, or a reckless disregard for the truth.'" Am. Insured Mortg. Investors v. CRI, Inc., No. 90 Civ. 6630, 1990 WL 192561, at *6 (S.D.N.Y. Nov. 26, 1990) (quoting Connecticut Nat'l Bank v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987)).
"Section 14(d)(1) requires those making a `tender offer' for certain securities registered in the United States to disclose publicly information related to the tender offer in the event that they acquire beneficial ownership of 5% of any class of the issuer's securities." E.ON AG v. Acciona, S.A., 468 F. Supp. 2d 559, 575 (S.D.N.Y. 2007) (citing 15 U.S.C. § 78n(d)(1)). The tender offeror must file with the SEC a statement known as a Schedule TO. 17 C.F.R. § 240.14d-100. Section 14(d)(1) states in pertinent part:
It shall be unlawful for any person, directly or indirectly . . . to make a tender offer for, or a request or invitation for tenders of, any class of any equity security which is registered pursuant to section 12 of this title [ 15 U.S.C. § 781], or any equity security of an insurance company which would have been required to be so registered except for the exemption contained in section 12(g)(2)(G) of this title [ 15 U.S.C. § 781(g)(2)(G)], or any equity security issued by a closed-end investment company registered under the Investment Company Act of 1940 [15 U.S.C. §§ 80a- 1 et seq.], if, after consummation thereof, such person would, directly or indirectly, be the beneficial owner of more than 5 per centum of such class, unless at the time copies of the offer or request or invitation are first published or sent or given to security holders such person has filed with the Commission a statement containing such of the information specified in section 13(d) of this title [ 15 USCS § 78m(d)], and such additional information as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. All requests or invitations for tenders or advertisements making a tender offer or requesting or inviting tenders of such a security shall be filed as a part of such statement and shall contain such of the information contained in such statement as the Commission may by rules and regulations prescribe. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors, and shall be filed with the Commission not later than the time copies of such material are first published or sent or given to security holders. Copies of all statements, in the form in which such material is furnished to security holders and the Commission, shall be sent to the issuer not later than the date such material is first published or sent or given to any security holders.15 U.S.C. § 78n(d)(1).
B. Sun's Amendment to its Tender Offer Renders Taro's Williams Act Claim Moot
Sun contends that Taro's Williams Act claim "should be dismissed as moot because any conceivable violations of the [Williams] Act were cured by Sun's [annexing of the Complaint to] its amended tender offer." (Defs. Br. 9-10) Taro argues, however, that the mere disclosure of allegations of Williams Act violations is not sufficient to satisfy the statute. (Pltfs. Br. 10)
In considering the parties' arguments, it is useful to recall the purpose of the Williams Act, which is "`to insure that public shareholders who are confronted by a cash tender offer for their stock will not be required to respond without adequate information.'" ICN Pharmaceuticals v. Khan, 2 F.3d 484, 490 (2d Cir. 1993) (quoting Schreiber, 472 U.S. at 8). "By requiring disclosure of information to the target corporation as well as the Securities and Exchange Commission, Congress intended to do no more than give incumbent management an opportunity to express and explain its position." Id. The Williams Act is not designed to force the tender offeror to admit the target company's underlying allegations. Rather, "[w]here there exists a good faith dispute as to facts or an alleged legal violation, the Williams Act only requires disclosure of the dispute." City Capital Assoc. Ltd. P'ship v. Interco, Inc., 696 F. Supp. 1551, 1556 (D. Del. 1988) (citing Warner Communications, Inc. v. Murdoch, 581 F. Supp. 1482, 1502 (D.Del. 1984); Avnet, Inc. v. Scope Indus., 499 F. Supp. 1121, 1124-26 (S.D.N.Y. 1980)). In sum, "the underlying purpose of the Williams Act is to make sure that `pertinent information' is placed before the shareholders of the tender offer target so that they can `decide for themselves' what they wish to do." E.ON AG v. Acciona, S.A., 468 F. Supp. 2d 537, 557 (S.D.N.Y. 2006) (quoting MacFadden Holdings, Inc. v. JB Acquisition Corp., 802 F.2d 62, 66 (2d Cir. 1986)).
Sun's annexation of the Complaint to its tender offer did just that. The Complaint lays out in extensive detail all of Taro's allegations concerning Sun, including Caraco's FDA violations, the corporate mismanagement at Sun and Caraco, and Taro's claim that Sun intends to close Taro's Israeli operations and move them to India. Taro's shareholders have been provided with the "pertinent information" that the Williams Act requires, and it will be up to them to "decide for themselves" the significance of that information. Id. The Act requires no more. In particular, it does not require that a tender offeror such as Sun admit to the substantive merits of incumbent management's allegations.See, e.g., City Capital Assoc., 696 F. Supp. at 1556 ("A tender offeror should not be placed in a position of being forced to either admit liability, while he or she disputes it, or violate the securities law by failing to disclose the alleged and disputed violation.").
In the context of Section 13D filings, "[i]t has been stated as the general rule that `once a subsequent 13D filing cures alleged omissions in a prior filing, the § 13(d) claim alleging omissions must be dismissed as moot.'" Vestcom Int'l, Inc. v. Chopra, 114 F. Supp. 2d 292, 297-298 (D.N.J. 2000) (quoting Horsehead Res. Dev. Co. v. B.U.S. Envtl. Servs., Inc., 916 F. Supp. 305, 309 (S.D.N.Y. 1996) ("Horsehead I"), vacated in part on other grounds, Horsehead Res. Dev. Co. v. B.U.S. Envtl. Servs., Inc., 928 F. Supp. 287, 291 (S.D.N.Y. 1996) ("Horsehead II")); see also Hubco, Inc. v. Rappaport, 628 F. Supp. 345, 354 (D.N.J. 1985) ("Where an appropriate amendment to a 13D has been made the violation is usually considered cured.").
This same logic regarding corrective disclosures applies with equal force in the context of an asserted Section 14(e) violation. See Ranger Oil Ltd. v. Petrobank Energy and Resources Ltd., No. 00 Civ. 3139 (SHS), 2000 WL 33115906, at *11-12 (S.D.N.Y. May 23, 2000) (noting in connection with alleged Section 14(e) violation that "[c]ourts in this district have consistently held . . . that when a `genuine and vigorous dispute exists as to whether the material which the plaintiff alleges is required to be disclosed is actually a fact,'" "`the law requires only that the disputed facts and the possible outcomes be disclosed'"; holding that the defendant's "disclosure has been ameliorated by [their] inclusion of the entire amended complaint. . . ." (quoting Avnet, 499 F. Supp. 1121, 1125 (S.D.N.Y. 1980))); Ronson Corp. v. Liquifin Aktiengesellschaft, 370 F. Supp. 597, 602 (D.N.J. 1974) ("[T]he offeror clearly has the right to amend its offer to cure any defects, and then rely upon those amendments to satisfy the requirements of Section 14(e).").
Contrary to Taro's arguments, the courts that have considered this issue have generally held that annexing a copy of a complaint to an amended filing is sufficient to satisfy Williams Act requirements and moot any Williams Act claim. Indeed, Avnet, Inc. v. Scope Indus., 499 F. Supp. 1121 (S.D.N.Y. 1980), and its progeny stand directly for that proposition.
In Avnet, defendant Scope Industries filed a Schedule 13D after having acquired 5.4% of plaintiff Avnet. Avnet filed suit alleging that the Schedule 13D was materially false and misleading because it failed to disclose, inter alia, "that [defendant] was an unregistered investment company in violation of the Investment Company Act of 1940 . . . and the consequences of that status." 499 F. Supp. at 1122.
In response to Avnet's suit, Scope filed an amended Schedule 13D which reported the filing of the complaint and stated in pertinent part:
"On July 25 . . . Avnet commenced an action in the United States District Court, Southern District of New York, against Scope and Meyer Luskin by filing a complaint, a true copy of which is attached hereto. . . . In substance, the complaint asserts that defendants are now actively pursuing an unlawful plan to force Avnet to undertake a program of ill-conceived divestitures of major segments of its business and to use the proceeds of such divestitures to repurchase Avnet stock, thereby increasing defendant Scope's percentage ownership of Avnet. The complaint further asserts that defendants have begun an unlawful proxy solicitation in an effort to secure multiple representation on Avnet's board of directors in order to facilitate their divestiture program and exploit non-public inside information regarding Avnet not available to all other shareholders. The complaint alleges that defendants' public filings with the Securities and Exhange (sic) Commission, which are supposed to provide current information with regard to defendants and their purpose in acquiring Avnet shares and their plans with respect to the business of Avnet, remain deliberately false and misleading in failing to disclose that, as an unregistered investment company, defendant Scope is prohibited from engaging in interstate commerce and acquiring securities of public companies such as Avnet and in failing to disclose defendants' plan to cause Avnet to sell profitable businesses and assets. The complaint further alleges that defendants have failed to make the requisite filings required by the Securities and Exchange Commission by participants in election contests."Id. at 1123 (quoting amended Schedule 13D) (emphasis added). In its amendment, Scope further stated that "it intends to deny the material allegations of the complaint, including, inter alia, the claim that Scope is an investment company." Id.
Scope moved to dismiss Avnet's Williams Act claim arguing that this claim had been mooted by its amendment to the Schedule 13D and annexation of the complaint. Id. at 1124. Scope contended that its amendment "informs the reader of Avnet's claims that Scope is an unregistered investment company, and the consequences that flow from that status." Id. Avnet argued, however, that Scope was required to admit that it was in fact an unregistered investment company, and contended that the amended disclosure was insufficient because "in that amendment Scope denies the allegation that it is an investment company." Avnet argued that "accurate disclosure requires nothing short of a statement that Scope is in fact in violation of the Investment Company Act." Id.
The court rejected Avnet's argument and concluded that Scope's amendment "is sufficient to cure any alleged omissions in its earlier Schedule 13D and that accordingly, Avnet's [Williams Act] claim is now moot." Id. In reaching this conclusion, the court noted that a
genuine and vigorous dispute exists as to whether the material which plaintiff alleges is required to be disclosed is actually a fact. . . . [T]he defendants were not required to state in their schedules that the alleged facts were actually true. Instead, disclosure of the possibility of the alleged fact, and the conflicting positions taken by the parties [is] . . . sufficient. . . . When, as here, the record demonstrates that there is a dispute as to the facts, the law requires only that the disputed facts and the possible outcomes be disclosed. This is the limit of the law unless there is reason to believe that the facts are not genuinely in dispute. In the case at hand, there is no reason to believe that they are not genuinely in dispute.Avnet, 499 F. Supp. at 1125-26 (citing E. Aranow, H. Einhorn G. Berlstein, Developments in Tender Offers for Corporate Control 78 (1977) ("[C]ourts simply required that the offerors fully disclose the issues, allowing shareholders to draw their own conclusions concerning the probable impact of the controls upon the offeror and the target.")).
While Taro attempts to distinguish Avnet by arguing that it involves a dispute about a "single issue of law" (Pltf. Br. 13), the Avnet court — as this excerpt makes clear — spoke of disputed facts. Whether Scope was in violation of the Investment Company Act presented a number of factual issues, including whether 40% of its assets were investment securities and whether it was an operating company. 499 F. Supp. at 1124.
The Avnet court also noted that the purpose of the Williams Act is "to see to it that the insider, management official, proxy solicitor, tender offeror or substantial shareholder, as the case may be, discloses to the investor the facts as truly believed by the discloser." Id. Because "the only certain factual statement that can be made at this time as to Scope's status is that there is a possibility that it is an unregistered investment company," Scope had sufficiently "inform[ed] Avnet's shareholders of that possibility and of the parties' positions on that point" by "disclosing Avnet's allegations, in its amended Schedule 13D." Id. at 1126. The court concluded by ruling that "the claim for failure to disclose Scope's alleged investment company status is dismissed because Scope's amended 13D statement is sufficient." Id.
Taro argues that courts considering alleged Williams Act violations have invariably tested "the adequacy of . . . specific disclosure" in "extensive proceedings," and it attempts to distinguish Avnet on the ground that the opinion there "reveals a full factual record." (Pltf. Br. 12). The Williams Act claim inAvnet, however, was disposed of at the outset of the case, on defendant's motion for judgment on the pleadings. Avnet, 499 F. Supp. at 1123. Indeed, the case was filed on August 6, 1980; the defendant then amended its Schedule 13 D filing to annex the complaint; and Judge Lasker disposed of the Williams Act claim in a November 7, 1980 decision.
Similarly, in Vestcom International, Inc. v. Chopra, the court found that the disclosure of plaintiffs' lawsuit in the defendants' amended Schedule 13D rendered the plaintiffs' Williams Act claim moot. 114 F. Supp. 2d 292, 300 (D.N.J. 2000). In that case, plaintiff argued that defendants' Schedule 13D was insufficient because it failed to disclose defendants' "present intent and plan to oust [plaintiff's] board." Id. at 294. The plaintiff argued that a "curative disclosure to the [SEC] and to all shareholders" was required and that "the Court should order a direct communication from defendants to shareholders, admitting to violating the securities laws." Id. at 297. The court disagreed, noting that
[t]he cases hold that disclosure of the fact of a dispute and possible outcomes in the Schedule 13D is all that is required. . . . Defendants disclosed the existence of this lawsuit and plaintiff's allegations with regard to the original Schedule 13D and the pre-amendment proxy solicitation. Plaintiff cannot avoid the mootness problem by claiming that defendants' filing remains false until they admit their prior alleged wrongdoing.Id. at 300 (citing Horsehead I, 916 F. Supp. at 312; Warner Communications v. Murdoch, 581 F. Supp. 1482, 1502 (D. Del. 1984)). Accordingly, the court dismissed the Williams Act claims with prejudice. Id. at 303.
Similarly, in Weeden v. Continental Health Affiliates, Inc., 713 F. Supp. 396 (N.D. Ga. 1989), plaintiffs filed a complaint alleging that defendants' Schedule D contained a series of false and misleading statements concerning the financing necessary to complete the proposed acquisition. Defendants then filed an amended Schedule D that attached plaintiffs' complaint as an exhibit and moved for judgment on the pleadings on the Williams Act claim, arguing that the claim was moot. 713 F. Supp. at 398. In opposing the motion, Plaintiffs argued that the amended Schedule D did not cure the material misrepresentations in the original, because it
merely disclosed the existence of a dispute concerning facts alleged in the original schedule. In order to cure the original Schedule, plaintiffs maintain that defendants would have to disclose the facts themselves, not merely the existence of a dispute concerning the facts.Id.
Like Taro here, the plaintiffs in Weeden attempted to distinguish Avnet by arguing that
Avnet applies only to disclosures concerning legal or statutory violations as opposed to factual violations. Thus, [plaintiffs] maintain that only a failure to disclose a legal violation or illegal conduct can be cured by an amendment to the Schedule 13D disclosing a good faith dispute between the parties concerning the alleged violation of the law.Id. at 399 (emphasis in original).
Quoting Judge Sand's decision in Condec Corp. v. Farley, 573 F. Supp. 1382 (S.D.N.Y. 1983), however, the Weeden court ruled that "when the record demonstrates that there is a dispute as to the facts, the law requires only that the disputed facts and the possible outcomes are disclosed":
"Plaintiffs attempt to distinguish this case from Avnet by claiming that the admissions or disclosures plaintiff requests involve no legal conclusions. We find the distinction unconvincing. Admissions of the magnitude plaintiffs request would lead to the inevitable `legal conclusion' that defendants willfully violated federal securities law. . . ."Weeden, 713 F. Supp. at 399-400 (quoting Condec, 573 F. Supp. at 1387 n. 4). The Weeden court went on to hold that defendants' disclosure obligations concerning the sufficiency of their financing "were fully satisfied" by their amendment attaching plaintiffs' complaint, and granted defendants judgment on the pleadings dismissing the Williams Act claim. Id. at 400. Avnet, Vestcom, and Weeden are on all fours with the instant action and require dismissal of Taro's Williams Act claim. Like the plaintiffs in those actions, Taro seeks "not a further factual disclosure by defendants but rather a `confession of judgment.'" Condec, 573 F. Supp. at 1386. The law requires no such admission. Accepting Taro's argument would require Sun to admit allegations that it denies, such as whether it intends to move Taro's operations to India. The Williams Act does not require a tender offeror to admit facts that it disputes in good faith. See Sea Containers, 890 F.2d at 1210 ("[I]t would hardly seem proper for the district court to order Sea Containers to `disclose' what it denies. . . ."); City Capital Assoc., 696 F. Supp. at 1556 ("Where there exists a good faith dispute as to facts or an alleged legal violation, the Williams Act only requires disclosure of the dispute. . . . There are good reasons for this limitation. A tender offeror should not be placed in a position of being forced to either admit liability, while he or she disputes it, or violate the securities law by failing to disclose the alleged and disputed violation."); Avnet, 499 F. Supp. at 1126 ("Moreover, a statement that Scope is in fact an unregistered investment company may actually render the Schedule 13D false, since Scope alleges that it does not consider itself to be an investment company, and it would be misleading for it to file a statement the contents of which it does not, in truth, believe."); see also Warner Communications, 581 F. Supp. at 1502 ("[T]he disclosure provisions of the securities laws may not be used as an indirect vehicle for litigating any and all of a party's sins.").
Numerous courts have denied motions for a preliminary injunction based on alleged Williams Act violations where a defendant has filed an amended Schedule 13D annexing the complaint. See Sea Containers Ltd. v. Stena AB, 890 F.2d 1205, 1210 (D.C. Cir. 1989) (where plaintiff annexed copy of counterclaim to Schedule 13D, court concluded that this step was sufficient to defeat motion for preliminary injunction because "the annexation of [the] complaint would appear to offset most if not all possible adverse consequences of the misrepresentation");Telenor E. Invest. AS v. Eco Telecom Lmtd., No. 05 Civ. 7584 (GEL), 2005 U.S. Dist. LEXIS 20628, at *9 (S.D.N.Y. Sept. 7, 2005) (denying motion for preliminary injunction where defendant had "included the substance of the complaint in an amendment to its Schedule 13D, and appended a copy of the complaint itself, which detailed at length plaintiff's objections to the defendants' valuation" because "`the law requires only that the disputed facts . . . be disclosed'" (quoting Avnet, 499 F. Supp. at 1125)); Ranger Oil Ltd., 2000 WL 33115906, at *11-12 (denying motion for preliminary injunction because "any deficiency in [defendant's] disclosure has been ameliorated by [their] inclusion of the entire amended complaint" (citing Avnet, 499 F. Supp. 1121); City Capital Assoc., 696 F. Supp. at 1556-57 (denying motion for preliminary injunction and noting that "[w]here there exists a good faith dispute as to the facts or an alleged legal violation, the Williams Act only requires disclosure of the dispute" (citations omitted)).
Sun has publicly denied that it intends to close Taro's facilities. (Fortinsky Aff., Ex. J (Press Release issued by Sun Pharmaceutical Industries, Ltd. dated July 28, 2008)) ("Sun Pharma reaffirms commitment to Taro facilities and employees. . . . Sun Pharma has repeatedly stated that it plans to use all of the existing Taro facilities to the maximum and to increase investment in R D in Israel.").
Horsehead Res. Dev. Co. v. B.U.S. Envtl. Servs., Inc., 916 F. Supp. 305, 309 (S.D.N.Y. 1996) ("Horsehead I"), cited by Taro (Pltfs. Br. 10), is not to the contrary. In Horsehead I, plaintiff's complaint alleged that defendant's Schedule 13D was deficient because, inter alia, it "failed to disclose that [defendant] had recently violated a number of German environmental regulations and/or laws." Horsehead I, 916 F. Supp. at 308. In response to the lawsuit, defendant filed an amendment to its Schedule 13D and annexed plaintiff's complaint.Id. at 309. This amendment, however, "reiterate[d] the fact that Lobbert Holding [— the tender offeror —] has never been convicted of any crime — including criminal convictions of environmental matters." Id. With regard to the environmental violations, plaintiff argued that "§ 13(d) requires Defendants to disclose that Lobbert Holdings and various members of the Lobbert family have been the subject of regulatory investigations in Germany relating to environmental matters, as well as the environmental violations themselves." Id. at 311.
17 C.F.R. § 240.13d-101 requires the filer to state "[w]hether or not, during the last five years, such person has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) and, if so, give the dates, nature of conviction, name and location of court, any penalty imposed, or other disposition of the case."
The Horsehead I court recognized that "[g]enerally, once a subsequent 13D filing cures alleged omissions in prior filings, the § 13(d) claim alleging omissions must be dismissed as moot."Id. at 309 (citing Treadway, 638 F.2d at 380). The court further acknowledged that in Avnet and similar cases "disclosure of the possibility of the alleged fact, and the conflicting positions taken by the parties, was held to be sufficient." Id. at 312 (citing Avnet, 499 F. Supp. at 1125).
Consistent with existing precedent, the court rejected plaintiff's argument that defendant was required to admit that it had committed the alleged criminal conduct then under investigation:
[a] requirement that Lobbert Holding declare whether it has violated environmental laws would overcome the carefully crafted balance of interests set forth in Avnet and its progeny. Defendants cannot be compelled to declare that they have violated the law before they have actually been convicted of crimes. The same can be said for "investigations." A person or corporation has no duty to predict the outcome of all investigations into their actions or behavior.Id. at 312-13.
Nevertheless, the Horsehead I court concluded that additional disclosure was required once a criminal case had been filed:
[T]he situation is different once a criminal case has been brought. Obviously, if the criminal case is closed without a conviction, no disclosure of the suit is necessary. . . . This may not be true for ongoing criminal cases. When, as here, the alleged criminal activity specifically relates to the business conducted by the company whose stock is held, disclosure of such ongoing criminal matters is deemed to be material to current and prospective shareholders. As no evidence has been presented to suggest that the identified criminal cases against Lobbert Holding and the Lobbert Family have been closed. Defendants must either report that such criminal environmental lawsuits are continuing (along with the possible outcomes should conviction occur), or present incontrovertible evidence that they have, in fact, been closed without conviction.Id. at 313. The Horsehead I court accordingly denied defendants' motion to dismiss. Id.
The limited nature of the Horsehead I decision is apparent from its holding. The court stated that "[d]isclosure of existing criminal charges is not always required" but that "shareholders of an environmental waste company would find material the knowledge that the company's largest shareholders are being tried for environmental law violations . . . [and] for this reason, and this reason only, such information is considered `material'. . . ." Id. (emphasis added) The court went on to note that "[t]his holding does not require Schedule 13D filers to disclose the existence of criminal charges unrelated to the business interests of the company whose stock it holds." Id.
In Horsehead II, the court dismissed the Williams Act claim after defendants presented evidence that there was, in fact, no ongoing criminal prosecution of them:
In [Horsehead I], I held that Defendants are obliged to disclose the existence of any and all ongoing criminal cases related to environmental violations. . . . Because the evidence presented on the motion did not reveal whether certain identified criminal cases against Lobbert Holding and the Lobbert Family had been closed, I directed the Defendants to "either report that such criminal environmental lawsuits are continuing . . . or present incontrovertible evidence that they have, in fact, been closed without convictions.". . . . Defendants have now submitted the necessary incontrovertible evidence that the criminal cases were closed and that neither Lobbert Holding nor the Lobbert Family was convicted of any environmental violations. Accordingly, the portion of Plaintiff's complaint alleging that Defendants' filings failed to disclose that Lobbert Holding had been the subject of regulatory investigations in Germany relating to serious environmental matters . . . is dismissed.Horsehead II, 928 F. Supp. at 291 (emphasis in original).
Whatever the merits of the exception identified and applied inHorsehead I, it has no applicability here. Taro has not alleged that any criminal prosecution of Sun, Caraco, or any related entity is presently ongoing. See, e.g., Telenor E. Invest. AS v. Eco Telecom Lmtd., No. 05 Civ. 7584 (GEL), 2005 U.S. Dist. LEXIS 20628, at *6 (S.D.N.Y. Sept. 7, 2005) (finding Horsehead I "not applicable [because] Plaintiff has not alleged that there exist relevant criminal charges against any party or shareholder related to this matter").
Warner Communications, Inc. v. Murdoch, 581 F. Supp. 1482 (D. Del. 1984), also cited by Taro, does not salvage its Williams Act claim. In Warner, defendants filed a counterclaim alleging, inter alia, that (1) "Warner; Warner's directors; Christ-Craft; BHC; and Chris-Craft's directors have formed a § 13(d) `group' for the purpose of acquiring Warner stock and pooling their shares to form a control block; yet the parties have not filed a 13D Statement disclosing the existence of the group, in violation of § 13(d)," id. at 1488; and (2) that Chris-Craft and BHC had "become unregistered investment companies in violation of the Investment Company Act of 1940, and have failed to disclose this fact in their 13D Statement." Id. at 1500. Warner, Chris-Craft, and BHC filed a motion to dismiss the counterclaims, noting that Chris-Craft and BHC had filed an amendment to their 13D Statement that contained the defendants' counterclaims as an exhibit, and arguing that "this Amendment to their 13D Statement cures any material omission in their original 13D Statement." Id.
In Warner, as in Horsehead I, the court acknowledged that where a party disputes in good faith allegations made in a complaint or other pleading, annexing the pleading as an amendment to the tender offer is ordinarily sufficient:
The federal securities laws may require a party to disclose legal violations, and other legal consequences, resulting from the party's actions if such information is material to investors for reasons other than simply revealing the culpability of the actions. However, if the party in good faith disputes the violations, the party need only disclose the possibility of the violations. . . . In general, a party's disclosure obligations under the securities laws extend no further than good faith disclosure of all material information within the party's scope of knowledge. A party may not be held hostage under the securities laws in order to inform investors with complete certainty of all of the legal implications and consequences of the party's actions. Moreover, the disclosure provisions of the securities laws may not be used as an indirect vehicle for litigating any and all of a party's sins.Warner Communications, 581 F. Supp. at 1502 (citing Avnet, 499 F. Supp. at 1124-26; Copperweld Corp. v. Imetal, 403 F. Supp. 579, 606 (W.D. Pa. 1975); Ronson Corp., 370 F. Supp. 597, 608 (D.N.J. 1974)).
With respect to the alleged violation of the Investment Company Act, the court — consistent with the case law discussed above — denied the motion to dismiss, because it was "unable to determine whether Chris-Craft and BHC genuinely and in good faith dispute [defendant's] allegations that the companies are operating in violation of the Investment Company Act of 1940." Id. at 1502. With respect to defendant's contention that Warner, Chris-Craft, and BHC had failed to disclose that they had formed a Section 13(d) group for the purpose of acquiring Warner stock and pooling their shares to form a control block, the court likewise denied the motion to dismiss, but on grounds that are less clear:
[T]o what extent may a party cure any falsities or omissions in a 13D Statement by filing an Amendment to the 13D Statement that discloses adverse claims which allege the falsities or omissions? Disclosing the adverse claims, of course, may satisfy a party's disclosure obligations pending ultimate resolution of the merits of the claims. However, the question arises of whether disclosures of the adverse claims completely satisfies 13(d)'s disclosure obligations and moots any issue as to the ultimate merits of the claim. . . . As discussed above, if Chris-Craft, BHC, and Chris-Craft's directors have formed a § 13(d)(3) group with Warner's directors for the purpose of holding and acquiring Warner stock, the existence of this group must be disclosed in a 13D Statement. . . . Chris-Craft's and BHC's Amendment to their 13D Statement, which discloses News International's allegations of the existence of this group, does not satisfy § 13(d)'s disclosure requirements. The net effect of the Amendment is to inform investors of the possibility of the group's existence, rather than the fact of the group's existence. If a § 13(d)(3) group does exist, this fact must be disclosed, not the possibility of the fact. Whether such a group exists is a factual issue that cannot be determined on the present motions to dismiss.Warner Communications, 581 F. Supp. at 1501.
To the extent that this portion of Warner Communications suggests that where there exists a good faith dispute as to facts or an alleged legal violation, the Williams Act requires more than disclosure of the dispute, it is inconsistent with the weight of authority discussed above and will not be followed by this Court in this case. Consistent with the authority cited above, this Court does not believe that a tender offeror should be placed in a position of being forced to either admit liability which it disputes, or violate the securities law by failing to disclose the alleged, disputed violation.
Finally, in concluding that Taro's Williams Act claim must be dismissed,
[c]entral to our holding is the fact that we believe the additional information which would be furnished by the requested "corrective disclosures" would add little to the fund of information available to the stockholders and the marketplace, but, at the same time, would have serious collateral consequences for the defendants because such disclosures would be tantamount to an admission of liability for . . . securities law violations.Condec, 573 F. Supp. at 1386.
Here, most of the items Taro claims should have been disclosed (see Cmplt. ¶¶ 106-08) are discussed in detail in the Complaint and are not disputed. Taro has not explained what purpose discovery or additional disclosure would serve. There is no dispute that Caraco received an FDA Warning Letter and there is no dispute as to what it said. There is likewise no dispute that the FDA seizure action at Caraco took place, and there is no dispute that a shareholder action was filed in the Eastern District of Michigan alleging that Caraco's senior management engaged in securities fraud. Annexation of the Complaint to Sun's tender offer has laid all of these matters before Taro's shareholders, and they may attribute the significance they deem appropriate to each incident.
Moreover, in its tender offer materials, Sun has conceded that "[i]t is a fact that Caraco has had serious problems on account of which Caraco faced a seizure of material at its Michigan facilities in June 2009 by the FDA. Since then, the facility remains closed." (Pltfs. Br., Ex. A) Sun's tender offer materials likewise admit that Caraco's independent director stated that he resigned as a result of "`disagreement with respect to issues of corporate governance and the fiduciary role of independent directors' arising from the FDA seizure of inventory and products at Caraco's Detroit facility." (Id.) Under these circumstances, annexation of the Complaint is sufficient to apprise Taro shareholders of the relevant information and to cure any Williams Act violation created by the previous omission of a description of these events.
As to the one remaining issue — whether Sun intends to move Taro's production facilities to India — the Williams Act does not require Sun to admit this allegation — which it has publicly denied — or to litigate its intent at this juncture. Taro's arguments have been laid before Taro's shareholders, and the Williams Act requires nothing more. See, e.g., Forgent Networks, Inc. v. Sandberg, No. A-09-CA-499-LY, 2009 U.S. Dist. LEXIS 89620, at *4-5 (W.D. Tex. Aug. 27, 2009) (rejecting, in preliminary injunction context, plaintiff's argument that "Section 13D's disclosure requirements are not satisfied unless the existence of [a Section 13D group] and its true purpose are disclosed" and holding that Williams Act "threshold cannot be met when an alleged omission relates to subjective motives rather than objective facts").
Because annexation of the Complaint to Sun's tender offer is sufficient to cure any Williams Act violations, Taro's Williams Act claim will be dismissed as moot.
III. JURISDICTION OVER REMAINING STATE LAW CLAIMS
Sun contends that in the event Taro's Williams Act claim is dismissed, this Court must dismiss as well Taro's pendent state law claims. (Defs. Br. 15) "`[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state-law claims.'" Kolari v. New York-Presbyterian Hosp., 455 F.3d 118, 122 (2d Cir. 2006) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7 (1988)); see also United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966) ("Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of applicable law. . . . [I]f the federal law claims are dismissed before trial . . . the state claims should be dismissed as well.").
Taro argues, however, that "[e]ven if the Federal claims were not in the case, subject matter jurisdiction over the state law claims exists based upon diversity of citizenship . . . [because] [t]he citizenship of the parties is pleaded and is completely diverse." (Pltfs. Br. 18) The Complaint, however, does not adequately plead the citizenship of the parties. (Cmplt. ¶¶ 1, 11-14) Moreover, Taro has not alleged that the amount in controversy exceeds $75,000. Accordingly, in the absence of the Williams Act claim, the Complaint provides no basis for this Court to exercise subject matter jurisdiction, and the Complaint must be dismissed in its entirety. See, e.g., Grandon ex rel. Grandon Family Irrevocable Trust v. Merrill Lynch Co., Inc., No. 95 Civ. 10742 (SWK), 1999 WL 993653, at *5 (S.D.N.Y. Nov. 1, 1999) ("[P]laintiffs' failure to properly allege diversity jurisdiction in accordance with 28 U.S.C. § 1332 leaves the Court with no basis for subject matter jurisdiction. Specifically, plaintiffs fail to allege the requisite amount in controversy. . . ."); Miller v. European American Bank, 921 F.Supp. 1162, 1167 (S.D.N.Y. 1996) (noting that the amount in controversy must "appear on the face of the complaint or be established by proof that the matter in controversy exceeds, exclusive of interest and costs, the [requisite] sum or value. . . .").
CONCLUSION
For the foregoing reasons, Defendants' motion to dismiss the Complaint is GRANTED. (Docket No. 27) Any motion to file an amended complaint is to be filed by July 27, 2010.Plaintiffs' motion for an order granting leave to conduct expedited discovery is DENIED as moot. (Docket No. 21)
The Clerk of the Court is directed to terminate the motions. (Docket Nos. 21, 27).
SO ORDERED.