United States District Court, N.D. California
BIOTECHNOLOGY VALUE FUND, L.P., BIOTECHNOLOGY VALUE FUND II, L.P., INVESTMENT 10, L.L.C., BVF INVESTMENTS, L.L.C.; BVF INC., and BVF X, LLC, Plaintiffs,
CELERA CORPORATION, QUEST DIAGNOSTICS INCORPORATED, CREDIT SUISSE SECURITIES (USA) LLC, KATHY ORDOÑ EZ, RICHARD H. AYERS, JEAN-LUC BELINGARD, WILLIAM G. GREEN, PETER BARTON HUTT, GAIL M. NAUGHTON, WAYNE I. ROE, and BENNETT M. SHAPIRO, Defendants
[Copyrighted Material Omitted]
For Biotechnology Value Fund, L.P., Plaintiff: Bruce W. Leppla, Richard Martin Heimann, LEAD ATTORNEYS, Leiff Cabraser Heimann & Bernstein, San Franciso, CA; Joy Ann Kruse, LEAD ATTORNEY, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; Michael J. Miarmi, PRO HAC VICE, Lieff Cabraser Heimann Bernstein, LLP, New York, NY.
For Biotechnology Value Fund II, L.P., Investment 10, L.L.C., BVF Investments, L.L.C., BVF Inc., Plaintiffs: Bruce W. Leppla, Richard Martin Heimann, LEAD ATTORNEYS, Leiff Cabraser Heimann & Bernstein, San Franciso, CA; Joy Ann Kruse, LEAD ATTORNEY, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; Michael J. Miarmi, Lieff Cabraser Heimann Bernstein, LLP, New York, NY.
For Celera Corporporation, Quest Diagnostics Incorporated, Kathy Ordonez, Richard H. Ayers, Jean-Luc Belingard, William G. Green, Peter Barton Hutt, Gail M. Naughton, Wayne I. Roe, Bennett M. Shapiro, Defendants: Stephen D. Hibbard, LEAD ATTORNEY, Shearman & Sterling LLP, San Francisco, CA; Andrew Zachary Lipson, Sara Ann Ricciardi, brian howard polovoy, PRO HAC VICE, Shearman and Sterling LLP, New York, NY.
For Credit Suisse Securities (USA) LLC, Defendant: Grant Edward Strother, Neal Alan Potischman, Davis Polk & Wardwell, Menlo Park, CA; William D. Pollak, PRO HAC VICE, Davis Polk and Wardwell LLP, Menlo Park, CA.
WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE.
ORDER GRANTING MOTIONS TO DISMISS
In this action asserting claims under federal securities law and state law, defendants filed two motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). To the extent stated below, both motions are Granted.
The essence of this case is that a public company was acquired by a purchaser and certain former shareholders are now complaining that the acquisition price was approved too low as a result of alleged misrepresentations in the recommendation statement and fairness opinion.
1. The Acquisition.
Defendant Celera Corporation is a healthcare company. It holds royalty rights for drugs being developed by other companies, such as odanacatib (" Cat-K" ), an osteoporosis drug, and ibrutinib, a cancer drug.
In March 2010, Celera signed an engagement letter with defendant Credit Suisse Securities (USA), to advise Celera on potential strategic transactions. For its services, Credit Suisse would receive an initial payment of $250,000; additionally, if 50% or more of Celera was sold, Credit Suisse would receive one million dollars to prepare a fairness opinion as well as a sales bonus equal to 1.3% of the sale's total transaction value. Throughout the following months, Credit Suisse and Celera's CEO and director -- Kathy Ordonez -- contacted potential bidders for Celera.
On May 21, 2010, defendant Quest Diagnostics Incorporated submitted a formal bid to acquire Celera at $10.00 per share. On June 25, Quest increased its offer to $10.25 per share, contingent on employment agreements with key Celera employees. On June 29, Quest recognized internally that Ordonez was unwilling to accept the terms of Quest's offer of employment. She sought a $3.4 million change-in-control payment to her in connection with the acquisition. On June 30, Quest withdrew its acquisition offer, citing concerns about the retention of Celera's management and Celera's " KIF6" gene variance products.
After " facing possible termination as CEO, shareholder unrest, the potential loss of her seat on the Celera [b]oard, and pending securities litigation" in other matters, Ordonez contacted Quest to restart negotiations. On February 17, 2011, Quest made a final offer of $8 per share ($680 million in total) for Celera. The amended complaint alleges that the offer's true value was closer to $236 million, after factoring out Celera's $327 million in cash and $117 million in tax credits (Amd. Compl. ¶ ¶ 2, 80-81).
In March 2011, Credit Suisse presented a fairness opinion to Celera's board of directors, concluding that Quest's offer of $8 per share was a fair acquisition price. In reaching this determination, the fairness opinion analyzed the value of Celera's drug royalties stream based on a 2002 study that, in turn, relied on data from the Tufts University Center for the Study of Drug Development. Under the Tufts study's methodology, projected cash flows for a drug in development could be combined with a set of general probabilities as
to whether that drug would reach the market, based on the stage of development: " (i) for Phase I trials -- 20%; (ii) for Phase II trials -- 30%; [and] (iii) for Phase III trials -- 67% . . ." (id. ¶ 97).
According to the amended complaint, Credit Suisse used the wrong probabilities in evaluating Cat-K and other drug royalty assets: " Phase I -- 3%; Phase II -- 16%; and Phase III -- 53%." This caused Credit Suisse " to significantly undervalue Celera's royalty assets," and that had Credit Suisse accurately applied the Tufts study's methodology, the analysis " would have yielded a price substantially higher than the $8-per-share price Quest paid for Celera." The amended complaint further asserts that earlier, " Credit Suisse had accurately applied the Tufts [s]tudy's probabilities." Thus, the switch looks now suspiciously like a gimmick to justify a low ball offer for the company. In addition, Credit Suisse allegedly committed other errors regarding " selected companies" and " selected transactions" for its fairness analysis.
On March 17, 2011, Quest and Celera executed an agreement under which Quest would make a tender offer for Celera's common stock at $8 per share. Moreover, the acquisition agreement provided Ordonez and Celera's other directors with six years of indemnification for misconduct while at Celera. Ordonez also received a one-time cash payment of approximately $2.3 million, as well as stock and salary as part of her new employment package with Quest. On March 28, Celera filed a Schedule 14D-9 Solicitation/Recommendation Statement with the Securities and Exchange Commission, including Credit Suisse's fairness opinion and a recommendation that Celera's shareholders accept Quest's offer. On May 17, 2011, Quest and Celera consummated the acquisition.
2. Shareholder Litigation.
Beginning on March 22, 2011, Celera shareholders filed several putative class actions in Delaware and California to enjoin Quest's acquisition of Celera. In April 2011, Celera shareholders filed two more putative class actions in this district -- McCreary v. Celera Corp., et al., 11-1618 SC (N.D. Cal) (Judge Samuel Conti), and Andal v. Celera Corp., et al., 11-1769 SC (N.D. Cal) (same). These two actions were then stayed pending resolution of the Delaware proceeding, and in February 2013, the parties filed voluntary dismissals of those matters.
In each of the above actions, the plaintiffs alleged that Quest, Celera, and several of Celera's directors made false or misleading disclosures in connection with the acquisition. Each action also sought to represent the same nationwide class of Celera shareholders, including plaintiffs herein, Biotechnology Value Fund, L.P., Biotechnology Value Fund II, L.P., Investment 10, L.L.C., BVF Investments, L.L.C., BVF Inc., and BVF X, LLC. At the time of the acquisition, plaintiffs owned nearly 25% of all outstanding Celera shares.
On April 18, 2011, the Delaware proceeding settled. Among other conditions, the settlement provided for a general release of all claims relating to the acquisition. The Delaware Court of Chancery certified New Orleans Employees' Retirement System as class representative, approved of the settlement as fair and reasonable, and then denied plaintiffs' request to certify the class on an opt-out basis. On appeal, the Delaware Supreme Court upheld the certification of the class, but found that plaintiffs should have been provided with an opt-out right to pursue a claim for money damages. In re Celera Corp. S'holder Litig., 59 A.3d 418, 422-23 (Del. 2012).
3. The Present Claims.
On July 12, 2013, plaintiffs commenced this action and later filed an amended complaint. The first claim is against Celera, its directors, and Credit Suisse under Section 14(e) of the Securities Exchange Act, alleging that the recommendation statement contained material misrepresentations, particularly as to Credit Suisse's analysis of drug royalty assets. The second claim is against Celera and its directors under Section 20(a) of the Exchange Act, asserting joint and several liability for the alleged Section 14(e) violations. The third claim is under state law, for reported breach of fiduciary duty as to Credit Suisse and Celera's directors. The fourth claim is also under state law, for alleged aiding and abetting of breach of fiduciary duty as to Credit Suisse and Quest.
Quest, Celera, and Celera's directors now move jointly to dismiss the claims brought against them. In addition, Credit Suisse has submitted its own motion to dismiss. Following full briefing and oral argument, including supplemental briefing from both sides, this order decides as follows.
Defendants have requested judicial notice of various SEC filings made by both sides. Under Federal Rule of Evidence 201(b), a court may take judicial notice of any fact " that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Accordingly, as to documents that were ...