United States District Court, N.D. California
JOHN E. GOLUB, Plaintiff,
GIGAMON INC., et al., Defendants.
ORDER GRANTING MOTION TO DISMISS RE: DKT. NO.
WILLIAM H. ORRICK UNITED STATES DISTRICT JUDGE.
John E. Golub brings claims under the § 14(a) and 20(a)
of the Securities and Exchange Act of 1934 and SEC Rule 14a-9
against Gigamon Inc., Gigamon Chief Executive Officer Paul A.
Hooper, and Gigamon's directors (collectively, these
related parties are referred to as “Gigamon”)
arising from an allegedly materially false and misleading
proxy statement issued in relation to the acquisition of
Gigamon by Elliot (the
“Acquisition”). Amended Consolidated Complaint
(“AC”) [Dkt No. 85]. In a previous order, I
dismissed largely identical claims in Golub's
Consolidated Complaint (“CC”) [Dkt. No. 48]
because I found that the allegedly false and misleading
portions of the proxy statement were subject to a statutory
safe harbor and were not objectively false. Order Granting
Motion to Dismiss (“Order”) [Dkt. No. 83].
Although Golub has amended his complaint, he fails to plead
new facts that would change my reasoning. Accordingly, I
GRANT Gigamon's motion to dismiss without leave to amend.
previous Order contained a detailed factual background and I
will not fully restate it here. Order at 2-9. Gigamon is a
provider of traffic visibility solutions into data traversing
networks to make it easier for companies to manage, secure,
and understand their data-in-motion, which, in turn, enables
stronger security and enhances network performance. AC at
¶ 37. On October 26, 2017, it publicly announced that
its Board approved the Agreement and Plan of Merger through
which Elliott would acquire Gigamon for a price of
$38.50 per share in cash. Id. at ¶ 84. On
November 24, 2017, Gigamon filed the Proxy Statement at issue
in this case. Id. ¶ 85. It issued notices to
shareholders on December 4 and December 11, 2017 that urged
them to vote on the Acquisition. Id. On December 12,
2017, it issued a “Supplemental Disclosure, ”
that augmented the background to the Merger and Fairness
Opinion sections of the Proxy Statement. Id.
December 22, 2017, a majority of Gigamon shares were cast in
favor of the Acquisition. Id. The Acquisition closed
on December 27, 2017. Id. Golub asserts that the
proxy statement contained materially false and misleading
statements related to the Board's financial projections.
Id. at ¶ 3.
sale process began in spring of 2017 when Elliot started to
position itself to acquire Gigamon. Id. at ¶
73. In May 2017, the board decided to defer a formal sales
process until the company released its Q2 2017 results and
that it would be “prudent to review the Company's
long term business plans and financial projections.”
Id. at ¶ 74. On May 30, 2017, the Board was
presented with three sets of long-term projections: the Case
A Projections, which represented “higher projected
performance, ” the Case B Projections, which
represented the “base level expectation, ” and
the Case C Projections, which represented “lower
projected performance.” Id. at ¶ 75. On
June 6, 2017, the board instructed Goldman Sachs & Co.
LLC (“Goldman Sachs”), Gigamon's financial
advisor, to focus on the Case B Projections when conducting
its analysis. Id. at ¶ 78.
27, 2017, Gigamon reported that its revenue had declined by
8% in Q2 2017. Id. at ¶ 67; Gigamon Form 8-K
dated July 27, 2017 attached as Ex. 3 [Dkt. No. 89-3] to
Declaration of Elizabeth R. Gavin in Support of Gigamon
Defendants' Motion to Dismiss Amended Consolidated
Complaint for Violations of Securities Exchange Act of 1934
(“Gavin Decl.”) [Dkt. No. 89]. Elliot made an
offer of $44-46 per share four days later. Proxy at 36.
Although there were other potential buyers at one point in
the process, by September 7, 2017, all others had dropped
out, leaving Elliot as the sole potential buyer. Proxy at 37.
September 8, 2017, Elliot reduced its offer price to $42 per
share. AC at ¶ 78. On September 10, 2018, the board
discussed the proposal and concluded that if Gigamon achieved
its projected Q3 2017 results, Elliot's offer would be
inadequate. Proxy at 38. Elliot and Gigamon continued to
negotiate through September 19, 2019 and Elliot indicated its
willingness to increase its offer to $42.25-$42.50.
Id. at 38-39. On September 24, 2017, after learning
that $42.50 was Elliott's best and final offer, the Board
determined that the price was acceptable. Id. at 40.
after, Gigamon's Q3 2017 financial results fell $5.5
million below the analysts' consensus; instead of
reporting 3% growth, Gigamon reported 5% decline.
Id. at 40; AC at ¶ 81. In response, on October
5, 2017, Elliott reduced its offer price to $38 per share. AC
at ¶ 79; Proxy at 41.
Board met that day to discuss the revised offer and also
discussed “whether management's long-term financial
projections were outdated due to actual second and third
quarter performance and trend lines that such results
suggested for the full year and beyond.” Proxy at 41.
According to the Proxy, the board “recognized that
earlier valuation ranges for the Company, which had been
based on the Case B projections, were materially higher than
Elliott's then current offer price and could no longer be
relied upon.” Id. at 41. After a week of
unsuccessful attempts to negotiate a higher price, the Board
met on October 14, 2017 and were provided with an updated
draft set of Case B financial projections that reflected the
Q2 2017 and Q3 2017 results “without otherwise changing
the long-term growth assumptions.” AC at ¶ 79,
97(c); Proxy at 41-42. The Board “expressed concern
that Gigamon's recent results . . . might suggest that
the long-term growth assumptions reflected in the Case B
projections overstate Gigamon's likely long-term
financial prospects.” AC ¶ 97(c); Proxy at 42.
October 19, 2017, Elliott increased its offer price to $38.50
as an “absolute best and final offer.” AC ¶
80; Proxy at 43. On October 20, 2017, Gigamon's
Transaction Committee agreed that they needed
management's best estimate of the long-term outlook to
properly assess Elliott's offer and that
“Gigamon's recent performance clearly suggested
that the Case B Projections were no longer appropriate given
recent performance and third quarter results.” Proxy at
43; AC ¶ 97(d). On October 24, 2017, the Board
“agreed that they needed Gigamon's best estimate of
[its] long-term financial outlook in order to properly assess
a sale of Gigamon.” AC ¶ 97(e); Proxy at 43. The
Board determined that the Case C Projections “appeared
to reflect a better estimate of Gigamon's long-term
prospects (particularly, in view of the fact that the Company
was currently performing at levels even below the Case C
Projections).” AC ¶ 97(e); Proxy at 43. According
to the Proxy, management determined that the Case B
Projections were no longer realistic given Q3 2017
performance and updated the original Case C Projections
“to take into account actual results of Q2 2017 and Q3
2017 and the revised outlook for Q4 2017.” Proxy at 58;
AC ¶ 80.
Proxy included the Updated Case C Projections, which
management stated that it believed reflected “the most
likely standalone financial forecast of Gigamon's
business.” Proxy at 58. The Board approved sharing the
Updated Case C Projections with Elliott and directed Goldman
to rely on it for its fairness opinion. Id.
action is based on Golub's claim that the Board did not
actually believe the Updated Case C Projections contained in
the Proxy were accurate. AC at ¶¶ 88-98. Instead,
Golub alleges that the Board knew that the Updated Case B
Projections were accurate and that they should have been
included in the proxy instead. Id. at ¶¶
88-98. As evidence of this, Golub points to Gigamon's
more successful Q4 2017 and Q1 2018. Id. at
Order, I dismissed Golub's consolidated complaint on
several grounds. First, I found that the challenged portions
of the Proxy Statement were forward looking provisions
protected by the PSLRA's “safe harbor”
provision and that they were accompanied by meaningful
cautionary language. Order at 13-19. I reasoned that:
The Updated Case C Projections are classic forward-looking
statements because they pertain to revenues and other
financial data, the accuracy of which cannot be determined
until after the projection period (assuming the Acquisition
had not been consummated and Gigamon were still an
independent entity). Trahan v. Interactive Intelligence
Grp., Inc., 308 F.Supp.3d 977, 991-92 (S.D. Ind. 2018)
(citing [ ]15 U.S.C. § 78u-5(i)(1)(A)).
That Gigamon would later announce that it had a
“record-setting” close in 2017 and that it had
maintained its momentum with its customer base does not,
without more, create an inference that the Gigamon Defendants
knew that relying on the Updated Case C Projections
constituted a misrepresentation of the value of the company.
Compl. at ¶¶ 136-37. It does not necessarily follow
that Gigamon's weak Q2 and Q3 2017, followed by a
presumably successful Q4 2017, boded well for the
company's long term prospects. To infer that would
constitute a claim of “fraud by hindsight, ”
precisely what the PSLRA safe harbor is designed to guard
against. FEI, 289 F.Supp.3d at 1171-72 (“fraud
by hindsight suits are not meaningfully different from
[claims under Section 14(a) because] [i]n both cases, a
company makes a purportedly inaccurate forward-looking
statement that induces plaintiffs to act to their
detriment”) (internal quotation marks omitted). Golub
has not alleged that there is a misrepresentation baked into
the Updated Case C Projections that would render the Gigamon
Defendant's Proxy a present statement outside the
PSLRA's safe harbor requirement.
Id. at 17.
I found that Golub's reliance on Gigamon's successful
Q4 2017 did not help him plead objective falsity as required
by a Section 14 claim because:
The Updated Case C Projections estimated revenues of $314
million, a new record for yearly revenues (in 2016 and 2015
Gigamon brought in $311 million and $222 million,
respectively). Id.; Proxy Statement at 58.
Additionally, the Updated Case C Projections also assumed
record-setting revenues for Q4 2017of $96.105M, which was $11
million higher than Gigamon's prior best quarter.
Id. Given that the Updated Case C Projections
still predicted a record setting fiscal year and fourth
quarter, the Updated Case C Projections cannot be said to be
objectively false in light of the May 3, 2018 press release.
Id. at 20-21. I also held that:
The optimistic statements by the Gigamon defendants between
January 10 and August 8, 2017 neither support Golub's
claim of objective falsity with regards to the Updated Case C
Projections nor show that the Gigamon Defendants secretly
believed that the Case B Projections were correct. Compl. at
¶¶ 50-69, 74-75, 78, 85, 90-97, 99-100, 106. These
statements were made before what Gigamon acknowledged was a
surprisingly poor Q3 2017. The Proxy Statement explains that
management adjusted its projections in response. Compl. at
¶ 111; Proxy Statement at 42. It is of no help to Golub
that the board changed its projections after its optimism
that Q2 2017 would create a glide path to market growth rate
in the second half of the year was shown to be unwarranted
after a disappointing Q3 2017. See Trahan v. Interactive
Intelligence Grp., Inc., 308 F.Supp.3d 977, 991 (S.D.
Ind. 2018) (rejecting argument that forecasts in proxy were
false because they were “not commensurate with”
defendants' prior, more hopeful and optimistic
Golub has failed to show objective falsity with
particularized facts that “directly contradict”
or are “necessarily inconsistent with” the
Updated Case C Projections. In re Read-Rite Corp.,
335 F.3d 843, 848 (9th Cir. 2003), abrogated on other grounds
as recognized in S. Ferry, L.P. No. 2 v. Killinger,
542 F.3d 776, 782-84 (9th Cir. 2008).
Id. at 21-22.
I found that the failure to include the refreshed Case B
projections was not a material omission because: (i) they
were not relied upon by the Board; (ii) the “older
long-term projections had been regularly communicated to
investors and analysts in quarterly earning calls” and
their materiality was dubious; and (iii) the Proxy Statement
described in detail when and why the Board updated the Case C
Projections. Id. at 22. Finally, because Golub
failed to allege ...