# KUEBLER v. VECTREN CORPORATION

> District Court, S.D. Indiana · September 6, 2019

URL: https://www.frixlaw.com/law-library/cases/10165621

## Case

- **Court:** District Court, S.D. Indiana
- **Decided:** September 6, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10165621

## How later opinions describe it (automated extraction)

- holding district court in securities action did not abuse its discretion in refusing to consider opinions and conclusions in expert affidavit because opinions cannot substitute for facts under the PSLRA
- holding plaintiff cannot satisfy economic loss requirement by simply alleging the price of a security on the date of purchase was inflated because of a misrepresentation
- noting district courts may consider public disclosure documents that have been filed with the SEC in securities actions when deciding a Rule 12 motion
- noting loss causation requires demonstrating that the subject of the fraudulent omission was the cause of the actual loss suffered
- reversing district court that considered improper documents—those that did not form the basis of a plaintiff’s claims—when ruling on a Rule 12(c) motion

## Opinion text

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
EVANSVILLE DIVISION

MICHAEL KUEBLER, et al. )
)
Plaintiffs, )
)
v. ) 3:18-cv-00113-RLY-MPB
)
VECTREN CORPORATION, et. al. )
)
Defendants. )
)

ENTRY ON MOTION TO DISMISS

Students throughout the country returned to school this month. Some were
excited. Others were disappointed. Many will study math this year. And most who do
will bemoan missing points on their test because they did not “show their work” even if
their answer was otherwise correct.
This securities case is more or less about that: showing your work. In 2018,
Vectren Corporation (“Vectren”) and CenterPoint Energy, Inc. (“CenterPoint”) entered
into a merger agreement, under which Vectren shareholders were paid seventy-two
dollars per share. As required by federal securities law, Vectren filed a proxy statement
with the SEC in connection with the merger. However, according to this purported class
action brought by shareholders, Vectren failed to show all of its work related to the
merger: the proxy statement omitted the unlevered cash flow that Vectren was forecasted
to generate between 2018 and 2028 and the financial projections for each of Vectren’s
three main business lines. This critical information, the shareholders insist, was
necessary for them to sufficiently assess the values of their shares, and without it, the
proxy statement is misleading in violation of Sections 14(a) and 20(a) of the Securities

Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78a et seq. and the SEC’s
implementing Rule 14a–9, 17 C.F.R. § 240.14a–9 (“Rule 14a–9”).
But the Exchange Act only applies if the omissions are material and actually cause
some economic loss. Considering all the other financial information in the proxy
statement, the disclosure of unlevered cash flow and the business-line projections would
not have made a difference to a reasonable shareholder. And even if it would have, the

shareholders have not sufficiently alleged that the omissions actually caused the harm for
which they seek damages. Consequently, the shareholders’ claims must be dismissed.
I. Legal Standard
The dismissal rules for failure to state a claim are well-known. Rule 12(b)(6)
authorizes a court to dismiss a complaint that fails “to state a claim upon which relief can

be granted.” Fed. R. Civ. P. 12. To survive a Rule (12)(b)(6) motion, a plaintiff must
allege “‘enough facts to state a claim to relief that is plausible on its face.’” O’Boyle v.
Real Time Resolutions, Inc., 910 F.3d 338, 342 (7th Cir. 2018) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)); see also Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). The court accepts all well-pleaded allegations in the complaint as true and draws

all reasonable inferences in favor of the plaintiff. Alarm Detection Systems, Inc. v.
Village of Schaumburg, 930 F.3d 812, 821 (7th Cir. 2019). The case moves forward if
the complaint plausibly suggests the plaintiff is entitled to relief; if not, dismissal is
appropriate. Id.
There are additional rules for pleadings in securities actions. The Private
Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. §§ 78u–4(b), imposes

heightened pleading requirements on securities plaintiffs. Trahan v. Interactive
Intelligence Group, Inc., 308 F.Supp.3d 977, 986 (S.D. Ind. 2018) (citing Beck v.
Dobrowski, 559 F.3d 680, 681 – 82 (7th Cir. 2009)). Specifically, plaintiffs alleging a
proxy statement is misleading due to an omission must identify each statement alleged to
have been misleading, the reason why each statement is misleading, and all of the
relevant facts that support that conclusion. § 78u–4(b)(1); Trahan, 308 F.Supp.3d at 968.

They must also allege that the omission caused some type of economic loss. § 78u–
4(b)(4); Grace v. Rosenstock, 228 F.3d 40, 46 – 47 (2d Cir. 2000) (noting loss causation
must be shown in a cause of action under Section 14(a)). Only particularly pled
allegations count under the PSLRA; the court does not consider blanket or catch-all
assertions. Campbell v. Transgenomic, Inc., 916 F.3d 1121, 1124 (8th Cir. 2019).

Lastly, a few words about what the court will consider. Ordinarily, a court only
considers the pleading when ruling on a motion to dismiss. Jackson v. Curry, 888 F.3d
259, 263 (7th Cir. 2018) (citation omitted). “Ordinarily” is the key qualifier: a court can
consider certain outside materials that the are referred to in the complaint and central to
plaintiff’s claim. See Tierney v. Vahle, 304 F.3d 734, 738 (7th Cir. 2002). Two materials

outside the Complaint are worth discussing here: the proxy statement attached by
Defendants in their motion to dismiss and the affidavit of the initial findings of Plaintiffs’
financial expert included in the Complaint.
The court considers the proxy statement; the court does not consider the expert
affidavit. Although both are referred to in the Complaint, only the proxy statement is

central to Plaintiffs’ claims. See Tierney, 304 F.3d at 738. Much like how a breach of
contract suit depends on the contract, Plaintiffs’ securities claim depends on a false or
misleading proxy—it is an element of the claim. City of St. Clair Shores General
Employees Retirement System v. Inland Western Retail Real Estate Trust, Inc., 635
F.Supp.2d 783, 790 (N.D. Ill. 2009) (citing Mills v. Electric Auto-Lite Co., 396 U.S. 375,
384 – 85 (1970)). Moreover, courts are permitted to consider proxy statements when

ruling on a 12(b)(6) motion without converting it to summary judgment because proxy
statements are public disclosure documents, required by law to be filed with the SEC.
See Financial Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006)
(noting district courts may consider public disclosure documents that have been filed with
the SEC in securities actions when deciding a Rule 12 motion). That does not mean the

court necessarily accepts everything in the Proxy Statement as true, but it does mean that
the court can consider the contents of the Proxy Statement when analyzing the
shareholders’ claims. See City of Sterling Heights General Employees’ Retirement
System v. Hospira, Inc., No. 11–C–8332, 2013 WL 566805, at *11 (N.D. Ill. Feb. 13,
2013) (St. Eve, J.) (collecting cases).

On the other hand, the expert affidavit is not central to Plaintiffs’ claims: it does
not form the basis of the claims nor is it relevant to establishing the facts necessary for
Plaintiffs to state a claim. See Northern Indiana Gun & Outdoor Shows, Inc. v. City of
South Bend, 163 F.3d 449, 455 – 57 (7th Cir. 1998) (reversing district court that
considered improper documents—those that did not form the basis of a plaintiff’s
claims—when ruling on a Rule 12(c) motion). The affidavit is merely evidence, which

makes it irrelevant in determining whether Plaintiffs have stated a claim. See Financial
Acquisition Partners LP, 440 F.3d at 286 (holding district court in securities action did
not abuse its discretion in refusing to consider opinions and conclusions in expert
affidavit because opinions cannot substitute for facts under the PSLRA). With those
observations, the court now turns to the history of this case.
II. Background

A. The Merger
On April 21, 2018, Vectren and CenterPoint entered into a merger agreement.
(See Filing No. 64, Consolidated Amended Class Action Complaint (the “Complaint”) ¶
2). Vectren is a gas and electric company1 that provides energy for much of Southern
Indiana and part of Ohio. (Id. ¶ 13). CenterPoint is a public utility holding company

incorporated in Texas. (Filing No. 68-2, Definitive Proxy Statement (the “Proxy
Statement”) at 1). Under the agreement, Vectren agreed to become a CenterPoint
company and agreed to pay its shareholders seventy-two dollars ($72.00) in cash for each
share of common stock owned. (Complaint ¶ 2). Vectren publicly announced the merger
two days later on April 23, 2018. (Proxy Statement at 28).

1 Technically, Vectren is an energy holding company of its own wholly owned subsidiary:
Vectren Utility Holdings, Inc. (Id. ¶ 13). That company serves as an intermediate holding
company for three public utility companies: Indiana Gas Company, Inc., Southern Indiana Gas
and Electric Company, and Vectren Energy Delivery of Ohio, Inc. (Id.). However, the court
refers to all of these entities as “Vectren” for the purposes of this Entry.
As required by federal securities law, Vectren filed the Proxy Statement with the
SEC on July 16, 2018. (Complaint ¶ 2). The Proxy Statement is over 170 pages and

discusses the background and financial ramifications of the merger. (See Proxy
Statement at 16 – 41). Most relevant here, the Proxy includes the Board of Director’s
recommendation and reasons for the merger (id. at 28 – 32), the opinion of Vectren’s
financial advisor—Merrill Lynch, Pierce, Fenner & Smith Incorporated (“BAML”) (id. at
32 – 39), and a financial chart summarizing certain financial information prepared by
Vectren’s management. (Id. at 40 – 41). The projections include Net Income,

Depreciation and Amortization, EBITDA, and Capital Expenditures. (Id. at 40).
On August 28, 2018, Vectren held a meeting for the shareholders to vote on the
merger. (Complaint ¶ 7). The merger was approved by sixty-one percent (61%) of
Vectren’s outstanding shares. (Id.). The merger closed in the first quarter of 2019. (See
id.).

B. The Litigation
After announcing the merger, Vectren filed a preliminary proxy statement on June
18, 2018. (Filing No. 58, Order Denying Preliminary Injunction at 2). Several
shareholders sued—six to be precise. (Id. at 2 n. 1). The shareholders alleged, albeit in
different ways, the preliminary proxy statement was misleading because it omitted key

pieces of information. (Id. at 2). Another plaintiff joined the fray after Vectren filed its
definitive proxy (this is the one the court refers to as the “Proxy Statement”) with the
SEC on July 16, 2018. (Id.). Two of the shareholders moved for a preliminary injunction
to enjoin the shareholder vote. (Id.).
On August 10, 2018, the court consolidated the seven lawsuits and appointed
Michael Kuebler, James Danigelis, and Michael Nisenshal as lead plaintiffs. (See Filing

No. 52, Entry on Motions to Consolidate). The court then held a hearing on August 15,
2018 on the shareholders’ motion for a preliminary injunction. The court ultimately
denied their request for an injunction a week later. (See Order Denying Preliminary
Injunction); see also Kuebler et al. v. Vectren et al., No. 3:18-cv-00113-RLY-MPB, 2018
WL 4003626, at *4 (S.D. Ind. Aug. 22, 2018).
The shareholders then filed the Amended Consolidated Class Action Complaint on

October 29, 2018. (Filing No. 64). The Complaint alleges that the Proxy Statement
omitted two material pieces of information: the unlevered cash flow Vectren was
forecasted to generate between 2018 and 2027 (“Cash Flow Projections”) and the
financial projections for each of Vectren’s three main business lines—gas, electric, and
non-regulated—on an individual basis (“Business Segment Projections”). (Complaint ¶

5). These omissions, according to shareholders, render the Proxy misleading in violation
of Section 14(a) and 20(a) of the Exchange Act and SEC’s Rule 14a–9. Defendants—
Vectren and its directors—now move to dismiss the Complaint for failure to state a
claim. (Filing No. 67).
III. Discussion

Section 14(a) of the Exchange Act forbids soliciting proxies in violation of the
rules and regulations issued by the SEC. 15 U.S.C. § 78n(a)(1); see Trahan, 308
F.Supp.3d at 986; see also Lone Star Steakhouse & Saloon, Inc., 148 F.Supp.2d 1141,
1150 – 51 (D. Kan. 2001). Rule 14a–9 prohibits soliciting a proxy statement that omits
material facts or information. See 17 C.F.R. § 240.14a–9; Trahan, 308 F.Supp.3d at 986.
To withstand a motion to dismiss under these provisions, shareholders must allege (1) the

proxy statement contains a material misstatement or omission, and (2) that material
misstatement or omission caused them injury. Trahan, 308 F.Supp.3d at 986 (citing
Goldfinger v. Journal Communications Inc., No. 15–C–12, 2015 WL 2189752, at *2
(E.D. Wis. May 8, 2015)).
A little more about these two requirements. Omitted facts are considered material
“if there is a substantial likelihood that a reasonable shareholder would consider [them]

important in deciding how to vote.” TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438,
449 (1976); In re Walgreen Co. Stockholder Litigation, 832 F.3d 718, 723 – 24 (7th Cir.
2016). It is not enough that the omissions might have or could have influenced a
shareholder’s decision. In re Walgreen Co., 832 F.3d at 724; see also Beck, 559 F.3d at
684 – 85. There must be “a showing of a substantial likelihood that, under all the

circumstances, the omitted fact would have assumed actual significance in the
deliberations of the reasonable shareholder.” TSC Industries, 426 U.S. at 449 (emphasis
added); In re Walgreen Co., 832 F.3d at 724. The materiality inquiry is objective, and
the court considers the omissions from the perspective of a reasonable investor. See
Paradise Wire & Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 318 (4th

Cir. 2019) (citing Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund,
135 S.Ct. 1318, 1327 (2015)).
In addition to materiality, shareholders must allege that their damages were caused
by the misstatements or omissions in the proxy statement. 15 U.S.C. § 78u–4(b)(4) (“In
any private action arising under this chapter, the plaintiff shall have the burden of proving
that the act or omission of the defendant alleged to violate this chapter caused the loss for

which the plaintiff seeks to recover damages.”); see Beck, 559 F.3d at 684 – 85; Grace,
228 F.3d at 46 – 47. In the securities context, the causal element has two components:
transaction causation and loss causation. Grace, 228 F.3d at 46 – 47. Only loss
causation is at issue here. To withstand dismissal on loss causation, the shareholders
must allege that the subject of the omissions was the cause of the actual loss suffered.
Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 173 (2d. Cir. 2005); see also Lormand

v. US Unwired, Inc., 565 F.3d 228, 255 – 58 (5th Cir. 2009).
Defendants argue dismissal is appropriate for two reasons: the shareholders failed
to allege any material omission from the Proxy Statement, and even if the Proxy
Statement omitted material information, the shareholders have failed to allege any
economic loss caused by the omissions. The court will take up each argument.2

2 Defendants also argue the PSLRA’s safe harbor provision applies because the alleged
omissions constitute forward-looking statements and are accompanied by cautionary language.
See Trahan, 308 F.Supp.3d at 994 – 95 (applying safe harbor provision to management
forecasts). The PSLRA’s safe harbor provision exempts defendants from liability for “forward-
looking” statements if (1) the statement is identified as such and surrounded by meaningful
cautionary language, or (2) the statement is immaterial, or (3) the plaintiff fails to prove the
statement was made with actual knowledge that is was false or misleading. See 15 U.S.C. §
78u–5(c); see also In re Vivendi, S.A. Securities Litigation, 838 F.3d 223, 245 (2d Cir. 2016)
(citations omitted).

It is not clear the safe harbor provision applies to claims brought under Section 14(a). See
Edward J. Goodman Life Income Trust v. Jabil Circuit, Inc., 594 F.3d 783, 796 – 97 (11th Cir.
2010) (applying safe harbor provision to claims brought under sections 10(b) and 10b–5 but not
to claims brought under section 14(a)); OFI Asset Management v. Cooper Tire & Rubber, 834
F.3d 481, 490 (3d Cir. 2016) (“[T]he PSLRA provides a so-called “safe harbor” that immunizes
certain “forward-looking” statements from § 10(b) liability.”) (emphasis added). Moreover, “[t]o
avoid the safe harbor, plaintiffs must plead facts demonstrating that the statement was made with
A. Materiality

The shareholders allege the Proxy Statement was materially misleading because it
omitted the Cash Flow Projections and Business Segment Projections. Cash flow,
according to the shareholders, is the single most important financial metric when valuing
a company for sale because it is objective and not subject to manipulation. (Complaint ¶¶
65 – 70). They also allege cash flow is a more accurate indicator than net income and
EBITDA.3 (Id.). The shareholders allege the Business Segment Projections are material
because those are what BAML used to value the company when performing its

Discounted Cash Flow (“DCF”) analysis. (Id. ¶¶ 71 – 72). BAML used the DCF
analysis to give its opinion on the value of the Vectren’s shares and the overall fairness of
the merger. (Proxy Statement at 32 – 39). Because of these two omissions, the
shareholders could not adequately assess the intrinsic value of the shares and the DCF
analysis performed by BAML was materially misleading. (Complaint ¶¶ 61, 73).

actual knowledge of its falsity.” Southland Securities Corp. v. INSpire Ins. Solutions, Inc., 365
F.3d 353, 371 (5th Cir. 2004) (citations omitted). However, Plaintiffs do not have to prove a
culpable state of mind for a Section 14(a) claim. See Beck, 559 F.3d at 682 (“There is no
required state of mind for a violation of section 14(a) . . .”); see also In re Exxon Mobil Corp.
Securities Litigation, 500 F.3d 189, 196 (3d Cir. 2007) (“Violations of § 14(a) . . . may be
committed without scienter; in other words, no culpable intent is required.”) (citations omitted);
but see Dekalb County Pension Fund v. Transocean Ltd., 817 F.3d 393, 408 n. 90 (2d Cir. 2016)
(noting circuit split). And the Eighth Circuit—in one of the most recent appellate decisions to
consider a claim under Section 14(a)—did not even discuss the safe harbor despite the central
claims in that case involving omitted and misleading business projections in a proxy statement—
much like the claims here. See Campbell, 916 F.3d at 1124. Because other grounds for
dismissal are dispositive, the court leaves this issue for another day.

3 Earnings before interest, taxes, depreciation, and amortization.
These omissions, however, must be considered with what was disclosed. See e.g.
New England Anti-Vivisection Soc., Inc. v. U.S. Surgical Corp., Inc., 889 F.2d 1198,
1203 (1st Cir. 1989) (misleading statements must be read in the context of the whole
document); Atkins v. Tony Lama Co., Inc., 624 F.Supp. 250, 258 (S.D. Ind. 1985)
(omissions must be considered in the context of the entire proxy statement) The Proxy
Statement details the background of the merger, identifying the different companies and
their proposals to acquire Vectren. (Proxy Statement at 16 — 28). It contains the Board
of Directors’ reasons for approving the merger. (/d. 28 — 32). This included financial
considerations such as Vectren’s recent stock prices and the recommendation of BAML.
(Id.). The Proxy Statement then summarizes BAML’s opinion evaluating the merger.
(Ud. at 32 — 40). This summary contains the information BAML considered, the financial
analyses BAML performed, and the ranges BAML calculated with respect to the implied
per share equity value for 2018 and 2019. Ud.). Following BAML’s financial summary,
the Proxy Statement discloses certain forward-looking financial projections used to
measure Vectren’s financial performance:

Year Ended December 31,
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
(in thousands)
Net Income $ 236,739 § 257.429 $280,241 $309,123 $346,054 $ 392,277 $ 424.703 $ 484,833 $ 527,872 $ 566,943
Depreciation and Amortization § 292.331 $ 319.246 $342,599 $355,175 $369,897 §$ 388.639 $ 424.882 $ 481.707 $§ 497.267 § 513.607
EBITDA $ 685.484 § 753.257 $816,175 $877,453 $957,702 $1,056,590 $1,152,665 $1,293,246 $1,361,978 $1,429,050
Capital Expenditures, excluding
AFUDC equity §(631,551) $(622,532) $(599,633) $(778.389) $(959.427) $ (856,742) $ (637,391) $ (606,594) $ (620.404) $ (594.048)

Ud. at 40 — 41). However, the projections come with tailored warnings:
These projections are included in this proxy statement because we provided
such projections to our financial advisor and to CenterPoint Energy in
connection with the merger agreement discussions. The following forward-

11

looking financial information was not prepared with a view toward public
disclosure or with a view toward complying with the guidelines established
by the American Institute of Certified Public Accountants with respect to
forward-looking financial information, but, in the view of the management
of the Company, was prepared on a reasonable basis, reflected the best then-
currently available estimates and judgments at the time of its preparation, and
presented at the time of its preparation, to the best of management’s
knowledge and belief, the expected course of action and the expected future
financial performance of the Company. However, this information is not fact
and should not be relied upon as being necessarily indicative of future
results, and readers of this proxy statement are cautioned not to place undue
reliance on the forward-looking financial information.

(Id. at 40) (emphasis added). The Proxy Statement goes on to state that neither an
independent auditor nor an independent accountant examined any of the future
projections. (Id.).
In light of the information actually disclosed along with the accompanying
warnings, the omission of the Cash Flow Projections and Business Segment Projections
did not render the Proxy Statement materially false or misleading. At most, the
omissions might have made a difference to a reasonable shareholder, but that is not
enough. In re Walgreen Co., 832 F.3d at 724; see also Beck, 559 F.3d at 685. There
must have been a substantial likelihood that the omitted information would have actual
significance in the deliberations. See TSC Industries, 426 U.S. at 449; In re Walgreen
Co., 832 F.3d at 724. Given the summary of the merger, the board’s reasoning, BAML’s
financial summary, and the financial projections—which all relate to the performance of
the company—the Proxy Statement provided the shareholders with enough information
to decide how to vote. The omitted projections are just more information, but that does
not make them material. Beck, 559 F.3d at 685. Further, the omitted projections are just
that: projections. They are not statements of fact, and the disclosed projections came
with specific warnings that they should not be relied on as being indicative of future

results. Those warnings render the omitted projections immaterial. See Paradise Wire,
918 F.3d at 321 – 24 (holding omitted “negative” financial information did not render
disclosed financial information materially misleading because the proxy statement came
with clear warnings concerning the omissions).
The shareholders protest that the Cash Flow Projections and Business Segment
Projections are different though. They argue that those projections are of such an

important character that BAML’s DCF Analysis and the disclosed projections are
rendered misleading without them. See United States v. Smith, 155 F.3d 1051, 1064 n. 20
(9th Cir. 1998) (noting investors are concerned, perhaps above all else, with the future
cash flows of the companies in which they invest); Azar v. Blount Int’l Inc., No. 3:16–cv–
483–SI, 2017 WL 1055966, at *6 (D. Or. Mar. 20, 2017) (collecting cases discussing

importance of projections, including cash flow).
But the shareholders real quibble is with BAML’s analysis—not the omission of
the projections. The shareholders believe that BAML used high discount rates when
conducting its DCF analysis, and so the only way to assess the fairness of BAML’s
opinion, they say, is the disclosure of the key inputs: the Cash Flow Projections and

Business Segment Projections. (See Complaint ¶ 73 – 83). However, the law does
require disclosure of every financial input used by a financial advisor so that the
shareholders can replicate the advisor’s analysis. Bushansky v. Remy International, Inc.,
262 F.Supp.3d 742, 749 – 50 (S.D. Ind. 2017) (citing In re Trulia, Inc. Stockholder Litig.,
129 A.3d 884, 900 – 901 (Del. Ch. 2016)) (noting shareholders are only entitled to
receive in the proxy statement a fair summary of the substantive work performed by the

financial advisor); see also Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del.
2000) (rejecting claim that shareholders should be given all financial data necessary to
make an independent determination of value). All that is required is a fair summary. The
court agrees with the long list of others that have found additional inputs—including cash
flow and business segment projections—are immaterial when a proxy statement contains
other valuation projections and a summary of the financial advisor’s analysis. See e.g.

Bushansky, 262 F.Supp.3d at 750 (disclosure of figures underlying cash flow calculations
immaterial); Carlson v. Triangle Capital Corp., No. 5:18-CV-332-FL, 2018 WL
3546232, at *4 – 6 (E.D. N.C. July 23, 2018) (same); In re national Research
Corporation Shareholder Litigation, No. 4:17-cv-441, 2018 WL 4915836, at *4 (D. Neb.
Oct. 9, 2018) (same); Louisiana Mun. Police Employees Retirement System v. Cooper

Industries PLC, No. 12-CV-1750, 2012 WL 4958561, at *8 (N.D. Ohio Oct. 16, 2012)
(same); see also Vardakas v. American DG Energy Inc., No. 17-cv-10247-LTS, 2018 WL
1141360, at *4 – 5 (D. Mass. Mar. 2, 2018) (disclosure of inputs underlying fairness
analyses immaterial).
The shareholders also say that materiality is a question of fact for a jury, citing a

recent Eighth Circuit decision. See Campbell v. Transgenomic, Inc., 916 F.3d 1121 (8th
Cir. 2019). This argument fares a little better. In Campbell, the Eighth Circuit reversed a
district court that found shareholders had failed to state a claim under Section 14(a) based
on omissions from a proxy statement and held that the question of materiality was for a
jury. Id. at 1128. However, Campbell is distinguishable. There, the proxy statement
omitted net income, which the Eighth Circuit had previously emphasized as one of the

most valuable figures in determining the fairness of an acquisition. Campbell, 916 F.3d
at 1125 (citing Mississippi River Corp. v. FTC, 454 F.2d 1083, 1086 (8th Cir. 1972)).
The shareholders here have not pointed this court toward any Seventh Circuit precedent
saying the same about cash flow or business segment projections when other financial
indicators are disclosed. Moreover, the shareholders in Campbell alleged the omitted net
income projections were significantly lower than the other projections that were

disclosed. Id. at 1125. Here, the shareholders do not contend the disclosed projections
significantly undervalued the company or the omitted projections were significantly
lower. Second, and perhaps more important, the proxy statement in Campbell actually
mislabeled certain projections: it listed projections for the post-merger company but
labeled the projections as being connected to the pre-merger company. Id. at 1126 – 27.

This, the Eighth Circuit said, could have caused shareholders to believe the company was
significantly more valuable than what it actually was. Id. There is no such allegation
here. Accepting the shareholders’ well-pleaded allegations4 as true, their Complaint falls
short of stating a plausible claim that the Cash Flow Projections and Business Segment
Projections are material.

4 To be sure, the Complaint repeatedly alleges that the omissions from the Proxy Statement
render it misleading. But that is a legal conclusion which the court does not have to accept as
true. Alarm Detection Systems, 930 F.3d at 821.
B. Loss Causation
Even if the Proxy Statement omitted material information, the shareholders must

still allege some sort of economic loss caused by the omissions. Lentell, 396 F.3d at 172
– 73; Trahan, 308 F.Supp.3d at 999 – 1000. The shareholders allege the sales process
was flawed, the analysis performed by BAML was skewed, and the Proxy Statement was
misleading because the intrinsic value of their shares was actually higher than the value
disclosed in the Proxy Statement. (Filing No. 75, Plaintiffs’ Response at 30; see also
Complaint ¶¶ 26 – 41, 60, 61). Had the Proxy Statement disclosed the Cash Flow

Projections and Business Segment Projections, the shareholders assert they would have
been able to calculate the value of their shares and determine their actual value. (See id.).
The problem for the Shareholders is that their claim of economic loss is too
speculative. See Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347 – 48 (2005) (holding
plaintiff cannot satisfy economic loss requirement by simply alleging the price of a

security on the date of purchase was inflated because of a misrepresentation); see also
Trahan, 308 F.Supp.3d at 999 – 1000.
Trahan—a recent case in this district—is on point. There, Genesys acquired
Interactive Intelligence Group, Inc. in a cash-out merger where shareholders were paid
$60.50 per share. Id. at 984. Interactive filed a proxy statement that included much of

the same information at issue here: the board’s recommendation to approve the merger,
management forecasts for the next three years, and an opinion of a financial advisor
approving of the transaction. Id. 984 – 86. Shareholders sued arguing that the proxy
statement was misleading for omitting material information in the proxy statement.
Judge Barker found—and this court thinks rightfully so—that the complaint
(among other deficiencies) failed to adequately plead loss causation because the

allegations were too speculative:
Trahan [lead shareholder] speculates that, absent the misleadingly
pessimistic Proxy Statement, the shareholders would not have approved the
Merger in hope that Interactive would prove more valuable as a going
concern than the Merger consideration implied. But approval of the Merger
can only have proximately caused economic loss if the shareholders’ hope
would have been realized, and Trahan has not plausibly alleged that it would
have been. Absent an allegation of a definite, immediately available, superior
alternative to the Merger consideration (a higher competing offer, for
example), Trahan’s allegation depends on the marketplace eventually
valuing Interactive at higher than $60.50 per share at some indeterminate
future date when Trahan still held his shares and was willing to sell them.
“Given the tangle of factors affecting price,” and given that, “[o]ther things
being equal, the longer the time . . . the more likely that [factors other than
an actionable misrepresentation] caused the loss,” . . . Trahan has alleged no
more than a speculative possibility that he was economically injured by any
misrepresentation in connection with the Merger. And that is not enough.

Id. at 999 – 1000 (quoting Dura Pharmaceuticals, 544 U.S. at 343).
The same can be said here. That there might have been a better future prospect at
some point in time had the shareholders held on to their shares is too speculative to state
a claim—at least without more factual content to support that inference. See Beck, 559
F.3d at 684 – 85 (holding shareholders failed to state a claim where the complaint alleged
the shareholders would have rejected a merger and continued to reap the economic
benefits of their shares had it not been for a misleading proxy); Lentell, 396 F.3d at 175
(citation omitted) (noting loss causation cannot be pled by simply alleging a disparity
between the price paid and the actual investment quality); Trahan, 308 F.Supp.3d at 999
– 1000 (finding shareholders claim of loss too speculative) ; cf. Azar, 2017 WL 1055966,
at *11 (finding shareholder had adequately pled loss causation where there were
allegations that merger consideration was inadequate and allegations that the company

withheld more accurate projections, the company had grown the year prior, management
had expected performance to improve, and management affirmed the company had hit
their year-end targets). The only allegation that comes close is one that alleges an
investment web site projected Vectren’s earnings growth to be in the teens in the
upcoming years. (Complaint ¶ 61). But that alone is not enough—especially when there
are no allegations that Vectren turned down a better offer. See Beck, 559 F.3d at 684.5

There is another problem here: the link between the economic harm and the
omissions is too attenuated. Tricontinental Industries, Ltd. v. PricewaterhouseCoopers,
LLP, 475 F.3d 824, 843 (7th Cir. 2007) (noting there must be a causal connection
between the material misrepresentation and loss, not simply that the misrepresentation
“touches upon” a later economic loss); see also In re Vivendi, 838 F.3d at 261 (noting

loss causation requires demonstrating that the subject of the fraudulent omission was the
cause of the actual loss suffered). The shareholders have not alleged that the disclosed
projections undervalued the company or that the omitted projections conflicted with the
disclosed projections. Instead, they allege BAML used an inappropriately high discount
rate in its DCF analysis and the omitted projections would have allowed them to

challenge the veracity of BAML’s analysis. (Complaint ¶¶ 58 – 61). That is the problem

5 True, the Shareholders point out that certain bidders submitted initial offers worth more than
merger consideration. (Complaint ¶ 28). But one of those bidder’s final offer was not superior
and the other bidder never submitted a final offer. (Proxy Statement at 22, 25).
though: the harm suffered by the shareholders comes not from the omitted projections
themselves but from BAML’s use of those projections in its DCF analysis. This is too

attenuated to support a causal link between the omitted projections and purported
damages, and so the Complaint fails to adequately allege loss causation. Goodman Life
Income Trust, 594 F.3d at 796 – 97 (holding shareholders failed to plead loss causation
where injuries were not caused by misleading statements in proxy); McDowell v.
Bracken, 317 F.Supp.3d 1162, 1181 (S.D. Fla. 2018), appeal docketed, No. 18-12762
(11th Cir. June 29, 2018) (dismissing complaint where shareholders failed to allege a

sufficient link between the proxy statement and alleged damages).6
IV. Conclusion
Proxy statements do not have to disclose everything that might be of interest to
shareholders. This rule protects shareholders. So long as the proxy statement includes
the material information related to the acquisition, no securities laws are violated. Which

brings us back to the beginning: Vectren “showed enough work” here because the Proxy
Statement disclosed the material information related to the merger, and even if the Proxy
Statement omitted material information, those omissions did not cause the shareholders
any economic harm.

6 The shareholders also brought a claim under Section 20(a) of the Exchange Act. But a Section
20(a) claim is a derivative claim; since the shareholders have failed to state a claim under Section
14(a), their claim under Section 20(a) must equally fail as well. Trahan, 308 F.Supp.3d at 1000.
Defendants’ Motion to Dismiss (Filing No. 67) is therefore GRANTED. The
Shareholders claims are DISMISSED WITH PREJUDICE.’

SO ORDERED this 6th day of September 2019.

RICHAR AL. YOUNG, JUDGE
United StatesDxStrict Court
Southern District of Indiana

Distributed Electronically to Registered Counsel of Record.

’ Ordinarily, the court should give a party at least one opportunity to amend its complaint. Loja
v. Main Street Acquisition Corp., 906 F.3d 680, 684 — 85 (7th Cir. 2018). Any amendment here,
however, would be futile because Proxy Statement disclosed all the relevant, material
information, and so the complaint can be dismissed with prejudice. Id.
20

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10165621. Public record. Not legal advice.