United States District Court, D. Maryland
SELWYN KARP, Individually and On Behalf of All Others Similarly Situated Plaintiff,
FIRST CONNECTICUT BANCORP, INC., et al., Defendants.
Richard D. Bennett United States District Judge
Selwyn Karp (“Karp” or “Lead
Plaintiff”) brings this purported class action on
behalf of himself and other former public shareholders
(collectively, “Plaintiffs”) of First Connecticut
Bancorp, Inc. (“First Connecticut” or “the
Company”) against First Connecticut and the former
members of the Company’s board of directors: John J.
Patrick, Jr.; Robald A. Bucchi; John A. Green; James T.
Healey Jr.; Patience P. McDowell; Kevin S. Ray; and Michael
A. Ziebka (the “Board” or the “Individual
Defendants”) (collectively, “Defendants”),
alleging violations of federal securities laws. (Consol. Am.
Compl., ECF No. 29.) Plaintiffs bring this federal class
action for violations of Sections 14(a) and 20(a) of the
Securities Exchange Act of 1934 (“Exchange Act”),
15 U.S.C. §§ 78n(a), and 78t(a) respectively, and
United States Securities and Exchange Commission
(“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a-9,
in connection with the acquisition of First Connecticut by
People’s United Financial, Inc. (“People’s
United”). (Id. at ¶ 1.)
pending before this Court is Defendants’ Motion to
Dismiss (ECF No. 30). The parties’ submissions have
been reviewed, and no hearing is necessary. See
Local Rule 105.6 (D. Md. 2018). For the reasons that follow,
Defendants’ Motion shall be DENIED.
ruling on a motion to dismiss, this Court “accept[s] as
true all well-pleaded facts in a complaint and construe[s]
them in the light most favorable to the plaintiff.”
Wikimedia Found. v. Nat’l Sec. Agency, 857
F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black
& Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir.
2015)). The Court may consider only such sources outside the
complaint that are, in effect, deemed to be part of the
complaint, for example, documents incorporated into the
complaint by reference and matters of which a court may take
judicial notice. Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 322 (2007).
18, 2018, First Connecticut and People’s United entered
into an Agreement and Plan of Merger (the “Merger
Agreement”), pursuant to which First Connecticut
shareholders would receive 1, 725 shares of People’s
United common stock for each share of First Connecticut
common stock they owned, leaving People’s United as the
surviving corporation. (Consol. Am. Compl. ¶¶ 2,
17, ECF No. 29.) Although First Connecticut reported good
2017 financial results and a strong first quarter of 2018,
the Board determined to sell the company and responded
eagerly to People’s United’s initial outreach in
April 2018. (Id. at ¶¶ 29-31.) The sales
process was finalized in only two months. (Id. at
¶ 31.) Plaintiffs allege that the Board rushed the sale
and accepted consideration for the merger that undervalued
First Connecticut shareholders’ shares. (Id.
at ¶¶ 29-31, 34.)
Plaintiffs allege that Defendants negligently allowed a
Proxy to be disseminated to the Company’s
shareholders that omitted material information-Cash Flow
Projections-that would have alerted the shareholders to the
fact that the consideration being offered for the merger was
inadequate. (Id. at ¶¶ 34, 36.) According
to Plaintiffs, the missing free cash flow projections were
the single most important financial metric for valuing a
company and its stock in connection with a merger and are
generally a staple in proxy statements related to corporate
mergers. (Id. at ¶¶ 39-47.) The lack of
these cash flow projections thus resulted in the Proxy
containing a materially incomplete and misleading picture of
First Connecticut’s valuation and financial prospects.
(Id. at ¶¶ 34, 36, 48.) The Proxy, which
was filed with the SEC, recommended that the shareholders
vote in favor of the merger, but because it lacked material
information about the intrinsic value of the Company, the
shareholders were unable to make an informed decision.
(Id. at ¶ 35.)
initially authorized the filing of the Proxy on July 25,
2018. (See Compl. ¶ 4, ECF No. 1.) Karp filed
his Complaint for Violation of the Securities Exchange Act of
1934 (ECF No. 1) on August 14, 2018, initially seeking to
enjoin the merger. (See Id . at ¶ 7; Mot.
Prelim. Inj., ECF No. 13.) The allegedly misleading Proxy was
filed with the SEC on August 22, 2018. (Consol. Am. Compl.
¶¶ 3, 35, ECF No. 29.) On September 25, 2018, a
special meeting of First Connecticut’s shareholders was
held to vote on the merger. (Id. at ¶ 11.) The
meeting having taken place, the parties entered into a
Stipulation on September 27, 2018, under which Karp agreed to
withdraw the Injunction Motion as moot, file an Amended
Complaint, and the parties set a briefing schedule for the
Defendants’ intended motion to dismiss. (Stip., ECF No.
17; Order, ECF No. 18.) The merger was consummated on October
1, 2018. (Consol. Am. Compl. ¶ 11, ECF No. 29.) Karp
filed a Consolidation Motion, under which he would be
appointed as Lead Plaintiff, which this Court granted on
November 7, 2018, consolidating the two cases. (See
ECF Nos. 21, 23.)
Consolidated Amended Complaint (ECF No. 29) was filed on
December 17, 2018 alleging two causes of action: Count I,
Against all Defendants for Violations of Section 14(a) of the
Exchange Act and Rule 14a-9 Promulgated Thereunder; and Count
II, Against the Individual Defendants for Violations of
Section 20(a) of the Exchange Act. The pending Motion to
Dismiss was filed on January 29, 2019 and is fully briefed
and ripe for decision. (See ECF Nos. 30, 31, 35.)
For the reasons that follow, Defendants’ dismissal
motion shall be DENIED.
8(a)(2) of the Federal Rules of Civil Procedure requires that
a complaint contain a “short and plain statement of the
claim showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) authorizes the dismissal
of a complaint if it fails to state a claim upon which relief
can be granted. Fed.R.Civ.P. 12(b)(6). The United States
Supreme Court’s opinions in Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007), and Ashcroft v.
Iqbal, 556 U.S. 662 (2009), require that complaints in
civil actions be alleged with greater specificity than
previously was required. While a court must accept as true
all factual allegations contained in the complaint, legal
conclusions drawn from those facts are not afforded such
deference. Iqbal, 556 U.S. at 678. A complaint must
set forth “enough factual matter (taken as true) to
suggest” a cognizable cause of action, “even if .
. . [the] actual proof of those facts is improbable and . . .
recovery is very remote and unlikely.”
Twombly, 550 U.S. at 556 (internal quotations
Court has noted that a claim for securities fraud must also
meet the heightened pleading requirements of Federal Rule of
Civil Procedure 9(b) and the Private Securities Litigation
Reform Act, 15 U.S.C. § 78u-4(b). In re
Constellation Energy Grp., Inc. Sec. Litig., 738
F.Supp.2d 614, 634 (D. Md. 2010). Rule 9(b) of the Federal
Rules of Civil Procedure requires that “the
circumstances constituting fraud be stated with
particularity.” Fed.R.Civ.P. 9(b). The rule “does
not require the elucidation of every detail of the alleged
fraud, but does require more than a bare assertion that such
a cause of action exists.” Mylan Labs., Inc. v.
Akzo, N.V., 770 F.Supp. 1053, 1074 (D. Md.
1991). To satisfy the rule, a plaintiff must “identify
with some precision the date, place and time of active
misrepresentations or the circumstances of active
concealments.” Johnson v. Wheeler, 492
F.Supp.2d 492, 509 (D. Md. 2007).
Private Securities Litigation Reform Act further requires a
securities fraud claim to (1) “specify each statement
alleged to have been misleading [and] the reason or reasons
why the statement is misleading, ” and (2) “state
with particularity facts giving rise to a strong inference
that the defendant acted with the required state of
mind.” Tellabs, 551 U.S. at 321 (quoting 15
U.S.C. § 78u-4(b)(1), (b)(2)). These heightened pleading
standards in the securities fraud context are demanding but