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Corporate Actions Are Not Always Attributable to Board of Directors: Biotechnology Value Fund LP v. Celera Corporation
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No. 13-03248 (N.D. Cal., 2/28/14). 1934 Act (§14) * Misrepresentations/Omissions * Capital Formation Issues (Mergers & Acquisitions) * Fairness Opinions/Valuations * Compensation Issues * Pleading Requirements/Issues * Standing Issues (Privity) * Culpability Issues (Scienter). *Attribution within a statement is strong evidence that a statement allegedly in violation of Section 14(e) of the Securities and Exchange Act was made by the party to whom it is attributed. **A statement allegedly in violation of Section 14(e) that is made by an issuer cannot be attributed to the issuer's board of directors. ***The fact that a defendant can obtain a transaction fee if a transaction is consummated is enough to allege scienter where misrepresentations are claimed to have been made in connection with the transaction. ****Reliance is not an element of a Section 14(e) violation.

Plaintiffs, former Celera shareholders, brought suit against Celera, its directors, and its adviser, Credit Suisse, alleging a violation of Section 14(e) of the Securities and Exchange Act, because they misrepresented the value of Celera in recommending that they approve the acquisition of Celera by Quest Corporation. Credit Suisse had been retained by Celera to advise on potential strategic transactions. Credit Suisse was to receive an initial payment of $250,000 plus $1 million for issuing a fairness opinion, and a transaction fee for any “transaction” made. In May 2010, Quest submitted a bid to acquire Celera for $10.25 per share. It then withdrew the bid only to return months later, at which time the parties agreed to a sale at eight dollars per share. Celera filed a Schedule 14D-9 statement with the SEC, which included a fairness opinion attributed to Credit Suisse. Celera’s shareholders approved the transaction and Credit Suisse received a transaction fee in the amount of $8.6 million. Plaintiffs subsequently filed suit alleging, inter alia, a violation of Section 14, asserting that Celera was worth more than $8 per share and that the defendants misrepresented its value so that the sale would be consummated. Defendants move to dismiss the suit on the ground that plaintiffs failed to adequately allege a Section 14 violation. Both Credit Suisse and the directors assert that they did not “make” any alleged statement through the SEC filing and hence are not liable to plaintiffs under Section 14(e). Credit Suisse argues that it lacked “ultimate authority” over the statement and thus could not be the “maker” of the statement. The Court disagrees. Attribution is strong evidence that a statement was made by the party to whom it is attributed. Here, the statement specifically attributed descriptions of the valuation analysis to Credit Suisse. Credit Suisse also contends that its fairness opinion was not made directly to Celera shareholders. This contention is also unpersuasive. The language of Section 14(e) does not require any more directness than occurred here, given that it imposes liability for “any” material misrepresentation in connection with a tender offer. Credit Suisse also argues that plaintiffs failed to sufficiently plead scienter with respect to it. However, the complaint alleges that Credit Suisse was financially motivated to pursue a complete acquisition of Celera, as opposed to a spin-off transaction for Celera’s drug royalty assets alone. A spin-off would not have met the definition of “transaction” under Credit Suisse’s engagement letter. As such, the suggestion is that Credit Suisse was motivated to push through Celera’s acquisition, even at a lowered price, so that it could salvage a transaction fee. But the outcome for the Celera directors is different. The directors did not issue or sign the statement, nor was anything in the statement attributed to them.

(SLC Ref. No. 2014-15-10)

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