Speculative, Conclusory Theories Of Shareholder Harm Are Insufficient To Support A Rule 14a-9 Action
BECK v. DOMBROWSKI (March 20, 2009)
Philip Beck (and the class he represents) was a shareholder of Equity Office Property Trust ("EO"), a real estate investment trust. In late 2006, after EO agreed to be acquired by Blackstone Group, a bidding war ensued between Blackstone and Vornado. Offers and counter offers were each followed by a new proxy solicitation from EO's board. Eventually, EO accepted Blackstone's last bid. Beck brought suit under the Securities Exchange Act and SEC Rule 14a-9, as well as under state law. He alleged misrepresentations and omissions in the proxy solicitation. The district court dismissed the federal claims for a failure to plead the required state of mind with particularity. The court dismissed the state law claim under the doctrine of abstention. Beck appeals.
In their opinion, Judges Posner, Wood and Tinder affirmed. The Court first identified the erroneous basis on which the district court had dismissed the action. Rule 14a-9 does not require a state of mind for a violation -- only a misrepresentation or omission. Notwithstanding the district court's error, the Court still concluded that the complaint should be dismissed. Citing the principle of Bell Atlantic that a defendant should not have to incur the expense of discovery unless the complaint is a substantial one, the Court found that the plaintiffs’ theories were too speculative to survive. The Court also affirmed the lower court's dismissal of the state law claim under Colorado River abstention.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select