Jesse Campbell, Individually and on Behalf of All Others Similarly Situated Plaintiff - Appellant
Transgenomic, Inc.; Paul Kinnon; Precipio, Inc. Defendants - Appellees
Submitted: November 15, 2018
from United States District Court for the District of
Nebraska - Lincoln
BENTON, BEAM, and ERICKSON, Circuit Judges.
BENTON, CIRCUIT JUDGE.
a merger, Transgenomic shareholder Jesse Campbell brought a
class action for former Transgenomic shareholders alleging
materially misleading statements and omissions in the proxy
statement. The district court dismissed, ruling that, as a
matter of law, any omissions or misstatements in the proxy
statement were not materially misleading. Having jurisdiction
under 28 U.S.C. § 1291, this court reverses and remands.
October 2016, biotechnical company Transgenomic, Inc. and
cancer-diagnostics company Precipio, Inc. ("pre-merger
Precipio") agreed to form Precipio, Inc.
("post-merger Precipio"). Transgenomic filed a
proxy statement with the Securities and Exchange Commission
and sent it to Transgenomic shareholders. They voted to
approve the merger in June 2017.
Campbell brought a class action for former Transgenomic
shareholders against Transgenomic, post-merger Precipio, and
Paul Kinnon, Transgenomic's former president, CEO,
interim CFO, secretary, and director. The Amended Complaint
alleges that Transgenomic and Kinnon violated Sections 14(a)
and 20(a) of the Securities Exchange Act and SEC Rule 14a-9
by disseminating a false and materially misleading proxy
statement that failed to give Transgenomic shareholders an
accurate picture of Precipio's value. The district court
dismissed for failure to state a claim. Campbell appeals.
court reviews de novo the dismissal of a securities fraud
amended complaint, affirming only if the plaintiffs can prove
no set of facts entitling them to relief. See Elam v.
Neidorff, 544 F.3d 921, 926 (8th Cir. 2008). "The
Private Securities Litigation Reform Act ('PSLRA')
imposes heightened pleading standards in securities-fraud
cases." In re Stratasys Ltd. S'holder Sec.
Litig., 864 F.3d 879, 882 (8th Cir. 2017). An adequate
complaint must "specify each statement alleged to have
been misleading [and] the reason or reasons why the statement
is misleading." 15 U.S.C. § 78u-4(b)(1). The court
views factual allegations most favorably to the plaintiff and
assumes the truth of particularly pled allegations, but not
of "catch-all" or "blanket" assertions
that do not meet the particularity requirements of the
statute. See Fla. State Bd. of Admin. v. Green Tree Fin.
Corp., 270 F.3d 645, 660 (8th Cir. 2001).
securities fraud 'plaintiff must show that the defendant
made a statement that was misleading as to a material
fact.'" In re Stratasys Ltd., 864 F.3d at
882, quoting Matrixx Initiatives, Inc. v.
Siracusano, 563 U.S. 27, 38 (2011). "Generally, the
issue of whether a public statement is misleading is a mixed
question of law and fact for the jury." In re K-tel
Int'l, Inc. Sec. Litig., 300 F.3d 881, 897 (8th Cir.
2002) (evaluating materiality of misleading public statements
under § 10(b) and 10b-5). See also Basic Inc. v.
Levinson, 485 U.S. 224, 231-32 (1988) (applying 14(a)
and 14-9 materiality standard to 10(b) and 10b-5 claims).
"The issue is appropriately decided as a matter of law,
however, when reasonable minds could not differ."
K-tel, 300 F.3d at 897. Campbell alleges that the
proxy statement was materially misleading in two ways.
alleges that the proxy statement was materially misleading
because it omitted Precipio's projected net income/loss
(which the Transgenomic board reviewed before approving of
the merger). The proxy statement also omitted expenses that
would allow investors to independently calculate
Precipio's net income/loss from its revenue projections
and gross profit. Transgenomic denies that the omission of
net income/loss is materially misleading because the proxy
statement fully disclosed other important metrics such as
projected unlevered free cash flows, revenue projections, and
gross profit. The district court agreed. It thought that the
question was-because a proxy statement need not disclose all
financial information-"the crux of the analysis is this:
where the proxy statement chooses to disclose a financial
valuation, does it do so honestly?" This is the wrong
14(a) 'was intended to promote the free exercise of the
voting rights of stockholders by ensuring that proxies would
be solicited with explanation to the stockholder of the real
nature of the questions for which authority to cast his vote
is sought.'" SEC v. Shanahan, 646 F.3d 536,
546 (8th Cir. 2011), citing TSC Indus., Inc. v. Northway,
Inc., 426 U.S. 438, 444 (1976). "Unlike poker where
a player must conceal his unexposed cards, the object of a
proxy statement is to put all one's cards on the table
face-up." Mendell v. Greenberg, 927 F.2d 667,
670 (2d Cir. 1990). "An omitted fact is material if
there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to
vote." Northway, Inc., 426 U.S. at 449.
"Under this test it is not necessary to prove that
disclosure of an omitted fact would have caused a reasonable
investor to change his decision." Alton Box Bd. Co.
v. Goldman, Sachs & Co., 560 F.2d 916, 920 (8th Cir.
1977), citing Northway, Inc., 426 U.S. at 449.
"The role of the materiality requirement is . . . to
determine whether a reasonable investor would have considered
the omitted information significant at the time."