Philadelphia, Pennsylvania – The US Court of Appeals for the Third Circuit has affirmed a Delaware federal court’s dismissal of a class action lawsuit against Cooper Tire & Rubber Co. over its failed merger with Apollo Tyres Ltd.
The appeals court ruled straight down the line for Cooper 22 Aug, concluding that the Delaware court was correct in its decision that OFI Asset Management and Timber Hill LLC failed to demonstrate sufficient facts to support their claims that Cooper committed violations of federal securities laws.
Cooper and Apollo agreed in June 2013 to a $35-per-share merger, totalling $2.5 billion. Nine days later, workers at Cooper Chengshan Tire Co. Ltd – Cooper’s Chinese tire-making joint venture with Chengshan Group – went on strike in protest over the merger, with the encouragement of Chengshan management.
Because of the strike, Apollo requested a reduction of between $2.50 and $9 per share in the purchase price. Cooper filed a lawsuit against Apollo in October 2013 in the Delaware Supreme Court, and by the end of the year the merger was dead.
OFI and Timber Hill filed suit against Cooper, Cooper CEO Roy Armes and Cooper Chief Financial Officer Bradley Hughes in January 2014, alleging that all three deliberately withheld information about Chengshan’s opposition to the merger and other information from shareholders. OFI claimed the omission constituted securities fraud.
Cooper filed a petition to dismiss the class action, and in July 2015 Judge Richard G. Andrews of the Delaware court did just that. The plaintiffs’ allegations were based on an uncorroborated confidential witness statement, and that statement did not speak to what Armes and Hughes knew on the day the merger agreement was signed, Andrews ruled.
In its 22 Aug ruling, the Third Circuit court said the plaintiffs were incorrect in alleging that the lower court mismanaged the debate over Cooper’s motion to dismiss.
Not only do federal district courts have a great deal of discretion in managing complex disputes, but the plaintiffs’ complaint against Cooper was unusually long and circuitous, the appeals court said.
“As pled, the complaint presents an extraordinary challenge for application of the highly particularized pleading standard required by the PSLRA (Private Securities Litigation Reform Act),” it said.
“This is true not only due to the length of the complaint, but also its lack of clarity,” the court said. “It is difficult to discern precisely which statements OFI alleges to be actionable, let alone what specific facts are asserted to support each such allegation.”
Neither Cooper officials nor attorneys for the plaintiffs could be immediately reached for comment.