DealLawyers.com Blog

In Premca Extra Income Fund v. Angle, (1st. Cir.; 6/26), the First Circuit Court of Appeals refused to dismiss securities fraud claims arising out of Amazon’s aborted acquisition of iRobot. What makes the case interesting is that the statements alleged to be false and misleading that the Court refused to dismiss involved statements of opinion concerning the likelihood of the deal obtaining necessary regulatory approvals.

Following the abandoned merger, the plaintiffs filed a class action lawsuit against iRobot, its CEO, and its CFO challenging various disclosures made in connection with the transaction.  The district court dismissed the plaintiffs’ lawsuit for failing to state a claim. On appeal, the First Circuit upheld the district court’s decision with respect to all challenged disclosures except for those relating to statements concerning the likelihood of regulatory approval contained in an amended proxy statement filing.

Under the SCOTUS’s Omnicare decision, in order for a plaintiff to successfully allege that a statement of opinion is actionable under the securities laws, it must establish that the statement in question omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion. In this case, the opinion disclosure challenged by the plaintiffs involved statements in amended proxy materials that the defendants “expect[ed] that all applicable regulatory approvals [would] be obtained” and that “the merger [would] not violate the antitrust or foreign investment laws.”

The Court concluded that iRobot’s failure to disclose the regulatory challenges that the deal was facing in the EU – including the EU’s rare decision to elevate its investigation of the transaction to “Phase II” – as well as Amazon’s unwillingness to comply with certain information requests, made these disclosures potentially misleading:

iRobot’s rosy prediction of regulatory success, which had not appeared in any public filing since the original proxy statement in September 2022, could reasonably be understood as reassurance to investors as it came on the heels of the EC’s Phase II announcement. But iRobot did not include information about Amazon’s refusal to provide information on the search engine, which was critical to the EC’s publicly expressed concerns. Including that information could be found to have “significantly altered the total mix of information” available to investors by undermining iRobot’s message of reassurance.

The Court also concluded that the plaintiffs had adequately alleged scienter with respect to these disclosures. In doing so, it pointed to allegations that iRobot was a declining company that depended on completion of the merger to secure its financial future, and that this supported an inference that the defendants were paying close attention to regulatory details and were unlikely to “merely neglect to provide the troubling information about the merger while expressing optimism about it.”

– John Jenkins