1 20

- 1530

- cv Gray v. Wesco Aircraft Holdings, Inc.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL. At a stated term of the United States Court of Appeals for the Second Circuit, 1 held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of 2 New York, on the 2 6 t h day of F e b r u a r y , two thousand twenty

- one . 3

P resent : 4 ROBERT A. KATZMANN, 5 SUSAN L . CARNEY
, 6 WILLIAM J. NARDINI
, 7 Circuit Judg es. 8 9 10 JACOB GRAY
, i ndividually and on behalf of all 11 others similarly situated
, 12 13 Plaintiff

- Appellant
, 14 15

v. No. 20

- 1530

- cv 16 17 WESCO AIRCRAFT HOLDINGS, INC., RANDY 18 J. SNYDER, TODD RENEHAN, DAYNE A. 19 BAIRD, THOMAS M. BANCROFT, III, PAUL E. 20 FULCHINO, JAY L. HABERLAND, S COTT E. 21 KUECHLE, ADAM J. PALMER, ROBERT D. 22 PAULSON, JENNIFER M. POLLINO, NORTON 23 A. SCHWARTZ
, 24 25 Defendant s

- Appell ee s

. 1 26 27 28

1 The Clerk of Court is respectf ully directed to amend the official caption as set forth above.2 For Plaintiff

- Appellant : M ILES D. S CHREINER ( Juan E. Monteverde
, 1 on the brief )
, Monteverde & Associates, PC
, 2 New York, NY

. 3

For Defendant s

- Appellee s : J. C HRISTIAN W ORD , Latham & Watkins 4 LLP
, Washington, DC

. 5
Appeal from the judgment of the United States District Court for the Southern District of 6

New York ( Liman
, J

. ). 7

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND 8

DECREED that the judgment of the district court is AFFIRMED

. 9

Plaintiff

- A ppellant Jacob Gray, on behalf of himself and other similarly situated former 10
shareholders of Wesco Aircraft Holdings, Inc. (“Wesco”), appeals from the dismissal of his 11
complaint against Defendants

- Appellees Wesco and former members of Wesco’s board of 12

directors
, alleging v iolations of Sections 14(a) and 20( a ) of the Securities Exchange Act of 1934 13
(the “Exchange Act”)

. At issue are alleged ly false and misleading statements and an omission in 14
Wesco’s September 13, 2019, Definitive Proxy Statement (the “Proxy”) filed in connection with 15

Wesco’s merger with Platinum Equity Advisors, LLC and its affiliates (together, “Platinum”)

. 16
Gray alleges that the Proxy misleadingly portray ed Wesco’s future financial performance and 17

valuation in a depressed light in order to induce shareholders to approve the inadequate merger 18

consideration ( $11.05 pe r Wesco share ) offered by Platinum

. According to Gray, Wesco 19

shareholders suffered an economic loss based on the difference between the merger consideration 20

and the intrinsi c fair value of the shares. We assume the parties’ familiarity with the underlying 21
facts, the procedural history, and the issues on appeal , to which we refer only as necessary to 22
explain our decision to affirm

. 23
“We review de novo the dismissal of a complaint under Rule 12(b)(6), accepting all factual 24
allegations as true and d rawing all reasonable inferences in favor of the plaintiff.” Litwin v. 253 Blackstone Grp., L.P. , 634 F.3d 706, 715 (2d Cir. 2011)

. 2 “To survive a motion to dismiss, a 1
complaint must contain sufficient factual matter, accepted as true, to state a claim to rel ief that is 2
plausible on its face.” Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009)

. 3

We agree with the District Court that the complaint fails to plead that Gray suffered a non

4
speculative economic loss, as required for the claims

. “I n any private action arising under [the 5
Exchange Act]
, the plaintiff shall have the burden of proving that the act or omission of the 6
defendant alleged to violate [the Exchange Act] caused the loss for which the plaintiff seeks to 7
recover damages.” 15 U.S. C. § 78u

- 4(b)(4) ; s ee also Grace v. Rosenstock , 228 F.3d 40, 4 8 (2d 8

Cir. 2000)

. 3 9
Gray’s theory of economic loss is based on the difference between the $11.05 merger share 10
price and what the complaint describes as “the true value of [the] shares prior to the Merger .” Joint 11
App’x 65 ¶ 144. B ut the allegation that the latter is higher than the former is inadequate because it 12

is speculative and conclusory. The complaint offers two allegations of tr ue value : first, the 13
complaint alleges that, shortly after the news broke that Wesco was exploring the possibility of a 14

merg er , research analysts estimated that bidders might offer Wesco up to around $16.00 to $18.00 15
per share
, and estimated a value of up to $13.00 per share the day before Wesco signed the merger 16

agreement . Second, the complaint alleges that
, based on “Initial Projections” of future financial 17
performance prepared by Wesco when it first started to explor e a merger , the implied value of 18

2 Unless otherwise indicated, case quotations omit all internal quotation marks, alterations, footnotes, and citations.

3 We have previously noted that it is unsettled whether the heightened particularity standard under Fed. R. Civ. P. 9(b) or the plausibi lity standard under Fed. R. Civ. P. 8 applies to pleading economic loss. See Acticon AG v. China North East Petroleum Holdings Ltd. , 692 F.3d 34, 37

– 38 (2d Cir. 2012) . We need not resolve this issue today, because we find that economic loss was not adequately pleaded under either standard.4 Wesco’s shares was betwe en $12.44 and $18.39

. Later
, Wesco lowered its projections in a set of 1
“Updated Projections,” based on which its financial advisors concluded , as reported in the Proxy, 2
that the $11.05 merger consideration was fai r. The complaint alleges that the “Updated 3
Projections” were illegitimate and were created to justify the inadequate merger consideration that 4
Wesco ultimately accepted

. 5
We cannot plausibly infer from these allegations th at the true value of Wesco was 6
necessarily higher than the merger consideration

. As to the analyst s’ estimates, although Gray asks 7

us to focus on estimates of what hypothetical bidders might have been willing to offe r for the 8

shares
, the complaint has far more compelling allegations that contradict Gray’s theory : what 9

po tential buyers in fact offered

. According to the complaint, in June and July of 2019, three 10
potential buyers submitted bids ranging from $11.00 to $12.00 per share, and another potential 11
buyer, without submitting a bid, preliminarily assessed Wesco’s value at $10.50 per share. The 12
complaint furthermore alleges that the se bidders had access to confidential information about 13

Wesco’s business es to conduct their due diligence , and thus their actual offers tend to be more 14
revealing allegations of Wesco’s value than what analysts estimated the bidders might offer. 15
Similarly, Gray’s allegation that the shares were intrinsically worth between $12.44 and 16
$18.39 based on the Initial Projection s is too speculative to plead economic loss

. As the District 17
Court aptly noted
, the complaint fails to allege that the Initial Projections were sufficiently likely, 18

or that shareholders faced a genuine choice “between the Merger and the achievement of the Initial 19
[] Projections.” Joint App’x 256

– 57 ; s ee Beck v. Dubrowski , 559 F.3d 680, 684 (7th Cir. 2009) 20
(holding that plaintiff failed to plausibly allege economic loss where he alleged that “shareholders 21
would have rejected the merger and by doing so have reaped the economic benefits of continuing 22

to own [] shares” without alleging that other more lucrative options existed for the company). 235 The complaint describes the l ong history of Wesco’s financial underperformance
, which 1
prompted management to seek out bidders for a merger

. B efore news of a possible merger, the 2

shares were trading at only around $8.00 to $9.00 , and then fluctuated between around $10.00 to 3

$11.00 in the period after the news became public

. A ccording to the Proxy, equity research 4
analysts’ estimates of the one

- year forward price targets for Wesco stock ( i.e. , assuming no 5
acquisition) as of August 7, 2019 were $9.00 to $13.00 per sh are on an undiscounted basis and 6
$8.30 to $11.90 per share on a discounted basis

. 4 No potential purchaser offered a price higher 7

than between $11.00 and $12.00 , and indeed 13 out of 14 potential acquirers lost interest in 8
acquiring Wesco. The primary support for drawing an inference that Wesco ’s value might increase 9

to the extent implied in the Initial Projections is the general allegation that Wesco’s management 10

had a stand

- alone plan for growth. Considering all of the se allegations together, we cannot 11

conclude that the Initial Projections provide a sufficient basis fo r pleading l oss causation

. 5 12

13

4 Because the Proxy is incorporated by reference into the complaint, we may properly take it into account at this motion to dismiss stage. See Gamm v. Sanderson Farms, Inc. , 944 F.3d 455, 462 (2d Cir. 2019) (holdin g that a court ruling on a motion to dismiss may consider, inter alia
,
“ statements incorporated by reference [and] public disclosure documents filed with the SEC”)

.

5 Because we hold that a primary violation of Section 14(a) was not adequately alleged, it follows that the district court correctly dismissed Gray’s Section 20(a) claims against individual director defendants based on control person liability

. See ATSI Comm c’ns , Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 108 ( 2d Cir. 2007) (“To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person . . . .”) ; see also 15 U.S.C. § 78t(a)

.6 We have considered all of Gray’s remaining arguments on appeal as to economic loss and 1

have found in them no grounds for reversal

. For the reasons above, the judgment of the District 2

Court is AFFIRMED

. 3

FOR THE COURT: 4 Catheri ne O ’ Hagan Wolfe, Clerk 5