PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 

MCGAUGHEY ERICKSON 

Robert J. McGaughey, OSB #800787 

bob@law7555.com 

1500 SW 1st Ave., Ste. 800 

Portland, OR 97201 

Tel. (503) 223-7555 

Lead Counsel for Plaintiffs 

[Additional counsel listed on signature page.] 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

PORTLAND DIVISION 

ELIA AZAR and DEAN ALFANGE, on behalf of 

themselves and all others similarly situated, 

 Plaintiffs, 

 v. 

BLOUNT INTERNATIONAL, INC., JOSHUA L. 

COLLINS, DAVID A. WILLMOTT, ROBERT E. 

BEASLEY, JR., RONALD CAMI, ANDREW C. 

CLARKE, NELDA J. CONNORS, E. DANIEL 

JAMES, HAROLD E. LAYMAN, MAX L. 

LUKENS, DANIEL J. OBRINGER, AMERICAN 

SECURITIES, LLC, P2 CAPITAL PARTNERS 

LLC, ASP BLADE INTERMEDIATE 

HOLDINGS, INC., and ASP BLADE MERGER 

SUB, INC., 

 Defendants. 

Case No. 3:16-CV-00483-SI 

Plaintiffs’ 

OPPOSITION TO BLOUNT 

DEFENDANTS’ MOTION 

TO DISMISS 

Plaintiffs’ Amended Class Action 

Allegation Complaint 

Request for Oral Argument 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS i 

TABLE OF CONTENTS 

TABLE OF CASES AND AUTHORITIES ................................................................................... ii

PRELIMINARY STATEMENT .................................................................................................... 1

STATEMENT OF FACTS ............................................................................................................. 3

I. The Parties and Relevant Non-Parties .................................................................... 3

II. Overview of the Facts Giving Rise to the Action ................................................... 6

III. Procedural History ................................................................................................ 11

ARGUMENT ................................................................................................................................ 12

I. Applicable Standard of Adjudication .................................................................... 12

II. Plaintiffs Have Adequately Pled Claims Against the Blount Defendants 

for Violating Section 14(a) of the Exchange Act .................................................. 13

A. Pleading Requirements Under Section 14(a) and Rule 14a-9 .................. 13

B. The Proxy Statement Was Materially False and Misleading 

Because It Omitted the September Projections and Included the 

Manipulated November Projections and December Projections .............. 15

C. Plaintiffs Adequately Alleged That the Blount Defendants Acted 

with Negligence ........................................................................................ 21

D. Plaintiffs Have Adequately Alleged Loss Causation ................................ 24

III. Plaintiffs Have Adequately Alleged Claims Against the Individual 

Defendants Under § 20(a) of the Exchange Act ................................................... 26

CONCLUSION ............................................................................................................................. 26

 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS ii 

TABLE OF CASES AND AUTHORITIES 

Cases

Arnold v. Soc’y for Sav. Bancorp, Inc., 

650 A.2d 1270 (Del. 1994) ....................................................................................................... 15 

Ashcroft v. Iqbal, 

556 U.S. 662 (2009) .................................................................................................................. 12 

Assad v. Mines Mgmt., 

2016 U.S. Dist. LEXIS 119544 (E.D. Wash. Sept. 6, 2016) .................................................... 19 

Beebe v. Pac. Realty Tr., 

99 F.R.D. 60 (D. Or. 1983) ....................................................................................................... 15 

Bell Atl. Corp. v. Twombly, 

550 U.S. 544 (2007) ............................................................................................................ 12, 13 

City of Westland Police & Fire Ret. Sys. v. Sonic Sols., 

No. C 07-05111 CW, 2009 U.S. Dist. LEXIS 33339 (N.D. Cal. Apr. 6, 2009) ....................... 22 

Daniels-Hall v. Nat’l Educ. Ass’n, 

629 F.3d 992 (9th Cir. 2010) .................................................................................................... 13 

Erickson v. Blake, 

839 F. Supp. 2d 1132 (D. Or. 2012) ............................................................................. 11, 12, 13 

In re DaimlerChrysler AG Sec. Litig., 

197 F. Supp. 2d 42 (D. Del. 2002) ............................................................................................ 24 

In re Emerging Commc’ns, Inc. S’holder Litig., 

C.A. No. 16415, 2004 Del. Ch. LEXIS 70 (Del. Ch. May 3, 2004) ......................................... 16 

In re Hot Topic, Inc. Securities. Litigation, 

No. CV 13-02939 SJO (JCx), 2014 U.S. Dist. LEXIS 180513 (C.D. Cal. May 2, 2014) . passim 

In re JPMorgan Chase & Co. Secs. Litig., 

MDL No. 1783, C.A. No. 06 C 4674, 2007 U.S. Dist. LEXIS 93877 (N.D. Ill. Dec. 18, 2007)

................................................................................................................................................... 22 

In re McKesson HBOC, Inc. Sec. Litig., 

126 F. Supp. 2d 1248 (N.D. Cal. 2000) .................................................................................... 15 

In re MONY Grp. Inc. S’holders Litig., 

852 A.2d 9 (Del. Ch. 2004)....................................................................................................... 17 

In re Netsmart Techs., Inc. S’holders Litig., 

924 A.2d 171 (Del.Ch. 2007).............................................................................................. 16, 20 

In re Pure Res. Inc. S’holders Litig., 

808 A.2d 421 (Del. Ch. 2002)................................................................................................... 16 

In re Zoran Corp. Derivative Litig., 

511 F. Supp. 2d 986 (N.D. Cal. 2007) ................................................................................ 14, 15 

J. I. Case Co. v. Borak, 

377 U.S. 426 (1964) .................................................................................................................. 14 

Kentrox, Inc. v. Bernstein, 

No. 3:13-CV-01492-ST, 2014 U.S. Dist. LEXIS 118915 (D. Or. May 9, 2014) ..................... 15 

Mills v. Elec. Auto-Lite Co., 

396 U.S. 375, 389 (1970) .................................................................................................... 14, 24 

Santa Fe Indus., Inc. v. Green, 

430 U.S. 462 (1977) .................................................................................................................. 14 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS iii 

SEC v. Texas Gulf Sulphur Co., 

401 F.2d 833 (2d Cir. 1968)...................................................................................................... 16 

Sprewell v. Golden State Warriors, 

266 F.3d 979 (9th Cir. 2001) .................................................................................................... 13 

TSC Indus., Inc. v. Northway, Inc., 

426 U.S. 438 (1976) ............................................................................................................ 14, 15 

Vaughn v. Teledyne, 

628 F.2d 1214 (9th Cir. 1980) .................................................................................................. 20 

Walker v. Action Indus., 

802 F.2d 703 (4th Cir. 1986) .................................................................................................... 19 

Wilson v. Hewlett-Packard Co., 

668 F.3d 1136 (9th Cir. 2012) .................................................................................................. 13 

Rules

Fed. R. Civ. P. 12 .......................................................................................................... 1, 12, 13, 24 

Fed. R. Civ. P. 8 ............................................................................................................................ 12 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 1 

Plaintiffs Elia Azar and Dean Alfange (collectively, “Plaintiffs”) respectfully submit this 

Opposition to the Blount Defendants’ Motion to Dismiss (the “Motion”) Plaintiffs’ Amended 

Class Action Allegation Complaint (the “Complaint”). As explained herein, Plaintiffs’ 

Complaint adequate states claims under Sections 14(a) and 20(a) of the Securities Exchange Act 

of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78n(a), 78t(a), against Blount International, Inc. 

(“Blount” or the “Company”) and Joshua L. Collins, David A. Willmott, Robert E. Beasley, Jr., 

Ronald Cami, Andrew C. Clarke, Nelda J. Connors, E. Daniel James, Harold E. Layman, Max L. 

Lukens, and Daniel J. Obringer (collectively, the “Board” or the “Individual Defendants,” and 

with Blount, the “Blount Defendants”). 

PRELIMINARY STATEMENT 

A fundamental aspect of a motion to dismiss under Rule 12(b)(6) is that allegations of 

fact are accepted as true. Moreover, plaintiffs are entitled to all reasonable inferences in their 

favor. In moving against the Complaint, however, the Blount Defendants ignore this basic 

principle and attempt to use their brief to tell a different story, to spin the facts in their favor. 

Indeed, their entire argument hangs on a construct that contradicts Plaintiffs’ well-pled facts. 

This dispute arises out of the acquisition of Blount for $10 per share, or a total of $855 

million (the “Buyout”), by a consortium consisting of American Securities, LLC (“American 

Securities”), P2 Capital Partners LLC (“P2”), and affiliated entities formed to facilitate the 

Buyout (collectively, the “Buyout Group”). Blount executives Collins (“Collins”) and Willmott 

(“Willmott”), who also sat on and led the Board, both negotiated and participated in the Buyout. 

During the process leading up to the Buyout, Collins and Willmott created a set of financial 

projections in or around September 2015 that best reflects the Company’s long-term business 

potential (the “September Projections”). As Blount received a proposal from the Buyout Group 

that fell below a valuation range implied by the September Projections, Collins and Willmott 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 2 

slashed the Company’s purported outlook and created two other sets of financial projections—

the “November Projections” and the “December Projections”—that would support the Buyout 

price. The November Projections and December Projections, which Plaintiffs allege were 

unreasonably reduced and reflect an overly pessimistic view, were then used by the Board’s 

financial advisors, Goldman, Sachs & Co. (“Goldman”) and Greenhill & Co., Inc. (“Greenhill”), 

to perform financial analyses depicting the purported fairness of the Buyout price, which 

Plaintiffs contend is inadequate. 

While the diminished November Projections and December Projections were peddled to 

Blount stockholders in the definitive Schedule 14A Proxy Statement (the “Proxy Statement”) 

filed with the U.S. Securities and Exchange Commission (the “SEC”), the more apt September 

Projections were wholly omitted. These allegations must be accepted, and the Court should reject 

the Blount Defendants’ attempt to recast the September Projections as outdated and unreliable 

and to depict the November Projections and December Projections as the best estimates of 

Blount’s future financial performance. The Blount Defendants will have ample opportunity to 

contest Plaintiffs’ allegations—at trial, or on a summary judgment motion—but a motion to 

dismiss is not the forum for deciding facts. 

The problem with the Proxy Statement is twofold: first, Blount stockholders were misled 

about the efficacy of the financial analyses and fairness opinions touting the fairness of the 

Buyout that relied on the later projections; and second, stockholders were kept in the dark about 

Blount’s true prospects. Under prevailing law in the Ninth Circuit and elsewhere, this constitutes 

a material misrepresentation and omission. Moreover, having established materiality, the 

remaining elements, negligence and loss causation, inherently follow. 

Accordingly, the Court should deny the Motion. 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 3 

STATEMENT OF FACTS 

I. The Parties and Relevant Non-Parties 

Plaintiffs 

Plaintiffs Azar and Alfange were, and had been at all relevant times, holders of Blount 

common stock. On July 1, 2016, Plaintiffs were appointed as Lead Plaintiffs under the Private 

Securities Litigation Reform Act of 1995 (the “PSLRA”). (Compl. ¶ 16.) 

Corporate Defendants 

Defendant Blount was a Delaware corporation headquartered in Portland, Oregon. Its 

common stock traded on the New York Stock Exchange under the ticker symbol “BLT.” Before 

the Buyout, Blount was a leading global manufacturer and marketer of replacement parts, 

equipment, and accessories for the forestry, lawn, and garden; farm, ranch, and agriculture; and 

concrete cutting and finishing markets. (Id. at ¶ 17.) 

Defendant American Securities, part of the Buyout Group, is a private equity firm that 

invests in market-leading North American companies with annual revenues generally ranging 

from $200 million to $2 billion or $50 million to $200 million of EBITDA. (Id. at ¶ 29.) 

Defendant P2, also part of the Buyout Group, is a privately owned hedge fund sponsor 

and former Blount stockholder. When the Buyout was announced, P2 held approximately 15% of 

Blount’s common stock. (Id. at ¶¶ 3, 30 ) 

Defendants ASP Blade Intermediate Holdings, Inc. (“Merger Parent”) and ASP Blade 

Merger Sub, Inc. (“Merger Sub”), both parts of the Buyout Group, are Delaware corporations 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 4 

and wholly-owned subsidiaries of American Securities that were created to effectuate the 

Buyout. (Id. at ¶¶ 31, 32.)1

The Individual Defendants 

Defendant Collins served as a member of the Board since January 2005, as Blount’s 

Chairman since May 2010, and as the Company’s CEO since December 2009 through the 

Buyout. Collins also acted as President, Chief Operating Officer & CEO Designate as of 

October 19, 2009. Collins has a long history and relationship with the financial industry. He 

worked for Lehman Brothers Inc. (including affiliates, “Lehman”) from 1996 until the bank’s 

collapse in 2008. Thereafter, alongside co-defendant Willmott, he formed Collins Willmott & 

Co. LLC (“Collins Willmott”), a private equity firm located in New York City. Following the 

Buyout, Collins remained the Company’s Chief Executive Officer and also agreed to rollover a 

significant portion of his Blount equity holdings into the post-close entity. Separately, Collins 

received a grant of options to purchase up to 6% of the fully diluted common shares of the postclose entity. Collins was also conflicted because he stands to receive $4,591,650 in change-ofcontrol payments (in the event he is terminated post-close) as well as $1,266,780 from vested 

stock options and vested and unvested RSUs. Collins was also expected to serve on the board of 

directors of the post-close entity. In its most recent annual proxy statement before the Buyout, 

Blount admitted that Collins was not independent. (Id. at ¶ 18.) 

Defendant Willmott served as Blount’s President and Chief Operating Officer from 

March 2011 and as a member of the Board from March 2012 through the Buyout. Willmott 

previously served as the Company’s Senior Vice President—Corporate Development & Strategy. 

 1

 Plaintiffs intend to dismiss their claims against American Securities, P2, Merger Parent, 

and Merger Sub. 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 5 

As with Collins, Willmott has a long history and relationship with the financial industry. He 

worked for Lehman from 1997 until the bank’s collapse in 2008. Thereafter, he co-founded 

Collins Willmott. Like Collins, Willmott also stayed with the Company post-Buyout and also 

agreed to rollover a significant portion of his Blount equity holdings into the post-close 

entity. Separately, Willmott received a grant of options to purchase up to 6% of the fully diluted 

common shares of the post-close entity. Willmott was also expected to serve on the board of 

directors of the post-close entity. Willmott is also interested because he stands to receive 

$2,896,416 in change-of-control payments (in the event he is terminated post-close) as well as 

$599,170 from vested stock options and vested and unvested RSUs. In its most recent annual 

proxy statement before the Buyout, Blount admitted that Willmott was not independent. (Id. at ¶ 

19.) 

Defendant Robert E. Beasley, Jr. (“Beasley”) was a member of the Board from January 1, 

2010 and its Lead Director from December 7, 2011 through the Buyout. Apart from Blount, 

since 1991 Beasley has also served as an executive or director of Hunter Fan Company, where 

defendant Willmott also served as chairman of the board. Moreover, Beasley led Hunter Fan 

until it was acquired by Lehman in a transaction led on the buy-side by Collins and Willmott. 

(Id. at ¶ 20.) 

Defendant Ronald Cami (“Cami”) was a member of the Board from December 2010 

through the Buyout. Cami is a longtime attorney, and during private practice he has represented 

and worked closely with Lehman, working side by side with Collins. Cami has also worked with 

American Securities. Thus, Cami has substantial ties to Collins, Willmott, and the members of 

the Buyout Group. (Id. at ¶ 21.) 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 6 

Defendant Andrew C. Clarke (“Clarke”) was a member of the Board from May 2010 

through the Buyout. (Id. at ¶ 22.) 

Nelda J. Connors (“Connors”) was a member of the Board from March 2012 through the 

Buyout. (Id. at ¶ 23.) 

Defendant E. Daniel James (“James”) was a member of the Board from August 1999 

through the Buyout. Apart from Blount, James worked for Lehman until its demise in 2008. 

Since then, James has worked for Trilantic North America, a private equity investment firm and 

successor to a Lehman entity. James has also served on other boards of directors with Collins, 

including Phoenix Brands LLC. (Id. at ¶ 24.) 

Defendant Harold E. Layman (“Layman”) was a member of the Board from 1999 through 

the Buyout and was previously the Company’s President from February 2000 to August 16, 

2002, Chief Executive Officer from March 2001 to August 16, 2002, and Chief Operating 

Officer from February 2000 to 2001. (Id. at ¶ 25.) 

Defendant Max L. Lukens (“Lukens”) was a member of the Board from July 31, 2015 

through the Buyout. Lukens is also a director of Westlake Chemical Corporation, a 

petrochemicals company that has a longstanding relationship with Blount financial advisor 

Goldman. (Id. at ¶ 26.) 

Daniel J. Obringer (“Obringer”) was a member of the Board from April 2014 through the 

Buyout. (Id. at ¶ 27.) 

II. Overview of the Facts Giving Rise to the Action 

P2 indicated an interest in acquiring the Company—and retaining the Company’s 

management post-transaction—as early as January 2014. P2 later teamed up with American 

Securities to form the Buyout Group in furtherance of its quest to acquire Blount. (Id. at ¶ 41.) 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 7 

On August 6, 2015, the Buyout Group submitted an informal indicative proposal to 

acquire Blount at a price range of $11.00 to $12.50 per share. The Buyout Group also indicated it 

intended to retain defendants Collins and Willmott, Blount’s President and Chief Operating 

Officer, respectively, after the close of the Buyout. Thus, from the very beginning, Collins and 

Willmott had a special interest in the Buyout separate and distinct from the interests of other 

Blount stockholders. At a meeting shortly thereafter, the Board determined that Collins and 

Willmott could continue to work with the Buyout Group in pursuit of a deal despite their clear 

conflict. (Id. at ¶¶ 42-43.) 

During the process leading up to the announcement of the Buyout, Blount’s management 

created sets of financial projections to help gauge offers to buy the Company. At least in theory, 

management financial projections are supposed to reflect the best estimates of a given 

company’s future financial performance. (Id. at ¶¶ 55, 64.) 

On September 9, 2015, the Board met to discuss the Buyout Group’s offer to acquire the 

Company. Goldman also attended and made a presentation containing preliminary financial 

analyses regarding the Buyout Group’s offer. (Id. at ¶ 59.) 

The Board’s invitation to Goldman is deeply troubling given the bank’s extensive ties to 

the Buyout Group. More specifically, Goldman has worked with and for American Securities or 

its affiliates on many occasions in recent years. Moreover, Goldman has also worked with P2. 

(Id. at ¶¶ 73-85.) 

Goldman’s September 9 presentation included a discounted cash flow (“DCF”) analysis, 

for which the key input was the September Projections. The DCF analysis is widely recognized 

as the most probative of a company’s intrinsic value and the biggest driver in valuation analyses. 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 8 

Thus, manipulating financial projections can yield highly misleading valuation ranges in a DCF 

analysis. (Id. at ¶¶ 59, 70.) 

In October, after Goldman had presented its financial analyses using the September 

Projections, Blount management (namely, Collins and Willmott) told the Buyout Group that it 

“anticipated improved third quarter results and provided greater certainty that the Company 

would meet year-end targets as compared with the preliminary reports provided to the Buyer 

Parties prior to October 8, 2015.” (Id. at ¶ 67.) 

Despite touting Blount’s strong potential to the Buyout Group, Collins and Willmott 

conveyed to the Board a very different story. The Proxy Statement, while deliberately vague, 

indicates that Blount’s management told a conflicted Goldman that the September Projections 

“were no longer current” and that management would be revising the September Projections 

downward. (Id. at ¶ 60.) 

On October 15, 2015, Goldman relayed to the Board management’s notion that the 

September Projections were no longer current and, thus, needed to be adjusted downward. As 

inferred from the Proxy Statement, the Board never directly engaged Collins or Willmott to 

ascertain whether the alleged reasons for reducing the September Projections were legitimate 

despite their known conflicts. Nonetheless, based solely on Goldman’s untested hearsay, the 

Board agreed that management should prepare another set of financial projections. (Id. at ¶¶ 61-

63.) 

Just a few weeks later, on November 9, 2015, Blount reported its financial results for the 

third quarter ended September 30, 2015 (“Q3”), posting quarter-to-quarter gains across several 

key financial metrics. Specifically, Blount reported operating income of $14.1 million for Q3, 

compared to a $47.3 million loss in the second quarter of 2015(“Q2”); $29.8 million 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 9 

consolidated adjusted EBITDA in Q3 compared to $26.9 million in Q2; and a $12.3 million in 

Q3 compared to a $49.5 million net loss in Q2. The Company also announced that it had taken 

additional actions in Q3 to align production rates and spending with updated 2015 outlook. 

Significantly, Blount did not publicize any information that would warrant slashing its financial 

projections. (Id. at ¶¶ 65-66.) 

Thereafter, on November 17, 2015, a special committee of the Board (the 

“Committee”)2

—ostensibly established to insulate against the potential conflicts of interest 

impinging on Collins and Willmott—approved the Buyout Group’s request to meet with Collins 

and Willmott and discuss the terms of their post-transaction employment. The Committee was 

unable to safeguard against such conflicts because of its members’ extensive entanglements with 

Collins, Willmott, and the members of the Buyout Group. The Committee also failed because 

Collins and Willmott continued to play a key role in the process by engaging with the Buyout 

Group and assuming control over Blount’s financial projections. Accordingly, the Company’s 

management was negotiating the terms of their post-transaction employment before the Merger 

Agreement was even executed, before the expiration of the merely perfunctory go-shop 

(described below), and while other potential buyers remained interested in a potential 

acquisition. (Id. at ¶ 45.) 

What happened next in the already substantively exclusive and irremediably conflicted 

sales process reduced the process to a fire sale. On December 4, 2015, the Buyout Group said it 

was reducing its offer for the Company to only $9.85 per share after the Buyout Group had failed 

 2

 The Committee included defendants Beasley, Cami, Lukens, and Obringer. However, 

Plaintiffs allege that the Committee members were unable to exercise any independent judgment 

because of their ties to Collins, Willmott, the Buyout Group, and Goldman Sachs. (Id. at ¶ 45 

n.1.) 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 10 

to secure financing of the transaction at $10.80 per share for several weeks, i.e., not because 

Blount’s value had dropped. The next day, the Committee, which less than two months earlier 

requested at least $11.00 per share, countered the Buyout Group’s reduced offer with a request 

for $10.30 per share. Two days later, on December 7, 2015, the Buyout Group offered a final 

offer of only $10.00 per share, down substantially from the $10.80 per share previously offered. 

(Id. at ¶¶ 46, 47.) 

On December 8, 2015, the Committee quickly accepted the Buyout Group’s final offer 

without contacting an entity referred to in the Proxy Statement as “Party C,” which had 

expressed interest in acquiring Blount and was still conducting due diligence. The Board 

accepted and approved the Buyout the very next day, and Blount entered into the Merger 

Agreement to be acquired by the Buyout Group. At both of these meetings, Goldman and the 

Company’s second financial advisor, Greenhill, which was purportedly retained to mitigate the 

impact of Goldman’s potential conflicts of interest,3 presented the result of the DCF analyses that 

incorporated the December Projections. (Id. at ¶¶ 48-49.) 

On December 10, 2015, Blount issued a press release announcing the Buyout. Because of 

the circumscribed process, the Merger Agreement included a “go-shop” provision permitting 

Blount to solicit topping offers for a limited period of time, during which time the termination 

fee would be reduced from $14.7 million to $7.3 million. Still, Defendants Collins and Willmott 

were actively involved in soliciting interested parties during the go-shop period despite their 

obvious conflicts of interest. Goldman was also tasked as co-lead financial advisor in connection 

 3

 Despite Greenhill’s being retained to guard against Goldman’s conflicts, Greenhill was 

similarly entangled with members of the Buyout Group. Specifically, one of Greenhill’s senior 

advisors serves as a member of an advisory board at American Securities. (Id. at ¶ 85.) 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 11 

with the go-shop process, despite Goldman’s clear motivation to favor American Securities and 

to a lesser extent, P2. (Id. at ¶ 50-51.) 

On January 29, 2016, Blount announced that the go-shop period had concluded and that 

the Company would be proceeding with the Buyout. (Id. at ¶ 52.) 

On March 9, 2016, Blount filed the Proxy Statement with the SEC, announcing that the 

special meeting at which Blount stockholders would be asked to vote on the Buyout would occur 

on April 7, 2016 at 10 a.m. E.D.T. On April 7, 2015, a majority of Blount’s shares of common 

stock were cast in favor of the Buyout; and on April 12, 2016, the Buyout was completed. (Id. at 

¶¶ 6, 53.) 

III. Procedural History 

On March 21, 2016, Plaintiffs commenced this Action, alleging misrepresentations and 

omissions in the Proxy Statement. (Docket No. 1.) 

That same day, Plaintiffs also filed a motion for a preliminary injunction (Docket No. 2), 

which sought to enjoin the April 7, 2016 shareholder vote on the Buyout, and a related motion 

for expedited discovery and proceedings (Docket No. 3), which sought to accelerate the schedule 

in consideration of the preliminary injunction motion. 

On March 25, 2016, Defendants opposed Plaintiffs’ motion to expedite. (Docket No. 25.) 

On March 27, 2016, Plaintiffs filed their reply brief. (Docket No. 28.) On March 29, 2016, the 

Court denied Plaintiffs’ motion to expedite (Docket No. 38), and Plaintiffs subsequently 

withdrew their motion for a preliminary injunction (Docket No. 39). 

Because Plaintiffs brought this case under the PSLRA, they issued the statutorily required 

notice on April 11, 2016. On June 10, 2016, Plaintiffs moved to be appointed Lead Plaintiffs 

under the PSLRA, and to have their choice of counsel—Johnson & Weaver, LLP and Levi & 

Korsinsky LLP as Lead Counsel and McGaughey Erickson as Local Counsel—approved. 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 12 

(Docket No. 42.) On July 1, 2016, the Court granted Plaintiffs’ motion under the PSLRA. 

(Docket No. 46.) 

On August 1, 2016, Plaintiffs filed their Complaint, which is the operative pleading in 

this Action. On September 16, 2016, Defendants all moved to dismiss the Complaint. Plaintiffs 

now oppose the Blount Defendants’ motion. 

ARGUMENT 

I. Applicable Standard of Adjudication 

On a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, 

dismissal is appropriate only “when there is no cognizable legal theory to support the claim, or 

when the complaint lacks sufficient factual allegations to state a facially plausible claim for 

relief.” Erickson v. Blake, 839 F. Supp. 2d 1132, 1134 (D. Or. 2012) (citing Shroyer v. New 

Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010)). In other words, all a 

plaintiff must do is demonstrate that the complaint contains “sufficient factual matter, accepted 

as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 

678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Asking for 

plausible grounds . . . does not impose a probability requirement at the pleading stage; it simply 

calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence” 

supporting the claim. Twombly, 550 U.S. at 556 (emphasis added); see also Iqbal, 556 U.S. at 

678 (“The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more 

than a sheer possibility that a defendant has acted unlawfully.”). Rule 12(b)(6) must also be read 

in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing 

that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2); Ileto v. Glock Inc., 349 F.3d 1191, 

1200 (9th Cir. 2003). 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 13 

“When considering a Rule 12(b)(6) motion, the court may only consider matters and 

materials contained within the parties’ pleadings (the complaint and answer).” Erickson, 839 F. 

Supp. 2d at 1135 (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). 

Moreover, in evaluating the sufficiency of a complaint’s factual allegations, the court must 

accept as true all well-pleaded material facts alleged in the complaint and construe them in the 

light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 

1140 (9th Cir. 2012); Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). 

Further, all reasonable inferences from the factual allegations must be drawn in favor of the 

plaintiff. Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). 

At bottom, a district court ruling on a motion to dismiss is not sitting as a trier of fact. 

Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The Court is not required, 

at this stage, to even believe Plaintiffs’ allegations. Twombly, 550 U.S. at 556 (citing Neitzke v. 

Williams, 490 U.S. 319, 327 (1989) (“Rule 12(b)(6) does not countenance . . . dismissals based 

on a judge’s disbelief of a complaint’s factual allegations.”)). As stated in Twombly, “a wellpleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is 

improbable, and that a recovery is very remote and unlikely.” Id. at 556 (citations omitted). 

As explained herein, Plaintiffs’ Complaint alleges sufficient facts to support their claims 

against the Blount Defendants, so the Motion should be denied. 

II. Plaintiffs Have Adequately Pled Claims Against the Blount Defendants for Violating 

Section 14(a) of the Exchange Act 

A. Pleading Requirements Under Section 14(a) and Rule 14a-9 

Section 14(a) reflects Congress’ decision in 1934 to mandate full disclosure in the context 

of stockholder votes. The Supreme Court explained 50 years ago: “The purpose of § 14 (a) is to 

prevent management or others from obtaining authorization for corporate action by means of 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 14 

deceptive or inadequate disclosure in proxy solicitation.” J. I. Case Co. v. Borak, 377 U.S. 426, 

431 (1964) (“The section stemmed from the congressional belief that ‘fair corporate suffrage is an 

important right that should attach to every equity security bought on a public exchange.’” (quoting 

H. R. Rep. No. 1383, 73d Cong., 2d Sess., 13)). See also Santa Fe Indus., Inc. v. Green, 430 U.S. 

462, 477 (1977) (discussing the “philosophy of full disclosure” underlying Section 14(a) of the 

Exchange Act and SEC Rule 14a-9 promulgated thereunder). 

To prevail on a claim under § 14(a) of the Exchange Act, a plaintiff must demonstrate: 

“(1) defendants made a material misrepresentation or omission in a proxy statement; (2) with the 

requisite state of mind; and (3) that the proxy statement was the transactional cause of harm of 

which plaintiff complains.” In re Zoran Corp. Derivative Litig., 511 F. Supp. 2d 986, 1015 (N.D. 

Cal. 2007) (citing Mills v. Electric Auto Lite Co., 396 U.S. 375, 384 (1970)).4

 

“An omitted fact is material if there is a substantial likelihood that a reasonable 

shareholder would consider it important in deciding how to vote.” TSC Indus., Inc. v. Northway, 

Inc., 426 U.S. 438, 439 (1976). Establishing materiality: 

[D]oes not require proof of a substantial likelihood that disclosure of the omitted 

fact would have caused [a] reasonable investor to change his vote. What the 

standard does contemplate is a showing of a substantial likelihood that, under all 

the circumstances, the omitted fact would have assumed actual significance in the 

deliberations of the reasonable shareholder. 

 4

 Notably, “[w]here the misstatement or omission in a proxy statement has been shown to 

be ‘material,’“ shareholders are presumed to have “made a sufficient showing of causal 

relationship between the violation and the injury for which he seeks redress” so as to satisfy the 

transactional cause of harm requirement of a Section 14(a) violation. Mills, 396 U.S. 375, 384-85 

(1970). Accordingly, Plaintiffs need not independently establish that the false and misleading 

Proxy Statement was the “transactional cause” of its injury where the materiality of the nondisclosures is established. 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 18 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 15 

Id. at 449; Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994).5 As even this 

Court has even recognized, a fact is material if it “might have been considered important by a 

reasonable shareholder who was in the process of deciding how to vote.” Beebe v. Pac. Realty Tr., 

99 F.R.D. 60, 66 (D. Or. 1983). A material misrepresentation or omission need not be intentional 

for liability to be imposed; rather, plaintiff need only plead facts giving rise to an “inference of 

negligence.” In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1267 (N.D. Cal. 2000); 

Zoran, 511 F. Supp. 2d at 1015 (“negligence will suffice as to the degree of culpability” required 

for establishing a Section 14(a) violation). 

B. The Proxy Statement Was Materially False and Misleading Because It 

Omitted the September Projections and Included the Manipulated November 

Projections and December Projections 

Plaintiffs’ premise is simple—the September Projections were the best estimate of 

Blount’s financial prospects, and it was actionably deceptive for the Blount Defendants to (1) 

exclude those figures from the Proxy Statement and (2) put forward the artificially watered down 

November Projections and December Projections as depicting Blount’s financial prospects. 

Under established law, financial information like the September Projections is material 

and should be disclosed. As the Ninth Circuit has expressly stated, “investors are concerned, 

perhaps above all else, with the future cash flows of the companies in which they invest.” United 

States v. Smith, 155 F.3d 1051, 1064 n.20 (9th Cir. 1998) (adding, “Surely, the average 

 5

 Delaware courts, which Oregon courts look to on matters of corporate governance, 

recognize the same standard of materiality as the Supreme Court did in TSC. See, e.g., Rosenblatt 

v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (adopting the TSC Industries standard as the law 

of Delaware). Federal courts have also looked to Delaware in matters involving disclosure in 

merger cases. E.g., Kentrox, Inc. v. Bernstein, No. 3:13-CV-01492-ST, 2014 U.S. Dist. LEXIS 

118915, at *28 (D. Or. May 9, 2014) (citing Plumbers Local No. 137 Pension Fund v. Davis, 

Civ. No. 03:11-633-AC, 2012 U.S. Dist. LEXIS 5053, at *9 n.3 (D. Or. Jan. 11, 2012)) 

(“However, as do courts in many other states, Oregon courts often look to Delaware law for 

guidance . . . .”).

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 16 

investor’s interest would be piqued by a company’s internal projections . . . .”). Other courts 

have recognized that financial projections are “among the most highly-prized disclosures by 

investors.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 203 (Del.Ch. 2007); see 

also In re Emerging Commc’ns, Inc. S’holder Litig., C.A. No. 16415, 2004 Del. Ch. LEXIS 70, 

at *134 (Del. Ch. May 3, 2004) (finding projections “highly material” because knowledge of the 

projections “would have enabled the shareholders to understand [the company’s] intrinsic worth 

and the extent of the market’s undervaluation of their company”); see also SEC v. Texas Gulf 

Sulphur Co., 401 F.2d 833, 849 (2d Cir. 1968) (“Material facts include not only information 

disclosing the earnings and distributions of a company but also those facts which affect the 

probable future of the company and those which may affect the desire of investors to buy, sell, or 

hold the company's securities.”). 

When shareholders are faced with a decision like Blount stockholders were here—vote 

“YES” and approve the Buyout or vote “NO” and stay the course as a standalone entity—there is 

likely no more important information than management’s best estimate of future financial 

performance. This is because “management ordinarily has the best first-hand knowledge of a 

company’s operations,” and the projections play a key role in any valuation analyses being 

prepared. Doft & Co. v. Travelocity.com Inc., C.A. No. 19734, 2004 WL 1152338, at *5 (Del. 

Ch. May 20, 2004). As Netsmart made clear, “Investors can come up with their own estimates of 

discount rates or . . . market multiples,” but cannot replicate insiders “view of the company’s 

prospects”). Id., 924 A.2d at 203. 

It is also well-established that, “[w]hen a document ventures into certain subjects, it must 

do so in a manner that is materially complete and unbiased by the omission of material facts.” In 

re Pure Res. Inc. S’holders Litig., 808 A.2d 421, 448 (Del. Ch. 2002); In re MONY Grp. Inc. 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 20 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 17 

S’holders Litig., 852 A.2d 9, 24-25 (Del. Ch. 2004) (explaining that directors are obligated to 

provide stockholders with an accurate, full, and fair characterization of events once they travel 

down the road of a “partial disclosure.”). 

In re Hot Topic, Inc. Securities. Litigation, No. CV 13-02939 SJO (JCx), 2014 U.S. Dist. 

LEXIS 180513 (C.D. Cal. May 2, 2014), is instructive. Indeed, Hot Topic involves an even less 

egregious situation than here. There, the company disclosed an earlier, more optimistic set of 

projections and a later, more pessimistic set of projections. Id. at *7. The proxy statement stated 

the Hot Topic’s board and management deemed the second set more realistic, and the financial 

advisor’s analyses and resulting fairness opinion relied on the latter set of projections. Id. at *4-7. 

The court in Hot Topic acknowledged that the second set purportedly “better reflect[ed] what 

management believed the company would be able to achieve during the next five years compared 

to [an earlier set of] projections.” Id. at *7. Nonetheless, the court found that the plaintiff alleged 

“enough facts to support the conclusion that the company moderated its financial projections 

downward to underestimate the financial value of its stock. . . . [A]t this point, it is at least 

plausible that Defendants’ changes to Hot Topic’s financial projections resulted in a less accurate 

forecast.” Id. at *16-17. Thus, as articulated in Hot Topic, “which of two projections is more 

accurate would be important to a reasonable shareholder trying to determine if a stock buyout is 

a fair deal...the inclusion of both projections in the proxy statement in reasonable detail does not 

excuse the allegedly false information regarding the relative accuracy of the two projections. 

This information was allegedly designed to mislead shareholders into weighing the revised 

projections more heavily than [the earlier projections], which could cause them to undervalue 

their stock. A reasonable shareholder would find the relative accuracy and achievability of the 

two projections helpful.” Id. at *22 (finding plaintiff successfully plead that the defendants 

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PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 18 

knowingly misstated material facts concerning the relative accuracy of two sets of projections 

where plaintiff alleged that the board recommendation and fairness opinion were based on less 

accurate, downward-moderated revised projections). 

Here, despite the fact that the September Projections most accurately reflected Blount’s 

financial prospects, as Plaintiffs allege, Defendants refused to disclose the September Projections 

and, instead, disclosed the November Projections and the December Projections. As set out in 

Plaintiffs’ Complaint, Blount reported operating income of $14.1 million for the third quarter of 

2015, compared to a $47.3 million loss in the second quarter of 2015; $29.8 million consolidated 

adjusted EBITDA in Q3 compared to $26.9 million in Q2; and a $12.3 million net income in Q3 

compared to a $49.5 million net loss in Q2. (Compl. ¶ 66.) The Proxy Statement also announced 

that management “anticipated improved third quarter results and provided greater certainty that 

the Company would meet year-end targets as compared with the preliminary reports provided to 

the Buyer Parties prior to October 8, 2015.” (Id. at ¶ 67.) Thus, despite Defendants’ arguments 

that Plaintiffs’ Complaint is “cherry-picked” and that the Company’s financial trajectory was in 

fact declining (the latter of which should be disregarded at this stage), Plaintiffs have 

demonstrated it is at least plausible that changes to the financial projections resulted in a less 

accurate forecast. See Hot Topic, 2014 U.S. Dist. LEXIS 180513, at *16-17. Without this 

material information, Blount stockholders were unable assess Blount’s true financial potential. In 

other words, Blount stockholders needed this omitted information to make a fully-informed 

decision as to whether the consideration being offered in the Buyout adequately compensated 

them for their ownership interest in the Company. 

Moreover, as in Hot Topic, given Plaintiffs’ allegations about the utility and propriety of 

the September Projections, the Blount Defendants’ disclosure of the November Projections and 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 22 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 19 

the December Projections, as well as the financial analyses performed by Goldman and Greenhill 

and the resulting fairness opinions, rendered the Proxy Statement materially misleading. Related, 

the concomitant failure to disclose the September Projections prevented Blount stockholders 

from assessing for themselves the reasonableness of the adjustments that resulted in the 

November Projections and December Projections.6

The Blount Defendants’ main retort is that the September Projections are not the best 

estimate and that the newness of the November Projections and December Projections makes 

them better. For instance, the Blount Defendants attempt to cast the September Projections as 

“superseded” (Blount Defs. Br. at 18), “out-of-date” (id.), or “too rosy” (id. at 22). Conversely, 

they attempt to champion the superiority of the November Projections and the December 

Projections. (Id. at 21-22.) But issues of fact should be decided at trial or on summary judgment, 

not at this stage of the proceedings. The Blount Defendants’ approach flouts well-established 

rules regarding motions to dismiss and should be flatly rejected. 

The Blount Defendants also suggest that financial projections are “not generally required 

in proxy statements.” (Blount Defs.’ Br. at 19 (citing Assad v. Mines Mgmt., 2016 U.S. Dist. 

LEXIS 119544, at *11 (E.D. Wash. Sept. 6, 2016)). However, Assad appears to have relied upon 

an outdated view of the law. Specifically, Assad cited a case referring to the SEC’s long ago 

caution against disclosing projections, see id. at 11 (citing Desaigoudar v. Meyercord, 223 F.3d 

1020 (9th Cir. 2000)), but the SEC has long since retreated from its initial position, see Walker v. 

Action Indus., 802 F.2d 703, 707 (4th Cir. 1986) (“The traditional SEC position, however, 

encountered substantial criticism in the early 1970s. . . . Then, in 1976, the SEC deleted earnings 

 6

 The Blount Defendants failed to argue several issues that were addressed in Hot Topic, 

including subjective falsity and objective falsity, so they cannot address those issues on reply. 

Nonetheless, Plaintiffs’ factual allegations establish all of the elements discussed in Hot Topic. 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 23 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 20 

projections in the 14a-9 note from the list of potentially misleading disclosures.” (citations 

omitted)). Indeed, the authorities cited herein make clear that false and misleading or inadequate 

disclosure of financial projections is against the law. Vaughn v. Teledyne, 628 F.2d 1214, 1221 

n7 (9th Cir. 1980) (explaining that a partial disclosure of a projection may require additional 

disclosures to ensure completeness and accuracy). Assad is distinguishable on the facts because it 

involved a preliminary injunction motion, and the plaintiff there was unable to meet the 

evidentiary burden. Assad, 2016 U.S. Dist. LEXIS 119544, at *1. Moreover, in Assad there was 

no disclosure regarding the company’s projections. 2016 U.S. Dist. LEXIS 119544, at *12. Here, 

however, the Blount Defendants affirmatively disclosed the manipulated November Projections 

and December Projections and omitted the more apt September Projections. Assad is, therefore, 

inapposite. 

The Blount Defendants’ reliance upon Netsmart is also unavailing. There, the plaintiffs 

initially appeared to have sought disclosure of an earlier set of projections, but at oral argument it 

became clear that the plaintiffs were interested only in the result of a price-to-earnings (P/E) 

analysis using the earlier, more pessimistic set of projections. In rejecting the plaintiffs’ request, 

the Delaware Court of Chancery explained that “using the dated . . . projections as a basis for an 

independent valuation of . . . future earnings would demonstrate only that the merger 

consideration offered was ‘fairer’ to the selling shareholders than the projections presented in the 

proxy imply. As such, that portion of the [undisclosed] model would not materially influence any 

rational shareholder’s vote, and no duty was breached by its omission.” Netsmart, 924 A.2d at 

200-201. In plain contrast to Netsmart, thus obviating its applicability, the earlier September 

Projections presented a more optimistic view—“more bullish,” as the Blount Defendants 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 24 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 21 

themselves concede (Blount Defs. Br. at 19)—of the November Projections and December 

Projections that were used to justify the inadequate Buyout. 

Based on the foregoing, the omission of the September Projections and the inclusion of 

the November Projections and December Projections rendered the Proxy Statement materially 

misleading and inadequate. 

C. Plaintiffs Adequately Alleged That the Blount Defendants Acted with 

Negligence 

Defendants contend that Plaintiffs have failed to adequately plead the requisite level of 

culpability. (Blount Defs.’ Br. at 23-25.) As Defendants concede under § 14, Plaintiffs need only 

establish the Individual Defendants were negligent in making the alleged false statements in the 

Proxy. 15 U.S. C. §78u-4(b)(2); Hot Topic Sec. Litig., 2014 U.S. Dist. LEXIS 180513, at *27 

(citations omitted). Plaintiffs have met their burden here. 

Specifically, Plaintiffs allege that Blount management posted “sequential quarter-toquarter gains,” including significant gains for the third quarter of 2015 (Compl. ¶¶ 65-66) and 

that Blount management told the Buyout Group in October 2015 that the Company ‘“anticipated 

improved third quarter results” and was on track to meet its year-end targets (id. at ¶ 67 

(emphasis added)). Thus, Defendants knew they had no justification for slashing the undisclosed 

September Projections. (Id. at ¶¶ 64, 68.) Yet the Board allowed a conflicted Collins and 

Willmott to reduce the September Projections in order to lower the implied price in Goldman’s 

DCF analysis and make the Buyout price appear fair for their own personal gain. (Id. at ¶¶ 9-10, 

60, 69.)7

 The higher and more accurate September Projections, which were in line with Blount’s 

 7

 Goldman, of course, was incentivized to make the Buyout price appear fair in order to 

obtain its lucrative transaction fee and secure future business. (Compl. ¶¶ 73-87.) 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 25 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 22 

financial performance and representations made to the Buyout Group, were not disclosed to 

shareholders in order to induce them to vote for the Buyout at an inadequate price. 

Plaintiffs allege that the Individual Defendants were involved in preparing the Proxy, or, 

at the very least, reviewed the contents of the Proxy before it was filed with the SEC, and 

therefore knew or were negligent in not knowing that the Proxy failed to include the material 

information detailed herein. (Id. at ¶¶ 91-92.) Indeed, Defendants admit that they did not disclose 

the omitted information (arguing instead that they did not have a duty to do so), and concede that 

they had access to the information. (Blount Defs.’ Br. at 16-23.) 

The above allegations are more than sufficient to show that it is at least plausible the 

Individual Defendants, and therefore Blount, acted negligently in preparing the Proxy. City of 

Westland Police & Fire Ret. Sys. v. Sonic Sols., No. C 07-05111 CW, 2009 U.S. Dist. LEXIS 

33339, at *28 (N.D. Cal. Apr. 6, 2009) (allegations supported strong inference of directors’ 

negligence in failing to disclose backdating scheme because they had duties associated with 

approving proxy statements and were responsible for ensuring statements “were truthful and 

accurate”); see also Hot Topic, 2014 U.S. Dist. LEXIS 180513, at * 27. 

As the City of Westland Police Court held, allegations that the Board was “responsible 

for ensuring that Sonic’s public statements describing and accounting for these options were 

truthful and accurate...are sufficient to raise an inference that Defendants knew or should have 

known that Sonic’s proxy statement was false.” Id. at *15; see also In re JPMorgan Chase & Co. 

Secs. Litig., MDL No. 1783, C.A. No. 06 C 4674, 2007 U.S. Dist. LEXIS 93877, at *22-*23 

(N.D. Ill. Dec. 18, 2007) (allegations that director defendants were in contact with the parties that 

had knowledge of the omitted information, “and had the opportunity to monitor and inquire” are 

sufficient to plead negligence under the PSLRA.). Nothing more is required. 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 26 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 23 

Nevertheless, Defendants contend that Plaintiffs have failed to plead any negligent 

behavior by the Individual Defendants because Plaintiffs do not allege how the disclosed 

projections (i.e., the November and December Projections) were “unreasonable or manipulated.” 

(Blount Defs.’ Br. at 24.) This argument misses the point. A finding of Defendants’ negligence 

turns on the materiality of the September Projections and not, as Defendants suggest, the 

manipulation of the November and December Projections. See e.g., Gerstle v. Gamble-Skogmo, 

Inc., 478 F.2d 1281, 1300-01 (2d Cir. 1973) (holding that negligence suffices for claim based on 

misleading proxy statement and that plaintiffs “are not required to establish any evil motive or 

even reckless disregard of the facts”); Brown v. Brewer, No. CV 06-3731-GHK (SHx), 2010 

U.S. Dist. LEXIS 60863, at *80-82 (C.D. Cal. June 17, 2010) (“As a matter of law, the 

preparation of a proxy statement by corporate insiders containing materially false or misleading 

statements or omitting a material fact is sufficient to satisfy the [] negligence standard.”) 

(internal citation omitted). 

Accordingly, if the omission of the September Projections from the Proxy is deemed to 

be material, then a finding of negligence necessarily follows. See e.g., Brown v. Brewer, 2010 

U.S. Dist. LEXIS 60863, at *80-82 (“Since we have denied summary judgment with respect to 

three of the proffered material omissions in the Proxy, and Defendants have admitted to 

participating in “the process of preparing, reviewing, and disseminating” that Proxy, we must 

also DENY summary judgment with respect to the element of negligence. If Plaintiff can 

persuade a jury as to both materiality and Defendants’ participation in the preparation and/or 

review of the Proxy at trial, then a finding of negligence will flow from those findings.”). 

In any event, although not required, Plaintiffs also allege Defendants and, in particular 

Collins and Willmott, knowingly manipulated the September Projections downward to ensure a 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 27 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 24 

deal with the Buyout Group for their own financial and personal gains. These facts more than 

amply create a plausible inference that Defendants were negligent in the preparation of the 

Proxy. 

D. Plaintiffs Have Adequately Alleged Loss Causation 

Defendants incorrectly contend that Plaintiffs have failed to state a Section 14(a) claim 

because they have not adequately alleged loss causation. Blount Defs.’ Br. at 25-26. As an initial 

matter, “the causation issue becomes most critical at the proof stage, and the question of whether 

the plaintiff has proven causation is usually reserved for the trier of fact.” In re DaimlerChrysler 

AG Sec. Litig., 197 F. Supp. 2d 42, 66 (D. Del. 2002); St. Clare v. Gilead Scis., Inc, 536 F.3d 

1049, 1057 (9th Cir. 2008) (Same and noting “[s]o long as the complaint alleges facts that, if 

taken as true, plausibly establish loss causation, a Rule 12(b)(6) dismissal is inappropriate.”). 

Under Section 14(a), the causation requirement is satisfied where, as here, the challenged 

proxy statement “was an essential link in the accomplishment of the transaction.” Mills v. Elec. 

Auto-Lite Co., 396 U.S. 375, 389, 90 S. Ct. 616, 24 L. Ed. 2d 593 (1970). Stockholders may 

satisfy the “essential link” requirement by alleging former stockholders were precluded from 

casting a fully informed vote in connection with a merger (proximate causation) and the merger 

consideration was inadequate (economic loss), thereby making the Proxy an essential link in 

damaging stockholders. Hot Topic, 2014 U.S. Dist. LEXIS 180513, at *27-29 (citing Mills 396 

U.S. at 384). 

Here, Plaintiffs alleged that the intrinsic value of the Company was in excess of the 

“materially inadequate $10 per share being offered in the Buyout” (Compl. ¶¶ 65-67, 71), as 

evidenced by, among other facts; (i) Blount’s sequential growth in 2015; (ii) management’s own 

representations that Blount’s financial performance was expected to improve; (iii) management’s 

affirmance of 2015 earnings guidance; and (iv) that the earlier, more optimistic, September 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 28 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 25 

Projections provided a more accurate view of the Company’s prospects. (Id. at ¶¶ 11, 65-67, 72.) 

Plaintiffs further alleged that the Proxy omitted the material and more optimistic September 

Projections. (Id. at ¶¶ 55-72.) Nearly identical allegations have been found to be sufficient by 

District Courts in the Ninth Circuit. Specifically, in Hot Topic the Court observed in relevant 

part: 

Plaintiff’s [loss causation] claims rest on its allegation that “the Merger 

Consideration was actually a discount to Hot Topic’s enterprise value and intrinsic 

value.” Plaintiff claims that analysts valued Hot Topic shares at $16.40 per share. 

Plaintiff also notes that because Hot Topic shares had a book value of $1.40 per 

common share, the purchase price was actually closer to $12.60 per share. When 

combined with Hot Topic’s strong revenue growth and the 46% yearly increase in 

share price, Plaintiff argues that this information shows that the true value of Hot 

Topic’s stock was greater than $14.00 per share, not less. Thus, because Plaintiff 

has sufficiently alleged that the Merger harmed the earning potential of its Hot 

Topic shares, Plaintiff has met the economic harm requirement. 

Plaintiff [also] alleges that the Proxy Statement makes a series of 

misrepresentations and omissions that misled shareholders into believing that 

$14.00 per share was a fair transaction. Plaintiff sufficiently connects the alleged 

misstatements and omissions in the Proxy Statement with its economic loss. Thus, 

Plaintiff’s allegations satisfy the loss causation requirement. 

2014 U.S. Dist. LEXIS 180513, at *27-29. (internal citations omitted); See also 

DaimlerChrysler, 197 F. Supp. 2d at 66 (“allegations that the misrepresentations directly or 

proximately caused, or were a substantial contributing cause of, the damages sustained by 

plaintiff are adequate to plead causation.”). 

Just like the plaintiffs in Hot Topic, Plaintiffs have adequately pled loss causation by 

alleging “that the Merger harmed the earning potential” of their shares, and “that the Proxy 

Statement makes a series of misrepresentations and omissions that misled shareholders into 

believing that [the Merger Consideration] was a fair transaction.” Id. at *28-29. Thus, Plaintiffs 

have, in fact, satisfied the “essential link” element of a § 14(a) claim. 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 29 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 26 

III. Plaintiffs Have Adequately Alleged Claims Against the Individual Defendants 

Under § 20(a) of the Exchange Act 

“Section 20(a) claims are construed liberally and require only some indirect means of 

discipline or influence short of actual direction to hold a control person liable.” City of St. Clair 

Shores Gen. Emples. Ret. Sys. v. Inland W. Retail Real Estate Tr., Inc., 635 F. Supp. 2d 783, 795 

(N.D. Ill. 2009). In addition, “[w]hether [the defendant] is a controlling person is an intensely 

factual question” generally reserved for the trier of fact. Petrie v. Elec. Game Card, Inc., No. SA 

CV 10-0252-DOC (RNBx), 2015 U.S. Dist. LEXIS 14132, at *15 (C.D. Cal. Feb. 5, 2015). 

Accordingly, courts routinely conclude that where a plaintiff has adequately pled a Section 14(a) 

claim at the motion to dismiss stage, they have also successfully pled a Section 20(a) claim. 

Inland W. Retail Real Estate Supp. 2d 783 at 796; Hot Topic, 2014 U.S. Dist. LEXIS 180513, at 

*29-30 (same); Brown v. Brewer 2010 U.S. Dist. LEXIS 60863, at *23 (same). Here, Plaintiffs 

have adequately pled their Section 20(a) claim by alleging that the Individual Defendants had 

“positions of authority as officers and/or directors” and had the ability to control the issuance of 

the Proxy and could have prevented the wrongful conduct alleged. (Compl. ¶¶ 94-101.) Nothing 

more is required. Id. 

CONCLUSION 

Because materiality is a question of fact that should rarely be decided on a motion to 

dismiss, and a determination on materiality is inescapably intertwined with Plaintiffs’ allegations 

of negligence, scienter, and causation, this case should be resolved by a jury. If the Court finds it 

appropriate to rule on materiality at this juncture, for the reasons set forth above, the omission of 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 30 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 27 

the September Projections constitutes a material omission, and Plaintiffs have adequately pled 

that Defendants violated Sections 14(a) and 20(a) of the Exchange Act.8

Respectfully submitted, 

Dated: October 31, 2016 JOHNSON & WEAVER, LLP 

 By:/s W. Scott Holleman 

 W. Scott Holleman 

ScottH@johnsonandweaver.com 

99 Madison Avenue, 5th Floor 

New York, NY 10016 

Tel. (212) 802-1486 

MCGAUGHEY ERICKSON 

Robert J. McGaughey, OSB #800787 

bob@law7555.com 

1500 SW 1st Ave., Ste. 800 

Portland, OR 97201 

Tel. (503) 223-7555 

LEVI & KORSINSKY LLP 

Shannon L. Hopkins 

shopkins@zlk.com

30 Broad Street, 24th Floor 

New York, NY 10004 

Tel. (212) 363-7500 

Lead Counsel for Plaintiffs 

 8

 If the Court dismisses any aspect of the Amended Complaint, Plaintiffs respectfully 

request leave to amend. Fed. R. Civ. P. 15(a)(2) (“The court should freely give leave when 

justice so requires”); Bonanno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962) ( “leave should [be] 

granted to amend unless the court determines that the allegation of other facts consistent with the 

challenged pleading could not possibly cure the deficiency”). 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 31 of 32
PLAINTIFFS’ OPPOSITION TO THE BLOUNT DEFENDANTS’ MOTION TO DISMISS 1 

CERTIFICATE OF SERVICE 

I, W. Scott Holleman, hereby certify that on October 31, 2016, I served the foregoing 

document via CM/ECF on all counsel of record. 

Dated: October 31, 2016 

W. Scott Holleman 

W. Scott Holleman 

Case 3:16-cv-00483-SI Document 59 Filed 10/31/16 Page 32 of 32