Opinion ID: 4544207
Heading Depth: 1
Heading Rank: 1

Heading: freedman’s class allegations

Text: In the district court, Freedman filed a class action complaint alleging that magicJack made material misrepresentations and/or omissions in two proxy statements that were sent to its shareholders. The alleged misrepresentations relate to the valuation and financial prospects of Broadsmart, a company magicJack acquired in March 2016 for $40 million, and a compensation package for magicJack executives. See DE 59, ¶¶ 2, 23. The first proxy statement that Freedman challenges was issued by magicJack on March 15, 2017 (the “March 15 Proxy”). DE 61-1. Freedman contends that the statement was sent in order to solicit votes for a director’s election at the upcoming April 19, 2017 shareholder meeting. Id. In particular, in his complaint, Freedman challenged the following statement in the March 15 Proxy: Your Board and Management are excited about the possibilities for restoring growth at magicJack under Mr. Bell’s leadership. The seeds of change that we planted to evolve the business have already taken root and magicJack is well-positioned to harvest the fruits of its labor. The opportunity for meaningful future value creation is reflected in our growing Broadsmart pipeline, which currently includes large enterprise opportunities. This includes active pilots with two large North American businesses with thousands of locations, both of which would contribute significant monthly recurring revenues. DE 61-4 at 4. 2 Freedman claims that this statement was misleading because of 2 While not material to the analysis here, as the district court pointed out, this language 3 Case: 18-15303 Date Filed: 06/25/2020 Page: 4 of 25 Broadsmart’s diminished value. He further contends that the statements in the March 15 Proxy were designed to “entrench” the magicJack directors in office, seeing as though, due to the deception, “[o]n April 19, 2017, [t]he Individual Defendants were elected to the magicJack board.” DE 59, ¶ 36. The second challenged proxy statement was issued on June 23, 2017 (the “June 23 Proxy”). The June 23 Proxy was sent in advance of a July 31, 2017 shareholder meeting. DE 61-7. The July 31 meeting was a special meeting to allow shareholders to vote on an employment agreement for the company’s new CEO, Don C. Bell, III (“Bell”), and to approve changes to magicJack’s stock incentive plans, compensation policy, and the compensation to be paid to its outside directors. DE 59, ¶¶ 48, 51; DE 61-7; DE 61-8. The agreement included financial incentives and severance pay provisions tied to the completion of a change-incontrol transaction (i.e., a sale of magicJack). DE 59, ¶ 51. On November 9, 2017, after these proxy statements were sent, magicJack entered into a sale agreement (the “B. Riley Transaction”), which provided that the Company would be sold to B. Riley & Co. (“B. Riley”) for a price of $8.71 per share. DE 61-11 at 2-3. On February 8, 2018, magicJack issued a proxy statement does not appear in the March 15 Proxy itself, but rather in magicJack’s Additional Proxy Materials, also issued on March 2017. DE 61-4. This supplement is not cited in the operative complaint. See id. 4 Case: 18-15303 Date Filed: 06/25/2020 Page: 5 of 25 in connection with a shareholder meeting to be held on March 19, 2018 for the purpose of voting on whether to approve the B. Riley Transaction. Id. The transaction was eventually approved by shareholders. DE 61-12 at 2. In his operative class action complaint (the Second Amended Complaint), Freedman claimed on behalf of himself and the putative class to have suffered injuries based upon the misleading information contained in the March 15 and June 23 Proxies (i.e., they were denied the ability to exercise an informed vote). DE 59, 29. He also claimed that he and the other shareholders were injured due to the $8.71 per share price, which he contends was less than an earlier non-binding, predue diligence offer of $9.50 per share. 3 DE 59, 29; DE 61-11 at 22-24.