Court Opinion

ID: 6118816
Source: CourtListenerOpinion
Date Created: 2022-02-04 17:03:13.446079+00
Date Added: 2024-06-11T08:22:44.127402
License: Public Domain

2022 IL App (1st) 200872

                                                                           FIFTH DIVISION
                                                                           FEBRUARY 4, 2022

No. 1-20-0872

QUAD CAPITAL PORTFOLIO A LLC, and                   )       Appeal from the
QUAD SECURITIES PORTFOLIO A LLC,                    )       Circuit Court of
                                                    )       Cook County.
Plaintiffs-Appellants,                              )
v.                                                  )       No. 18 L 10431
                                                    )
ABBVIE, INC.,                                       )       Honorable
                                                    )       Margaret A. Brennan,
       Defendant-Appellee.                          )       Judge Presiding.

       JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion.
       Presiding Justice Delort and Justice Connors concurred in the judgment and opinion.

                                           OPINION

¶1     The plaintiffs-appellants, Quad Capital Portfolio A LLC and Quad Securities Portfolio A

LLC (the Quad investors), brought a complaint against the defendant-appellee, AbbVie, Inc.

(AbbVie), in the circuit court of Cook County. The circuit court granted summary judgment in

favor of AbbVie on the basis that the complaint was time-barred by the statute of limitations, and

the Quad investors now appeal. For the following reasons, we affirm the judgment of the circuit

court of Cook County.

¶2                                       BACKGROUND

¶3     AbbVie is a Delaware-incorporated pharmaceutical company with its principal place of

business in North Chicago, Illinois. On June 20, 2014, AbbVie announced that it had approached
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another pharmaceutical company, Shire PLC (Shire), with an acquisition proposal. 1 Shire is

organized under the laws of the island of Jersey, a self-governing dependency of the United

Kingdom, and headquartered in Ireland. AbbVie disclosed that, as part of its acquisition proposal

with Shire, AbbVie would reincorporate as a foreign company outside of the United States and

create a tax inversion, which would significantly reduce the amount it paid in taxes in the United

States.

¶4        On July 18, 2014, AbbVie and Shire announced they had reached agreed terms and signed

a merger agreement. The merger agreement provided that AbbVie would merge with Shire, with

AbbVie as the surviving entity reincorporating in Jersey. The merger agreement projected a new,

lower tax rate for the newly merged entity as a consequence of reincorporation under the laws of

Jersey.

¶5        That same day, AbbVie’s CEO, Richard Gonzalez, held an investor conference call to

discuss the merger agreement. During the conference call, investment analysts asked Mr. Gonzalez

about the emerging political debate in the United States surrounding tax inversions and the risk of

United States government action to eliminate or restrict tax inversion benefits. Mr. Gonzalez

answered that AbbVie had “studied this transaction very, very carefully” and believed it was

“highly executable.” He stated that the tax inversion was an additional benefit but “not the primary

rationale” for the merger agreement.

¶6        The Quad investors are hedge funds based in Delaware that make monetary investments

through merger arbitrage strategies. In July 2014, the Quad investors purchased Shire American

depository receipts (ADRs) 2 based upon the merger agreement. By October 14, 2014, the Quad

          1
        Shire is not a party to this appeal.
          2
        ADRs are negotiable certificates representing ownership in publicly traded foreign corporations.
Cohan v. Citicorp, 266 Ill. App. 3d 626, 627 (1993).

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investors had acquired approximately $22.5 million in Shire ADRs.

¶7      On September 22, 2014, while the merger agreement was pending, the United States

Treasury Department announced new federal tax regulations that would limit certain benefits of

tax inversions and diminish the ability of inverted companies to pay a lower tax rate to the United

States (the treasury notice).

¶8      On September 29, 2014, Mr. Gonzalez issued a letter to all Shire employees, which AbbVie

publicized to investors and filed with the United States Securities and Exchange Commission. The

Shire letter stated that AbbVie was still moving forward with the merger agreement and that Mr.

Gonzalez was “more energized than ever” and “confident” about the merger. AbbVie also

published a letter to its own employees stating that it was aiming for a fourth-quarter closing of

the merger agreement.

¶9      On October 14, 2014, AbbVie announced that it was reconsidering the merger agreement,

due, in part, to the September 22, 2014, treasury notice. On October 15, 2014, AbbVie confirmed

that it was terminating the merger agreement. AbbVie’s announcement stated:

                        “Although the strategic rationale of combining our two companies remains

               strong, the agreed upon valuation is no longer supported as a result of the changes

               to the tax rules and we did not believe it was in the best interests of our stockholders

               to proceed.”

Following AbbVie’s announcement that it was not moving forward with the merger agreement,

Shire’s ADRs fell 30% in value in one day.

¶ 10    In light of AbbVie terminating the merger agreement, the Quad investors began selling

their Shire ADRs. The record reflects that the Quad investors sold all their Shire ADRs in October

2014.

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¶ 11   On September 16, 2018, the Quad investors filed their complaint against AbbVie in the

circuit court of Cook County, alleging fraudulent misrepresentation and fraudulent concealment

regarding the merger agreement. Specifically, the complaint alleged that AbbVie fraudulently

induced the Quad investors to purchase Shire ADRs through several statements it made in June

and July 2014 that the merger agreement was not based on the tax inversion benefits. The Quad

investors claimed that those statements were “false and misleading.” The complaint stated:

                       “By making such misrepresentations, AbbVie intended to induce, and did

               induce, Shire investors to believe that AbbVie’s support for the Shire transaction

               was not contingent on the absence of government restrictions on tax inversions

               because AbbVie had concluded that the deal was strategically and financially

               compelling beyond the tax impact and, in turn, to maintain its existing shares and/or

               acquire additional shares in Shire.”

The Quad investors alleged that they relied upon AbbVie’s statements in deciding to purchase

Shire ADRs in July 2014. 3 The complaint further claimed that AbbVie had concealed from its

investors, including the Quad investors, that it “had not conducted an evaluation as to whether it

would close the [merger agreement] in the event government action eliminated or reduced the tax-

inversion benefits of the deal.” The Quad investors alleged that, pursuant to the Securities

Exchange Act of 1934 and associated federal regulations, AbbVie had a duty to disclose only

truthful statements concerning the merger agreement. According to the complaint, had AbbVie

been “truthful” about the tax inversion aspect of the merger agreement, the Quad investors would

       3
        The complaint alleged that AbbVie’s statements induced it to purchase additional Shire ADRs in
July 2014, indicating that the Quad investors already acquired some Shire ADRs before July 2014. The
Quad investors’ purchase of Shire ADRs in July 2014 is the purchase at issue in this appeal.

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not have acquired their Shire ADRs in July 2014 and subsequently lose millions of dollars. 4

¶ 12    The Quad investors’ action was consolidated with numerous other actions against AbbVie

regarding the termination of the merger agreement. 5 In November 2018, AbbVie answered the

Quad investors’ complaint and produced discovery.

¶ 13    On April 3, 2020, AbbVie filed a motion for summary judgment. AbbVie’s motion for

summary judgment argued that the Quad investors’ action was time-barred by the three-year

statute of limitations pursuant to the Illinois Securities Law of 1953 (Illinois Securities Law) (815

ILCS 5/13(D) (West 2018)). Because the Quad investors’ claims were purchaser claims, AbbVie

argued that they were required to bring those claims within three years of selling their Shire ADRs,

which occurred in October 2014. As the Quad investors did not file their complaint until September

2018, nearly four years later, AbbVie argued that the complaint was time-barred and so the trial

court should grant summary judgment in its favor on that basis.

¶ 14    The Quad investors filed an opposition to summary judgment. They agreed that the three-

year statute of limitations applied to their case but argued that their purchaser claims were

nonetheless timely pursuant to the discovery rule of the Illinois Securities Law, which tolls the

statute of limitations until the party has knowledge of the fraud upon which the purchaser claims

are based. Id. The Quad investors argued that they did not have knowledge of AbbVie’s fraudulent

statements concerning the merger agreement until another party, Elliott Management, filed an

action against AbbVie in June 2016. The Quad investors asserted:

        4
          The complaint also alleged that AbbVie had fraudulently induced the Quad investors to hold onto
their Shire ADRs, i.e., holder claims. However, in a related case against AbbVie, this court recently
affirmed that Illinois does not recognize holder claims. Castlerigg Master Investments, Ltd. v. AbbVie, Inc.,
2021 IL App (1st) 200527, ¶¶ 21-24. As the instant case was stayed pending the outcome of that case, the
Quad investors do not raise the issue of their holder claims on appeal.
        5
          Although this case was consolidated with others in the trial court and the trial court ultimately
ruled upon the Quad investors’ action and another party’s action at the same time, the Quad investors are
the only appellants in this appeal.

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                       “Here, it was not until the Elliott plaintiffs filed their complaint in June

                2016, which set forth in exhaustive detail facts clearly demonstrating AbbVie’s

                fraud, as well as AbbVie’s intent to induce investors’ reliance on that fraud, that

                [the Quad investors] had ‘notice of facts which in the exercise of reasonable

                diligence would lead to actual knowledge’ of the fraud.”

Accordingly, the Quad investors claimed that the statute of limitations did not begin to run until

June 2016, and so their September 2018 complaint was timely.

¶ 15   On July 16, 2020, the trial court heard arguments on the motion for summary judgment.

After arguments, the trial court found that the statute of limitations barred the Quad investors’

complaint because more than three years had passed since they sold their Shire ADRs. The trial

court stated:

                       “As to the purchaser claim, what has been put forth as part of this record [ ]

                shows that the purchase and sale of these securities was done in excess of three

                years before the filing of *** [the Quad investors’] claims, and, therefore, summary

                judgment will be granted in favor of AbbVie.”

The trial court further rejected the argument that there was a question of fact as to when the Quad

investors could have discovered AbbVie’s alleged fraud, pointing to the pleadings in the complaint

in support of its ruling. The trial court held that the statute of limitations had not been tolled and

so the Quad investors’ complaint was untimely. It granted summary judgment in favor of AbbVie

on that basis and dismissed the case with prejudice. The Quad investors then appealed.

¶ 16                                        ANALYSIS

¶ 17   We note that we have jurisdiction to consider this matter, as the Quad investors filed a

timely notice of appeal. See Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. July 1, 2017).

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¶ 18   The Quad investors present the following issue: whether the trial court erred in granting

summary judgment in favor of AbbVie. The Quad investors argue that there is a material question

of fact as to whether they had knowledge of AbbVie’s alleged fraud when they sold their Shire

ADRs in October 2014 and, therefore, whether the statute of limitations was tolled. They claim

that the record “is bereft of evidence” that the Quad investors “actually knew that AbbVie had

knowingly misled investors” regarding the merger agreement prior to June 2016, when Elliott

Management filed its complaint against AbbVie. According to the Quad investors, they knew of

their injury and that a lawsuit against AbbVie was an “option” when they sold their Shire ADRs

in October 2014, but that is a “vast difference” from having knowledge that AbbVie had acted

wrongfully. The Quad investors argue that, until Elliott Management filed its complaint against

AbbVie in June 2016, they did not have notice of the precise facts or possess sufficient information

to realize that a fraud lawsuit against AbbVie was viable. They aver that, even had they exercised

due diligence, it still would not have led to actual notice of AbbVie’s alleged fraud prior to Elliott

Management filing its complaint. They argue that the trial court erred in granting summary

judgment in favor of AbbVie and ask this court to reverse that judgment and remand this case for

further proceedings.

¶ 19   The purpose of summary judgment is to determine if a material question of fact exists.

Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). Summary judgment should be

granted only where the pleadings, depositions, admissions, and affidavits on file, when viewed in

the light most favorable to the nonmoving party, show that there is no genuine issue as to any

material fact and that the moving party is clearly entitled to a judgment as a matter of law. 735

ILCS 5/2-1005(c) (West 2018); Adams, 211 Ill. 2d at 43. “Although summary judgment is to be

encouraged as an expeditious manner of disposing of a lawsuit, it is a drastic measure and should

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be allowed only where the right of the moving party is clear and free from doubt.” Wells Fargo

Bank, N.A. v. Norris, 2017 IL App (3d) 150764, ¶ 19. We review appeals from summary judgment

rulings de novo. Id.

¶ 20   Summary judgment was granted in this matter on the basis that the Quad investors’

complaint was time-barred by the statute of limitations. The parties do not dispute that the Quad

investors’ purchaser claims at issue are governed by section 13 of the Illinois Securities Law (815

ILCS 5/13 (West 2018)). It provides, in relevant part:

               “No action shall be brought for relief under this Section or upon or because of any

               of the matters for which relief is granted by this Section after 3 years from the date

               of sale; provided, that if the party bringing the action neither knew nor in the

               exercise of reasonable diligence should have known of any alleged violation of

               subsection E, F, G, H, I or J of Section 12 of this Act which is the basis for the

               action, the 3 year period provided herein shall begin to run upon the earlier of:

                              (1) the date upon which the party bringing the action has actual

                       knowledge of the alleged violation of this Act; or

                              (2) the date upon which the party bringing the action has notice of

                       facts which in the exercise of reasonable diligence would lead to actual

                       knowledge of the alleged violation of this Act.” Id. § 13(D).

Accordingly, the Quad investors were required to bring their purchaser claims against AbbVie

within three years of selling their Shire ADRs unless the Quad investors did not know about

AbbVie’s alleged fraudulent activity or could not have known about it with the exercise of

reasonable diligence. In that event, the three-year statute of limitations period would begin to run

from the date of the Quad investors’ acquisition of such knowledge. It is undisputed that the Quad

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investors sold their Shire ADRs in October 2014, which would normally trigger the three-year

statute of limitations. So, the question before us is whether the Quad investors lacked knowledge

of AbbVie’s fraud or lacked notice of facts that would have led them to discover AbbVie’s fraud,

through reasonable diligence, when they sold their Shire ADRs in October 2014. If the answer to

that question is yes, then the statute of limitations was tolled.

¶ 21   Both parties direct us to news reports and other related cases against AbbVie regarding the

merger agreement and its termination. However, our analysis focuses on the Quad investors’

complaint itself. In their complaint, the Quad investors alleged that AbbVie made statements in

June and July 2014 that it was not merging with Shire because of the tax inversion benefits, which

had induced the Quad investors to purchase Shire ADRs. The complaint further alleged that,

however, once the treasury notice was issued, causing the possible merger to lose some tax

inversion benefits, AbbVie terminated the merger agreement in October 2014, much to the Quad

investors’ surprise. The Quad investors’ complaint stated that this established the June and July

2014 statements made by AbbVie to be “misrepresentations.” Specifically, the Quad investors

alleged:

                       “On October 15, 2014, AbbVie issued a press release announcing that its

               Board had withdrawn its July recommendation to AbbVie stockholders in favor of

               the proposed transaction with Shire. *** AbbVie said that its Board made this

               determination following its consideration of the impact of the U.S. Department of

               the Treasury’s changes to the tax regulations issued on September 22, 2014,

               attributing its decision to abandon the acquisition solely to reductions in the tax-

               inversion benefit. *** AbbVie said that it was abandoning the deal even though ‘the

               strategic rationale of combining our two companies remains strong.’

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                      AbbVie’s statements and actions on October 14 and 15, 2014 are factually

               inconsistent with AbbVie’s statements that: (i) ‘The proposed combination is

               strategically compelling to AbbVie and Shire’ (June 25, 2014); (ii) the transaction

               had a ‘compelling financial impact well beyond the tax impact’ (July 18, 2014);

               (iii) AbbVie had ‘studied this transaction very, very carefully’ and had concluded

               that the deal was ‘highly executable’ despite the potential for government action

               against tax inversions (July 18, 2014); and (iv) ‘I’m more energized than ever about

               our two companies coming together, especially because I can already see many

               shared traits and values in the people at AbbVie and Shire’ and ‘I’m more confident

               than ever about the potential of our combined organizations now that I’ve had a

               chance to meet with many of you’ (September 29, 2014). AbbVie’s statements and

               actions on October 14 and 15, 2014 demonstrate that the foregoing statements were

               false and misleading when made.” (Emphases added.)

Based on these allegations, it cannot be said that the Quad investors lacked knowledge of AbbVie’s

alleged fraud when they sold their Shire ADRs in October 2014.

¶ 22   In simple terms, the Quad investors accused AbbVie of misrepresenting the status of the

merger agreement by not disclosing, in June and July 2014, that the merger agreement might be

terminated if the tax inversion benefits were diminished. Then they alleged that the merger

agreement was ultimately terminated by AbbVie in October 2014 because of the treasury notice,

demonstrating that the statements AbbVie made in June and July 2014 about the tax inversion

benefits were misrepresentations. That very language establishes that, when the Quad investors

sold their shares in October 2014, they knew or should have known that AbbVie had committed

the alleged fraud. No other conclusion can be drawn from the Quad investors’ complaint, in which

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they explicitly admit they were surprised when the merger agreement was terminated in October

2014 due to the treasury notice, as AbbVie had been making reassurances that the treasury notice

would not affect the merger agreement. “Generally, the questions of the timeliness of

plaintiffs’ complaint and the time [at which] the statute of limitations begins to run are questions

of fact, but they may become questions of law if the crucial facts are undisputed and only one

conclusion can be drawn from the undisputed facts.” Jones v. Dettro, 308 Ill. App. 3d 494, 498

(1999). This is especially true considering that the Quad investors did not allege any additional

facts to explain why they did not possess the relevant knowledge at that time. See id. (plaintiffs

have the burden of proving the existence of facts that would call into play a rule tolling the period

of limitation). These are sophisticated investors engaged in the business of financial investments,

arbitrage mergers, and similar transactions. Yet, they claim to lack any knowledge that the stated

reason for the termination of the AbbVie Shire merger was a misrepresentation that would later

lead them to sue AbbVie.

¶ 23   The Quad investors aver on appeal that their injury of losing millions of dollars in October

2014 cannot be conflated with knowledge of AbbVie’s fraud at that time. However, finding that

the Quad investors had knowledge of AbbVie’s alleged fraud in October 2014 under these facts

and circumstances does not conflate their injury with the knowledge that the injury was wrongfully

caused. Indeed, it would be nonsensical to accept the Quad investors’ allegations that they were

surprised that the merger agreement was terminated in October 2014 due to the treasury notice,

which rendered AbbVie’s June and July 2014 statements about the tax inversion to be

misrepresentations, and then simultaneously find that they could not have known that those

statements were misrepresentations. See Janousek v. Katten Muchin Rosenman LLP, 2015 IL App

(1st) 142989, ¶ 13 (when a party knew or reasonably should have known its injury was wrongfully

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caused raises a question of fact, unless only one conclusion can be drawn at some particular point

from undisputed facts). Based on their own pleadings, we find that the statute of limitations was

not tolled by the Quad investors’ alleged lack of knowledge as to AbbVie’s alleged fraud.

¶ 24   Thus, there is no genuine issue of fact that the three-year statute of limitations began to run

in October 2014 when the Quad investors sold their Shire ADRs, rendering their September 2018

complaint untimely. See 815 ILCS 5/13(D) (West 2018) (no action shall be brought for relief after

three years from the date of sale). Therefore, the trial court properly granted summary judgment

in favor of AbbVie on those grounds, and we accordingly affirm the trial court’s judgment. See

Duniver v. Clark Material Handling Co., 2021 IL App (1st) 200818, ¶ 12 (summary judgment is

appropriate if no material fact is in dispute and if reasonable persons could not draw differing

inferences from the undisputed material facts).

¶ 25                                  CONCLUSION

¶ 26   For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

¶ 27   Affirmed.

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                                 No. 1-20-0872

Cite as:                 Quad Capital Portfolio A LLC v. AbbVie, Inc., 2022 IL App (1st)
                         200872

Decision Under Review:   Appeal from the Circuit Court of Cook County, No. 18-L-
                         10431; the Hon. Margaret A. Brennan, Judge, presiding.

Attorneys                Frank B. Castiglione and Paul A. Castiglione, of Khowaja Law
for                      Firm, of Chicago, Brian P. Murray, of Glancy Prongay &
Appellant:               Murray LLP, of New York, New York, and Garth Spencer, of
                         Glancy Prongay & Murray LLP, of Los Angeles, California, for
                         appellants.

Attorneys                James F. Hurst, Andrew A. Kassof, Gabor Balassa, and Whitney
for                      L. Becker, of Kirkland & Ellis LLP, and Tarek Ismail, Alan
Appellee:                Littmann, Andrew Rima, and Betsy Farrington, of Goldman
                         Ismail Tomaselli Brennan & Baum LLP, both of Chicago, for
                         appellee.

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