IN RE: WILLIS TOWERS WATSON plc PROXY LITIGATION.
WILLIS TOWERS WATSON PLC; TOWERS WATSON & CO.; WILLIS GROUP HOLDING PLC; VALUEACT CAPITAL MANAGEMENT; JOHN J. HALEY; DOMINIC CASSERLEY; JEFFREY W. UBBEN, Defendants - Appellees. REGENTS OF THE UNIVERSITY OF CALIFORNIA, on behalf of themselves and all others similarly situated, Plaintiffs - Appellants,
Argued: May 8, 2019
from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony John Trenga,
District Judge. (1:17-cv-01338-AJT-JFA)
Salvatore J. Graziano, BERNSTEIN, LITOWITZ, BERGER &
GROSSMANN LLP, New York, New York, for Appellant.
A. Neuwirth, WEIL, GOTSHAL & MANGES LLP, New York, New
York; Richard S. Horvath, Jr., ALLEN MATKINS LECK GAMBLE
MALLORY & NATSIS LLP, San Francisco, California, for
Rizio-Hamilton, Rebecca E. Boon, Julia K. Tebor, BERNSTEIN,
LITOWITZ, BERGER & GROSSMANN LLP, New York, New York;
Susan R. Podolsky, LAW OFFICES OF SUSAN R. PODOLSKY,
Alexandria, Virginia, for Appellant.
J. Fuhr, Eric H. Feiler, Johnathon E. Schronce HUNTON ANDREWS
KURTH LLP, Richmond, Virginia; Joshua S. Amsel, Amanda K.
Pooler, WEIL, GOTSHAL & MANGES LLP, New York, New York,
for Appellees Willis Towers Watson PLC, Towers Watson &
Co., Willis Group Holding PLC, John J. Haley, and Dominic
KING, DIAZ, and QUATTLEBAUM, Circuit Judges.
appeal concerns a securities class action by a putative class
of former shareholders in Towers, Watson & Co. The
plaintiffs allege that several defendants violated the
Securities Exchange Act by omitting material facts in proxy
documents, rendering statements in those documents false or
misleading. The district court dismissed the complaint
because it was time barred or, in the alternative, because it
failed to allege that the omitted facts were material. The
putative class now appeals.
explained below, we reject the district court's grounds
for dismissing the complaint. The defendants also present
three alternative bases for affirming, but we decline to
affirm on any of them. Therefore, we vacate the district
court's judgment and remand for further proceedings.
case arises from the merger of Towers, Watson & Co.
("Towers") and Willis Group Holdings plc
("Willis") into Willis Towers Watson plc
("WTW"). John Haley and Dominic Casserley, the CEOs
of Towers and Willis respectively, began discussions in
January 2015 about a merger. Negotiations continued for
several months. A major investor in Willis, ValueAct Capital
Management, and its CEO Jeffrey Ubben were closely involved
in the negotiations. ValueAct-which normally invests in
companies for three to five years-had held shares in Willis
for five years, and it sought to increase the value of its
stake before it sold.
2015, the merging companies agreed that Haley would be the
CEO of WTW and Ubben would be a director and serve on the
Compensation Committee. The merging companies also agreed
that Willis shareholders would own 50.1% of WTW and Towers
shareholders would own 49.9% and receive a dividend of $4.87
per share. Thus, Towers shareholders would own a minority of
WTW even though Towers was a more valuable company than
companies announced the merger in June 2015. Following the
announcement, Towers' stock price dropped by 8.8% while
shares in Willis rose by 3.3%. Several banks, analysts, and
financial publications criticized the deal as unfair to
Towers. But despite the criticism, Haley did not attempt to
renegotiate the terms.
September 10, 2015 (before a shareholder vote on the proposed
merger), Haley met Ubben at a ValueAct conference. At the
meeting, Ubben-who, as a future member of WTW's
Compensation Committee, would have influence over executive
compensation-discussed a proposed compensation plan with
Haley for his service as CEO of the combined company. Under
the plan, Haley stood to receive up to $165 million in
compensation over three years, depending on WTW's
performance. This represented a more than six-fold raise over
the $25 million he stood to make as CEO of Towers. Haley
didn't disclose the pay plan to the Towers directors or
later, in October 2015, Towers filed a proxy statement with
the SEC in anticipation of a shareholder vote on the merger.
The proxy stated that the Towers board had considered all
conflicts of interest, even though the board wasn't aware
of Haley and Ubben's discussions about compensation.
Towers filed the proxy, analysts and investors continued to
criticize the merger. One major investor, Driehaus Capital
Management, was particularly outspoken in its criticism,
raising questions about Haley's interest in the deal.
Haley and the Towers board repeatedly denounced Driehaus
(never shying away from profanity) and claimed it had made
false accusations against Haley.
after the proxy was filed, two investment advising firms
recommended that Towers shareholders vote against the merger.
Towers and ValueAct pressed for approval of the merger, but
shareholders seemed poised to vote against it. So, Haley
approached ValueAct and Willis about renegotiating the merger
to the plaintiffs, Haley never intended to negotiate the best
deal for Towers shareholders. Instead, he sought only the
minimum concession necessary to convince Towers shareholders
to approve the merger. Haley thought a $10 dividend per share
was the minimum Towers shareholders would accept, so he
proposed raising the dividend for Towers shareholders from
$4.87 per share to $10 per share. ValueAct agreed, and after
some negotiation, Willis did too. Haley also agreed that the
new company would buy back shares, which would increase share
value. ValueAct, which stood to reap substantial benefits
from a stock buyback, continued to lobby Towers shareholders
to approve the deal.
November 2015, Towers issued a press release and an update to
the proxy statement detailing the revised merger terms. The
proxy update said nothing about Haley's compensation deal
or Haley's alleged choice not to negotiate the best deal
for Towers shareholders. The following month, Towers
shareholders approved the merger. WTW's board
subsequently initiated share buybacks and crafted a
compensation plan for Haley that was substantially similar to
what Ubben had proposed before the merger. WTW shareholders
approved the compensation plan. Soon after, ValueAct sold its
shares in WTW and Ubben resigned from WTW's board.
the merger, a group of Towers shareholders sued Towers in
state court to vindicate their statutory appraisal rights.
The state court suit proceeded to discovery. Between February
and August of 2017, numerous documents and depositions became
public. In the plaintiffs' telling, those documents
revealed (for the first time) the material facts of this
class action. Armed with the documents from the state court
suit, the plaintiffs filed suit in a Virginia federal
district court in November 2017.
amended class action complaint alleges two counts under the
Securities Exchange Act of 1934. Count I alleges that WTW,
Towers, Willis, Haley, and Casserley omitted facts from the
proxy documents so as to render statements therein materially
false or misleading, in violation of Section 14(a) of the
Exchange Act and SEC Rule 14a-9. See 15 U.S.C.
§ 78n(a); 17 C.F.R. § 240.14a-9. Count II alleges
that Haley, Ubben, ValueAct, and Casserley are liable under
Section 20(a) of the Exchange Act as control persons of the
organizations that violated Section 14(a). See 15
U.S.C. § 78t(a).
district court dismissed the Section 14(a) claim on two
alternative grounds. First, the court held that the class
complaint was barred by the Exchange Act's statute of
limitations because a reasonable plaintiff would have been on
notice of the material facts more than one year before the
complaint was filed. Second, it held that the complaint
failed to allege that the facts omitted from proxy documents
were material. The district court also dismissed the Section
20(a) claim because, without the Section 14(a) claim, the
plaintiffs could not prove a required predicate securities
review the dismissal of a complaint under Rule 12(b)(6) de
novo. Wag More Dogs, Ltd. Liab. Corp. v. Cozart, 680
F.3d 359, 364 (4th Cir. 2012). We accept all well-pleaded
allegations as true and construe the facts in the light most
favorable to the plaintiffs. Id. at 364-65. As we
explain, we vacate the district court's dismissal of the
complaint and remand for further proceedings.
begin with the district court's ruling that the Section
14(a) claim is barred by the statute of
limitations. The Exchange Act only allows Section 14(a)
claims "brought within one year after the discovery of
the facts constituting the violation and within three years
after such violation." 15 U.S.C. § 78i(f). There is
no dispute that the November 2017 class action complaint was
filed within three years of the violation, which took place
in 2015. With respect to the separate one-year
"discovery" limitations period, the district court
appeared to hold that it began running when the plaintiffs
had inquiry notice. Under that standard, the statute of
limitations begins running when the plaintiffs have
"such knowledge as would put a reasonably prudent
purchaser on notice to inquire, so long as that inquiry would
reveal the facts on which the claim is ultimately
based." Caviness v. Derand Res. Corp., 983 F.2d
1295, 1303 (4th Cir. 1993).
parties agree, however, that inquiry notice is the wrong
standard. The right standard, in their view, is the Supreme
Court's discovery notice standard from Merck &
Co., Inc. v. Reynolds, 559 U.S. 633 (2010). In
Merck, the Supreme Court construed a different
securities law statute of limitations as running from the
time "(1) when the plaintiff did in fact discover, or
(2) when a reasonably diligent plaintiff would have
discovered, 'the facts constituting the
violation'-whichever comes first." Id. at
637 (quoting 28 U.S.C. § 1658(b)(1)).
agree that the Merck standard applies to claims
governed by Section 78i(f). For starters, the relevant
language of this statute is identical to the statute at issue
in Merck. Compare 28 U.S.C. §
1658(b)(1) (an action must be brought no later than "2
years after the discovery of the facts constituting
the violation" (emphasis added)), with 15
U.S.C. § 78i(f) (an action must be brought "within
one year after the discovery of the facts
constituting the violation" (emphasis added)). And both
statutes concern similar private securities actions.
Therefore, we hold that the statute of limitations begins to
run for a claim governed by Section 78i(f) when the plaintiff
has discovery notice.
that standard, we hold that, based on the pleadings, the
putative class filed suit within one year of discovering the
facts constituting the violation. As outlined in the
complaint, the two key facts underlying this Exchange Act
suit are that (1) Haley and Ubben had undisclosed discussions
about Haley's compensation, and (2) this undisclosed
conflict of interest prompted Haley not to maximize
shareholder value when renegotiating the merger terms.
undisputed that the plaintiffs didn't know those two
facts until discovery in the state court lawsuit in
2017. And the plaintiffs have adequately alleged
that a reasonably diligent plaintiff wouldn't have
discovered those facts before then. As alleged, no
shareholders knew about Haley's compensation discussions
with Ubben or his strategy in renegotiating the merger. And
questioning the board of directors would have been futile. In
fact, the Towers board had rebuffed all inquiries about
Haley's post-merger compensation or ValueAct's
involvement in negotiations. Without the discovery obtained
in the separate state lawsuit, a reasonably diligent
plaintiff would never have known about the key facts.
defendants don't appear to contest that the plaintiffs
didn't know and couldn't have reasonably discovered
what the plaintiffs allege to be the key facts until February
2017 or later. Instead, they contend that other facts
sufficient to trigger the statute of limitations were public
knowledge during the 2015 merger negotiations-such as that
Haley would be named CEO of the combined company and thus
would logically get a raise. While the district court appears
to have accepted that argument, we find it unpersuasive.
shareholders knew that Haley would be CEO of the combined
company and that he stood to make more money after the
merger. But those facts alone wouldn't have supported
this suit. The basis of this suit is, instead, that
Haley's secret dealings with ValueAct created a conflict
of interest that led Haley to renegotiate the merger on less
favorable terms for Towers than he could have. Simply knowing
that Haley stood to benefit from the merger in general
wouldn't tell you that.
that (at the pleading stage) the district court erred in
dismissing the plaintiffs' suit as time barred. We
express no opinion on whether the defendants can ...