Walleye Trading LLC v. AbbVie Inc. ( 2020 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-3063
WALLEYE TRADING LLC,
Plaintiff-Appellant,
v.
ABBVIE INC. and WILLIAM CHASE,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 18 C 05114 — Charles P. Kocoras, Judge.
____________________
SUBMITTED MARCH 30, 2020 — DECIDED JUNE 22, 2020
____________________
Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. AbbVie Inc. made a tender
offer to repurchase as much as $7.5 billion of its outstanding
shares. It conducted a Dutch auction to determine the price.
In a Dutch auction one side offers a high price, which falls
until the other accepts. AbbVie, acting as a buyer, began its
auction at $114. Shareholders participated by offering to sell
their shares at or below $114. AbbVie then selected the low-
2 No. 19-3063
est price that would allow it to purchase $7.5 billion of
shares from the tendering shareholders.
The auction was conducted from May 1, 2018 through
May 29, 2018. AbbVie hired Computershare Trust Co. to re-
ceive all offers. On May 30, at eight A.M., AbbVie announced
the preliminary result: it would purchase 71.4 million shares
for $105 per share (using the whole $7.5 billion pot when ac-
counting for fees and expenses). AbbVie’s stock, which had
been trading at roughly $100, closed at $103 on May 30. Ap-
proximately an hour later, AbbVie announced that it had re-
ceived corrected numbers from Computershare. Instead of
purchasing 71.4 million shares at $105 a share, it would pur-
chase 72.8 million shares at $103 a share, again adding to
$7.5 billion. AbbVie’s share price fell to $99 the next day.
Walleye Trading LLC contends that AbbVie’s announce-
ment of preliminary numbers, followed by corrected num-
bers after trading closed, violated sections 10(b) and 14(e) of
the Securities Exchange Act of 1934, codified at 15 U.S.C.
§§ 78j(b) and 78n(e). Walleye also contends that William
Chase is liable under §20(a) of the Act, 15 U.S.C. §78t(a), as a
controlling manager of AbbVie; this claim is contingent on
AbbVie being liable on one of the theories. The district court
dismissed Walleye’s complaint for failing to state a claim.
2019 U.S. Dist. LEXIS 158832 (N.D. Ill. Sept. 18, 2019).
The Supreme Court has held that private parties can sue
under §10(b) and its corresponding rule, 17 C.F.R. §240.10b–
5, despite the lack of statutory language creating a private
right of action. See Blue Chip Stamps v. Manor Drug Stores, 421
U.S. 723, 730 (1975). Section 10(b) and Rule 10b–5 prohibit
fraudulent or misleading statements of material fact in con-
nection with the purchase or sale of a security. A plaintiff
No. 19-3063 3
bringing §10(b) claims must plead the fraud with particulari-
ty, see Fed. R. Civ. P. 9(b), and allegations of scienter must
be as compelling as any opposing inference. That pleading
standard comes from the Private Securities Litigation Re-
form Act (PSLRA), 15 U.S.C. §78u–4(b). See Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).
Walleye’s §10(b) claims are perplexing. It has not plead-
ed that AbbVie made any statement that is false or mislead-
ing, let alone made a statement with the required mental
state. AbbVie’s initial announcement says: “[t]he number of
shares to be purchased and the purchase price are prelimi-
nary and subject to change”. How can an announcement,
explicitly subject to change, become misleading or false
when it is indeed changed? It does not: AbbVie did not make
a false or misleading statement. It accurately reported Com-
putershare’s preliminary numbers.
Walleye contends that AbbVie executives acted with the
requisite mental state because they failed to perform
“grammar school arithmetic” to verify Computershare’s
numbers. But neither the statute nor any regulation requires
an issuer to verify someone else’s data before reporting
them. (And, given the size of this transaction, a sixth grader
would not be the right person to do the math.) Walleye also
argues that the length of time it took AbbVie to issue the cor-
rection supports an inference of scienter because, before is-
suing the correcting statement, AbbVie must have known
that the initial statement was incorrect. To repeat: The initial
statement was correct in relaying what Computershare told
AbbVie. True, Computershare must have provided the re-
vised numbers to AbbVie before it issued the updated
statement. Yet it takes time to put new numbers in a release
4 No. 19-3063
and make them public. It takes more time if, as Walleye in-
sists, the numbers must be checked and rechecked. Neither
the statute nor any rule requires this to be done in seconds or
minutes rather than hours.
Most curiously, Walleye claims that AbbVie violated
§10(b) and the corresponding rule because it failed in its du-
ty to correct the initial statement. Yet AbbVie did correct the
initial statement. That correction led to this suit! Walleye has
failed to plead a plausible §10(b) claim.
Section 14(e) liability is reserved for statements “in con-
nection with any tender offer or request or invitation for
tenders, or any solicitation of security holders in opposition
to or in favor of any such offer, request, or invitation.” 15
U.S.C. §78n(e). “This provision was expressly directed at the
conduct of a broad range of persons, including those en-
gaged in making or opposing tender offers or otherwise
seeking to influence the decision of investors or the outcome
of the tender offer.” Piper v. Chris-Craft Industries, Inc., 430
U.S. 1, 24 (1977).
Broad substantive scope does not imply that any particu-
lar person has a right of action. The Securities and Exchange
Commission has authority to sue, see 15 U.S.C. §78u(d), and
private persons who can show that they relied on false or
misleading statements in documents filed with the Commis-
sion can recover damages. 15 U.S.C. §78r(a). But Walleye
does not try to show that AbbVie’s statements were filed
with the SEC or that Walleye relied on them.
The Supreme Court has twice been asked to recognize a
broader private right of action under §14 and has twice de-
clined. See Piper, 430 U.S. at 41–42, and Virginia Bankshares,
No. 19-3063 5
Inc. v. Sandberg, 501 U.S. 1083 (1991). Those decisions con-
cern persons and theories different from Walleye’s, but it
would be hazardous to predict, given the limitations of
§78r(a) and the Supreme Court’s current views about imply-
ing new private rights of action, see Hernandez v. Mesa, 140 S.
Ct. 735, 742 (2020); Ziglar v. Abbasi, 137 S. Ct. 1843, 1855–57
(2017); Alexander v. Sandoval, 532 U.S. 275, 287–88 (2001), that
an expansion of implied private rights under §14 is likely.
Without discussing the problem, Walleye assumes that
§14(e) gives it a private right of action to collect damages for
press releases issued after a tender offer closes. Yet the end
of the tender offer placed Walleye outside the zone of inter-
ests protected by §14. By May 30, when AbbVie announced
the results of the Dutch auction, there was no longer any
way for shareholders to participate in it. We conclude that an
investor cannot use §14(e) to challenge a statement made af-
ter a tender offer has closed.
AFFIRMED