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Campbell v. Transgenomic, Inc.

United States District Court, D. Nebraska

May 3, 2018

JESSE CAMPBELL, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
TRANSGENOMIC, INC., et al., Defendants.


          John M. Gerrard, United States District Judge

         This dispute involves the merger of two companies: Transgenomic, Inc. and Precipio, Inc. The plaintiff, Jesse Campbell, is a former Transgenomic stockholder. Campbell is now suing Transgenomic, its former Chief Executive Officer Paul Kinnon, and Transgenomic's post-merger entity Precipio, Inc., under the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. §§ 78a et seq., for allegedly issuing a false and misleading proxy statement in connection with the merger.

         This matter is before the Court on Transgenomic and Paul Kinnon's (collectively, "Transgenomic") motion to dismiss (filing 34, filing 37). For the reasons set forth below, the Court will grant the parties' motions and Campbell's amended complaint will be dismissed.


         Transgenomic was a Nebraska-based biotechnical company specializing in advancing various technologies aimed at detecting and treating inherited diseases. Filing 22-1 at 24. Specifically, Transgenomic developed a "Multiplex ICE-COLD PCR technology" capable of detecting genetic mutations without resorting to invasive medical procedures. Filing 22-1 at 25. Precipio was a cancer diagnostics company focused on providing diagnostic services to the oncology market. Filing 22-1 at 25. In essence, oncologists and hospitals around the country would use Precipio's services to more accurately and efficiently diagnose various forms of cancer. Filing 22-1 at 25.

         On October 12, 2016, Transgenomic entered into a Merger Agreement with Precipio. Filing 35 at 10; see also filing 22-1 at 22. Under the terms of the agreement, Transgenomic would merge with Precipio to form Precipio, Inc. (i.e., post-merger Precipio). Filing 22-1 at 22. The agreement also provided that Transgenomic stockholders would have the opportunity to exchange their shares of Transgenomic common stock for shares of post-merger Precipio common stock at a rate of 25.7505. Filing 65 at 10. In other words, Transgenomic stockholders could trade 25.7505 shares of their Transgenomic stock for one share of post-merger Precipio stock.

         To evaluate the fairness of the proposed transaction, including the exchange ratio, Transgenomic retained Craig-Hallum Capital Group LLC-- an investment banking firm specializing in mergers, acquisitions, and corporate valuations. Filing 35 at 10; filing 36-2 at 75. According to Craig-Hallum, the Merger Agreement and the exchange ratio were both fair and equitable to Transgenomic's investors. See filing 22-1 at 24. So, with this understanding in mind, Transgenomic moved forward with its merger negotiations.

         On February 2, 2017, Transgenomic and Precipio amended the Merger Agreement to provide for a common stock exchange rate of 24.4255. Filing 22 at 5. That is, Transgenomic stockholders could now trade 24.4255 shares of their Transgenomic stock for one share of post-merger Precipio stock--a more favorable exchange rate to Transgenomic stockholders than that of the original Merger Agreement. Seefiling 36-2 at 91. Following this amendment, Transgenomic's board of directors unanimously approved this version of the Merger Agreement and shortly after, Transgenomic filed its Preliminary Proxy Statement with the Securities Exchange Commission (SEC). Seefiling 36-2 at 56. On May 12, Transgenomic filed its Definitive Proxy Statement ("the Proxy Statement") with the SEC. Filing 22 at 10.

         The Proxy Statement provided notice of a June 4, 2017 special shareholders meeting where Transgenomic stockholders would vote on a variety of issues associated with the merger. To assist the shareholders in their voting decision, the Proxy Statement included, among other things, various financial valuations and projections relating to Transgenomic, Precipio, and post-merger Precipio. Seefiling 22-1 at 58-79. In particular, the Proxy Statement included stand-alone revenue projections, a combined discounted cash flow projection, and other financial valuations. Seefiling 22-1 at 58-79.

         And it is that financial information that is at the center of the parties' dispute. In his amended complaint, Campbell claims that the Proxy Statement was materially misleading. Filing 22. In particular, Campbell takes issue with one specific financial valuation--"Precipio's internal financial projection." This projection, he claims, was materially misleading in violation of Section 14(a) and Section 20(a) of the Exchange Act. Filing 22 at 18-25; filing 22 at 2-3; filing 22 at 20.

         Transgenomic has moved to dismiss Campbell's amended complaint. And for the reasons discussed below, that motion will be granted.


         A complaint must set forth a short and plain statement of the claim showing that the pleader is entitled to relief. Fed.R.Civ.P. 8(a)(2). This standard does not require detailed factual allegations, but it demands more than an unadorned accusation. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The complaint need not contain detailed factual allegations, but must provide more than labels and conclusions; and a formulaic recitation of the elements of a cause of action will not suffice. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). For the purposes of a motion to dismiss a court must take all of the factual allegations in the complaint as true, but is not bound to accept as true a legal conclusion couched as a factual allegation. Id.

         And to survive a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a complaint must also contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 678. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but has not shown-that the pleader is entitled to relief. Id. at 679.

         Determining whether a complaint states a plausible claim for relief will require the reviewing court to draw on its judicial experience and common sense. Id. The facts alleged must raise a reasonable expectation that discovery will reveal evidence to substantiate the necessary elements of the plaintiff's claim. See Twombly, 550 U.S. at 545. The court must assume the truth of the plaintiff's factual allegations, and a well-pleaded complaint may proceed, even if it strikes a savvy judge that actual proof of those facts is improbable, and that recovery is very remote and unlikely. Id. at 556.

         When deciding a motion to dismiss under Rule 12(b)(6), the Court is normally limited to considering the facts alleged in the complaint. If the Court considers matters outside the pleadings, the motion to dismiss must be converted to one for summary judgment. Fed.R.Civ.P. 12(d). However, the Court may consider exhibits attached to the complaint and materials that are necessarily embraced by the pleadings without converting the motion.Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003). Documents necessarily embraced by the pleadings include those whose contents are alleged in a complaint and ...

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