In Re Alcon Shareholder Litigation.

719 F.Supp.2d 263

In re ALCON SHAREHOLDER LITIGATION.

No. 10 Civ. 0139.

United States District Court,S.D. New York.

May 24, 2010.

COPYRIGHT MATERIAL OMITTED.

Mark Lebovitch, Amy Miller, Gerald Harlan Silk, Bernstein Litowitz Berger & Grossmann LLP, Christopher J. Keller, Labaton Sucharow, LLP, James Joseph Sabella, Jay W. Eisenhofer, Natalia Dora Williams, Grant & Eisenhofer P.A., Marc Ian Gross, Patrick V. Dahlstrom, Pomerantz Haudek Block Grossman & Gross LLP, New York, NY, Albert Morris Myers, III, Lewis Stephen Kahn, Neil Rothstein, Kahn Gauthier Swick, LLC, New Orleans, LA, Lee D. Rudy, Michael Wagner, J. Daniel Albert Barroway Topaz Kessler Meltzer & Check, LLP, Marc A. Topaz, Schiffrin & Barroway, L.L.P., Radnor, PA, Alan Ian Ellman, Stefanie Jill Sundel, Labaton Sucharow, LLP, Wilmington, DE, for Plaintiffs.

Elaine Patricia Golin, William D. Savitt, Wachtell, Lipton, Rosen & Katz, James Vincent Masella, III, Ryan Edward Cronin, Blank Rome LLP, Catherine Ann Armentano, Schulte Roth & Zabel LLP, Brian T. Frawley, David Lionel Breau, Sullivan and Cromwell, LLP, New York, NY, Carmine R. Zarlenga, Howrey LLP, Washington, DC, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiff Erica P. John Fund (the “Fund”) brought this case as a shareholder class action on behalf of itself and a class of all other similarly-situated investors of Alcon, Inc. (“Alcon”) against Novartis AG (“Novartis”), Nestlé S.A. (“Nestlé”), Alcon, certain Alcon officers and directors, and third parties. Several related actions were then brought in this Court by other institutional investors, ¹ asserting substantially similar claims arising out of Novartis's plan to acquire all publicly-held shares of Alcon. The Fund and the institutional plaintiffs in the related actions (collectively, “Plaintiffs”) then filed a consolidated class action complaint (the “Complaint”) against Novartis, Alcon, Nestlé, ² and certain Alcon officers and directors (collectively, “Defendants”), asserting breach of fiduciary duty, ³ breach of contract, promissory estoppel, and unjust enrichment claims, and seeking equitable and monetary relief. Alcon answered the Complaint on March 29, 2010, and Novartis now moves to dismiss the Complaint on grounds of forum non conveniens. For the reasons stated below, Novartis's motion is GRANTED and the Complaint is dismissed as to all Defendants.

I. BACKGROUND ⁴

A. PARTIES

Plaintiffs are six institutional investors-five pension and retirement funds and one charitable foundation-which are organized under the laws of and keep their principal places of business respectively in Michigan, Massachusetts, Oklahoma, Pennsylvania, and Wisconsin. Plaintiffs bring this action on behalf of themselves and all other persons who owned shares of Alcon common stock as of the date of the Complaint.

Plaintiffs assert claims against Novartis, Alcon, and eight individual Alcon officers and directors. Novartis is a multinational pharmaceutical company, incorporated as a stock corporation under Swiss law. Novartis's corporate headquarters are in Basel, Switzerland, and the company has offices throughout the United States, including in New York City.

Alcon, a producer of ophthalmology products, is a Swiss corporation whose registered place of business is in Hunenberg, Switzerland. Alcon stock trades publicly and exclusively on the New York Stock Exchange (“NYSE”), and Nestlé and Novartis are controlling shareholders. Nestlé acquired Alcon in 1978 and retained 100 percent ownership of Alcon until March 2002, when Nestlé sold 23 percent of Alcon's shares to the public in an initial public offering (the “IPO”). Alcon has remained incorporated in Switzerland continuously since 2002 and, since the IPO, Alcon has filed annual reports with the Securities and Exchange Commission (“SEC”) on Form 20-F (the “Form 20-Fs”), the SEC reporting schedule for foreign corporations. Alcon allegedly has multiple manufacturing facilities and over 1,000 sales representatives in the United States. Of the eight Alcon directors against whom Plaintiffs bring claims, two reside in the United States, and five reside in Switzerland or other European countries.

B. FACTUAL ALLEGATIONS

On April 6, 2008, Nestlé and Novartis executed two agreements: (1) a Purchase and Option Agreement, which provided Novartis the right to immediately purchase 25 percent of Nestlé's Alcon stock and an option to purchase the remainder of Nestlé's Alcon stock starting on January 1, 2010; and (2) a Shareholders Agreement that, among other things, outlined the corporate relationship between Novartis and Nestlé as shareholders of Alcon (collectively, the “April 2008 Agreements”). Novartis purchased a 25 percent stake in Alcon from Nestlé on July 7, 2008, and, as contemplated in the April 2008 Agreements, retained its option to purchase, beginning on January 1, 2010, Nestlé's remaining 52 percent equity stake in Alcon.

On January 4, 2010, Novartis exercised its option to purchase Nestlé's remaining 52 percent equity stake in Alcon for $180 per share in cash consideration (the “Nestlé Option Merger”). The closing of the Nestlé Option Merger, which would provide Novartis with a 77 percent share of Alcon, remains subject to certain conditions and regulatory approvals. Also on January 4, 2010, Novartis announced its intention to purchase the remaining 23 percent equity stake-approximately 69 million shares-held by minority public shareholders (the “Public Share Acquisition”). In exchange for their shares, the minority shareholders would allegedly receive non-cash consideration of 2.80 shares of Novartis for each outstanding Alcon share, which amounts to an exchange value of approximately $150 per share. The Public Share Acquisition has also not yet closed, and remains subject to certain conditions and regulatory approvals.

Plaintiffs' claims against Novartis, Alcon, and certain Alcon directors arise out of the proposed Public Share Acquisition. Plaintiffs assert breach of contract and promissory estoppel claims, arguing that Novartis's forced acquisition of Alcon's publicly-held minority shares would violate provisions of the Alcon Board of Director's Organizational Regulations (the “Organizational Regulations”) and representations in Alcon's Form 20-Fs. The Complaint alleges that the Organizational Regulations and the Form 20-Fs require that a transaction resulting in a change in control of Alcon be approved by a special committee of independent directors (the “Independent Director Committee”). The Organizational Regulations provide that “The Board shall only resolve [a proposed merger] if a majority of the members of [the] Independent Director Committee so recommends.” (Declaration of James J. Sabella in Opposition to Defendant Novartis's Motion to Dismiss on Grounds of Forum Non Conveniens, dated April 19, 2010 (“Sabella Decl.”), Ex. 4 at 13.) Plaintiffs assert that Defendants are also bound by the same requirement as reflected in the Form 20-Fs.

Plaintiffs and the Independent Director Committee oppose the Public Share Acquisition, having found that the financial analysis and valuation underpinning the Public Share Acquisition to be “fundamentally flawed.” (Complaint ¶ 76.) Despite the opposition, Plaintiffs assert that Novartis plans to go forward with the Public Share Acquisition upon the closing of the Nestlé Option Merger by replacing the Independent Director Committee directors with directors who will approve the Public Share Acquisition. According to the Complaint, mergers under Swiss law require the approval of two-thirds of shareholders and a simple majority of the board of directors. Upon closing of the Nestlé Option Merger, Novartis will effectively control sufficient shares and directors to effectuate the Public Share Acquisition, notwithstanding the opposition of the current Independent Director Committee.

Plaintiffs assert irreparable harm to themselves and the class of minority shareholders, who would allegedly lose approximately $30 per share if the Public Share Acquisition is consummated, amounting to a total loss of approximately $2.3 billion. As a result, Plaintiffs ask the Court to enjoin the Public Share Acquisition and/or to declare that its consummation is conditioned upon Independent Director Committee approval.

II. DISCUSSION

A. FORUM NON CONVENIENS

This litigation raises another instance of the common cases in which plaintiffs commence lawsuits in United States courts to adjudicate disputes entailing alleged losses suffered from commercial transactions and other events that occur predominantly in a foreign country. The dispute here, however, presents some uncommon dimensions. Plaintiffs' claims involve not an ordinary commercial dispute between two parties to a transaction, but matters of corporate governance that implicate the legal interests of countless third-party shareholders around the world, not just those litigants now before the Court. As in Steward Int'l Enhanced Index Fund v. Carr, Plaintiffs question the ability of a foreign forum to vindicate their interests as shareholders in the face of a corporate merger. See No. 09 Civ. 5006, 2010 WL 336276 (D.N.J. Jan. 22, 2010) (dismissing on forum non conveniens grounds plaintiff-shareholders' claims against foreign corporation alleging failure to engage in good faith negotiations with a potential acquirer). Here, Plaintiffs seek relief not for alleged wrongs committed and losses incurred, but a prospective remedy under United States law to halt a corporate transaction formulated under Swiss law but not yet consummated, and to determine monetary damages that have not yet accrued. Like a relative concerned with the consequences of an impending matrimony, Plaintiffs, fearing that their interests as minority shareholders will not be sufficiently protected under Swiss law, ask this Court to intervene in a long-contemplated, and laboriously planned, corporate union. Notwithstandin...