Trahan v. Interactive Intelligence Grp., Inc., 1:16–cv–03161–SEB–MPB

308 F.Supp.3d 977

Karl TRAHAN individually and on behalf of all others similarly situated, Plaintiff,

v.INTERACTIVE INTELLIGENCE GROUP, INC., Donald E. Brown, Mitchell E. Daniels, Edward L. Hamburg, Michael C. Heim, Mark E. Hill, Richard A. Reck, Genesys Telecommunications Laboratories, Inc., Giant Merger Sub, Inc., Greeneden Lux 3 S.aR.L., Greeneden U.S. Holdings I, LLC, Greeneden U.S. Holdings II, LLC, Defendants.

No. 1:16–cv–03161–SEB–MPB

United States District Court, S.D. Indiana, Indianapolis Division.

Signed March 28, 2018

David T. Wissbroecker, Pro Hac Vice, Eun Jin Lee, Pro Hac Vice, Robbins Geller Rudman & Dowd LLP, San Diego, CA, Kathleen A. Musgrave Farinas, George & Farinas, LLP, Indianapolis, IN, for Plaintiff.

John R. Maley, Barnes & Thornburg LLP, Daniel R. Kelley, David K. Herzog, Justin R. Olson, Paul A. Wolfla, Faegre Baker Daniels LLP, Indianapolis, IN, for Defendants.

ORDER ON DEFENDANTS' MOTIONS TO DISMISS (DKTS. 39, 41)

SARAH EVANS BARKER, JUDGE

Plaintiff Karl Trahan ("Trahan") was a shareholder of Interactive Intelligence ("Interactive"),¹ an Indiana corporation, before it was acquired in a cash-out merger ("the Merger") by Genesys ("Genesys"),² a California corporation. Trahan has now filed this putative class action,³ on behalf of himself and others similarly situated, against both companies and Interactive's board of directors ("the Directors")⁴ under the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. §§ 78a et seq. , for issuing a false and misleading proxy solicitation statement ("the Proxy Statement") in connection with Interactive's shareholders' approval of the Merger.

Now before the Court are motions to dismiss Trahan's Amended Complaint , Dkt. 32, under Rule 12(b)(6), Fed. R. Civ. P., filed by the Directors, Dkt. 39, and by Interactive and Genesys, Dkt. 41, which join the Directors' motion and argument in whole. We therefore consider the two motions together as one. For the reasons below, the motions are granted.

Factual and Procedural Background

Trahan's Amended Complaint alleges the following, which we take as true for the purposes of the instant motions. Interactive was a technology company that "provide[d] unified business communications solutions for call centers, enterprise IP telephony, and business process automation." Am. Compl. ¶ 34. Interactive cultivated three main business lines: its "Customer Interaction Center ('CIC') business[,]" id. ¶ 35, its "Communications as a Service ('CaaS') business[,]" id. ¶ 36 and a "next generation cloud communication platform" called "PureCloud." Id. ¶ 38. As of 2015, Interactive's CIC and CaaS businesses were "legacy" businesses, id. ¶ 44, for which Interactive did not anticipate substantial future growth, in view of changing technological and market conditions. In view of these same conditions, however, Interactive hoped the PureCloud business would show "explosive," id. ¶¶ 6, 78, "tremendous," id. ¶¶ 7, 43, 93, "huge," id. ¶ 45, "extraordinary," id. ¶ 97, "meteoric" growth. Id.

PureCloud was announced by press release in June 2014. The first PureCloud product was released in January 2015. By January 2016, PureCloud was "the focal point of Interactive's business." Id. ¶ 43. On a February 1, 2016, earnings call,⁵ Brown explained,

[W]e believe we can package all of [PureCloud's features] at price points that our competitors can't touch, deploy [them] in timeframes that they can't match, and yet do so at 70 to 80 point margins that will make us nicely profitable in the years ahead.... We are ready to ... dominate our industry.

Id. ¶ 48. Interactive's industry indeed responded favorably to PureCloud, honoring it for excellence and innovation. Id. ¶¶ 51–52, 55. The market's response was favorable as well. In an August 1, 2016, press release, Brown pointed to a 13 percent year-on-year increase in total revenues and accelerating growth in the PureCloud customer base. Interactive "had 24 PureCloud customers at the end of [2015]. Six months later we had well over 300[,]" including 204 new customers in the second quarter of 2016 alone. Id. ¶ 54.

Interactive had occasionally considered "strategic partnership[s]" with other firms since 2011, id. ¶ 58, but for various reasons those plans had not come to fruition. In mid–2015, however, merger discussions with Genesys began in earnest. "Over the next 15 months, representatives of Interactive and Genesys held numerous discussions about a potential merger." Id. ¶ 63. Interactive retained Union Square Advisors ("Union Square") as its financial advisor on the deal. In August 2016, Interactive and Genesys concluded an agreement whereunder Genesys would acquire Interactive in a cash-out merger at the price of $60.50 per share, subject to the approval of Interactive's shareholders. Union Square supplied a fairness opinion finding the price was fair from a financial point of view to such shareholders. The Merger was announced publicly on August 31, 2016.

The Proxy Statement⁶ was filed on October 4, 2016, announcing a special shareholders' meeting on November 9, 2016, for a vote on the Merger and soliciting the shareholders' favorable proxies. Chairman Brown's introductory statement affirmed that,

[a]fter consideration of, and based upon, the unanimous recommendation of a special committee of the board of directors consisting entirely of independent and disinterested directors ..., the [Directors] ha[ve] unanimously approved the [M]erger ..., determined that the transactions contemplated by the [M]erger agreement are fair to, advisable and in the best interests of [Interactive] and its shareholders and resolved to recommend that [Interactive] shareholders vote in favor of the [Merger].

Dkt. 40 Ex. 2, at 5–6;⁷ also id. at 7 (introductory statement of Interactive CFO) ("fair to, advisable and in the best interests of [Interactive] and its shareholders"), 43 (Directors' recommendation) ("fair to, advisable and in the best interests of [Interactive] and its shareholders"). The Directors' stated reasons for this determination included consideration of

[t]he value represented by the [M]erger relative to other alternatives [Interactive] might pursue, taking into account ... the risks and uncertainties associated with continuing to operate as an independent public company, including with respect to succession planning and the execution of [Interactive's] strategic plan (particularly the difficulties associated with [Interactive's] transition as an independent public entity to becoming a leading provider of cloud solutions), and [Interactive's] likely ability and timeframe to achieve valuations superior to the proposed transaction[.]

Id. at 55 ("Reasons for [the Directors'] Recommendation to Vote in Favor of the Merger"). The Directors further justified their recommendation by pointing to the 36 percent premium represented by the $60.50 share price relative to "the closing price of $44.49 per share on July 28, 2016, the last full trading day before media reports regarding a potential transaction [appeared]." Id.

The Proxy Statement included a section presenting "Certain [Interactive] Unaudited Prospective Financial Information," which the Proxy Statement referred to as "the Forecasts," id. at 59, and which Trahan's complaint refers to as "the financial projections." E.g., Am. Compl. ¶ 6. We refer to them as "the Management Forecasts." These consisted of "certain non-public unaudited prospective financial information prepared by [Interactive] management ... updated in the third quarter of 2016." Dkt. 40 Ex. 2, at 59. The Management Forecasts were presented to the Directors in evaluating the Merger and to Union Square in preparing its fairness opinion. The Proxy Statement summarized the Management Forecasts in table form, as follows:

 Calender Year Ending
 6 Months Ending December 31
 December 31, 2016  2016 2017 2015
(dollars in millions)
Revenue                                       $ 221.9.            $ 430.0                 $ 469.6   $ 551.5
Adjusted E&IDA (non-GAAP)(1)                  $  23.4             $  28.0                 $  58.8   $ 111.7
Less: Derpeciation                            $  10.6             $  19.1                 $  16.9   $  13.8
Less: Amoritization of Capitalized software   $   3.9             $   7.7                 $   6.9   $   6.3
Adjusted EBIT (non-GAAP)(2)                   $   8.9             $   1.2                 $  35.0   $  91.6
Less: Amoritization of Intangibles            $   1.2             $   3.7                 $   2.5   $   2.5
Less: Share-based Compensation                $   9.7             $  18.8                 $  20.3   $  22.7
Less: Other Adjustments                       $   0.0             $  (1.3)                $   0.0   $   0.0
EBIT (non GAAP)(3)                            $   2.0             $ (20.1)                $  12.2   $  66.4
Unlevered Free Cash Flow(4)                   $   8.2             $   7.7                 $  26.1   $  72.5

Id. at 60.⁸

The Proxy Statement also included a section presenting the "Opinion of [Interactive's] Financial Advisor," id. , Union Square. Union Square's fairness opinion was stated in brief,⁹ alongside a summary of the financial analyses Union Square had conducted in reaching its opinion ("the Union Square Analysis"), which rested in part on the Management Forecasts. Among other data, the Union Square Analysis included a discounted cash flow (DCF) analysis,¹⁰ resting entirely on the Management Forecasts, used "to value [Interactive] as a standalone entity." Id. at 67. "This analysis indicated an implied price per share of $38.52 to $62.68, as compared to the [M]erger consideration of $60.50 per share of [Interactive] common stock." Id. at 68.

At the November 9, 2016, special meeting, Interactive's shareholders approved the Merger by a majority of outstanding shares. This lawsuit was filed immediately thereafter, on November 18, 2016. The Merger closed on December 1, 2016. The now operative Amended Complaint was filed...