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Elchanan Rubin v. Mercer Insurance Group

February 15, 2011


The opinion of the court was delivered by: Cooper, District Judge



Plaintiff, Elchanan Rubin ("Plaintiff"), brought this putative class action in New Jersey Superior Court, Mercer County. (Dkt. entry no. 1, Rmv. Not. & Ex. A, Compl.) Plaintiff challenges a proposed merger whereby defendant Red Oak Acquisition Corp. ("Red Oak"), a wholly-owned subsidiary of defendant United Fire & Casualty Company ("United Fire"), will acquire all outstanding common stock of defendant Mercer Insurance Group, Inc. ("Mercer"). (Compl. at ¶¶ 1-2.) Plaintiff owns Mercer common stock and asserts a state law claim for breach of fiduciary duty against Andrew Speaker, Roland D. Boehm, H. Thomas Davis, Jr., William V.R. Fogler, William C. Hart, George T. Hornyak, Jr., Samuel J. Malizia, and Richard U. Niedt (the "Individual Defendants"), each of whom is a member of Mercer's Board of Directors. (Id. at ¶¶ 8-16, 63-71.) Plaintiff also asserts a state law claim for "aiding and abetting" against the Individual Defendants, Mercer, Red Oak, and United Fire (collectively, "Defendants"), contending that the alleged breach of fiduciary duty by the Individual Defendants "could not, and would not, have occurred but for the conduct" of the other defendants in "render[ing] substantial assistance to the Individual Defendants in their breaches of their fiduciary duties to Mercer stockholders." (Id. at ¶¶ 72-79.) Plaintiff seeks, inter alia, to enjoin Defendants from consummating the proposed merger. (Id. at 19, "Prayer for Relief," at ¶ D.)

Red Oak and United Fire (together, "Removing Defendants") removed this action on December 29, 2010, invoking the Class Action Fairness Act of 2005 ("CAFA"), Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.), as a basis for this Court's jurisdiction. (Rmv. Not. at 4-5.) See 28 U.S.C. §§ 1332(d), 1453(b).*fn1 Plaintiff now moves to remand the action, arguing that certain provisions of CAFA divest the Court of subject matter jurisdiction. (Dkt. entry no. 10, Mot. to Remand.) Removing Defendants oppose the motion, and cross-move to (1) consolidate this action with Braun v. Mercer Insurance Group, Inc., No. 11-166 (MLC) (removed 1-10-11), and (2) dismiss the Complaint insofar as asserted against them. (Dkt. entry no. 34, Opp'n Br; dkt. entry no. 29, Mot. Dismiss; dkt. entry no. 30, Mot. Consolidate.)*fn2 The Court, for the reasons stated herein, will grant the motion to remand.


Plaintiff alleges that on November 30, 2010, Mercer and United Fire announced that they had entered into an Agreement and Plan of Merger (the "Merger Agreement") wherein United Fire's wholly-owned subsidiary, Red Oak, would acquire all of Mercer's outstanding common stock for $28.25 per share, or approximately $191 million. (Compl. at ¶ 2.) The merger is scheduled to occur at the end of the first quarter of 2011 and is subject to approval by Mercer's shareholders. (Id.) Plaintiff alleges that concurrent with the Merger Agreement, United Fire entered into a Shareholder Support Agreement whereby certain officers and directors of Mercer collectively owning approximately 13% of Mercer's outstanding shares agreed to vote in favor of the Merger Agreement. (Id. at ¶ 3.)

Plaintiff contends that the Individual Defendants breached their fiduciary duty to Mercer's shareholders by approving the Merger Agreement because the benefits to United Fire of the proposed merger "come at the expense of Mercer's public shareholders." (Id. at ¶ 50.) Plaintiff argues that Mercer's stock price was undervalued at the time the Merger Agreement was negotiated, and the proposed merger will therefore deny Mercer's shareholders from realizing the value of their investment, given industry predictions that the value of the stock will continue to increase through the end of 2011. (Id. at ¶ 57-62.) Plaintiff further alleges that Mercer failed to disclose "whether it conducted any type of auction or market check to confirm the value of the Company or otherwise shopped the Company around" to determine whether a higher price could have been obtained for Mercer shares. (Id. at ¶ 54.) Finally, Plaintiff challenges the fairness of the proposed merger, based on the fact that the Merger Agreement "imposes a $6.685 million termination fee . . . on Mercer's public shareholders in the event that either Mercer or United Fire terminates the Merger Agreement," without imposing a reciprocal termination fee on United Fire "under any circumstances." (Id. at ¶ 52.) The Complaint alleges that the "Individual Defendants have breached their duties of candor, loyalty, fairness, good faith, and care by not taking adequate measures to ensure that the interests of Mercer's public shareholders are properly protected." (Id. at ¶ 66.)


CAFA "confers jurisdiction on federal courts over certain class actions in which any defendant and any class member are citizens of different states" and the amount in controversy exceeds $5 million. Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 148 (3d Cir. 2009) (citing 28 U.S.C. § 1332(d)(2)). However, this grant of federal subject matter jurisdiction does not extend to any class action that solely involves a claim --

(A) concerning a covered security as defined under [section] 16(f)(3) of the Securities Act of 1933

[15 U.S.C. § 77p(f)(3)] and section 28(f)(5)(E) of the Securities Exchange Act of 1934 (15 U.S.C. [§] 78bb(f)(5)(E));

(B) that relates to the internal affairs or governance of a corporation or other form of business enterprise and that arises under or by virtue of the laws of the State in which such corporation or business enterprise is incorporated or organized; or

(C) that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. [§] 77b(a)(1)) and the regulations issued thereunder).

28 U.S.C. § 1332(d)(9). Plaintiff asserts that the action should be remanded because the Court lacks subject matter jurisdiction under either subsection (A) or (C) of 28 U.S.C. § ("Section") 1332(d)(9), and that removal was improper pursuant to parallel provisions in the statute governing removal of class actions, Section 1453(d), prohibiting removal of class actions falling within these exceptions. (Dkt. entry no. 10, Pl. Br. at 5, 8.) Specifically, Plaintiff contends that Section 1332(d)(9)(C) applies because the Complaint "alleges only breach of fiduciary duty claims . . . 'related to or created by or pursuant to' a 'security'" -- the Mercer stock held by Plaintiff. (Id. at 6-7.) Plaintiff ...

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