United States District Court, E.D. Arkansas, Western Division
JAMES OWENS, individually and on behalf of all others similar situated; and EDWARD HURLIMAN, individually and on behalf of all others similarly situated PLAINTIFFS
RICHARD N. MASSEY; J. MATTHEW MACHEN; W. DABBS CAVIN; WILLIAM CHANGOSE; K. AARON CLARK; SCOTT T. FORD; G. BROCK GEARHART; JOHN J. GHIRARDELLI; OMON FITZGERALD HILL; DANIEL C. HORTON; IAN R. VAUGHAN; BEAR STATE FINANCIAL HOLDINGS, LLC; and FRANK CONNER DEFENDANTS
OPINION AND ORDER
LEON HOLMES, UNITED STATES DISTRICT JUDGE
action concerns the pending merger of two Arkansas banks.
James Owens and Edward Hurliman are shareholders of Bear
State Financial, Inc. (“Bear State”), a bank
holding company whose primary subsidiary is Bear State Bank.
Owens and Hurliman, individually and on behalf of a class of
persons holding common stock of Bear State, assert claims
against Bear State's officers and directors and its
parent company, Bear State Financial Holdings, LLC, for
breach of fiduciary duty pursuant to Ark. Code Ann. §
4-27-830, § 4-27-842, and Arkansas common law in
connection with a pending merger with Arvest Bank. The
plaintiffs commenced this action in the Circuit Court of
Pulaski County, Arkansas. After the plaintiffs filed an
amended complaint, the defendants removed the action to this
Court asserting federal subject matter jurisdiction under 28
U.S.C. §§ 1331, 1332(a), 1441, and 1446. Owens and
Hurliman have filed a motion to remand. For reasons that will
explained, the motion is granted.
amended complaint alleges that the defendants breached their
statutory and common law fiduciary duties in connection with
a proposed merger of Bear State and Arvest Bank via the
purchase of Bear State's outstanding stock. To move
forward with this merger, Bear State required the approval of
a majority of its shareholders.
and Hurliman allege that the defendants unfairly deprived
shareholders of the true value of their investment in Bear
State through a fundamentally flawed sales process.
Specifically, they allege that in March of 2017, Randy Dennis
of DD&F Consulting Group, Inc., approached Richard
Massey, Chairman of Bear State Board of Directors, and
proposed selling Bear State to Arvest. At Massey's
request, Dennis then spoke with Arvest's Chairman of the
Board about a potential transaction between Arvest and Bear
State. From April to June of 2017, Arvest and Bear State
exchanged information relevant to the proposed transaction.
Massey informed the board of Bear State about the proposed
transaction on June 26, 2017. On July 5, 2017,
representatives of Bear State informed financial institutions
that Bear State was interested in a potential transaction and
gave those financial institutions until July 21, 2017, to
express their interest.
20, 2017, “Company A” submitted a proposal to
purchase Bear State with stock rather than cash. To protect
the parties from fluctuations in Company A's stock price,
Company A proposed an agreement that would adjust the ratio
of Company A's stock to be paid if the worth of Company
A's stock rose or fell. At the high end, the potential
imputed value of Company A's offer was for $10.95 per
share of Bear State's stock, which was $0.42 higher than
Arvest's final offer. At a board meeting in July 2017,
certain defendants expressed concern about the liquidity of
Company A's shares. Dennis asked Company A to modify its
proposal to include cash consideration and provide certain
defendants with seats on the combined company's board.
Company A did not commit to meeting these demands, so Bear
State ceased negotiations with Company A. Owens and Hurliman
allege that the defendants disseminated proxy statements on
October 6, 2017, that failed to disclose material information
about the proposed merger between Bear State and Arvest.
Specifically, the proxy statements allegedly omitted or
misrepresented cash flow and reconciliation projections,
comparable transaction multipliers, the assumptions behind
the discount rate used in financial analyses, and other
and Hurliman request a declaration that the action is
maintainable as a class action and ask to be appointed class
representatives. They seek an injunction preventing the
merger between Bear State and Arvest until Bear State
implements a process that “provid[es] the best possible
terms for shareholders” and discloses the material
information omitted from the proxy statement, a rescission of
the Merger Agreement between Bear State and Arvest, and if
the merger is completed, damages incurred by shareholders as
a result of the merger.
defendants argue that this Court has federal question
jurisdiction because the alleged misrepresentations in Bear
State's proxy statements raise substantial questions of
federal securities law and that the injunction defendants
seek is only available under federal law. Document #19 at
12-18. Owens and Hurliman, however, maintain that nowhere in
the amended complaint are there any references to federal
laws or regulations and that their claims arise under the
statutes and common law of Arkansas. Document #14 at 11-16.
The defendants also assert that this Court has diversity of
citizenship jurisdiction. Document #1 at 1. Owens and
Hurliman argue that the forum-defendant rule prevents
diversity jurisdiction in this matter. Document #15 at 24.
Federal Question Jurisdiction
Constitution grants federal courts jurisdiction over cases
“arising under” federal law. U.S. Const. Art.
III, § 2. Congress executed that general grant by giving
federal district courts “original jurisdiction of all
civil actions arising under the Constitution, laws or
treaties of the United States.” 28 U.S.C. § 1331.
The “well-pleaded complaint” rule provides that
to remove a civil action, a federal question must be
presented on the face of the plaintiff's complaint at the
time the notice of removal is filed. Caterpillar Inc. v.
Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d
318 (1987) (citation omitted); 14B Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 3722
(4th ed.). “The [well-pleaded complaint] rule makes the
plaintiff the master of the claim; he or she may avoid
federal jurisdiction by exclusive reliance on state
law.” Caterpillar Inc., 482 U.S. at 392;
see Merrell Dow Pharmaceuticals, Inc. v. Thompson,
478 U.S. 804, 809 n.6, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986)
(“Jurisdiction may not be sustained on a theory that
the plaintiff has not advanced”). As the Supreme Court
[W]hether a case is one arising under the Constitution or a
law or treaty of the United States, in the sense of the
jurisdictional statute[, ] . . . must be determined from what
necessarily appears in the plaintiff's statement of his
own claim in the bill or declaration, unaided by anything
alleged in anticipation of avoidance of defenses which it is
thought the defendant may interpose.
Aetna Health Inc. v. Davila, 542 U.S. 200, 207, 124
S.Ct. 2488, 159 L.Ed.2d 312 (2004) (internal quotation
omitted). Exceptions to the well-pleaded complaint rule
exist, and those exceptions fall into two categories: first,
if federal law completely preempts the state law upon which
the plaintiffs' claim is based, a federal court may have
federal question jurisdiction; and second, if determination
of the relevant state law depends on resolution of a
substantial, disputed federal question, the district court
may have federal question jurisdiction. Hiegle v. Morgan
Keegan & Co., Inc., No. 4:09CV00817 GTE, 2009 WL
4067240, at *3 (E.D. Ark. Nov. 20, 2009).
defendants assert both of these exceptions in their notice of
removal. First, they argue that claims “based on
disclosures made in a proxy statement” are governed
exclusively by federal law under Section 14(a) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78n et seq.
. . .” Document #1 at ¶2. They insist that,
“even where the plaintiffs assert only state law
claims, ” a district court has federal subject-matter
jurisdiction if the complaint alleges that a proxy statement
contains misleading statements or material omissions.
Id. at ¶12. These contentions amount to an
argument that the Exchange Act completely preempts state-law
claims related to proxy ...