United States District Court, M.D. Florida, Jacksonville Division
MICHAEL MCEVOY, on behalf of himself and others similarly situated Plaintiff,
APOLLO GLOBAL MANAGEMENT, LLC, a Delaware limited liability company, APOLLO MANAGEMENT VI, L.P., a Delaware limited partnership, and CEVA GROUP, PLC, Defendants.
TIMOTHY J. CORRIGAN, UNITED STATES DISTRICT JUDGE
putative securities class action is before the Court on
Apollo Defendants' Motion to Dismiss, Doc. 54, and CEVA
Group Plc's Motion to Dismiss the Class Action Complaint,
Doc. 55. The Court has reviewed the responses, Docs. 65, 66;
replies, Docs. 70, 71; and the sur-reply, Doc. 76. On
December 3, 2019, the Court held a hearing on the motions to
dismiss, the record of which is incorporated herein. Doc. 79.
Michael McEvoy, a resident of Duval County, Florida, is a
former management employee of CEVA Logistics, a freight
management and supply chain logistics company. Doc. 35
¶¶ 4, 5. CEVA Logistics was created between
2006-2007, when investment funds managed or advised by
Defendants Apollo Global Management, LLC (“Apollo
Global”) and Apollo Management VI, L.P. (“Apollo
VI”) (collectively, “Apollo”) acquired two
logistics providers TNT Logistics and EGL, Inc.
(“Eagle”), and combined them to form CEVA
Logistics.Id. ¶¶ 7, 22. Defendant
CEVA Group Plc (“CEVA Group”) is an England and
Wales public limited liability company headquartered in the
United Kingdom, and is the holding company for CEVA
Logistics. Id. ¶ 5. Until April 2013,
CEVA Investments Limited (“CIL”), a Cayman
Islands holding company, owned 99.9% of the shares of CEVA
Group. Id. At that time, CIL was owned and
controlled by four funds under the control of Apollo
Global. In re CIL Ltd., 582 B.R. 46, 62
(Bankr. S.D.N.Y. 2018), amended on reconsideration,
No. 13-11272-JLG, 2018 WL 3031094 (Bankr. S.D.N.Y. June 15,
2018). Apollo Global is a Delaware limited liability company
headquartered in New York, Doc. 35 ¶ 8, and Apollo VI is
a Delaware limited partnership headquartered in New York,
id. ¶ 10.
2006-2007, to facilitate the merger and align the interests
of Apollo and management, management employees of TNT and
Eagle (“Management Co-Investors”), including
McEvoy, were required to purchase equity in the company that
later became CIL. Id. ¶¶ 30-40. This way,
“as in any private equity transaction, ” the
Management Co-Investors would have some “skin in the
game.” Id. ¶ 30. Overall, the Management
Co-Investors contributed over €30 million in direct
co-investments. Id. ¶ 40.
investments were structured via a special purpose vehicle
called the 2006 CIL Long-Term Incentive Plan
(“LTIP”), through which the Management
Co-Investors purchased restricted shares. Id. ¶
41; Doc. 35-4. Section 10.1 of the LTIP provides that in the
event of a change in the capital structure of CIL, including
a recapitalization, the Committee of the Board of CIL
“shall make such substitutions or adjustments as it
deems appropriate and equitable . . . .” Id.
¶ 45. Section 10.2(b) states that “[a]ny
adjustments referred to in Section 10.1 shall be made by the
Committee or the Board in its discretion and shall, absent
manifest error, be conclusive and binding on all Persons
holding Any Awards granted under the Plan.”
engaged in a series of complex debt acquisitions around 2008,
and as a result, McEvoy alleges that the interests of Apollo
and the Management Co-Investors were no longer aligned. Doc.
35 ¶¶ 52, 55 n.11. In 2012, CEVA faced liquidity
challenges due to adverse changes in the freight management
indu str y. Doc. 54 at 13; Doc. 54 -1 at 16. Apollo-affiliate
funds agreed to convert over €850 million in debt
holdings to approximately €880 million in CIL equity in
the form of Class B preferred shares. Doc. 54-1 at 18; Doc.
35 ¶¶ 56-57. The Class B preferred shares were
senior to the Class A shares held by Apollo funds and by the
Management Co-Investors, and were entitled to a liquidation
preference. Doc. 54 at 13.
2012, CEVA continued to face significant financial concerns.
The Bondholder Report documents these challenges, from a
double-digit drop in EBITDA in early 2013, to defaults on
interest payments. On April 3, 2013, CEVA, Franklin Advisers,
Inc., Franklin Templeton Investment Corp., Capital Research
and Management Company, and Apollo-affiliated funds that held
debt issued by CEVA or its subsidiaries entered into the
Restructuring Support Agreement (“2013
Restructuring”). Doc. 54-1 at 70. The Bondholder Report
describes the 2013 Restructuring, which eliminated more than
€1.2 billion of CEVA's debt, reduced its annual cash
interest expense by over €135 million, and provided a
capital infusion of at least €205 million. Doc. 54-1 at
69. CEVA's creditors agreed to exchange their CEVA debt
for equity in the newly-formed Apollo affiliate, CEVA
Holdings LLC, which would become the primary equity owner of
CEVA. Doc. 35 ¶¶ 83-84. McEvoy alleges that the
equity of CEVA Group held by CIL was transferred to CEVA
Holdings for no consideration. Id. ¶ 72. McEvoy
alleges that the transaction, referred to as the
“recapitalization, ” diluted CIL's ownership
of CEVA Group from 100% to 0.01%. Id. ¶ 84;
In re CIL Ltd., No. 13-11272-JLG, 2018 WL 878888, at
*2 (Bankr. S.D.N.Y. Feb. 9, 2018).
alleges that the 2013 Restructuring was rife with conflicts
of interest, with “members of the Board of CIL and
Board of CEVA Group, along with Apollo as the manager of the
Apollo Shareholders as majority controlling shareholders,
[standing] on both sides of the 2013 Transaction.”
Id. ¶¶ 75-83, 92. The ACAC quotes
CIL's counsel, Mintz Levin, as stating that he wanted
“to give off an appearance the we are operating at an
arms' [sic] length basis.” Id. ¶ 75.
McEvoy alleges that Defendants began planning the
resignations of multiple directors of CEVA Group and CIL to
give the appearance of an arm's length transaction.
Id. ¶ 76. The ACAC contains allegations of
Mintz Levin stating that “we need to consider the
ramifications if any, of a vote by Apollo without any notice
or meeting in a process that will ultimately benefit Apollo
at the CEVA level while wiping out the equity interest of all
other shareholders at the CIL level.” Id.
¶ 80. Further, McEvoy alleges that Apollo VI effectuated
the vote on behalf of the Management Co-Investors
“without notice or safeguards as to their conflicted
status.” Id. ¶ 81.
April 2, 2013, CIL filed for a provisional liquidation in the
Cayman Islands. Id. ¶ 87. On April 5, 2013, CIL
sent the Management Co-Investors, including McEvoy, a letter
stating that their investment in CEVA Group is “now
without value, in consequence of the financial condition of
CEVA.” Id. ¶ 94; Doc. 54-1 at 208-09. The
letter further advised the recipients of CIL's
liquidation and that “it is unlikely that there will be
any recoveries for shareholders of [CIL] in their capacities
as shareholders.” Id. Essentially, the
Management Co-Investors' investment was wiped out.
McEvoy alleges that under the LTIP, the Management
Co-Investors were owed an equitable adjustment in the event
of “Corporate Transactions” of CIL or its
subsidiaries, including CEVA Group. Id. ¶ 95.
In June 2013, some Management Co-Investors “were being
awarded a cash award equal to 60% of their net cumulative
investments in CIL.” Id. ¶ 97. However,
the cash award was “independent of the new long-term
incentive plan, ” id. ¶ 99, and McEvoy
and numerous other Management Co-Investors “did not
receive the required adjustment pursuant to the LTIP, nor
notice of the adjustment, ” id. ¶ 103.
April 2, 2013, CIL filed a petition beginning insolvency
proceedings in the Cayman Islands. In re CIL Ltd.,
582 B.R. at 66. On April 22, 2013, three noteholders filed an
uncontested involuntary chapter 7 petition against CIL in the
United States Bankruptcy Court for the Southern District of
New York. Id. On May 13, 2013, the bankruptcy court
granted the involuntary chapter 7 petition. Id. On
December 8, 2014, the chapter 7 Trustee began an adversary
proceeding in the bankruptcy court against CIL directors
Gareth Turner and Mark Beith, CEVA Group, CEVA Holdings, and
a related company, CEVA Logistics Finance B.V. Id.
That case is still pending. Id.
August 3, 2017, McEvoy filed this putative class action
lawsuit against Beith, Turner, and Apollo Global. Doc. 1.
CEVA Group and Apollo VI were not named in that complaint.
However, on October 18, 2017, the chapter 7 trustee for CIL
filed a motion in the New York bankruptcy court to enjoin
this case, arguing that it violated the automatic stay
imposed by 11 U.S.C. § 362(a). Specifically, the trustee
argued that the claims McEvoy asserted were duplicative of
those the trustee had filed and were therefore derivative
claims that were property of CIL's estate. The bankruptcy
court agreed. In re CIL Ltd., 2018 WL 878888, at
*12. Thus, on February 9, 2018, the bankruptcy court held
that McEvoy's putative class action in this Court was
“null and void ab initio.” Id.
McEvoy's attempt to appeal the order failed, the District
Court for the Southern District of New York permitted McEvoy
to ask whether he could amend his complaint to assert direct
claims rather than derivative claims. In re CIL
Ltd., No. 18-cv-2226 (JSR), Doc. 7 (S.D.N.Y.). McEvoy
proposed an amended complaint, and on October 16, 2018, the
bankruptcy court allowed McEvoy to file the amended complaint
in this Court. Doc. 31-2. On December 7, 2018, McEvoy
filed the ACAC, asserting numerous claims against Apollo and
CEVA Group, including: (1) violation of the Investment
Advisors Act of 1940 against Apollo VI (Count I); (2) breach
of fiduciary duty against Apollo (Count II); (3) breach of
fiduciary duty against Apollo VI (Count III); (4) breach of