Peeved iRobot investors urge First Circuit to revive suit over botched Amazon takeover

BOSTON (CN) — A panel of federal appeals judges on Monday morning signaled an openness toward resuscitating a civil class action against the robot vacuum cleaner company iRobot from investors who say the Roomba maker hid red flags about Amazon’s since-abandoned buyout of iRobot.

Amazon scrapped its planned $1.4 billion takeover of iRobot in January 2024 amid signs of disapproval to the deal from the European Union’s antitrust regulator, the European Commission, related to concerns over privacy and competition in the online marketplace.

First announced in 2022, the merger would have been one of Amazon’s largest-ever acquisitions.

Led by investment firm Premca Extra Income Fund, a group of investors brought a class action against Roomba’s parent company in Boston federal district court in March 2024, but suffered defeat when U.S. District Judge William G. Young tossed out the suit for failing to sufficiently establish inferences that iRobot expected the merger to fail.

Young, a Ronald Reagan appointee, found in his opinion that even if iRobot’s agents made misleading statements, the investment firm could not show they did so knowingly.

The investors then brought an appeal before the First Circuit Court of Appeals in April, seeking to overturn Young’s dismissal on grounds that the lower court wrongly disregarded accounts from confidential witnesses in “high-level positions with firsthand knowledge” who they say confirmed their claims that Amazon refused to cooperate with the European antitrust regulators’ requests for information.

The investment firm Premca Extra Income Fund LP said in an appeals brief that iRobot and Amazon internally pivoted away from the merger starting in the summer of 2023, but did not disclose that turn of events to investors.

“They terminated all nine tracks of integration planning meetings between the companies, and iRobot shifted to planning to operate independently instead of as a merged company,” iRobot argued. “Throughout the remainder of the class period, defendants hid those facts from investors, making their statements so incomplete as to mislead, and even affirmatively misrepresented that Amazon was cooperating with regulators, despite knowing otherwise.”

U.S. Circuit Judge Seth Aframe seemed sympathetic to the investors’ case during oral arguments Monday.

“As the situation gets less rosy, nothing really changes other than announcing the objectives and saying, ‘We think we can still win,’” the Joe Biden appointee said. “But the situation on the ground seems to be darkening, and there’s nothing here about that.”

The Bedford, Massachusetts-based iRobot Corp. argued that company announced the merger but also warned investors that regulatory approval was not guaranteed, and subsequently provided tailored and updated disclosures about the Federal Trade Commission’s and European Commission’s reviews.

The company also noted in its appeals brief that its forward-looking statement discussing iRobot’s belief and expectation that the merger would receive regulatory approvals, accompanied by adequate risk disclosures, are independently not actionable under the Private Securities Litigation Reform Act.

During oral arguments on Monday, iRobot attorney Alisha Nanda pushed back against the plaintiffs’ assertions that company was surreptitiously formulating plans to move forward independently from the deal with Amazon while misleading investors about the viability of the acquisition.

“It’s not planning for abandonment. No [confidential witness] says that. They just say they started to contingency plan,” the Skadden Arps lawyer argued. “Well, that’s wholly consistent with the risk disclosures that were made to investors throughout the period, and certainly in August.”

Aframe was joined on the First Circuit panel by fellow Biden-appointed U.S. Circuit Judge Julie Rikelman and Senior U.S. Circuit Judge Sandra Lea Lynch, a Bill Clinton appointee.

The three-judge panel did not immediately rule from the bench on the appeal Monday morning.

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