Maritime Asset Management, LLC v. Neurogesx, Inc. et al

Filing 51

ORDER RE: NOTICE OF TENTATIVE RULING ON MOTIONS TO DISMISS. Signed by Judge Yvonne Gonzalez Rogers on 4/5/13. (fs, COURT STAFF) (Filed on 4/5/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA
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MARITIME ASSET MANAGEMENT, LLC,
Plaintiff,

Northern District of California

United States District Court

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Case No.: 12-CV-5034 YGR
NOTICE OF TENTATIVE RULING ON
MOTIONS TO DISMISS

vs.
NEUROGESX, INC., ANTHONY A. DITONNO,
STEPHEN F. GHIGLIERI, AND JEFFREY
TOBIAS, M.D.,
Defendants.

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD, PLEASE TAKE NOTICE OF THE
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FOLLOWING TENTATIVE RULING ON THE MOTION OF DEFENDANT JEFFREY TOBIAS, M.D. (“TOBIAS”)
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AND THE MOTION OF DEFENDANTS NEUROGESX, INC. (“THE COMPANY”), ANTHONY A. DITONNO

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(“DITONNO”), AND STEPHEN F. GHIGLIERI (“GHIGLIERI”) TO DISMISS COMPLAINT, set for hearing on
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April 9, 2013, at 2:00 p.m.:
The Court has reviewed the parties’ papers and is inclined to deny in part and grant in part the
motions to dismiss, as set forth below. This is a tentative ruling and the parties still have an
opportunity to present oral argument. Alternatively, if the parties JOINTLY stipulate in writing to
entry of the tentative ruling, the hearing shall be taken off calendar, and the tentative ruling will
become the order of the Court.

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TENTATIVE RULING

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Northern District of California

United States District Court

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On the Motion of Defendant Jeffrey Tobias, M.D. (Dkt. No. 36) and Motion of Defendants
NeurogesX, Inc., Anthony A. DiTonno, and Stephen F. Ghiglieri (Dkt. No. 33), the Court is inclined
to rule as follows:
A.

Section 10(b) Claim
On the Section 10(b) claim, Plaintiff has alleged facts sufficient to state a Section 10(b)

violation against Defendant Tobias for his statements in the due diligence call. The allegations give
rise to an inference that he made the statement regarding his plans for continued employment knowing
that they were false, and that he made them with the intent to deceive the investors, given the other
facts alleged regarding the timing and the recruitment process by Jazz. The Motion to Dismiss the
Section 10(b) claim as to Tobias is therefore DENIED.
The allegations are sufficient to allege a Section 10(b) violation by the Company based upon
the alleged knowledge and scienter of Tobias, an officer of the Company at the time. Defendants cite
cases finding that when officers or agents engaging in fraudulent conduct are acting adverse to the
interests of the corporation, their conduct will not be imputed to the company. In re ChinaCast Educ.
Corp. Sec. Litig., CV 12-4621-JFW PLAX, 2012 WL 6136746 (C.D. Cal. Dec. 7, 2012); In re
Cendant Corp. Sec. Litig., 109 F.Supp.2d 225, 232 (D.N.J.2000). However, the Ninth Circuit has
held that a company can be liable for securities fraud based upon the conduct of an officer or other
agent under the doctrine of respondeat superior. Hollinger v. Titan Capital Corp., 914 F.2d 1564,
1577 (9th Cir. 1990); see also In re McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1277
(N.D. Cal. 2000) (company’s Section 10(b) violation based on fraudulent conduct of officer); In re
Dynegy, Inc. Sec. Litig., 339 F. Supp. 2d 804, 911 (S.D. Tex. 2004) (same) (citing Southland Sec.
Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 380 (5th Cir. 2004) and Paul F. Newton & Co. v.
Texas Commerce Bank, 630 F.2d 1111, 1118 (5th Cir.1980)).
The Court is not persuaded that the Company cannot be liable for the fraudulent conduct
alleged here such that the claim should be dismissed as a matter of law. Indeed, even accepting
Defendants’ argument that an individual’s actions adverse to the company cannot be imputed to the
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company, it is not clear from the allegations of the complaint that Tobias’ misstatements were not

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made to benefit the company itself rather than for any personal interests adverse to the company.

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Unlike ChinaCast, where plaintiff sought to impute to the company itself the conduct of officers who

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were stealing money from the company’s till, here the misrepresentations are alleged to have aided the

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Company in obtaining a private placement deal, which in turn led to an important extension of credit

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to the company, at a crucial time. Accordingly, the motion as to the Section 10(b) claim against the

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Company is therefore DENIED.
With respect to the other individual defendants, however, the allegations do not sufficiently

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identify false statements made by them, or their knowledge of the falsity of statements made by others

Motion to Dismiss the Section 10(b) claims as to DiTonno and Ghiglieri is GRANTED, but without

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Northern District of California

such that the allegations of Tobias’s knowledge and scienter can be imputed to them. Thus, the

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United States District Court

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prejudice to Plaintiffs bringing a motion for leave to amend if, after additional discovery is conducted,

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there are facts to support knowledge of falsity and intent to deceive on the part of these other

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defendants.

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B.

Section 20(a) Claim
On the 20(a) violation, the motion of DiTonno and Ghiglieri is DENIED. The underlying

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Section 10(b) violation is sufficiently pleaded to establish “controlling person” liability against

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DiTonno and Ghiglieri. However, the motion to dismiss Tobias is GRANTED. Plaintiffs have not

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presented authority that would permit a claim for 20(a) controlling person liability arising from that

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same person’s own acts.

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C.

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Securities Litigation Uniform Standards Act (“SLUSA”)
Preemption of State Law Claims
Under the SLUSA, “[n]o covered class action based upon the statutory or common law of any

State … may be maintained in any State or Federal court by any private party alleging . . . a
misrepresentation or omission of a material fact in connection with the purchase or sale of a covered
security.” 15 U.S.C. § 78bb(f)(1). The private placement class here is alleged to be limited to 21
members. (FAC ¶ 59.) The Supreme Court has interpreted the definition of “covered class claims”
under § 78bb(f)(5) to state that “[a] ‘covered class action’ is a lawsuit in which damages are sought
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on behalf of more than 50 people.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71,

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83 (2006). Defendants argue that this interpretation of the language is contrary to its plain meaning.

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The Court understands the literal argument proffered, but is not convinced that such a reading is

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consistent with a proper interpretation of the section. Nor have Defendants cited to any case law

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supporting their interpretation. The motion to dismiss on these grounds is DENIED.

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D.

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Sufficiency of Pleading of State Law Claims
Generally, and as stated above, the allegations as to Tobias and as to the Company are pleaded

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with sufficient particularity. As to DiTonno and Ghiglieri, the allegations are sufficient under FRCP

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9(b), which does not require that scienter be pleaded with particularity. The motions are therefore

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DENIED on these grounds.

Northern District of California

However, with respect to the Sixth Claim, both New York and California law recognize that

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United States District Court

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there cannot be aiding and abetting liability as between the corporation and its employees since the

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corporation can only act through its employees and one cannot “aid and abet” oneself. Bereswill v.

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Yablon, 6 N.Y.2d 301, 30-5-06 (1959); Janken v. G.H. Hughes, 46 Cal.App.4th 55 (1996). Thus, the

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Sixth Claim must be DISMISSED as to all defendants without leave to amend.

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EFFECT OF TENTATIVE RULING

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No later than 5:00 p.m. on Monday, April 8, 2013, the parties shall:

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1. JOINTLY stipulate in writing to entry of this tentative ruling. If the parties so stipulate,

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then the hearing shall be taken off calendar, and the tentative ruling shall become the order of the

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Court; OR

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2. JOINTLY file a statement identifying the portion or portions of the tentative ruling on
which they wish to be heard, and the hearing shall proceed as scheduled.
IT IS SO ORDERED.

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Date: April 5, 2013

_________________________________________
YVONNE GONZALEZ ROGERS
UNITED STATES DISTRICT COURT JUDGE

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