Ontario Teachers' Pension Plan Board, et al v. Teva Pharmaceutical Industries Ltd. et al

Filing 283

ORDER denying in substantial part and granting in part #238 Motion to Dismiss; and denying in substantial part and granting in part #239 Motion to Dismiss. The motions are granted with respect to the plaintiffs allegations stemming from the defendants failure to disclose subpoenas. Granting #240 Motion to Dismiss. The Clerk is directed to terminate Cavanaugh and Oberman as defendants to this case. Signed by Judge Stefan R Underhill on 9/25/2019. (Kaas, E.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

ONTARIO TEACHERS’ PENSION PLAN
BOARD, Individually and as Lead Plaintiff
on behalf of all others similarly situated;
and ANCHORAGE POLICE & FIRE
RETIREMENT SYSTEM, Individually and
as Named Plaintiff on behalf of all
similarly-situated bond purchasers,
Plaintiffs,

No. 3:17-cv-558 (SRU)

v.
TEVA PHARMACEUTICAL
INDUSTRIES LTD., et al.,
Defendants.

I.

INTRODUCTION
Lead Plaintiff, Ontario Teachers’ Pension Plan Board (“Ontario Teachers’”), and Named

Plaintiff Anchorage Police & Fire Retirement System (“Anchorage”) (together, “the plaintiffs”),
individually and on behalf of all others similarly situated (“the Class”), filed this Second
Amended Consolidated Class Action Complaint (“the complaint”) on June 22, 2018, Doc. No.
226. Their first set of allegations, called “’34 Act Allegations”, “34 Act Allegations”, or alleged
Exchange Act violations, are asserted against the following defendants (together “’34 Act
Defendants”): Teva Pharmaceutical Industries, Ltd. (“Teva”); Former Teva President and CEO
Erez Vigodman (“Vigodman”); Former Teva CFO Eyal Desheh (“Desheh”); Former Teva
America Generics President and CEO Allan Oberman (“Oberman”); Former Teva Global
Generics President and CEO Sigurdur Olafsson (“Olafsson”); Former Teva SVP and CAO
Deborah Griffin (“Griffin”); Former Teva SVP and COO Maureen Cavanaugh (“Cavanaugh”).
Compl., Doc. No. 226 at ¶¶ 24-32. Plaintiffs also allege “Securities Act Allegations” against the

following defendants (together “Securities Act Defendants”): Teva; Teva Pharmaceuticals
Finance Netherlands III B.V. (“Teva Finance”); Vigodman; Desheh; and Griffin. Id. at ¶¶ 37177.
The Defendants moved to dismiss all counts of the Complaint (see Doc. Nos. 238, 239,
240), and the parties have fully briefed the motions. Upon a review of the defendants’ numerous
motions in light of the plaintiffs’ account of facts, which I accept as true, I conclude that some of
the defendants’ arguments have merit. Thus, for the reasons stated below, the Motion to Dismiss
filed by Teva, Vigodman, Desheh, Griffin, and Olafsson (doc. no. 238) and the Motion to
Dismiss filed by Teva Finance (doc. no. 239) are denied in substantial part but granted with
respect to the plaintiffs’ allegations stemming from the defendants’ failure to disclose subpoenas
from the Department of Justice and Connecticut Attorney General. Further, the Motion to
Dismiss filed by Cavanaugh and Oberman (doc. no. 240) is granted.
II.

BACKGROUND
Plaintiff’s securities class action claims “arise[] from the difference between what the

Defendants told investors was driving Teva’s financial success and the truth behind Teva’s
performance.” Compl, Doc. No. 226 at ¶ 1. Plaintiffs basically allege that the defendants
implemented “a strategy to systematically raise generic drug prices across a large swath of
Teva’s generic drug portfolio,” which the plaintiffs refer to as the “Price-Hike Strategy.” Id.
According to the plaintiffs, however, the defendants failed to reveal the actual reason for the
company’s financial success, and attributed the growth to “fundamental business strategies” such
as cost-cutting and “good product management.” Id. The plaintiffs allege that the reported
profits made Teva look more successful than it was, compelling plaintiffs, and others, to invest.

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A. The Parties
1. Plaintiffs and the Class
Ontario Teachers’ “is the largest single-profession pension plan in Canada, representing
roughly 323,000 active and retired teachers in the Province of Canada.” Compl., Doc. No. 226 at
¶ 20. Ontario Teachers’ alleges that it purchased and acquired Teva American Depository
Shares (“ADS”) registered on the New York Stock Exchange (“NYSE”) and Preferred Shares in
domestic transactions during the class period (February 6, 2015 through August 3, 2017). Id. at
¶ 21. Anchorage “is a public pension fund in Anchorage, Alaska that provides pension,
disability, and survivor benefits to active and retired police officers and firefighters and their
families.” Id. at ¶ 22. Anchorage alleges that it purchased and acquired Teva Notes during the
class period. Id. at ¶ 23. The plaintiffs alleged that they “suffered damages as a result of the
violations of the federal securities laws alleged herein.” Id. at ¶ 21, 23. Ontario Teachers’
“brings separate claims under the 34 Act and the Securities Act on behalf of all Class Members.”
Id. at ¶ 20. Anchorage “brings separate claims under the 34 Act and the Securities Act on behalf
of Class members who purchased or otherwise acquired Teva Notes.” Id. at ¶ 22.
2. Defendants
Teva, “the world’s largest generic drug manufacturer”, is incorporated in Israel, and has a
wholly-owned subsidiary, Teva USA. Id. at ¶ 24. Teva is named in both the ’34 Act Allegations
and the Securities Act Allegations.
Vigodman was Teva’s President and Chief Executive Officer (“CEO”) from January 11,
2014 to February 6, 2017 and a Teva Director from June 22, 2009 to February 6, 2017. Id. at ¶
26. The plaintiffs allege that Vigodman’s liability stems from his signing and certifying certain
forms, including Securities and Exchange Commission (“SEC”) forms 20-F and 6-K, that
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included false and misleading statements, and making false statements on conference calls and in
notes documents. Id. Vigodman is named in both the ’34 Act Allegations and the Securities Act
Allegations.
Desheh was Teva’s Chief Financial Officer (“CFO”) from July 2008 to June 30, 2017,
except from October 30, 2013 to February 11, 2014 when he served as Teva’s interim CEO and
Interim President. Id. at ¶ 27. The plaintiffs allege that Desheh’s liability stems from his signing
and certifying certain forms, including SEC forms 20-F and 6-K, that included false and
misleading statements, and making false statements on conference calls and in notes documents.
Id. Desheh is named in both the ’34 Act Allegations and the Securities Act Allegations.
Oberman was Teva Americas Generics’ President and CEO from November 5, 2012 to
December 13, 2014. Id. at ¶ 28. The plaintiffs allege that Oberman’s liability stems from his
false and misleading statements, as well as his approval and control of the false and misleading
SEC filings. Id. Oberman is named in both the ’34 Act Allegations and the Securities Act
Allegations.
Olafsson was Teva’s Global Generic Medicine Group’s President and CEO from July 1,
2014 to December 5, 2016. Id. at ¶ 29. The plaintiffs allege that Olafsson’s liability stems from
his false and misleading statements, as well as his approval and control of the false and
misleading SEC filings. Id. Olafsson is named in the ’34 Act Allegations only.
Griffin is the current Teva Senior Vice President (“SVP”) and Chief Accounting Officer
(“CAO”), and was an authorized representative of both Teva and Teva Finance, who served as
Vice President and CFO of Teva USA. Id. at ¶ 30. The plaintiffs allege that Griffin’s liability
stems from signing the notes and shares statements as well as her approval and control of the

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false and misleading SEC filings. Id. Griffin is named in both the ’34 Act Allegations and the
Securities Act Allegations.
Cavanaugh was Teva USA’s SVP and Chief Operating Officer (“COO”) for North
American Generics. Id. at ¶ 31. The plaintiffs allege that Cavanaugh’s liability stems from her
approval and control of the false and misleading SEC filings. Id. Cavanaugh is named in the ’34
Act Allegations only.
Teva Finance is Dutch company that is “a shell company that is wholly-owned and
controlled special purpose finance subsidiary of Teva.” Id. at ¶ 373.
B. Procedural History
The original complaint was filed on November 6, 2016 in the Central District of
California. Compl., Doc. No. 1. It was transferred to the District of Connecticut on April 4,
2017.1 Doc. No. 75. On July 11, 2017, Ontario Teachers’ Pension Plan Board was appointed as
lead plaintiff. Order, Doc. No. 124. The plaintiffs filed a Class Action Complaint for Violation
of the Securities Act of 1933 on August 2, 2017, Compl., Doc. No. 129; and an Amended Class

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Leone v. Teva Pharmaceutical Industries Ltd. et al., 3:17-cv-559 (SRU), was consolidated into this lead case on
April 27, 2017. See Consol. Orders, Doc. No. 120, 122. Further, the following related cases are currently pending
in this court, but have been stayed pending the resolution of the Motions to Dismiss in this case: OZ ELS Master
Fund Ltd., et al. v. Teva Pharmaceutical Industries Ltd. et al., 3:17-cv-1314 (SRU); Huellemeier v. Teva
Pharmaceutical Industries Ltd. et al., 3:17-cv-1938 (SRU); Baker v. Teva Pharmaceutical Industries Ltd. et al., 18cv-789 (SRU); Grodko v. Teva Pharmaceutical Industries Ltd. et al., 18-cv-800 (SRU); Nordea Investment
Management AB v. Teva Pharmaceutical Industries Ltd. et al., 18-cv-1681 (SRU); Department of Revenue, et al. v.
Teva Pharmaceutical Industries Ltd. et al., 3:18-cv-1721 (SRU); Pacific Funds Series Trust, et al. v. Teva
Pharmaceutical Industries Ltd. et al., 3:18-cv-1956 (SRU); Public School Teachers Pension Fund and Retirement
Fund of Chicago v. Teva Pharmaceutical Industries Ltd. et al., 3:19-cv-175 (SRU); Schwab Capital Trust, et al. v.
Teva Pharmaceutical Industries Ltd. et al., 3:19-cv-192 (SRU); Phoenix Insurance Company Ltd. et al. v. Teva
Pharmaceutical Industries Ltd. et al., 3:19-cv-449 (SRU); Mivtachim The Workers Social Insurance Fund Ltd., et
al. v. Teva Pharmaceutical Industries Ltd. et al., 3:19-cv-513 (SRU); Clal Insurance Company Ltd., et al. v. Teva
Pharmaceutical Industries Ltd. et al., 3:19-cv-543 (SRU); Highfields Capital I LP, et al. v. Teva Pharmaceutical
Industries Ltd. et al., 3:19-cv-603 (SRU); Migdal Insurance Company LTD et al. v. Teva Pharmaceutical Industries
Ltd. et al., 3:19-cv-655 (SRU); Harel Pension and Provident Ltd. et al. v. Teva Pharmaceutical Industries Ltd. et
al., 3:19-cv-656 (SRU); Oregon v. Teva Pharmaceutical Industries Ltd. et al., 3:19-cv-657 (SRU); Migdal Mutual
Funds, Ltd. v. Teva Pharmaceutical Industries Ltd. et al., 3:19-cv-923 (SRU); Psagot Mutual Funds, Ltd. et al. Teva
Pharmaceutical Industries Ltd. et al., 3:19-cv-1167 (SRU); Stichting PGGM Depositary v. Teva Pharmaceutical
Indus. Ltd., et al., 3:19-cv-1173 (SRU).

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Action Complaint for Violation of the Securities Act of 1933 on September 5, 2017. Compl.,
Doc. No. 138. Plaintiffs filed an Amended Consolidated Class Action Complaint on September
11, 2017. Compl., Doc. No. 141. The defendants filed multiple Motions to Dismiss, which I
granted without prejudice to repleading on April 3, 2018. See Motions to Dismiss, Doc. Nos.
187, 188, 189, 190, and 198; Order, Doc. No. 215. Thereafter, the plaintiffs filed the operative
Second Amended Consolidated Class Action Complaint on June 22, 2018. Compl., Doc. No.
226.
Teva, Vigodman, Desheh, Griffin, and Olafsson filed a Motion to Dismiss on September
14, 2018 (see ’34 Act Mot. to Dism., doc. no. 238), which the plaintiffs opposed (see Opp. to ’34
Act Mot. to Dism., doc. no. 244), and the Teva defendants filed a reply (see Reply to ’34 Act
Mot. to Dism., doc. no. 254). Teva Finance also filed a Motion to Dismiss on September 14,
2018 (see Teva Fin. Mot. to Dism., doc. no. 239), which the plaintiffs opposed (see Opp. to Teva
Fin. Mot., doc. no. 246), and Teva Finance filed a reply (see Reply to Teva Fin. Mot., doc. no.
255). Lastly, Cavanaugh and Oberman filed a Motion to Dismiss on September 14, 2018 (see
C/O Mot. to Dism., doc. no. 240), which the plaintiffs opposed (see Opp. to C/O Mot., doc. no.
247), and Cavanaugh/Oberman filed a reply (see Reply to C/O Mot., doc. no. 256).
C. Factual Allegations
The allegations in the Second Amended Consolidated Class Action Complaint stem
mostly from three categories of alleged misrepresentations/omissions by Teva relative to: (1) the
source of its profit success; (2) the competitive nature of the generics market; and (3) the
investigations in which Teva was involved. See generally, Compl, Doc. No. 226. The plaintiffs
allege that those misrepresentations/omissions were perpetuated by Teva officials in order to
inflate profits to make Teva appear more successful and attractive in the market and, therefore,
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attract more investors to raise money to acquire a competitor company. Id. The plaintiffs allege
generally that the defendants consistently misrepresented to investors and the market that their
financial success was due to good business decisions, and not because of pricing, when, in fact,
they were consistently raising prices of many of their generic drugs and were concealing
information from investors, analysts, and the public. Id. Further, the plaintiffs allege generally
that the defendants consistently misrepresented that the generics market was highly competitive
when, in fact, the defendants and its competitors were engaged in a collusive agreement to raise
prices, further inflating Teva’s profits. Id. The plaintiffs refer to that as the price-fixing
conspiracy. The plaintiffs also allege that Teva was the subject of numerous investigations into
its pricing and profits but concealed that information from the public and investors. Id. The
plaintiffs base their allegations “on Lead Counsel’s investigation, which included interviews with
numerous former employees of Teva[.]” Id. at ¶ 33.
The plaintiffs allege that the class period began on February 6, 2014 when Teva
“announced its fourth quarter 2013 and full year 2013 financial results in a press release”,
because those reported profits resulted from the undisclosed price-hike strategy. Id. at ¶ 46. The
plaintiffs allege that before the class period began, “Teva’s generics segment was struggling and
[its] share price had dropped from the $60s in 2010 into the $30s by 2013.” Id. at ¶ 34. Teva’s
then-CEO planned to focus on branded drugs but was abruptly fired and Desheh, then CFO,
became the interim-CEO in November 2013. Id. Desheh and then-CEO Vigodman announced
that Teva would make a “major acquisition.” Id. at ¶ 35. Plaintiffs allege, though, that in early
2013 Teva adopted the price-hike strategy, which was “a non-public strategy to systematically
increase prices across dozens of drugs in its generic drug portfolio.” Id. at ¶ 36. The plaintiffs
allege that, as part of this strategy, Teva raised the prices of 18 of its generic drugs on July 3,

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2013 and August 9, 2013, some as much as an 812% increase, which led to $875 million in
price-related profit. Id. at ¶ 42-43. Further, the plaintiffs allege that fifteen of those increases
were “implemented together with Teva’s competitors who also made price increases on the same
drugs.” Id.
Plaintiffs allege that Teva’s financial results announcement on February 6, 2014, which
started the class period, revealed a 14% increase in generics revenue for 2013 fourth quarter, and
attributed that increase to “‘higher sales’ volume, reduced expenses, and ‘exclusive launches’ of
new generic drugs.” Id. at ¶ 47. The plaintiffs allege that the defendants omitted that, although
those reasons may have had some influence, the real reason for the increase was the price-hike
strategy. Id. The plaintiffs allege that the defendants perpetuated this misrepresentation/omission
in calls with investors and analysts. Id. at ¶ 48. The news of Teva’s financial success in 2013
led to increased share prices on the stock market, and by March 2014, it was trading at $48. Id.
at ¶ 50. By April 2014, the share price had increased to $54.06. Id. at ¶ 52. The plaintiffs allege
that in April 2014, as part of the price-hike strategy, Teva increased the prices of another twelve
generic drugs, eight of which were done in collaboration with competitors. Id. at ¶ 56. On May
1, 2014, Teva announced that its continued financial success was due to “lower expenses, a
changed composition of revenues, and ‘new product launches.’” Id. at ¶ 53. The plaintiffs
allege, though, that the price-hike strategy had generated $120 million that quarter, making it the
actual cause of the financial success. Id. The success gained Teva more positive press. Id. at ¶
55.
On July 31, 2014, Teva announced that it was seeing continued financial success due to
“the growth of [its] global generic business, primarily in the U.S.” Id. at ¶ 59. The plaintiffs
allege that the price-hike strategy was the actual reason for the financial success, generating as

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much as $160 million in profit. Id. at ¶ 61. On July 1 and August 28, 2014, Teva increased the
prices of another 20 drugs, twelve of which were done in collaboration with competitors. Id. at ¶
63. The plaintiffs allege that those increases generated as much as $50 million in profit. Id.
The generic drug market came under scrutiny in summer of 2014 and the Connecticut
Attorney General began a “non-public investigation into the companies that manufactured
digoxin” and issued subpoenas to many of Teva’s competitors. Id. at ¶ 58, 62. Congress also
started looking into the generic drug market and sent Teva a letter in October 2014 seeking
information on its recent price increases, to which Teva never responded. Id. at ¶ 62. Teva also
refused to testify in a November 20, 2014 Senate Subcommittee of Primary Health and Aging
hearing. Id. at ¶ 70.
On October 30, 2014, Teva again reported financial success, with a $160 million increase
in generic drug profits. Id. at ¶ 65. The plaintiffs allege that defendants again misrepresented
and omitted the truth about the profits in both written statements and on calls with investors and
analysts. Id. at ¶ 66-67, 72. Teva continued to receive positive press on the basis of those
financial results. Id. at ¶ 68. Amidst public scrutiny of the generic market as a whole, Teva
again announced positive financial results on February 5, 2015, including a $480 million generic
segment profit increase from 2013 to 2014. Id. at ¶ 74. The plaintiffs allege that Teva reported
$693 million of profit for the year 2014. Id. at ¶ 76. The plaintiffs allege that the defendants
again misrepresented and/or omitted the real reason for the financial success in written
statements and on calls with investors and analysts, which gained Teva positive press. Id. at ¶ 7677.
In January 2015, Teva increased the prices of another 14 drugs, nine of which were done
in collaboration with competitors. Id. at ¶ 79. The plaintiffs allege that this generated as much as

9

$48 million in profits, and the overall price-hike strategy generating as much as $228 million in
the first quarter of 2015. Id. The plaintiffs allege that the defendants continued to
misrepresent/omit the real reason for their financial success in written statements and on calls
with investors and analysts, gaining Teva more positive press. Id. at ¶ 83-86. Teva shares
started trading at almost $60 per share, which led the media to speculate about a possible
acquisition. Id. at ¶ 80. Teva unsuccessfully tried to acquire Allergan and Mylan. Id. at ¶ 81-82.
Teva’s shares then increased to $72 per share. Id. at ¶ 87.
With high stock prices, on July 27, 2015, Teva announced that it would acquire Actavis,
Allergan’s worldwide generics business, for $40.5 billion in cash and equity. Id. Plaintiffs
allege that the defendants now needed to raise $30 billion to complete the deal and, therefore,
Teva’s motivation for raising capital shifted from acquisition to payment. Id. at ¶ 89. Plaintiffs
allege that Teva, on July 30, 2015, again reported financial success due to “reduced expenses and
new product launches” in the generics segment, and continued to perpetuate that
misrepresentation/omission in calls with media and investors. Id. at ¶ 90. In July 2015, Teva
implemented a price increase of another seven drugs, four of which were done in collaboration
with competitors. Id. at ¶ 91. The plaintiffs allege that Teva again, on October 29, 2015,
reported financial success and misrepresented/omitted that the real reason was the price-hike
strategy, and falsely stated that it was due to lower expenses, again gaining Teva continued
positive press. Id. at ¶ 92-94. Amidst growing public and political scrutiny of the generics
market, Teva denied any exposure to legislation that would penalize manufacturers who
increased prices more than inflation and concealed the price-hike strategy, gaining more positive
press for Teva. Id. at ¶ 95-98.

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The plaintiffs allege that the cash to complete the Actavis deal would come from three
offerings: (1) a $7 billion secondary public offering of depository shares in December 2015; (2)
an initial public offering of Preferred Shares in December 2015; and (3) a $15 billion offering of
bonds in 2017. Id. at ¶ 89. In November and December 2015, Teva filed a registration statement
with the SEC and two prospectus supplements for the two share offerings, all of which “included
numerous false [and] misleading statements attributing Teva’s profits to sources other than the
price-hike strategy.” Id. at ¶ 101. The two shares offerings were issued and raised roughly $7.2
billion. Id.
Amidst even more public scrutiny in the generics sector, Teva continued to misrepresent
and omit the real reasons for its increased financial success. Id. at ¶ 103. On February 11, 2016,
Teva again reported financial success, in which the plaintiffs allege they concealed $848 million
in profits from the price-hike strategy. Id. at ¶ 105. The plaintiffs allege that Teva continued to
perpetuate the misrepresentation/omission about the reasons for their financial success, which led
to continued positive press for Teva. Id. at ¶ 106-10. In the face of even more public scrutiny of
the sector, Teva continued to “deny any vulnerability to pricing pressure.” Id. at ¶ 113. The
plaintiffs allege that the price-hike strategy began to falter and Teva, on April 6, 2016, increased
the prices on only five generic drugs, all of which Teva had increased before. Id. at ¶ 114. Teva
also, on May 9, 2016, reported negative financial results—$215 million less in first quarter 2016
than in first quarter 2015—which it attributed to “higher expenses, lower sales, lower European
profit, and fewer product launches.” Id. at ¶ 116. Teva continued to report that pricing pressure
had nothing to do with their financial results. Id. at ¶ 117. The plaintiffs allege that, contrary to
its public statements, Teva was indeed being substantially damaged by price deflation, and its
price increase related profit had “plummeted.” Id. at ¶ 118. Teva continued to issue statements

11

perpetuating the omission/misrepresentation that it was not subject to pricing pressure, and the
media therefore continued to report as such. Id. at ¶ 119-20.
In June and July 2016, Teva received subpoenas from both the Department of Justice
(“DOJ”) and the Connecticut Attorney General, seeking information about its generics pricing.
Id. at ¶ 122. One day after receiving the Attorney General’s subpoena, on July 13, 2016, Teva
announced that its $20 billion debt offering, scheduled for September, would be accelerated, and
filed a Registration Statement with the SEC that day. Id. at ¶ 123. In conjunction with the
offering, Teva continued to report that it had “stable” pricing and “saw no change” in generics
pricing, which the media reported, and Teva did not report the receipt of the subpoenas. Id. at
124-26. Teva launched its $20 billion bond offering on July 18, 2016 pursuant to the Notes
Offering Materials, “which incorporated several of the false and misleading quarterly and full
year financial disclosures”, and did not disclose the subpoenas from the DOJ or Connecticut
Attorney General. Id. at ¶ 127.
On August 4, 2016, Teva disclosed the subpoenas and reported negative financial results
from the second quarter of 2016—$115 million less in profits than in the second quarter of
2015—which Teva attributed to “increased expenses, the loss of exclusivity on certain products,
and lower sales on products for which Teva had not taken price increases.” Id. at ¶ 128. The
plaintiffs allege that the defendants concealed that Teva had earned $122 million less in pricebased profit. Id. With the negative financial results and disclosure of the subpoenas, the price of
securities declined. Id. The plaintiffs allege that the defendants continued to perpetuate the
misrepresentations and omissions about their pricing practices to investors, analysts, and the
media. Id. at ¶ 129-34.

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On November 3, 2016, Bloomberg released an article about the DOJ and Connecticut
Attorney General probes into generic drug manufacturers, and specifically stated that Teva was
being investigated, which led to Teva securities immediately dropping 9%. Id. at ¶ 135-36. On
November 15, Teva reported negative financial results from the third quarter of 2016—a $277
million decline from the third quarter of 2015—which Teva attributed to “causes such as
divestments and lost sales from certain drugs.” Id. at ¶ 137. The plaintiffs allege, though, that
the decline was “attributable to a … decline in inflated profit as the price-hike strategy
collapsed” but that Teva repeatedly and fraudulently disclaimed that was the reason. Id. at ¶
137-38. CEO Olafsson abruptly “retired” shortly thereafter, but the plaintiffs allege that he was
actually fired. Id. at ¶ 140. Soon after that, the DOJ announced that it charged, via an
information, two executives of a Teva competitor, Heritage, with conspiring to fix prices, rig
bids, and manipulate the market for Glyburide, for which, the plaintiffs allege, Teva controlled
75% of the market. Id. at ¶ 142. On December 15, the Connecticut Attorney General announced
that it, and other Attorneys General, were charging Teva and others with antitrust violations
regarding Glyburide (more drugs have since been added, id. at ¶ 144). Id. at ¶ 143. The
plaintiffs allege that the AG complaint “cited emails, calls, and documents that evince explicit
collusion between Teva and Heritage’s principals” who had been criminally charged. Id.
On January 6, 2017, Teva again reported negative financial results and continued to
falsely attribute the reasons. Id. at ¶ 145-48. One month later, Vigodman was terminated as
President and CEO, and that news, in tandem with the negative financial reports, caused Teva
securities to drop. Id. at ¶ 145, 149. Shortly thereafter, Teva reported its financial results for
2016 and reported that without Actavis, it would have had a $1.4 billion decline, which Teva
attributed to “loss of exclusivity, lower sales of certain drugs, and then loss of revenues from

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divested product.” Id. at ¶ 151. On August 3, 2017, Teva “took a $6.1 billion charge against its
U.S. generics business, a permanent reduction in the entire business’s valuation and a dollar-fordollar hit to [its] bottom line.” Id. at ¶ 153. The plaintiffs allege that this was a “direct result of
the complete collapse of the price-hike strategy, and evaporation of the inflated profits.” Id.
Credit rating agencies downgraded Teva’s debt rate to just above “junk” and the price of Teva
securities “fell dramatically.” Id. at ¶ 154.
From the above allegations, the plaintiffs assert that the defendants “made four types of
false and misleading statements or omissions on conference calls with investors and in SEC
filings”: (1) Item 5 non-disclosure—the plaintiffs allege that the defendants “violated their
statutory duty to disclose material trends under Item 5 of Form 20-F” when they “failed to
disclose the material trend of generating profit as part of the concealed price-hike strategy” and
they also “concealed the trend of declining inflated profit, and that they could no longer make
price increases as the strategy unraveled”; (2) False statements regarding competition—the
plaintiffs allege that the defendants’ statements “falsely indicated that Teva was participating in
competitive and functioning markets for generic drugs” when, actually, “[t]o the contrary, Teva
made dozens of price increases in tandem with its competitors” and Teva and the cooperating
companies “deliberately did not compete on price”; (3) False and misleading pricing
statements—the plaintiffs allege that the defendants’ statements “concealed Teva’s price-hike
strategy and the profits it generated” and then later “concealed that the price-hike strategy fell
apart as Teva was unable to make more price increases or sustain inflated profit” and the
statements “were particularly misleading as the 34 Act Defendants touted, and investors were
highly attuned to, the sources of the generic segment’s purported success”; and (4) Concealed
receipt of subpoenas—the plaintiffs allege that the defendants “failed to disclose in the Notes

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Offering Materials Teva’s receipt of subpoenas from the DOJ and the State Attorneys General in
connection with their antitrust investigations into the generics industry.” Id. at ¶ 155. The
plaintiffs lay out the alleged false and misleading statements and omissions in more detail, along
with their allegations about why each statement was fraudulent. Id. at ¶ 155-239.
D. Legal Claims
1. ’34 Act (Exchange Act) Allegations2
Count One alleges a violation of Section 10(b) of the Exchange Act and Rule 10b-5,
promulgated thereunder, by the ’34 Act Defendants. Compl., Doc. No. 226 at ¶ 342. Plaintiffs
assert, inter alia, that the ’34 Act Defendants “made, disseminated, or approved the false and
misleading statements … which they knew or recklessly disregarded were false and misleading
in that the statements contained material misrepresentations and failed to disclose material facts
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading.” Id. Plaintiffs allege that they, and the class, “suffered damages in
that, in reliance on the integrity of the market, they paid artificially inflated prices for Teva
Securities.” Id. at ¶ 344.
Count Two alleges a violation of Section 20(a) of the Exchange Act by the ’34 Act
Defendants. Id. at ¶ 347. Plaintiffs assert that the defendants “had the power and ability to
control the actions of Teva and its employees” and are therefore liable under Section 20(a). Id.
2. Securities Act Allegations3
Count Three alleges a violation of Section 11 of the Securities Act by the Securities Act
Defendants. Id. at ¶ 397. Plaintiffs assert that this count “does not sound in fraud” and liability

2
3

The ’34 Act Defendants are: Teva, Vigodman, Desheh, Oberman, Olafsson, Griffin, and Cavanaugh.
The Securities Act Defendants are: Teva, Teva Finance, Vigodman, Desheh, and Griffin.

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is “predicated on the participation of each defendant in the … Offering Materials, which
contained untrue statements and omissions of material fact.” Id. Count Three is brought against
all Securities Act Defendants with respect to the ADS/Preferred Offerings “on behalf of the class
who purchased or otherwise acquired Teva ADS or Preferred Shares pursuant and/or traceable to
the ADS/Preferred Offerings[.]” Id. at ¶ 398. Count Three is brought against all Securities Act
Defendants, except Teva Finance, with respect to the Notes Offerings “on behalf of members of
the class who purchased or otherwise acquired Notes pursuant and/or traceable to the Notes
Offering[.]” Id. at ¶ 399. Plaintiffs allege that the ADS/Preferred and Notes Offerings
“contained … untrue statements of material fact or omitted to state [material facts] … required to
be stated therein or necessary to make the statements therein not misleading.” Id. at ¶ 400.
Count Four alleges a violation of Section 12(a)(2) of the Securities Act by the Securities
Act Defendants. Id. at ¶ 406. Plaintiffs assert that Count Four is solely based in negligence and
not fraud. Id. Count Four is brought “on behalf of all persons who purchased securities in/
pursuant to, and/or traceable to the Offerings”, offered by means of prospectus or oral
communications which “included … untrue statements of material fact and/or omitted to state …
material facts necessary in order to make the statements, in light of the circumstances under
which they were made, not misleading.” Id. at ¶¶ 407, 410.
Count Five alleges a violation of Section 15(a) of the Securities Act by Teva, Vigodman,
Desheh, and Griffin; all in connection with the Notes Offering, and against all but Teva in
connection with the ADS and Preferred Offerings. Id. at ¶¶ 415-16. Plaintiffs assert that Count
Five is solely based in negligence and not fraud. Id. Plaintiffs assert that the defendants “acted
negligently in that none of them exercised reasonable care to ensure, or had reasonable grounds
to believe, that the Offering Materials were true and not misleading as to all material facts and

16

did not omit to state any material fact required to be stated therein or necessary to make … the
statements therein not misleading.” Id. at ¶ 421.
III.

DISCUSSION
A. Pleading Standards: Rule 12(b)(6), Rule 8(a), Rule 9(b), and the PLSRA
Rule 12(b)(6) permits dismissal of a complaint for “failure to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). A motion to dismiss for failure to state a claim
pursuant to Rule 12(b)(6) is designed “merely to assess the legal feasibility of a complaint, not to
assay the weight of evidence which might be offered in support thereof.” Ryder Energy
Distribution Corp. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984)
(quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980)). When deciding a motion to
dismiss pursuant to Rule 12(b)(6), the court must accept the material facts alleged in the
complaint as true, draw all reasonable inferences in favor of the plaintiffs, and decide whether it
is plausible that plaintiffs have a valid claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678–79
(2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56 (2007); Leeds v. Meltz, 85 F.3d 51, 53
(2d Cir. 1996).
Under Twombly, “[f]actual allegations must be enough to raise a right to relief above the
speculative level,” and assert a cause of action with enough heft to show entitlement to relief and
“enough facts to state a claim to relief that is plausible on its face.” 550 U.S. at 555, 570; see also
Iqbal, 556 U.S. at 6 79 (“While legal conclusions can provide the framework of a complaint,
they must be supported by factual allegations.”). The plausibility standard set forth in Twombly
and Iqbal obligates the plaintiff to “provide the grounds of his entitlement to relief” through
more than “labels and conclusions, and a formulaic recitation of the elements of a cause of
action.” Twombly, 550 U.S. at 555 (quotation marks omitted). Plausibility at the pleading stage is
17

nonetheless distinct from probability, and “a well-pleaded complaint may proceed even if it
strikes a savvy judge that actual proof of [the claims] is improbable, and . . . recovery is very
remote and unlikely.” Id. at 556 (quotation marks omitted). Federal Rule of Civil Procedure 8(a)
requires only a “short and plain statement of the claim showing that the pleader is entitled to
relief.” Fed. R. Civ. P. 8(a)(2).
Further, plaintiffs claiming securities fraud under the Exchange Act are “subject to
heightened pleading requirements that [they] must meet to survive a motion to dismiss. First, a
complaint alleging securities fraud must satisfy Rule 9(b) … which requires that ‘the
circumstances constituting fraud … shall be stated with particularity.’” ATSI Communications,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007) (quoting Fed. R. Civ. P. 9(b)).
“Securities Acts claims that ‘are premised on allegations of fraud’ also must satisfy Rule 9(b)’s
particularity requirement.” In re MF Global Holdings Limited Securities Litigation, 982 F.
Supp. 2d 277, 302 (S.D.N.Y. 2013) (quoting Rombach v. Chang, 355 F.3d 164, 171 (2d Cir.
2004)). The heightened pleading standard set by Rule 9(b) “serves to provide a defendant with
fair notice of a plaintiff’s claim, safeguard [its] reputation from improvident charges of
wrongdoing, and protect [a defendant] against strike suits.” ATSI Communications, 493 F.3d at
99; Rombach, 335 F.3d at 171.
In addition to the heightened requirements under Rule 9(b), Exchange Act complaints
must also meet the pleading requirements of the Private Securities Litigation Reform Act of 1995
(“PSLRA”). See ATSI Communications, 492 F.3d at 99; In re MF Global Holdings, 982 F.
Supp. 2d at 302. “The PSLRA requires that a complaint ‘specify each statement alleged to have
been misleading, the reason or reasons why the statement is misleading, and, if an allegation
regarding the statement or omission is made on information and belief, the complaint shall state

18

with particularity all facts on which that belief is formed.’” In re MF Global Holdings, 982 F.
Supp. 2d at 302 (quoting 15 U.S.C. § 78u-4(b)(1)).
1. Exchange Act Claims – Counts One and Two
The ’34 Act Defendants argue that the plaintiffs failed “to adhere to the[] exacting
standards” under the PSLRA and Rule 9(b). ’34 Act Mot. to Dism., Doc. No. 238-1 at 12-13.
They argue that the complaint “tries to make up for in length what it lacks in particularity” and
the plaintiffs “fail to plead with particularity facts demonstrating that Teva engaged in … a
‘[price-hike] strategy’ or that Teva’s overall pricing increased if one includes drugs for which
there were price declines.” Id. at 13. The defendants argue that the plaintiffs asserted only
“unwarranted inferences and unsupported conclusions [that] do not constitute well-pleaded facts
for purposes of a motion to dismiss under Rule 12(b)(6), and they fall far short of providing the
particularity Rule 9(b) and the PSLRA require.” Id. (internal quotation marks omitted). Further,
the ’34 Act Defendants argue that the complaint “never states with particularity how any specific
statement was false or misleading on its own or through the alleged omission of information.”
Id. at 14 (emphasis in original). They argue that the plaintiffs instead just “print quotations from
every quarterly and annual financial release and then conclusorily allege that the financial
disclosures were misleading based on Plaintiffs’ speculation about supposed price increases.” Id.
The plaintiffs argue that they met the required standard for pleading with specificity to survive
this threshold argument. Opp. to ’34 Act Mot. to Dism., Doc. No 244 at 12. I agree with the
plaintiffs.
Courts in this Circuit have held that the length of a complaint does not, alone, satisfy the
requirement that it be sufficiently particular, nor is it enough for a plaintiff to assert generic
and/or identical allegations after each quotation or section, setting forth the reasons why the
19

statement is allegedly false. See In re Alcatel Securities Litigation, 382 F. Supp. 2d 513, 534
(S.D.N.Y. Feb. 28, 2005); Endovasc Ltd., Inc. v. J.P. Turner & Co., 2004 WL 634171, at *6, *9
(S.D.N.Y. Mar. 30, 2004) (dismissing a plaintiff’s complaint where the plaintiff “provided a
laundry list of alleged false statements,” but supported the alleged misstatements “only by
sweeping conclusory allegations that lack[ed] particularity as to how the statements were
untrue”), aff’d, 169 F. App’x 655 (2d Cir. 2006). It is not up to the courts to play “connect-thedots in order to identify the facts and trends upon which plaintiffs base their claim.” In re
Alcatel, 382 F. Supp. 2d at 534 (citing In re PetSmart, Inc. Sec. Litig., 61 F. Supp. 2d 982, 991
(D. Ariz. 1999)).
In Alcatel, the plaintiffs asserted claims similar to those in Count One here, violations of
Section 10(b) and Rule 10b-5, in a 250-paragraph, 102-page complaint. Id. The court dismissed
those claims because the complaint, although long, stated “very little with particularity.” Id. In
addition, the court highlighted the fact that the plaintiffs, in making allegations under those
sections, set forth lengthy quotations made by the defendants and followed each quotation “with
a similar (in most cases identical) laundry list of ‘specific’ reasons why the statements were
allegedly false.” Id. The court held that the plaintiffs neglected to “make it clear what portion of
each quotation constitut[ed] a false representation or which statements link up with which issues
in the laundry list.” Id. The court held that was deficient under the pleading standards for all
those reasons and because it “plac[ed] the burden on the Court to sort out the alleged
misrepresentations and match them with the corresponding adverse facts.” Id. Courts have
found, however, that a complaint meets the particularity requirement when it “specifically
identif[ies] the date, publication, and speaker of each of the alleged misstatements or omissions
and contain[s] facts supporting the existence and materiality of these problems” and highlights in

20

some way the “particular aspects of the statements alleged to be misleading.” In re MF Global
Holdings, 982 F. Supp. 2d at 309 (internal quotation marks omitted); see also In re NTL, Inc.
Securities Litigation, 347 F. Supp. 2d 15, 22-23 (S.D.N.Y. 2004).
Here, the plaintiffs separated into four categories the alleged misleading statements and
omissions by the defendants: (1) pricing trends; (2) competition; (3) pricing; and (4) subpoenas.
Compl., Doc. No. 226 at pp. 45-86. With respect to the section regarding the alleged misleading
statements that Teva operated in a competitive market regarding price, the complaint is further
separated into subsections, detailing the false statements made on conference calls, and those
made in SEC filings. See id. at ¶¶ 164-71. With respect to the section regarding the alleged false
and misleading statements and omissions regarding pricing, the complaint is further separated
into subsections, detailing the alleged false and misleading financial disclosures for each quarter
and full year throughout the class period. See id. at ¶¶ 172-237. In each subsection, the
plaintiffs identify the allegedly misleading statement or omission, the date it was made, the
forum/publication in which it was made, and the speaker of the alleged misstatements or
omissions. As an example, in the subsection regarding Third Quarter 2014 Financial Results, the
plaintiffs cite to an October 30, 2014 statement by Vigodman on a conference call in which he
stated that Teva’s revenue was because of “the new launches this year” which have “been very
significant contributors to the year.” Id. at ¶ 182. The plaintiffs allege that the statements were
“false and misleading because, having attributed the source of the profit increase, the 34 Act
Defendants had a duty to disclose but concealed the full truth that the price-hike strategy …
contributed materially to the results.” Id. The plaintiffs used this layout and format throughout
all of its allegations of misleading statements and omissions, and after each statement or

21

omission, the plaintiffs allege why it was false or misleading. Here, the plaintiffs provide the
required particularity for the heightened standard under Rule 9(b) and the PSLRA.4
Here, the complaint is not “so ‘[v]ague and disorganized’ as to fail to satisfy Rule 9(b)
and the PSLRA.” In re MF Global Holdings, 982 F. Supp. 2d at 309 (quoting In re ITT Educ.
Servs., Inc. Sec. & Shareholder Derivatives Litig., 859 F. Supp. 2d 572, 578 (S.D.N.Y. 2012)).
The purpose of the heightened pleading requirements under Rule 9(b) and the PSLRA is “to
provide a defendant with fair notice of a plaintiff’s claim, safeguard his reputation from
improvident charges of wrongdoing, and protect him against strike suits.” ATSI
Communications, 493 F.3d at 99. The complaint here sufficiently achieves those purposes. If
nothing else, the defendants’ briefs, in which the defendants thoroughly and directly rebut the
allegations in the Complaint, prove that the defendants were on notice of the claims against
them. See In re MF Global Holdings, 982 F. Supp. 2d at 310 (relying on defendants’ motions to
dismiss to find that the complaint put the defendants on notice of the claims against them).

4

I do note, though, that within those sections, the plaintiffs put forth a number of block quotes but do not highlight
the particular parts of the statement they allege to be inadequate. Courts have routinely focused on a plaintiff’s
doing so as indicia of sufficient particularity. See In re Alcatel, 382 F. Supp. 2d at 534 (faulting complaint for
failing to “make it clear what portion of each quotation constitutes a false representation”); In re MF Global
Holdings, 982 F. Supp. 2d at 309 (finding that the plaintiff’s “use of bold text to highlight particular aspects of the
statements alleged to be misleading further supports a finding of sufficient particularity”). The failure for the
plaintiffs to do so here, though, is not fatal to the Complaint.
First, the inquiry does not rise and fall on this factor alone; there are other factors to consider in
determining a complaint’s particularity. Second, by addressing the allegedly false and misleading nature of the
statement after each statement, the plaintiffs highlight further with which portion of the statement they take issue.
Further, the plaintiffs recite many of the same allegedly false statements in other sections of the Complaint and there
do highlight the relevant portions in bold text. For instance, paragraph 72 asserts December 11, 2014 statements by
Olafsson on an analyst call in which he stated, in response to a question about wholesaler price increases: “So first
let me correct. I have to disagree that they have experienced tremendous price increase.” Id. at ¶ 72 (emphasis in
original). The following paragraph alleges that his statement was “flatly belied by the facts [about the price-hike
strategy], to which Olafsson had direct access.” Id. at ¶ 73. That same statement by Olafsson is re-asserted in the
subsection alleging the false and misleading statements. Id. at ¶ 186. There, the plaintiffs allege further that the
statements were “false and misleading because, in responding to a direct question regarding price hikes, Olafsson
had a duty to disclose but concealed the full truth that the price-hike strategy … contributed materially to the
results.” Id. Although the statement in the latter portion of the complaint is not highlighted, it is clear from the
earlier paragraph with which portion of the statement the plaintiffs take issue. That system is routinely used by the
plaintiffs throughout the complaint.

22

Although Rule 9(b) and the PSLRA place heavy requirements on plaintiffs who bring
fraud allegations, they “do not require such an extreme level of particularity” and, in especially
complex cases, allow for some flexibility. In re MF Global Holdings, 982 F. Supp. 2d at 311.
Accordingly, the complaint satisfies the particularity requirements of Rule 9(b) and the PSLRA
with respect to the pricing claims brought under the Exchange Act claims in Counts One and
Two.
2. Securities Act Claims – Counts Three, Four, and Five
“While Exchange Act claims require proof of fraud and must always be pled with
particularity, Securities Act claims must be pled with particularity only where ‘the gravamen of
the complaint is plainly fraud.’” In re MF Global Holdings, 982 F. Supp. 2d at 310 (quoting
Rombach, 355 F.3d at 172)). Here, the plaintiffs distinguish their Securities Act claims, which
they allege do not sound in fraud but only negligence, from their Exchange Act claims, which
they allege do sound in fraud. As such, the Complaint states, in each count brought under the
Securities Act, that the count does not sound in fraud and/or that any allegations of fraud are
expressly excluded from the count. See Compl., ¶ 397 (Count Three: “This count does not sound
in fraud.”); ¶ 406 (Count Four: “Plaintiffs … expressly exclude from this count any allegations
of fraud or reckless or intentional misconduct”); ¶ 415 (Count Five: “Plaintiffs … expressly
exclude from this count any allegations of fraud or intentional misconduct.”).
Many of the defendants allege that the plaintiffs’ claims under Sections 11 and 12(a)(2)
of the Securities Act actually do sound in fraud, though, and should therefore be subjected to the
heightened pleading requirements of Rule 9(b) and the PSLRA. Teva Finance Mot. to Dism.,
Doc. No. 239-1 at 15. They argue that the plaintiffs claim, either in the express allegations of the
counts or through reference to other sections of the complaint, that the defendants made “false
23

and misleading statements”, and also use words like “fraud” and “untrue”, and, therefore the
claims actually sound in fraud. Id. at 17. Further, they argue that the plaintiffs’ “Securities Act
claims are based on the very same alleged conduct and the very same statements as the Exchange
Act claims” and the complaint tries to “obscure the similarity” by separating the two claims. Id.
at 17.
It is true that when “the sole allegations supporting the falsity element of the Section 11
and Section 12(a)(2) claims are inextricably intertwined with the allegations underlying
plaintiffs’ fraud claims,” the Section 11 and Section 12(a)(2) claims sound in fraud. In re Axis
Capital Holdings Ltd. Securities Litigation, 456 F. Supp. 2d 576, 598 (S.D.N.Y. 2006) (citation
omitted). Further, “[i]t is well-established that … a boilerplate disclaimer is not enough to make
out a claim for negligence.” Ladmen Partners, Inc. v. Globalstar, Inc., 2008 WL 4449280, at
*11 n.10 (S.D.N.Y. Sept. 30, 2008) (internal quotation marks omitted); In re Ultrafem Inc.
Securities Litigation, 91 F. Supp. 2d 678, 691 (S.D.N.Y. 2000) (“boilerplate disclaimer is not
enough to make out a claim for negligence, and, therefore Rule 9(b) applies to the Section 11,
12(a)(2), and Section 15 claims[.]”).
Here, it seems that the plaintiffs have attempted to use boilerplate language to remove
their Section 11, 12(a)(2), and 15 claims from Rule 9(b)’s heightened pleading standards.
Accordingly, Counts Three through Five should be subjected to the same standard as Counts One
and Two. If the plaintiffs’ Securities Act claims sound in fraud, because they are identical to the
Exchange Act claims, Plaintiffs have met the Rule 9(b) and PSLRA particularity standard for the
reasons stated above. Even if not, however, the plaintiffs, by virtue of meeting the higher
standard, have also met any lower standard applicable to the Securities Act claims that sound in
negligence. See NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145,

24

157 (2d Cir. 2012) (the provisions of sections 11 and 12(a) “place[] a relatively minimal burden
on a plaintiff” (internal quotation marks omitted)). Accordingly, whether these counts sound in
fraud or negligence, the plaintiffs have complied with the pleading standards applicable to their
Securities Act claims.
B. Sufficiency of the ’34 Act (Exchange Act) Allegations
1. Count One: Section 10(b) and Rule 10b-5
The plaintiffs bring Count One of the Complaint against the ’34 Act Defendants for
violations of Section 10(b) and Rule 10b-5 for various alleged misrepresentations and omissions
made during the class period. Section 10(b) of the Exchange Act, codified at 15 U.S.C. § 78j(b),
states, in pertinent part:
It shall be unlawful for any person, directly or indirectly by the use of any means or
instrumentality of interstate commerce or of the mails, or of any facility of any national
securities exchange … [t]o use or employ, in connection with the purchase or sale of any
security registered on a national securities exchange or any security not so registered, or
any securities-based swap agreement any manipulative or deceptive device or contrivance
in contravention of such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b).
Rule 10b-5, promulgated by the SEC to implement Section 10(b), “more specifically
delineates what constitutes a manipulative or deceptive device or contrivance.” Press v.
Chemical Inv. Servs. Corp., 166 F.3d 529, 534 (2d. Cir. 1999). Rule 10b-5, codified at 17 C.F.R.
§ 240.10b-5, provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national
securities exchange [in connection with the purchase or sale of any security], (a) To
employ any device, scheme or artifice to defraud, (b) To make any untrue statement of a
material fact or to omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate
as a fraud or deceit upon any person.
25

17 C.F.R. § 240.10b-5. “Section 10b-5 operates as a broad prohibition against manipulation,
whether in the form of false statements or market manipulation.” In re MF Global Holdings, 982
F. Supp. 2d at 303. “To state a claim for misrepresentations or omissions, a plaintiff must allege
that the defendant ‘(1) made misstatements or omissions of material fact, (2) with scienter, (3) in
connection with the purchase or sale of securities, (4) upon which the plaintiff relied, and (5) that
the plaintiff’s reliance was the proximate cause of its injury.’” Id. (quoting ATSI
Communications, 492 F.3d at 105).
The ’34 Act Defendants move to dismiss Count One on multiple grounds: (1) the
plaintiffs failed to plead their allegations with particularity, as required by the PSLRA and Rule
9(b)5; (2) the plaintiffs failed to identify any actionable statement or omission of material fact;
(3) the plaintiffs failed to adequately plead scienter; and (4) the plaintiffs failed to adequately
plead loss causation. ’34 Act Def. Mot. to Dism., Doc. No. 238-1.
a. Did the plaintiffs fail to identify any actionable statement or omission of material
fact?
The plaintiffs allege that the complaint sets out a deviation between what was said and
what was done “in particularized detail, as Defendants’ outright untrue statements unfolded in a
variety of different yet wholly consistent falsehoods” and the complaint “alleges two
independently sufficient bases for violations of the Exchange Act’s antifraud provisions.” Opp.
to ’34 Act Mot. to Dism., Doc. No. 244 at 1 (internal quotation marks omitted). First, the
plaintiffs allege that the defendants “made categorically false statements that Teva’s rapid
turnaround and $1 billion improvement in generic profit margin was not driven by price
increases” when, in fact, the defendants “implemented 76 price increases on 60 different drugs

5

The Rule 9(b) issue has been addressed above.

26

from July 2013 to April 2016” which led to “over $2.3 billion in [i]nflated [p]rofits.” Id.
(internal quotation marks omitted). The plaintiffs argue that “SEC regulations required [the
d]efendants to disclose the impact of th[o]se price increases, [but] they instead denied any price
hikes existed.” Id. at 2. Second, the plaintiffs allege that the complaint “independently
establishes through Lead Counsel’s investigation that Defendants were engaged in an industrywide conspiracy to fix prices and allocate markets with respect to a subset of 16 Teva drugs”
which is “more than parallel pricing.” Id. The ’34 Act Defendants allege that the plaintiffs
failed to identify any misleading statements or omission of material fact and, therefore, the
complaint should be dismissed in its entirety with prejudice.
The PSLRA requires that a complaint “specify each statement alleged to have been
misleading, the reason or reasons why a statement is misleading, and, in an allegation regarding
the statement or omission is made on information and belief, the complaint shall state with
particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). “Rule 10b-5
requires an actual statement, one that is either untrue outright or misleading by virtue of what it
omits to state. Absent an actual statement, a complete failure to make a statement—in other
words, a pure omission—is actionable under the securities laws only when the corporation is
subject to a duty to disclose the omitted facts.” In re Vivendi, S.A. Securities Litigation, 838 F.3d
223, 239 (2d Cir. 2016) (emphasis in original) (internal citations and quotation marks omitted).
“And in and of themselves, [section] 10(b) and Rule 10b-5 do not create an affirmative duty to
disclose any and all material information…. No such duty arises merely because a reasonable
investor would very much like to know that information.” Id. (internal citations and quotation
marks omitted). Half-truths, “statements that are misleading by omission”, are actionable in
securities law. Id. at 239-40.

27

“To determine whether a misstatement or omission is material is an inherently factspecific inquiry.” Hutchison v. Deutshe Bank Securities Inc., 647 F.3d 479, 485 (2d Cir. 2011)
(internal quotation marks omitted). “A fact is material if there is a substantial likelihood that a
reasonable shareholder would consider it important in deciding how to [act]…. That is to say
there must be a substantial likelihood that the disclosure of the omitted fact would have been
viewed by the reasonable investor as having significantly altered the total mix of information
made available.” Id. (internal citations and quotation marks omitted). Materiality is a mixed
question of fact and law and, therefore, “a complaint may not properly be dismissed … on the
ground that the alleged misrepresentations or omissions are not material unless they are so
obviously unimportant to a reasonable investor that reasonable minds could not differ on the
question of their importance.” ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP
Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (internal quotation marks omitted).
However, “materiality allegations in securities fraud complaints must nevertheless comply with
the particularity requirements of [Rule 9(b)] and the PSLRA; the materiality of the alleged
misstatements or omissions cannot be pled in a conclusory or general fashion.” In re Axis, 456
F. Supp. 2d at 585 (internal quotations omitted).
As aforementioned, there are three types of statements, or lack thereof, that the plaintiffs
allege are actionable: (1) defendants’ statements that Teva’s success was not because of pricing
and price increases, which were themselves misleading and, also, half-truths because the
defendants failed to disclose that they were involved in price-hiking; (2) defendants’ statements
that Teva was engaged in stiff competition in the generics market, which were themselves
misleading and, also, half-truths because the defendants failed to disclose that they were
involved in a collusive agreement with its competitors to raise prices in tandem; and (3)

28

defendants’ failure to disclose the receipt of the DOJ and state Attorney General subpoenas,
which relate, at least in part, to both of the other alleged categories of misstatements/omissions.
The ’34 Act Defendants allege that the plaintiffs failed to identify any misleading
statement of material fact because all of the statements identified by the plaintiffs fall into one of
the following three exceptions: (1) they were accurate statements of historical fact; (2) they were
forward-looking statements that fall within PSLRA’s safe harbor; and/or (3) they were vague and
indefinite statements of optimism and, therefore, immaterial. Further, the ’34 Act Defendants
allege that the plaintiffs failed to identify any actionable omissions of material fact because all of
the omissions identified by the plaintiffs fall into one of the following exceptions: (1) Teva had
no duty to disclose the details of its pricing strategies; (2) none of the statements was so
incomplete as to mislead; (3) Teva had no duty to disclose its receipt of government subpoenas;
and (4) the plaintiffs failed to plead a strategy of systematic price increases. See Mem. in Supp.
’34 Act Mot. to Dism., Doc. No. 238-1.
i. Statements and Omissions about Competition
In the complaint, the plaintiffs allege that the defendants “made materially false and
misleading statements concerning purported ‘intense’ or ‘fierce’ competition on price in the U.S.
market for generic drugs” on conference calls and in SEC filings. Compl., Doc. No. 226 at ¶
164; see also id. at ¶¶ 164-71. The plaintiffs allege that the defendants’ statements about
competition were “materially false and misleading because Teva was not in fact competing on
price” but was, instead, raising the prices of its generic drugs “in tandem” with its competitors.
Id. at ¶ 165. The defendants allege that the plaintiffs’ competition claims fail because the
plaintiffs “do not even attempt to ‘specifically’ plead any anticompetitive price-fixing[.]” ’34 Act
Def. Mot. to Dism., Doc. No. 238-1 at 33. Further, the defendants allege that even if the anti29

competition allegation were adequately pled, “the alleged omission does not render misleading
the challenged statements about competition in the generic drug industry generally.” Id. at 34.
The plaintiffs in In re Sotheby’s sued for violations of Section 10(b), Rule 10b-5, and
Section 20(a) alleging that Sotheby’s and its main competitor, Christie’s, were colluding in an
illegal price-fixing scheme, for which both were investigated by the Department of Justice. 2000
WL 1234601, at *2 (S.D.N.Y. Aug. 31, 2000). The plaintiffs alleged that the defendants “made
a number of false or misleading affirmative statements in public filings and in press releases—as
to the level of competition in the industry and the reasons for Sotheby’s growth in revenues and
earnings—that triggered the requirement to disclose the illegal conduct.” Id., at *4. The court
agreed and denied the motions to dismiss stating:
The Complaint alleges that defendants’ statements in Sotheby’s Annual Reports on Form
10-K that there was ‘intense’ competition with its ‘primary auction competitor,’
Christie’s, and that the amount of commission proposed by auction houses was a factor in
the decision made by a seller of Auction items, were false and misleading because the
price-fixing agreement between Sotheby’s and Christie’s had eliminated price
competition between the two houses. A jury could conclude that these statements could
have led reasonable investors to believe that Sotheby’s and Christie’s were competing
with each other in the usual manner, that is, through price.
Id. The court held that Sotheby’s was under a duty to disclose because it had made a disclosure
and, therefore, had a “duty to make it complete and accurate.” Id. (internal quotation marks
omitted).
The strength of In re Sotheby’s was diminished by In re Axis, 456 F. Supp. 2d 576, in
which the court held that the statements made by defendants “referencing its ‘competitive
strengths’ or stating that the insurance and reinsurance industries were ‘highly competitive’
[were] far more innocuous than Sotheby’s disclosures which were directly contradicted by
specific allegations of a price-fixing conspiracy between companies that accounted for 95% of
the market.” Id. at 589. “If the complaint fails to allege facts which would establish such an
30

illegal scheme, then the securities law claims premised on the nondisclosure of the alleged
scheme are fatally flawed.” Id. at 585 (emphasis in original). The court in In re Axis dismissed
the complaint, in part, because the plaintiffs were
unable to allege in other than conclusory terms how AXIS’s statements were rendered
false because they are unable to allege how AXIS engaged in the alleged scheme to drive
other insurance companies from the market. Plaintiffs cannot parrot allegations made in
the AG complaint against [defendant] and other insurance companies … to establish a
factual predicate for AXIS’s misuse of contingent commission agreements, and then
allege that AXIS’s statement as to its ‘competitive strengths’ should be read as a
misrepresentation of some unspecified anticompetitive conduct.
Id. (emphasis in original).
The Southern District of New York recently held that allegations about a price-fixing
conspiracy in the generic drug industry, similar to the allegations here, were sufficiently pled.
Speakes v. Taro Pharmaceutical Industries, Ltd., 2018 WL 4572987, at *6 (S.D.N.Y. Sept. 24,
2018). The complaint alleged that various officials from the defendant company, “who had the
authority to, and did, cause pricing changes”, attended trade association meetings and, shortly
thereafter, the prices of their drugs increased, and the prices of their competitors’ drugs similarly
increased after that. Id. at *2. The allegations about price increases were also corroborated by
confidential witnesses. Id. “Generally, [d]isclosure is not a rite of confession, and companies do
not have a duty to disclose uncharged, unadjudicated wrongdoing…. However, the failure to
disclose uncharged criminal conduct may be actionable where the failure to do so would make
other disclosures materially misleading.” Taro Pharmaceuticals, 2018 WL 4572987, at *4
(internal citations and quotation marks omitted). “Where a complaint concerns allegations of
anti-competitive conduct, mere evidence of parallel price movements does not suffice to make
out a claim…. Rather, ‘a plaintiff must show the existence of additional circumstances, often
referred to as ‘plus’ factors, which, when viewed in conjunction with the parallel acts, can serve

31

to allow a fact-finder to infer a conspiracy.’” Id. (quoting United States v. Apple, Inc., 791 F.3d
290, 315 (2d Cir. 2015)). Plus factors can be shown through direct or circumstantial evidence,
id., and circumstantial evidence includes “a common motive to conspire, evidence that shows
that the parallel acts were against the apparent individual economic self-interest of the alleged
conspirators, and evidence of a high level of interfirm communication.” Apple, Inc., 791 F.3d at
315.
Here, the plaintiffs do not allege direct evidence of a price-fixing conspiracy, but premise
their allegations “upon parallel price movements for the drugs at issue over a short period of
time, combined with certain factors that tend to indicate price-fixing.” Taro Pharmaceuticals,
2018 WL 4572987, at *4. The plaintiffs allege that the defendants engaged in parallel price
increases with their competitors 48 times. See Compl., Doc. No. 226 at ¶¶ 15, 165, 288. The
plaintiffs further allege that high-level officials attended various industry meetings and trade
shows “that afforded individuals responsible for Teva’s generic drug prices an opportunity to
interact with their counterparts” and occurred “in close proximity to price increases that Teva
and/or another manufacturer implemented on the Collusive Drugs.” Id. at ¶ 296. The plaintiffs
allege that “representatives of at least one other manufacturer – and typically many more – also
attended the conferences. Id.; see also App. C to Compl. Further, the plaintiffs allege that at the
2013 and 2014 annual meetings of the National Association of Chain Drug Stores, “Teva
reserved a ‘strategic exchange’ bungalow” which offered “‘opportunities to meet and discuss
strategic issues with key trading partners.’” Id. at ¶ 297. The plaintiffs allege that Teva “paid for
a secluded area where its personnel could meet privately with others, including other
manufacturers.” Id.

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Courts in this Circuit have determined that similar allegations were sufficient to survive a
motion to dismiss, even under the heightened Rule 9(b) and PSLRA standards. See Taro
Pharmaceuticals, 2018 WL 4572987 (price-fixing scheme adequately plead with respect to
seven of the defendants’ drugs where plaintiffs alleged parallel pricing and attendance at market
conferences); In re Mylan N.V. Securities Litigation, 2018 WL 1595985 (S.D.N.Y. 2018) (pricefixing scheme was adequately pled where complaint referenced anti-competitive agreements as
well as DOJ and Attorney General investigations). Viewing the allegations in the light most
favorable to the plaintiffs, the complaint has adequately pled a price-fixing scheme. The
plaintiffs allege that there were dozens of parallel price increases, which certainly satisfies the
first portion of the test. They also allege that Teva representatives, who had control over pricing,
attended industry conferences and met with other pharmaceutical company representatives and,
shortly thereafter, both Teva and its competitors raised prices.
“To the extent that [Teva] engaged in a price-fixing conspiracy with their competitors,
statements that the industry was, for example, ‘intensely competitive[,]’ are ‘misleading in the
absence of a disclosure of that anticompetitive conduct.’” Taro Pharmaceuticals, 2018 WL
4572987, at *6 (quoting In re Mylan, 2018 WL 1595985, at *7). Teva representatives made
statements about competition on conference calls, such as: “the generic market is very
competitive”, Compl., at ¶ 166; “[w]e believe in competition, and we’ll do what is needed in
order to win in all the markets we operate”, id. at ¶ 167; “pricing is obviously based on
competition”, id. at ¶ 168; “there are [not] many examples for competitive environment, real
competition, like we see in generic market in the United States”, id. at ¶ 169; “it is a highly
competitive environment … [and] we’re playing a competitive game [and w]e’re playing it
fairly. We of course play by the book and by the rule”, id.; “we are in short playing in a very

33

competitive market.” Id. Further, in its SEC filings, Teva stated that its “generic drugs face[d]
intense competition” and that it “ha[d] a focused and competition pricing strategy.” Id. at ¶ 171.
The plaintiffs allege those statements are all misleading and false because Teva was, in fact, not
engaged in competition with other firms in the industry.
The plaintiffs have adequately pled that Teva’s statements regarding competition, and
lack thereof, are actionable misleading statements and/or omissions. “A duty to disclose arises
whenever secret information renders prior public statements materially misleading[.]” In re Time
Warner Securities Litigation, 9 F.3d 259, 268 (2d Cir. 1993). “[E]ven though no duty to make a
statement on a particular matter has arisen, once corporate officers undertake to make statements,
they are obligated to speak truthfully and to make such additional disclosures as are necessary to
avoid rendering the statements made misleading.” In re Par Pharm., Inc. Securities Litigation,
733 F. Supp. 668, 675 (S.D.N.Y. 1990); see also In re Mylan, 2018 WL 1595985, at *7; Menkes
v. Stolt-Nielsen S.A., 2005 WL 3050970, at *7 (D. Conn. Nov. 10, 2005) (comments that pricing
market was “tight” and subject to “pressure”, where defendant was engaged in anti-competitive
conduct, gave rise to a duty to disclose).
In sum, the material differences between what Teva was doing regarding competition and
what it was saying about competition were misleading and “would have been viewed by the
reasonable investor as having significantly altered the total mix of information made available,”
and, therefore, those statements and omissions are actionable at the motion to dismiss stage. In
re Int’l Bus. Machines Corporate Securities Litigation, 163 F.3d 102, 106-07 (2d Cir. 1998)
(internal quotation marks omitted). At the very least, the misstatements and omissions about
competition are not “so obviously unimportant to a reasonable investor that reasonable minds

34

could not differ on the question of their importance.” Menkes, 2005 WL 3050970, at *6 (internal
quotation marks omitted).
ii. Statements and Omissions about Pricing
In the complaint, the plaintiffs allege a number of different types of statements and
omissions that related to Teva’s pricing structure. First, the plaintiffs allege that the defendants
were under a duty to disclose, pursuant to Item 5 of SEC Form 20-F, the price-hike strategy and
its ultimate failure. Compl., Doc. No. 226, ¶¶ 157-63. Second, the plaintiffs allege that the
defendants “made numerous statements to conceal their Price-Hike Strategy and its effects” on
conference calls with investors, analysts, and the media and in various financial disclosures. Id.
at ¶ 172; see also id. at ¶¶ 172-237. With respect to Item 5, the plaintiffs allege that the ’34 Act
defendants were under a statutory duty to disclose the pricing trends, namely the price-hike
strategy and its ultimate failure, in its filing of Form 20-F. Compl., Doc. No. 226 at ¶ 157. The
plaintiffs allege that, contrary to their duty to disclose, the ’34 Act defendants “only disclosed
trends that did not bear on the issue of price inflation (through price increases), or price erosion.”
Id. at ¶ 163. During the relevant time period, from 2012 to 2016, Teva yearly filed Form 20-F.
See Ex. 14-18 to ’34 Act Def. Mot to Dism., Doc. No. 238-16-238-20.
In addition to Item 5, the plaintiffs allege that the ’34 Act defendants “made numerous
statements to conceal their Price-Hike Strategy and its effects” in SEC filings and on conference
calls. Compl., Doc. No. 226 at ¶ 172. In various press releases, conference calls, and financial
disclosures, the defendants attributed positive financial results primarily to reasons other than the
price-hike strategy: “exclusive launches” and “higher sales” of drugs, id. at ¶ 174; “change in
composition of revenues in the [U.S.] and Europe” from product launches, id. at ¶ 178;
“significant reduction in selling and marketing expenses”, id. at ¶¶ 178, 179, 182; “new product
35

launches”, id.; “lower … expenses”, id. at ¶ 188, 189, 192, 195; “portfolio mix, new products,
and efficiency measures”, id. at ¶ 210; “improvement in cost of goods sold”, “consolidation of
plants”, and “portfolio selection and cost infrastructure”, id. at ¶ 213; and “portfolio
optimization”, id. at ¶ 218, 219.
Further, Teva officials routinely expressly denied that pricing had much of an effect on
profits, even when asked by investors and analysts. See id. at ¶ 184 (“there’s never a price
increase on the base business as a whole”); id. at ¶ 186 (“I have to disagree that [generics has]
experienced tremendous price increase[s] … the pricing in the U.S. of generics has been flat to a
slight down”); id. at ¶ 198 (“the improvement … is not driven by price[; i]t is driven by
quantities and by mix and efficiency measures[, n]ot by price … and that’s a very important
message”); id. at ¶ 199 (“overall on our whole portfolio, we have a decline in price … 95% of
our portfolio is declining”); id. at ¶ 201 (“[Teva’s] exposure to [pricing pressure] is very minimal
… and Teva was not associated with any of that … we believe that our exposure to any initiative
on price reduction in the United States is as small as anybody could have”); id. at ¶ 205 (“there is
a slight decrease in [generics] pricing … because on 95% of our portfolio, we experience price
decline”); id. at ¶ 210 ($1 billion improvement “[n]ot [achieved] by profit”); id. at ¶ 211 (“we
and the generic industry overall don’t see price inflation of generics … we saw a mid-single-digit
price decline”); id. at ¶ 214 (“the pricing hasn’t changed that much … [i]nflation never really
happened in the generic business”).
When profits started to decline, Teva officials continued to disclaim that pricing was the
reason, even though the plaintiffs allege that the decline in profits was due to the failing of the
price-hike strategy. Instead, Teva attributed the decline to other factors: “higher … expenses”,
id. at ¶ 216, 225; “exclusive launch” of different drugs, id. at ¶ 217; “loss of exclusivity” on

36

certain products, id. at ¶ 225, 232; “increased competition”, id.; and “instability in the market”,
id. at ¶ 234. As with profit increases, Teva officials routinely and expressly denied that pricing
had anything to do with the decline in profits. See id. at ¶ 218 (“Teva has not seen any
fundamental change or worsening in the pricing environment”); id. (“[t]here is no change in the
pricing environment”); id. at ¶ 220 (“[t]here’s nothing I have seen which shows a worsening
pricing environment”); id. at ¶ 222 (“[t]he pricing has remained stable”); id. at ¶ 226 (“the
pricing is stable”); id. at ¶ 228 (“there’s no pressure on prices”); id. at ¶ 233 (“there hasn’t been
any fundamental change in the US drug pricing”). The plaintiffs allege that all of those
statements were misleading, false, and/or half-truths because the real reason, or at least a
substantial reason, for the increase, and ultimate decrease, in profits was because of the
concealed price-hike strategy, and its ultimate failure.
The ’34 Act defendants argue that they were not under a duty to disclose pricing
information on Item 5 because pricing plans falls outside of Item 5 disclosure. ’34 Act Def. Mot.
to Dism., Doc. No. 238-1 at 23. With respect to the other alleged misleading statements and
omissions about pricing, the defendants allege that the statements were not incomplete, and are
not actionable because they were all accurate, optimistic, and/or puffery. The plaintiffs
adequately alleged a price-hike strategy that strongly impacted Teva’s profits and, therefore,
Teva’s comments on its revenue in which it neglected to include pricing as a factor, or expressly
denied it as a factor, were misleading and, therefore, actionable.
Statements or omissions are actionable under securities laws if the statement is “untrue
outright”, In re Vivendi, 838 F.3d at 239; when there is a duty to disclose pursuant to a statute or
regulation, Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015), or when there is
no statutory or regulatory duty to disclose, but where a company has a “duty to tell the whole

37

truth”, Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d 245, 250 (2d Cir. 2014), because it
spoke on an issue or topic and have made omissions that lead to a “material misleading
impression”, S.E.C. v. Gabelli, 653 F.3d 49, 57 (2d Cir. 2011).
(i) Item 5
The plaintiffs allege that defendants were under a statutory and regulatory duty to
disclose the pricing information on Item 5 of Form 20-F. Item 5 requires disclosure of “trends
already known and existing” at the time of a public offering. Johnson v. Sequans
Communications S.A., 2013 WL 214297, at *11 (S.D.N.Y. Jan. 17, 2013) (internal quotation
marks omitted). Although Item 303 of Regulation S-K does not apply to Teva, the SEC and
courts have interpreted Item 303 and Item 5 to require the same disclosures. See Johnson, 2013
WL 214297, at *11; Commission Guidance Regarding Management’s Discussion and Analysis
of Financial Condition and Results of Operations, Securities Act Release No. 8350, Exchange
Act Release No. 48960, 81 S.E.C. Docket 2905, 2003 WL 22996757, at *1 n.1 (Dec. 19, 2003)
(Item 5 of Form 20-F requires “the same disclosures as Item 303 of Regulation S-K”).
Item 303 requires a company to “[d]escribe any unusual or infrequent events or
transactions or any significant economic changes that materially affected the amount of reported
income from continuing operations and, in each case, indicate the extent to which income was so
affected” and to “describe any other significant components of revenues or expenses that …
should be described in order to understand the … results of operations.” 20 C.F.R. §
229.303(a)(3)(i). In addition, it requires a company to “[d]escribe any known trends or
uncertainties that have had or that the registrant reasonably expects will have a material
favorable or unfavorable impact on net sales or revenues or income from continuing operations.”
17 C.F.R. § 229.303(a)(3)(ii). Further, if financial statements “disclose material increases in net
38

sales or revenues,” the company must “provide a narrative discussion of the extent to which such
increases are attributable to increases in prices[.]” 17 C.F.R. § 229.303(a)(3)(iii). The
regulations require that registrants reveal the impact of “changing prices” and “known … price
increases” on sales. 17 C.F.R. §§ 229.303(a)(3)(iv), (ii).
Although price increases are required disclosures, “management decisions such as pricing
plans properly fall outside of [Item 303] disclosure.” In re Canandaigua Securities Litigation,
944 F. Supp. 1202, 1210 (S.D.N.Y. 1996). “There is a significant difference between events and
trends affecting ‘operations,’ such as the closure of a plant or the increase in costs of raw
materials, and competitive marketing strategies and plans…. [T]he latter are competitive
business judgments that management makes to improve the business, and need not be disclosed.”
Id. at 1210-11. The Second Circuit has expressed “concern[] … about interpreting the securities
laws to force companies to give their competitors advance notice of sensitive pricing
information.” San Leandro Emergency Medical Group Profit Sharing Plan v. Philip Morris
Companies, Inc., 75 F.3d 801, 810 (2d Cir. 1996); see also In re Canandaigua, 944 F. Supp. at
1211 (“[C]ourts have been sensitive about forcing a company to damage its own interests as well
as those of its shareholders by revealing competitive information.”).
In a case similar to this one, the Southern District of New York found that the defendants
“failed to disclose the sources of their price changes and revenue” pursuant to Item 5, when they
were engaged in a price-fixing conspiracy. Taro Pharmaceutical, 2018 WL 4572987, at *7.
There, the court found that many of the challenged statements were “nothing more than a
narrative restatement of accurate financial reporting”, but “certain other of the [defendants’]
statements sufficiently place[d] the reasons for sources of [the defendants’] growth at issue to
make further disclosure necessary.” Id. With respect to Item 5, the court found that the

39

“underlying price-fixing conspiracy [was] sufficiently alleged to have been ‘known to
management’ at the time, and ‘reasonably likely to have material effects on [the defendant’s]
financial conditions or results of operations.” Id. The court held, therefore, that the alleged
misrepresentations and omissions relating to Item 5 were actionable. Id. at *8.
The plaintiffs allege that the price-based profits were “often the entire reason for growth;
and the price increases often comprised the entirety of the change in generic segment profits
throughout 2014 and 2015.” Opp. to ’34 Act Def. Mot. to Dism., Doc. No. 244 at 32. Accepting
the plaintiffs’ allegations as true, the priced-based profits are subject to disclosure pursuant to the
regulations, which require that registrants reveal the impact of “changing prices” and “known …
price increases” on sales. 17 C.F.R. §§ 229.303(a)(3)(iv), (ii). Moreover, the defendants’
statements that their profits were not connected to pricing of the generic drugs but lower
expenses, were misleading and, therefore, actionable. Thus, the plaintiffs have adequately pled
that the defendants were under a regulatory duty to disclose in Item 5 the pricing trends, and
failed to do so.
(ii) Other Statements/Omissions
With respect to the other alleged misstatements and omissions, on conference calls and in
financial disclosures and press releases, the plaintiffs allege that the statements were either
untrue outright, or the defendants were under a duty to tell the whole truth about the pricing
landscape. It is possible for statements to be actionable even if each one does not “repeat the
precise same refrain.” In re Vivendi, 838 F.3d at 250. “It would be perverse if companies could
escape liability for securities fraud claims by disseminating a network of interrelated lies, each
one slightly distinct from the other, but all collectively aimed at perpetuating a broader, material
lie.” Id. The plaintiffs allege that Teva officers adopted and implemented the price-hike strategy
40

“to systematically increase prices across dozens of drugs in its generics drugs” in order to
increase revenue, but they kept it concealed because it was “inherently risky, unsustainable, and
could subject Teva to government and law enforcement scrutiny, if not prosecution.” Compl.,
Doc. No. 226 at ¶ 40. The strategy was unsustainable and risky because “the U.S. generic drug
market was designed to be extremely competitive; generic drugs are effectively a commodity,
fully interchangeable, and identical in every respect, except for price.” Id. The plaintiffs allege
that this strategy to raise prices was consistently the main, if not sole, reason for Teva’s quarterto-quarter, and year-to-year, profit increase. As mentioned, the plaintiffs have adequately
alleged a price-hike strategy that would require the defendants to disclose the source of its
profits. The misstatements and omissions attributing the profit increases and decreases to things
other than pricing were half-truths, ones that gave rise to a duty to disclose the whole truth.
There were material differences between what Teva was doing regarding pricing and what it was
saying about pricing, making the statements misleading; those statements “would have been
viewed by the reasonable investor as having significantly altered the total mix of information
made available,” and, therefore, are actionable. In re Int’l Bus. Machines, 163 F.3d at 106-07
(internal quotation marks omitted). At the very least, the misstatements and omissions about
competition are not “so obviously unimportant to a reasonable investor that reasonable minds
could not differ on the question of their importance.” Menkes, 2005 WL 3050970, at *6 (internal
quotation marks omitted).
The ’34 Act Defendants’ argument that the statements about their profit increases and
decreases were “statements of historical fact” and therefore not actionable is unavailing. See ’34
Act Def. Mot. to Dism., Doc. No. 238-1 at 16. They argue that the plaintiffs “base their claims
on factual statements of earnings and growth drawn from every quarterly and annual

41

announcement of financial results[.]” Id. at 28. Although it is true that “[d]efendants may not be
held liable under the securities laws for accurate reports of past successes”, In re Nokia Oyj
(Nokia Corp.) Securities Litigation, 423 F. Supp. 2d 364, 395 (S.D.N.Y. 2006), a defendant is
still under a duty to disclose additional information in order to complete statements that would
otherwise be “misleading by omission.” In re Vivendi, 838 F.3d at 239-40. The defendants may
well be right that some of their profit increases and decreases were a result of the factors that
they addressed in their statements, such as portfolio optimization and decreased costs, and,
therefore, those are indeed accurate statements of historical fact. The plaintiffs allege, however,
that the defendants’ statements were not entirely accurate because they neglected to include
another significant factor, the pricing of the drugs, generally, and the price-hike strategy, more
specifically. The plaintiffs have adequately alleged that the statements were only partially
accurate because of what was omitted, and the defendants cannot avoid potential liability on the
basis of the technically correct portion of a half-truth.
Further, the defendants’ argument that the statements fall within PSLRA’s safe harbor is
also unavailing. See ’34 Act Def. Mot. to Dism., Doc. No. 238-1 at 18. The defendants argue
that their financial guidance to investors on July 13, 2016 and January 6, 2017, in which
representatives stated that they assume similar profit growth in the future, is not actionable
pursuant to the safe harbor. See id.; see also Compl., Doc. No. 226 at ¶¶ 222, 235. “[A]
defendant is not liable [for misstatements or omissions] if the forward-looking statement is
identified and accompanied by meaningful cautionary language or is immaterial[.]” Slayton v.
American Exp. Co., 604 F.3d 758, 766 (2d Cir. 2010). “[A] forward-looking statement is one
that contains a projection of income or earnings, or one of future economic performance.” In re
WEBMD Health Corp. Securities Litigation, 2013 WL 64511, at *5 (S.D.N.Y. 2013) (internal

42

quotation marks omitted). In the challenged statements, however, the defendants not only
discussed future projections but also past performance, which did not include pricing as a factor.
See, e.g., Compl., Doc. No. 226 at ¶ 222 (“we saw no change in the pricing [in the second
quarter] … the pricing has remained stable”). The plaintiffs challenge the statements because, at
the time the statements were made, Teva was “experiencing a drastic decline in inflated profit”
that affected their revenue for the quarter. Id. “[A] statement may contain some elements that
look forward and others that do not, and forward-looking elements may be severable from nonforward-looking elements.” In re Vivendi, 838 F.3d 223 at 246 (internal quotation marks
omitted). The fact that the defendants also made forward-looking statements does not change the
fact that their statements about the past were misleading. Accordingly, the non-forward-looking
elements of those statements, as already mentioned, are actionable on the basis of the failure to
include pricing as a factor in Teva’s financial results.
Lastly, the defendants’ argument that the challenged statements and omissions are “vague
and indefinite statements of optimism” and “puffery” is also unavailing. See ’34 Act Def. Mot.
to Dism., Doc. No. 238-1 at 20. The defendants allege that the following types of statements are
inactionable puffery: “we believe in competition, and we’ll do what is needed in order to win in
all the markets we operate”; “we believe we have a focused and competitive pricing strategy”;
“we have created a unique and differentiated platform, positioned to extract significant value in
the global growing generic space”; and “one of our greatest priorities has been to increase the
profitability of our generics business [and] … we have been able to improve significantly the
margins of Teva’s standalone generics business.” Id. at 21. “Puffery encompasses statements
[that] are too general to cause a reasonable investor to rely upon them … and thus cannot have
misled a reasonable investor.” In re Vivendi, 838 F.3d at 245 (internal citations and quotation

43

marks omitted). “They are statements that lack the sort of definite positive projections that might
require later correction.” Id. (internal quotation marks omitted). Puffery, however, depends on
the context of the statement. DoubleLine Capital LP v. Odebrecht Fin., Ltd., 323 F. Supp. 3d
393, 443 (S.D.N.Y. 2018). With respect to the statements about “believ[ing] in competition”, the
defendants also stated at the same time that they were facing “fierce competition”, which, as
aforementioned, was actionable given the lack of competition in the market. See Compl., Doc.
No. 226 at ¶¶ 167, 171. Accordingly, in context with the defendants’ other actionable statements
and omissions, those challenged statements are not those which were “too general” to mislead a
reasonable investor. In re Vivendi, 838 F.3d at 245.
In sum, the plaintiffs adequately allege that the defendants participated in a price-hike
strategy which had a substantial effect, both positive and negative, on Teva’s financial picture.
Teva’s statements in which it completely attributed its financial success, or lack thereof, to other
factors and/or expressly discounted that price played a part, were misleading because they
omitted information that was necessary to make the statement complete.
iii. Failure to Disclose Subpoenas
In the complaint, the plaintiffs allege that the defendants “concealed Teva’s receipt of a
subpoena from the DOJ on June 21, 2016, and a subpoena from the State [Attorney General] on
July 12, 2016” and allege that Teva should have disclosed those facts in the Notes Offering
Materials because “the subpoenas called into question Teva’s future earnings potential.”
Compl., Doc. No. 226 at ¶¶ 238-39. The defendants argue that they had no duty to disclose the
two subpoenas and, even so, they disclosed the two subpoenas when it made its next quarterly
statement and, therefore, the plaintiffs cannot assert that Teva’s “prompt disclosure was
somehow not prompt enough.” ’34 Act Def. Mot. to Dism., Doc. No. 238-1 at 36-37.
44

Teva received a subpoena from the DOJ on June 21, 2016 and received a second one on
July 12, 2016 from the Connecticut Attorney General. Compl., Doc. No. 226 at ¶ 122. On July
18, 2016, Teva launched its bond offering and did not disclose the subpoenas in the Notes
Offering Materials. Id. at ¶ 127. Teva disclosed the subpoenas on August 4, 2016 when it
announced its financial results from the second quarter of 2016. Id. at ¶ 128.
The defendants are correct that they were not under a duty to disclose the subpoenas and,
therefore, any claims arising from their alleged concealment fail. The duty to disclose is not a
“rite of confession,” City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d
183 (2d Cir. 2014), and “[t]he federal securities laws do not require a company to accuse itself of
wrongdoing.” In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377 (S.D.N.Y. 2004), aff’d
sub nom. Albert Fadem Tr. v. Citigroup, Inc., 165 F. App’x 928 (2d Cir. 2006); see also In re
Am. Express Co Shareholder Litig., 840 F. Supp. 260, 269-70 (S.D.N.Y. 1993) (company not
required to “accuse itself of antisocial or illegal policies” (quoting GAF Corp. v. Heyman, 724 F.
2d. 727, 740 (2d Cir. 1983)); Ciresi v. Citicorp, 782 F. Supp. 819, 823 (S.D.N.Y. 1991) (“the law
does not impose a duty to disclose uncharged, unadjudicated wrongdoing or mismanagement.”).
Additionally, “securities laws do not impose an obligation on a company to predict the
outcome of investigations.” In re Lions Gate Entertainment Corp. Securities Litigation, 165 F.
Supp. 3d 1, 12 (S.D.N.Y. 2016) (finding that Wells Notices and SEC subpoenas did not give rise
to a duty to disclose because “[t]here is no duty to disclose litigation that is not ‘substantially
certain to occur’”). “[A] government investigation, without more, does not trigger a generalized
duty to disclose.” Id.; see also In re UBS Securities Litigation, 2012 WL 4471265, at *31
(S.D.N.Y. Sept. 28, 2012) (“[A]bsent an express prior disclosure, a corporation has no
affirmative duty to speculate or disclose uncharged, unadjudicated wrongdoings or

45

mismanagement” (internal quotation marks omitted)), aff’d sub nom, City of Pontiac, 752 F.3d
173. Further, “[m]ere allegations that statements in one report should have been made in earlier
reports do not make out a claim of securities fraud.” Acito v. IMCERA Group, Inc., 47 F.3d 47,
53 (2d Cir. 1995). The receipt of the subpoenas, in and of themselves, did not trigger the
defendants’ duty to disclose. Even so, the defendants disclosed the subpoenas in their next
filing, a mere two months after their receipt. Accordingly, the plaintiffs have not adequately pled
that the defendants had a duty to disclose the subpoenas.
b. Did the plaintiffs fail to plead scienter?
The defendants allege that the plaintiffs fail to adequately plead scienter for purposes of
section 10(b) because: (1) plaintiffs’ motive and opportunity allegations do not support a strong
inference of scienter; (2) plaintiffs failed to plead specific facts establishing strong circumstantial
evidence of scienter; (3) plaintiffs’ recycled antitrust allegations do not raise an inference of
scienter; and (4) the opposing inferences of nonfraudulent intent are more plausible than any
inference of fraud. ’34 Act Def. Mot. to Dism., Doc. No. 238-1 at ii.
Scienter is “a mental state embracing intent to deceive, manipulate, or defraud.” Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007). “When pleading scienter, with
respect to each act or omission alleged to violate the securities law, the complaint must state with
particularity facts giving rise to a strong inference that the defendant acted with the required state
of mind.” In re Sotheby’s, 2000 WL 1234601, at * 6. “The requisite state of mind in a Rule
10b-5 action is an intent to deceive, manipulate, or defraud.” Taro Pharmaceuticals, 2018 WL
4572987, at *8 (internal quotation marks omitted). In order to satisfy that scienter requirement, a
plaintiff must allege facts “(1) showing that the defendants had both motive and opportunity to
commit the fraud or (2) constituting strong circumstantial evidence of conscious misbehavior or
46

recklessness.” ATSI Communications, 492 F.3d at 99; see also In re Sotheby’s, 2000 WL
1234601, at * 6. “In evaluating whether either of [those] showings has been made, the court may
consider, among other things, whether the plaintiff has alleged that the defendant ‘(1) benefitted
in a concrete and personal way from the purported fraud; (2) engaged in deliberately illegal
behavior; (3) knew facts or had access to information suggesting that their public statements
were not accurate; or (4) failed to check information they had a duty to monitor.’” Taro
Pharmaceuticals, 2018 WL 4572987, at * 8 (quoting Novak v. Kasaks, 216 F.3d 300, 311 (2d
Cir. 2000)).
Additionally, “in determining whether the pleaded facts give rise to a strong inference of
scienter, the court must take into account plausible opposing inferences.” ATSI, 492 F.3d at 99
(citing Tellabs, Inc., 551 U.S. 308) (internal quotation marks omitted). For an inference of
scienter to be “strong,” “a reasonable person [must] deem [it] cogent and at least as compelling
as any opposing inference one could draw from the facts alleged.” Id. (emphasis in original)
(internal quotation marks omitted). “[A]t a motion to dismiss stage, a tie on scienter goes to the
plaintiff.” City of Pontiac Gen. Emps.’ Ret. Sys. v. Lockheed Martin Corp., 875 F. Supp. 2d 359,
372 (S.D.N.Y. 2012). “The inquiry … is whether all of the facts alleged, taken collectively, give
rise to a strong inference of scienter, not whether any individual allegation, scrutinized in
isolation, meets that standard.” Tellabs, 551 U.S. at 322-23 (emphasis in original).
i. Motive and Opportunity Scienter
The defendants argue first that the plaintiffs did not adequately plead motive and
opportunity scienter. The plaintiffs argue that the $40 billion acquisition was motive to commit
the fraud, the price-hiking strategy and the price-fixing conspiracy. Opp. to 34 Def. Mot. to
Dism., Doc. No. 244 at 29.
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“To plead facts supporting a strong inference of the requisite scienter by showing motive
and opportunity, a plaintiff must allege facts showing concrete benefits that could be realized by
one or more false statements and wrongful disclosures alleged, and the means and likely prospect
of achieving the concrete benefits by the means alleged.” In re Sotheby’s, 2000 WL 1234601, at
* 6 (internal quotation marks omitted). “A complaint has sufficiently alleged ‘motive and
opportunity to commit fraud’ if it pleads facts showing that the defendant ‘benefitted in some
concrete and personal way from the purported fraud.’” In re MF Global Holdings, 982 F. Supp.
2d at 304-05 (quoting Novak, 216 F.3d at 207-08)). In pleading opportunity, a plaintiff must
“show that the individual defendants possessed ‘the means and likely prospect of achieving
concrete benefits by the means alleged.’” In re Take-Two Interactive Securities Litigation, 559
F. Supp. 2d 453, 468 (S.D.N.Y. Apr. 16, 2008) (quoting Shields v. Citytrust Bancorp, Inc., 25
F.3d 1124, 1130 (2d Cir. 1994)). “The opportunity to commit fraud is generally assumed where
the defendant is a corporation or corporate officer.” In re MF Global Holdings, 982 F. Supp. 2d
at 306. Here, the defendants are Teva and its corporate officers. Accordingly, opportunity is
presumed to have been met. The question in this prong of scienter, then, is whether motive has
been met.
In pleading motive, a plaintiff must plead something more than just a motive that is
common to most corporate officers, because that is insufficient to constitute motive for the
purposes of scienter. In re MF Global Holdings, 982 F. Supp. 2d at 304-05; ECA & Local 134,
552 F.3d at 198. “Examples of general motives which fail to support a strong inference of
scienter include ‘(1) the desire for the corporation to appear profitable and (2) the desire to keep
stock prices high to increase officer compensation.’” In re MF Global Holdings, 982 F. Supp. 2d
at 306 (quoting Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001)). It is not enough for a

48

plaintiff to plead a compilation of general motives in order to give rise to a strong inference of
scienter. In re Carter-Wallace, Inc. Securities Litigation, 199 WL 1029713, at *5 (S.D.N.Y.
Nov. 10, 1999) (“Four cubic zirconias will never add up to one real diamond and neither will
four generic motives add up to one … specific motive”), aff’d, 220 F.3d 36 (2d Cir. 2000).
“[I]n some circumstances, the artificial inflation of stock price in the acquisition context
may be sufficient for securities fraud scienter.” Rothman v. Gregor, 220 F.3d 81, 93 (2d Cir.
2000). Courts have diverged on whether “inflated stock price may at times be sufficiently
specific support for an allegation of scienter … and the analysis is a highly fact-intensive one.”
In re Complete Management Inc. Securities Litigation, 153 F. Supp. 2d 314, 327-28 (S.D.N.Y.
2001). “The question turns … on the concreteness of the allegations; a generalized desire to
maintain a higher stock price will not rise to the level of motive for these purposes. However,
the artificial inflation of a stock price in order to achieve some more specific goal may satisfy the
pleading requirement.” Id. at 328 (finding that inflating stock price to use as currency was
“sufficiently concrete motive”); see also In re Omnicom Group, Inc. Secs. Litig., 2005 WL
735937, at *13 (S.D.N.Y. Mar. 30, 2005) (complaint sufficiently alleged motive where it alleged
that Omnicom “acquired hundreds of companies, which it paid for, in large part, through the
issuance of common stock” (internal quotation marks omitted)); In re Vivendi Universal, S.A.,
381 F. Supp. 2d 158, 185 (S.D.N.Y. Nov. 3, 2003) (complaint sufficiently alleged motive where
it alleged that the defendants “were motivated to commit fraud so they could acquire and
continue acquiring [three] companies … by using its artificially inflated stock and ADSs as
currency”). Here, the plaintiffs more than adequately pled that the defendants’ price-hike
strategy was implemented to increase revenue and inflate the price of their stocks to use as
currency to acquire Actavis. The plaintiffs support their allegations with the representations by

49

Desheh, and later Vigodman, that Teva stock price would increase in such a way to allow for its
use as currency to fund transactions, Compl., Doc. No. 226 at ¶¶ 7, 35, 50, which is likely
enough to sustain an allegation of motive and opportunity scienter. In any event, as discussed
below, the plaintiffs have also adequately pled circumstantial evidence of conscious misbehavior
or recklessness.
ii. Circumstantial Evidence of Conscious Misbehavior or Recklessness
The second way a plaintiff can adequately plead scienter is by pleading facts
“constituting strong circumstantial evidence of conscious misbehavior or recklessness.” ATSI
Communications, 492 F.3d at 99. “Where motive is not apparent, it is still possible to plead
scienter by identifying circumstances indicating conscious behavior by the defendant[s], though
the strength of the circumstantial allegations must be correspondingly greater.” Kalnit, 264 F.3d
at 142 (internal quotation marks omitted). “A plaintiff may sufficiently plead conscious
misbehavior through allegations of deliberate illegal conduct.” In re Sotheby’s, 2000 WL
1234601, at * 6. “A plaintiff pleading the conscious misbehavior or recklessness theory of
scienter must allege conduct which is ‘highly unreasonable and which represents an extreme
departure from the standards of ordinary care to the extent that the danger was either known to
the defendant or so obvious that the defendant must have been aware of it.’” In re MF Global
Holdings, 982 F. Supp. 2d at 306 (quoting Kalnit, 264 F.3d at 142). “[A] complaint sufficiently
pleads scienter where it alleges defendants had ‘knowledge of facts or access to information
contradicting their public statements.’” Id. (quoting Kalnit, 264 F.3d at 142). “Sufficient
evidence of recklessness exists if the factual allegations demonstrate that defendants (1)
possessed knowledge of facts or access to information contradicting their public statements, or

50

(2) failed to review or check information that they had a duty to monitor, or ignored obvious
signs of fraud.” Id. (internal quotation marks omitted).
“Where plaintiffs contend [a] defendant[] had access to contrary facts, they must
specifically identify the reports or statements containing this information.” In re Sotheby’s, 2000
WL 1234601, at * 6 (internal quotation marks omitted). The court in In re Sotheby’s held that
the complaint sufficiently pled a strong inference of fraudulent intent of two of the defendants
because the complaint alleged that they were “directly involved in arranging the illegal pricefixing agreement, and that each of them signed 10-Ks that, in light of the illegal agreement, they
knew were false and misleading. Allegations that defendants had actual knowledge that their
statements were false or misleading are sufficient to plead scienter.” In re Sotheby’s, 2000 WL
1234601, at * 8.
Here, the plaintiffs have adequately pled strong circumstantial evidence of conscious
misbehavior or recklessness by Vigodman, Desheh, Olafsson, and Griffin, all of whom made
statements about the price-hike strategy and the price-fixing conspiracy. The complaint is
replete with examples of those defendants making public statements about the financial status
and competitive nature of Teva, all while “possess[ing] knowledge of facts, or [having] access to
information [that] contradict[ed] their public statements” or, at the very least, “failed to review or
check information that they had a duty to monitor, or ignored obvious signs of fraud.” In re MF
Global Holdings, 982 F. Supp. 2d at 306; see also In re Scholastic Corp. Sec. Litig., 252 F.3d 63
(2d Cir. 2001) (“Where the complaint alleges that defendants knew facts or had access to nonpublic information contradicting their public statements, recklessness is adequately pled for
defendants who knew or should have known they were misrepresenting material facts with
respect to the corporate business.”).

51

The plaintiffs allege that Vigodman, Desheh, Olafsson, and Griffin made public
statements and/or signed financial disclosures contrary to the known, concealed information. By
way of example, the plaintiffs allege that Vigodman publicly stated that the improvement in
Teva’s generics market was due to factors other than price. Compl., Doc. No. ¶ 198. In reality,
however, the plaintiffs allege that at the time of that statement, Vigodman was aware of, and
approved, work plans that included 71 price increases, generating over $1.6 billion in price-based
profit. Id. at ¶ 98. Similarly, the plaintiffs allege that Olafsson publicly stated that Teva had not
“seen any fundamental change or worsening in the pricing environment”, id. at ¶ 218, but at the
time of the statement, Olafsson was aware of, and approved, work plans that indicated that
Teva’s pricing environment had drastically declined, decreasing profits by $94 million. Id. The
plaintiffs allege that Griffin and Olafsson, among others, circulated reports regarding the price
increases and the resulting profits, which were sent to Desheh and Vigodman for approval. Id. at
¶ 253. Specifically, Griffin and Cavanagh would review a list of potential price increases,
undertake a cost-benefit analysis, and then determine which drugs’ prices would be increased.
Id. at ¶ 255. The plaintiffs allege that those defendants were all aware of the price-hike strategy,
and its impact on Teva’s revenue goals. Id. at ¶ 259. Throughout that time, with knowledge of
the price-hike strategy, those defendants repeatedly spoke publicly in ways that contradicted the
concealed knowledge. See id. ¶¶ 264-69 (for instance, Desheh claimed that pricing was “very
stable” and there was “no pressure on prices”, id. at ¶ 267; Olafsson asserting that there was
“fierce competition” in generics, id. at ¶ 268).
The complaint contains detailed allegations regarding “what defendants knew on a daily,
weekly[,] and monthly basis about the [pricing and competitive environment], while at the same
time making public statements that painted a different picture.” In re Scholastic, 252 F.3d at 76;

52

see Compl., Doc. No. 226 at ¶¶ 240-309. Vigodman, Desheh, Olafsson, and Griffin publicly
represented, in conference calls and in SEC filings, that generic drug pricing was not a factor in
Teva’s profit growth and that they were actively involved in a competitive environment, despite
their knowledge of both the price-hike strategy and price-fixing conspiracy. Those alleged
actions are consistent with recklessness and suffice, at least at this early stage, to establish
scienter. See In re Scholastic, 252 F.3d at 76.
With respect to Cavanaugh and Oberman, though, the plaintiffs do not argue that they
made any public statements, nor signed any documents with the alleged misstatements/omissions
about drug pricing. The plaintiffs allege only that Cavanaugh and Oberman, among others,
circulated reports regarding the price increases and the resulting profits, which were sent to
Desheh and Vigodman for approval. Id. at ¶ 253. Further, the plaintiffs allege that Cavanagh
would review a list of potential price increases, undertake a cost-benefit analysis, and then
determine which drugs’ prices would be increased. Id. at ¶ 255. The plaintiffs allege that
Cavanaugh and Oberman, by virtue of their positions of authority in the company, must have
known about the strategy to increase prices in lockstep with competitors and, therefore, they
were complicit by allowing SEC forms to include misstatements/omissions, and allowing the
other defendants to make public statements. See id. at ¶ 28, 31 (Cavanaugh and Oberman had
the “power and authority to … approve and control the contents of [Teva’s] SEC filings alleged
… to be false and misleading”). Those allegations are insufficient to give rise to “strong
circumstantial evidence of conscious misbehavior or recklessness.” ATSI Communications, 492
F.3d at 99. The plaintiffs do not allege that Cavanaugh or Oberman “had knowledge of facts or
access to information contradicting their public statements.” In re MF Global Holdings, 982 F.
Supp. 2d at 306 (internal quotation marks omitted). Accordingly, the plaintiffs have not

53

sufficiently pled that Cavanagh and Oberman are primarily liable and, therefore, their motion to
dismiss (doc. no. 240) is granted with respect to Count One.
c. Did the plaintiffs fail to plead loss causation?
The defendants argue that the plaintiffs failed to adequately plead loss causation. ’34 Act
Def. Mot. to Dism., Doc. No. 238-1 at 55. “Loss causation ‘is the causal link between the
alleged misconduct and the economic harm ultimately suffered by the plaintiff.’” Lentell v.
Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir. 2005) (quoting Emergent Capital Inv.
Management, LLC v. Stonepath Group, Inc., 343 F.3d 189, 197 (2d Cir. 2003)). The PSLRA
codified that requirement: “In any private action arising under this chapter, the plaintiff shall
have the burden of proving that the act or omission of the defendant alleged to violate this
chapter caused the loss for which the plaintiffs seeks to recover damages.” 15 U.S.C. § 78u4(b)(4).
“[T]o establish loss causation, a plaintiff must allege ... that the subject of the fraudulent
statement or omission was the cause of the actual lost suffered, … i.e., that the misstatement or
omission concealed something from the market that, when disclosed, negatively affected the
value of the security. Otherwise, the loss in question was not foreseeable.” Lentell, 396 F.3d at
174. Further, “a plaintiff must show that ‘the loss [was a] foreseeable’ result of the defendant’s
conduct (i.e., the fraud), ‘and that the loss [was] caused by the materialization of the … risk’
concealed by the defendant’s alleged fraud.” In re Vivendi, 838 F.3d at 261 (emphasis in
original) (quoting Lentell, 396 F.3d at 173). “[L]oss causation has to do with the relationship
between the plaintiff’s investment loss and the information misstated or concealed by the
defendant…. If that relationship is sufficiently direct, loss causation is established … but if the
connection is attenuated, or if the plaintiff fails to demonstrate a causal connection between the
54

content of the alleged misstatements or omissions and the harm actually suffered, … a fraud
claim will not lie…. That is because the loss-causation requirement—as with the foreseeability
limitation in tort—is intended to fix a legal limit on a person’s responsibility, even for wrongful
acts.” Lentell, 396 F.3d at 174 (internal citations and quotation marks omitted).
In order to adequately plead loss causation, “[t]he complaint must simply give
Defendants ‘some indication’ of the actual loss suffered and of a plausible causal link between
that loss and the alleged misrepresentations.” Loreley Financing (Jersey) No. 3 Ltd. v. Wells
Fargo Securities, LLC, 797 F.3d 160, 187 (2d Cir. 2015) (citing Dura Pharm v. Broudo, 544
U.S. 336, 347 (2005)). Plaintiffs need not plead that concealed risk actually “materialized into a
more significant problem” in order to show loss causation. In re Vivendi, 838 F.3d at 261. “[I]t
is enough that the loss caused by the alleged fraud results from the ‘relevant truth … leak[ing]
out.’” Id. (quoting Dura Pharm, 544 U.S. at 342). The materialization of the risk principle
requires a showing that a “misstatement or omission concealed something from the market that,
when disclosed, negatively affected the value of the security…. Whether the truth comes out by
way of a corrective disclosure describing the precise fraud inherent in the alleged misstatements,
or through events constructively disclosing the fraud, does not alter the basic loss-causation
calculus.” Id. (internal citations and quotation marks omitted) (emphasis in original). “Loss
causation is a fact-based inquiry and the degree of difficulty in pleading will be affected by the
circumstances.” Lentell, 396 F.3d at 174.
The “burden to plead loss causation is not a heavy one, and when it is unclear whether the
plaintiff’s losses were caused by the fraud or some other intervening event, the chain of
causation is … not to be decided on a Rule 12(b)(6) motion to dismiss.” Gross v. GFI Grp., 162
F. Supp. 3d 263, 269 (S.D.N.Y. 2016). Further, “there is a split among the circuits as to whether

55

the loss causation element is subject to the heightened pleading requirements of Rule 9(b) or the
ordinary pleading standard of Rule 8(a). The Second Circuit … has yet to weigh in on this
debate…. Under either standard, however, the securities fraud plaintiff’s burden is not a heavy
one. She must only ‘provide a defendant with some indication of the loss and the causal
connection that the plaintiff has in mind.’” Taro Pharmaceuticals, 2018 WL 4572987, at *10
(quoting Dura Pharm, 544 U.S. at 347).
In the complaint, the plaintiffs allege that the ’34 Act Defendants’ “fraudulent conduct
directly and proximately caused the Class to suffer substantial losses as a result of purchasing
Teva Securities at artificially inflated prices during the Class Period.” Compl., Doc. No. 226 at ¶
310. They allege that Teva concealed the price-hike strategy, the price-fixing conspiracy, and
the risks associated with both including that the price-hike strategy “was highly risky and not
sustainable and as the strategy failed, Teva’s profits would collapse[.]” Id. at ¶ 311. Further, the
plaintiffs allege that those “concealed risks bear directly on Teva’s ability to generate and sustain
its profits and its ability to service the over $30 billion in debt payable to members of the Class.”
Id. With respect to materialization of the risk, the plaintiffs allege that the risks “began to
materialize through a series of negative events and disclosures that revealed, on a piecemeal
basis, the false and misleading nature of the 34 Act Defendants’ Class Period statements and
omissions.” Id. at ¶ 312.
As the relevant truth about the price-based profits and the price-hike strategy’s failure
“leaked out into the market from August 2016 to August 2017, the Class suffered losses, which
were foreseeable and caused by the materialization of the risks that the 34 Act Defendants’
fraudulent conduct concealed from the investors[.]” Id. The plaintiffs allege a number of specific
examples that, taken together, led to the materialization of the risk. See id. at ¶¶ 313-37. For

56

instance, on November 3, 2016, Bloomberg published an article that Teva was under suspicion
of colluding on the prices of generic drugs, and by the end of that day, the prices of Teva
Securities declined. Id. at ¶ 316-17. Analysts and media commented on the fact that the
disclosure of the subpoenas and the investigation into Teva’s pricing caused its stock prices to
fall. Id. at ¶ 318. After the Connecticut Attorney General filed a lawsuit against Teva, among
others, for antitrust violations, the price of Teva Securities continued to decline. Id. at ¶ 320-21.
The price of securities continued to fall after Teva revealed disappointing financial numbers,
high-level executives were fired or quit, and the media reported that pricing pressure was
creating uncertainty for Teva’s future. Id. at ¶¶ 322-37. The plaintiffs allege that the sequence
of events between early August 2016 and early August 2017 constructively disclosed the frauds
(the price-hike strategy and the price-fixing collusion) that Teva had been concealing.
The plaintiffs have certainly pled that the defendants concealed something from the
market, whether the price-hike strategy, the price-fixing collusion, or both. See In re Vivendi,
838 F.3d at 261. Further, the plaintiffs have adequately pled that the value of Teva securities
was negatively affected and that, if found to be sufficiently disclosed, that there was a “plausible
causal link between that loss and the alleged misrepresentations.” Loreley Financing, 797 F.3d
at 187. The question, then, is whether the above-listed events constructively disclosed the
concealed frauds, and the plaintiffs adequately pled the constructive disclosure of the pricefixing collusion with its competitors. The government investigation, the articles written in the
aftermath, and the case initiated by the Attorney General relate to the alleged anti-trust violations
regarding the price-fixing. Although those do not seem to explicitly relate to the other alleged
concealed fraud, the internal price-hike strategy, it is hard to imagine that the price-fixing
conspiracy could be constructively disclosed without the price-hike strategy also necessarily

57

being disclosed. They are both part of a “network of interrelated lies … all collectively aimed at
perpetuating a broader, material lie.” In re Vivendi, 838 F.3d at 250. The plaintiffs’ general
allegations are that the defendants systematically raised the prices on many of its generic drugs
(price-hike) in collaboration with its competitors (price-fixing). The price-hike strategy, then,
cannot be viewed in a vacuum. The lawsuit and bad press, in revealing that Teva conspired with
its competitors, also necessarily revealed that Teva was increasing the prices of its generic drugs.
Investors and analysts, then, were on notice that Teva was internally raising its prices, in lockstep
with its competitors.
The plaintiffs’ allegations regarding the investigations, the bad press, and the various
departures of executives, and the resultant dip in stock prices, “suffice at the pleading stage for
the purposes of loss causation.” Taro Pharmaceuticals, 2018 WL 4572987, at * 11 (concluding
that the disclosure of DOJ subpoena and the Bloomberg article, and stock prices falling
contemporaneously was sufficient to allege loss causation on motion to dismiss).
The plaintiffs have adequately alleged that the defendants were engaged in an internal
price-hike strategy and a price-fixing conspiracy, that the defendants made material
misrepresentations and omissions about whether competition and their pricing scheme affected
their profits, and did so with conscious misbehavior or recklessness. Further, the plaintiffs
adequately alleged loss causation.
Accordingly, the defendants’ motions to dismiss count one are denied in substantial part.
The plaintiffs’ allegations regarding the defendants’ failure to timely disclose the receipt of
government subpoenas, however, are not actionable and the defendants’ motions to dismiss are
granted with respect to those allegations. Furthermore, Cavanagh and Oberman’s motion to
dismiss (doc. no. 240) is granted with respect to Count One.

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2. Count Two: Section 20(a)
The plaintiffs bring Count Two of the Complaint against the ’34 Act Defendants and
allege a violation of Section 20(a) of the Exchange Act, codified at 15 U.S.C. § 78t(a), which
states, in pertinent part:
Every person who, directly or indirectly, controls any person liable under any provision
of this chapter or of any rule or regulation thereunder shall also be liable jointly and
severally with and to the same extent as such controlled person to any person to whom
such controlled person is liable … unless the controlling person acted in good faith and
did not directly or indirectly induce the act or acts constituting the violation or cause of
action.
15 U.S.C. § 78t(a). “To establish a prima facie case of control person liability, a plaintiff must
show (1) a primary violation by the controlled person, (2) control of the primary violator by the
defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the
controlled person’s fraud.” ATSI Communications, 493 F.3d at 108; see also S.E.C. v. First
Jersey Securities, Inc., 101 F.3d 1450, 1472 (2d Cir. 1996).
The defendants move to dismiss Count Two on the basis that the plaintiffs have failed to
satisfy all three prongs of Section 20(a) control person liability against each of them. C/O Mot.
to Dism., Doc. No. 240 at 8; ’34 Act Def. Mot. to Dism., Doc. No. 238-1 at 59.
a. First Element: Primary Violation
The defendants argue first that the plaintiffs failed to satisfy the first prong of control
person liability, arguing that the complaint “does not state a claim for primary liability under
Section 10(b) of the Exchange Act.” C/O Mot. to Dism., Doc. No. 240-1 at 9. In order to satisfy
the first prong of the standard, liability for Section 20(a) violations is “derivative of liability for
Section 10(b) violations.” In re MF Global Holdings, 982 F. Supp. 2d at 307. Accordingly, as
aforementioned, the plaintiffs have adequately pled Section 10(b) violations and, therefore, the
first prong is satisfied. See In re Ferrellgas Partners, L.P., Sec. Litig., 2018 WL 2081859, at *20
59

(S.D.N.Y. Mar. 30, 2018) (dismissing Section 20(a) claim because primary violation claim
dismissed).
b. Second Element: Control
Cavanaugh and Oberman argue that the plaintiffs failed to satisfy the second prong of
control person liability, arguing that the plaintiffs’ control person claims “teeter on the
generalized allegation that [Cavanaugh and Oberman] controlled the decision making of the
company [b]y virtue of their positions and their power to control,” which are insufficient
allegations. C/O Mot. to Dism., Doc. No. 240 at 9-10.
In order to satisfy the second prong of the standard, control of the primary violator by the
defendant “may be established by showing that the defendant possessed ‘the power to direct or
cause the direction of the management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise.’” First Jersey, 101 F.3d at 1473 (quoting 17
C.F.R. § 240.12b-2). “To be liable as a control person, the defendant must actually possess, in
fact, rather than in theory, the ability to direct the actions of the controlled person.” In re Global
Crossing, 2005 WL 1881514, at *12 (S.D.N.Y. Aug. 5, 2005) (internal quotation marks omitted).
“Moreover, a Section 20(a) defendant must not only have actual control over the primary
violator, but have actual control over the transaction in question.” In re MF Global Holdings,
982 F. Supp. 2d at 307 (emphasis in original) (internal quotations omitted). “[O]fficer or director
status alone does not constitute control.” In re Sotheby’s, 2000 WL 1234601, at * 8. That said,
however, “[w]hether a person is a ‘controlling person’ is a fact-intensive inquiry and generally
should not be resolved on a motion to dismiss.” In re MF Global Holdings, 982 F. Supp. 2d at
307.

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With respect to this element, courts in the Second Circuit only require the plaintiff to
satisfy the pleading requirements of Rule 8(a), rather than the heightened Rule 9(b) standard.
See Poptech, L.P. v. Stewardship Credit Arbitrage Fund, LLC, 792 F. Supp. 2d 328, 334-35 (D.
Conn. 2011) (collecting cases). “[A]n allegation of control is not an averment[] of fraud or
mistake …, it is unrelated to whether any misleading statement was made by the controlled
person …, and has nothing to do with the state of mind.” Id. (internal quotation marks omitted).
“Because a plaintiff’s allegations regarding the control element need only comply with the
requirements of Rule 8(a), the factual issue of a Section 20(a) defendant’s control over a primary
violator is ordinarily not resolved summarily at the pleading stage.” Id. at 335.
A plaintiff can establish control by showing that the defendants were “members of the
core management team.” In re Hi-Crush Partners L.P. Sec. Litig., 2013 WL 6233561, at *27
(S.D.N.Y. Dec. 2, 2013). For purposes of Section 20(a), control means generally “the
possession, direct or indirect, of the power to direct or cause the direction of the management and
policies of a person whether through the ownership of voting securities, by contract, or
otherwise…. Corporate officers are usually presumed to possess the requisite power to control
the actions of their employees and are often held accountable as controlling persons.” Poptech,
792 F. Supp. 2d at 336 (internal citations and quotation marks omitted). The plaintiffs allege in
the complaint that Cavanaugh served as Teva USA’s Senior Vice President and Chief Operating
Officer of North America Generics during the Class Period, and that she “possessed the power
and authority to, and in fact did, approve and control the contents of [Teva’s] SEC filings alleged
… to be false and misleading, as they pertained to Teva USA’s financial reporting.” Compl.,
Doc. No. 226 at ¶ 31. The plaintiffs allege in the complaint that Oberman served as President
and CEO of Teva Americas Generics from November 5, 2012 to December 31, 2014 and that he

61

“made false and misleading statements [and] possessed the power and authority to, and in fact
did approve and control the contents of [Teva’s] SEC filings alleged … to be false and
misleading.” Id. at ¶ 28. Given the low standard in proving control liability for purposes of
Section 20(a), and given that this factual issue “is ordinarily not resolved summarily at the
pleading stage”, Poptech, 792 F. Supp. 2d at 335, the plaintiffs have sufficiently alleged the
second prong of control liability with respect to Cavanaugh and Oberman.
c. Third Element: Culpability
In order to satisfy the third prong of the standard, that the defendant was a culpable
participant in the control person’s fraud, the plaintiff must plead with particularity “facts giving
rise to a strong inference that the defendant acted with the requisite state of mind, i.e., scienter.”
Id. The heightened pleading standards of Rule 9(b) and the PSLRA apply to the third prong of a
Section 20(a) claim. See In re MF Global Holdings, 982 F. Supp. 2d at 307. The plaintiff must
allege with particularity that the defendants “knew or should have known” about the fraudulent
conduct. In re Global Crossing, 2005 WL 1881514, at *12. “In order to withstand a motion to
dismiss, a Section 20(a) claim must allege, at a minimum, particularized facts of the controlling
person’s conscious misbehavior or recklessness.” In re MF Global Holdings, 982 F. Supp. 2d at
307. As discussed above, however, the plaintiffs have not sufficiently pled scienter with respect
to Cavanagh and Oberman and, therefore, their Motion to Dismiss (doc. no. 240) is granted with
respect to Count Two.
d. Vigodman, Desheh, Olafsson, and Griffin
The remaining ’34 Act Defendants (Vigodman, Desheh, Olafsson, and Griffin) do not
substantively address this issue in their brief but, instead, rely on Cavanaugh and Oberman’s
arguments in arguing that the plaintiffs “have failed to allege any of th[e] elements and therefore
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have failed to state a claim for violation of Section 20(a), as a matter of law.” ’34 Act Def. Mot.
to Dism., Doc. No. 238-1 at 59. Cavanaugh and Oberman’s motion, however, argues only that
the plaintiffs have failed to allege control liability against the two of them and does not argue
that the plaintiffs failed to prove control person liability with respect to any of the remaining ’34
Act Defendants. See C/O Mot. to Dism. Doc. No. 240-1 at 8-11. Control person liability
“requires an individualized determination of a defendant’s control of the primary violator and
well as the defendant’s culpability.” Burstyn v. Worldwide Xceed Group, 2002 WL 31191741, at
*8 (S.D.N.Y. 2002). Regardless, though, as discussed above, the plaintiffs have adequately pled
that there was a primary violation, and that the defendants were control persons, and, further, the
requisite scienter and culpability with respect to Vigodman, Desheh, Olafsson, and Griffin.
Accordingly, those defendants’ motions to dismiss Count Two are denied.
C. Sufficiency of the Securities Act Allegations
1. Timeliness
The defendants argue, as a threshold matter, that plaintiffs’ Section 11 and 12 allegations
are time-barred for two reasons: (1) the plaintiffs were on notice of the alleged securities
violations more than a year before they brought the claims; and (2) no plaintiff had standing to
sue on the Senior Notes until after the one-year statute of limitations passed. Teva Finance Mot.
to Dism., Doc. No. 239 at 8-9.
a. Notice of Claims
The plaintiffs first alleged Securities Act violations in their first amended complaint, on
August 2, 2017. Doc. No. 129. Teva Finance argues that “[t]he information and events relied
upon by [the plaintiffs] in the [first amended complaint] as well as the [current] complaint were
publicly known and available well over a year earlier and would have permitted Plaintiffs to
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plead the same … claims they are now attempting to bring.” Teva Finance Mot. to Dism., Doc.
No. 239 at 8.
“The lapse of a limitations period is an affirmative defense that a defendant must plead
and prove. [Fed. R. Civ. P.] 8(c)(1). However, a defendant may raise an affirmative defense in a
pre-answer Rule 12(b)(6) motion if the defense appears on the face of the complaint.” Staehr v.
Hartford Fin. Servs. Grp., 547 F.3d 406, 425 (2d Cir. 2008). Dismissal under Rule 12(b)(6) is
“appropriate when a defendant raises … [a statutory bar] as an affirmative defense and it is clear
from the face of the complaint, and matters of which the court may take judicial notice, that the
plaintiff’s claims are barred as a matter of law.” Id. (internal quotation marks omitted). Any
action pursuant to Section 11 and/or Section 12(a)(2) of the Securities Act must be brought
“within one year after the discovery of the untrue statement or the omission, or after such
discovery should have been made by the exercise of reasonable diligence[.]” 15 U.S.C. § 77m.
The defendants argue that this standard requires only “inquiry notice” for the statute of
limitations to begin running. Teva Finance Mot. to Dism., Doc. No. 238 at 10. The plaintiffs
argue that the standard is much higher than that and, even if it were not, the inquiry notice was
triggered within a year of the filing of the amended complaint. Opp. to Teva Finance Mot. to
Dism., Doc. No. 246 at 13-14.
“[I]nquiry notice means only ‘notice of the facts, which in the exercise of reasonable
diligence, would have led to actual knowledge’ …. In other words, inquiry notice means notice
of facts that ‘would suggest to an investor of ordinary intelligence the probability that she has
been defrauded.’” Shah v. Stanley, 2004 WL 2346716, at *11 (S.D.N.Y. Oct. 19, 2004)
(emphasis in original) (quoting LC Capital Partners, LP v. Frontier Ins. Group, Inc., 318 F.3d
148, 154 (2d Cir. 2003)). “Such circumstances are often analogized to storm warnings.” LC

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Capital, 318 F.3d at 154 (internal quotation marks omitted). “A storm warning ‘need not detail
every aspect of the alleged’ securities-law violation… Information triggers the duty to inquire if
it ‘relates directly to the misrepresentations and omissions the [p]laintiff[] … allege[s] in [its]
action against the defendants … and is, in the totality of the circumstances, ‘specific enough to
provide an ordinary investor with indications of the probability (not just the possibility) of’ a
violation.” Federal Housing Finance Agency for Federal National Mortgage Association v.
Nomura Holding America, Inc., 873 F.3d 85, 120 (2d Cir. 2017) (emphasis in original) (quoting
Staehr, 547 F.3d at 427, 430).
For purposes of the Exchange Act, the Supreme Court did away with inquiry notice and
“adopted a standard whereby the statute of limitations begins to run when ‘the plaintiff …
discovers or a reasonably diligent plaintiff would have discovered ‘the facts constituting the
violation.’” Yi Xiang v. Inovalon Holdings, Inc., 268 F. Supp. 3d 515, 519 (S.D.N.Y. 2017)
(quoting Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 653 (2010)); see also City of Pontiac, 637
F.3d at 174 (applying Merck standard to Exchange Act claims). The defendants argue that it is
still an open question in the Second Circuit whether the Merck standard applies to Securities Act
claims. Teva Finance Mot. to Dism., Doc. No. 239-1 at 10. However, in Nomura, the Second
Circuit held:
A securities-law violation is discovered when the plaintiff learns sufficient information
about [the violation] to … plead it in a complaint with enough detail and particularity to
survive a [Federal Rule of Civil Procedure] 12(b)(6) motion to dismiss…. A plaintiff is
charged with knowledge of any fact that a reasonably diligent plaintiff would have
discovered…. [W]hen the circumstances would suggest … the probability that a
violation of the securities laws has occurred—a situation sometimes called storm
warnings—we deem the plaintiff on inquiry notice and assume that a reasonable person
in his or her shoes would conduct further investigation into the potential violation….
Under prior Circuit law, the Section 13 limitations period could begin to run as early as
the moment a plaintiff knew or should have known of storm warnings that placed it on
inquiry notice…. The Supreme Court’s decision in Merck changed that rule…. After
Merck, we still assume a reasonable plaintiff on inquiry notice would conduct further
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investigation, but the limitations period begins to run only when, in the course of that
investigation, the reasonable plaintiff would have discovered sufficient information to
plead a securities-law violation adequately.
873 F.3d at 119 (internal citations and quotation marks omitted) (emphasis added).
The defendants argue that “prominent news articles, numerous industry analyses, and
well-publicized public hearings before Congress in 2014 and 2015 constitute ‘storm warnings’
that put reasonable investors on inquiry notice, before August 2016, of claims relating to Teva
allegedly having a strategy to raise prices on certain drugs it sold.” Teva Finance Mot. to Dism.
Doc. No. 239-1 at 12. However, of the articles relied on by the defendants to show that investors
should have been on notice of Teva’s alleged wrongdoing, Teva is rarely mentioned. See Exs.
A-L to Teva Finance Mot. to Dism., Doc. No. 239-3-239-14. Exhibit A is a transcript of a
hearing before the Subcommittee on Primary Health and Aging, which Teva did not attend, but
was mentioned as having been invited. See Ex. A to Teva Finance Mot. to Dismiss, Doc. No.
239-3. Teva is next mentioned in a press release by Senator Bernie Sanders and Representative
Elijah Cummings in which they state that they are launching an investigation into generic drug
prices, and sent a letter to Teva, in addition to 13 other pharmaceutical companies. See Ex. E to
Teva Finance Mot. to Dism., Doc. No. 239-2. In a Pharmalot blog post, Teva is reported to have
received a letter from Congress. See Ex. D to Teva Finance Mot. to Dism., Doc. No. 239-6. In a
blog post titled “Is the Antitrust Division Starting a Broad Investigation of Price Fixing in the
Generic Pharmaceuticals Market?”, Teva is mentioned only in a footnote as one of “the top five
U.S. corporations” for generic drugs. Ex. H to Teva Finance Mot. to Dism., Doc. No. 239-10.
Lastly, Teva is mentioned in a blog post on “Fierce Pharma” titled “Actavis gets subpoena as
DOJ probe of generic pricing moves up the food chain” but only has having recently acquired
Actavis. Ex. L to Teva Finance Mot. to Dism., Doc. No. 239-14.

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The statute of limitations begins to run when the reasonable plaintiff would have
“discovered sufficient information [in an investigation] to plead a securities- law violation.”
Nomura, 873 F.3d at 119. The defendants have not shown that the plaintiffs could have pled
their claims earlier. The articles they cite merely discuss the generics market in general, some of
which mention Teva in very non-specific ways. Further, even if the standard was “inquiry
notice,” the aggregate of those articles would be insufficient. When “nearly all of the stories in
the record are devoid of company-specific information, the argument that they constitute ‘storm
warnings’ is far from compelling.” Staehr, 547 F.3d at 428. The Second Circuit acknowledged
that it has “expressly declined to limit a finding of inquiry notice to company-specific storm
warnings” but went on to state that “the fact remains that the specificity of storm warnings bears
directly on the determination of whether, under the totality of the circumstances, a plaintiff
should be charged with a duty to inquire.” Id. Further, though, the Second Circuit stated that it
had “never affirmed the dismissal of a complaint as time-barred based on a story that appeared
only in a specialty publication, as opposed to mainstream press reports that are more likely to
come to the attention of an investor of ordinary intelligence.” Id. at 432. Those reports, then,
were not enough to start the statute of limitations period. Furthermore, Teva’s receipt of
subpoenas, which Teva disclosed on August 4, 2016, does not necessarily “suggest to an investor
of ordinary intelligence the probability that she ha[d] been defrauded.” Shah, 2004 WL
2346716, at *11. Even if the disclosure of the receipt of the subpoenas did give rise to a duty to
investigate and that started the one-year statute of limitations, the plaintiffs have satisfied the
requirement, because the second amended complaint was filed on August 2, 2017.
Bloomberg did publish an article on November 3, 2016, specifically naming Teva as one
of the companies being investigated for possible criminal and civil penalties because of its

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pricing and collusion. In conjunction with the disclosure of the subpoenas, that was likely
sufficient to give a reasonable investor enough of a warning that they should have investigated
further, which, under the inquiry notice standard, would mean the statute of limitations would
have run on November 3, 2017. Under the discovery rule standard, though, the statute of
limitations would not start running until the plaintiffs could have plausibly pled their claims.
The receipt of the subpoenas and the Bloomberg article still were not enough to plead material
misrepresentations and omissions and, therefore, even the Bloomberg article would not have
started the limitations period. Accordingly, the defendants’ argument fails.
b. Parties with Standing
The defendants argue next that although the second amended complaint was filed on
August 2, 2017, the securities act claim was not asserted by any plaintiff with standing until
Anchorage was added on September 5, 2017. Teva Finance Mot. to Dism., Doc. No. 239-1 at
14. As a threshold matter, even if the defendants are correct that Anchorage was the first
plaintiff with standing to assert the claims, under the discovery rule, the statute of limitations did
not start running until, at the earliest, November 3, 2016 when the Bloomberg article was
published. Therefore, Anchorage’s complaint was timely filed on September 5, 2017. If not,
though, the defendants argue that “Ontario Teachers plainly lacked standing to sue [with respect
to] the Senior Notes because it does not allege that it purchased them.” Teva Finance Mot. to
Dism., Doc. No. 239-1 at 14. The plaintiffs argue that Ontario Teachers did have “standing to
bring claims on behalf of purchasers of the Notes” against the securities act defendants and,
therefore, “the August 2, 2017 complaint … tolled the [statute of limitations] for the members of
the Class that purchased the Notes.” Opp. to Teva Finance Mot. to Dism., Doc. No. 246 at 23.

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“The Second Circuit has held that a plaintiff may pursue claims on behalf of a putative
class of investors for securities that he did not purchase if he alleges both Article III standing and
class standing.” Youngers v. Virtus Investment Partners Inc., 195 F. Supp. 3d 499, 510
(S.D.N.Y. 2016) (emphasis in original) (referencing NECA-IBEW, 693 F.3d at 162). “In the
context of class actions, Article III standing requires that ‘for every named defendant there must
be at least one named plaintiff who can assert a claim directly against that defendant.’” Id.
(quoting NECA-IBEW, 693 F.3d at 159. “If that requirement is satisfied, the inquiry shifts to a
class standing analysis.” Id. It seems to be undisputed that Ontario Teachers’ has Article III
standing. See Opp. to Teva Finance Mot. to Dism., Doc. No. 246 at 23 (“It is undisputed that
Ontario Teachers’ … has Article III standing to sue each of the 33 Act Defendants”); Reply to
Teva Finance Mot. to Dism., Doc. No. 255 at 5-6 (taking issue only with plaintiffs’ class
standing argument).
Plaintiffs are conferred class standing to assert claims of other plaintiffs where the claims
“implicate ‘the same set of concerns’ as plaintiff’s claims.” NECA-IBEW, 693 F.3d at 148-49
(quoting Gratz v. Bollinger, 539 U.S. 244, 267 (2003)). “[I]n the context of claims alleging
injury based on misrepresentations, the misconduct alleged will almost always be the same: the
making of a false or misleading statement. Whether that conduct implicates the same set of
concerns for distinct sets of plaintiffs, however, will depend on the nature and content of the
specific misrepresentation alleged.” Id. at 162. The Second Circuit, in NECA-IBEW, opined that
it is sufficient for class standing to allege multiple “corporate debt offerings, issued over the
course of a year, all of which contained an identical misrepresentation[.]” Id. at 163. “Sections
11 and 12(a)(2) claims brought by a purchaser of debt from one offering would raise a ‘set of
concerns’ nearly identical to that of a purchaser from another offering…. In that case, the

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inappropriateness of denying class standing on the happenstance of the misrepresentation’s
location in one offering versus another seems patent.” Id. Where “alleged injuries … could turn
on very different proof”, the claims do not “share the same set of concerns.” Youngers, 195 F.
Supp. 3d at 510 (internal quotation marks omitted); Steginsky v. Xcelera, Inc., 2015 WL
1036985, at *11 (D. Conn. Mar. 10, 2015) (“[w]hether a false or misleading statement implicates
the same set of concerns for distinct sets of plaintiffs depends on the nature and content of the
specific misrepresentation alleged” and whether the claims “could turn on very different proof”
(internal quotation marks omitted)). Where the subject of the claims are “structured the same
way” and “are all substantially similar”, and the plaintiffs have “substantially similar”
relationships with the defendants, if the defendants’ “systematic conduct is tortious with respect
to one fund, it is also tortious with respect to another fund, and does not depend on the
individualized circumstances of each fund.” Fernandez v. UBS AG, 222 F. Supp. 3d 358, 373
(S.D.N.Y. 2016).
Here, the plaintiffs allege in their complaint that the claims brought under the Exchange
Act, for which Ontario Teachers’ indisputably has standing, are based on the same set of
misrepresentations and omissions as the Securities Act claims. The claims turn on the same
proof, and, therefore, implicate the same set of concerns for each set of plaintiffs. Accordingly,
Ontario Teachers’ had the class standing to assert the Securities Act claims and, therefore, the
allegations were timely raised in the August 2, 2017 complaint.
2. Count Three: Section 11; and Count Four: Section 12(a)(2)
The plaintiffs allege violations of Section 11 in Count Three by Teva, Teva Finance,
Vigodman, Desheh, and Griffin. Compl., Doc. No. 226 at ¶ 397. They allege that Teva,
Vigodman, Desheh, and Griffin are liable for their actions related to the ADS/Preferred
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Offerings, and Teva, Teva Finance, Vigodman, Desheh, and Griffin are liable for their actions
related to the Notes Offerings. Id. at ¶¶ 398-99. The plaintiffs allege violations of Section
12(a)(2) in Count Four by Teva, Teva Finance, Vigodman, Desheh, and Griffin. Id. at ¶ 406.
Section 11 of the Securities Act, codified at 15 U.S.C. § 77k, “imposes liability on
issuers, directors of issuers, and other signers of a registration statement that contains an untrue
statement of a material fact or omits to state a material fact necessary to make the statements
therein not misleading.” In re MF Global Holdings, 982 F. Supp. 2d at 308; see 15 U.S.C. §
77k(a). Section 12(a)(2) of the Securities Act, codified at 15 U.S.C. § 77l(a)(2), “imposes
liability for selling or offering a security by means of prospectus that includes an untrue
statement of material fact or omits a material fact necessary to make such statements not
misleading.” Id.; see 15 U.S.C. § 77l (a)(2).
“[T]he language of sections 11 and 12(a)(2) creates three potential bases for liability
based on registration statements and prospectuses filed with the SEC: (1) a misrepresentation; (2)
an omission in contravention of an affirmative legal disclosure obligation; and (3) an omission of
information that is necessary to prevent existing disclosures from being misleading.” In re
Morgan Stanley Information Fund Securities Litigation, 592 F.3d 347, 360 (2d Cir. 2010).
When pleading either a violation of Section 11 or of Section 12(a)(2), “a plaintiff must show that
the relevant communication either misstated or omitted a material fact.” Iowa Public
Employees’ Retirement System v. MF Global, Ltd., 620 F.3d 137, 141 (2d Cir. 2010); In re MF
Global Holdings, 982 F. Supp. 2d. at 308. Because the two have “roughly parallel elements,”
Fait v. Regions Financial Corp., 655 F.3d 105, 109 (2d Cir. 2011), “[a] plaintiff who fails to
plead a [Section 11] claim necessarily fails to plead a [Section] 12(a)(2) claim as well.” In re

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MF Global Holdings, 982 F. Supp. 2d. at 308; In re Agria Corp. Sec. Litig., 672 F. Supp. 2d 520,
525 (S.D.N.Y. Nov. 30, 2009).
The legal standard for misstatements or omissions of material facts in a claim brought
under the Exchange Act is substantially similar to the legal standard with respect to the same in a
claim brought under the Securities Act. See In re Morgan Stanley, 592 F.3d at 360; In re MF
Global Holdings, 982 F. Supp. 2d. at 308. The only difference, however, is that “Securities Act
claims do not need to be pled with particularity unless they sound in fraud … and do not require
allegations of scienter, reliance, or loss causation.”6 In re MF Global Holdings, 982 F. Supp. 2d
at 308 (internal quotation marks omitted); see also Rombach, 355 F.3d at 171; Fait, 655 F.3d at
109. “Instead, Section 11 imposes virtually absolute liability on issuers, and Section 11 and
Section 12(a)(2) impose liability on other parties for mere negligence.” In re MF Global
Holdings, 982 F. Supp. 2d at 308 (internal quotation marks omitted). The plaintiffs here rely on
the same alleged misrepresentations and omissions for Sections 11 and 12(a)(2) liability as they
did with Section 10(b) liability in Count One, regarding pricing and competition, and the parties
make the same arguments here as they did with Count One. Accordingly, the same analysis with
respect to misstatements and omissions, as discussed above, applies to Counts Three and Four
and, therefore, the defendants’ motions to dismiss are denied.
3. Count Five: Section 15(a)
The plaintiffs allege violations of Section 15(a) in Count Five against Teva, Vigodman,
Desheh, and Griffin. Compl., Doc. No. 226 at ¶ 415.

As aforementioned in the “Pleading Standards” Section, however, the Securities Act claims here are subjected to
the same heightened standard because they resort to “boilerplate disclaimers” that the counts do not sound in fraud.
Ladmen Partners, 2008 WL 4449280, at *11 n.10.
6

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Section 15(a) of the Securities Act, codified at 15 U.S.C. § 77o(a), provides that a person
who controls a person liable under Section 11 or Section 12:
[S]hall also be liable jointly and severally with and to the same extent as such controlled
person to any person to whom such controlled person is liable, unless the controlling
person had no knowledge of or reasonable ground to believe in the existence of the facts
by reason of which the liability of the controlled person is alleged to exist.
15 U.S.C. § 77o(a). Similar to Section 20(a) of the Exchange Act, Section 15(a) of the Securities
Act “requires proof of a primary violation of the statute and control of the primary violator by
defendants.” In re MF Global Holdings, 982 F. Supp. 2d at 308 (internal quotation marks
omitted). Additionally, “control” under Section 20(b) of the Exchange Act is the same as
“control” under Section 15(a) of the Securities Act. See id.; In re Lehman Bros. Mortg.-Backed
Sec. Litig., 650 F.3d 167, 185 (2d Cir. 2011); First Jersey, 101 F.3d at 1472-73. As with Section
20(a), the first two prongs are met here as well.
The third prong of the analysis under Section 20(a), the “culpable participant”
requirement, has not yet been imputed into an analysis under Section 15(a). The Second Circuit
declined to decide that issue even though it has “divided district courts in this District.” In re
Lehman Bros., 650 F.3d at 186. It appears, though, that a “majority of judges” in this Circuit
have held that a plaintiff need not prove the “culpable participant” requirement in a Section 15(a)
claim. In re Bear Stearns Mortg. Pass-Through Certificates Litigation, 851 F. Supp. 2d 746, 773
(S.D.N.Y. Mar. 30, 2012) (collecting cases). Neither the plaintiff nor any of the defendants
argue that a claim under Section 15(a) requires a showing of “culpable participant” and,
therefore, I will join my colleagues in finding that the additional element of culpable participant
is not present here. Accordingly, for the reasons analyzed with respect to Count Two, the
defendants’ motions to dismiss Count Five are denied.

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IV.

Conclusion
For the foregoing reasons, the Motion to Dismiss filed by Teva, Vigodman, Desheh,

Griffin, and Olafsson (doc. no. 238) and the Motion to Dismiss filed by Teva Finance (doc. no.
239) are denied in substantial part. The motions are granted, however, with respect to the
plaintiffs’ allegations stemming from the defendants’ failure to disclose subpoenas from the DOJ
and Connecticut Attorney General. Further, the Motion to Dismiss filed by Cavanaugh and
Oberman (doc. no. 240) is granted. The Clerk is directed to terminate Cavanaugh and Oberman
as defendants to this case.
So ordered.
Dated at Bridgeport, Connecticut, this 25th day of September 2019.

/s/ STEFAN R. UNDERHILL
Stefan R. Underhill
United States District Judge

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