BIONDOLILLO v. ROCHE HOLDING AG et al

Filing 35

OPINION filed. Signed by Judge Anne E. Thompson on 9/24/2018. (km)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
THOMAS BIONDOLILLO, individually
and on behalf of all others similarly
situated,
Civ. No. 17-4056
Plaintiff,
OPINION
v.
ROCHE HOLDING AG, SEVERIN
SCHWAN, ALAN HIPPE, DANIEL
O’DAY, and GOTTLIEB A. KELLER,
Defendants.
THOMPSON, U.S.D.J.
INTRODUCTION
This matter comes before the Court upon the Motion to Dismiss filed by Defendants
Roche Holding AG (“Roche”), Severin Schwan, Alan Hippe, Daniel O’Day, and Gottlieb A.
Keller (collectively, “Defendants”). (ECF No. 31). Plaintiff Thomas Biondolillo, on behalf of a
putative class, opposes, and in the alternative requests leave to amend (ECF No. 32). The Court
has decided the Motion on the written submissions of the parties, pursuant to Local Rule 78.1(b).
For the reasons stated herein, Defendants’ Motion to Dismiss is granted, and Plaintiff is granted
leave to amend the operative complaint
BACKGROUND
This class action, brought on behalf of purchasers of certain securities in Roche, arises
from allegations that Defendants made false and misleading statements about the results of a
breast cancer treatment study, artificially inflating Roche’s stock price. In addition to suing
Roche itself, Plaintiff brings claims against Severin Schwan, CEO; Dr. Alan Hippe, Chief
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Financial & IT Officer; Daniel O’Day, CEO of Roche Pharmaceuticals; and Gottlieb A. Keller,
Roche’s General Counsel (collectively, “Individual Defendants”). (Am. Compl. ¶¶ 27–30, ECF
No. 24.) All four Individual Defendants are members of Roche’s six-member Corporate
Executive Committee, which is Roche’s chief operating decision maker. (Id. ¶¶ 33–34.)
Roche is a biotechnology company whose valuation derives primarily from its business
manufacturing cancer medicines. (Id. ¶ 40.) The company’s second-highest-grossing product is
Herceptin, a drug used to treat HER2-positive breast cancer, which accounted for 13.2% of
Roche’s total sales in 2017. (Id. ¶¶ 41–42.) Since Herceptin’s introduction in 1998, the drug has
dominated the market; but that dominance is threatened by the expiration of its patent in both the
European Union (in 2014) and the United States (in 2019), and by competition from biosimilars
(drugs with similar active properties). (Id. ¶¶ 45–46, 50–51.)
In an effort to protect Herceptin from biosimilar competition, Roche and several other
organizations conducted the APHINITY Phase III Study (“APHINITY”) to test the effects of
Herceptin with another drug, Perjeta. (Id. ¶¶ 57, 61.) Perjeta is one of Roche’s newer breast
cancer medications, and is approved for use in combination with Herceptin and chemotherapy in
the neoadjuvant (pre-surgery) setting. (Id. ¶ 58) The APHINITY study would determine whether
this same combination—Perjeta, Herceptin, and chemotherapy (“the Perjeta-based regimen”)—
improves patient outcomes in the adjuvant (post-surgery) setting. (Id. ¶ 61.) As the Amended
Complaint describes it:
If Roche could show that Perjeta, which would be protected by a Roche patent
against competition for at least another 15 years, provided a clinically significant
benefit when administered after surgery [i.e., adjuvant], not only would an
increase in revenues from Perjeta offset revenue losses from Herceptin biosimilar
competition, the sales life of Herceptin would also be extended, protecting
billions in Roche revenue. Because Perjeta would only be used in combination
with Herceptin, Roche would be able to offer a Herceptin-Perjeta bundle at a
discount to a combination of Perjeta and a biosimilar competitor.
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(Id. ¶ 60.) APHINITY results were therefore hotly anticipated and widely discussed by analysts
and investors. (Id. ¶¶ 54, 57, 64, 67.) Before any results were released, analysts at both J.P.
Morgan and UBS concluded that a 20% improvement in disease-free survival in the overall
patient population would constitute a “positive” outcome. (Id. ¶¶ 69–70.)
The full results of APHINITY would not be released until the annual American Society
of Clinical Oncology (ASCO) meeting in June 2017. (Id. ¶ 63.) But on March 2, 2017, Roche
issued a press release announcing the study’s purported top-line results:
Phase III APHINITY study shows Roche’s Perjeta® regimen helped people with
an aggressive type of early breast cancer live longer without their disease
returning compared to Herceptin® and chemotherapy[.]
Perjeta plus Herceptin and chemotherapy showed a statistically significant
improvement in invasive disease-free survival (iDFS) for people with HER2positive early breast cancer (eBC) compared to Herceptin and chemotherapy
alone.
....
Roche [and its partners in the study] today announced positive results from the
phase III APHINITY study. The study met its primary endpoint and showed that
adjuvant (after surgery) treatment with [the Perjeta-based regimen] achieved a
statistically significant reduction in the risk of recurrence of invasive disease or
death (invasive disease-free survival; iDFS) in people with HER2-positive early
breast cancer (eBC) compared to Herceptin and chemotherapy alone. The safety
profile of the Perjeta-based regimen was consistent with that seen in previous
studies [footnote omitted], and no new safety signals were identified. Full results
from the APHINITY trial will be presented at an upcoming medical meeting in
2017.
(Id. ¶ 75 (emphasis edited).) “Analysts and investors reacted to the press release with vigorous
enthusiasm.” (Id. ¶ 77–82.) On the day the press release was issued, Roche’s share price rose by
nearly 6%, its largest one-day increase in eight years. (Id. ¶ 76.)
During an April 27, 2017 conference call with investors, Defendant O’Day made the
following statements concerning APHINITY:
And with the APHINITY trial, . . . one medicine in combination has been able to
improve the standard of care systematically across metastatic, neoadjuvant and
now adjuvant. APHINITY met its primary endpoint of reducing the risk of
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recurrence of invasive disease or death compared to Herceptin and chemo alone.
And this is really I think terrific news for patients because we’re really talking
about a curative setting here with early breast cancer. We are really looking
forward to presenting the results to you at ACSO . . . . Based on the APHINITY
results, . . . we can absolutely be confident to continue to grow this franchise
through the introduction of biosimilars, which will start in Europe in the second
half of this year.
(Id. ¶ 85 (emphasis edited).) In response to an analyst’s question about the robustness of the
APHINITY results and projected sales of Perjeta and Herceptin, O’Day responded:
[W]e have to really wait until ASCO to get into the details. But suffice it to say
that we think this is the data we filed, where we think the data shows a reduction
in risk recurrence in invasive breast cancer and we think they’re clinically
meaningful. I think that’s about as much as I’m going to open the envelope on
today until you see the additional data.
(Id. ¶¶ 86–87) (emphasis edited).)
On June 5, the full results were revealed. (Id. ¶ 106.) The study found a 19%
improvement in rates of disease-free survival. (Mot. Dismiss, Ex. G at 1, ECF No. 31-9.) “At
three years, 94.1% of people treated with the Perjeta-based regimen did not have their breast
cancer return compared with 93.2% treated with Herceptin and chemotherapy.” (Id. ¶ 107.)
APHINITY met its endpoint and achieved statistical significance (id. ¶ 127), but its p-value was
.045, within only a “hair” of statistical significance (id. ¶ 109). The entire improvement
discovered was attributable to one subgroup within the trial—patients with lymph node-positive
status. (Id. ¶ 110.) The study also found that the Perjeta-based regimen increased the incidence of
three safety signals: diarrhea (58% increase), primary cardiac events (113% increase), and Class
III or IV heart failure (150% increase). (Id. ¶ 111.) The rate of discontinuation due to adverse
events was also 1.1 percentage points higher for participants on the Perjeta-based regimen. (Id.)
The day the full results were released, Roche’s share price fell 5.12%. (Id. ¶ 112). This
wiped out prior gains from the March 2 press release. (Id.) Several analysts and oncologists
found the results disappointing. (Id. ¶¶ 113–24.) Doctors stated that the Perjeta-based regimen
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did not improve overall survival, lamented its associated safety signals, and concluded that
adding it to oncologists’ standard regimens would be premature. (Id. ¶¶ 118–20.)
Between March 3, 2017 (one day after the press release) and May 10, 2017 (about one
month before the ASCO meeting), the Individual Defendants sold Roche securities totaling
approximately $7.1 million. (Id. ¶ 101.) Members of the Corporate Executive Committee also
executed six other sales, totaling approximately $5.3 million, during this period. (Id. ¶¶ 101–03.)
While individual Defendants constitute four of the six members of this Committee, it is unknown
which members made the remaining $5.3 million in trades. (Id. ¶¶ 34, 103.)
Plaintiff filed an Amended Complaint on March 5, 2018, on behalf of all persons who
purchased Roche ADS shares between March 2, 2017 and June 5, 2017. (Id. ¶¶ 1, 137.) The
Amended Complaint alleges that all Defendants violated Section 10(b) of the Securities
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 (Id. ¶¶ 143–52); and
that Individual Defendants violated Sections 20(a) and 20A of the Securities Exchange Act, 15
U.S.C. §§ 78t(a), 78t-1 (Id. ¶¶ 153–67). Following the timeline set by a Stipulation and Consent
Order (ECF No. 30), Defendants moved to dismiss on June 4, 2018 (ECF No. 31). 1 On July 19,
2018, Plaintiff opposed the Motion and in the alternative sought leave to amend (ECF No. 32).
Defendants replied on August 20 (ECF No. 33). 2 This Motion is presently before the Court.
LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency
of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). The defendant bears the

1

Defendants requested oral argument on this Motion, but the Court has decided the Motion on
the papers pursuant to Local Rule 78.1(b).
2
Plaintiff also moves to strike an exhibit included with Defendant’s Reply. (ECF No. 34.) The
Court did not consider the contents of this Exhibit in deciding the present Motion to Dismiss.
The underlying Motion to Dismiss having been decided, the Court dismisses as moot Plaintiff’s
Motion to Strike.
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burden of showing that no claim has been presented. Hedges v. United States, 404 F.3d 744, 750
(3d Cir. 2005). When considering a Rule 12(b)(6) motion, a district court should conduct a threepart analysis. Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011). “First, the court must ‘take
note of the elements a plaintiff must plead to state a claim.’” Id. (quoting Ashcroft v. Iqbal, 556
U.S. 662, 675 (2009)). Second, the court must “review[] the complaint to strike conclusory
allegations.” Id.; see also Iqbal, 556 U.S. at 679. Finally, the court must assume the veracity of
all well-pleaded factual allegations and “determine whether the facts are sufficient to show that
plaintiff has a ‘plausible claim for relief.’” Fowler v. UPMC Shadyside, 578 F.3d 203, 211
(quoting Iqbal, 556 U.S. at 679); see also Malleus, 641 F.3d at 563. If the complaint does not
demonstrate more than a “mere possibility of misconduct,” it must be dismissed. See Gelman v.
State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009) (quoting Iqbal, 556 U.S. at
679).
Additionally, in a securities case, the Private Securities Litigation Reform Act
(“PSLRA”) imposes a more demanding pleading standard. To allege a false or misleading
statement or omission, the complaint must, “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 with
particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). This is effectively
the same pleading standard as provided by Federal Rule of Civil Procedure 9(b), which requires
that the complaint “state with particularity the circumstances constituting fraud.” Inst. Investors
Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d Cir. 2009).
Additionally, the PSLRA requires that a complaint alleging scienter “state with
particularity facts giving rise to a strong inference that the defendant acted with the required state
of mind.” § 78u-4(b)(2)(A). This requirement, more stringent than that provided by Rule 9(b),
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Avaya, 564 F.3d at 253, makes a pleaded inference satisfactory “only if a reasonable person
would deem the inference of scienter cogent and at least as compelling as any opposing inference
one could draw from the facts alleged,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 324 (2007). However, the inference need only be as compelling, not more compelling, than
a competing inference, and need not rely on a “smoking-gun.” Id. (internal citation omitted).
Although a district court generally must confine its review on a Rule 12(b)(6) motion to
the pleadings, see Fed. R. Civ. P. 12(d), “a court may consider certain narrowly defined types of
material” beyond the pleadings, In re Rockefeller Ctr. Props., Inc. Sec. Litig., 184 F.3d 280, 287
(3d Cir. 1999), including matters incorporated by reference or integral to the claim, items subject
to judicial notice, matters of public record, orders, and items appearing in the record of the case.
Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (internal citation omitted).
DISCUSSION
I.

Section 10(b) and Rule 10b-5
All Defendants are alleged to have violated Section 10(b) and Rule 10b-5 by “mak[ing]

any untrue statement of a material fact or [omitting] to state a material fact necessary in order to
make the statements made, in light of the circumstances under which they were made, not
misleading.” 17 C.F.R. § 240.10b-5(b). To establish this cause of action, Plaintiff must prove
“(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or sale of a security; (4) reliance
upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37–38 (2011) (citing Stoneridge Inv. Partners, LLC
v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008)); accord City of Edinburgh Council v.
Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014). Defendants argue that Plaintiff has failed to
sufficiently plead both (1) a material misrepresentation or omission and (2) scienter.
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A.

Material Misrepresentation

Determining whether statements were false or misleading requires a “full reading” of the
statements and their context. Pfizer, 754 F.3d at 168. Accordingly, it will not do to take each
statement one at a time and show the literal truth of each. Walsingham v. Biocontrol Tech., Inc.,
66 F. Supp. 2d 669, 676–77 (W.D. Pa. 1998). A company is never obliged to speak on an issue.
Pfizer, 754 F.3d at 174. But, consistent with the “full reading” principle, once the company has
put an issue “in play” by speaking on it, “it cannot omit material facts related to that issue so as
to make its disclosure misleading.” Williams v. Globus Med., Inc., 869 F.3d 235, 241 (3d Cir.
2017) (citing Kline v. First W. Gov’t Sec., Inc., 24 F.3d 480, 490–91 (3d Cir. 1994)). This
prohibition on omissions of material fact has sometimes been described as a duty to disclose. See
Pfizer, 754 F.3d at 174; Kline, 24 F.3d at 491.
Opinions qualify as false or misleading statements where the issuer of the opinion does
not honestly believe the opinion or lacks a reasonable basis for believing it. Pfizer, 754 F.3d at
170 (internal citations omitted); cf. Omnicare, Inc. v. Laborers Dist. Council Constr. Indus.
Pension Fund, 135 S. Ct. 1318, 1328–29 (2015) (requiring, in a Section 11 case, that an opinion
“fairly align[] with the information in the issuer’s possession at the time”).
“[V]ague and general statements of optimism” are mere puffery and are not actionable. In
re Advanta Corp. Sec. Litig., 180 F.3d 525, 538 (3d Cir. 1999), abrogated on other grounds by
Tellabs, 551 U.S. 308. This category includes “projections about the company’s financial
growth, or expressions of general optimism about its financial health.” Key Equity Investors, Inc.
v. Sel-Leb Mktg., Inc., 246 F. App’x 780, 785 (3d Cir. 2007).
1.

Roche’s March 2 Press Release

The press release issued by Roche on March 2, 2017 announced “positive results,” and
also made the following specific claims about APHINITY: it found a “statistically significant
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improvement in invasive disease-free survival,” it “met its primary endpoint”, “[t]he safety
profile of the Perjeta-based regimen was consistent with that seen in previous studies,” and “no
new safety signals were identified.” (Am. Compl. ¶ 75.) The press release also stated that full
results would be announced at the ASCO meeting, but made no other warning that the
announced headline results should be discounted. (Id.)
Of the specific claims made, the study did find a statistically significant improvement in
disease-free survival, and the study did meet its primary endpoint. (Id. ¶ 127.) The press release’s
statements concerning safety signals were also accurate. 3
Likewise, the press release taken as a whole is not misleading. The press release called
the APHINITY results “positive,” but such interpretations of trial data are matters of opinion,
Pfizer, 754 F.3d at 170 (citing Kleinman v. Elan Corp., plc, 706 F.3d 145, 153 (2d Cir. 2013); In
re Adolor Corp. Sec. Litig., 616 F. Supp. 2d 551, 567 (E.D. Pa. 2009)), and the Amended
Complaint offers no evidence that this opinion lacked a reasonable basis.
Indeed, it is not clear what exactly was misleading about the press release, or what
information Roche should have disclosed to make it not misleading. Outside analysts had
speculated that a “positive” result would mean a 20% improvement in disease-free survival.
(Am. Compl. ¶¶ 69–70.) It was later revealed that APHINITY found a 19% improvement. (Id. ¶
106.) And while Roche could have disclosed that the positive results were driven by one
subgroup, Plaintiff has failed to demonstrate why such a disclosure would have made the press

3

Previous studies found that Perjeta increased the incidence of diarrhea by between 18% and
82%, and that it increased the incidence of left ventricular dysfunction by between -23% and
294%. (Mot. Dismiss, Ex. E at 10, 12, ECF No. 31-7.) APHINITY found the incidence of
diarrhea increased by 58%, of primary cardiac events by 113%, and of Class III or IV heart
failure by 150%. (Am. Compl. ¶ 111.) APHINITY’s results can thus be fairly described as
consistent with the results of previous studies.
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release meaningfully different. 4 The press release was therefore not false or misleading.
2.

O’Day’s Remarks During the April 27 Conference Call

During the April 27, 2017 call, O’Day repeated the press release claims that APHINITY
met its primary endpoint and that the data shows a reduction in risk recurrence. (Am. Compl. ¶¶
85–87.) In addition, he called the APHINITY results “terrific news for patients” and said that the
results show that the Perjeta-based regimen can “improve the standard of care systematically”
and provides “a curative setting . . . with early breast cancer.” (Id. ¶ 85.) He also stated, when
asked about the robustness of the APHINITY results, “we think this is the data we filed, where . .
. we think they’re clinically meaningful.” (Id. ¶ 87.)
His claims—specifically his claims that the Perjeta-based regimen can “improve the
standard of care systematically” and that the APHINITY data are clinically meaningful—were
later doubted by analysts and medical professionals. (Id. ¶¶ 113–24.) But his statements are still,
like those made in the press release, interpretations of a clinical trial and matters of opinion.
Pfizer, 754 F.3d at 170 (internal citations omitted). That O’Day’s statements were opinions is
shown by an expert’s remark that, “A determination of clinical significance is necessarily more
nuanced than the hard numbers that determine statistical significance.” (Am. Compl. ¶ 118.) And
Plaintiff does not show that O’Day did not honestly believe these opinions or lacked a reasonable
basis for them. Moreover, to the extent that O’Day’s statements expressed general optimism
about what the APHINITY results meant for the future of the company, they constitute

4

This case is distinguishable from In re PTC Therapeutics, Inc. Securities Litigation, where a
pharmaceutical company was found to have made false or misleading statements when it claimed
that drug trial results were “clinically meaningful,” while in reality the study found clinically
meaningful results in only one subgroup. 2017 WL 3705801, at *13–15 (D.N.J. Aug. 28, 2017).
In PTC Therapeutics, there was no statistically significant effect for the study population as a
whole, and the company used a post-hoc statistical analysis, which it had failed to disclose, to
find significance in one subgroup. Id. at *4, *14. Here, by contrast, APHINITY found statistical
significance for the entire study population.
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inactionable puffery. See Advanta, 180 F.3d at 538 (calling “vague and general statements of
optimism” puffery). O’Day therefore did not make false or misleading statements during the
conference call.
B.

Scienter

Scienter is “a mental state embracing intent to deceive, manipulate, or defraud,” Matrixx,
563 U.S. at 48 (citing Tellabs, 551 U.S. at 319), encompassing reckless or conscious behavior,
Avaya, 564 F.3d at 267. As stated above, a complaint must establish an inference of scienter that
is “at least as compelling as any opposing inference one could draw from the facts alleged.”
Tellabs, 551 U.S. at 324. “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.” Id. at 322–23 (italics in original) (internal citations omitted).
A defendant’s planned statement or repeated answers to questions on a topic are enough
to infer scienter. Matrixx, 563 U.S. at 49; Avaya, 564 F.3d at 267. Scienter may also be inferred
where a defendant attended meetings about and was otherwise seriously involved with the
subject matter of her statements. See, e.g., In re Viropharma Inc. Sec. Litig., 21 F. Supp. 3d 458,
473 (E.D. Pa. 2014). While an officer’s sale of stock is not enough to infer scienter, stock sales
that are “unusual in scope or timing . . . may support an inference of scienter.” Avaya, 564 F.3d
at 279 (internal citations omitted).
The Third Circuit has rejected the “group pleading doctrine[,] a judicial presumption that
statements in group-published documents including . . . press releases are attributable to officers
and directors who have day-to-day control or involvement in regular company operations.”
Winer Family Trust v. Queen, 503 F.3d 319, 335–37 (3d Cir. 2007); see also Advanta, 180 F.3d
at 539 (“Generalized imputations of knowledge do not suffice, regardless of the defendants’
positions within the company.” (internal citation omitted)). Rather, the complaint must
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specifically plead scienter for each defendant. Id. at 337. 5
Here, the Amended Complaint adequately pleads scienter for Defendants Roche and
O’Day. Roche, as co-author of the press release, and O’Day, as issuer of statements during the
conference call, are impliedly conscious of, or reckless in regard to, the allegedly false content
contained in their respective statements. But Plaintiff fails to infer scienter for the three
remaining Individual Defendants: Schwan, Hippe, and Keller. Their senior positions at Roche
are insufficient, as the Third Circuit does not apply the group pleading doctrine. The Amended
Complaint makes no allegations specifically tying these Defendants to the drafting of the press
release or any meetings related to the APHINITY study. While these Defendants did sell stock
between the March press release and the June ASCO meeting, Plaintiff does not show how these
sales were “unusual in scope or timing.” Avaya, 564 F.3d at 279 (internal citations omitted). 6
Finally, Plaintiff’s conclusory statements that these Defendants had “personal knowledge” of the
APHINITY results (Am. Compl. ¶¶ 27–30) do not comply with the PSLRA’s demand that facts
supporting an inference of scienter be “state[d] with particularity,” 15 U.S.C. § 78u-4(b)(2)(A).
Because of the Amended Complaint’s defects regarding both false and misleading
statements and scienter, Defendants’ Motion to Dismiss must be granted as to the Section 10(b)
and Rule 10b-5 claims.

After briefing on this Motion was completed, the Third Circuit further expounded upon the
requirements for pleading a strong inference of scienter in In re: Hertz Global Holdings Inc.,
2018 WL 4496352, No. 17-2200 (3d Cir. Sept. 20, 2018). Hertz does not significantly alter the
law as it applies to this case, and this Court’s holding today is consistent with the reasoning of
Hertz to the extent that it is relevant.
6
Defendants’ sales during the relevant period constituted 8.5% of their total equity holdings in
Roche. (Mot. Dismiss at 38.) The Amended Complaint does not clarify whether 8.5% is a lot or a
little. Plaintiff also has not shown whether Individual Defendants sold stock in a similar pattern
before or after this time period.
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5

II.

Section 20(a)
Section 20(a) of the Securities Exchange Act states that:
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 . . .
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). Liability under Section 20(a) “is derivative of an underlying violation of
Section 10(b) by the controlled person.” Rahman v. Kid Brands, Inc., 736 F.3d 237, 247 (3d Cir.
2013) (quoting Avaya, 564 F.3d at 252). Thus, where no Section 10(b) violation has been
successfully pled, a Section 20(a) violation must fail as well. Id. The Amended Complaint must
therefore be dismissed with regard to Section 20(a).
III.

Section 20A
Section 20A of the Securities Exchange Act provides:
Any person who violates any provision of this chapter or the rules or regulations
thereunder by purchasing or selling a security while in possession of material,
nonpublic information shall be liable . . . to any person who, contemporaneously
with the purchase or sale of securities that is the subject of such violation, has
purchased . . . or sold . . . securities of the same class.

15 U.S.C. § 78t-1(a). Liability under Section 20A, like Section 20(a), requires an underlying
violation of Section 10(b). Pfizer, 754 F.3d at 175 (citing Advanta, 180 F.3d at 541). Because
Plaintiff has failed to state a claim under Section 10(b), he has likewise failed to state a Section
20A claim, id. at 175–76, and the Amended Complaint must be dismissed with regard to Section
20A.
IV.

Leave to Amend
Federal Rule of Civil Procedure 15(a)(2) allows amendment of the pleadings with the

court’s leave, which should be given freely. Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000).
Plaintiff is therefore granted leave to file an amended complaint addressing the deficiencies
13

discussed above, in accordance with Local Civil Rule 15.1(b).
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss is granted, and Plaintiff is
granted leave to amend the Amended Complaint. An appropriate order will follow.
Date: 9/24/18

/s/ Anne E. Thompson
ANNE E. THOMPSON, U.S.D.J.

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