Khanna v. Ohr Pharmaceutical, Inc. et al
Filing
71
OPINION & ORDER re: 47 MOTION to Dismiss filed by Irach Taraporewala, Sam Backenroth, Ohr Pharmaceutical, Inc., Jason Slakter, 59 MOTION to Strike Document No. [48, 49-1 to 49-56] Lead Plaintiffs' Notice of Motion t o Strike the Extrinsic Evidence and Related Arguments that Defendants Submitted with Their Motion to Dismiss filed by George Lehmann, Insured Benefit Plans, Inc., 63 LETTER MOTION for Oral Argument addressed to Judge Loretta A. Preska from Aurora Cassirer dated December 13, 2018 filed by Irach Taraporewala, Sam Backenroth, Ohr Pharmaceutical, Inc., Jason Slakter, 50 LETTER MOTION for Oral Argument addressed to Judge Loretta A. Preska from Aurora Cassirer dated September 17, 2018 filed by Irach Taraporewala, Sam Backenroth, Ohr Pharmaceutical, Inc., Jason Slakter, 51 LETTER MOTION to Adjourn Conference as related to Rule 2(A) of Your Honors Individual Practices addressed to Judge Lo retta A. Preska from Richard W. Gonnello dated October 11, 2018 filed by George Lehmann, Insured Benefit Plans, Inc. For the reasons stated above, Defendants' motion to dismiss [dkt. no. 44] is granted, and Plaintiff's motion to strike [ dkt. no. 59] various documents is denied as moot. The Clerk of the Court shall mark the action closed and deny all pending motions as moot. SO ORDERED. (Signed by Judge Loretta A. Preska on 9/20/2019) (mml) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDCSPNY
OOCUMF.N'f
ar,crRONICAILY FILED
GEORGE LEHMANN and INSURED
BENEFIT PLANS, INC.,
Individually and on Behalf of
All Others Similarly Situated,
DOC#:
.
.
9~ IQ• 14
, DATB Fii.ib:
'"
Plaintiffs,
18 Civ. 1284 (LAP)
-against-
OPINION
&
ORDER
OHR PHARMACEUTICAL INC., JASON
SLAKTER, SAM BACKENROTH, and
IRACH TARAPOREWALA,
Defendant.
LORETTA A. PRESKA, Senior United States District Judge:
Plaintiffs George Lehmann and Insured Benefits Plans, Inc.
("Plaintiffs") bring the instant securities class action
complaint against Ohr Pharmaceutical, Inc.
("Company") , Jason
Slakter, Sam Backenroth, and Irach Taraporewala (collectively,
"Defendants").
Plaintiffs assert claims of securities fraud
under Section l0(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Securities and Exchange Commission Rule l0b5 promulgated thereunder.
Plaintiffs also allege violations of
Section 20(a) of the Exchange Act.
their purchase of Ohr common stock.
Plaintiffs' claims stem from
(Amended Complaint ("Am.
Compl."), dated Aug. 7, 2018 [dkt. no. 44], at
'I[
22).
Defendants now move to dismiss the amended complaint
pursuant to Federal Rules of Civil Procedure 9(b) and 12(b) (6)
1
for failure to plead with the specified particularity and
failure to state a claim upon which relief may be granted.
For the reasons stated below, Defendants' motion is
granted.
I.
Background
In 2009, the Company purchased the rights to Squalamine, a
drug developed by a company called Genaera and derived from the
liver of the dogfish shark.
(Am. Compl. at 1 2).
Squalamine
was thought to treat Wet Age-Related Macular Degeneration ("Wet
AMD") , a degenerative eye disease.
stopped testing Squalamine in 2007.
(Id. at 1 3) .
(Id.)
Gena era
Lucentis was a drug
developed by another company and approved by the Food and Drug
Administration ("FDA") to treat Wet AMD.
(Id. )
After purchasing Squalamine, the Company began developing
the drug to be delivered through an eye drop, as opposed to
Genaera's intravenous delivery method.
Id. at 1 4).
The
Company's first testing in humans was its phase II clinical
trial in 2012 called the "IMPACT Trial."
(Id. at 1 5).
Prior
to the results of the IMPACT Trial, Defendants allegedly
misrepresented Squalamine by saying it "produced beneficial
effects and significant improvement in best corrected visual
acuity."
(Id. at 1 6).
2
The IMPACT Trial consisted of a control arm in which
patients received placebo eye drops twice a day in combination
with injections of Lucentis.
It also consisted of a treatment
arm in which patients received Squalamine eye drops twice a day
Id. at i 5).
in combination with injections of Lucentis.
The
primary endpoint of the study was the reduction in Lucentis
injections after nine months to maintain vision, and the
secondary endpoint was improvement in vision.
(Id. )
Improvement in vision, also known as best corrected visual
acuity, was measured by the Early Treatment Diabetic Retinopathy
Study, the Standard Eye Chart.
(Id. )
Plaintiffs point to three categories of misleading
information relating to the IMPACT Trial.
First, Plaintiffs point to the "Interim Results" that were
announced by the Company in June 2014 and contained the first
half of the patients enrolled in the IMPACT Trial.
i 8).
(Id. at
The Company reported that patients in the treatment arm,
testing Squalamine, saw a mean vision improvement of 10.4
letters on the Standard Eye Chart, while patients in the control
arm had a mean improvement of 6.3 letters.
(Id.)
The results
were allegedly misleading because "in the prior trials of
Lucentis, patients gained a mean of 7.94 letters - 1.64 higher
than" the control arm announced in the Interim Results.
3
(Id. at
10).
Plaintiffs say "if patients in the [control group] had
performed consistently with prior trials, the relative
difference in visual acuity between the two armsn would not be
"clinically meaningful.n
(Id.)
The Amended Complaint does not
allege that the Company in any way doctored the results; it
alleges the control arm was inconsistent with prior trials.
The
Company hired Vista Partners LLC ("Vistan) to tout the results
of the Interim Report, and the Company's stock price increased
60 percent in two days.
(Id. at 'lI 9).
Second, Plaintiffs point to the final Classic Lesions
Results of the IMPACT Trial announced in March 2015.
'l[
11).
( Id. at
The Company allegedly misled investors here because it
"failed to disclose the [control arm] once again materially
underperformed in the IMPACT Trial compared to the results from
past Lucent is trials.
n
(Id. at 'l[ 12) .
Again, Plaintiffs do not
allege any chicanery in the study itself, but rather the
gravamen of the Amended Complaint points to a "failure to
disclosen prior results.
(Id. )
Third, Plaintiffs point to the final Occult Lesions Results
announced by the company in May 2015.
(Id. at 'l[ 13).
These
suffer from the same problem as the above two data points, i.e.,
a "fail[ure] to disclose that, had the [control group] not
materially underperformed in comparison to historical trials,
4
the results would not have been clinically meaningful."
(Id. at
i 13) .
In January 2018, the Company announced the results of its
phase III MAKO Trial.
(Id. at
16).
j[
As Plaintiffs
characterize it, the results were an "utter disaster as patients
in the [treatment arm] performed worse than the [control arm]."
(Id.)
The Company's stock price subsequently dropped 81.2
(Id.)
percent.
Defendants are alleged to have had access to
the prior clinical trials that are relied on by Plaintiffs to
show that the results touted by the Company were misleading.
(Id. at
II.
j[
17).
Legal Standard
"To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to 'state a claim
to relief that is plausible on its face.'" Ashcroft v. Iqbal,
129 S.Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly,
550 U.S. 554, 570 (2007)).
"A pleading that offers 'labels and
conclusions' or 'a formulaic recitation of the elements of a
cause of action will not do.'" Id.
555).
( quoting Twombly, 550 U.S. at
Moreover, "[w]here a complaint pleads facts that are
merely consistent with a defendant's liability, it stops short
of the line between possibility and plausibility of entitlement
to relief."
Id.
(internal quotation marks and citations
5
omitted).
In assessing whether a plaintiff has met this
standard, the Court must accept all non-conclusory factual
allegations as true and draw all reasonable inferences in the
plaintiff's favor.
Cir. 2008)
Goldstein v. Pataki, 516 F.3d 50, 56 (2d
(internal quotation omitted).
In considering a motion to dismiss under Federal Rule of
Civil Procedure 12(b) (6), "the district court is normally
required to look only to the allegations on the face of the
complaint."
Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007).
However, "[i]n certain circumstances, the court may permissibly
consider documents other than the complaint in ruling on a
motion under Rule 12(b) (6) ."
Id.
Accordingly, the Court "may
consider any written instrument attached to the complaint,
statements or documents incorporated into the complaint by
reference, legally required public disclosure documents filed
with the SEC, and documents possessed by or known to the
plaintiff and upon which it relied in bringing the suit." ATSI
Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98
(2d Cir.
2007). 1
Plaintiffs move to strike [dkt. no. 59] a number of documents
submitted by Defendants in their motion to dismiss.
The Court
did not rely on material objected to.
Therefore, Plaintiffs'
motion to strike is denied as moot.
1
6
Securities fraud claims must also meet the heightened
pleading requirements under Federal Rule of Civil Procedure 9(b)
("Rule 9(b)") and the Private Securities Litigation Reform Act
("PSLRA"), 15 U.S.C.
§
78u-4 (b).
ATSI Commc'ns, 493 F.3d at 99.
A complaint alleging securities fraud must abide by Rule 9(b)'s
requirement that "the circumstances constituting fraud .
shall be stated with particularity."
Fed. R. Civ. P.
9(b).
"A
securities fraud complaint based on misstatements must
(1) specify the statements that the plaintiff contends were
fraudulent,
(2) identify the speaker,
(3) state where and when
the statements were made, and (4) explain why the statements
were fraudulent."
ATSI Commc'ns, 493 F.3d at 99.
"[I]f 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."
U.S.C.
§
78u-4 (b) (1).
The PSLRA applies to the element of scienter.
Commc'ns, 493 F.3d at 99.
ATSI
Scienter is "'a mental state
embracing intent to deceive, manipulate, or defraud.'"
Inc. v. Makor Issues
(quoting Ernst
(1976)).
15
&
&
Tellabs,
Rights, Ltd., 551 U.S. 308, 319 (2007)
Ernst v. Hochfelder, 425 U.S. 185, 193 n.12
In order to plead scienter adequately, "'the complaint
shall, with respect to each act or omission alleged to violate
this chapter, state with particularity facts giving rise to a
7
strong inference that the defendant acted with the required
state of mind.'"
Id.
(quoting 15 U.S.C. § 78u-4 (b) (2)).
III. Discussion
To recover damages in a private securities-fraud action
under§ l0(b) of the Exchange Act, a plaintiff must prove "(l) a
material misrepresentation or omission by the defendant;
scienter;
(2)
(3) a connection between the misrepresentation or
omission and the purchase or sale of a security;
upon the misrepresentation or omission;
(6) loss causation."
(4) reliance
(5) economic loss; and
Amgen Inc. v. Connecticut Ret. Plans
Funds, 568 U.S. 455, 460-61 (2013).
&
Tr.
To make out a prima facie
case under§ 20(a) of the Exchange Act, a plaintiff must show a
primary violation, such as of§ l0(b).
Ganino v. Citizens
Utilities Co., 228 F.3d 154, 170 (2d Cir. 2000).
In other
words, if there is no§ l0(b) violation, there is no§ 20(a)
violation.
For the following reasons, Plaintiffs fail to plead either
a material misrepresentation or omission or scienter.
therefore have not plead either a§ l0(b) or a§ 20(a)
violation.
8
They
a. Misrepresentation or Omission
On misrepresentation, both Plaintiffs and Defendants agree
that what is at issue are opinions expressed by Defendants.
The
Supreme Court has ruled that false statements of opinion can be
actionable if either "the speaker did not hold the belief she
professedff or "the supporting fact[s]
she supplied were untrue.ff
Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension
Fund, 135 S. Ct. 1318, 1327 (2015).
task for an investor.ff
Id. at 1332.
Proving this is "no small
A statement of opinion is
"not necessarily misleading when an issuer knows, but fails to
disclose, some fact cutting the other way.ff
Id. at 1329.
Furthermore, "a statement of opinion is not misleading just
because external facts show the opinion to be incorrect.ff
Id.
This language was applied in the FDA context by the Court
of Appeals in Tongue v. Sanofi, 816 F.3d 199, 212 (2d Cir.
2016) .
In Tongue, plaintiffs' case "essentially boil[ed] down
to an allegation that the statements were misleading for failure
to include a fact that would have potentially undermined
Defendants' optimistic projections.ff
Id.
But the Court of
Appeals explained, "Omnicare imposes no such disclosure
requirements on issuers.ff
Id.
Specifically commenting on the actionability of opinions
regarding trial results, the Court of Appeals noted that it had
9
previously rejected "a dispute about the proper interpretation
of data" as a basis for liability.
Id. at 214; Kleinman v. Elan
Corp., plc, 706 F.3d 145, 154 (2d Cir. 2013) ("(W]here a
defendant's competing analysis or interpretation of data is
itself reasonable, there is no false statement.")
With respect to the interpretation of the interim and final
IMPACT Trial results, there was no misrepresentation.
Plaintiffs' argument boils down to the assertion that the IMPACT
Trial's failure to perform consistently with prior comparable
studies necessitated the Company's providing more context.
(Lead Plaintiffs' Memorandum Of Law In Opposition To Defendants'
Motion To Dismiss ("Pl. Opp."), dated May 31, 2019 [dkt. no.
68], at 13).
Said differently, Plaintiffs say that in order to
remedy the IMPACT Trial's turning out "worse" for shareholders
because it later failed in phase III, Defendants were required
to make more disclosures.
In omitting the prior results,
Plaintiffs allege that there was a misrepresentation.
This is not the law.
Defendant's omission is a "failure to
include a fact that would have potentially undermined
Defendants' optimistic projections."
Tongue, 816 F.3d at 212.
As seen above, the Supreme Court and Court of Appeals have said
that such a failure is not actionable in this context.
Plaintiffs' attempt to analogize to failures to disclose an
10
illegal bribery scheme, a three-month long Stop Work Order, and
subpoenas from the Securities and Exchange Commission, and
information requests from the Department of Justice, are
unavailing.
DoubleLine Capital LP v. Odebrecht Fin., Ltd., 323
F. Supp. 3d at 444
(S.D.N.Y. 2018)
(company failed to disclosure
its participation in an illegal bribery and kickback scheme); In
re Chicago Bridge
&
Iron Co. N.V. Sec. Litig., 2018 WL 2382600,
at *8 (S.D.N.Y. May 24, 2018)
(company failed to disclose a
three-month Stop Work Order); Menaldi v. Och-Ziff Capital Mgmt.
Grp. LLC, 164 F. Supp. 3d 568, 584
(S.D.N.Y. 2016)
(company
failed to disclose an SEC-DOJ investigation).
The Court is more persuaded by cases cited by Defendants
finding no liability in the medical context.
See, e.g., In re
Sanofi Sec. Litig., 87 F. Supp. 3d 510, 528, 543-44 (S.D.N.Y.
2015), In re MELA Scis., Inc. Sec. Litig., 2012 WL 4466604, at
*13 (S.D.N.Y. Sept. 19, 2012), City of Edinburgh Council v.
Pfizer, Inc., 754 F.3d 159, 170 (3d Cir. 2014), Fait v. Regions
Fin. Corp., 655 F.3d 105, 113 (2d Cir. 2011), In re Express
Scripts Holding. Co. Sec. Litig., 2018 WL 2324065, at *9
(S.D.N.Y. May 22, 2018), and City of Omaha, Neb. Civilian Emps.'
Ret. Sys. v. CBS Corp., 679 F.3d 64,
69 (2d Cir. 2012).
The
only retort Plaintiffs have is to say that they are "inapposite
as all were either decided before Omnicare or otherwise did not
apply Omnicare's opinion standard."
11
(Pl. Opp. at n.8).
As
Defendants correctly point out, however, "Omnicare did not
reject the Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir.
2011)
standard in the Second Circuit but expanded it.
Fait
requires alleging both falsity and disbelief, whereas Omnicare
requires allegations of either.
Thus, any cases pre-Omnicare
are not inapposite and still may address objective falsity or
subjective disbelief."
(Def. Rep. at n.3).
Additionally, Defendants argue that providing the
historical studies to put the control arm in context would not
have been relevant because the historical studies relied on by
Plaintiffs to establish an appropriate control benchmark are not
comparable.
(Def. Mot. at 6-10).
without [pro re nata]
comparators.
2
For instance, "[a]ll studies
Lucentis dosing are inappropriate
Monthly Lucentis produces very different visual
and anatomical differences versus [pro re nata dosing]."
at 9).
Id.
While the Court does not rely on this argument, it notes
Plaintiffs' failure to defend evidently different aspects of the
various Lucentis experiments that they argue are comparable.
Additionally, Plaintiffs make much hay about the use of the
term "clinically meaningful."
They point to a single doctor's
view that "for a Wet AMO treatment to be considered clinically
2 ~'
dosed as needed, not on a regimented routine.
at 8) .
12
( Def. Mot.
meaningful, it must improve vision by at least 4 letters."
Opp. at 5).
(Pl.
"[S]tatements containing simple economic
projections, expressions of optimism, and other puffery are
insufficient" to establish a l0(b) violation.
216 F.3d 300, 315 (2d Cir. 2000).
Novak v. Kasaks,
For this reason, "clinically
meaningful" is legally meaningless.
Even if the term did have content, Plaintiffs have
certainly not established that their definition is the
definition of the term.
Such an establishment could come
through other usage in the industry or FDA regulations and
requirements.
Additionally, the term, as a matter of law, is
not a statement of fact, but is instead puffery, much like the
term "success."
Okla. Firefighters Pension
&
Ret. Sys. v. Xerox
Corp., 300 F. Supp. 3d 551, 570 (S.D.N.Y. 2018).
Meaningfulness, especially in the medical context, is a more
subjective concept than is the presentation of raw data.
While
there may be night and day, e.g., describing cyanide as a cure
for the common cold as "clinically meaningful" would likely be
fraud,
this is a case of dawn and dusk where the statements are
clear puffery.
The Court also holds that Defendants' opinions regarding
Genaera's earlier studies are not actionable.
Plaintiffs call
these opinions misleading because the Genaera trials did not
13
demonstrate Squalamine had a favorable biological effect,
Genaera terminated its development of the drug, and Genaera's
trials for Squalamine were inferior to those produced by
Lucentis.
(Pl. Opp. at 11).
In support, Plaintiffs cite to a statement from Genaera
that says, "[T]here is no attractive or pragmatic option for the
registration and commercialization of [Squalamine] for the
treatment of wet AMD" based on "preliminary information from
investigators on patients" as well as "evolving FDA guidance on
clinical endpoints."
(Am. Compl. at~ 40).
This does not speak
solely to the actual biological effects of the drug, and
considering the fact that Ohr would change the administration of
the drug from intravenous to eye drop, this statement is not
actionable.
This is exactly what the Supreme Court was
referring to in Omnicare when it said, "[r]easonable investors
understand that opinions sometimes rest on a weighing of
competing facts."
135 S.Ct. at 1329.
In Omnicare, the Supreme Court dealt with a provision
parallel to Section l0(b), Section 11, saying that the section
was not "an invitation to Monday morning quarterback an issuer's
opinions."
Omnicare, 135 S.Ct. at 1327.
In that case, the
company's statement, "We believe we are obeying the law" turned
out to be false in that the company was not obeying the law.
14
Id.
The Supreme Court declined to find the company liable
because Section 11 "does not allow investors to second-guess
inherently subjective and uncertain assessments.n
Id.
In the
face of uncertainty, an opinion can still be reasonable even if
new facts later undermine it.
In the medical research context, this is all the more
important.
On Plaintiffs' account, it is unclear whether the
Company should have embarked on the phase III study after the
success of the phase II study - should the Company have ignored
what Plaintiffs say were aberrant results, or should it have
investigated further?
As an ex post matter, it is clear that
Plaintiffs are unhappy with the results of the MAKO Trial.
The
shareholders, however, are not the only ones implicated here those suffering from wet AMO are also undoubtedly disappointed
with the results.
Does this necessarily mean that pursuing the
MAKO Trial was unwise?
This Court will not adopt a rule that discourages free
scientific inquiry in the name of shielding investors from risks
of failure.
Science is risky.
Science advances through those
willing to take those risks and break with consensus.
See
generally Thomas S. Kuhn, The Structure of Scientific
Revolutions, UNIV. CHI. PRESS, 1970.
With science suffering from a
replication crisis, see generally Kristin Firth, David A.
15
Hoffman
&
Tess Wilkinson-Ryan, Law and Psychology Grows Up, Goes
Online, and Replicates, 15 J. EMPIRICAL LEGAL STUDIES 320, 323-24
(2018), this Court is happy to report that the law does not
abide attempts at using the judiciary to stifle the risk-taking
that undergirds scientific advancement and human progress.
The
answer to bad science is more science, not this Court's acting
as the Southern District for the Inquisition.
California, 274 U.S. 357 (1927)
Cf. Whitney v.
("If there be time to expose
through discussion the falsehood and fallacies, to avert the
evil by the process of education, the remedy to be applied is
more speech, not enforced silence.")
(Brandeis, J. , concurring) .
b. Scienter
A plaintiff may plead scienter by alleging 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 recklessness."
Commc'ns, 493 F.3d at 99.
ATSI
Conscious recklessness implies "a
state of mind approximating actual intent, and not merely a
heightened form of negligence."
South Cherry St., LLC v.
Hennessee Group LLC, 573 F.3d 98, 109 (2d Cir. 2009).
In the instant case where a false opinion is alleged, the
scienter and misrepresentation requirements of§ l0(b) collapse
together because "a material misstatement of opinion is by its
16
nature a false statement, not about the objective world, but
about the defendant's own belief."
Podany v. Robertson
Stephens, Inc., 318 F. Supp. 2d 146, 154 (S.D.N.Y. 2004); see
also In re Sanofi Sec. Litig., 87 F. Supp. 3d 510, 534
(S.D.N.Y.
2015), aff'd sub nom. Tongue v. Sanofi, 816 F.3d 199 (2d Cir.
2016).
As this court has previously said, "[P]roving the
falsity of the statement 'I believe this investment is sound' is
the same as proving scienter, since the statement (unlike a
statement of fact) cannot be false at all unless the speaker is
knowingly misstating his truly held opinion."
318 F. Supp. 2d
at 154 (S.D.N. Y. 2004).
"If the management knows that certain facts will
necessarily prevent the regulatory approval or the marketing of
the drug and conceals these facts from the investing public,
then there is scienter.
There is also scienter if the
management is reckless in dealing with such adverse facts."
In
re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453, 470 (S.D.N.Y.
2008), aff'd sub nom. State U. Ret. Sys. of Illinois v.
Astrazeneca PLC, 334 F. App'x 404
(2d Cir. 2009).
On the flip
side, "if the management of the company releases positive
reports about the drug to the public along the way which the
management honestly believes to be true, and where there is no
reckless disregard for truth, then that is not securities fraud,
even though at a later point some event occurs which prevents
17
the marketing of the drug or makes it necessary to take the drug
off the market."
Id.
Plaintiffs allege that Defendants had access to omitted
facts and information, namely other trial data, that would have
put their positive claims in the proper context (Pl. Opp. at 2429).
For the reasons stated above, the Court rejects this
argument as establishing a misrepresentation.
The Court also
rejects knowledge of this information as establishing scienter.
Had the MAKO Trial succeeded, which Plaintiffs do not allege was
out of the realm of possibility as envisioned by Defendants,
then there clearly would have been no scienter.
It cannot be
the case that ex ante intent is based on ex post results.
Additionally, Plaintiffs do not allege any direct financial
benefit to individual defendants but instead point to the
Company's desire to "avoid bankruptcy" as Defendants' motive.
(Pl. Opp. at 29).
Avoiding bankruptcy, raising capital, or a
"general motivation to act in one's own economic self interest"
cannot form the basis for finding the requisite scienter.
Tabak
v. Canadian Solar Inc., 549 F. App'x 24, 29 (2d Cir. 2013); see
also Ganino v. Citizens Utilities Co., 228 F.3d 154, 170 (2d
Cir. 2000), Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001).
Plaintiffs attempt to distinguish cases cited by Defendants
for this proposition by saying, "The cases . . . are
18
distinguishable because none involved companies conducting
multiple offerings to avoid bankruptcy, after having received
multiple auditor going concern letters."
( Pl. Opp. at 30 n. 2 6) .
It is unclear why this distinction should have any legal import.
The same rationale undergirding the rule as applied to a single
bankruptcy, i.e., motives common to all corporations cannot be
used to establish specific motive, also applies here, as most
companies would try to avoid bankruptcy multiple times if they
were able to do so.
The cases cited by Plaintiffs are unavailing.
See In re
IMAX Sec. Litig., 587 F. Supp. 2d 471, 483 (S.D.N.Y. 2008)
(finding that continuing as a going concern was but one factor,
and scienter was only adequately pled based on this plus
recklessness allegations, company's increasing aggressive
accounting of the subject revenue, and violations of GAAP); In
re Complete Mgmt. Inc. Sec. Litig., 153 F. Supp. 2d 314, 327-28
(S.D.N.Y. 2001)
(admitting that "a generalized desire to
maintain a higher stock price will not rise to the level of
motive" but finding that the "artificial inflation of a stock
price in order to achieve some more specific goal may satisfy
the pleading requirement," which in that case came in the form
of alleging "unusual insider trading activity" on the part of
defendants).
These additional elements do not exist here.
19
Accordingly, because neither scienter nor material
misrepresentation has been plead here, there is no§ l0(b)
violation, and because there is no primary violation, there is
no§ 20(a) violation.
The Court does not reach Defendants' additional arguments.
IV.
Conclusion
For the reasons stated above, Defendants' motion to dismiss
[dkt. no. 44] is granted, and Plaintiff's motion to strike [dkt.
no. 59] various documents is denied as moot.
The Clerk of the
Court shall mark the action closed and deny all pending motions
as moot.
SO ORDERED.
Dated:
New York, New York
September .j:2_,
Senior United States District Judge
20
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