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T. Rowe Price Growth Stock Fund, Inc. v. Valeant Pharmaceuticals International, Inc.

United States District Court, D. New Jersey

January 12, 2018

T. ROWE PRICE GROWTH STOCK FUND, INC, et al. Plaintiffs,
v.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC. et al., Defendants. EQUITY TRUSTEES LIMITED AS RESPONSIBLE ENTITY FOR T. ROWE PRICE GLOBAL EQUITY FUND, et al. Plaintiffs,
v.
VALEANT PHARMACEUTICALS INTERNATIONAL, INC, et al. Defendants. PRINCIPAL FUNDS, LNC. and PRINCIPAL VARIABLE CONTRACTS FUNDS, PNC, Plaintiffs,
v.
VALEANT PHARMACEUTICALS INTERNATIONAL, et al. Defendants. BLOOMBERGSEN PARTNERS FUND LP and BLOOMBERGSEN MASTER FUND LP, Plaintiffs,
v.
VALE ANT PHARMACEUTICALS INTERNATIONAL, INC., et al, Defendants.

          MEMORANDUM OPINION

          Michael A. Shipp United States District Judge

         This matter conies before the Court on twenty Motions to Dismiss in the above matters by Defendants Tanya Cairo ("Carro"), Deborah Jorn ("Jorn"), Valeant Pharmaceuticals International, Inc. ("Valeant"), Robert Rosiello ("Rosiello"), Ari S. Kellen ("Kellen") (Valeant, Rosiello, and Kellen collectively, "Valeant Defendants"), J. Michael Pearson ("Pearson"), and Howard B. Schiller ("Schiller") (all collectively, "Defendants").[1] Plaintiffs opposed the motions (ECF No.49)[2] and Defendants (except Pearson) replied. (ECF Nos. 58, 59, 60, 61.)[3]

         The Court has carefully considered the parties' submissions and decides the matter without oral argument pursuant to Local Rule 78.1. For the reasons stated below, Valeant Defendants' Partial Motions to Dismiss are DENIED; Schiller's Partial Motions to Dismiss are DENIED; Pearson's Partial Motions to Dismiss are DENIED; Carro's Motions to Dismiss are DENIED; and Jorn's Motions to Dismiss are DENIED;

         I. Background

         Plaintiffs in these matters are investment funds that purchased Valeant securities between January 4, 2013 and August 10, 2016. (Compl. 1, ECF No. 1.) These are direct actions arising out of the same facts and circumstances as the class action currently pending before the Court under docket number 15-7658 ("Class Action"). The Court assumes the parties' familiarity with the underlying facts and recites the facts only to the extent necessary to decide these motions.

         The Complaints allege that Valeant engaged in a fraudulent scheme to artificially inflate the Company's revenues and profits, which caused securities to trade at artificially inflated prices and resulted in damages to the investment funds when the truth about Valeant's business practices was revealed. (Compl. ¶¶ 1-17.) Specifically, Plaintiffs allege that Valeant hid the truth about practices that carried enormous risk (id. ¶ 8), such as the use of a secret pharmacy network (id ¶¶ 9-11, 75-126), "extraordinary price gouging" (id. ¶ 12), fictitious and improper accounting (see e.g., Id. ¶¶ 1, 5, 14, 125-26; 147-228), and other deceptive practices (see e.g. Id. ¶¶ 1-12, 58-125 127-39).

         According to the Complaints, Defendants made false and misleading representations about Valeant (id. ¶¶ 147-326, 439), which Plaintiffs relied upon;n purchasing Valeant securities. (Id. ¶¶ 470-91). Plaintiffs allege that as the misconduct was revealed, between September 28, 2015 and August 10, 2016, Valeant's stock price fell from over $262 per share to less than $25 per share, resulting in market capitalization losses for the Company's shareholders of over $76 billion dollars. (Id. ¶¶I6-I7, 440-69.)

         Plaintiffs in these actions bring claims under: (i) Securities and Exchange Act Section 10(b) and Securities and Exchange Commission Rule 10b-5 thereunder ("Section 10(b)"); (ii) Securities and Exchange Act Section 18(a) ("Section 18"); and (ii) Securities and Exchange Act Section 20(a) ("Section 20(a)").[4] The Valeant Defendants, Pearson, and Schiller move to Dismiss the Section 18 claims (Count II) in each of the actions and to limit the Section 10(b) claims (Count I) to purchases made before October 30, 2015. (Valeant Defs.' Moving Br., ECF No. 36-1; Pearson Notice of Mot., ECF No. 38; Schiller's Moving Br., ECF No. 37-1.)[5] Pearson also moves to limit Section 20(a) claims (Count III) to purchases made before October 30, 2015.[6] (Pearson Notice of Mot. 2.) Defendants Carro and Jorn move to dismiss the claims against them in their entirety. (Carro's Moving Br., ECF No. 34-1; Jorn's Moving Br., ECF No. 35-1.)

         II. Legal Standard

         When analyzing a Rule 12(b)(6) motion, district courts conduct a three-part analysis. First, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Ashcroft v. Iqbal, 556 U.S. 662, 675 (2009). Second, the court must accept as true all of a plaintiffs well-pleaded factual allegations and construe the complaint in the light most favorable to the plaintiff. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). The court, however, must disregard any conclusory allegations proffered in the complaint. la. at 210-11. Finally, the court must determine whether the "facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 211 (quoting Iqbal, 556 U.S. at 679).

         Where a plaintiff pleads fraud, however, the plaintiff "must meet a heightened pleading standard under Federal Rule of Civil Procedure 9(b)." Zuniga v. Am. Home Mortg., No 14-2973, 2016 WL 6647932, at *2 (D.N.J. Nov. 8, 2016). "In alleging fraud . . ., a party must state with particularity the circumstances constituting fraud .. . ." Fed.R.Civ.P. 9(b). "A plaintiff alleging fraud must therefore support its allegations 'with all of the essential factual background that would accompany the first paragraph of any newspaper story-that is, the who, what, when, where and how of the events at issue.'" U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016) (quoting In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 217 (3d Cir. 2002)). Additionally, the Private Securities Litigation Reform Act ("PSLRA") requires that a securities fraud 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 with particularity all facts on which that belief is formed." OFI Asset Mgmt. v. Cooper Tire & Rubber, 834 F.3d 481, 490 (3d Cir. 2016) (quoting In re Suprema Specialties, Inc. Sees. Litig., 438 F.3d 256, 276 (3d Cir. 2006)).

         III. Discussion

         A. Section 18 Claims (Count II)

         Section 18 creates a private remedy for damages resulting from the purchase or sale of a security in reliance upon a false or misleading statement contained in any document or report filed with the SEC. 15 U.S.C. § 78r(a).[7] In order to state a claim under Section 18, Plaintiffs must plead actual reliance on a false or misleading statement. In re Supremo. Specialties, Inc. Sec. Litig., 438 F.3d at 283. A Section 18 claim, however, does not require that defendants acted with scienter or any particular state of mind. Id.; see also In re Stone & Webster, Inc., Sec. Litig., 414 F.3d 187, 193 (1st Cir. 2005); Magna Inv. Corp. v. John Does One Through Two Hundred, 931 F.2d 38, 39-40(11th Cir. 1991).

         Defendants[8] argue that Plaintiffs' claims under Section 18 fail to meet the heightened pleading requirements for reliance because Plaintiffs did not identify the particular transactions made in reliance on the alleged false or misleading statements. (Valeant Defs.' Moving Br. 7-11.) Defendants argue that the Complaints "simply list approximately year-long periods and estimate the number of purchases made, without specifying which purchases were made in reliance on which statements in which filings, let alone how many purchases were made or when." (Valeant Defs.' Moving Br. 9.) Valeant Defendants cite two cases from the Southern District of New York in support of their argument that Plaintiffs must tie every purchase to a relied-upon statement to survive a motion to dismiss. (Id. at 9-10.) In response, Plaintiffs argue that the cases cited by Defendants are factually distinguishable and, in any event, "are inconsistent with the majority view, including recent decisions from within the Second Circuit." (Pls.' Opp'n Br. 17-18, ECF No. 49.) Plaintiffs argue that they have sufficiently "identified with particularity the specific false and misleading statements and omissions that they relied upon when purchasing the Company's common stock." (Id. at 17.) The Court agrees. "Requiring plaintiffs to link particular misrepresentations with particular trades in their allegations of direct reliance would impose 15U.S.C. §78r(a).additional burdens without significantly improving the quality of notice to defendants and without affording much added protection from reputation-endangering and extortionate frivolous suits." WM High Yield Fund v. O'Hanlon, No. 04-3423, 2005 WL 6788446 (E. D. Pa. May 16, 2015) (quoting Argent Classic Convertible Arbitrage Fund L.P. v. Rite Aid Corp., 315 F.Supp.2d 666, 678 (E.D. Pa. 2004)); see also In re Able Labs. Sec. Litig., No. 05-2681, 2008 WL 1967509, at *1, *10, *26 (D.N.J. Mar. 24, 2008). The Court, therefore, is not persuaded that Plaintiffs must link every purchase to a specific misstatement to meet Section 18's pleading requirement. Plaintiffs have identified the statements on which they relied, in specific documents filed with the SEC, and pled actual "eyeball" reliance on these documents and statements in purchasing the securities at issue. (Compl. ¶¶ 155-255; 327-56; 476-83, 494-99.) The Court, therefore, finds that Plaintiffs have satisfied the standard for pleading actual reliance under Section 18.

         Defendants also argue that Plaintiffs' Section 18 claims should be limited, specifically in BloombergSen, because certain purchases occurred prior to February 28, 2014-the date of the earliest SEC filing at issue in the Section 18 claims-and therefore "reliance allegations are not just implausible-they are impossible." (Valeant Defs.' Moving Br. 10; see also Schiller's Moving Br. 4.) Defendants further argue that Plaintiffs only allege that the investment advisors read and relied upon Valeant's 2014 10-K, which was filed on February 25, 2015, further supporting the argument that earlier purchases should be excluded. (Id. at 10 n.10.) In response, Plaintiffs state that "the BloombergSen Plaintiffs' Section 18 claim does not concern purchases of Valeant securities before February 2015. Rather, the BloombergSen Plaintiffs purchased the Valeant securities at issue after Defendants' filing of their false and misleading Form 10-K on February 25, ...


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