On April 15, 2024, the United States Court of Appeals for the Second Circuit affirmed in a non-precedential summary order the summary judgment dismissal of securities fraud claims against a pharmaceutical company (the “Company”) under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. In re Mylan N.V. Sec. Litig., No. 23-720-cv (2d Cir. Apr. 15, 2024). Reviewing the district court decision de novo, the Court held that appellants waived their argument related to scienter and that their failure to disaggregate the losses caused by the Company’s alleged omissions warranted summary judgment for defendants.
Appellants’ complaint alleged that the Company failed to disclose (i) its alleged participation in antitrust conspiracies related to the marketing of one of its products, (ii) its classification of one of its products such that it was subject to a lower rebate rate under the Medicaid Drug Rebate Program, and (iii) its alleged agreements with competitors to allocate markets and fix prices for certain generic drugs. The district court granted the Company’s summary judgment motion, holding that appellants failed to proffer sufficient evidence to show scienter with respect to the Medicaid Drug Rebate Program claims and loss causation with respect to the generic drug claims, among other reasons.
With respect to the Medicaid Drug Rebate Program claims, appellants did not challenge the district court’s scienter rulings on appeal, but instead argued that those rulings did not apply to the Medicaid Drug Rebate Program claims. The Court summarily dismissed this argument, holding that the district court expressly considered each of the alleged misstatements underlying the Medicaid Drug Rebate Program claims and concluded that appellants failed to adduce evidence of scienter on any of them. Because appellants did not separately challenge the district court’s ruling on scienter, the Court held that appellants waived any challenge on the issue and affirmed the district court’s dismissal of the Medicaid Drug Rebate Program claims for lack of scienter.
With respect to the generic drug claims, the Court affirmed the district court’s ruling that appellants failed to prove loss causation. Citing to Second Circuit precedent in Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005) and In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 36 (2d Cir. 2009), the Court emphasized that a plaintiff must prove “that the subject of the fraudulent statement or omission was the cause of the actual loss suffered, i.e., that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security,” and that this requires a plaintiff to “disaggregate those losses caused by ‘changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions or other events’ from disclosures of the truth behind the alleged misstatements.” The Court agreed with the district court that the alleged corrective disclosures—which included (i) a Bloomberg article reporting on an ongoing U.S. Department of Justice investigation into generic drug companies including the Company, (ii) a press conference in which then-president-elect Donald Trump called for changes to the drug industry’s pricing practices, and (iii) an amended complaint filed by state attorneys general against generic drug companies, including the Company—“revealed little, if any, new information” about the Company. Instead, the alleged corrective disclosures were “merely a ‘negative characterization of already-public information’ and could not support loss causation, even if a ‘generalized investor reaction of concern caus[ed] a temporary share price decline.’” The Court held that appellants failed to disaggregate the “new effects and the effects of a new characterization of already filed documents” and that summary judgment for defendants was thus warranted.
Most securities class actions either are dismissed at the pleading stage or settle before summary judgment is decided, particularly where a class has been certified. This decision serves as a reminder to defendants considering or negotiating settlements that a motion for summary judgment can be a powerful tool in their arsenal.
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In re Mylan N.V. Sec. Litig.
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