On March 19, 2025, Judge Charles E. Fleming of the United States District Court for the Northern District of Ohio dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 and the Securities Act of 1933 against a medical services company, certain of its executives, the underwriters in its initial and secondary public offerings, and certain private equity firms alleged to have sold stock in those offerings. In re Sotera Health Co. Sec. Litig., No. 1:23-cv-143, 2025 WL 860897 (N.D. Ohio Mar. 19, 2025). Plaintiffs alleged that the company made misrepresentations in connection with the use of ethylene oxide (“EO”) in its medical device sterilization business. The Court held that plaintiffs failed to adequately allege any misrepresentations and dismissed the action with prejudice.
With respect to the Exchange Act claims, the Court held that plaintiffs failed to allege with particularity that the company’s statements regarding permit and regulatory compliance were false, and the company otherwise had no affirmative duty to disclose alleged compliance issues. Id. at *26–27. The Court further concluded that the company’s generalized statements concerning its confidence in its compliance efforts were non-actionable statements of opinion and corporate optimism. Id. at *28.
In addition, the Court rejected plaintiffs’ allegations of misrepresentations related to litigation filed against the company in connection with EO exposure. The Court explained that the company’s statements that it planned to “vigorously defend itself” against those claims, and the fact that it did not take a contingency reserve relating to those lawsuits, were not misleading given that investors had ample information about the lawsuits, and, further, that the challenged statements largely amounted to non-actionable opinions. Id. at *28–30. The Court further concluded that certain more specific statements denying factual claims in connection with the litigation were protected by the PSLRA’s safe harbor for forward-looking statements accompanied by meaningful cautionary language—including statements noting that the cases would ultimately be decided by a jury, that there was risk involved, and that the company might have to appeal. Statements regarding the company’s commitment to health and safety were held to be non-actionable puffery. The Court further noted that the company described EO emissions capture as an ongoing effort, and plaintiffs did not allege that the company was not actually making those efforts. Id. at *30–31.
The Court likewise dismissed plaintiffs’ claims based on alleged violations of Items 303, 105, and 307 of Regulation S-K. The Court explained that allegations under Item 303 (relating to “known trends or uncertainties”) and Item 105 (requiring disclosure of material risk factors) could not be based merely on information that is “knowable,” but must be based on “actual, present knowledge.” Id. at *34. The Court concluded that plaintiffs’ claims based on Item 303 and Item 105 failed to allege “actual knowledge of imminently certain risk” and instead improperly assumed that defendants “should have known” of the “certainty of future risks coming to fruition.” Id. at *35. Finally, the Court rejected plaintiffs’ claim based on Item 307—challenging certain executives’ certification that controls were in place—because plaintiffs failed to plausibly allege any actionable misrepresentations regarding those controls. Id. at *35–36.
With respect to plaintiffs’ claims under Sections 11 and 12(a)(2) of the Securities Act, the Court held that these claims sounded in fraud and were therefore subject to the same heightened pleading standard as the Exchange Act claims. Despite plaintiffs’ efforts to list the Securities Act allegations in a separate section of the compliant and to disclaim fraud in that section, the same parallel factual allegations—often word-for-word identical—were the foundation of both sets of claims. Id. at *20–22. The Court therefore concluded, for similar reasons as with the Exchange Act claims, that plaintiffs failed to adequately allege any misstatement or omission in the company’s offering materials. Id. at *37–38.
Moreover, the Court rejected plaintiffs’ allegations in connection with Items 303 and 105 against the underwriters of the company’s initial public offering (“IPO”) and secondary public offering (“SPO”). While plaintiffs argued that the underwriters were “responsible for ensuring the truthfulness and accuracy of the various statements contained in or incorporated by reference into the IPO Offering Materials and SPO Offering Materials,” the Court held that this was insufficient to meet the “actual knowledge” standard necessary to impose liability under Items 303 and 105. Id. at *39.
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