101 F. Supp. 3d 135
D. Mass.2015Background
- InVivo Therapeutics issued press releases April–May 2013 announcing FDA designation of its Neuro‑Spinal Scaffold as a Humanitarian Use Device and FDA approval of an Investigational Device Exemption (IDE) for a five‑patient pilot study; InVivo projected study start “in the next few months,” a ~15‑month study duration, and data to the FDA by end of 2014.
- Stock price jumped after the announcements; lead plaintiff Ganem alleges those statements artificially inflated stock and that InVivo and CEO/CFO Frank Reynolds misrepresented the scope and conditions of FDA approval to raise capital.
- The FDA approval letter authorized enrollment of one subject immediately, but required InVivo to correct certain items within 45 days and advised sequential enrollment with three‑month follow‑up between subjects (yielding a minimum 15‑month timeline for five subjects).
- In August 2013 new management disclosed the study would take longer (staggered enrollment over at least 21 months); enrollment of the first patient ultimately occurred in October 2014.
- Plaintiff alleges defendants knew the timeline was impossible given FDA conditions and site/contracting realities, and alleges scienter partly based on Reynolds’ stock sales and the company’s need for capital.
- Defendants moved to dismiss under Rule 12(b)(6) and the PSLRA; the court heard argument and issued this memorandum and order granting dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether April–May 2013 statements were actionable misrepresentations under §10(b) / Rule 10b‑5 | Statements concealed material FDA conditions and gave an impossible timeline; thus they were false statements of fact | Statements were forward‑looking/projections, accompanied by cautionary language (safe harbor/bespeaks‑caution), and based on FDA language | Dismissed—no actionable misrepresentation; statements were not materially false given FDA letter and cautionary language |
| Whether safe‑harbor / bespeaks‑caution protects the statements | Safe harbor does not apply if defendants misstated present or historical facts (not opinion) | Statements used predictive language and expressly warned of risks; FDA letter itself supported the timeline | Held protective: statements were forward‑looking or reasonable restatements of FDA’s timeline and accompanied by adequate cautionary language |
| Whether plaintiff pleaded scienter with particularity under the PSLRA/Tellabs | Reynolds had motive (raise capital) and sold shares during class period; company in dire financial condition — supports inference of intent to deceive | Motive to raise capital is common and insufficient; sales were modest percentage and defendants lost substantial value after disclosures | Dismissed—scienter not adequately pled; alternative innocent inferences were at least as compelling |
| Whether control‑person liability under §20(a) survives absent a primary violation | N/A — alleges Reynolds controlled InVivo and is liable if primary violation stated | N/A — primary liability lacking defeats §20(a) claim | Dismissed—no primary §10(b) violation, so §20(a) claim fails |
Key Cases Cited
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (plaintiff must plead transaction‑causation and loss causation principles in securities cases)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (PLSRA scienter pleading: inference of scienter must be cogent and at least as compelling as opposing inferences)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (scienter requirement for §10(b) claims)
- Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318 (sincere statements of pure opinion are not untrue statements of fact)
- Greebel v. FTP Software, Inc., 194 F.3d 185 (PLSRA incorporates Rule 9(b) particularity requirements)
- Shaw v. Digital Equipment Corp., 82 F.3d 1194 (explaining ‘bespeaks caution’ and treatment of forward‑looking statements)
- Alt. Energy, Inc. v. St. Paul Fire & Marine Ins. Co., 267 F.3d 30 (court may consider certain documents on a motion to dismiss)
- Slayton v. American Express Co., 604 F.3d 758 (linguistic cues like “we expect” can signal forward‑looking statements)
- Boeder v. Alpha Industries, Inc., 814 F.2d 22 (duty to make partial disclosures truthful and complete)
- Gross v. Summa Four, Inc., 93 F.3d 987 (no pleading fraud by hindsight under Rule 9(b))