857 F.3d 34
1st Cir.2017Background
- Biogen, a NASDAQ-listed biopharma, marketed Tecfidera, a major revenue driver; a patient death from PML associated with Tecfidera was announced Oct. 22, 2014 and added to the label Dec. 3, 2014.
- GBR Group (lead plaintiff) filed a securities fraud class action (Class Period Dec. 2, 2014–July 23, 2015) alleging Biogen and three executives misstated Tecfidera’s sales impact from the PML death in violation of Sections 10(b) and 20(a).
- Plaintiffs relied heavily on confidential witness (CW) statements and later “evidentiary admissions” (post–Class Period remarks) to allege that Tecfidera sales fell materially and that defendants knew or were reckless.
- The district court found three of plaintiffs’ many alleged misstatements plausibly misleading but dismissed the complaint with prejudice for failure to plead a "strong inference" of scienter under the PSLRA; it also denied plaintiffs’ post-judgment motion to vacate and for leave to file a second amended complaint.
- On appeal, the First Circuit affirmed: CW allegations lacked particularity and temporal connection to the challenged statements; later admissions amounted to hindsight; and competing inferences favored defendants. Costs awarded to defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the amended complaint alleged material misrepresentations/omissions under §10(b) | GBR: Defendants repeatedly downplayed PML impact and misled investors about discontinuation rates and physician prescribing intent. | Biogen: Public disclosures and warnings were cautious and not contradicted by pleaded facts; some challenged statements not misleading. | Court: Only three statements were plausibly misleading, but overall §10(b) claim fails due to lack of strong scienter. |
| Whether plaintiffs pled a "strong inference" of scienter under the PSLRA | GBR: CWs and later admissions show company-wide sales decline and senior management awareness; core-operations allegations support scienter. | Biogen: CWs lack particularity, timing, and senior-level nexus; post-hoc remarks are hindsight; core-operations allegations insufficient. | Court: CWs and admissions insufficiently particular and temporally connected; strongest inference favors defendants—scienter not established. |
| Whether §20(a) control-person claim survives absent §10(b) violation | GBR: Control-person liability rests on underlying actionable misstatements. | Biogen: No underlying §10(b) violation, so no control claim. | Court: §20(a) claim dismissed because §10(b) fails. |
| Whether district court abused discretion in denying Rule 59(e)/60(b)(2) motion and leave to amend | GBR: New evidence (two CWs, Dr. Thrower declaration) was newly discovered and required vetting under Rule 11, justifying post-dismissal amendment. | Biogen: Evidence was known or discoverable earlier; plaintiffs lacked diligence; new materials do not change outcome. | Court: No abuse of discretion—evidence could have been obtained earlier, new materials did not alter scienter analysis; denial affirmed. |
Key Cases Cited
- ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46 (1st Cir. 2008) (standard of appellate review for dismissal and guidance on leave to amend)
- Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228 (1st Cir. 2015) (PSLRA particularity for CW allegations and scienter analysis)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ("strong inference" standard for scienter requires an inference cogent and at least as compelling as any opposing inference)
- In re Genzyme Corp. Sec. Litig., 754 F.3d 31 (1st Cir. 2014) (prompt public disclosures can undercut inference of fraudulent intent)
- Auto. Indus. Pension Tr. Fund v. Textron Inc., 682 F.3d 34 (1st Cir. 2012) (confidential witness allegations that do not conflict with public statements are weak evidence of scienter)
- In re Cabletron Sys., Inc., 311 F.3d 11 (1st Cir. 2002) (need for specific descriptions of means by which alleged fraud occurred)
- Ariad Pharm., Inc. v. Investors, 842 F.3d 744 (1st Cir. 2016) (post-event statements insufficient where complaint lacks when defendants learned of adverse facts)
- Miss. Pub. Emps.' Ret. Sys. v. Bos. Sci. Corp., 523 F.3d 75 (1st Cir. 2008) ("fraud by hindsight" is insufficient to plead scienter)
- Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999) (recklessness is a lesser form of intent but beyond ordinary negligence)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (intentional or willful conduct required for scienter under securities laws)