In re Bioscrip, Inc. Securities Litigation
95 F. Supp. 3d 711
S.D.N.Y.2015Background
- BioScrip, a healthcare company, sold its specialty pharmacy division (which sold Exjade) in May 2012 but retained liability for that business; in October 2012 BioScrip received a sealed civil investigative demand (CID) from the government concerning Exjade/Novartis arrangements.
- Plaintiffs (two pension funds) allege BioScrip and certain officers, directors, Kohlberg (a private equity owner), and underwriters made false/misleading statements about (a) legal compliance/the government investigation (CID), and (b) the health of its PBM Services (prescription discount card) segment while completing April and August 2013 public offerings.
- Plaintiffs assert Exchange Act claims (§10(b)/Rule 10b-5 and §20(a)) and Securities Act claims (§11, §12(a)(2), §15) based on the same core factual allegations.
- The complaint alleges market-corrective disclosures (Aug–Nov 2013 and Jan 2014 settlement) caused stock drops; Plaintiffs claim loss causation and that offerings monetized the allegedly inflated share price.
- Defendants moved to dismiss: (1) Exchange Act claims in full as to one group of defendants, and (2) Securities Act claims (Counts III & IV) as to underwriters and certain individual defendants. The court granted the motions in part and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BioScrip’s statements about legal compliance and silence about the CID were materially misleading under §10(b)/Rule 10b-5 | The CID put BioScrip on notice of an active government inquiry about Exjade and showed BioScrip lacked the factual basis for broad compliance statements; failing to disclose CID rendered statements misleading | No independent duty to disclose CID; statements were forward-looking or generic and not misleading; settlement said gov’t notified BioScrip only Sept 11, 2013 | Denied dismissal: statements/omissions re: CID and legal compliance adequately pled as misleading at pleading stage (plausible materiality and duty to avoid misleading when speaking) |
| Scienter for CID/legal-compliance allegations | Possession of CID and internal facts (confidential witness testimony) show defendants knew or recklessly disregarded falsity of compliance statements | Defendants dispute significance/timing of CID and contend statements were reasonable or cautious | Denied dismissal: complaint adequately alleges scienter (knowledge/recklessness) for CID-related statements |
| PBM Services misstatements (stability/flat revenue) under §10(b)/Rule 10b-5 | Defendants touted PBM as stable/high-margin cash generator but failed to disclose loss of a major PBM client (March 2013), so May 2013 statements that revenue would be "relatively flat" were false/misleading | Statements were forward-looking with cautionary language, and volatility was disclosed in August 2013; plaintiffs don’t plead specific notice to individual defendants | Granted dismissal as to Exchange Act PBM claims: most PBM statements non-actionable; only pre‑August statements plausibly false but scienter for PBM claims not adequately pleaded |
| Securities Act claims and standing for April and August 2013 offerings (§11, §12(a)(2), §15) | Registration/prospectus omitted material facts about CID and PBM client loss; purchasers traceable to offerings can sue (§11 allows aftermarket traceability) | Underwriters argue plaintiffs lack §12(a)(2) standing for offerings they did not directly buy from sellers; challenge traceability for some plaintiffs and offerings | Mixed: §11 claims survive (plausibly misleading registration statements) except PBM-related August claims; §12(a)(2) survives for West Palm re April 2013 (adequate allegation of direct purchase) but not for Fresno or for August 2013; §15 (control) survives vs. individual signers but fails vs. Kohlberg (no alleged actual control) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plaintiff must plead factual allegations that make claim plausible)
- Ashcroft v. Iqbal, 556 U.S. 662 (court accepts well-pleaded factual allegations but not legal conclusions)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (scienter pleading requires an inference at least as compelling as opposing inferences)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (opinion statements actionable if objectively false or omission of facts about basis of opinion that would conflict with reasonable investor’s understanding)
- Fait v. Regions Fin. Corp., 655 F.3d 105 (statement-of-opinion liability requires objective falsity and defendant’s lack of belief)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (context matters in assessing whether disclosures misled reasonable investors)
- Litwin v. Blackstone Grp., L.P., 634 F.3d 706 (materiality requires inquiry into whether omitted information would have significantly altered the "total mix")
- Novak v. Kasaks, 216 F.3d 300 (scienter inferred where defendants had access to contrary facts)