In re Iso Ray, Inc. Securities Litigation
189 F. Supp. 3d 1057
E.D. Wash.2016Background
- Plaintiffs are investors who bought IsoRay common stock between 8:15 a.m. EST on May 20, 2015 and 11:36 a.m. EST on May 21, 2015 and brought a putative class action under §10(b)/Rule 10b-5 and §20(a).
- IsoRay issued a May 20, 2015 press release touting a May 19, 2015 peer‑reviewed Study about Cesium‑131 brachytherapy for early‑stage lung cancer (linking to the Study’s ScienceDirect page). Plaintiffs allege the release mischaracterized the Study’s findings and omitted material context.
- The Study compared three arms: wedge resection plus Cesium‑131 (WR+B), wedge resection alone (WR), and stereotactic body radiation therapy (SBRT). The Study concluded all three were “excellent” and cautioned that benefits of WR+B required clinical trials; the Abstract and Study were available online but full text required payment.
- After the press release IsoRay’s stock rose sharply on May 20–21; an article by Adam Feuerstein published May 21 criticized IsoRay’s characterization of the Study and the stock price then fell back to prior levels. Plaintiffs allege reliance on the press release and loss causation from the Feuerstein article as the corrective disclosure.
- Defendants moved to dismiss under Rule 12(b)(6) and PSLRA/Rule 9(b) pleading standards, arguing (inter alia) that the press release either incorporated the Study (truth‑on‑the‑market) or was non‑actionable opinion, and that scienter and loss causation were not adequately pled.
- The court took judicial notice of the Study’s Abstract and other public materials, denied the motion to dismiss, and allowed §10(b)/Rule 10b‑5 and §20(a) claims to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity / omissions — did the press release materially mislead? | Press release touted WR+B as "96% local control" and "100% 5‑yr survival" and implied superiority without disclosing Study caveats and comparative results; omissions were material. | Press release included a link to the Study; the Abstract was publicly available and the release was literally accurate and non‑misleading. | Court: reasonable inference of material misstatements/omissions; press release implied comparative superiority and omitted qualifiers—plausible materiality. |
| Truth‑on‑the‑market defense (public availability of Study) | Plaintiffs: Study issued May 19 but market did not react until press release; investors reasonably relied on press release rather than paying to access Study. | Defendants: Study was public and linked; thus misleading impressions were corrected or available to market. | Court: defense raises factual issues (intensity/credibility of disclosure) not resolvable on 12(b)(6); allegations suffice to overcome dismissal. |
| Scienter — did defendants act knowingly or with deliberate recklessness? | Allegations that CEO and company monitored Cesium‑131 results, emphasized such studies for company survival, timed press release one day after Study, and the dramatic market reaction support a strong inference of deliberate recklessness. | Defendants: no motive (no insider sales), no confidential witnesses or internal docs, and disclosure of Study link undermines intent to deceive. | Court: viewing allegations holistically yields a strong and at least equally cogent inference of scienter (deliberate recklessness); dismissal denied. |
| Loss causation / corrective disclosure | Feuerstein article on May 21 revealed omitted Study context and caused stock decline; that article corrected the misleading impression created by the press release. | Defendants: Study was public prior to Feuerstein so market already had the truth. | Court: Plaintiffs plausibly alleged loss causation—Feuerstein supplied missing context not transmitted with same intensity/credibility as press release; dismissal inappropriate. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (Rule 12(b)(6) plausibility standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must nudge claims from conceivable to plausible)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (materiality standard for securities claims)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality and fraud‑on‑the‑market doctrine)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (holistic scienter inquiry and PSLRA standard)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (PSLRA/Rule 9(b) pleading guidance)
- Rigel Pharms., Inc. v. [Plaintiff], 697 F.3d 869 (9th Cir. 2012) (distinguishable precedent on clinical‑trial disclosure and scienter)
- Provenz v. Miller, 102 F.3d 1478 (9th Cir. 1996) (defendants bear heavy burden to prove truth‑on‑the‑market defense)