437 F.Supp.3d 329
S.D.N.Y.2020Background
- Plaintiffs (Union Asset Management Holding AG; Teamsters Local 710) sued Philip Morris and six executives, alleging securities fraud for statements between July 26, 2016 and April 18, 2018 about iQOS clinical trials and iQOS sales performance in Japan.
- Philip Morris submitted an MRTPA to the FDA in Dec. 2016 asserting reduced-risk and reduced-exposure claims based on multiple clinical studies; company repeatedly represented compliance with Good Clinical Practice (GCP).
- A Dec. 2017 Reuters investigation and statements from a former employee (Koval) reported alleged methodological irregularities at some study sites and late disclosure of four adverse internal studies.
- An FDA advisory committee (TPSAC) in Jan. 2018 rejected Philip Morris’s reduced-risk claims but endorsed reduced-exposure; company also made optimistic statements about iQOS growth in Japan in Feb. 2018; stock fell after the Reuters piece and again after April 19, 2018 disclosure that Japan growth slowed.
- Plaintiffs filed a consolidated complaint alleging Section 10(b)/Rule 10b-5 and Section 20(a) claims; defendants moved to dismiss. The Court granted the motion: all claims dismissed with prejudice except claims relating to the four undisclosed studies, which were dismissed without prejudice (leave to replead).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Falsity of statements about clinical trials and GCP compliance | Statements of study results and GCP compliance were false/misleading because trials had GCP violations, tainted data, and four adverse studies were withheld | Statements were true, were opinions/puffery, or were reasonable interpretations of data; omissions did not render opinions misleading | Dismissed: plaintiffs fail to plead falsity with particularity; opinions/puffery/interpretations inactionable; claims about four undisclosed studies closer — dismissed without prejudice |
| Falsity of statements about iQOS growth in Japan | Execs misled investors by omitting that market-share growth was plateauing and that demand was slowing | Growth statements were forward-looking, qualified by cautionary language, puffery or reasonable views; protected by PSLRA safe harbor | Dismissed: statements inactionable or not shown false; allegations amount to fraud-by-hindsight |
| Scienter (knowledge/recklessness) | Insider stock sales and Koval/Reuters allegations create strong inference of intent or recklessness | Insider sales were routine (not unusual); Koval had limited contact and left before class period; no particularized facts of conscious recklessness | Dismissed: allegations do not give rise to a strong inference of scienter; opposing, innocent inferences are at least as compelling |
| Section 20(a) control-person liability | Individual defendants controlled the company and thus are liable for the Section 10(b) violations | Control-person claim depends on a primary 10(b) violation; because 10(b) fails, 20(a) fails too | Dismissed: underlying Section 10(b) claim not adequately pleaded, so Section 20(a) claim fails |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Sup. Ct. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (Sup. Ct. 2009) (pleading must include factual content supporting plausibility)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (Sup. Ct. 2015) (standards for liability on opinion statements)
- Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016) (company need not disclose all adverse regulatory views; meaningful inquiry standard for opinion statements)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Sup. Ct. 2007) (standard for inferring scienter from pleadings)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (insider sales must be unusual/suspicious to support motive inference)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity for securities fraud allegations)
- ECA, Local 134 IBEW Joint Pension Tr. of Chicago v. J.P. Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (scienter pleading and inference analysis)
- Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (PSLRA safe-harbor and meaningful cautionary language for forward-looking statements)
- S. Cherry St., LLC v. Hennessee Group LLC, 573 F.3d 98 (2d Cir. 2009) (recklessness means conscious recklessness for scienter)