928 F.3d 151
1st Cir.2019Background
- Biogen sold Tecfidera (MS drug) which had label warnings about lymphopenia; a PML-related death was disclosed Oct 2014 and label updated.
- Two related putative securities class actions followed: Tehrani/Biogen I (class period later amended to Dec 2, 2014–July 23, 2015) and Metzler/Erste–Sparinvest (Biogen II) (class period July 23, 2014–July 23, 2015).
- In Biogen I the district court dismissed for failure to plead scienter; this Court affirmed (857 F.3d 34) and denied leave to add an amended complaint. During appeals, a new suit (Biogen II) was filed with additional statements and confidential-witness allegations.
- Defendants moved in Biogen II to dismiss on claim-preclusion grounds (arguing Biogen I precluded the later suit) and for failure to plead scienter under the PSLRA/Tellabs standard.
- The district court rejected claim preclusion but dismissed Biogen II for failure to plead facts giving rise to a strong inference of scienter; the First Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Claim preclusion / adequacy of representation | Biogen I lead-plaintiff appointment under PSLRA made GBR an adequate representative precluding subsequent suits | Dismissal in Biogen I precludes similar claims in Biogen II because causes and parties are sufficiently related | District court rejected preclusion; Court assumed without deciding and resolved case on scienter grounds |
| Sufficiency of scienter for individual defendants under PSLRA/Tellabs | Kingsley/others made several "plausibly misleading" statements about Tecfidera's safety and usage; CWs show management knew contrary facts | Public disclosures, expressed caution, and available facts show at most optimism or recklessness, not intent to deceive | No strong inference of scienter as to individual defendants; dismissal affirmed |
| Sufficiency of confidential witness (CW) allegations | New and expanded CW statements supply particularized facts showing management knew actual safety/sales problems | CWs are imprecise, untimely, remote from executives, and do not show direct communication to defendants | CW allegations insufficiently particular and often post-date challenged statements; cannot supply strong inference |
| Corporate scienter / theories (core operations, regulated industry, repetition) | Even if individuals lacked scienter, corporate scienter exists because mid-level employees had contrary information and leadership monitored core metrics | Imputing narrow/regional observations or preparatory contingency planning to corporate knowledge is insufficient to meet the PSLRA strong-inference standard | Corporate scienter theory fails: alleged knowledge was narrow, not clearly contradictory to public statements, and disclosures/monitoring undercut inference of intent to deceive |
Key Cases Cited
- In re Biogen Inc. Sec. Litig., 857 F.3d 34 (1st Cir. 2017) (affirming dismissal for failure to plead scienter and rejecting CW particulars)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA/Tellabs standard: scienter inference must be cogent and at least as compelling as any opposing inference)
- Smith v. Bayer Corp., 564 U.S. 299 (2011) (Rule 23 is required procedure for class-action preclusive effect)
- Airframe Sys., Inc. v. Raytheon Co., 601 F.3d 9 (1st Cir. 2010) (elements of claim preclusion)
- Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc., 778 F.3d 228 (1st Cir. 2015) (disclosures can undercut inference of scienter)
- City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Waters Corp., 632 F.3d 751 (1st Cir. 2011) (risk warnings weaken scienter inference)
- Taylor v. Sturgell, 553 U.S. 880 (2008) (nonparty preclusion principles)