Meyer v. Organogenesis Holdings Inc.
1:21-cv-06845-DG-MMH
| E.D.N.Y | Mar 29, 2024Background
- Plaintiffs, purchasers of Organogenesis Holdings Inc. stock, filed a securities class action alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5.
- Plaintiffs claimed Organogenesis and its executives orchestrated a scheme to boost revenue by exploiting a gap ("spread") between the price charged to physicians and the higher Medicare reimbursements for their skin substitute products (Affinity and PuraPly XT), with revenues declining sharply when this spread ended.
- Plaintiffs alleged that defendants made a series of material misstatements and omissions in press releases, earning calls, and SEC filings, misleading investors about the sustainability and sources of revenue.
- The core allegations centered on the defendants’ failure to disclose their marketing practices, illegal reimbursement scheme, and the expected impact on revenue once Medicare adopted alternative pricing.
- Defendants moved to dismiss, arguing the complaint failed to plead actionable misstatements/omissions or scienter, and that required risk disclosures were made in SEC filings.
- The court granted the motion to dismiss and denied leave to further amend, holding the complaint did not adequately state a claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Actionable misstatement/omission | Omitted illegal scheme and its impact misled investors | Statements were either not false, were puffery, or risk disclosures sufficed | For defendants; statements not sufficiently false or misleading, and risks were disclosed |
| Scienter (intent to defraud) | Stock sales, financial incentives, and knowledge of scheme support intent | Stock sales under 10b5-1 plans, no unusual/suspicious activity, no specific knowledge alleged | For defendants; insufficient facts showing intent, recklessness, or unusual trading |
| Adequacy under Rule 9(b) and PSLRA | Details of scheme, FE accounts, and circumstantial evidence pleaded | No particularized facts tying executives to wrongdoing or misstatements | For defendants; complaint lacked required particularity and specificity |
| Leave to amend | Requested in briefing if motion granted | Opposed; previous amendment and no identified improvements | Denied; plaintiffs failed to propose or justify additional amendments |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (establishing the plausibility standard for motions to dismiss)
- Ashcroft v. Iqbal, 556 U.S. 662 (explaining the plausibility standard further)
- ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (outlining scienter pleading standards for securities fraud)
- Novak v. Kasaks, 216 F.3d 300 (discussing scienter through motive, opportunity, and recklessness)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (defining the "strong inference" standard for scienter)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (standards for materiality and duty to disclose)
- Basic Inc. v. Levinson, 485 U.S. 224 (materiality framework in securities fraud cases)
- Rombach v. Chang, 355 F.3d 164 (no liability for general statements, puffery, or corporate optimism)