SM Merger/Arbitrage, L.P. v. Bristol-Myers Squibb Company, 658 F.Supp.3d 220

In 2019 BMS merged with Celgene and issued Contingent Value Rights (CVRs) tied to FDA approval of three Celgene-developed drugs by specified milestone deadlines; if all three were approved on time CVR holders would receive $9 each (about $6.4 billion total).
Liso-cel’s Biologics License Application (BLA) required a CMC submission; FDA designated a March 2020 supplemental submission a "Major Amendment," delaying review and inspections; FDA inspections found violations and required remediation.
Liso-cel was approved by the FDA after the milestone deadline (about 36 days late), so the CVRs expired worthless despite timely approvals of the other two drugs.
Plaintiffs (a putative class of CVR purchasers) sued BMS and various current and former executives and directors under the Securities Act and Exchange Act, alleging defendants knowingly delayed approval to avoid paying the CVR payout.
Defendants moved to dismiss under Rule 12(b)(6). The Court dismissed the Section 10(b)/Rule 10b-5 claim for failure to plead scienter and dismissed Securities Act and Section 14(a) claims as barred by the PSLRA safe-harbor for forward-looking statements; controlling-person claims fell with any primary liability. The Court denied leave to amend the Securities Act and proxy-based claims but granted limited leave to amend other claims; Plaintiffs given 30 days to file a Second Amended Complaint.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether post‑merger Section 10(b)/Rule 10b‑5 claim pleaded scienter	Executives knowingly slow‑rolled Liso-cel approval to avoid $6.4B payout; corporate missteps indicate conscious recklessness	Plaintiffs plead no facts showing executives knew of or directed alleged operational failures; alternative benign explanations more plausible	Dismissed for failure to plead a strong inference of scienter
Whether Joint Proxy statements are actionable under the Securities Act (Sections 11, 12(a)(2))	Proxy contained misleading statements about diligence, likelihood of approval, and CVR value	Statements were forward‑looking and accompanied by meaningful, specific cautionary language; PSLRA safe harbor applies	Dismissed under PSLRA safe harbor (forward‑looking + meaningful cautionary language)
Whether Section 14(a)/Rule 14a‑9 claims (proxy misstatements) survive	Proxy and related analyst report misled investors about CVR prospects	Proxy claims barred by PSLRA safe harbor; analyst report is not a proxy statement	Section 14(a)/14a‑9 claims dismissed (safe harbor and analyst report not a proxy)
Whether controlling‑person (Section 20(a)/Section 15) claims survive absent a primary violation	Controlling persons liable for misleading statements	No primary violation adequately pleaded, so no secondary liability	Dismissed because no viable primary securities claim

Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007) (standard for evaluating competing inferences when pleading scienter)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (elements of securities fraud claim)
ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (pleading particularity under PSLRA)
ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (motive-and-opportunity requirement for scienter)
Stratte‑McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) (recklessness vs. intent for scienter)
Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (conscious misbehavior/recklessness standard)
Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (access to contradictory information supports recklessness inference)
Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (particularity requirement for fraud pleadings)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of Twombly plausibility to factual allegations)
Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (PSLRA safe harbor for forward‑looking statements and meaning of meaningful cautionary language)