330 F. Supp. 3d 555
D.D.C.2018Background
- ReWalk Robotics (Israeli company with U.S. HQ) developed the ReWalk Personal exoskeleton and completed an IPO on September 12, 2014.
- In June 2014 the FDA granted De Novo clearance for the device (Class II) and imposed a Section 522 post-market surveillance study to assess safety in community/home use.
- Plaintiffs allege ReWalk and certain officers/underwriters omitted material facts in the IPO registration statement: principally that the FDA required post-market surveillance because the device could cause serious injury or death and that ReWalk was not prepared to comply.
- After the IPO the FDA repeatedly found ReWalk’s proposed surveillance plan deficient and issued a September 30, 2015 warning letter for failure to commence the study; the letter was publicly released March 1, 2016 and ReWalk stock dropped.
- The consolidated amended complaint brings Securities Act claims (Section 11 and Section 15) based on the registration statement and Exchange Act claims (Sections 10(b), 20(a)) based on later disclosures; confidential witnesses allege internal delays and inadequate study implementation.
- Court disposition: motion to dismiss granted as to Securities Act Counts One (Section 11) and Two (Section 15); Exchange Act Counts Three and Four denied without prejudice pending resolution of standing/substitution issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether registration statement omitted material facts under Section 11 (safety risk & FDA requirement) | Registration misstated device safety and failed to disclose that FDA required post-market study because device posed risk of serious injury/death | Registration accurately described De Novo conditions and risks; FDA letters conditioned further study but did not conclude device was dangerous; statements are puffery or forward-looking | Dismissed: no actionable omission — statements were non-actionable puffery/forward-looking or adequately described FDA requirement |
| Whether Rule 9(b) heightened pleading applies to Securities Act claims | N/A — plaintiff structured complaint to avoid fraud pleadings | Defendants argued claims sound in fraud and require Rule 9(b) specificity | Court: Rule 9(b) not applicable to Section 11 claim; scienter not required but outcome unaffected on merits |
| Whether Section 15 control-person liability survives absent underlying Section 11 violation | Section 15 liability asserted against officers/directors | Defendants: Section 15 depends on underlying Section 11 violation | Dismissed: Section 15 claim fails because underlying Section 11 claim dismissed |
| Standing to assert Exchange Act claims for statements made after plaintiff's purchases | Plaintiff seeks leave to proceed or substitute lead plaintiff to address standing; argues class representative rules can allow claims | Defendants: lead plaintiff Yan bought shares before most challenged Exchange Act statements and thus lacks reliance/standing for those claims | Denied without prejudice: Court did not resolve standing; allowed plaintiff opportunity to supplement, seek substitute/supplemental lead plaintiff, or brief the issue further |
Key Cases Cited
- Shaw v. Dig. Equip. Corp., 82 F.3d 1194 (1st Cir. 1996) (corporate puffery doctrine)
- Silverstrand Invs. v. AMAG Pharm., Inc., 707 F.3d 95 (1st Cir. 2013) (Section 11 standards and omissions analysis)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (U.S. 2015) (omissions clause limits)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard on motion to dismiss)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility and inference rules)
- New Jersey Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35 (1st Cir. 2008) (use of confidential witnesses under PSLRA)
- In re Stone & Webster, 414 F.3d 187 (1st Cir. 2005) (PSLRA safe harbor and forward-looking statements)