391 F. Supp. 3d 150
D.D.C.2019Background
- ReWalk, an Israeli medical device company, obtained FDA de novo Class II clearance for its personal exoskeleton in June 2014 and was ordered under Section 522 to conduct post-market surveillance. The IPO occurred September 12, 2014.
- The CAC alleges defendants omitted that the FDA ordered the surveillance because the device posed risks and later failed to disclose ongoing deficiencies and noncompliance with the FDA’s post-market surveillance requirements.
- Lead plaintiff Wang Yan bought shares in September 2014 (shortly after the IPO) and therefore could only have relied on statements in the registration statement; the Court previously dismissed Securities Act claims for failure to identify a false statement in the registration statement.
- Exchange Act allegations concern misstatements/omissions made between Feb 12, 2015 and Feb 25, 2016 — after Yan’s purchases. Proposed plaintiff Joanne Geller bought shares on Dec 21, 2015.
- Yan moved to add Geller as a named plaintiff for Exchange Act claims to cure standing; the court examined (1) whether a “common scheme” theory could supply Yan standing for later statements, (2) whether the PSLRA allows a lead plaintiff without standing to assert claims, and (3) whether amendment to add Geller was permissible.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Yan has Article III standing to assert Exchange Act claims based on post-purchase statements via a "common scheme" theory | Yan: class rep may assert post-purchase statements if they further a single common scheme to defraud | Defs: Exchange Act claims arise from different omissions than Securities Act claims; no single scheme linking pre- and post-IPO statements | Court: No — complaint pleads different theories and disclaims reliance; no common scheme supplies Yan standing |
| Whether the PSLRA can permit a lead plaintiff to represent claims for which he has no standing | Yan: PSLRA does not require lead plaintiff to have standing on every claim; policy favors largest-loss plaintiff as lead | Defs: Constitutional standing is required; cannot statutorily confer Article III standing where none exists | Court: PSLRA cannot confer constitutional standing; Yan lacks standing to assert any remaining Exchange Act claim and those claims are dismissed |
| Whether adding Geller as a named plaintiff cures the jurisdictional defect | Yan: leave to amend to add Geller (who has post-IPO purchases and timely claims) will cure lack of standing | Defs: Where original named plaintiff lacks standing, court lacked jurisdiction and substitution is improper; amendment cannot cure absence of jurisdiction | Court: Denied — substitution/amendment not permitted because the case had a single class representative without standing; dismissal without prejudice |
| Whether the Exchange Act claims should be dismissed or stayed to allow substitution | Yan: equitable considerations and precedent permit substitution in some circumstances | Defs: no precedent permits curing total lack of standing by amendment; jurisdiction never attached | Court: Dismissed Exchange Act claims; motion to amend denied without prejudice; plaintiffs may file a new proper complaint |
Key Cases Cited
- Gross v. Summa Four, Inc., 93 F.3d 987 (1st Cir.) (plaintiff cannot rely on post-purchase statements for Exchange Act claims)
- Hevesi v. Citigroup Inc., 366 F.3d 70 (2d Cir.) (PSLRA does not require lead plaintiff to have standing on every claim)
- Police & Fire Ret. Sys. of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir.) (proposed intervenors cannot cure standing defects after dismissal)
- Fort Worth Emps.’ Ret. Fund v. J.P. Morgan Chase & Co., 862 F. Supp. 2d 322 (S.D.N.Y.) (each claim requires at least one class representative with standing)
- In re Elscint, Ltd. Sec. Litig., 674 F. Supp. 374 (D. Mass.) (discussion of tolling/substitution and the pitfalls of allowing intervention where original plaintiffs lack standing)