I. Background
A. Factual Background
The facts are set forth as described in the consolidated amended complaint.
1. Overview
Defendant ReWalk Robotics, Ltd., formerly known as Argo Medical Technologies, Inc., is a medical device company. It designs and develops exoskeletons, which are devices that help persons with spinal-cord injuries walk. (CAC ¶ 2). The company is incorporated in Israel and has its U.S. headquarters in Marlborough, Massachusetts. (Id. ¶ 26). It was founded by Amit Goffer, who served as CEO and Chief Technical Officer from 2001 until 2012. (Id. ¶ 30). Goffer resigned from the company on November 18, 2015. (Id. ).
At the time of its IPO in September 2014, ReWalk's CEO was Larry Jasinski and its CFO was Ami Kraft. (Id. ¶¶ 27, 29). Hadar Ron, Jeff Dykan, Asaf Shinar, Wayne Weisman, Yasushi Ichiki, Glenn Muir, and Aryeh Dan were all members of ReWalk's Board of Directors. (Id. ¶¶ 31-37). In January 2015, Kevin Hershberger replaced Kraft as CFO. (Id. ¶ 28).
ReWalk currently sells two distinct products: ReWalk Personal, which is designed for everyday use, and ReWalk Rehabilitation, which is designed for clinical rehabilitation centers. (Id. ¶ 46). Both devices are regulated in various jurisdictions by the FDA, the European Union, or other governmental agencies. (Id. ¶ 94). This litigation concerns only the ReWalk Personal device, which the Court will refer to as the "device."
In 2014, ReWalk submitted the device to the FDA for "de novo" classification. (Id. ¶ 47). "De novo" classification allows manufacturers to market devices that are low to moderate risk and not substantially similar to devices that are already being marketed. (Id. ).
On June 26, 2014, the FDA approved the ReWalk device for marketing. It designated the ReWalk device "Class II," requiring special controls. (Id. ¶¶ 48-49).
The complaint alleges that defendants failed to disclose that ReWalk was either unprepared or unable to comply with the FDA's June 2014 directive that it perform post-market surveillance. (Id. ¶¶ 16, 68).
Prior to the IPO, ReWalk filed a registration statement with the SEC, stating that it had developed a "breakthrough product" that would "deliver a natural gait and functional walking speed." (Id. ¶ 90). The complaint alleges that the registration statement failed to disclose that the reason the FDA ordered the company to conduct a post-market surveillance study was that the ReWalk device posed a threat of serious injury or death. (Id. ¶¶ 85-95).
The initial public offering of ReWalk occurred on September 12, 2014. (Id. ¶ 5). The company issued 3 million shares of common stock. (Id. ). The IPO was underwritten by defendants Barclays Capital Inc., Jefferies LLC, and Canaccord Genuity Inc. (Id. ¶¶ 38-40). Lead plaintiff Wang Yan purchased 3,600 shares of ReWalk in September 2014, shortly after the IPO. (Docket No. 7, Ex. C).
Two weeks after the IPO, on September 29, 2014, the FDA contacted ReWalk to inform the company that its proposed post-market surveillance study was deficient. (CAC ¶ 7). Notably, the FDA's letter stated that although the plan was deficient, because less than six months had elapsed since the issuance of the 522 order, the study status would be marked as "Plan Pending" on the FDA's website. (Feldman Decl. Ex. F at 3). The FDA granted ReWalk 30 days to file a response, which it failed to do in a timely fashion. (CAC ¶¶ 7-8). ReWalk eventually filed a response on November 6, 2014. (Id. ¶ 8). On February 13, 2015, the FDA found that the November 6 submission was also deficient. (Id. ). The FDA granted ReWalk another 30 days to file a further response, and ReWalk responded (late) on May 22, 2015. (Id. ¶¶ 8-10). ReWalk stated that it wanted to discuss an issue with the FDA before submitting a formal reply to the February 13 letter. (Id. ¶ 10).
According to the complaint, during that time, ReWalk officials held quarterly earnings calls, during which they failed to disclose the company's failure to comply with the FDA's requirement. Specifically, those calls were made on February 12, 2015 (Q4 2014), May 7, 2015 (Q1 2015), August 6, 2015 (Q2 2015), November 11, 2015 (Q3 2015), and February 25, 2016 (Q4 2015). (Id. ¶¶ 99-110).
On September 5, 2015, the FDA cautioned ReWalk that it still had not submitted a revised study plan addressing the deficiencies previously identified by the agency. (Id. ¶ 13). Having received no response, on September 30, 2015, the FDA issued a warning letter outlining the company's substantial failure to comply with the post-market surveillance requirement. (Id. ¶ 14). Specifically, the letter stated that under the 522 order, ReWalk was required to begin its surveillance study "not later than 15 months after the day on which [a 522 order] is issued." (Pl. Ex. C at 2). The 15-month time frame had closed on September 28, 2015. (Id. ). The letter went
ReWalk's closing stock price the day before the FDA released the letter was $10.48. (Id. ¶ 19). The closing price the following day, on March 1, 2016, was $9.07, reflecting a 13% decline in value. (Id. ). The stock price has steadily declined since, and ReWalk shares are currently trading at around $0.75 to $1.25.
At the end of March 2016, the FDA exercised its enforcement discretion and allowed ReWalk to continue to market its device, provided that it would initiate the post-market surveillance study by June 1, 2016. (Id. ¶ 114). The FDA approved ReWalk's proposed protocol for the study on May 5, 2016. (Id. ¶ 115). However, ReWalk did not file timely monthly reports to the FDA in June and July 2016. (Id. ¶ 116). Although the approved protocol required 60 subjects from twelve U.S. clinical areas, according to CW-3, ReWalk had only recruited eight subjects from three areas by June 2017. (Id. ¶ 117-18).
2. Confidential Witness Allegations
As noted, the complaint alleges in substance that defendants failed to disclose ReWalk's failure to comply with various FDA regulations, both during and after the IPO. In support of those allegations, the complaint relies in part on statements from three confidential witnesses ("CWs"), who were formerly employed by ReWalk.
CW-1 was the Executive Assistant to CEO Jasinski between April 2015 and December 2016. (CAC ¶ 70). She described Jasinski as "micromanaging" ReWalk's day-to-day operations and involving himself in "every single aspect of the business." (Id. ). According to CW-1, ReWalk had a culture of procrastination, which was "exacerbated by Jasinski's micromanagement style." (Id. ¶ 71).
CW-1 sat in on weekly meetings between Jasinski and other high-ranking ReWalk officials. (Id. ¶ 72). She recalled a meeting where the FDA's September 30, 2015 warning letter was discussed. (Id. ). Jasinski, CFO Hershberger, and other officials were concerned about possible consequences ReWalk could suffer if it failed to meet FDA requirements. (Id. ¶ 73). At some point, the warning letter was also brought to the attention of ReWalk's Board of Directors, chaired by defendant Dykan. (Id. ¶ 74).
CW-2 was a Clinical Training Manager at ReWalk from November 2015 to August 2016. (Id. ¶ 75). CW-2 reported to ReWalk's Worldwide Training Manager and trained physical therapists at hospitals and
In December 2015, Jasinski convened a company-wide teleconference to discuss ReWalk's plan for a post-market surveillance study. (Id. ¶ 76). At the teleconference, defendants "showed no sense of urgency at all to even start the post-market surveillance study before February 2016." (Id. ). Two months later, the FDA sent another letter to ReWalk citing deficiencies in the company's proposed post-market surveillance study. (Id. ¶ 77). Around that time, ReWalk hosted a company-wide meeting in its Marlborough headquarters. (Id. ¶ 78). At that meeting, "CW-2 noticed for the first time that there appeared to be some urgency at [ReWalk] to start post-market surveillance." (Id. ). The Worldwide Training Director instructed CW-2 to recruit subjects for such a study. (Id. ¶ 79). However, ReWalk did not recruit a sufficient number of subjects, in part because most insurance companies declined to reimburse users for the ReWalk device. (Id. ).
CW-3 was the Associate Director of Clinical Operations at ReWalk from February 2016 to June 2017. (Id. ¶ 80). CW-3 was hired to develop and execute ReWalk's post-market surveillance study. (Id. ¶ 81). CW-3 initially reported to John Hamilton, the Vice President of Regulatory and Clinical at ReWalk. (Id. ¶ 80). After Hamilton stepped down from his position in early 2017, CW-3 reported directly to Jasinski. (Id. ).
CW-3 stated that before the IPO, ReWalk hired Clinivation, a third-party contract research organization, to prepare documents necessary for a post-market surveillance study. (Id. ¶ 82). However, upon joining ReWalk, CW-3 reviewed Clinivation's work and concluded that it was "quite garbage." (Id. ). Eventually, CW-3 convinced Hamilton to terminate ReWalk's contract with Clinivation; however, Hamilton appeared to have "virtually no experience with clinical trials." (Id. ¶ 83). Like CW-2, CW-3 stated that ReWalk's attempt to conduct a post-market surveillance study was hampered by its failure to recruit a sufficient number of subjects after insurance companies refused to reimburse users for the ReWalk device. (Id. ¶ 84).
3. Defendants' Statements as to the Securities Act Claims
The complaint alleges that the following paragraphs in ReWalk's September 12, 2014 IPO registration statement were false and misleading:
Compelling Clinical Data. We believe that ReWalk's clinical data differentiates us from our competitors. Clinical data published in established medical journals has demonstrated ReWalk's potential as a safe ambulatory device. We are not aware of any comparable clinical data generated in rigorous trials that has been published with respect to competing exoskeleton products. In addition, our interim analysis of an ongoing clinical study demonstrates improvements in secondary physical conditions, such as reduction in pain and spasticity and improvements in bowel and urinary tract function, body and bone composition, metabolism and physical fitness, as well as reduced hospitalizations and dependence on medications. We believe that continued results of this nature will greatly assist our ability to obtain regulatory clearances and third-party reimbursement.
(CAC ¶ 86).
Continue Clinical Studies to Further Demonstrate Health and EconomicBenefits to Support Reimbursement. We intend to continue to work with hospitals, rehabilitation centers, patient advocacy and support groups and individual users to generate additional data regarding functionality and that supports the health and economic benefits of ReWalk. We will continue to engage and fund researchers and organizations to conduct clinical studies to demonstrate the functionality and utilization of ReWalk and to highlight economic benefits of reductions in medical complications associated with spinal cord injury. We believe that this data will position us to pursue additional third-party reimbursement for our products.
(Id. ¶ 88).
ReWalk is a breakthrough product that can fundamentally change the health and life experiences of users.
...
Published clinical studies demonstrate ReWalk's ability to deliver a natural gait and functional walking speed, which has not been shown in studies for any competing exoskeleton. In addition, our interim analysis of an ongoing clinical study and our experience working with health care practitioners and ReWalk users suggests that ReWalk has the potential to provide secondary health benefits. These benefits include reducing pain and spasticity and improving bowel and urinary tract function, body and bone composition, metabolism and physical fitness, as well as reducing hospitalizations and dependence on medications. Because of these secondary medical benefits, we believe that ReWalk has the ability to reduce the lifetime healthcare costs of individuals with spinal cord injuries, making it economically attractive for individuals and third-party payors.
(Id. ¶ 90).
The complaint alleges that all three paragraphs were materially false and misleading because defendants failed to disclose that in June 2014 the FDA had directed ReWalk to conduct a post-market surveillance study, and that it did so because the device posed a risk of serious injury or death. (Id. ¶¶ 87, 89, 91).
The registration statement included the following additional statements:
In June 2014, the FDA granted our petition for "de novo" classification, which is a route to market for medical devices that are low to moderate risk, but are not substantially equivalent to a predicate device, and classified ReWalk as Class II subject to special controls. The special controls established in the de novo order include compliance with medical device consensus standards; performance of a postmarket surveillance clinical study demonstrating a reasonable assurance of safety and effectiveness in urban terrain; non-clinical performance testing of the system's function and durability; a training program; and labeling related to device use and user training. The special controls of this de novo order will also apply to competing products seeking FDA clearance.
...
As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. If the FDA believes we or any of our contract manufacturers are not in compliance with the quality system requirements, or other postmarket requirements, it has significant enforcement authority. Specifically, if the FDA determines that we failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:
• warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
• recalls, withdrawals, or administrative detention or seizure of our products;
• operating restrictions or partial suspension or total shutdown of production;
• refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products;
• refusal to grant export approvals for our products; or
• criminal prosecution.
Any such action by the FDA would have a material adverse effect on our business. In addition, these regulatory controls, as well as any changes in FDA policies, can affect the time and cost associated with the development, introduction and continued availability of new products. Where possible, we anticipate these factors in our product development processes.
(Id. ¶ 92).
In June 2014, the FDA granted our petition for "de novo" classification, which is a route to market for medical devices that are low to moderate risk, but are not substantially equivalent to a predicate device, and classified ReWalk as Class II subject to certain special controls. The special controls established in the de novo order include compliance with medical device consensus standards; performance of a post market surveillance clinical study demonstrating a reasonable assurance of safety and effectiveness in urban terrain; non-clinical performance testing of the system's function and durability; a training program; and labeling related to device use and user training. In order for us to market ReWalk, we must comply with both general controls, including controls related to quality, facility registration, reporting of adverse events and labeling, and the special controls established for the device. Failure to comply with the general and special controls could lead to removal of ReWalk from the market, which would have a material adverse effect on our business.
...
In addition, if we fail to comply with applicable regulatory requirements, it could result in fines, delays or suspensions of regulatory clearances, closure of manufacturing sites, seizures or recalls of products and damage to our reputation. Recent changes in enforcement practice by the FDA, European Union and other agencies have resulted in increased enforcement activity, which increases the compliance risk that we and other companies in our industry are facing. In addition, governmental agencies may impose new requirements regarding registration, labeling or prohibited materials that may require us to modify or reregister ReWalk once it is already on the market or otherwise impact our ability to market ReWalk in those countries. The process of complying with these governmental regulations can be costly and time consuming, and could delay or prevent the production, manufacturing or sale of ReWalk.
(Id. ¶ 94). The complaint alleges that those paragraphs were materially false and misleading because defendants failed to disclose the risk of "serious injury or death" to users of the device and ReWalk's "boilerplate recitation of potential adverse regulatory consequences" was "meaningless." (Id. ¶¶ 93, 95).
B. Procedural Background
Plaintiffs in this action initially filed suit in California state court on September 20, 2016. (Docket No. 37, Ex. 4 at 2). The California action was dismissed for lack of
On October 31, 2016, plaintiff Shane Vesey filed suit against defendants in the Massachusetts Superior Court. (Id. Ex. 1). On November 30, 2016, plaintiff Phanindra Chittavajhula also filed suit against defendants in the Superior Court. (Id. Ex. 2). Both cases were putative class actions alleging violations of the federal Securities Act relating to omissions in ReWalk's registration statement and final prospectus. The state court consolidated the two cases under the name In re ReWalk Robotics Ltd. Stockholder Litigation on January 10, 2017. (Id. at 1).
Three weeks later, on January 31, 2017, this action was filed in federal court. The original complaint in this case only alleged violations of the federal Securities Act.
On March 30, 2017, defendants moved in the Massachusetts Superior Court to stay the pending state action on the ground that the present case should be considered the first-filed because the federal complaint mirrored that of the earlier dismissed California state-court complaint. The court denied that motion, finding that the California action was a "nullity" and that the state-court plaintiffs "have made more progress in investigating the factual basis for their claims." (Id. Ex. 4 at 3). The court also concluded that there was concurrent state and federal jurisdiction for claims arising from violations of the Securities Act. (Id. at 4). Defendants filed a motion to dismiss the state action, and a hearing was held on October 18, 2017.
In the interim, on June 9, 2017, in this proceeding, the Court appointed a lead plaintiff, lead counsel, and liaison counsel. On July 6, 2017, defendants moved to stay this federal action based on the first-to-file rule, the Colorado River abstention doctrine, and the prior-pending-action doctrine. In their motion to stay, defendants also noted that the Supreme Court had granted a writ of certiorari in Cyan, Inc. v. Beaver Cty. Emp. Ret. Fund , which raised the question of whether the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") stripped state courts of jurisdiction to adjudicate class actions brought under the Securities Act.
Lead plaintiff then filed a consolidated amended complaint on August 9, 2017. That amended complaint added claims under the federal Exchange Act, 15 U.S.C. § 78a et seq. , over which federal courts have exclusive jurisdiction. On October 23, 2017, the Court denied without prejudice defendants' motion to stay.
Subsequently, on November 10, 2017, defendants filed a motion to dismiss. The motion sought to dismiss the action for failure to complete service of process on the individual domestic defendants pursuant to Rule 4(m), and for failure to state a claim pursuant to Rule 12(b)(6). Defendants then filed a renewed motion to stay in the Superior Court, which was granted on December 13, 2017. On February 23, 2018, the Court denied defendants' motion to dismiss for insufficient service of process.
A. Relevant Pleading Standard
The parties first dispute the proper standard of review for analyzing plaintiffs' claims under the Securities Act. Defendants contend that the claims "sound in fraud" and are subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b). See Shaw v. Dig. Equip. Corp. ,
Here, the complaint segregates the factual allegations concerning the Securities Act claims from allegations relating to the Exchange Act claims. (See CAC ¶ 96) ("Lead Plaintiff makes the additional allegations contained in paragraphs 96 to 111 below with respect to his claims under Sections 10(b) and 20(a) of the Exchange Act only. Lead Plaintiff disclaims any reliance upon these allegations or incorporation of these allegations in his Securities Act claims."). The paragraphs detailing the Securities Act allegations use the words "materially false and misleading" to describe the alleged omissions and misstatements in the registration statement. (CAC ¶¶ 85-95). Words such as "fraud" and "deceit" are not used, and there are no allegations of willful or intentional conduct. Arguably, at least, plaintiff has attempted to structure the complaint to avoid alleging fraud as to the Securities Act claim. See Silverstrand Invs. ,
In any event, however, the issue appears to be immaterial. Because the claim is clearly brought under Section 11, and because fraud need not be proved to establish such a claim, Rule 9(b) does not apply. Any language in the complaint suggesting fraudulent conduct as to the registration statement is simply surplusage.
B. Legal Standard
On a motion to dismiss, the court "must assume the truth of all well-plead[ed] facts and give ... plaintiff the benefit of all reasonable inferences therefrom." Ruiz v. Bally Total Fitness Holding Corp. ,
C. Analysis
Section 11 of the Securities Act "attaches liability to a registration statement that 'omit[s] to state a material fact ... necessary to make the statements therein not misleading.' " MAZ Partners LP v. Shear ,
1. Claims Based on Regulation S-K Items 303 and 503
As an initial matter, in his opposition memorandum, plaintiff contends that defendants violated Items 303 and 503 of Regulation S-K.
"Item 303 imposes upon registrants of securities a series of disclosure duties intended to give the investor an opportunity to look at the company through the eyes of management, so that they may assess the financial condition and results of operations of the registrant, with particular emphasis on the registrant's prospects for the future." Silverstrand Invs. ,
Similarly, Item 503 requires registrants to provide "investors with a clear and concise summary of the material risks to an investment in the issuer's securities." Securities Offering Reform, SEC Release No. 8501,
Here, the amended complaint does not mention either Regulation S-K or Items 303 and 503. Because plaintiff raised these claims for the first time in opposition to defendants' motion to dismiss, they will be disregarded. See In re Hi-Crush Partners L.P. Sec. Litig. ,
2. Allegedly Misleading Omissions in the Registration Statement
a. Failure to Disclose the ReWalk Device's Safety Profile
The complaint alleges that defendants failed to disclose in the registration statement that the ReWalk device was dangerous. Specifically, it alleges that defendants did not disclose that the device's "failure to prevent a fall would be reasonably likely to cause serious injury or death to the user and place individuals assisting the user at the risk of harm from a potential fall." (CAC ¶¶ 87, 89, 91, 93, 95).
That allegation is based on, and mischaracterizes, the FDA letters concerning the post-market surveillance requirement. For example, the June 26, 2014 letter from the FDA included the above-quoted text. (Feldman Decl. Ex. C at 1). However, the letter went on to state:
The safety and effectiveness of the ReWalk has been demonstrated in an institutional environment (e.g. hospital, rehabilitation institution). However, there is limited information on use outside of the institutional setting (e.g. community and at home use) given that ARGO Medical Technologies, Inc. intends for the product's use in non-institutional settings.
(Id. at 1-2). The letter further stated that the post-market surveillance study would be useful to help determine the product's safety in non-institutional environments. (Id. ). Nowhere did the FDA conclude that the ReWalk device was actually dangerous. The FDA referred to the study requirement in the context of the ReWalk product being a class II device on de novo review. (Id. ; Feldman Decl. Ex. B). The text of the registration statement accurately summarizes why the post-market surveillance requirement was imposed. (CAC ¶ 94) ("The special controls ... include ... performance of a post-market surveillance clinical study demonstrating a reasonable assurance of safety and effectiveness in urban terrain.").
In his opposition, plaintiff chiefly relies on the September 30, 2015 warning letter from the FDA. (Mem. in Opp. at 13-14; Pl. Ex. C).
b. Further Alleged Misstatements in the Registration Statement
The complaint also alleges that the registration statement included several statements that were misleading because they
First, the references to "compelling" clinical data, and to the ReWalk device as a "breakthrough product," are mere puffery-that is, generic expressions of corporate optimism that are immaterial as a matter of law. It is well-established that "not every unfulfilled expression of corporate optimism, even if characterized as misstatement, can give rise to a genuine issue of materiality under the securities laws." Shaw ,
In particular, courts have demonstrated a willingness to find immaterial as a matter of law a certain kind of rosy affirmation commonly heard from corporate managers and numbingly familiar to the marketplace-loosely optimistic statements that are so vague, so lacking in specificity, or so clearly constituting the opinions of the speaker, that no reasonable investor could find them important to the total mix of information available.
Next, the reference to ReWalk's intent to conduct further clinical studies is a non-actionable "forward-looking" statement. The PSLRA provides, with certain limitations, that issuers of securities shall not be liable in any private action based on an untrue or misleading statement of a material fact "with respect to any forward-looking" statement if the statement is
identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement, ... or ... the plaintiff fails to prove that the forward-looking statement ... [if made on behalf of a business entity by or with the approval of an executive officer was] made ... with actual knowledge by that officer that the statement was false or misleading.
See 15 U.S.C. § 78u-5(c)(1) ; In re Stone & Webster, Inc. Sec. Litig. ,
(A) a statement containing a projection of revenues, income ... earnings (including earnings loss) per share, ... capital expenditures, dividends, ... or other financial items; (B) a statement of the plans and objectives of management for future operations ...; (C) a statementof future economic performance ...; (D) any statement of the assumptions underlying or relating to [any of the above].
15 U.S.C. § 78u-5(i)(1) ; accord In re Stone & Webster ,
"Forward-looking statements are often contained in financial filings. Congress, in providing the limited safe harbor protection, sought to encourage market efficiency by encouraging companies to disclose future projections without fear that those projections, if they did not materialize, would result in an action for fraud." In re Biogen IDEC, Inc. Sec. Litig. ,
Here, the statement that ReWalk intended to conduct further clinical studies squarely falls within the statutory safe harbor for "forward-looking" statements concerning "the plans and objectives of management for future operations." See 15 U.S.C. § 78u-5(i)(1)(B). It did not rely on any representations of present facts.
Finally, as to the allegedly inadequate description of the post-market surveillance study requirement and the regulatory risks, the claim likewise fails. Paragraph 94 of the complaint specifically mentions that the FDA imposed such a requirement, and the possible consequences of failing to comply. There is no basis to conclude that the description was inadequate or misleading, particularly since the study had not yet even been designed, much less implemented. Similarly, the claim of inadequate description of regulatory risks was not misleading. Those risks are described in considerable detail at paragraphs 92 and 94 of the complaint; it was not necessary to set out every possible regulatory consequence of every possible contingent event.
Accordingly, the motion to dismiss will be granted as to Count One.
D. Count Two: Section 15 Liability
Count Two asserts a claim against the individual defendants under Section 15 of the Securities Act, which imposes joint and several liability on persons in control of entities that violate securities laws. 15 U.S.C. § 77o. However, violations of Section 15 depend on an underlying violation of the Securities Act. 15 U.S.C. § 77o-(a) ; Aldridge v. A.T. Cross Corp. ,
III. Exchange Act Claims
Defendants contend that lead plaintiff Yan lacks standing to assert the Exchange Act claims because he purchased his shares "after the relevant statements were made and therefore could not have relied on the alleged misstatements." (Mem. in Supp. at 19). It is undisputed that Yan purchased his shares on September 15 and 17, 2014. (Docket No. 7, Ex. B at 3). And the statements alleged to have violated the Exchange Act were made between February 12, 2015, and February 25, 2016. (CAC ¶¶ 99-110). The only statements, therefore, that Yan could have relied on were those made on or before September 17, 2014-that is, those in the registration statement, which the Court has found did not violate the Securities Act.
Normally, that would be sufficient to dispose of the Exchange Act claims for
There is a line of cases suggesting that class representatives may have standing to assert Exchange Act claims arising from statements made after the share purchase date "as long as the statements allegedly made were in furtherance of a common scheme to defraud." Crowell v. Ionics, Inc. ,
That argument, however, is undercut by the manner in which plaintiff structured his complaint. The complaint clearly alleges that the Securities Act claims are based on defendants' failure to disclose the reason the FDA required the post-market surveillance study, and that the Exchange Act claims are based on ReWalk's failure to disclose its difficulties in meeting that requirement. And, as noted, it states that plaintiff "disclaims any reliance upon [the Exchange Act allegations] or incorporation of these allegations in his Securities Act claims." (CAC ¶ 96). In addition, counsel for plaintiff explicitly argued that there were "two separate classes"-one for the Securities Act claims and one for the Exchange Act claims. (Mot. to Stay Hearing Tr. at 13, 16). Therefore, the alleged omissions may not be sufficiently similar to constitute a single "common scheme" extending from September 12, 2014, through February 29, 2016. See City of Bristol Pension Fund v. Vertex Pharm., Inc. ,
There is also authority holding that a lead plaintiff in an action subject to the PSLRA need not have standing to bring every available claim under the securities laws. See Hevesi v. Citigroup Inc. ,
It is at least somewhat unclear how those principles should be applied in this context. Yan does not simply lack standing to sue on "every" claim; he lacks standing to sue on any remaining claim. Furthermore, standing is not merely an issue of statutory interpretation, but is a constitutional requirement, as well.
Accordingly, the motion to dismiss will be denied without prejudice as to Counts Three and Four.
IV. Conclusion
For the foregoing reasons, defendants' motion to dismiss is GRANTED in part as to Counts One and Two, and DENIED in part without prejudice as to Counts Three and Four.
Plaintiff shall file any supplemental memorandum concerning standing, motion to appoint substitute or supplemental plaintiff, or other memorandum or motion responsive to this Memorandum and Order by September 10, 2018. Defendants shall file any opposition or response by September 24, 2018.
So Ordered.
Notes
Defendants' motion to dismiss is accompanied by certain exhibits, including communications with the FDA. While ordinarily "any consideration of documents not attached to the complaint, or not expressly incorporated therein, is forbidden ... courts have made narrow exceptions for documents the authenticity of which are not disputed by the parties; for official public records; for documents central to plaintiffs' claim; or for documents sufficiently referred to in the complaint." Watterson v. Page ,
The FDA classifies medical devices into one of three classes-Class I, Class II, and Class III-depending on the risk associated with the device. (Id. ¶ 48). Class I devices are considered the safest, and Class III devices are considered the riskiest. (Id. ).
The Court takes judicial notice of ReWalk's current stock price. See Fed. R. Evid. 201(b)(2). Because ReWalk common stock is publicly traded on NASDAQ, its stock price "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." (Id. ).
Under the PSLRA, a plaintiff may rely on a confidential witness and need not provide his or her name as long as the witness is "described in the complaint with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged." New Jersey Carpenters Pension & Annuity Funds v. Biogen IDEC Inc. ,
The complaint does not specify how many levels removed from the named defendants CW-2 was.
According to defendants, there have been ten complaints brought by various plaintiffs against them arising from the same set of facts. Two were brought in federal court (one in California and the present case) and eight were brought in state court (five in California and three in Massachusetts). Docket No. 49 at 3.
On March 20, 2018, the Supreme Court unanimously held that the SLUSA did not strip state courts of jurisdiction to adjudicate class actions brought under the Securities Act. Cyan, Inc. v. Beaver Cty. Emp. Ret. Fund , --- U.S. ----,
The letter was issued more than one year after the IPO, and accordingly cannot be considered in the Securities Act claims analysis. See Silverstrand Invs. ,
In any event, given the nature of the ReWalk device, it is self-evident that its malfunction could cause serious harm to users, most (if not all) of whom already had severe mobility impairments.
Standing is a threshold question in every case; "[i]f a party lacks standing to bring a matter before the court, the court lacks jurisdiction to decide the merits of the underlying case." United States v. AVX Corp. ,
"In addition to these Article III prerequisites, prudential concerns ordinarily require a plaintiff to show that his claim is premised on his own legal rights (as opposed to those of a third party), that his claim is not merely a generalized grievance, and that it falls within the zone of interests protected by the law invoked." Pagan v. Calderon ,