On September 30, 2021, Judge Katherine S. Hayden of the United States District Court for the District of New Jersey denied a motion to dismiss an “opt-out” action arising from a pending class action that asserts claims under the Securities Exchange Act of 1934 against a pharmaceutical company, certain of its executives, and alleged “co-conspirators,” in connection with an alleged price-fixing scheme for generic drugs.
TIAA-CREF Large-Cap Growth Fund v. Allergan PLC, No. 17-CV-11089-KSH-CLW, 2021 WL 4473156 (D.N.J. Sept. 30, 2021). The opt-out action also added claims under the Securities Act of 1933 and related to an illegal “market allocation” scheme. The Court denied defendants’ motion to dismiss the opt-out action, holding that the action was timely and that scienter was adequately alleged.
The Court held that the Securities Act claims were timely because they had been filed exactly one year after media reports that federal prosecutors were “bearing down on generic pharmaceutical companies”—including the company named as a defendant in the opt-out action—“in a sweeping criminal investigation into suspected price collusion” and that charges could be imminent.
Id. at *3. Although defendants had identified previous public reporting about the generic drug industry, other government investigations that received media attention, and other litigants’ antitrust claims (including some represented by the same plaintiffs’ counsel as in the opt-out action), the Court observed that those matters did not involve alleged securities law violations arising from the same price-fixing scheme alleged in the opt-out action. Rather, the Court concluded, the “more plausible inference” was that plaintiffs were not aware of their claims until the company-specific media report that indicated charges against the company might be imminent.
Id. Moreover, the Court held that the involvement of plaintiffs’ counsel in prior litigation, without any allegation that plaintiffs themselves had knowledge regarding that prior litigation, was “not persuasive.”
Id.
For similar reasons, the Court rejected defendants’ arguments that the Exchange Act claims were untimely because plaintiffs should have been on notice of their claims based on previously filed antitrust litigation.
Id. at *9. Moreover, the Court held, even if plaintiffs had been on notice of their claims previously, their claims had been tolled under
American Pipe v. Constr. Co v. Utah, 414 U.S. 538 (1974), based on the filing of the original class action.
Id. In so holding, the Court noted that defendants had withdrawn an argument that
American Pipe tolling was not triggered until a class certification decision is issued, in light of the Third Circuit’s recent holding that “the filing of a class action is the operative event that tolls the limitations period.”
Id. (citing
Aly v. Valeant Pharmaceuticals International Inc., 1 F.4th 168, 175 (3d Cir. 2021). The Third Circuit’s
Aly decision was the subject of a
prior post.
The Court also rejected defendants’ argument that plaintiffs failed to adequately allege scienter with respect to the market allocation claims. The Court noted that it had previously applied a “core operations” theory in denying a motion to dismiss the class action, thereby allowing scienter to be imputed to individual defendants because the alleged price-fixing scheme involved “core business” activities.
Allergan, 2021 WL 4473156, at *11. The Court held it was reasonable to apply the “core operations” theory to the market allocation claims as well, because plaintiffs had sufficiently linked those allegations to the price-fixing scheme as “features of a single conspiracy.”
Id. In particular, the Court explained, two of the five “key products” at issue in the alleged price-fixing scheme—representing a significant portion of the company’s profits—were also included in the market allocation allegations, and plaintiffs had included a “host of allegations” regarding communications between certain of the company’s executives and alleged co-conspirators.
Id. Taking a “holistic” view of the allegations relating to scienter, the Court held that the fact that a number of different government entities were continuing to investigate both the company’s conduct as well as anticompetitive pricing in the industry could “represent ‘a piece of the puzzle’” and “provide[] support—at this stage of the litigation—for an inference of scienter.”
Id.
