Hochschuler v. G. D. Searle & Co.

82 F.R.D. 339, 1978 U.S. Dist. LEXIS 6938
CourtDistrict Court, N.D. Illinois
DecidedDecember 29, 1978
DocketNo. 75 C 4182
StatusPublished
Cited by48 cases

This text of 82 F.R.D. 339 (Hochschuler v. G. D. Searle & Co.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hochschuler v. G. D. Searle & Co., 82 F.R.D. 339, 1978 U.S. Dist. LEXIS 6938 (N.D. Ill. 1978).

Opinion

MEMORANDUM OPINION

FLAUM, District Judge:

The instant complaint is before the court on plaintiffs’ motion for provisional class certification. Fed.R.Civ.P. 23(c). Plaintiffs allege violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and rule 10b-5, promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiffs are purchasers of G. D. Searle & Co. common stock. The gravamen of plaintiffs’ complaint is that defendants failed to disclose that three drugs which defendants manufacture had carcinogenic qualities and that while defendants entertained doubts about the marketability and safety of these drugs, they made false material declarations concerning them.1 For the reasons stated below, the court grants plaintiffs’ motion and certifies a provisional class.

[342]*342Solely for the purpose of this motion, the court takes the following substantive allegations of the complaint as true.2 Defendants had knowledge of the carcinogenic properties of the three drugs, Flagyl, Aldactone and Aldactazide, by March 21, 1973. Smce as early as 1960, defendants entertained serious doubts as to the safety of Aldactazide and Aldactone.3 They authorized toxicity studies which indicated that Aldactone may have been carcinogenic. Defendants designed toxicity tests to minimize the possibility of finding that the drugs caused tumors in test animals. They also altered certain test data to conceal these properties. On March 21, 1973 defendants received a 78-week study conducted by a pathologist, Dr. Jacqueline Mauro, which concluded that both drugs had significant carcinogenic properties. Mauro’s conclusions were later confirmed by another study. With respect to Flagyl, defendants first became aware that the drug had significant carcinogenic properties as early as 1972.4 A study of the drug by two University of Nebraska doctors, Rustía and Shubek, in 1971 found Flagyl to be a carcinogen.5 Two earlier studies, one conducted under Searle sponsorship, indicated the drug had such properties.

The possible dangers of these drugs were publicly disclosed at various times from 1972 to 1975. The Rustia-Shubek study of Flagyl was published in the Journal of the National Cancer Institute in March, 1972. During 1974, a private citizens’ group, the Health Research Group, petitioned the Federal Drug Administration [FDA] to withdraw its approval of Flagyl.6 Beginning in January, 1973, at the behest of the FDA, Searle included in its labelling of Flagyl the results of the testing indicating the drug’s association with both malignant and nonmalignant tumors. This label was also published in the Physicians Desk Reference. On May 30, 1975, the FDA caused to be published in the Federal Register references to the conclusions of the Mauro study. A June 3, 1975 New York Times article expressly referred to these conclusions as reasons for decline in the - Searle stock. This article does not state that Flagyl, Aldactone and Aldactazide were carcinogenic. A Wall Street Journal article which appeared on the same day makes reference to the Mauro study and a proposed FDA investigation as a reason for heavy trading in the stock. A July 11, 1975 Wall Street Journal article disclosed the possible carcinogenic properties of the drugs and the FDA accusation that Searle destroyed, altered and withheld research data.

Plaintiff Hochschuler, a Dallas physician, purchased 200 shares of Searle common stock June 3, 1975. He purchased in joint tenancy with his wife. At the time of his purchase, he had been informed by his broker that the price of the stock was depressed because of reports of the adverse studies. Plaintiff Gordon purchased 300 shares of Searle stock June 7,1973. Gordon purchased pursuant to a “put” option agreement.7 He sold the option April 3, 1973.

In sum, plaintiffs allege defendants participated in a scheme to artificially inflate the price of Searle common stock. Plaintiffs contend that at a time when doubt existed as to the safety of these drugs, the defendants chose to emphasize their safety and their importance to the continued prof[343]*343itability of Searle. Plaintiffs further argue that defendants, in spite of their doubts, emphasized the drugs’ acceptance in the medical community in certain annual reports and other financial statements. Additionally, plaintiffs allege defendants failed to disclose the following: the destruction or alteration of test data in order to conceal the carcinogenic and tumorgenic qualities of the drugs; the concealment of certain flaws in the testing procedures; the filing of summary reports to the FDA which were inconsistent with raw test data.

Plaintiffs seek to represent a class of all persons who purchased G. D. Searle common stock from March 21, 1973 to July 10, 1975 and who did not sell their stock during the period. Defendants maintain a number of obstacles bar certification of the proposed class. They contend the motion must be denied because plaintiffs’ claim does not meet the typicality and adequacy of representation requirements of rule 23(a). They further argue that certification is inappropriate because the class contains antagonistic members. Finally, defendants argue plaintiffs have failed to show common issues predominate under rule 23(b)(3).

After a brief review of certain threshold principles, the court will consider whether plaintiffs have met the prerequisites of rule 23(a) and then consider whether the issues of law and fact predominate and the class action is a superior mode of adjudicating the lawsuit under rule 23(b)(3).

Plaintiffs seek certification of a class under rule 23(b)(3). In making the class determination in a securities case, the court recognizes that the requirements of rule 23 must be liberally construed and that the rule’s policy is to favor class actions. King v. Kansas City Southern Industries, Inc., 519 F.2d 20 (7th Cir. 1975); Helfand v. Cenco, Inc., 80 F.R.D. 1 (N.D.Ill.1977); Sley v. Jamaica Water & Utilities, Inc., 77 F.R.D. 391 (E.D.Pa.1977). Consequently, the court does not deny the class motion because of the existence of minor deviations in the class and the court “should indulge every presumption to maintain this suit as a class action.” Appleton Electric Co. v. Ad vance-United Expressways, 494 F.2d 126, 137 (7th Cir. 1974). This liberal policy is based upon the belief that class actions can deter corporate wrongdoing and encourage legally mandated disclosures. Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976); Green v. Wolf Corp., 406 F.2d 291 (2d Cir. 1968). The class action aids small individual claimants who would otherwise be reluctant to bring their claims due to the expense of the litigation. Hawaii v. Standard Oil, 405 U.S. 251, 266, 92 S.Ct.

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Bluebook (online)
82 F.R.D. 339, 1978 U.S. Dist. LEXIS 6938, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hochschuler-v-g-d-searle-co-ilnd-1978.