1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 KARIM KHOJA, on behalf of himself and Case No.: 15-CV-540 JLS (JLB) all others similarly situated, 12 ORDER (1) GRANTING IN PART Plaintiff, 13 AND DENYING IN PART MOVING v. DEFENDANTS’ REQUEST TO 14 CONSIDER MATERIALS OREXIGEN THERAPEUTICS, INC., 15 INCORPORATED BY REFERENCE, JOSEPH P. HAGAN, MICHAEL A. AND (2) GRANTING MOVING 16 NARACHI, and PRESTON KLASSEN, DEFENDANTS’ PARTIAL MOTION 17 Defendants. TO DISMISS
18 AND ALL CONSOLIDATED CASES (ECF No. 114) 19
20 Presently before the Court is Moving Defendants Joseph P. Hagan, Michael A. 21 Narachi, and Preston Klassen, M.D., M.H.S.’s Partial Motion to Dismiss Consolidated 22 Amended Complaint for Violation of the Federal Securities Laws (“Mot.,” ECF No. 114),1 23 as well as Lead Plaintiff Karim Khoja’s Opposition to (“Opp’n,” ECF No. 115) and 24 Moving Defendants’ Reply in Support of (“Reply,” ECF No. 116) the Motion. 25
26 1 Defendant Orexigen Therapeutics, Inc., filed a voluntary petition for bankruptcy under Chapter 11, see 27 In re Orexigen Therapeutics, Inc., No. 18-10518-KG (Bankr. D. Del. filed Mar. 12, 2018); consequently, 28 pursuant to the automatic bankruptcy stay, see 11 U.S.C. § 362(a), Orexigen is not a party to this Motion, 1 Also before the Court are Moving Defendants’ Request to Consider Documents 2 Incorporated by Reference into the Consolidated Amended Complaint for Violation of the 3 Federal Securities Laws in Support of Defendants’ Partial Motion to Dismiss (“Defs.’ 4 Req.,” ECF No. 114-9), Lead Plaintiff’s Notice of Supplemental Authority in Support of 5 Opposition to Defendants’ Partial Motion to Dismiss the Consolidated Amended 6 Complaint (“1st Not. of Supp. Auth.,” ECF No. 118), Moving Defendants’ Response to 7 Lead Plaintiff’s Notice of Supplemental Authorities (“Resp. to 1st Not. of Supp. Auth.,” 8 ECF No. 119), Lead Plaintiff’s Notice of Supplemental Authorities in Support of 9 Opposition to Defendants’ Partial Motion to Dismiss the Consolidated Amended 10 Complaint (“2d Not. of Supp. Auth.,” ECF No. 126), Moving Defendants’ Response to 11 Lead Plaintiff’s Notice of Supplemental Authorities (“Resp. to 2d Not. of Supp. Auth.,” 12 ECF No. 127), Lead Plaintiff’s Third Notice of Supplemental Authorities in Support of 13 Opposition to Defendants’ Partial Motion to Dismiss the Consolidated Amended 14 Complaint (“3d Not. of Supp. Auth.,” ECF No. 128), Lead Plaintiff’s Notice of Recent 15 Controlling Authority (“4th Not. of Supp. Auth.,” ECF No. 136), Moving Defendants’ 16 Response to Lead Plaintiff’s Notice of Recent Controlling Authority (“Resp. to 4th Not. of 17 Supp. Auth.,” ECF No. 137), and Lead Plaintiff’s Reply to Defendants’ Response to Lead 18 Plaintiff’s Notice of Recent Controlling Authority (“Reply ISO 4th Not. of Supp. Auth.,” 19 ECF No. 138). 20 The Court vacated the hearing and took the Motion under submission without oral 21 argument pursuant to Civil Local Rule 7.1(d)(1). See ECF No. 117. Having carefully 22 considered Lead Plaintiff’s Consolidated Amended Complaint (“CAC,” ECF No. 111) and 23 the material appropriately incorporated by reference, the Parties’ arguments, and the law, 24 including the cases identified in Lead Plaintiff’s Notices of Supplemental Authority, the 25 Court GRANTS IN PART AND DENIES IN PART Moving Defendants’ Request to 26 Consider Documents Incorporated by Reference and GRANTS Moving Defendants’ 27 Motion. 28 / / / 1 BACKGROUND 2 The factual and procedural background of this case was set forth in detail in this 3 Court’s September 23, 2019 Order (1) Granting in Part and Denying in Part the Moving 4 Defendants’ Request for Judicial Notice, (2) Denying Lead Plaintiff’s Request for Judicial 5 Notice, and (3) Granting in Part and Denying in Part the Moving Defendants’ Motion to 6 Dismiss. See ECF No. 110 at 2–14. To the extent relevant, the Court incorporates that 7 recitation into this Order. Accordingly, the Court sets forth below only those facts relevant 8 to the instant Motion3 and the procedural history since the issuance of this Court’s 9 September 23, 2019 Order. 10 I. Factual Background 11 Orexigen, “a developmental stage biotechnology firm,” has a collaboration 12 agreement with Takeda Pharmaceutical Company Limited (“Takeda”) to develop and 13 commercialize Orexigen’s “primary product candidate,” a drug for the treatment of obesity 14 called Contrave, in the United States, Canada, and Mexico. CAC ¶ 7. Phase III clinical 15 trials have been completed, and Contrave “was being studied in a drug trial known as the 16
17 2 The facts alleged in Plaintiff’s Consolidated Amended Complaint are accepted as true for purposes of 18 Moving Defendants’ Motion. See Vasquez v. Los Angeles Cnty., 487 F.3d 1246, 1249 (9th Cir. 2007) (holding that, in ruling on a motion to dismiss, the Court must “accept all material allegations of fact as 19 true”). The Court also considers those materials outside the Consolidated Amended Complaint that are 20 properly incorporated by reference. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018), cert. denied, 139 S. Ct. 2615 (2019); see also infra pages 7–12. 21 3 The Parties agree that the sole issue raised by the present Motion is whether “the Amended Complaint 22 fails to plead with particularity that Defendants’ allegedly fraudulent statements on March 3, 2015 have any casual connection to the losses purportedly suffered by Plaintiff on May 12, 2015.” ECF No. 114 23 (“Not. of Mot.”) at 1; see also Opp’n at 1 (“Defendants do, however, suggest that Plaintiff has not 24 adequately pled loss causation in connection with the May 12, 2015 announcement that Takeda Pharmaceutical Co. (“Takeda”) — Orexigen’s own business partner — disclosed for the first time that it 25 was initiating a $200 million claim against Orexigen due to Defendants’ misconduct in revealing the 25% data LIGHT Study in the March 3, 2015 Form 8-K.”). Although several of the new or revised allegations 26 in the Consolidated Amended Complaint (“CAC”) are intended to strengthen Lead Plaintiff’s loss causation allegations as to Defendants’ May 8, 2015 statements, “[Moving] Defendants did not challenge 27 the Original Complaint on this ground, and do not challenge the adequacy of Plaintiff’s loss causation 28 allegations as to the May 8 statements here.” Mot. at 2. Accordingly, the Court omits those facts from its 1 LIGHT Study.” Id. The Light Study’s Executive Steering Committee, Data Monitoring 2 Committee, and Orexigen entered into a data access plan (“DAP”), pursuant to which all 3 agreed to limit the number of people within Orexigen who had access to the interim results 4 of the LIGHT Study to just those individuals who needed to facilitate submission of 5 Orexigen’s marketing application to the United States Food and Drug Administration 6 (“FDA”). Id. ¶ 53 & n.11. 7 On July 2, 2014, Orexigen filed patent application number 14/322,810 (the “’810 8 Application”), which “included specific quantitative 25% interim LIGHT Study data,” 9 “pursuant to a statutory ‘nonpublication’ request.” Id. ¶ 12. In early January 2015, 10 Orexigen rescinded the nonpublication request. Id. ¶ 14. On March 3, 2015, the United 11 States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 8,969,371 (the 12 “’371 Patent”) from the ’810 Application. Id. ¶ 15; see also Defs.’ Req. Ex. B. 13 That same day, Orexigen filed a Form 8-K with the United States Securities and 14 Exchange Commission (“SEC”) announcing the publication of the ’371 Patent and 15 releasing the 25 percent interim LIGHT Study results. CAC ¶¶ 15, 87; see also Defs.’ Req. 16 Ex. C. The Form 8-K noted that the ’371 Patent “incorporate[d] data from [the LIGHT 17 Study],” and that the ’371 Patent “contain[s] claims related to a positive effect of Contrave 18 on [cardiovascular (“CV”)] outcomes” based on an “analysis . . . conducted based on 94 19 observed and adjudicated major adverse cardiovascular events (“MACE”), which was 20 approximately 25% of the planned MACE for the Light Study.” CAC ¶ 87; see also Defs.’ 21 Req. Ex. C. The Form 8-K further explained that the interim analysis “was prospectively 22 designed to enable an early and preliminary assessment of safety to support regulatory 23 approval” and that “[a] larger number of MACE are required to precisely determine the 24 effect of Contrave on CV outcomes.” Id. Orexigen did not consult the FDA, Dr. Nissen, 25 or Takeda prior to filing the Form 8-K. CAC ¶ 15. 26 Also on March 3, 2015, Forbes released an article reporting that the FDA had been 27 unaware that the ’810 Application contained the interim data and was “very disappointed 28 by Orexigen’s actions.” Id. ¶ 93. That same day, Orexigen issued a press release stating 1 that “the USPTO published the patent and supporting documentation,” id. ¶ 94, but the 2 press release failed to disclose that “the USPTO only published what Orexigen itself 3 needlessly put into the 2014 Patent Application” or that Orexigen “had rescinded its earlier 4 request that the 2014 Patent Application remain unpublished,” id. ¶ 95. 5 On March 2, 2015, Orexigen’s common stock had closed at $5.79 per share. Id. 6 ¶ 89. However, the March 3, 2015 publication of the “misleading” interim LIGHT Study 7 data and the “misleading” response to the FDA’s statements the same day “artificially 8 inflat[ed] the price of Orexigen’s securities” and “deceiv[ed] analysts and investors.” Id. 9 ¶¶ 17, 97. That same day, common stock shares “soared almost 32% to close at $7.64 . . . 10 on enormous trading volume of more than 95.8 million shares,” id. ¶ 16, with trading as 11 high as $9.37 per share, id. ¶ 89. On March 4, 2015, Orexigen common stock “rose an 12 additional 11% on massive volume, to close at $8.49 per share.” Id. ¶ 16; see also id. ¶ 97. 13 In Section VI of the CAC, titled “Loss Causation and Economic Loss,” Lead 14 Plaintiff alleges, in relevant part: 15 131. On May 12, 2015, it was also disclosed for the first time in a Bloomberg article, called “Takeda Threatened to End 16 Orexigen Partnership as Study Halted,” that Takeda – Orexigen’s 17 commercialization partner for Contrave – had initiated dispute resolution proceedings against Orexigen demanding it pay the 18 full cost – estimated at $200 million – of a new cardiovascular 19 outcomes trial due to Orexigen’s materially misleading March 3, 2015 statements and omissions regarding Contrave’s purported 20 heart benefit. In a May 12, 2015 email to Bloomberg, Takeda 21 spokesperson Sandy Rodriguez stated that “Takeda sent a dispute letter to Orexigen on May 12 whereby Takeda seeks 22 termination of its collaboration agreement with Orexigen based 23 on Orexigen’s material breach of the agreement …” A May 13, 2015 article appearing in the Wall Street Journal titled “Orexigen 24 and Takeda Feud Over Cost of a Controversial Diet Drug Trial” 25 confirmed, inter alia, that: “[t]he disclosure is causing Orexigen shares to drop, since the cost of the trial is estimated to be about 26 $200 million, according to RBC Capital Markets analyst Simos 27 Simeonidis, who calculates that Orexigen would be on the hook for as much as an extra $100 million if it loses the dispute.” 28 1 Similarly, a May 13, 2015 article appearing in Biospace.com added that “the company stock took a big hit, dropping from a 2 high of $6.93 per share on May 12, the day the partnership [with 3 Takeda] was terminated, to today’s low [on May 13, 2015] of $5.48 per share.” 4
5 132. As a direct result of the May 12, 2015 disclosures alleged in ¶[ . . .] 131, supra, which disclosed the truth for the 6 first time regarding: . . . (iii) Takeda’s initiation of a $200 million 7 action against Defendants (which revealed for the first time that Defendants had failed to disclose that they had filed the March 8 3, 2015 Form 8-K revealing the dubious 25% heart benefit data 9 without first informing Takeda as alleged in ¶¶15-17, 87-89, supra) the price of Orexigen’s common stock fell from an 10 opening price on May 11, 2015 of $6.75 per share to close on 11 May 13, 2015 at $5.02 per share on massive trading volume as investors digested the full impact of Defendants’ materially 12 misleading statements and deliberately reckless acts. Together, 13 the revelations and disclosures alleged in ¶[ . . .] 131, supra caused the Company’s share price to drop approximately 25% in 14 a single day between May 12 and May 13, 2015 on unusually 15 high trading volume.
16 133. The timing and magnitude of Orexigen’s common 17 stock price declines between May 12 and May 13, 2015 negates any inference that the losses suffered by Plaintiff and the other 18 members of the Class were caused by changed market 19 conditions, macroeconomic or industry factors, or even Company-specific facts unrelated to Defendants’ fraudulent 20 conduct. The Company’s share price dropped from a high of 21 $6.93 per share on May 12, 2015 to a low of $5.48 per share on May 13, 2015 – a sharp decline of approximately 25%. The 22 Company’s share price never recovered and Orexigen was 23 thereafter delisted from NASDAQ. Chapter 11 bankruptcy later ensued. 24 25 CAC ¶¶ 131–33 (emphasis in original); see also id. ¶ 5 (alleging that “the loss causing 26 disclosures on May 12, 2015 revealed the truth to the market about Defendants’ materially 27 false and misleading statements and omissions on March 3, 2015 . . . .”); id. (““In response 28 / / / 1 to the disclosures on . . . May 12, 2015, Orexigen’s share price fell precipitously.”) (citing 2 id. § VI). 3 II. Procedural Background 4 On September 23, 2019, this Court issued its Order (1) Granting in Part and Denying 5 in Part the Moving Defendants’ Request for Judicial Notice, (2) Denying Lead Plaintiff’s 6 Request for Judicial Notice, and (3) Granting in Part and Denying in Part the Moving 7 Defendants’ Motion to Dismiss. See ECF No. 110. As relevant to the pending Motion, the 8 September 23, 2019 Order determined that a May 12, 2015 press release authored by Dr. 9 Nissen “was not a corrective disclosure as to the alleged misrepresentations from March 3, 10 2015,” and accordingly Lead Plaintiff had failed to adequately allege loss causation for a 11 portion of his claims. Id. at 37–38. 12 On October 17, 2019, Lead Plaintiff filed his CAC. See ECF No. 111. On November 13 15, 2019, Moving Defendants filed the instant Motion. After briefing was complete, Lead 14 Plaintiff filed four notices of supplemental authority on January 24, May 27, June 12, and 15 October 12, 2020. See ECF Nos. 118, 126, 128, 136. Moving Defendants filed responses 16 to the first, second, and fourth. See ECF Nos. 119, 127, 137. 17 Meanwhile, on April 28, 2020, the Ninth Circuit issued an order lifting the 18 administrative closure of the appeal as to Orexigen and substituting Wind-Down 19 Administrator Province, Inc., in the place and stead of Orexigen as Defendant-Appellee. 20 See ECF No. 125. On May 19, 2020, in light of the bankruptcy court’s lifting of the § 362 21 automatic stay, the Ninth Circuit issued an order “fully adopt[ing its] opinion in [Khoja v.] 22 Orexigen [Therapeutics, Inc.], 899 F.3d 988 [(9th Cir. 2018)], to resolve Plaintiff’s appeal 23 as against Defendant Orexigen.” See ECF No. 134 at 3. The Ninth Circuit’s judgment 24 took effect on June 10, 2020. Id. at 1. 25 REQUEST TO CONSIDER MATERIALS INCORPORATED BY REFERENCE 26 I. Legal Standard 27 “Generally, district courts may not consider material outside the pleadings when 28 assessing the sufficiency of a complaint under Rule 12(b)(6) of the Federal Rules of Civil 1 Procedure.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018) 2 (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001)). “There are two 3 exceptions to this rule: the incorporation-by-reference doctrine, and judicial notice 4 under Federal Rule of Evidence 201.” Id. 5 Pursuant to Federal Rule of Evidence 201(b), “[t]he court may judicially notice a 6 fact that is not subject to reasonable dispute because it: (1) is generally known within the 7 trial court’s territorial jurisdiction; or (2) can be accurately and readily determined from 8 sources whose accuracy cannot reasonably be questioned.” “Accordingly, ‘[a] court may 9 take judicial notice of matters of public record without converting a motion to dismiss into 10 a motion for summary judgment.’” Khoja, 899 F.3d at 999 (quoting Lee, 250 F.3d at 689). 11 “But a court cannot take judicial notice of disputed facts contained in such public 12 records.” Id. (citing Lee, 250 F.3d at 689). 13 “Even if a document is not attached to a complaint, it may be incorporated by 14 reference into a complaint if the plaintiff refers extensively to the document or the 15 document forms the basis of the plaintiff’s claim.” United States v. Ritchie, 342 F.3d 903, 16 908 (9th Cir. 2003) (citing Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 17 (9th Cir. 2002); Branch v. Tunnell, 14 F.3d 449, 453–54 (9th Cir. 1994), overruled on other 18 grounds by Galbraith v. Cnty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002); Venture 19 Assoc. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431(7th Cir. 1993)). “‘[T]he mere 20 mention of the existence of a document is insufficient to incorporate the contents of a 21 document’ under Ritchie.” Khoja, 899 F.3d at 1002 (quoting Coto Settlement v. Eisenberg, 22 593 F.3d 1031, 1038 (9th Cir. 2010)). Nonetheless, a document may still form the basis of 23 the plaintiff’s claim where “the claim necessarily depended on the[ document].” Id. (citing 24 Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005)). “However, if the document merely 25 creates a defense to the well-pled allegations in the complaint, then that document did not 26 necessarily form the basis of the complaint.” Id. 27 When a document is incorporated by reference, “the district court may treat such a 28 document as part of the complaint, and thus may assume that its contents are true for 1 purposes of a motion to dismiss under Rule 12(b)(6).” Ritchie, 342 F.3d at 908; see also 2 Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (“The court may treat . . . a document 3 [incorporated by reference] as ‘part of the complaint, and thus may assume that its contents 4 are true for purposes of a motion to dismiss under Rule 12(b)(6).’”) (citing Ritchie, 342 5 F.3d at 908). Nonetheless, “it is improper to assume the truth of an incorporated document 6 if such assumptions only serve to dispute facts stated in a well-pleaded complaint.” Khoja, 7 899 F.3d at 1003. 8 II. Analysis 9 Moving Defendants ask the Court to incorporate by reference six documents: 10 (1) “Food and Drug Administration’s (‘FDA’) September 10, 2014 ‘Center for Drug Evaluation and Research Summary Review,’ which is publicly available 11 at 12 https://www.accessdata.fda.gov/drugsatfda_docs/nda/2014/200063Orig1s00 0SumR.pdf (the ‘2014 FDA Review’),” “for background facts about the Light 13 Study and the FDA’s regulatory process with respect to Contrave,” Defs.’ 14 Req. at 1, 4; see id. Ex. A;
15 (2) “United States Patent No. 8,969,371, which is publicly available at 16 http://portal.uspto.gov/pair/PublicPair (the ‘’371 patent’),” “for background facts about Orexigen’s U.S. patent application and the issuance of the ’371 17 patent,” Defs.’ Req. at 1, 4; see id. Ex. B; 18 (3) “Orexigen Therapeutics, Inc.’s (‘Orexigen’) Form 8-K filed with the 19 Securities Exchange Commission (‘SEC’) on March 3, 2015, which is 20 publicly available at http://www.sec.gov/edgar/searchedgar/companysearch.html (the ‘March 3 8- 21 K’),” “so the Court has a complete picture of the information provided to 22 investors on March 3, 2015,” Defs.’ Req. at 1, 4–5; see id. Ex. C;
23 (4) “Carlone Chen’s www.bloomberg.com article on May 12, 2015, titled ‘Takeda Threatens to End Orexigen Partnership as Study Halted,’ which is 24 available at https://www.bloomberglaw.com/document/NO9IEU6JTSE8 (the 25 ‘May 12 Bloomberg Article’),” on which Moving Defendants purport Lead Plaintiff relies “to form the basis of his new loss causation theory,” Defs.’ 26 Req. at 1, 5 (citing CAC ¶¶ 131, 132); see id. Ex. D; 27 (5) “Ed Silverman’s www.wsj.com article on May 13, 2015, titled, ‘Orexigen and 28 Takeda Feud Over Cost of a Controversial Diet Drug Trial,’ which is publicly 1 available at https://blogs.wsj.com/pharmalot/2015/05/13/orexigen-and- takeda-feud-over-cost-of-a-controversial-diet-drug-trial/ (the ‘March 13 WSJ 2 Article’),” on which Moving Defendants purport Lead Plaintiff relies “to form 3 the basis of his new loss causation theory,” Defs.’ Req. at 2, 5 (citing CAC ¶¶ 131, 132); see id. Ex. E; and 4
5 (6) “Alex Keown and Riley McDermid’s www.biospace.com article on May 13, 2015, titled, ‘Takeda Threatens to End Orexigen Partnership Over Stopped 6 Obesity Study,’ which is publicly available at 7 https://www.biospace.com/article/takeda-threatens-to-end-orexigen- partnership-over-stopped-obesity-study-/ (the ‘May 13 BioSpace Article’),” 8 on which Moving Defendants purport Lead Plaintiff relies “to form the basis 9 of his new loss causation theory,” Defs.’ Req. at 2, 5 (citing CAC ¶¶ 131, 132); see id. Ex. F. 10 11 Lead Plaintiff argues that Moving Defendants impermissibly are “offering these 12 exhibits for the truth of the underlying facts they contain,” Opp’n at 19, because, for 13 example, the language from the March 3, 2015 8-K cited in Moving Defendants’ Motion 14 “is the same language that Defendants relied on to argue that the statements they made on 15 March 3 were not false – a theory which was squarely rejected by the Ninth Circuit,” and 16 accordingly “[i]t is unclear why Defendants would have cited to this language if not to try 17 to impermissibly contradict Lead Plaintiff’s well-pled allegations,” id. (emphasis in 18 original) (citing Mot. at 5; Khoja, 899 F.3d at 1003, 1010). Lead Plaintiff further “disputes 19 that incorporating Ex. F is permissible, as it is only referred to briefly and for the prospect 20 that Takeda’s disclosure caused Orexigen’s stock price to fall.” Id. (citing CAC ¶ 131). 21 Lead Plaintiff argues that, if incorporation of these articles is proper, the incorporation 22 “does not extend to Defendants’ factual conclusions or characterizations of their content,” 23 id. at 19–20 (citing Khoja, 899 F.3d at 1006), and thus “asking the Court to incorporate a 24 conclusion that these articles ‘do not suggest any connection’ between Defendants’ March 25 3, 2015 misleading statements and Takeda’s, Bloomberg’s and the Wall Street Journal’s 26 disclosures . . . goes ‘beyond testing the sufficiency of the claims and into the realm of 27 factual disputes,’” id. at 20 (quoting Khoja, 899 F.3d at 1006; citing CAC ¶ 131). 28 / / / 1 The Court previously has incorporated by reference Exhibits A through C. See ECF 2 No. 76 at 18; ECF No. 110 at 18–19. In its September 23, 2019 Order, the Court found 3 that incorporation by reference of Exhibits A and B, for the same purposes offered here, 4 was proper. See ECF No. 110 at 18. The Court again finds incorporation by reference 5 proper for Exhibits A and B. With regard to Exhibit C, the Court’s September 23, 2019 6 Order noted that Lead Plaintiff’s “Consolidated Complaint refers extensively to the 7 March 3, 2015 Form 8-K, see, e.g., CC ¶¶ 87–88, which also forms the basis of Lead 8 Plaintiff’s claims predicated upon false and misleading omissions in that very filing. See, 9 e.g., id. ¶¶ 87–92.” ECF No. 110 at 18. The Court concluded that, “[a]lthough ‘what 10 inferences [the C]ourt may draw from [the] incorporated document should . . . be 11 approached with caution,’ see Khoja, 899 F.3d at 1003, Exhibit C is appropriately 12 incorporated by reference.” ECF No. 110 at 18–19. The Court again finds it appropriate 13 to incorporate Exhibit C by reference, but the Court will not incorporate into the CAC any 14 statements therein offered solely to contest any well-pleaded facts in the CAC. 15 As for Exhibits D through F, the Court finds that Lead Plaintiff relies on the May 16 12, 2015 Bloomberg article to form the basis of his loss causation theory, and therefore the 17 Court concludes that it is appropriate to incorporate by reference Exhibit D. Again, the 18 scope of the Court’s incorporation by reference will exclude “Defendants’ factual 19 conclusions or characterizations of” the document. See Opp’n at 19–20. However, the 20 Court agrees with Lead Plaintiff that it is not appropriate to incorporate Exhibits E and F 21 by reference. The CAC does not refer extensively to these documents, nor does Lead 22 Plaintiff rely on them to form the basis of his claim. As the Ninth Circuit has stated, “[f]or 23 ‘extensively’ to mean anything under Ritchie, it should, ordinarily at least, mean more than 24 once.” See Khoja, 899 F.3d at 1003 (citing Coto, 593 F.3d at 1038). “Otherwise, the rule 25 would simply require a complaint to ‘refer’ to the document. In theory, a reference may 26 be sufficiently ‘extensive’ if a single reference is relatively lengthy.” Id. However, the 27 CAC only refers to each of Exhibits E and F once, and then only for the proposition that 28 / / / 1 the share prices dropped on May 13, 2015. See CAC ¶ 131. Thus, the Court sees no reason 2 to incorporate these ancillary documents by reference. 3 Accordingly, the Court GRANTS IN PART AND DENIES IN PART Moving 4 Defendants’ Request to Consider Documents Incorporated by Reference (ECF No. 114-9), 5 as outlined above. 6 PARTIAL MOTION TO DISMISS 7 I. Legal Standard 8 Rule 12(b)(6) permits a party to raise by motion the defense that the complaint 9 “fail[s] to state a claim upon which relief can be granted,” generally referred to as a motion 10 to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and 11 sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a “short and 12 plain statement of the claim showing that the pleader is entitled to relief.” Although Rule 13 8 “does not require ‘detailed factual allegations,’ . . . it demands more than an unadorned, 14 the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 15 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a 16 plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more 17 than labels and conclusions, and a formulaic recitation of a cause of action’s elements will 18 not do.” Twombly, 550 U.S. at 555 (alteration in original). “Nor does a complaint suffice 19 if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. 20 at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557). 21 “To survive a motion to dismiss, a complaint must contain sufficient factual matter, 22 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 23 Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 24 when the facts pled “allow[] the court to draw the reasonable inference that the defendant 25 is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). That is not to 26 say that the claim must be probable, but there must be “more than a sheer possibility that a 27 defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). “[F]acts that are 28 ‘merely consistent with’ a defendant’s liability” fall short of a plausible entitlement to 1 relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true 2 “legal conclusions” contained in the complaint. Id. at 678–79 (citing Twombly, 550 U.S. 3 at 555). This review requires “context-specific” analysis involving the Court’s “judicial 4 experience and common sense.” Id. at 679. “[W]here the well-pleaded facts do not permit 5 the court to infer more than the mere possibility of misconduct, the complaint has alleged— 6 but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. (quoting Fed. R. Civ. 7 P. 8(a)(2)). 8 Further, “[c]laims brought under Rule 10b-5 . . . must meet Federal Rule of Civil 9 Procedure 9(b)’s particularity requirement that ‘[i]n all averments of fraud or mistake, the 10 circumstances constituting fraud or mistake shall be stated with particularity.’” In re Dura 11 Pharm., Inc. Sec. Litig., 452 F. Supp. 2d 1005, 1016 (S.D. Cal. 2006) (alteration in original) 12 (quoting Fed. R. Civ. P. 9(b)) (citing In re Daou Sys., Inc. Sec. Litig., 411 F.3d 1006, 1014 13 (9th Cir. 2005), cert. denied 546 U.S. 1172 (2006); Yourish v. Cal. Amplifier, 191 F.3d 14 983, 993 (9th Cir. 1999)). “In addition, in 1995, Congress enacted the Private Securities 15 Litigation Record Act of 1995 (PSLRA) and altered the pleading requirements in private 16 securities fraud litigation by requiring a complaint plead with particularity both falsity and 17 scienter.” Id. at 1016–17 (quoting Daou Sys., 411 F.3d at 1014) (internal quotation marks 18 omitted). 19 The Court will grant leave to amend unless it determines that no modified contention 20 “consistent with the challenged pleading . . . [will] cure the deficiency.” DeSoto v. Yellow 21 Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schriber Distrib. Co. v. Serv- 22 Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). 23 II. Analysis 24 “Section 10(b) of the . . . 1934 [Act] forbids (1) the ‘use or employ[ment] . . . of any 25 . . . deceptive device,’ (2) ‘in connection with the purchase or sale of any security,’ and 26 (3) ‘in contravention of’ [SEC] ‘rules and regulations.’” Dura Pharm., Inc. v. Broudo, 544 27 U.S. 336, 341 (2005) (quoting 15 U.S.C. § 78j(b)). “Rule 10b-5 forbids, among other 28 things, the making of any ‘untrue statement of a material fact’ or the omission of any 1 material fact ‘necessary in order to make the statements made . . . not misleading.’” Id. 2 (quoting 17 C.F.R. § 240.10b-5). “The basic elements of a Rule 10b-5 claim, therefore, 3 are: (1) a material misrepresentation or omission of fact, (2) scienter, (3) a connection with 4 the purchase or sale of a security, (4) transaction and loss causation, and (5) economic 5 loss.” Daou Sys., 411 F.3d at 1014 (citing Dura Pharms., 544 U.S. at 341–42). 6 Although Moving Defendants claim that their Motion is directed solely to the issue 7 of loss causation, in actuality, the Motion argues that Lead Plaintiff’s CAC fails to 8 adequately plead several of the required elements of a claim for securities fraud. Primarily, 9 Moving Defendants assert that Lead Plaintiff has not adequately pleaded loss causation in 10 alleg[ing] that investors learned on May 12, 2015 that Takeda Pharmaceutical Co. Ltd. (“Takeda”)—Orexigen’s commercial 11 partner in conducting the Light Study—initiated a “$200 million 12 action” against Defendants which purportedly revealed for the first time that Orexigen disclosed the data underlying the patent 13 on March 3 without notifying Takeda in advance. 14 15 Mot. at 2 (citing CAC ¶ 132) (footnote omitted). However, Moving Defendants also argue 16 that Lead Plaintiff fails to plead falsity adequately, because Defendants had no duty to 17 inform investors that the March 3, 2015 8-K was filed without first informing Takeda. Id. 18 at 12 (citing CAC ¶ 132). Moving Defendants further claim that the CAC contains no 19 allegations to support the materiality of the allegedly misleading statement or omission. 20 Id. at 13–14 (citations omitted).4 21 22 4 In a footnote, Moving Defendants assert a fourth argument, that “[t]he Amended Complaint is also bereft of allegations that Defendants intended to deceive or were deliberately reckless in failing to inform 23 investors that Takeda allegedly did not have advance notice of the March 3 8-K. Thus, any such claim 24 should also be dismissed for failure to plead scienter.” Mot. at 14 n.12 (citing Ronconi v. Larkin, 253 F.3d 423, 432 (9th Cir. 2001)). Similarly, Lead Plaintiff responds to the argument in a single sentence in a 25 footnote in his Opposition. Opp’n at 14 n.7.
26 The Court declines to address this argument, which was not fully briefed by the Parties. “‘Arguments raised only in footnotes, or only on reply, are generally deemed waived’ and need not be considered.” 27 Cheever v. Huawei Device USA, Inc., No. 18-CV-06715-JST, 2019 WL 8883942, at *3 (N.D. Cal. Dec. 28 4, 2019) (citing Estate of Saunders v. Comm'r, 745 F.3d 953, 962 n.8 (9th Cir. 2014); Sanders v. Sodexo, 1 A. Material Misrepresentation or Omission of Fact 2 The Court will first address Moving Defendants’ argument that Lead Plaintiff fails 3 to plead a material misrepresentation or omission of fact. Mot. at 12. A statement or 4 omission is misleading “if it would give a reasonable investor the ‘impression of a state of 5 affairs that differs in a material way from the one that actually exists.’” Berson v. Applied 6 Signal Tech., Inc., 527 F.3d 982, 985 (9th Cir. 2008) (quoting Brody v. Transitional Hosps. 7 Corp., 280 F.3d 997, 1006 (9th Cir. 2002)). With regards to an omission, “[d]isclosure is 8 required . . . only when necessary to make . . . statements made, in the light of the 9 circumstances under which they were made, not misleading.” Khoja, 899 F.3d at 1009 10 (internal quotation marks and citations omitted). Thus, “companies can control what they 11 have to disclose under these provisions by controlling what they say to the market.” Id. 12 (citations and internal quotation marks omitted). “But once defendants [choose] to tout 13 positive information to the market, they [are] bound to do so in a manner that wouldn't 14 mislead investors, including disclosing adverse information that cuts against the positive 15 information.” Id. (citations and internal quotation marks omitted) (alterations in original). 16 “[A]n omitted fact is material if there is a substantial likelihood that a reasonable 17 shareholder would consider it important.” Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988) 18 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). “[T]here must be 19 a substantial likelihood that the disclosure of the omitted fact would have been viewed by 20 the reasonable investor as having significantly altered the ‘total mix’ of information made 21 available.” Id. at 231–32 (quoting TSC Indus., 426 U.S. at 449). “At a minimum, 22 ‘[p]laintiffs’ allegations must suffice to raise a reasonable expectation that discovery will 23 reveal evidence satisfying the materiality requirement, and to allow the court to draw the 24 reasonable inference that the defendant is liable.’” Khoja, 899 F.3d at 1009 (quoting In re 25 Atossa Genetics Inc. Sec. Litig., 868 F.3d at 794). 26 27 28 disregard arguments raised exclusively in footnotes.” (quoting Bryan Garner, The Redbook: A Manual on 1 Moving Defendants argue that “Plaintiff cannot establish falsity, because 2 Defendants had no duty to inform investors that Orexigen filed the March 3 8-K ‘without 3 first informing Takeda.’” Mot. at 12 (quoting CAC ¶ 132). Moving Defendants analogize 4 to Lead Plaintiff’s former claim that Defendants misled investors by failing to disclose that 5 Orexigen had violated the DAP on March 3, 2015, which information the Ninth Circuit 6 determined Defendants had no duty to share “‘because Orexigen never touted having 7 permission to publish’ the 25% data on that date.” Mot. at 13 (quoting Khoja, 899 F.3d at 8 1011). Finally, Moving Defendants argue that, even if any statement or omission were 9 actionable, it must also be material, but “the [CAC] contains no allegations to suggest that 10 a reasonable investor would even care” about Orexigen’s alleged failure to give Takeda 11 advance notice of the March 3, 2015 8-K. Mot. at 13 (footnote omitted). 12 Lead Plaintiff argues that this argument “conflates the standards for evaluating 13 whether a defendant has a duty to disclose material information with those for proximate 14 cause.” Opp’n at 13. While it is true, as this Court noted supra at 14, that this argument 15 does not relate to loss causation, purportedly the only subject of Moving Defendants’ 16 Motion,5 a material misrepresentation or omission of fact is nonetheless a required element 17 of a claim for securities fraud that Lead Plaintiff must plead in order to state a claim, and 18 Lead Plaintiff was put on notice of this argument by Moving Defendants’ thorough 19 treatment of the issue in their opening brief. See Mot. at 12–14. Indeed, Lead Plaintiff’s 20 Opposition contains a section titled “Defendants’ Violation of Their Duty Not to Mislead 21 the Public Has Been Established and is Law of the Case.” Opp’n at 13. However, the 22 section bearing this heading is largely devoted to the reasonable foreseeability of Takeda’s 23 decision to seek termination of its partnership with Orexigen in light of the alleged March 24 3, 2015 omissions, id., and concedes that the Ninth Circuit “found that Defendants did not 25 have a duty to disclose that it had violated the DAP,” id. (citation omitted). 26 27 28 5 See, e.g., Not. of Mot. at 1 (indicating Moving Defendants move for dismissal in part of the CAC “for 1 The Court agrees with Moving Defendants that Lead Plaintiff fails to plead 2 adequately this element of his claim, to the extent it is premised on the May 12, 2015 3 Bloomberg article correcting any misleading statements or omissions from March 3, 2015. 4 Although Lead Plaintiff alleges that “Orexigen filed the Form 8-K without first consulting 5 with the FDA, Dr. Nissen or its own business partner, Takeda,” CAC ¶ 15, Lead Plaintiff 6 does not allege that Moving Defendants had a duty to disclose their failure to provide 7 Takeda with advance notice, nor can the Court plausibly infer from the allegations in the 8 CAC that such a duty existed. Rather, the Court agrees with Moving Defendants that this 9 scenario is similar to Lead Plaintiff’s unsuccessful attempt to plead that it was misleading 10 for Defendants to fail to disclose that the publication of the 25% LIGHT Study data violated 11 the DAP. In dismissing this theory, the Ninth Circuit reasoned: 12 Although Orexigen touted the interim results and therefore created a duty to disclose the corresponding adverse information, 13 Orexigen never touted having permission to publish the results. 14 Even though violating the DAP could have negative consequences for Orexigen (and its investors), Orexigen did not 15 have a duty to share that information. The Complaint does not 16 identify earlier statements by Orexigen that suggest a duty either. 17 Khoja, 899 F.3d at 1011. Similarly, here, Lead Plaintiff does not allege that Orexigen 18 touted that it had informed Takeda of its intention to publish the 25% LIGHT Study data, 19 or that Takeda had approved of its decision to do so. Absent a duty to disclose, there is no 20 actionable misleading omission. And, while Defendants’ duty to disclose that the 25% 21 LIGHT Study data were unreliable is certainly law of the case, Defendants’ duty to disclose 22 whether or not they had told Takeda of their intention to disclose those data is not. 23 Accordingly, Lead Plaintiff fails to state a claim to the extent he relies on Moving 24 Defendants’ failure to disclose that they did not inform Takeda in advance of their intention 25 to file the March 3, 2015 8-K.6 26 27 28 6 In light of the Court’s finding that Lead Plaintiff fails to state a claim due to his failure adequately to 1 B. Loss Causation 2 The Court next addresses Moving Defendants’ argument that Lead Plaintiff fails to 3 adequately plead loss causation. Mot. at 10–12. To demonstrate loss causation, a plaintiff 4 must allege “a causal connection between the material misrepresentation and the loss.” 5 Dura Pharms., 544 U.S. at 342; see also 15 U.S.C. § 78u-4(b)(4). The Ninth Circuit 6 recently held that, to plead loss causation 7 by relying on one or more corrective disclosures, a plaintiff must show that: (1) a corrective disclosure revealed, in whole or in 8 part, the truth concealed by the defendant's misstatements; and 9 (2) disclosure of the truth caused the company's stock price to decline and the inflation attributable to the misstatements to 10 dissipate. At the pleading stage, the plaintiff's task is to allege 11 with particularity facts “plausibly suggesting” that both showings can be made. 12 13 In re BofI Holding, Inc. Sec. Litig., No. 18-55415, __ F.3d __, 2020 WL 5951150, at *6 14 (9th Cir. Oct. 8, 2020) (citing Twombly, 550 U.S. at 557; Oregon Public Employees 15 Retirement Fund v. Apollo Group, Inc., 774 F.3d 598, 605 (9th Cir. 2014)). Although Rule 16 9(b)’s heightened pleading standard applies to allegations of loss causation, “[t]hat effort 17 ‘should not prove burdensome,’ for even under Rule 9(b) the plaintiff’s allegations will 18 suffice so long as they give the defendant ‘notice of plaintiffs’ loss causation theory’ and 19 provide the court ‘some assurance that the theory has a basis in fact.’” Id. at *8 (quoting 20 Dura Pharms., 544 U.S. at 347; Berson v. Applied Signal Technology, Inc., 527 F.3d 982, 21 989–90 (9th Cir. 2008)). 22 Moving Defendants argue that Lead Plaintiff fails to allege that the disclosures in 23 the May 12, 2015 Bloomberg article correct any allegedly false or misleading statement 24 appearing in the March 3, 2015 8-K. Mot. at 10–12. Specifically, Moving Defendants 25 argue that only two statements from March 3, 2015 “remain at issue”: (1) the failure to 26 reveal in the March 3, 2015 8-K that the 25% LIGHT Study results were “unreliable,” and 27 (2) Defendants’ failure to disclose in the March 3, 2015 press release their role in 28 / / / 1 publishing the ’371 patent. Mot. at 10. Moving Defendants contend that Lead Plaintiff 2 does not allege that these statements were false or misleading “because of anything 3 Defendants said about Takeda, or because of any omission related to Takeda.” Id. at 10– 4 11 (emphasis in original) (citing CAC ¶¶ 92, 95, 98). Moving Defendants further argue 5 that, 6 even if there was a statement on March 3 to tie back to, the May 12 articles that disclose Takeda’s initiation of dispute 7 proceedings against Orexigen do not actually reveal that 8 “Defendants had failed to disclose” that Orexigen filed the March 3 8-K “without first informing Takeda.” Thus, Plaintiff 9 has not even pleaded an alleged corrective disclosure in the first 10 place. Indeed, those articles do not suggest any connection whatsoever between Takeda’s claims for breach of the 11 collaboration agreement and Orexigen’s alleged failure to 12 provide advance notice of the March 3 8-K. 13 Id. at 11 (citing CAC ¶¶ 131–32; Exs. D, E, F). Finally, even if such a connection were 14 established, Moving Defendants claim, analogizing to cases addressing the revelation of 15 litigation or investigations, that the mere allegation that “Takeda had sued Orexigen for 16 ‘material breach’ based on Orexigen’s failure to give notice of the March 3 8-K” is 17 inadequate, standing on its own, to establish loss causation. Id. at 12 n.9 (citations omitted). 18 Lead Plaintiff responds that: 19 The May 12, 2015 disclosures make clear for the first time that 20 Takeda wanted to dissolve its partnership with Defendants based on “Orexigen’s material breach of the agreement.” The facts 21 before the Court strongly suggest that this breach relates back to 22 Defendant’s unilateral decisions to: (i) publish the unreliable 25% interim data; and (ii) hide their role in getting the patent 23 published. These allegations are “inextricably linked” with 24 Takeda’s announcement that they were seeking to dissolve their partnership with Orexigen and leave them with the entire cost of 25 the subsequent safety [sic]. 26 27 28 7 Lead Plaintiff appears to agree that these two statements from March 3, 2015 are the only ones relevant 1 Opp’n at 16 (citing CAC ¶ 131; In re Silver Wheaton Corp. Sec. Litig., 2019 U.S. Dist. 2 LEXIS 59428, at *40 (C.D. Cal. 2019)). Thus, 3 Defendants’ decision to publicize the unreliable 25% interim data is the proximate cause of: (i) the LIGHT Study’s 4 cancellation; (ii) the FDA’s warning that Contrave might be 5 pulled from the market; and (iii) Takeda’s decision to institute dispute resolution proceedings. Since Takeda had known since 6 late 2014 that the FDA would require another safety study, there 7 is no other reason that it would have resorted to such aggressive tactics at that time. Moreover, Defendants do not offer one here. 8 9 Id. at 17 (citing CAC ¶¶ 55, 126). Lead Plaintiff argues that Moving Defendants’ analogy 10 to government investigation cases is inapt because an announcement of an investigation 11 with something more, such as a corrective disclosure, can establish loss causation, and 12 “[h]ere, Takeda’s announcement, along with the news that [the] LIGHT Study had been 13 terminated prematurely, and following Dr. Jenkins’ March 5 warning ‘gave investors the 14 context necessary to interpret [Takeda’s disclosure] as revealing the fraud.’” Id. at 18 15 (citing Evanston Police Pension Fund v. McKesson Corp., 2019 U.S. Dist. LEXIS 188308, 16 at *44 (N.D. Cal. 2019)) (third alteration in original). 17 Furthermore, according to Lead Plaintiff, the May 12, 2015 Bloomberg article’s 18 disclosure of Takeda’s actions “was a reasonably foreseeable consequence” of Orexigen’s 19 duty to disclose the unreliability of the 25% interim LIGHT Study data in the March 3, 20 2015 8-K. Id. at 13 (citing Khoja, 899 F.3d at 1012–13). Thus, the Ninth Circuit’s analysis 21 of the DAP issue in Khoja supports his argument because, although the Ninth Circuit found 22 no duty to disclose the alleged violations of the DAP, “it identified potential violations (and 23 thus, the attendant risks) as a reasonably foreseeable outcome of their March 3, 2015 24 misstatements and omissions,” which are “‘likely material to reasonable investors.’” Id. 25 (citing Khoja, 899 F.3d at 1013). Ultimately, “whether Orexigen may not have had an 26 affirmative duty to disclose information about its relationship with Takeda, does not mean 27 that such information does not ‘relate back to the fraud.’” Id. at 14 (footnote omitted). 28 / / / 1 In their Reply, Moving Defendants argue that none of the reasons why the March 3, 2 2015 misstatements are materially false or misleading, as alleged in the CAC, are related 3 to the purported failure to provide notice of the March 3, 2015 8-K to Takeda. Reply at 2– 4 3. This “failure to allege that the March 3 8-K was false or misleading because of anything 5 said or not said about Takeda is dispositive.” Id. at 4. Moving Defendants further argue 6 that, because Lead Plaintiff’s sole loss causation theory pleaded in the CAC is a market- 7 revelation theory, Lead Plaintiff cannot rely on a foreseeable consequences and/or 8 outcomes theory. Reply at 5; see id. at n.4. Even so, Lead Plaintiff’s argument that the 9 May 12, 2015 Bloomberg article establishes that Takeda’s actions related back to the 10 decision to publish the unreliable interim LIGHT Study data is nothing but unsupported 11 speculation that does not satisfy the pleading requirements of Twombly. Id. at 5–7; see 12 also id. at 7 n.7. 13 Having carefully reviewed the pleadings and the Parties’ arguments, the Court 14 agrees that the facts currently alleged in the CAC, viewed in the light most favorable to 15 Lead Plaintiff, simply do not allege a link sufficient for the Court to find that the May 12, 16 2015 Bloomberg article was a “correction” of any false or misleading statements or 17 omissions made on March 3, 2015, or that the Bloomberg article “relates back” to the 18 March 3, 2015 statements or omissions. The Court agrees with Moving Defendants that 19 Lead Plaintiff’s argument that Takeda’s decision to send a letter on May 12, 2015 20 instituting dispute resolution proceedings against Orexigen necessarily relates back to 21 Orexigen’s failure to disclose the unreliability of the 25% LIGHT Study data is 22 unsupported. 23 As the Ninth Circuit stated in Metzler Investments GMBH v. Corinthian Colleges, 24 Incorporated: 25 [W]hile the court assumes that the facts in a complaint are true, it is not required to indulge unwarranted inferences in order to 26 save a complaint from dismissal. The TAC’s allegation that the 27 market understood the June 24 and August 2 disclosures as a revelation of Corinthian's systematic manipulation of student 28 1 enrollment is not a “fact.” It is an inference that Metzler believes is warranted from the facts that are alleged. But Corinthian 2 persuasively explains why this is not the case. 3 4 540 F.3d 1049, 1064–65 (9th Cir. 2008) (citing In re Syntex Corp. Sec. Litig., 95 F.3d 922, 5 926 (9th Cir. 1996)). On the facts presently alleged in the CAC, the Court simply cannot 6 accept as plausible the chain of inferences necessary to permit the May 12, 2015 Bloomberg 7 article to relate back to the March 3, 2015 statements or omissions at issue. The May 12, 8 2015 Bloomberg article does not identify what “material breach” of Orexigen and Takeda’s 9 agreement led Takeda to institute dispute resolution proceedings against Orexigen. See 10 Reply at 5–6; see also Defs.’ Req. Ex. D. Lead Plaintiff claims there can be “no other 11 reason” why Takeda would have resorted to this action at this time. Opp’n at 17 (emphasis 12 omitted). But the Court does not find this inference credible. More than nine weeks had 13 passed between the March 3, 2015 disclosures and Takeda’s sending of the letter alleging 14 a breach of its agreement with Orexigen on May 12, 2015. See Defs.’ Req. Ex. D. It is 15 unlikely Takeda would have waited more than two months to send a letter alleging a breach 16 were the March 3, 2015 disclosures the trigger for the letter. Accordingly, the Court further 17 finds that Lead Plaintiff has failed to adequately plead that the May 12, 2015 Bloomberg 18 article relates back to the allegedly misleading statements or omissions from March 3, 2015 19 in such a way as to satisfactorily plead loss causation. 20 C. Lead Plaintiff’s Notices of Supplemental Authority 21 The four notices of supplemental authority filed by Lead Plaintiff do not alter the 22 Court’s view that the allegations of the CAC are insufficient to state a claim to the extent 23 they rely on linking the May 12, 2015 Bloomberg article to any misstatements or omissions 24 from March 3, 2015.8 25
26 8 The Court notes that Moving Defendants objected to Lead Plaintiff’s Second Notice for exceeding “[t]he 27 purpose and permissible scope of a notice of supplemental authorities.” Resp. to 2d Not. of Supp. Auth. 28 at 1. While Lead Plaintiff does use its Notices to provide further arguments and commentary, Moving 1 Lead Plaintiff’s First Notice concerns Karinski v. Stamps.com, Case No. 19-cv- 2 1828-MWF (SKx), 2020 WL 281716 (C.D. Cal. Jan. 17, 2020). See generally 1st Not. of 3 Supp. Auth. However, Karinski is distinguishable from the facts before this Court. First, 4 in Karinski, the court determined that Stamps.com had a duty to disclose USPS’s 5 opposition to Stamps.com’s reseller program, and therefore had made a misleading 6 statement, because it “touted its strong relationship with USPS and USPS’s approval of 7 Stamps’ business model.” 2020 WL 281716, at *12. Here, Defendants made no 8 misleading statement because there are not sufficient allegations in the CAC to infer that 9 Orexigen had a duty to disclose whether it had informed Takeda in advance that it was 10 going to publish the 25% interim LIGHT Study results in its March 3, 2015 8-K. See supra 11 at 16–17. Moreover, the corrective disclosures at issue in Karinski pertained directly to 12 the alleged misstatements or omissions, as the first announcement concerned the 13 termination of Stamps.com’s exclusive relationship with USPS, “which itself was the 14 subject of the alleged false statements,” and the second announcement concerned the 15 reseller program that was allegedly fraudulent. 2020 WL 281716, at *17–18. Here, the 16 connection between the alleged misstatements or omissions and the alleged corrective 17 disclosure, however, is too tenuous to adequately plead loss causation. See supra at 18– 18 22. 19 Lead Plaintiff’s Second Notice concerns In re Twitter, Inc. Securities Litigation, 20 Case No. 16-cv-05314-JST, 2020 WL 4187915 (N.D. Cal. Apr. 17, 2020). See generally 21 2d Not. of Supp. Auth. Again, however, the Court finds the facts in Twitter distinguishable. 22 There, the court concluded that there could be a duty to disclose declining DAU/MAU 23 trends in light of Twitter’s statements that, “[i]n our more mature markets, we have very 24 high DAU to MAU, 50% plus,” 2020 WL 4187915, at *7 (internal quotation marks 25 omitted); “our MAU trend has already turned around,” id. at *9 (same); and “DAU to MAU 26 27 28 opportunity to do so regarding the third. Ultimately, while the Court has reviewed the Parties’ arguments, 1 ratios in the quarter were similar to what they were by market relative to Analyst Day,” id. 2 at *11 (same). Thus, Twitter had touted information that potentially required further 3 disclosure. The Court here, on the other hand, has found that not to be the case. See supra 4 at 16–17. Moreover, as relevant to loss causation, the corrective disclosures directly 5 concerned MAUs and/or DAU/MAU ratios, making clear the relationship of these 6 statements to the omission of the declining DAU/MAU trends. See 2020 WL 4187915, at 7 *15–18. But, as the Court here has concluded, Lead Plaintiff has failed to adequately allege 8 that the disclosures in the May 12, 2015 Bloomberg article adequately relate back to any 9 of the alleged omissions or misstatements from March 3, 2015. See supra at 18–22. 10 Lead Plaintiff’s Third Notice concerns In re WageWorks, Inc., Securities Litigation, 11 Case No. 18-CV-01523-JSW, 2020 WL 2896547 (N.D. Cal. June 1, 2020). See generally 12 3d Not. of Supp. Auth. Again, the Court finds the relevant facts to be distinguishable. In 13 WageWorks, the lead plaintiffs alleged that, “[b]etween August 2016 and February 2017, 14 WageWorks improperly recognized revenue from the OPM contract, even though 15 administration of benefits had not begun,” and “failed to write down the value of . . . a 16 software platform” that was no longer required by a client. 2020 WL 2896547, at *1. In 17 allegedly inflated SEC filings, several of the defendants “made statements highlighting the 18 benefits of the OPM contract and certifying that WageWorks’ financial reporting controls 19 were adequate.” Id. However, after KPMG refused to certify WageWorks’ 2017 Annual 20 Report, WageWorks issued a press release indicating “that WageWorks’ previous controls 21 were inadequate due to the ‘tone at the top’ and that previous financial statements ‘should 22 no longer be relied upon.’” Id. at *2. And, in its 2017 Form 10-K, WageWorks 23 acknowledged that “‘material weaknesses in internal controls’ . . . led to false material 24 statements in 2016 and 2017, and “‘[i]n the second quarter of 2016, the client notified 25 [WageWorks] that it no longer required the services,’ which rendered the [software 26 platform]’s value ‘unrecoverable.’” Id. Thus, in WageWorks, the alleged corrective 27 disclosures correlated to the allegedly inflated revenue reporting. That is not the case here. 28 See supra at 18–22. 1 Finally, Lead Plaintiff’s Fourth Notice concerns In re BofI Holding, Inc. Securities 2 Litigation, No. 18-55415, __ F.3d __, 2020 WL 5951150 (9th Cir. Oct. 8, 2020). See 3 generally 4th Not. of Supp. Auth.; Reply ISO 4th Not. of Supp. Auth. Once more, the 4 Court finds the facts of BofI distinguishable. First, in BofI, “the shareholders allege that 5 defendants made false or misleading statements touting the bank's conservative loan 6 underwriting standards, its effective system of internal controls, and its robust compliance 7 infrastructure.” 2020 WL 5951150, at *2. BofI was not accused of misleading omissions, 8 so the issue here of a failure to allege adequately a duty to disclose was absent. 9 Second, in BofI, the alleged corrective disclosure was “a whistleblower lawsuit filed 10 against BofI by Charles Erhart, a former mid-level auditor at the company.” Id. at *3. The 11 Ninth Circuit found that “[t]he allegations of egregious wrongdoing in the Erhart lawsuit, 12 if accepted as true, unquestionably revealed to the market that at least some of BofI’s 13 alleged misstatements were false.” Id. at *6. For instance, one of the allegations was “that 14 [Erhart] personally prepared a memorandum . . . which identified roughly 30% of BofI’s 15 customers as ‘bad,’ meaning the customers had red flags such as suspiciously high cash 16 balances, social security numbers that did not match any public records, and, in one 17 instance, the social security number of a dead person,” but “when he gave the list to his 18 superior, Senior Vice President John Tolla, Tolla demanded that the audit committee alter 19 the list and give the altered version to the OCC.” Id. at *6. Thus, there’s a clear connection 20 between the alleged misleading statements and the correcting disclosure. While the Ninth 21 Circuit noted that, to relate back, “a corrective disclosure need not be a mirror image of the 22 prior misstatement,” id. at *6 n.3 (citing In re Williams Sec. Litig.—WCG Subclass, 558 23 F.3d 1130, 1140 (10th Cir. 2009)), the alleged corrective disclosure here bears almost no 24 relation to the alleged misstatement or omission, and it would require the Court to accept 25 unsupported and implausible inferences to find a causal connection between the alleged 26 loss and the statements. Thus, this is more a case of “‘asserting that where there is smoke, 27 there must be fire.’” Id. at *8 (quoting Curry v. Yelp Inc., 875 F.3d 1219, 1225 (9th Cir.
28 / / / 1 2017)). Accordingly, BofI does not help Lead Plaintiff on the facts presently pleaded in 2 the CAC.9 3 Thus, in light of Lead Plaintiff’s failure to allege adequately that the May 12, 2015 4 Bloomberg article relates back to a material misrepresentation or omission of fact from 5 March 3, 2015, the Court GRANTS Moving Defendants’ Motion. 6 D. Leave to Amend 7 Moving Defendants urge the Court to deny leave to amend, “as Plaintiff could never 8 allege a cognizable fraud claim based on this theory.” Mot. at 14. While the Court is 9 skeptical that Lead Plaintiff will be able to allege adequately that the May 12, 2015 10 Bloomberg article relates back to the alleged misrepresentations or omissions from March 11 3, 2015, the Court also is not convinced that it is an impossibility, and Lead Plaintiff has 12 not yet had an opportunity to amend these allegations. Thus, the Court will grant Lead 13 Plaintiff one final opportunity to amend. Accordingly, the Court DISMISSES Plaintiff’s 14 claims to the extent they rely on a connection between the May 12, 2015 Bloomberg article 15 and the March 3, 2015 misleading statements and/or omissions, but will do so WITHOUT 16 PREJUDICE. 17 CONCLUSION 18 In light of the foregoing, the Court GRANTS IN PART AND DENIES IN PART 19 Moving Defendants’ Request to Consider Materials Incorporated by Reference (ECF No. 20 114-9) and GRANTS Moving Defendants’ Motion (ECF No. 114). Lead Plaintiff MAY 21 FILE an amended consolidated complaint within thirty (30) days of the date on which this 22 / / / 23
24 9 Lead Plaintiff also makes much of the fact that, in BofI, the Ninth Circuit held that allegations in a lawsuit 25 alone can serve as a corrective disclosure, and there need not be an additional disclosure to confirm the truth of those allegations. See id. at *7. Lead Plaintiff contends that Takeda, like Erhart, had “firsthand 26 knowledge” of the alleged misconduct. 4th Not. of Supp. Auth. at 1. But the Court finds distinguishable allegations in a lawsuit, made by a person with firsthand knowledge and publicly filed for all to see, and 27 an article written by a person without firsthand knowledge reporting on the mere sending of, and not the 28 specific allegations in, a demand letter, even if the demand letter in question came from someone with 1 || Order is electronically docketed. Should Lead Plaintiff fail to file an amended complaint 2 || by this date, this action will proceed on his surviving causes of action. 3 IT IS SO ORDERED. 4 Dated: November 2, 2020 □□ 5 i Janis L. Sammartino United States District Judge 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28