Summary
refusing to read Carter-Wallace as creating a bright-line pleading standard
Summary of this case from IN RE BAYER AG SECURITIES LITIGATIONOpinion
92 Civ. 345 (TPG), 92 Civ. 1103 (TPG)
August 27, 2001
OPINION
At an earlier stage in this litigation the defendants in the two cases moved to dismiss the complaints. In an opinion dated May 6, 1997 the court denied the motion in the Corning case as to the corporate defendant and granted the motion with respect to the individual defendants, giving plaintiffs leave to replead as to the individual defendants if such repleading were justified on the basis of further discovery. In an opinion dated June 18, 1997 the court made the same kind of ruling in the Dow Chemical case.
The corporate defendants in the two cases have now filed motions for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c). These are in fact renewed motions to dismiss the complaints. Defendants assert that there are two recent decisions—one in the Second Circuit and one in the Third Circuit—which require dismissal of the complaints. These cases are In re Carter-Wallace. Inc. Securities Litigation, 220 F.3d 36 (2d Cir. 2000), and Oran v. Stafford, 226 F.3d 275 (3d Cir. 2000).
The motions are denied.
Carter-Wallace involved a securities fraud claim, alleging that Carter-Wallace had run advertisements in medical journals in the first months of 1994 regarding its new epilepsy drug, Felbatol, and had made representations in these advertisements about the safety of the drug and the lack of adverse side effects. The complaint alleged that these representations were made despite the fact that Carter-Wallace was receiving medical reports that some patients using Felbatol had developed illnesses, including aplastic anemia, a fatal disease. Additional reports of aplastic anemia were received in July 1994 resulting in a letter issued by Carter-Wallace and the Food and Drug Administration on August 1, 1994 recommending to doctors immediate withdrawal of patients from treatment with the drug. Following the letter there was a substantial drop in the price of Carter-Wallace common stock.
The plaintiffs in Carter-Wallace complained about the failure to disclose the adverse medical reports which were received before July 1994, and alleged that such failure indirectly inflated the market price of the Carter-Wallace stock.
The Second Circuit held that there was no sufficient allegation of a knowing withholding of material information. There was no indication, said the court, that Carter-Wallace knew, or should have known, before August 1, 1994, of the connection between Felbatol and aplastic anemia.Carter-Wallace. Inc., 220 F.3d at 42. The court stated:
Here, the early medical reports may have indicated a potential problem, but until a connection between Felbatol and any illness could be made, we would not expect Carter-Wallace to abandon its product on what, at the time, would have been speculation.Id. The court took the view that Carter-Wallace was not dishonest or reckless in viewing the earlier reports as merely "random" instances of disease (i.e., not necessarily caused by Felbatol). The court noted:
Felbatol had, after all, survived the extensive testing process required by the FDA.Id. The court also stated that Carter-Wallace's financial statements would not
. . .become materially misleading until Carter-Wallace had information that Felbatol had caused a statistically significant number of aplastic anemia deaths and therefore had reason to believe that the commercial viability of Felbatol was threatened.Id. at 40.
In its current motion, Coming and Dow Chemical assert that the reasoning of the Second Circuit in Carter-Wallace about "a statistically significant" number of diseases is dispositive of the present case, because it establishes a "bright-line pleading standard" for securities fraud claims where those claims are "based upon alleged failure to disclose adverse medical reports." Coming and Dow Chemical assert that the complaints in the present cases fail to meet the bright-line pleading standard of Carter-Wallace because they do not allege that Coming and Dow Chemical had "statistically significant" data connecting silicone breast implants with adverse health effects.
There is no merit in the attempt by Corning and Dow Chemical to fit the present litigation into the Carter-Wallace ruling. The cases are entirely different. Carter-Wallace was a case about lost sales from a discontinued product line. The Coming and Dow Chemical cases are about threatened litigation liabilities, with allegations about adverse results in two actual lawsuits and further allegations about other pending cases and threats of even more cases based on a variety of circumstances of a far different character from the medical reports at issue in Carter-Wallace.
Oran, the Third Circuit case, has a superficial similarity to the Coming and Dow Chemical cases in that the alleged concealment in Oran related in part to the threat of liability from lawsuits. However, the other aspects of Oran are so different from what is involved in the Coming and Dow Chemical cases as to render Oran of no authoritative or instructive value.
Dow Chemical raises a specific argument about damages. The complaint against Dow Chemical has only the briefest, conclusory allegation on this subject. It is contained in paragraph 32, where there is nothing more than the contention that the wrongdoing caused "inflated prices" in the Dow Chemical common stock. Dow Chemical contends that there is discussion in the Oran case which should now lead the court to dismiss the complaint against Dow Chemical for failure to make a proper allegation of damages.
The Dow Chemical damage issue was discussed at the time of the earlier motion. The court asked the Dow Chemical plaintiffs for the particulars of their damage claim, which were furnished. The Dow Chemical plaintiffs claim that the adverse developments at Dow Coming were reflected in the press beginning Monday, January 13, 1992. Dow Chemical stock dropped $2.75 per share from the price on Friday, January 10, 1992, to the price on Tuesday, January 14, 1992, which removed over $740 million from the market value of Dow Chemical stock. Also, as contended by plaintiffs, the effect of the disclosures was to prevent Dow Chemical stock from trading up to the level of the Commodity Chemical Index. On January 14, 1992 Dow Chemical stock was 6% below the index, and as of January 31, 1992 Dow Chemical stock was still 3% below the index, or $400 million below the value at the index level. It was, and is, the view of the court that these allegations are sufficient to prevent the complaint against Dow Chemical from being dismissed for lack of a sufficient claim of damages.
The motions of Corning and Dow Chemical for judgment on the pleadings are denied.
SO ORDERED.