POTTER v. VALEANT PHARMACEUTICALS INTERNATIONAL, INC. et alMEMORANDUM in OppositionD.N.J.February 5, 2019 ANDREW J. ENTWISTLE aentwistle@entwistle-law.com VINCENT R. CAPPUCCI (admitted Pro Hac Vice) vcappucci@entwistle-law.com ARTHUR V. NEALON (admitted Pro Hac Vice) anealon@entwistle-law.com ROBERT N. CAPPUCCI rcappucci@entwistle-law.com ENTWISTLE & CAPPUCCI LLP 299 Park Avenue, 20th Floor New York, NY 10171 Telephone: (212) 894-7200 Facsimile: (212) 894-7272 MARC M. SELTZER (admitted Pro Hac Vice) mseltzer@susmangodfrey.com SUSMAN GODFREY L.L.P. 1900 Avenue of the Stars, Suite 1400 Los Angeles, CA 90067-6029 Telephone: (310) 789-3100 Facsimile: (310) 789-3150 CHRISTOPHER W. KINUM cwkinum@critchleylaw.com CRITCHLEY, KINUM & DENOIA LLC 75 Livingston Avenue Roseland, New Jersey 07068 Telephone: (973) 422-9200 Attorneys for Plaintiff Timber Hill LLC UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY IN RE VALEANT PHARMACEUTICALS INTERNATIONAL, INC. SECURITIES LITIGATION Case No. 3:15-cv-07658-MAS-LHG TIMBER HILL’S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT UNDER RULE 12(b)(6) AND TO STRIKE THE CLASS ALLEGATIONS UNDER RULES 12(f), 23(a)(1)(A) AND 23(d)(1)(D) This Document Relates To: 3:18-cv-10246-MAS-LHG Motion Date: February 19, 2019 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 1 of 34 PageID: 12985 i TABLE OF CONTENTS INTRODUCTION .......................................................................................................................... 1 SUMMARY OF ARGUMENT ...................................................................................................... 2 BACKGROUND OF TIMBER HILL’S ACTION ........................................................................ 6 ARGUMENT ................................................................................................................................ 10 I. DEFENDANTS’ MOTION TO STRIKE TIMBER HILL’S CLASS ALLEGATIONS SHOULD BE DENIED AS PROCEDURALLY INAPPROPRIATE ........................................................................................................... 10 II. TIMBER HILL’S CLAIMS FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS ARE TIMELY .............................................................................. 15 A. Timber Hill Should Not Be Deemed to Be an Opt-Out Plaintiff and Its Claims Therefore Relate Back to the Original Filing Date of the Earliest Class Action Included in the Consolidated Cases................................................. 15 B. The Two-Year Statute of Limitations Was Tolled Under American Pipe Regardless of Whether Timber Hill is Deemed to be an Opt-Out Plaintiff .......... 16 C. Timber Hill’s Complaint Was Timely Filed Even Without the Benefit of American Pipe Tolling .......................................................................................... 23 CONCLUSION ............................................................................................................................. 26 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 2 of 34 PageID: 12986 ii TABLE OF AUTHORITIES Cases Alaska Elec. Pension Fund v. Pharmacia Corp., No. 03-1519, 2012 WL 1680097 (D.N.J. May 14, 2012) ................................................. 26 Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) ................................................................................................... passim Andrews v. Home Depot U.S.A., Inc., No. 03CV5200 (DMC), 2005 WL 1490474 (D.N.J. June 23, 2005) ................................ 13 Bd. of Edu. of Twp. High School Dist. No. 214, Cook Cty., Ill., v. Climatemp, Inc., No. 79 C 3144, 1981 WL 2033 (N.D. Ill. Feb. 20, 1981) ................................................. 15 Bell v. Cheswick Generating Station, GenOn Power Midwest, L.P., No. 12-929, 2015 WL 401443 (W.D. Pa. Jan. 28, 2015) ................................................. 10 Bernstein v. Serv. Corp. Int’l, No. 17-4960, 2018 WL 6413316 (E.D. Pa. Dec. 6, 2018) ................................................ 11 Brody v. Homestore, Inc., No. CV 02-08068 FMC (JWJx), 2003 WL 22127108 (C.D. Cal. Aug. 8, 2003) ............. 14 Buck v. Am. Gen. Life Ins. Co., No. 17-13278, 2018 WL 5669173 (D.N.J. Oct. 31, 2018) ............................................... 11 Cal. Pub. Emps’ Ret. Sys. v. ANZ Sec., Inc. (“CalPERS”), 137 S. Ct. 2042 (2017) ................................................................................................ 18, 22 Cannon v. Ashburn Corp., No. 16-1452 (RMB/AMD), 2016 WL 7130913 (D.N.J. Dec. 7, 2016) ............................ 11 China Agritech v. Resh, 138 S. Ct. 1800 (2018) ...................................................................................... 4, 21, 22, 23 Christianson v. Ocwen Loan Servicing, LLC, 338 F. Supp. 3d 989 (D. Minn. 2018) ............................................................................... 23 Clark v. McDonald's Corp., 213 F.R.D. 198 (D.N.J. 2003) ........................................................................................... 14 Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345 (1983) .............................................................................................. 16, 17, 18 Discovery Glob. Citizens Master Fund, Ltd. v. Valeant Pharm. Int’l, Inc., No. 16-7321 (MAS)(LHG), 2018 WL 406046 (D.N.J. Jan. 12, 2018) .......................... 5, 6 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 3 of 34 PageID: 12987 iii DoubleLine Capital LP v. Odebrecht Fin., Ltd., 323 F. Supp. 3d 393 (S.D.N.Y. 2018)......................................................................... 24, 25 Durso v. Samsung Elecs. Am., Inc., No. 2:12-cv-05352 (DMC)(JBC), 2013 WL 5947005 (D.N.J. Nov. 6, 2013) .................. 13 Ehrhart v. Synthes (USA), No. 07-01237 (SDW), 2007 WL 4591276, (D.N.J. Dec. 28, 2007) ................................ 10 Goode v. LexisNexis Risk & Info. Analytics Grp., Inc., 284 F.R.D. 238 (E.D. Pa. 2012) ........................................................................................ 13 Gray v. BMW of N. Am., LLC, 22 F. Supp. 3d 373 (D.N.J. 2014) ..................................................................................... 11 Gruber v. Price Waterhouse, 911 F.2d 960 (3d Cir. 1990).............................................................................................. 24 Hubbard v. Corr. Med. Servs., Inc., No. 04-3412 (SDW), 2008 WL 2945988 (D.N.J. July 30, 2008) ..................................... 21 In re Campbell Soup Co. Sec. Litig., 145 F. Supp. 2d 574 (D.N.J. 2001) ................................................................................... 15 In re Cent. Eur. Distrib. Corp. Sec. Litig., No. 11-6247 (JBS-KMW), 2012 WL 5465799 (D.N.J. Nov. 8, 2012)............................. 12 In re Chicago Bridge & Iron Co. N.V. Sec. Litig., No. 17-cv-1580 (LGS), 2018 WL 2382600 (S.D.N.Y. May 24, 2018) ............................ 25 In re Exxon Mobil Corp. Sec. Litig., 500 F.3d 189 (3d Cir. 2007).............................................................................................. 18 In re Hanford Nuclear Reservation Litigation, 534 F.3d 986 (9th Cir. 2008) ............................................................................................ 17 In re Initial Public Offering Sec. Litig., 214 F.R.D. 117 (S.D.N.Y. 2002) ........................................................................................ 1 In re Lucent Techs., Inc. Sec. Litig., 217 F. Supp. 2d 529 (D.N.J. 2002) ................................................................................... 24 In re Oxford Health Plans, Inc. Sec. Litig., 199 F.R.D. 119 (S.D.N.Y. 2001). ....................................................................................... 1 In re Paulsboro Derailment Cases, No. 13-784 (RBK/KMW), 2014 WL 1371712 (D.N.J. Apr. 8, 2014) ........................ 13, 14 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 4 of 34 PageID: 12988 iv In re Processed Egg Prods. Antitrust Litig., No. 08-2002 WL 6645533 (E.D. Pa. Dec. 20, 2012) ........................................................ 17 In re Prudential Ins. Co. of Am. Sales Practices Litig., 177 F.R.D. 216 (D.N.J. 1997) ............................................................................................. 5 In re Valeant Pharm. Int’l, Inc. Sec. Litig. (“Valeant I”), No. 15-7658 (MAS)(LHG), 2018 WL 5849466 (D.N.J. Nov. 7, 2018) ............. 2, 3, 12, 15 In re Valeant Pharm. Int’l, Inc. Sec. Litig. (“Valeant II”), No. 15-cv-07658-MAS-LHG, 2017 WL 1658822 (D.N.J. Apr. 28, 2017) ................ 5, 6, 7 In re WorldCom Securities Litigation (“WorldCom I”), 496 F.3d 245 (2d Cir. 2007)............................................................................ 16, 17, 20, 23 In re WorldCom, Inc. Sec. Litig. (“WorldCom II”), 294 F. Supp. 2d 431 (S.D.N.Y. 2003), vacated, 496 F.3d 245 (2d Cir. 2007) ......................................................................... 20, 21 Johnson v. Anhorn, 334 F. Supp. 2d 802 (E.D. Pa. 2004) ................................................................................ 11 Johnson v. GMRI, Inc., No. CV-F-07-0283 LJO DLB, 2007 WL 963209 (E.D. Cal. Mar. 29, 2007)................... 14 Landsman & Funk PC v. Skinder-Strauss Assocs., 640 F.3d 72 (3d Cir. 2011)................................................................................................ 11 Luppino v. Mercedes-Benz USA, LLC, No. 09-CV-5582 (DMC)(JBC), 2013 WL 6047556 (D.N.J. Nov. 12, 2013) ................... 10 McDavitt v. Powell, No. 09-0286, 2012 WL 959376 (M.D. Pa. Mar. 21, 2012) .............................................. 17 Merck & Co., Inc. v. Reynolds, 559 U.S. 633 (2010) .......................................................................................................... 25 Mladenov v. Wegmans Food Markets, Inc., 124 F. Supp. 3d 360 (D.N.J. 2015) ................................................................................... 14 Myers v. MedQuist, Inc., No. 05-4608 (JBS), 2006 WL 3751210 (D.N.J. Dec. 20, 2006)....................................... 13 Nelson v. Mead Johnson Nutrition Co., No. 09-CV061625, 2010 WL 11457653, (S.D. Fla. Mar. 17, 2010) ................................ 12 Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Securitization Transactions, Inc., 730 F.3d 263 (3d Cir. 2013).............................................................................................. 24 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 5 of 34 PageID: 12989 v Q+Food LLC v. Mitsubishi Fuso Truck of Am., Inc., No. 14-6046 (MAS)(DEA), 2015 WL 4603678 (D.N.J. July 30, 2015) .......................... 11 Read v. Input/Output, Inc., No. Civ. A. H-05-0108, 2005 WL 2086179 (S.D. Tex. Aug. 26, 2005) ......................... 14 Rivera v. Ralph F. Casale & Assocs., LLC, No. 13-587 (KM), 2014 WL 2571555 (D.N.J. June 9, 2014) ..................................... 10, 11 Roll v. Singh, No. 07-cv-04136 (FLW), 2008 WL 3413863 (D.N.J. June 26, 2008).............................. 24 Rycoline Prods. Inc. v. C & W Unlimited, 109 F.3d 883 (3d Cir. 1997).............................................................................................. 24 Senzar Healthcare Master Fund LP v. Valeant Pharm. Int’l, Inc., No. 18-cv-02286 (MAS)(LHG), 2018 WL 4401730 (D.N.J. Sept. 14, 2018) .................... 6 Smart-El v. Corr. Med. Servs., Inc., No. 04-3413, 2008 U.S. Dist. LEXIS 44376 (D.N.J. June 6, 2008) ................................. 21 State Farm Mutual Automobile Insurance Co. v. Boellstorff, 540 F.3d 1223 (10th Cir. 2008) ............................................................................ 17, 19, 20 Stein v. Regions Morgan Keegan Select High Income Fund, Inc., 821 F.3d 780 (6th Cir. 2016) ............................................................................................ 20 T. Rowe Price Growth Stock Fund, Inc. v. Valeant Pharm. Int’l, Inc., No. 16-5034 (MAS)(LHG), 2018 WL 395730 (D.N.J. Jan. 12, 2018) ...................... 5, 6, 7 Thomas v. Corr. Med. Servs., Inc., No. 04-3358 (NHL), 2009 WL 737105 (D.N.J. Mar. 17, 2009)....................................... 21 Tietsworth v. Sears, 720 F. Supp. 2d 1123 (N.D. Cal. 2010) ............................................................................ 14 Tonka Corp. v. Rose Art Industries, Inc., 836 F. Supp. 200 (D.N.J. 1993) ........................................................................................ 14 Wallach v. Eaton Corp., 837 F.3d 356 (3d Cir. 2016)........................................................................................ 18, 21 Weske v. Samsung Elecs., Am., Inc., 934 F. Supp. 2d 698 (D.N.J. 2013) ............................................................................. 11, 13 Winn-Dixie Stores, Inc. v. E. Mushroom Mktg. Coop., No. 15-6480, 2019 WL 130535 (E.D. Pa. Jan. 8, 2019) ............................................. 17, 23 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 6 of 34 PageID: 12990 vi Wyser-Pratte Management Co. v. Telxon Corp., 413 F.3d 553 (6th Cir. 2005) ............................................................................................ 20 Zarichny v. Complete Payment Recovery Servs., Inc., 80 F. Supp. 3d 610 (E.D. Pa. 2015) .................................................................................. 11 Statutes 15 U.S.C. § 78j .......................................................................................................................... 6, 23 15 U.S.C. § 78t .............................................................................................................................. 23 28 U.S.C. § 1658(b) ...................................................................................................................... 18 42 U.S.C. § 1983 ........................................................................................................................... 21 Rules Fed. R. Civ. P. 12(b)(6)............................................................................................................. 1, 11 Fed. R. Civ. P. 12(f) ............................................................................................................ 1, 10, 13 Fed. R. Civ. P. 23 ...................................................................................................................... 1, 13 Fed. R. Civ. P. 23(a) ..................................................................................................................... 14 Fed. R. Civ. P. 23(a)(1)(A) ............................................................................................................. 1 Fed. R. Civ. P. 23(b) ..................................................................................................................... 14 Fed. R. Civ. P. 23(c)(1)(A) ........................................................................................................... 10 Fed. R. Civ. P. 23(d)(1)(D) ....................................................................................................... 1, 10 Other Authorities 2 Herbert B. Newberg & Alba Conte, Newberg on Class Actions § 7.22 (3d ed. 1992) ............................................................... 13 5 James Wm Moore et al., Moore’s Federal Practice, § 23.65 [2A] (Matthew Bender 3d ed.) ................................. 21 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 7 of 34 PageID: 12991 Plaintiff Timber Hill LLC (“Timber Hill”) respectfully submits this memorandum of law in opposition to Defendants’ Motion to Dismiss the Complaint Under Rule 12(b)(6) and to Strike the Class Allegations Under Rules 12(f), 23(a)(1)(A) and 23(d)(1)(D). ECF No. 407. INTRODUCTION Defendants’ motion to strike the class allegations in Timber Hill’s complaint (“Complaint”) is based solely on the fact that the Court denied Timber Hill’s motion for relief from the Court’s prior consolidation order and for appointment as lead plaintiff. However, the Court’s order was expressly provisional in nature. The Court left open the possibility that, based on future developments in this litigation, that ruling might be revisited.1 If the Court subsequently determines that Timber Hill’s action should no longer be consolidated with the earlier-filed class actions, Timber Hill could be appointed to serve as a lead plaintiff and class representative of traders in derivative securities. And even if the cases remain consolidated, the Court may yet certify a class or subclass of investors in derivative securities and appoint Timber Hill to represent them. There is ample precedent for the appointment of class representatives in addition to a lead plaintiff appointed under the PSLRA as litigation progresses. 2 Defendants also fail to meet the stringent standard for striking Timber Hill’s class allegations which requires a showing that the 1 The Court has made clear that it has only consolidated the cases for pretrial purposes. 2 Even if the Timber Hill action is consolidated with the other class action cases for all purposes, the issue of who should be appointed to represent traders in derivative securities is a separate issue. The PSLRA does not prohibit the addition of named plaintiffs to aid a lead plaintiff in representing the class. Although the lead plaintiff must “otherwise satisfy the requirements of Rule 23,” nothing in the text of the PSLRA indicates that every named plaintiff who satisfies the requirements of Rule 23 must also satisfy the criteria established under the PSLRA for appointment as lead plaintiff and actually be appointed as a lead plaintiff. Appointment of a lead plaintiff and certification of the class occur at two different stages of the litigation, and are to be reviewed under the separate standards that govern each process. See, e.g., In re Initial Public Offering Sec. Litig., 214 F.R.D. 117, 123 (S.D.N.Y. 2002); In re Oxford Health Plans, Inc. Sec. Litig., 199 F.R.D. 119, 125 (S.D.N.Y. 2001). Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 8 of 34 PageID: 12992 2 class it seeks to represent could never be certified. The motion to strike should be denied as procedurally inappropriate and, at the very least, as premature. Defendants’ motion to dismiss Timber Hill’s Complaint on statute of limitations grounds is predicated on treating its action as if it were a free-standing individual opt-out plaintiff action, based on the assumption that the Court will grant their motion to strike the Complaint’s class allegations.3 But Timber Hill filed a class action Complaint, not an individual action as a prelude to opting out in the future from any class ultimately certified by the Court. Even if Timber Hill had filed an individual opt-out plaintiff action, it would still be entitled to the benefit of American Pipe tolling. And, in any event, its case was timely filed even without the benefit of such tolling. Timber Hill’s case was filed on June 6, 2018. This Court has previously ruled, in denying motions to dismiss, that the two-year limitations period did not expire before that date. For these reasons and as explained more fully below, Defendants’ motion should be denied in all respects. SUMMARY OF ARGUMENT In order to consider Defendants’ motion properly, it is critically important to consider the procedural posture of this litigation and the Court’s ruling in its Memorandum Opinion of November 7, 2018. In re Valeant Pharm. Int’l, Inc. Sec. Litig. (“Valeant I”), No. 15-7658 (MAS)(LHG), 2018 WL 5849466, at *6 (D.N.J. Nov. 7, 2018). As noted above, on June 6, 2018, 3 Of course, this is the unstated reason why Defendants seek to strike the Complaint’s class allegations, namely, to serve as the predicate for treating Timber Hill as if it were an individual opt-out plaintiff seeking to litigate claims only on its own behalf. But that is not what Timber Hill seeks to do. If Defendants were correct, then the class allegations in the complaints filed by all of the other plaintiffs who were not selected as a lead plaintiff would be required to be stricken and those plaintiffs treated as individual opt-out plaintiffs. That would obviously be as procedurally inappropriate as to them as it would for Timber Hill. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 9 of 34 PageID: 12993 3 Timber Hill filed its class action complaint with this Court.4 Timber Hill thereafter moved for relief from the Court’s consolidation order (ECF No. 322) and for appointment as lead plaintiff (ECF No. 334) to represent a class of investors in derivative securities based on its belief that the class as defined in the existing consolidated amended complaint (the “CAC”) did not include such investors. Timber Hill also explained why, in its view, investors in derivative securities needed separate representation. The Court denied the motion without prejudice on the ground that the class as defined in the CAC includes purchasers of derivative securities for most of the period covered by Timber Hill’s Complaint and that the class might be expanded to include all of the derivative traders Timber Hill seeks to represent. Valeant I, 2018 WL 5849466, at *6.5 Thus, pursuant to the Court’s ruling, Timber Hill’s action is currently included among the cases previously consolidated for pretrial purposes and Timber Hill is also a member of the putative class alleged in the CAC. The Lead Plaintiff appointed by the Court has not yet filed its motion for class certification and the Court has not yet certified a class, which means that the time to request exclusion from the class has not begun to run. As noted above, in denying Timber Hill’s motion, the Court expressly left open the possibility that it might entertain a renewed motion by Timber Hill for relief from the consolidation order at the later stage in this litigation. Valeant I, 2018 WL 5849466, at *6-8. The Court also recognized that the class as defined by the CAC may be expanded beyond its present contours, and that intra-class conflicts might well justify appointing Timber Hill as a class representative for investors in derivative securities. Id. 4 See Complaint (“Compl.”), docketed as Case No. 3:18-cv-10246-MAS-LHG (ECF No. 1). 5 The Court noted that the CAC did not include purchasers or sellers of derivative securities during the period from March 16, 2016 through August 10, 2016. Valeant I, 2018 WL 5849466, at *6, n.7. The Court also acknowledged that the class as currently defined in the CAC did not include any sellers of derivative securities. Id. at *6. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 10 of 34 PageID: 12994 4 The authorities Defendants rely on in support of their motion to strike the class allegations in Timber Hill’s Complaint are all cases in which no one was appointed as a lead plaintiff or where no class could conceivably be certified – a far cry from the situation here, in which a Lead Plaintiff has been appointed that currently seeks to represent an overlapping group of investors, including claims on behalf of investors in derivative securities falling within the class definition set forth in Timber Hill’s Complaint. Defendants’ argument thus overlooks the very different procedural posture of these cases and what the Court said in its Memorandum Opinion when it denied Timber Hill’s motion. No purpose would be served by striking the class allegations in Timber Hill’s Complaint. Instead, granting the motion could only cause mischief and confusion in these proceedings should the Court subsequently decide to de-consolidate Timber Hill’s action or to certify a class or subclass of derivative securities traders. Thus, unlike the cases upon which Defendants rely, this is not a situation where it is so obvious that a class cannot be certified such that a motion to strike class allegations can be granted on the pleadings. Accordingly, the motion to strike Timber Hill’s class action allegations should be denied. Defendants’ motion to dismiss on statute of limitations grounds is based on the faulty premise that Timber Hill is an opt-out plaintiff from a class that has not yet been certified. But Timber Hill did not file its action to pursue claims as an individual opt-out plaintiff. It filed a class action complaint to represent investors in derivative securities. Timber Hill is a member of the putative class as defined in the CAC, which means it is entitled to rely on American Pipe tolling, even if it never is appointed to be lead plaintiff.6 The filing of Timber Hill’s Complaint does not 6 This situation is factually and legally distinct from China Agritech v. Resh, where plaintiffs filed a putative class action after class certification had been denied in a prior action and argued that the Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 11 of 34 PageID: 12995 5 change the fact that it is entitled to rely, as to its own individual claims, on the earlier-filed class actions for statute of limitations purposes.7 But even if Timber Hill were deemed to be an individual opt-out plaintiff, under the majority and we submit better-reasoned rule, Timber Hill would nonetheless be entitled to benefit from American Pipe tolling.8 Defendants’ limitations argument is also based on the incorrect proposition that Defendants’ fraudulent scheme was fully revealed and the claims accrued by the end of October 2015. The latter proposition is based on an argument by the Defendants this Court has previously rejected. See T. Rowe Price Growth Stock Fund, Inc. v. Valeant Pharm. Int’l, Inc., No. 16-5034 (MAS)(LHG), 2018 WL 395730, at *4 (D.N.J. Jan. 12, 2018) (“The Complaints, when read in the light most favorable to Plaintiffs, do not conclusively establish that the full ‘truth was revealed’ to the market by October 30, 2015.”); Discovery Glob. Citizens Master Fund, Ltd. v. Valeant Pharm. Int’l, Inc., No. 16-7321 (MAS)(LHG), 2018 WL 406046, at *7 (D.N.J. Jan. 12, 2018) (same); In re Valeant Pharm. Int’l, Inc. Sec. Litig. (“Valeant II”), No. 15-cv-07658-MAS-LHG, 2017 WL 1658822 (D.N.J. Apr. 28, 2017), ECF No. 216 at 24-25 (rejecting Defendants’ argument that the truth was fully disclosed by October 30, 2015). class they sought to represent could rely on the filing date of the prior action for limitations purposes. 138 S. Ct. 1800 (2018). Here, the Court has ruled that the class in the previously-filed consolidated class action already includes purchasers of derivative securities who are members of the class alleged in Timber Hill’s complaint, and that Timber Hill is thus a member of that class. 7 The mere act of filing a complaint is not the same thing as opting out. See In re Prudential Ins. Co. of Am. Sales Practices Litig., 177 F.R.D. 216, 238 (D.N.J. 1997) (“Class members . . . must file a valid request for exclusion regardless of whether they have an individual action filed and pending prior to the opt-out deadline.”). Who should represent the derivatives traders, the current Lead Plaintiff or Timber Hill, is an entirely separate question to be considered by the Court at the time of class certification or thereafter. 8 And, as discussed below, even if Timber Hill were treated as an opt out plaintiff – and it is not – and found entitled to American Pipe tolling, all of the claims asserted in its Complaint were timely filed for several reasons. See infra. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 12 of 34 PageID: 12996 6 Plaintiff’s claims did not accrue until June 7, 2016 at the earliest, and likely not until August 10, 2016 (i.e., the last corrective disclosure alleged in Timber Hill’s Complaint).9 See Senzar Healthcare Master Fund LP v. Valeant Pharm. Int’l, Inc., No. 18-cv-02286 (MAS)(LHG), 2018 WL 4401730, at *2-3 (D.N.J. Sept. 14, 2018) (finding timely Section 18 claims under the same two-year discovery rule applicable to 10(b) claims when August 10, 2016 was the last alleged corrective disclosure). Timber Hill’s Complaint – which plausibly alleges that the fraud was not fully disclosed until the last statistically significant corrective disclosure that took place on August 10, 2016 – must be similarly evaluated. Thus, Timber Hill has timely asserted claims against Defendants that do not depend at all on American Pipe tolling. BACKGROUND OF TIMBER HILL’S ACTION The Court is intimately familiar with the facts alleged in Timber Hill’s Complaint. Indeed, this Court has considered the same set of facts multiple times in the context of other motions to dismiss in sustaining claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) against Defendants Valeant, Pearson, Schiller, Rosiello and Carro, among others. See Valeant II, 2017 WL 1658822; T. Rowe Price, 2018 WL 395730; Discovery Glob., 2018 WL 404046. Prior to and during the class period, Valeant pursued a growth-by-acquisition strategy focused on acquiring drugs developed by other companies and then massively increasing the prices of those drugs. Compl. ¶¶ 1, 37-39, 127-159. Under the direction of Pearson and other Defendants, it drove the sales of those drugs through a variety of deceptive and unlawful practices, none of 9 Timber Hill’s Complaint was filed on June 6, 2018, and is unquestionably not subject to dismissal under the two-year statute of limitations, based on the Court’s prior rulings in the litigation. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 13 of 34 PageID: 12997 7 which were disclosed to investors. Key to the ostensible success of this model was the creation of an undisclosed network of specialty pharmacies, which enabled Defendants to raise the price of Valeant-branded drugs while avoiding scrutiny from pharmacy benefit managers and insurance companies. Id. ¶¶ 6, 43, 56-99, 137. These pharmacies – clandestinely owned or controlled by Valeant – engaged in illegal business practices to push the sale of Valeant products, including, among other things, altering prescriptions, unnecessarily refilling prescriptions without authorization, misrepresenting the identity of pharmacies and submitting false information to payors. Id. ¶¶ 2, 6, 56-106, 137-159, 253. Beginning in September 2015, Defendants gradually made partial disclosures of previously misrepresented and concealed material facts concerning Valeant’s business operations, financial condition and prospects. Id. ¶¶ 255-262. Defendants continued to misrepresent material facts concerning Valeant’s business practices until the end of the class period alleged in Timber Hill’s Complaint and their partial corrective disclosures incrementally removed some, but not all, of the artificial inflation or deflation in the price of call and put options on Valeant’s common stock. Id. ¶¶ 263-365. As noted above, Defendants’ argument that the truth was fully revealed by October 2015 has been rejected by this Court at the motion to dismiss stage.10 Hoping for a different result, Defendants repeat virtually the same failed contention here – though recycled as a timeliness argument, rather than under the guise of “truth-on-the-market” and “loss causation” arguments. 10 T. Rowe Price, 2018 WL 395730, at *4 (“The Complaints, when read in the light most favorable to Plaintiffs, do not conclusively establish that the full ‘truth was revealed’ to the market by October 30, 2015.”). The Court also rejected Defendants’ argument that the truth was fully revealed by October 30, 2015 in sustaining the Lead Plaintiff’s Class Complaint. Valeant II, 2017 WL 1658822. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 14 of 34 PageID: 12998 8 Timber Hill’s Complaint alleges subsequent partial disclosures, each of which resulted in a statistically significant decline in the price of Valeant’s common stock: • On March 15, 2016, Valeant announced it would be reducing its financial guidance for 2016 as a result of the termination of its relationship with Philidor, and further disclosed $52.3 million in “wind down costs” and a $79 million impairment charge related to Philidor. Compl. ¶¶ 339-41. • On March 21, 2016, Valeant filed a Form 8-K announcing that $58 million in net revenues relating to the sale of Philidor was improperly recognized and that the 2014 10-K, and Valeant’s first, second and third quarter 10-Qs along with PricewaterhouseCooper’s audit report for the 2014 10-K should no longer be relied on. It further admitted that the improper conduct of former CFO Schiller and former Controller Carro contributed to the misstatement and that the “tone at the top” of the organization contributed to improper revenue recognition. Id. ¶ 347. • On June 7, 2016, Valeant filed its First Quarter 2016 Form 10-Q disclosing massive losses and significantly lowered its 2016 guidance, citing the loss of Philidor refill sales revenues. Id. ¶ 354. On the related conference call with securities analysts and investors, Rosiello stated “Overall volume challenges were exacerbated by the loss of refills following the shutdown at the end of January of our previous [Philidor] relationship.” Id. ¶ 354. In response to this news, Valeant’s stock dropped by nearly 15% on a reported volume of 104 million shares – the second most active stock trading day in Valeant’s history. Id. • On August 10, 2016, it was first revealed that the United Stated Department of Justice had launched a criminal investigation concerning Valeant’s deceptive business practices and concealment of its relationship with Philidor. Compl. ¶¶ 9, 362. In response to this news, Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 15 of 34 PageID: 12999 9 the price of Valeant’s stock dropped by over 10% on a reported volume of 56 million shares. Id. ¶ 363. Critically, Valeant continued to make false and misleading misstatements after October 2015 in an effort to downplay its problems and allay investor concerns. For example: • During the February 22, 2016 investor call, Schiller assured investors that Valeant was “committed to improving reporting procedures, internal controls and transparency for our investors” and “[w]e have made mistakes in the past and our focus today is on executing our business plan and rebuilding trust.” Id. ¶ 333. • On May 23, 2016, in response to analyst questions at the UBS Global Healthcare Conference, Valeant’s newly-appointed CEO described Valeant as “a great turnaround opportunity” and announced Valeant only needed “additional [] controls” and “investment” in areas such as finance. Id. ¶ 353. Similar positive misstatements were repeated by Defendants throughout the class period. For example, on October 26, 2015 (i.e., the approximate date when Defendants claim the full truth was disclosed), Valeant hosted a conference call for investors accompanied by a presentation containing a number of patently false statements designed to allay investor concerns. In the presentation, Valeant stated: “[w]e do not own or control Philidor . . . Philidor employees do not report to Valeant,” “Philidor is independent” and “Philidor remains independent.” Id. ¶ 241. Pearson continued the charade by misstating on the same call that “[t]here have been no issues with regards to the accounting or revenue recognition of the business,” and that “we stand by our accounting treatment of Philidor completely.” Id. ¶ 242. Not to be outdone, Rosiello then claimed that “Valeant recognizes revenue only when products are dispensed to patients, and Valeant records this at net realized price.” Id. ¶ 244. Then, in December of 2015, as part of the Company’s Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 16 of 34 PageID: 13000 10 “Investor Day” call, Pearson touted Valeant’s “very strong controls, in the areas of finance, compliance, audit []” and that “we’re continuing to grow, grow, grow, generate cash flow.” Id. ¶ 251. All of these statements were false when made: Philidor was not independent of Valeant; Valeant employees worked at Philidor; and Philidor had been formed with the assistance of Valeant. Id. ¶ 241. Also as subsequently disclosed, Valeant improperly recognized Philidor revenue, causing Valeant’s reported revenues, net income and GAAP earnings per share to be materially misstated. Id. ¶¶ 63-64, 178-197, 347-348, 374-375, 396, 422, 428. ARGUMENT I. DEFENDANTS’ MOTION TO STRIKE TIMBER HILL’S CLASS ALLEGATIONS SHOULD BE DENIED AS PROCEDURALLY INAPPROPRIATE On a motion to strike brought pursuant to Rule 12(f), “the [c]ourt must accept as true all factual allegations in the complaint and view all reasonable inferences in the light most favorable to the plaintiff, just as on a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).”11 Rivera v. Ralph F. Casale & Assocs., LLC, No. 13-587 (KM), 2014 WL 2571555, at *8 (D.N.J. June 9, 2014); Luppino v. Mercedes-Benz USA, LLC, No. 09-CV-5582 (DMC)(JBC), 2013 WL 6047556, at *3 (D.N.J. Nov. 12, 2013); see also Ehrhart v. Synthes (USA), No. 07-01237 (SDW), 2007 WL 4591276, at *3 (D.N.J. Dec. 28, 2007) (“in ruling on a motion to strike every fact plead in the complaint is deemed admitted”).12 Courts in the Third Circuit routinely deny motions to strike 11 Rule 12(f) authorizes courts to strike “strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). Defendants also ask the Court to strike pursuant to Rules 23(c)(1)(A) and 23(d)(1)(D), but do not argue that the legal standard under these rules differs. 12 Cf. Bell v. Cheswick Generating Station, GenOn Power Midwest, L.P., No. 12-929, 2015 WL 401443, at *3 (W.D. Pa. Jan. 28, 2015) (recognizing “Courts are divided on the question of” Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 17 of 34 PageID: 13001 11 “unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties.” Weske v. Samsung Elecs., Am., Inc., 934 F. Supp. 2d 698, 706–07 (D.N.J. 2013); Rivera, 2014 WL 2571555, at *4 (“[O]nly allegations that are so unrelated to plaintiffs’ claims as to be unworthy of any consideration should be stricken.”) (citing Johnson v. Anhorn, 334 F. Supp. 2d 802, 809 (E.D. Pa. 2004)). Motions to strike class action allegations are disfavored and infrequently granted. Bernstein v. Serv. Corp. Int’l, No. 17-4960, 2018 WL 6413316, at *3 (E.D. Pa. Dec. 6, 2018) (noting that motions to strike are “disfavored and considered a drastic remedy”) (citation omitted).13 The Court should only entertain a motion to strike “in those rare cases where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met.” Buck v. Am. Gen. Life Ins. Co., No. 17-13278, 2018 WL 5669173, at *9 (D.N.J. Oct. 31, 2018); Q+Food LLC v. Mitsubishi Fuso Truck of Am., Inc., No. 14-6046 (MAS)(DEA), 2015 WL 4603678, at *7 (D.N.J. July 30, 2015) (“there are rare few [cases] where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met”) (citing Landsman & Funk PC v. Skinder-Strauss Assocs., 640 F.3d 72, n.30 (3d Cir. 2011)). Respectfully, this is not one of those “rare cases” counseling a departure from long-standing precedent. The motion to strike should be denied because the Court may ultimately certify a class or subclass of derivatives traders. Plainly, this is not a case where it is so obvious that such a class cannot be certified such that a motion to strike can or should be granted on the pleadings. Indeed, whether the standard of review on a pre-discovery motion to strike is identical to that of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) and that the Third Circuit has not ruled on the issue.). 13 See also Cannon v. Ashburn Corp., No. 16-1452 (RMB/AMD), 2016 WL 7130913, at *11 (D.N.J. Dec. 7, 2016); Zarichny v. Complete Payment Recovery Servs., Inc., 80 F. Supp. 3d 610, 615 (E.D. Pa. 2015) (noting Rule 12(f) motions are often “sought by the movant simply as a dilatory or harassing tactic”) (citations omitted); Gray v. BMW of N. Am., LLC, 22 F. Supp. 3d 373, 386 (D.N.J. 2014) (same). Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 18 of 34 PageID: 13002 12 this Court recognized the existence of viable claims brought on behalf of derivatives traders in finding that they were included in the CAC’s class definition. The Court merely deferred adjudication of whether they require separate representation until “lead plaintiff moves for class certification,” or thereafter, as discovery proceeds. Valeant I, 2018 WL 5849466, at *6. It was the Court’s clearly-stated intention to permit the consolidated cases to proceed through the discovery process and then “resolve the issues surrounding multiple trials if and when it becomes necessary to do so.” Id at *7. The Court stated that “if at later a stage of the litigation” an “obvious intra-class conflict” emerges, “the Court will entertain a renewed motion for relief from consolidation.” Id at *8. The Court’s ruling was in keeping with the principle that “[I]f the discovery process reveals a substantial reason why the actions should not be consolidated for the purpose of trial, [the] decision can be revisited.” In re Cent. Eur. Distrib. Corp. Sec. Litig., No. 11-6247 (JBS-KMW), 2012 WL 5465799, at *12 (D.N.J. Nov. 8, 2012).14 Nothing in the Court’s Memorandum Opinion can be read to support the striking of potentially viable class claims asserted in Timber Hill’s Complaint. Striking class allegations in Timber Hill’s Complaint now could be inappropriately construed by Defendants to effectively “pronounce” the “non-existence of a class or set of subclasses [] contrary to the pragmatic spirit of Rule 23,” and prejudge the effect of later rulings in this litigation. Nelson v. Mead Johnson Nutrition Co., No. 09-CV061625, 2010 WL 11457653, at *2 (S.D. Fla. Mar. 17, 2010). This could only cause mischief and confusion and is completely unnecessary to serve any valid case management purpose. See, e.g., Cent. Eur., 2012 WL 5465799, at *12 (recognizing that “[a]fter discovery concludes, the shape of 14 The Court can consolidate actions upon its own initiative. It can also de-consolidate them on its own initiative. Cent. Eur., 2012 WL 5465799, at *11. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 19 of 34 PageID: 13003 13 these cases may change and that the issue of consolidation can be revisited at a subsequent stage of the litigation.”). In addition, courts “have emphatically denied requests to strike class allegations at the motion to dismiss stage as procedurally premature.” Weske, 934 F. Supp. 2d at 707; Andrews v. Home Depot U.S.A., Inc., No. 03CV5200 (DMC), 2005 WL 1490474, at *3 (D.N.J. June 23, 2005); Myers v. MedQuist, Inc., No. 05-4608 (JBS), 2006 WL 3751210, at *9 (D.N.J. Dec. 20, 2006); see also Goode v. LexisNexis Risk & Info. Analytics Grp., Inc., 284 F.R.D. 238, 244 (E.D. Pa. 2012) (courts “rarely grant motions to strike under Rule 23(d)(1)(D) prior to class discovery”). This is because “for all practical purposes,” Defendants’ motion to strike class action allegations under Fed. R. Civ. P. 23 is “identical to an opposition to a motion for class certification,” and “[it] would be improper to allow Defendants to slip through the backdoor what is essentially an opposition to a motion for class certification before Plaintiffs have made such a motion and when discovery on the issue is still ongoing.” Durso v. Samsung Elecs. Am., Inc., No. 2:12-cv-05352 (DMC)(JBC), 2013 WL 5947005, at *4 (D.N.J. Nov. 6, 2013). Substantively, the motion should also be denied because Timber Hill’s Complaint satisfies the minimal pleading requirements of Rule 23 and does not contain any “redundant, immaterial, impertinent or scandalous matter” within the meaning of Rule 12(f). “[W]here a motion [to strike] is brought in advance of the close of class discovery, it is properly the defendant who must bear the burden of proving that the class is not certifiable.” In re Paulsboro Derailment Cases, No. 13- 784 (RBK/KMW), 2014 WL 1371712, at *2 (D.N.J. Apr. 8, 2014) (citation omitted); see also 2 Herbert B. Newberg & Alba Conte, Newberg on Class Actions § 7.22 (3d ed. 1992) (“[W]here defendants contend that certification is precluded as a matter of law before the filing of the certification motion, defendants bear the burden of demonstrating that[,] on the face of the Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 20 of 34 PageID: 13004 14 complaint, class certification is impossible.”). “Class allegations should put the defendant on notice that relief is sought on behalf of a class and, basically, what the nature of that class is.” Johnson v. GMRI, Inc., No. CV-F-07-0283 LJO DLB, 2007 WL 963209, at *7 (E.D. Cal. Mar. 29, 2007). The Complaint clearly put Defendants on notice and alerted them as to the nature of the claims asserted. Significantly, Defendants do not argue that the Complaint fails to allege the four prerequisites of a class action under Rule 23(a), and the superiority and predominance requirements of Rule 23(b). Instead, they argue that the allegations should be stricken solely because Timber Hill’s motion for appointment as lead plaintiff was denied. But the Court made clear that the ruling was provisional in nature. Further as noted above, Timber Hill may ultimately be appointed as class representative plaintiff even if it is never appointed to be a lead plaintiff under the PSLRA.15 15 Read v. Input/Output, Inc., No. Civ. A. H-05-0108, 2005 WL 2086179, at *3 (S.D. Tex. Aug. 26, 2005) and Brody v. Homestore, Inc., No. CV 02-08068 FMC (JWJx), 2003 WL 22127108 (C.D. Cal. Aug. 8, 2003), cited by Defendants, are both inapposite. Read stands for the non- controversial position that “striking class action allegations is appropriate where no plaintiff has moved for appointment” as it would be “inappropriate for the Court to sua sponte appoint an uninterested lead plaintiff.” 2005 WL 2086179, at *2. Likewise, Brody is inapposite because it concerned the applicability of the PSLRA’s requirement for the plaintiff to file a certification following a contested removal from state court. In any event, the court nonetheless granted leave to the plaintiffs to comply with the PSLRA. Brody, 2003 WL 22127108, at *3. Defendants’ other authorities either support Timber Hill’s position or are readily distinguishable. In Paulsboro, the court denied a motion to strike class allegations as premature. 2014 WL 1371712, at *7. Defendants’ citation to Clark v. McDonald's Corp., 213 F.R.D. 198, 226 (D.N.J. 2003), is also inappropriate. There, the Court declined to strike the plaintiff’s class allegations, instead electing to strike allegations regarding a defendant class that class members as to whom the named plaintiff had no cause of action in his own right – precisely the rare situation envisioned in striking class allegations. The crux of the inquiry in both Mladenov v. Wegmans Food Markets, Inc., 124 F. Supp. 3d 360, 368, 381 (D.N.J. 2015), and Tietsworth v. Sears, 720 F. Supp. 2d 1123, 1147 (N.D. Cal. 2010), related to ascertainability. Here, Defendants do not contest the ascertainability of the class. Finally, Tonka Corp. v. Rose Art Industries, Inc., 836 F. Supp. 200 (D.N.J. 1993) concerned the striking of affirmative defenses, not at issue here, while out-of- Circuit Board of Education of Township High School District No. 214, Cook County, Ill., v. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 21 of 34 PageID: 13005 15 II. TIMBER HILL’S CLAIMS FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS ARE TIMELY A. Timber Hill Should Not Be Deemed to Be an Opt-Out Plaintiff and Its Claims Therefore Relate Back to the Original Filing Date of the Earliest Class Action Included in the Consolidated Cases Defendants’ motion to dismiss on statute of limitations grounds should be denied because it is based on the erroneous premise that Timber Hill is an opt out plaintiff from a class which has not yet been certified. Plaintiff is a member of the class because it purchased derivative securities during the class period defined in the CAC.16 As a result, Timber Hill’s claims relate back to the original filing date of the earliest case included in the consolidated actions and are unquestionably timely. This Court has ruled that many of Timber Hill’s claims – and those of at least a portion of the class Timber Hill seeks to represent – were already asserted in the CAC. The Court also expressly contemplated the possible enlargement of the class at the time of class certification to include all of the derivative traders covered by the class definition in Timber Hill’s Complaint. Valeant 1, 2018 WL 5849466, at *11; see In re Campbell Soup Co. Sec. Litig., 145 F. Supp. 2d 574, 602 (D.N.J. 2001) (recognizing that “clarification and recasting” of claims is “par for the course” in class actions and new claims arising from the same conduct, transaction, action or occurrence set forth in the initial complaint relate back to the original filing date). In the alternative and as discussed in Section C below, even if Timber Hill were considered to be an opt out plaintiff – which is it not – its claims were timely filed because the statute of Climatemp, Inc., No. 79 C 3144, 1981 WL 2033, at *2 (N.D. Ill. Feb. 20, 1981), turned on the question of the number of absent class members. 16 Timber Hill also purchased Valeant common stock during the CAC class period and is a class member for that reason as well. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 22 of 34 PageID: 13006 16 limitations did not begin to run until June 7, 2016, at the earliest. At the very least, fact questions are presented that preclude this issue from being decided on the pleadings. B. The Two-Year Statute of Limitations Was Tolled Under American Pipe Regardless of Whether Timber Hill is Deemed to be an Opt-Out Plaintiff The Supreme Court has held that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 554 (1974); see also Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 354 (1983) (“Once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied.”). Here, the filing of the putative federal securities fraud class actions in 2015 tolled the individual securities fraud claims of members of the putative plaintiff class. Defendants incorrectly contend that Timber Hill forfeited its right to benefit from American Pipe tolling by filing its action prior to class certification. Def. Br. at 14-17. Defendants’ position has been rejected by the majority of courts that have considered such an argument. And for good reason: Defendants’ position that class action tolling does not apply to pre-certification individual actions filed by putative class members would turn on its head the purpose of the statute of limitations, and would lead to absurd and inequitable results. Although this precise issue has not been directly addressed by the Supreme Court or the Third Circuit, the majority of federal appeals courts to have considered the issue have concluded that American Pipe tolling applies to individual actions filed prior to class certification. In In re WorldCom Securities Litig. (“WorldCom I”), 496 F.3d 245, 247 (2d Cir. 2007), the Second Circuit held that under American Pipe, “the filing of a class action tolls the statute of limitations for all members of the asserted class, regardless of whether they file an individual action before Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 23 of 34 PageID: 13007 17 resolution of the question whether the purported class will be certified.” (Emphasis added). The Tenth Circuit followed the Second Circuit’s lead in State Farm Mutual Automobile Insurance Co. v. Boellstorff, 540 F.3d 1223, 1232-34 (10th Cir. 2008), as did the Ninth Circuit in In re Hanford Nuclear Reservation Litig., 534 F.3d 986, 1009 (9th Cir. 2008). Many district courts in the Third Circuit have followed this well-reasoned analysis and held that American Pipe tolling applies to individual actions filed before the issue of class certification has been decided. See, e.g., Winn- Dixie Stores, Inc. v. E. Mushroom Mktg. Coop., No. 15-6480, 2019 WL 130535, at *7-8 (E.D. Pa. Jan. 8, 2019) (adopting the Second Circuit’s reasoning in WorldCom I); McDavitt v. Powell, No. 09-0286, 2012 WL 959376, at *2-3 (M.D. Pa. Mar. 21, 2012) (same); In re Processed Egg Prods. Antitrust Litig., No. 08-2002, 2012 WL 6645533, at *8 (E.D. Pa. Dec. 20, 2012) (same). The majority rule makes perfect sense for a host of reasons. First, applying American Pipe tolling to pre-certification individual actions is entirely consistent with the purpose of statutes of limitation, which is to put defendants on notice of adverse claims and prevent plaintiffs from sleeping on their rights. See Am. Pipe, 414 U.S. at 554-55. As the Second Circuit reasoned in WorldCom I, “the initiation of a class action puts the defendants on notice of the claims against them,” and a “defendant is no less on notice when putative class members file individual suits before certification.” 496 F.3d at 255 (citing Am. Pipe, 414 U.S. at 554-55). Indeed, because “[c]lass members who do not file suit while the class action is pending cannot be accused of sleeping on their rights,” Crown, 462 U.S. at 352, it follows that “the same is certainly true of class members who file individual suits before the court decides certification.” WorldCom I, 496 F.3d at 255. Second, adopting Defendants’ “forfeiture” argument would lead to absurd results. Indeed, the Third Circuit recognized as such in an analogous context in Wallach v. Eaton Corp., 837 F.3d Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 24 of 34 PageID: 13008 18 356 (3d Cir. 2016). There, the Court held that American Pipe tolling applied to a pre-certification motion to intervene filed by a proposed class representative. The Court reasoned that extending American Pipe tolling to the pre-certification stage was necessary to avoid bizarre outcomes: “if the presumption of timeliness applied only to certified classes, then motions to intervene brought prior to class certification might be deemed untimely, even though those same motions would be timely if brought years later, after a class was certified.” Id. at 374 (emphasis added). The Court underscored that the “illogic of such a result” required it to apply American Pipe tolling “to the pre-certification context.” Id. The Third Circuit’s reasoning in Wallach applies with equal force applying American Pipe tolling to pre-certification individual actions. Indeed, in Crown the Supreme Court rejected the defendant’s argument that American Pipe tolling applies only to intervenors and not to individual actions filed by putative class members. 462 U.S. at 349-54. Absent American Pipe tolling, individual class members who wish to file their own lawsuits would be placed in exactly the same predicament that the Third Circuit cautioned against in Wallach. The problem is even more acute in the securities fraud context, where the applicable federal causes of action are subject not only to statutes of limitation (which are subject to American Pipe tolling), but also to statutes of repose (which are not). See Cal. Pub. Emps’ Ret. Sys. v. ANZ Sec., Inc. (“CalPERS”), 137 S. Ct. 2042, 2051-52 (2017). For example, the implied right of action under Section 10(b) of the Exchange Act has a two-year statute of limitations that runs from discovery of the violation, and a five-year statute of repose that runs from the date of the violation. See 28 U.S.C. § 1658(b); In re Exxon Mobil Corp. Sec. Litig., 500 F.3d 189, 194, 200 (3d Cir. 2007). Because the Supreme Court ruled in CalPERS that a statute of repose is not subject to American Pipe tolling, Defendants’ position, if accepted, would create an impossible situation for putative Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 25 of 34 PageID: 13009 19 class members if a class certification motion is not decided before the expiration of the statute of repose, but after the two-year discovery period elapsed. In that situation, putative class members who wished to pursue their own individual actions would have to file suit before the class certification motion was decided to preserve their claims before the statute of repose expires. However, under Defendants’ reasoning, claims asserted in those individual actions under the Exchange Act must be dismissed as time-barred because the two-year statute of limitations would have expired. But if the putative class members waited until after denial of class certification to file their own actions if such denial took place after the statute of repose had expired, their claims would be subject to dismissal as time-barred under the statute of repose. Defendants’ position on class action tolling thus creates a Catch-22 scenario in which investors wishing to pursue individual actions might never be able to do so. That cannot be the law. Third, as the Tenth Circuit correctly noted, “locking putative class members into the class until the class certification decision makes little sense and could adversely affect certain individuals.” Boellstorff, 540 F.3d at 1233. Class certification determinations can take years. Extending American Pipe tolling to pre-certification individual actions “permits litigants to decide to bring an individual action if they either (1) deem their own claims valuable enough or (2) decide that class certification is doubtful.” Id. It would be unfair to require these plaintiffs to incur the “costs” of waiting on a class certification decision, including “the possibility that the evidence will grow stale and added time the plaintiff must go without recovery.” Id. Finally, there is no evidence that applying American Pipe tolling to pre-certification individual actions would undermine the benefits of “efficiency and economy of litigation” that the Supreme Court considered in American Pipe. See 414 U.S. at 553-54. Investors who are likely to file an individual action will still file their separate actions even if they are forced to wait until Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 26 of 34 PageID: 13010 20 after the class certification decision (assuming the statute of repose has not expired). See Boellstorff, 540 F.3d at 1233-34. Indeed, the rule Defendants advocate for would have the effect of forcing investors who are “on the fence” about opting out to file individual actions before the facts of the underlying fraud have been comprehensively developed in order to preserve their potential claims because the clock would be ticking on those claims. See id. at 1234 (“Litigants in this bind might file placeholder suits rather than risk placing their individual actions on ice during a potentially prolonged class certification process. Thus, [defendant’s] proposed rule might well result in ‘needless duplication’ of actions that would ‘deprive Rule 23 class actions of the efficiency and economy of litigation which is a principal purpose of the procedure.’” (quoting Am. Pipe, 414 U.S. at 553-54).) Defendants urge this Court to adopt the minority view set forth by the Sixth Circuit in Wyser-Pratte Management Co. v. Telxon Corp., 413 F.3d 553 (6th Cir. 2005). Def. Br. at 14-15. However, the Sixth Circuit’s decision in Wyser-Pratte stands on extremely shaky ground. The court in Wyser-Pratte relied on the district court’s decision in WorldCom I, which was subsequently vacated by the Second Circuit after Wyser-Pratte was decided. Wyser-Pratte, 413 F.3d at 569 (quoting In re WorldCom, Inc. Sec. Litig. (“WorldCom II”), 294 F. Supp. 2d 431, 452 (S.D.N.Y. 2003), vacated, 496 F.3d 245 (2d Cir. 2007)). Moreover, far from “recently reaffirm[ing] its holding in Wyser-Pratte” as Defendants assert, Def. Br. at 15, in Stein v. Regions Morgan Keegan Select High Income Fund, Inc., 821 F.3d 780 (6th Cir. 2016), the Sixth Circuit recognized that “Wyser–Pratte now represents the minority rule” and it expressed “doubts about its holding.” However, the panel was bound by Wyser-Pratte as controlling authority in that jurisdiction. Stein, 821 F.3d at 789. In light of the thoughtful and well-reasoned decisions of the Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 27 of 34 PageID: 13011 21 Second, Ninth and Tenth Circuits that have refused to follow the reasoning of Wyser-Pratte, that case cannot be considered persuasive, much less binding, authority outside of the Sixth Circuit.17 As stated in a lending treatise on the Federal Rules of Civil Procedure: The Second, Ninth, and Tenth Circuits have the better of the argument. A plaintiff ought not be, in essence, punished for filing an individual action. Denying plaintiffs the benefit of American Pipe simply because they file an action makes little sense. While it is true that the American Pipe rule obviates the need to file an individual action, which may reduce the number of suites filed, there is nothing in American Pipe that discourages the filing of individual actions. 5 James Wm Moore et al., Moore’s Federal Practice, § 23.65 [2A], at 23-372.2 (Matthew Bender 3d ed.). Defendants’ reliance on outdated cases from this District is also misplaced because more recent authorities have established contrary precedent. Moreover, it is notable that in each of those § 1983 cases brought by prison inmates the court relied (either directly or derivatively) upon the reasoning of the district court in WorldCom II without acknowledging that the district court’s decision had been vacated by the Second Circuit. See Smart-El v. Corr. Med. Servs., Inc., No. 04- 3413, 2008 U.S. Dist. LEXIS 44376, at *8-10 (D.N.J. June 6, 2008); Hubbard v. Corr. Med. Servs., Inc., No. 04-3412 (SDW), 2008 WL 2945988, at *7 (D.N.J. July 30, 2008); Thomas v. Corr. Med. Servs., Inc., No. 04-3358 (NHL), 2009 WL 737105 (D.N.J. Mar. 17, 2009). Further, each of those cases was decided several years before the Third Circuit issued its decision in Wallach, which – as discussed above – applied American Pipe tolling in the pre-certification context. China Agritech is also inapposite here. 138 S. Ct. at 1800. See Def. Br. at 16-17. That case had nothing do with whether American Pipe tolling applies to pre-certification individual actions. Indeed, the Supreme Court in China Agritech focused on the timeliness of claims asserted 17 All of the other cases from outside of this Circuit that Defendants have cited in support of their position (Def. Br. at 15) pre-date the more recent authorities discussed above. Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 28 of 34 PageID: 13012 22 in a class action filed after class certification had been denied in a prior class action. 138 S. Ct. at 1804 (“The question presented in the case now before us: Upon denial of class certification, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations?”). Thus, the narrow issue facing the Supreme Court was whether, post-class certification denial, the equitable tolling doctrine applies to subsequently-filed class actions. The Supreme Court answered that question in the negative, grounding its holding on the distinction between individual actions filed by putative class members and subsequent class actions. At no point in China Agritech did the Supreme Court consider whether putative class members who file pre-certification individual actions somehow forfeit their right to rely on American Pipe tolling. The Supreme Court’s decision in CalPERS – which considered the timeliness of a pre- certification individual action – confirms the inapplicability of China Agritech here. In CalPERS the plaintiff filed its individual action more than two years after the applicable one-year statute of limitations had lapsed, but prior to opting out of the proposed class settlement (pursuant to which the class was certified). 137 S. Ct. at 2048. The Supreme Court held that only the three-year statute of repose, and not the one-year statute of limitations, was “central to th[e] case.” Id. at 2047. The Supreme Court surely would not have devoted its entire opinion to analyzing the three- year statute of repose if it could have simply held that the suit was time-barred under the one-year statute of limitations. Indeed, no post-China Agritech cases have accepted Defendants’ overbroad reading of that opinion. On the contrary, the two post-China Agritech cases that have addressed the application of American Pipe tolling to pre-class certification individual actions (one of which was issued by another district court in this Circuit) have continued to follow the majority view expressed by the Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 29 of 34 PageID: 13013 23 Second Circuit in WorldCom I. See, e.g., Winn-Dixie, 2019 WL 130535, at *7-8 (holding that individuals who file suit prior to class certification may rely on American Pipe tolling); Christianson v. Ocwen Loan Servicing, LLC, 338 F. Supp. 3d 989, 992-93 (D. Minn. 2018) (same). In fact, in Christianson the court rejected precisely the same argument about China Agritech that Defendants now advance. 338 F. Supp. 3d at 993, n.2 (“This Court agrees with Plaintiff that [China Agritech] is limited to addressing putative classes that spring from class actions already on file. . . . Because Plaintiff brought an individual action, the [China Agritech] decision is inapplicable.”). Timber Hill did not somehow “forfeit” its right to benefit from class action tolling of the statute of limitations by filing its class action complaint prior to the Court’s decision on class certification. Timber Hill’s lawsuit is thus timely even if the Court ultimately determines that the two-year statute of limitations began to run prior to June 6, 2016. In any event, as discussed below, Timber Hill’s claims are timely even if it is not entitled to rely on American Pipe tolling. C. Timber Hill’s Complaint Was Timely Filed Even Without the Benefit of American Pipe Tolling Defendants ask the Court to conclude as a matter of law that Timber Hill’s individual Section 10(b) and 20(a) claims are time-barred based on their previously-rejected contention that the full truth regarding Valeant’s business practices and relationship with Philidor was fully disclosed by the end of October 2015. Def. Br. at 11-13. They are wrong. This recycled argument – portions of which are copied verbatim from Valeant’s previous failed motions to dismiss – does not come close to meeting the high bar Defendants face in seeking dismissal of Timber Hill’s claims on the pleadings. The burden of establishing the applicability of the limitations defense to a particular claim lies with Defendants, and may not serve as a basis for dismissal unless apparent from the face of Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 30 of 34 PageID: 13014 24 the complaint. Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Securitization Transactions, Inc., 730 F.3d 263, 271 (3d Cir. 2013); Rycoline Prods. Inc. v. C & W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997); Gruber v. Price Waterhouse, 911 F.2d 960, 963 (3d Cir. 1990). The limitations defense is particularly inappropriate at the pleading stage, where questions of “[w]hether a plaintiff had sufficient facts” to form the basis of a claim is itself a “question of fact.” In re Lucent Techs., Inc. Sec. Litig., 217 F. Supp. 2d 529, 542 (D.N.J. 2002); Roll v. Singh, No. 07-cv-04136 (FLW), 2008 WL 3413863, at *14 (D.N.J. June 26, 2008) (“Courts in this District have previously stated that a determination of the timing of a plaintiff's knowledge of his claim is a ‘fact-intensive’ inquiry.”). Defendants cite the initial class actions filed against Valeant to argue that there was “sufficient information” by October 2015 “to file suit.” Def. Br. at 11. But that is not the standard. Under Merck, the mere fact that an investor was able to file a complaint alleging violations of the Exchange Act is irrelevant. The limitations period is triggered only if an investor had sufficient facts to plead a claim, including scienter, that would have survived a motion to dismiss. The initial complaints cited by Defendants made only conclusory assertions about Valeant’s business practices following the initial disclosures commencing in September of 2015. Indeed, while the “allegations in the other complaints likely pointed reasonably diligent investors to the probability that [defendants] had defrauded investors . . . . that is no longer sufficient to trigger the statute of limitations [following Merck] and, absent more detailed allegations [] the complaints cannot have provided Plaintiffs with notice of the securities-law violations.” DoubleLine Capital LP v. Odebrecht Fin., Ltd., 323 F. Supp. 3d 393, 439 (S.D.N.Y. 2018). The foundational underpinning to this logic is that the revelation of a false statement “does not automatically tell us whether the Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 31 of 34 PageID: 13015 25 speaker deliberately lied or just made an innocent (and therefore nonactionable) error.” Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 650 (2010). Defendants’ speculation that there were sufficient facts with which to form the basis of a claim in October 2015 is particularly dubious in light of their numerous subsequent positive statements purporting to rebut the September and October 2015 disclosures that formed the basis for the initial complaints: • “[w]e do not own or control Philidor . . . Philidor employees do not report to Valeant”; • “Philidor is independent” • “Philidor remains independent”; • “[t]here have been no issues with regards to the accounting or revenue recognition of the business,” and that “we stand by our accounting treatment of Philidor completely”; • “Valeant recognizes revenue only when products are dispensed to patients, and Valeant records this at net realized price”; • “very strong controls, in the areas of finance, compliance, audit []”; and • “we’re continuing to grow, grow, grow, generate cash flow.” Such “express denials of the reported allegations could have allayed a reasonable investor's concerns.” DoubleLine, 323 F. Supp. 3d at 438; see also In re Chicago Bridge & Iron Co. N.V. Sec. Litig., No. 17-cv-1580 (LGS), 2018 WL 2382600, at *5 (S.D.N.Y. May 24, 2018) (declining to dismiss complaint on statute of limitations grounds when the defendants “countered” statements in “many news reports of delays and accounting irregularities” with explicit denials of any Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 32 of 34 PageID: 13016 26 wrongdoing).18 Defendants ignore Timber Hill’s allegations demonstrating that they affirmatively disclaimed any wrongdoing on the heels of the September and October 2015 disclosures. To succeed on their limitations argument, Defendants would require a reasonably diligent investor to have disregarded Defendants’ disclaimers in October 2015. It is not credible to suggest that Defendants issued these statements with the expectation that they would be disregarded by investors. Such an inquiry would in any case be inappropriate on a motion to dismiss. At bottom, Defendants incorrectly argue that the Complaint “reveals that its allegations are based on information known to Plaintiff by October 2015.” Def. Br. at 12. This is an obvious misreading of the Complaint, which alleges Defendants made misleading statements well after October 2015 in an effort to allay any investors’ concerns, and that the fraud was not fully disclosed until August 2016. CONCLUSION For the foregoing reasons, Timber Hill respectfully submits that the Court should deny Defendants’ motion to strike and to dismiss the Complaint. 18 See also Alaska Elec. Pension Fund v. Pharmacia Corp., No. 03-1519, 2012 WL 1680097, at *7 (D.N.J. May 14, 2012) (“reassurances can dissipate investor's fear of malfeasance if an investor of ordinary intelligence would reasonably rely on those reassurances.”) (citation omitted). Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 33 of 34 PageID: 13017 27 Dated: February 5, 2019 Respectfully Submitted, /s/ Andrew J. Entwistle Andrew J. Entwistle aentwistle@entwistle-law.com Vincent R. Cappucci (admitted Pro Hac Vice) vcappucci@entwistle-law.com Arthur V. Nealon (admitted Pro Hac Vice) anealon@entwistle-law.com Robert N. Cappucci rcappucci@entwistle-law.com ENTWISTLE & CAPPUCCI LLP 299 Park Avenue, 20th Floor New York, NY 10171 Telephone: (212) 894-7200 Facsimile: (212) 894-7272 MARC M. SELTZER (admitted Pro Hac Vice) mseltzer@susmangodfrey.com SUSMAN GODFREY L.L.P. 1900 Avenue of the Stars, Suite 1400 Los Angeles, CA 90067-6029 Telephone: (310) 789-3100 Facsimile: (310) 789-3150 Case 3:15-cv-07658-MAS-LHG Document 417 Filed 02/05/19 Page 34 of 34 PageID: 13018