United States District Court, D. Connecticut
ONTARIO TEACHERS' PENSION PLAN BOARD, Individually and as Lead Plaintiff on behalf of all others similarly situated; and Anchorage Police & Fire Retirement System, Individually and as Named Plaintiff on behalf of all similarly-situated bond purchasers, Plaintiffs,
v.
TEVA PHARMACEUTICAL INDUSTRIES LTD., et al., Defendants.
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Gretchen M. Nelson, Nelson & Fraenkel LLP, Los Angeles,
CA, Javier Bleichmar, Pro Hac Vice, Joseph A. Fonti, Pro Hac
Vice, Wilson M. Meeks, III, Pro Hac Vice, Evan A. Kubota,
Thayne Stoddard, Bleichmar Fonti and Auld LLP, New York, NY,
Lesley E. Weaver, Bleichmar Fonti & Auld, LLP, Oakland,
CA, J. Christopher Rooney, Carmody Torrance Sandak &
Hennessey, LLP, New Haven, CT, Liam S. Burke, Marc J.
Kurzman, Carmody Torrance Sandak & Hennessey, LLP,
Stamford, CT, for Plaintiffs.
Blake
M. Zollar, Craig Edward Ten-Broeck, Koji F. Fukumura, Cooley
LLP, San Diego, CA, Emily E. Renshaw, Pro Hac Vice, Jason D.
Frank, Pro Hac Vice,
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Jordan D. Hershman, Pro Hac Vice, Morgan Lewis & Bockius
LLP, Boston, MA, Jill M. O'Toole, Shipman & Goodwin
LLP, Michael D. Blanchard, Morgan, Lewis & Bockius LLP,
Hartford, CT, for Defendants.
Stefan
R. Underhill, United States District Judge.
I.
INTRODUCTION
Lead
Plaintiff, Ontario Teachers' Pension Plan Board
("Ontario Teachers'"), and Named Plaintiff
Anchorage Police & Fire Retirement System
("Anchorage") (together, "the
plaintiffs"), individually and on behalf of all others
similarly situated ("the Class"), filed this Second
Amended Consolidated Class Action Complaint ("the
complaint") on June 22, 2018, Doc. No. 226. Their first
set of allegations, called "'34 Act
Allegations", "34 Act Allegations", or alleged
Exchange Act violations, are asserted against the following
defendants (together "'34 Act Defendants"):
Teva Pharmaceutical Industries, Ltd. ("Teva");
Former Teva President and CEO Erez Vigodman
("Vigodman"); Former Teva CFO Eyal Desheh
("Desheh"); Former Teva America Generics President
and CEO Allan Oberman ("Oberman"); Former Teva
Global Generics President and CEO Sigurdur Olafsson
("Olafsson"); Former Teva SVP and CAO Deborah
Griffin ("Griffin"); Former Teva SVP and COO
Maureen Cavanaugh ("Cavanaugh"). Compl., Doc. No.
226 at ¶¶ 24-32. Plaintiffs also allege
"Securities Act Allegations" against the following
defendants (together "Securities Act Defendants"):
Teva; Teva Pharmaceuticals Finance Netherlands III B.V.
("Teva Finance"); Vigodman; Desheh; and Griffin.
Id. at ¶¶ 371-77.
The
Defendants moved to dismiss all counts of the Complaint
(see Doc. Nos. 238, 239, 240), and the parties have
fully briefed the motions. Upon a review of the
defendants' numerous motions in light of the
plaintiffs' account of facts, which I accept as true, I
conclude that some of the defendants' arguments have
merit. Thus, for the reasons stated below, the Motion to
Dismiss filed by Teva, Vigodman, Desheh, Griffin, and
Olafsson (doc. no. 238) and the Motion to Dismiss filed by
Teva Finance (doc. no. 239) are denied in substantial
part but granted with respect to
the plaintiffs' allegations stemming from the
defendants' failure to disclose subpoenas from the
Department of Justice and Connecticut Attorney General.
Further, the Motion to Dismiss filed by Cavanaugh and Oberman
(doc. no. 240) is granted.
II.
BACKGROUND
Plaintiff's
securities class action claims "arise[] from the
difference between what the Defendants told investors was
driving Teva's financial success and the truth behind
Teva's performance." Compl, Doc. No. 226 at ¶
1. Plaintiffs basically allege that the defendants
implemented "a strategy to systematically raise generic
drug prices across a large swath of Teva's generic drug
portfolio," which the plaintiffs refer to as the
"Price-Hike Strategy." Id. According to
the plaintiffs, however, the defendants failed to reveal the
actual reason for the company's financial success, and
attributed the growth to "fundamental business
strategies" such as cost-cutting and "good product
management." Id. The plaintiffs allege that the
reported profits made Teva look more successful than it was,
compelling plaintiffs, and others, to invest.
A.
The Parties
1.
Plaintiffs and the Class
Ontario
Teachers' "is the largest single-profession pension
plan in Canada, representing roughly 323,000 active and
retired teachers in the Province of Canada." Compl.,
Doc. No. 226 at ¶ 20. Ontario
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Teachers' alleges that it purchased and acquired Teva
American Depository Shares ("ADS") registered on
the New York Stock Exchange ("NYSE") and Preferred
Shares in domestic transactions during the class period
(February 6, 2015 through August 3, 2017). Id. at
¶ 21. Anchorage "is a public pension fund in
Anchorage, Alaska that provides pension, disability, and
survivor benefits to active and retired police officers and
firefighters and their families." Id. at ¶
22. Anchorage alleges that it purchased and acquired Teva
Notes during the class period. Id. at ¶ 23. The
plaintiffs alleged that they "suffered damages as a
result of the violations of the federal securities laws
alleged herein." Id. at ¶ 21, 23. Ontario
Teachers' "brings separate claims under the 34 Act
and the Securities Act on behalf of all Class Members."
Id. at ¶ 20. Anchorage "brings separate
claims under the 34 Act and the Securities Act on behalf of
Class members who purchased or otherwise acquired Teva
Notes." Id. at ¶ 22.
2.
Defendants
Teva,
"the world's largest generic drug
manufacturer", is incorporated in Israel, and has a
wholly-owned subsidiary, Teva USA. Id. at ¶ 24.
Teva is named in both the '34 Act Allegations and the
Securities Act Allegations.
Vigodman
was Teva's President and Chief Executive Officer
("CEO") from January 11, 2014 to February 6, 2017
and a Teva Director from June 22, 2009 to February 6, 2017.
Id. at ¶ 26. The plaintiffs allege that
Vigodman's liability stems from his signing and
certifying certain forms, including Securities and Exchange
Commission ("SEC") forms 20-F and 6-K, that
included false and misleading statements, and making false
statements on conference calls and in notes documents.
Id. Vigodman is named in both the '34 Act
Allegations and the Securities Act Allegations.
Desheh
was Teva's Chief Financial Officer ("CFO") from
July 2008 to June 30, 2017, except from October 30, 2013 to
February 11, 2014 when he served as Teva's interim CEO
and Interim President. Id. at ¶ 27. The
plaintiffs allege that Desheh's liability stems from his
signing and certifying certain forms, including SEC forms
20-F and 6-K, that included false and misleading statements,
and making false statements on conference calls and in notes
documents. Id. Desheh is named in both the '34
Act Allegations and the Securities Act Allegations.
Oberman
was Teva Americas Generics' President and CEO from
November 5, 2012 to December 13, 2014. Id. at ¶
28. The plaintiffs allege that Oberman's liability stems
from his false and misleading statements, as well as his
approval and control of the false and misleading SEC filings.
Id. Oberman is named in both the '34 Act
Allegations and the Securities Act Allegations.
Olafsson
was Teva's Global Generic Medicine Group's President
and CEO from July 1, 2014 to December 5, 2016. Id.
at ¶ 29. The plaintiffs allege that Olafsson's
liability stems from his false and misleading statements, as
well as his approval and control of the false and misleading
SEC filings. Id. Olafsson is named in the '34
Act Allegations only.
Griffin
is the current Teva Senior Vice President ("SVP")
and Chief Accounting Officer ("CAO"), and was an
authorized representative of both Teva and Teva Finance, who
served as Vice President and CFO of Teva USA. Id. at
¶ 30. The plaintiffs allege that Griffin's liability
stems from signing the notes and shares statements as well as
her approval and control of the false and misleading SEC
filings. Id. Griffin is named in both the '34
Act Allegations and the Securities Act Allegations.
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Cavanaugh was Teva USA's SVP and Chief Operating Officer
("COO") for North American Generics. Id.
at ¶ 31. The plaintiffs allege that Cavanaugh's
liability stems from her approval and control of the false
and misleading SEC filings. Id. Cavanaugh is named
in the '34 Act Allegations only.
Teva
Finance is Dutch company that is "a shell company that
is wholly-owned and controlled special purpose finance
subsidiary of Teva." Id. at ¶ 373.
B.
Procedural History
The
original complaint was filed on November 6, 2016 in the
Central District of California. Compl., Doc. No. 1. It was
transferred to the District of Connecticut on April 4,
2017.[1] Doc. No. 75. On July 11, 2017, Ontario
Teachers' Pension Plan Board was appointed as lead
plaintiff. Order, Doc. No. 124. The plaintiffs filed a Class
Action Complaint for Violation of the Securities Act of 1933
on August 2, 2017, Compl., Doc. No. 129; and an Amended Class
Action Complaint for Violation of the Securities Act of 1933
on September 5, 2017. Compl., Doc. No. 138. Plaintiffs filed
an Amended Consolidated Class Action Complaint on September
11, 2017. Compl., Doc. No. 141. The defendants filed multiple
Motions to Dismiss, which I granted without prejudice to
repleading on April 3, 2018. See Motions to Dismiss,
Doc. Nos. 187, 188, 189, 190, and 198; Order, Doc. No. 215.
Thereafter, the plaintiffs filed the operative Second Amended
Consolidated Class Action Complaint on June 22, 2018. Compl.,
Doc. No. 226.
Teva,
Vigodman, Desheh, Griffin, and Olafsson filed a Motion to
Dismiss on September 14, 2018 (see '34 Act Mot.
to Dism., doc. no. 238), which the plaintiffs opposed
(see Opp. to '34 Act Mot. to Dism., doc. no.
244), and the Teva defendants filed a reply (see
Reply to '34 Act Mot. to Dism., doc. no. 254). Teva
Finance also filed a Motion to Dismiss on September 14, 2018
(see Teva Fin. Mot. to Dism., doc. no. 239), which
the plaintiffs opposed (see Opp. to Teva Fin. Mot.,
doc. no. 246), and Teva Finance filed a reply (see
Reply to Teva Fin. Mot., doc. no. 255). Lastly, Cavanaugh
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and Oberman filed a Motion to Dismiss on September 14, 2018
(see C/O Mot. to Dism., doc. no. 240), which the
plaintiffs opposed (see Opp. to C/O Mot., doc. no.
247), and Cavanaugh/Oberman filed a reply (see Reply
to C/O Mot., doc. no. 256).
C.
Factual Allegations
The
allegations in the Second Amended Consolidated Class Action
Complaint stem mostly from three categories of alleged
misrepresentations/omissions by Teva relative to: (1) the
source of its profit success; (2) the competitive nature of
the generics market; and (3) the investigations in which Teva
was involved. See generally, Compl, Doc. No. 226.
The plaintiffs allege that those misrepresentations/omissions
were perpetuated by Teva officials in order to inflate
profits to make Teva appear more successful and attractive in
the market and, therefore, attract more investors to raise
money to acquire a competitor company. Id. The
plaintiffs allege generally that the defendants consistently
misrepresented to investors and the market that their
financial success was due to good business decisions, and not
because of pricing, when, in fact, they were consistently
raising prices of many of their generic drugs and were
concealing information from investors, analysts, and the
public. Id. Further, the plaintiffs allege generally
that the defendants consistently misrepresented that the
generics market was highly competitive when, in fact, the
defendants and its competitors were engaged in a collusive
agreement to raise prices, further inflating Teva's
profits. Id. The plaintiffs refer to that as the
price-fixing conspiracy. The plaintiffs also allege that Teva
was the subject of numerous investigations into its pricing
and profits but concealed that information from the public
and investors. Id. The plaintiffs base their
allegations "on Lead Counsel's investigation, which
included interviews with numerous former employees of
Teva[.]" Id. at ¶ 33.
The
plaintiffs allege that the class period began on February 6,
2014 when Teva "announced its fourth quarter 2013 and
full year 2013 financial results in a press release",
because those reported profits resulted from the undisclosed
price-hike strategy. Id. at ¶ 46. The
plaintiffs allege that before the class period began,
"Teva's generics segment was struggling and [its]
share price had dropped from the $60s in 2010 into the $30s
by 2013." Id. at ¶ 34. Teva's then-CEO
planned to focus on branded drugs but was abruptly fired and
Desheh, then CFO, became the interim-CEO in November 2013.
Id. Desheh and then-CEO Vigodman announced that Teva
would make a "major acquisition." Id. at
¶ 35. Plaintiffs allege, though, that in early 2013 Teva
adopted the price-hike strategy, which was "a non-public
strategy to systematically increase prices across dozens of
drugs in its generic drug portfolio." Id. at
¶ 36. The plaintiffs allege that, as part of this
strategy, Teva raised the prices of 18 of its generic drugs
on July 3, 2013 and August 9, 2013, some as much as an 812%
increase, which led to $875 million in price-related profit.
Id. at ¶ 42-43. Further, the plaintiffs allege
that fifteen of those increases were "implemented
together with Teva's competitors who also made price
increases on the same drugs." Id.
Plaintiffs
allege that Teva's financial results announcement on
February 6, 2014, which started the class period, revealed a
14% increase in generics revenue for 2013 fourth quarter, and
attributed that increase to "`higher sales' volume,
reduced expenses, and `exclusive launches' of new generic
drugs." Id. at ¶ 47. The plaintiffs allege
that the defendants omitted that, although those reasons may
have had some influence, the real reason for the
increase was the price-hike strategy. Id. The
plaintiffs allege that the defendants perpetuated this
misrepresentation/omission in calls with investors and
analysts. Id. at ¶ 48.
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The
news of Teva's financial success in 2013 led to increased
share prices on the stock market, and by March 2014, it was
trading at $48. Id. at ¶ 50. By April 2014, the
share price had increased to $54.06. Id. at ¶
52. The plaintiffs allege that in April 2014, as part of the
price-hike strategy, Teva increased the prices of another
twelve generic drugs, eight of which were done in
collaboration with competitors. Id. at ¶ 56. On
May 1, 2014, Teva announced that its continued financial
success was due to "lower expenses, a changed
composition of revenues, and `new product
launches.'" Id. at ¶ 53. The
plaintiffs allege, though, that the price-hike strategy had
generated $120 million that quarter, making it the actual
cause of the financial success. Id. The success
gained Teva more positive press. Id. at ¶ 55.
On July
31, 2014, Teva announced that it was seeing continued
financial success due to "the growth of [its] global
generic business, primarily in the U.S." Id. at
¶ 59. The plaintiffs allege that the price-hike strategy
was the actual reason for the financial success, generating
as much as $160 million in profit. Id. at ¶ 61.
On July 1 and August 28, 2014, Teva increased the prices of
another 20 drugs, twelve of which were done in collaboration
with competitors. Id. at ¶ 63. The plaintiffs
allege that those increases generated as much as $50 million
in profit. Id.
The
generic drug market came under scrutiny in summer of 2014 and
the Connecticut Attorney General began a "non-public
investigation into the companies that manufactured
digoxin" and issued subpoenas to many of Teva's
competitors. Id. at ¶ 58, 62. Congress also
started looking into the generic drug market and sent Teva a
letter in October 2014 seeking information on its recent
price increases, to which Teva never responded. Id.
at ¶ 62. Teva also refused to testify in a November 20,
2014 Senate Subcommittee of Primary Health and Aging hearing.
Id. at ¶ 70.
On
October 30, 2014, Teva again reported financial success, with
a $160 million increase in generic drug profits. Id.
at ¶ 65. The plaintiffs allege that defendants again
misrepresented and omitted the truth about the profits in
both written statements and on calls with investors and
analysts. Id. at ¶ 66-67, 72. Teva continued to
receive positive press on the basis of those financial
results. Id. at ¶ 68. Amidst public scrutiny of
the generic market as a whole, Teva again announced positive
financial results on February 5, 2015, including a $480
million generic segment profit increase from 2013 to 2014.
Id. at ¶ 74. The plaintiffs allege that Teva
reported $693 million of profit for the year 2014.
Id. at ¶ 76. The plaintiffs allege that the
defendants again misrepresented and/or omitted the real
reason for the financial success in written statements and on
calls with investors and analysts, which gained Teva positive
press. Id. at ¶ 76-77.
In
January 2015, Teva increased the prices of another 14 drugs,
nine of which were done in collaboration with competitors.
Id. at ¶ 79. The plaintiffs allege that this
generated as much as $48 million in profits, and the overall
price-hike strategy generating as much as $228 million in the
first quarter of 2015. Id. The plaintiffs allege
that the defendants continued to misrepresent/omit the real
reason for their financial success in written statements and
on calls with investors and analysts, gaining Teva more
positive press. Id. at ¶ 83-86. Teva shares
started trading at almost $60 per share, which led the media
to speculate about a possible acquisition. Id. at
¶ 80. Teva unsuccessfully tried to acquire Allergan and
Mylan. Id. at ¶ 81-82. Teva's shares then
increased to $72 per share. Id. at ¶ 87.
With
high stock prices, on July 27, 2015, Teva announced that it
would acquire Actavis,
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Allergan's worldwide generics business, for $40.5 billion
in cash and equity. Id. Plaintiffs allege that the
defendants now needed to raise $30 billion to complete the
deal and, therefore, Teva's motivation for raising
capital shifted from acquisition to payment. Id. at
¶ 89. Plaintiffs allege that Teva, on July 30, 2015,
again reported financial success due to "reduced
expenses and new product launches" in the generics
segment, and continued to perpetuate that
misrepresentation/omission in calls with media and investors.
Id. at ¶ 90. In July 2015, Teva implemented a
price increase of another seven drugs, four of which were
done in collaboration with competitors. Id. at
¶ 91. The plaintiffs allege that Teva again, on October
29, 2015, reported financial success and
misrepresented/omitted that the real reason was the
price-hike strategy, and falsely stated that it was due to
lower expenses, again gaining Teva continued positive press.
Id. at ¶ 92-94. Amidst growing public and
political scrutiny of the generics market, Teva denied any
exposure to legislation that would penalize manufacturers who
increased prices more than inflation and concealed the
price-hike strategy, gaining more positive press for Teva.
Id. at ¶ 95-98.
The
plaintiffs allege that the cash to complete the Actavis deal
would come from three offerings: (1) a $7 billion secondary
public offering of depository shares in December 2015; (2) an
initial public offering of Preferred Shares in December 2015;
and (3) a $15 billion offering of bonds in 2017. Id.
at ¶ 89. In November and December 2015, Teva filed a
registration statement with the SEC and two prospectus
supplements for the two share offerings, all of which
"included numerous false [and] misleading statements
attributing Teva's profits to sources other than the
price-hike strategy." Id. at ¶ 101. The
two shares offerings were issued and raised roughly $7.2
billion. Id.
Amidst
even more public scrutiny in the generics sector, Teva
continued to misrepresent and omit the real reasons for its
increased financial success. Id. at ¶ 103. On
February 11, 2016, Teva again reported financial success, in
which the plaintiffs allege they concealed $848 million in
profits from the price-hike strategy. Id. at ¶
105. The plaintiffs allege that Teva continued to perpetuate
the misrepresentation/omission about the reasons for their
financial success, which led to continued positive press for
Teva. Id. at ¶ 106-10. In the face of even more
public scrutiny of the sector, Teva continued to "deny
any vulnerability to pricing pressure." Id. at
¶ 113. The plaintiffs allege that the price-hike
strategy began to falter and Teva, on April 6, 2016,
increased the prices on only five generic drugs, all of which
Teva had increased before. Id. at ¶ 114. Teva
also, on May 9, 2016, reported negative financial
results—$215 million less in first quarter 2016 than
in first quarter 2015—which it attributed to
"higher expenses, lower sales, lower European profit,
and fewer product launches." Id. at ¶ 116.
Teva continued to report that pricing pressure had nothing to
do with their financial results. Id. at ¶ 117.
The plaintiffs allege that, contrary to its public
statements, Teva was indeed being substantially damaged by
price deflation, and its price increase related profit had
"plummeted." Id. at ¶ 118. Teva
continued to issue statements perpetuating the
omission/misrepresentation that it was not subject to pricing
pressure, and the media therefore continued to report as
such. Id. at ¶ 119-20.
In June
and July 2016, Teva received subpoenas from both the
Department of Justice ("DOJ") and the Connecticut
Attorney General, seeking information about its generics
pricing. Id. at ¶ 122. One day after receiving
the Attorney General's subpoena, on July 13, 2016, Teva
announced
Page 149
that its $20 billion debt offering, scheduled for September,
would be accelerated, and filed a Registration Statement with
the SEC that day. Id. at ¶ 123. In conjunction
with the offering, Teva continued to report that it had
"stable" pricing and "saw no change" in
generics pricing, which the media reported, and Teva did not
report the receipt of the subpoenas. Id. at 124-26.
Teva launched its $20 billion bond offering on July 18, 2016
pursuant to the Notes Offering Materials, "which
incorporated several of the false and misleading quarterly
and full year financial disclosures", and did not
disclose the subpoenas from the DOJ or Connecticut Attorney
General. Id. at ¶ 127.
On
August 4, 2016, Teva disclosed the subpoenas and reported
negative financial results from the second quarter of
2016— $115 million less in profits than in the second
quarter of 2015—which Teva attributed to
"increased expenses, the loss of exclusivity on certain
products, and lower sales on products for which Teva had not
taken price increases." Id. at ¶ 128. The
plaintiffs allege that the defendants concealed that Teva had
earned $122 million less in price-based profit. Id.
With the negative financial results and disclosure of the
subpoenas, the price of securities declined. Id. The
plaintiffs allege that the defendants continued to perpetuate
the misrepresentations and omissions about their pricing
practices to investors, analysts, and the media. Id.
at ¶ 129-34.
On
November 3, 2016, Bloomberg released an article about the DOJ
and Connecticut Attorney General probes into generic drug
manufacturers, and specifically stated that Teva was being
investigated, which led to Teva securities immediately
dropping 9%. Id. at ¶ 135-36. On November 15,
Teva reported negative financial results from the third
quarter of 2016—a $277 million decline from the third
quarter of 2015—which Teva attributed to "causes
such as divestments and lost sales from certain drugs."
Id. at ¶ 137. The plaintiffs allege, though,
that the decline was "attributable to a ... decline in
inflated profit as the price-hike strategy collapsed"
but that Teva repeatedly and fraudulently disclaimed that was
the reason. Id. at ¶ 137-38. CEO Olafsson
abruptly "retired" shortly thereafter, but the
plaintiffs allege that he was actually fired. Id. at
¶ 140. Soon after that, the DOJ announced that it
charged, via an information, two executives of a Teva
competitor, Heritage, with conspiring to fix prices, rig
bids, and manipulate the market for Glyburide, for which, the
plaintiffs allege, Teva controlled 75% of the market.
Id. at ¶ 142. On December 15, the Connecticut
Attorney General announced that it, and other Attorneys
General, were charging Teva and others with antitrust
violations regarding Glyburide (more drugs have since been
added, id. at ¶ 144). Id. at ¶
143. The plaintiffs allege that the AG complaint "cited
emails, calls, and documents that evince explicit collusion
between Teva and Heritage's principals" who had been
criminally charged. Id.
On
January 6, 2017, Teva again reported negative financial
results and continued to falsely attribute the reasons.
Id. at ¶ 145-48. One month later, Vigodman was
terminated as President and CEO, and that news, in tandem
with the negative financial reports, caused Teva securities
to drop. Id. at ¶ 145, 149. Shortly thereafter,
Teva reported its financial results for 2016 and reported
that without Actavis, it would have had a $1.4 billion
decline, which Teva attributed to "loss of exclusivity,
lower sales of certain drugs, and then loss of revenues from
divested product." Id. at ¶ 151. On August
3, 2017, Teva "took a $6.1 billion charge against its
U.S. generics business, a permanent reduction in the entire
business's valuation and a dollar-for-dollar hit to [its]
bottom line." Id. at ¶ 153. The plaintiffs
allege that this was a "direct result of the complete
collapse of the price-hike
Page 150
strategy, and evaporation of the inflated profits."
Id. Credit rating agencies downgraded Teva's
debt rate to just above "junk" and the price of
Teva securities "fell dramatically." Id.
at ¶ 154.
From
the above allegations, the plaintiffs assert that the
defendants "made four types of false and misleading
statements or omissions on conference calls with investors
and in SEC filings": (1) Item 5
non-disclosure—the plaintiffs allege that the
defendants "violated their statutory duty to disclose
material trends under Item 5 of Form 20-F" when they
"failed to disclose the material trend of generating
profit as part of the concealed price-hike strategy" and
they also "concealed the trend of declining inflated
profit, and that they could no longer make price increases as
the strategy unraveled"; (2) False statements regarding
competition—the plaintiffs allege that the
defendants' statements "falsely indicated that Teva
was participating in competitive and functioning markets for
generic drugs" when, actually, "[t]o the contrary,
Teva made dozens of price increases in tandem with its
competitors" and Teva and the cooperating companies
"deliberately did not compete on price"; (3) False
and misleading pricing statements— the plaintiffs
allege that the defendants' statements "concealed
Teva's price-hike strategy and the profits it
generated" and then later "concealed that the
price-hike strategy fell apart as Teva was unable to make
more price increases or sustain inflated profit" and the
statements "were particularly misleading as the 34 Act
Defendants touted, and investors were highly attuned to, the
sources of the generic segment's purported success";
and (4) Concealed receipt of subpoenas—the plaintiffs
allege that the defendants "failed to disclose in the
Notes Offering Materials Teva's receipt of subpoenas from
the DOJ and the State Attorneys General in connection with
their antitrust investigations into the generics
industry." Id. at ¶ 155. The plaintiffs
lay out the alleged false and misleading statements and
omissions in more detail, along with their allegations about
why each statement was fraudulent. Id. at ¶
155-239.
D.
Legal Claims
1.
'34 Act (Exchange Act)
Allegations[2]
Count
One alleges a violation of Section 10(b) of the Exchange Act
and Rule 10b-5, promulgated thereunder, by the '34 Act
Defendants. Compl., Doc. No. 226 at ¶ 342. Plaintiffs
assert, inter alia, that the '34 Act Defendants
"made, disseminated, or approved the false and
misleading statements... which they knew or recklessly
disregarded were false and misleading in that the statements
contained material misrepresentations and failed to disclose
material facts necessary in order to make the statements
made, in light of the circumstances under which they were
made, not misleading." Id. Plaintiffs allege
that they, and the class, "suffered damages in that, in
reliance on the integrity of the market, they paid
artificially inflated prices for Teva Securities."
Id. at ¶ 344.
Count
Two alleges a violation of Section 20(a) of the Exchange Act
by the '34 Act Defendants. Id. at ¶ 347.
Plaintiffs assert that the defendants "had the power and
ability to control the actions of Teva and its
employees" and are therefore liable under Section 20(a).
Id.
2.
Securities Act Allegations[3]
Count
Three alleges a violation of Section 11 of the Securities Act
by the Securities
Page 151
Act Defendants. Id. at ¶ 397. Plaintiffs assert
that this count "does not sound in fraud" and
liability is "predicated on the participation of each
defendant in the ... Offering Materials, which contained
untrue statements and omissions of material fact."
Id. Count Three is brought against all Securities
Act Defendants with respect to the ADS/Preferred Offerings
"on behalf of the class who purchased or otherwise
acquired Teva ADS or Preferred Shares pursuant and/or
traceable to the ADS/Preferred Offerings[.]"
Id. at ¶ 398. Count Three is brought against
all Securities Act Defendants, except Teva Finance, with
respect to the Notes Offerings "on behalf of members of
the class who purchased or otherwise acquired Notes pursuant
and/or traceable to the Notes Offering[.]" Id.
at ¶ 399. Plaintiffs allege that the ADS/Preferred and
Notes Offerings "contained ... untrue statements of
material fact or omitted to state [material facts] ...
required to be stated therein or necessary to make the
statements therein not misleading." Id. at
¶ 400.
Count
Four alleges a violation of Section 12(a)(2) of the
Securities Act by the Securities Act Defendants. Id.
at ¶ 406. Plaintiffs assert that Count Four is solely
based in negligence and not fraud. Id. Count Four is
brought "on behalf of all persons who purchased
securities in/pursuant to, and/or traceable to the
Offerings", offered by means of prospectus or oral
communications which "included ... untrue statements of
material fact and/or omitted to state ... material facts
necessary in order to make the statements, in light of the
circumstances under which they were made, not
misleading." Id. at ¶¶ 407, 410.
Count
Five alleges a violation of Section 15(a) of the Securities
Act by Teva, Vigodman, Desheh, and Griffin; all in connection
with the Notes Offering, and against all but Teva in
connection with the ADS and Preferred Offerings. Id.
at ¶¶ 415-16. Plaintiffs assert that Count Five is
solely based in negligence and not fraud. Id.
Plaintiffs assert that the defendants "acted negligently
in that none of them exercised reasonable care to ensure, or
had reasonable grounds to believe, that the Offering
Materials were true and not misleading as to all material
facts and did not omit to state any material fact required to
be stated therein or necessary to make ... the statements
therein not misleading." Id. at ¶ 421.
III.
DISCUSSION
A.
Pleading Standards: Rule 12(b)(6), Rule 8(a), Rule 9(b), and
the PLSRA
Rule
12(b)(6) permits dismissal of a complaint for "failure
to state a claim upon which relief can be granted."
Fed.R.Civ.P. 12(b)(6). A motion to dismiss for failure to
state a claim pursuant to Rule 12(b)(6) is designed
"merely to assess the legal feasibility of a complaint,
not to assay the weight of evidence which might be offered in
support thereof." Ryder Energy Distribution Corp. v.
Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d
Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d
636, 639 (2d Cir. 1980)). When deciding a motion to dismiss
pursuant to Rule 12(b)(6), the court must accept the material
facts alleged in the complaint as true, draw all reasonable
inferences in favor of the plaintiffs, and decide whether it
is plausible that plaintiffs have a valid claim for relief.
Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct.
1937, 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007); Leeds v. Meltz, 85 F.3d 51, 53
(2d Cir. 1996).
Under
Twombly, "[f]actual allegations must be enough
to raise a right to relief above the speculative level,"
and assert a ...