The opinion of the court was delivered by: SWEET
Defendants in four related cases arising under Sections 11, 12(2) and 15 of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. §§ 77k(a), 771(2), 77o, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), have moved to dismiss the claims against them pursuant to Federal Rule of Civil procedure Rule 9(b) on the ground that the Complaints fail to plead fraud with particularity, and pursuant to Federal Rule of Civil Procedure 12(b)(6), on the ground that the Complaints fail to state a claim upon which relief may be granted. In Katz v. Blech, 1996 U.S. Dist. LEXIS 7870, 95 Civ. 7215 (RWS), ("Katz " or the "Katz Action"), those motions have been made by Defendants L. Scott Minick ("Minick"), Mark J. Tomei ("Tomei"), James D. Coombes ("Coombes") and Christopher S. Henney ("Henney") (collectively, the "Individual LXR Defendants") and LXR Biotechnology, Inc. ("LXR") (collectively the "LXR Defendants"), and Mark S. Germain ("Germain"). In Degulis v. LXR Biotechnology, 928 F. Supp. 1301, 1996 U.S. Dist. LEXIS 7870 (RWS) ("LXR " or the "LXR Action"), the motions have been made by LXR, Tomei, Coombes and Germain. In Degulis v. Ariad, 95 Civ. 4298 (RWS), ("Ariad " or the "Ariad Action"), the motions have been made by defendants Harvey J. Berger ("Berger") and Edgar Haber ("Haber") (collectively, the "Individual Ariad Defendants") and Ariad pharmaceuticals, Inc. ("Ariad") (collectively, the "Ariad Defendants"). In Kozloski v. Intelligent Surgical Lasers, 95 Civ. 4299 (RWS), ("ISL " or the "ISL Action"), the motions have been brought by defendants Heinz R. Gisel ("Gisel"), Ted G. White ("White"), Edward M. Lake ("Lake"), Robert J. Feeney, Jr. ("Feeney"), Anthony B. Evnin ("Evnin"), Robert J. Kunze ("Kunze"), Ann H. Lamont ("Lamont") and C. Christian Von Weizsacker ("Von Weizsacker") (collectively, the "Individual ISL Defendants") and Intelligent Surgical Lasers, Inc. ("ISL") (collectively, the "ISL Defendants"). For the reasons set forth below, those motions will be denied.
Defendants in a fifth related case, Weiss v. Blech, 95 Civ. 6422 (RWS), brought pursuant to Sections 11, 12 and 15 of the Securities Act, John M. Pietruski ("Pietruski"), David B. McWilliams ("McWilliams"), Richard A.F. Dixon ("Dixon"), Stephen L. Mueller ("Mueller"), John R. Plachetka ("Plachetka"), Joseph M. Welch ("Welch") and James T. Willerson ("Willerson") (the "Individual TBC Defendants") and Texas Biotechnology Corporation ("TBC") (collectively, the "TBC Defendants") have moved for reconsideration pursuant to Federal Rule of Civil Procedure 54(b) of the Order dated August 4, 1995, of the Honorable Kenneth M. Hoyt, United States District Judge for the United States District Court for the Southern District of Texas, Houston Division, denying their motion to dismiss under Fed. R. Civ. P. 9(b) and 12(b)(6) (the "Texas Order"), and, on reconsideration, for dismissal, pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6). (The Individual Ariad Defendants, the Individual ISL Defendants, the Individual LXR Defendants and the Individual TBC Defendants are collectively referred to as the "Individual Defendants".)
Ariad and LXR plaintiff Joseph Degulis purchased units, including common stock and warrants, in the initial public offerings ("IPOs") of Ariad and LXR. ISL plaintiff George Kozloski purchased shares of ISL in its IPO. Katz plaintiff Robert Katz purchased shares in LXR's IPO. Weiss Plaintiffs Bernard Weiss and Richard Hunt purchased stock and warrants in TBC's IPO. Degulis, Kozloski, Weiss and Hunt (collectively, "Plaintiffs") seek to bring this action on behalf of themselves and others similarly situated.
II. The Blech and Blech & Co. Defendants
David Blech, a defendant in all of these actions, was managing director and sole shareholder of Blech & Co. Blech served at various times on the boards of directors of Ariad, ISL, LXR and TBC (collectively, the "Companies").
Blech & Co., a defendant in Ariad, ISL, LXR and Weiss, was a registered broker-dealer. It acted as the underwriter for several companies, primarily in the biotechnology field, including -- as sole underwriter -- for each of the Companies. Blech & Co. ceased operations in September 1994.
Weiss Defendant Isaac Blech is David Blech's brother.
Katz and LXR Defendant Germain was a managing director of Blech & Co. until it ceased operations. Germain served as a director of LXR from April 1993 through October 1994 and served as Chairman of the Board from December 1993 through the end of his tenure as director.
III. The Ariad Defendants
Ariad is a biotechnology company engaged in the research and development of pharmaceuticals.
Berger is Chairman, president and CEO of Ariad. Haber, an outside director, is Vice Chairman of the Ariad board. Both hold stock in Ariad. Berger and Haber signed the 1994 Ariad Registration Statement.
Non-movant Shoenberg is a registered broker-dealer. It served as the "qualified independent underwriter" in connection with the Ariad and LXR IPOs. Shoenberg was engaged to deliver an opinion on the offering price of those stocks in light of Blech's and Blech & Co.'s relations with Ariad and LXR.
ISL is a biotechnology company engaged in the research and development of pharmaceuticals.
Gisel, White, Lake, Feeney, Evnin, Kunze, Lamont, Von Weizsacker are officers and directors who signed the Registration Statement for ISL's initial public offering.
Minick, Tomei, Coombes and Henney were officers and/or directors of LXR at the time of the IPO. Minick was the president and Chief Executive Officer and a director of the Company. Tomei was the Chief Operating Officer, Chief Financial Officer, secretary and director of the Company. Coombes was a member of the Board of Directors and the Company's audit committee and a consultant to LXR. Henney was a member of the Board of Directors and the audit committee. Minick, Tomei, Coombes and Henney signed the Registration Statement. Minick, Tomei and Coombes owned LXR stock at the time of the IPO.
TBC is a biopharmaceutical company engaged in the research and development of molecular drugs.
I. Actions Before the Court
Six actions related to the alleged activities of Blech and Blech & Co. in underwriting initial public offerings are currently before this Court. They are Kozloski v. Intelligent Surgical Lasers, 95 Civ. 4299 (RWS) ("ISL" or the "ISL Action"); Degulis v. Ariad Pharmaceuticals, Inc., 95 Civ. 4298 (RWS) ("Ariad " or the "Ariad Action"); Degulis v. LXR Biotechnology, Inc., 95 Civ. 4204 (RWS); Weiss v. Blech, 95 Civ. 6422 (RWS) ("Weiss " or the "Weiss Action"); Katz v. Blech, 95 Civ. 6423 (RWS) ("Katz " or the "Katz Action"); and In re Blech Securities Litigation, 94 Civ. 7696 (RWS) ("In re Blech"). In re Blech is itself a consolidation of four related actions: Libauer v. Blech, 94 Civ. 7696 (RWS), Garfinkel v. Blech, 94 Civ. 7873 (RWS), Bronson v. Blech, 94 Civ. 7959 (RWS), and Mays v. D. Blech & Co., 94 Civ. 7704 (RWS). A seventh action, Kozloski v. Texas Biotechnology, 95 Civ. 4203 (RWS), was voluntarily dismissed without prejudice on February 7, 1996.
II. Ariad, ISL, Katz and LXR
The Complaint in LXR was filed in this Court on June 7, 1995. The Complaints in Ariad and ISL were filed in this Court on June 8, 1995. On August 31, 1995, Katz was transferred to this Court from the Northern District of California by the Judicial Panel on Multidistrict Litigation (the "JPML").
On September 15, 1995, the Ariad Defendants filed their notice of motion to dismiss the complaint against them. On September 18, 1995, the ISL Defendants filed their notice of motion to dismiss. On November 22, and November 28, 1995, Germain and the LXR Defendants, respectively, each filed a notice of motion to dismiss the complaints in LXR and Katz.
The Complaint in Weiss was filed on November 21, 1994, in the United States District Court for the Southern District of Texas, Houston Division (the "Texas Court"). On January 23, 1995, the TBC Defendants moved that court to dismiss the Weiss Complaint, on the grounds that it failed to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), and that it failed to comply with the pleading requirements of Federal Rule of Civil Procedure 9(b). Before any decision by the Texas Court, Plaintiffs in In re Blech filed a motion requesting that the JPML transfer the Weiss Action to this Court, alleging that it alleged the same set of operative facts as those alleged in In re Blech. On June 1, 1995, the Honorable Calvin Botley, the magistrate judge overseeing Weiss in the Texas Court, entered an order staying the proceedings, including the TBC Defendants' Motion to Dismiss, pending decision of the JPML on the motion for transfer (the "Stay Order").
On June 26, 1995, despite the Stay Order, Magistrate Judge Botley issued a memorandum and recommendation that the TBC Defendants' motion to dismiss be denied. The TBC Defendants timely objected to Magistrate Judge Botley's memorandum and recommendation on several ...