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April 1, 2004.

In re Bristol-Myers Squibb Securities Litigation, This Matter Pertains to All Cases

The opinion of the court was delivered by: LORETTA PRESKA, District Judge



A. Procedural History

  On April 11, 2003, plaintiffs Teachers' Retirement System of Louisiana ("Louisiana Teachers"), Louisiana State Employees' Retirement System ("LASERS"), General Retirement System of the City of Detroit ("Detroit General") and Fresno County Employees Retirement Association ("FCERA") (collectively, "Plaintiffs") filed a Consolidated Class Action Complaint ("Complaint" or "Compl.") alleging that defendants Bristol Myers Squibb Company ("BMS" or the "Company") and several of its officers, Peter R. Dolan ("Dolan"), Harrison M. Bains ("Bains"), Charles C. Heimbold, Jr. ("Heimbold"), Richard J. Lane ("Lane"), Frederick S. Schiff ("Schiff"), Michael F. Mee ("Mee"), Peter S. Ringrose ("Ringrose") and Curtis L. Tomlin ("Tomlin") (collectively with BMS, the "Defendants", and collectively without BMS, the "Individual Defendants") violated Section 10(b) Page 2 of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder and that Messrs. Dolan, Heimbold, Lane, Mee and Schiff violated § 20(a) of the Exchange Act by making false and misleading statements regarding the Company's accounting practices, (the "Accounting allegations") (see, e.g., Compl. ¶¶ 55, 58-145), and the Company's investment in ImClone Systems ("ImClone") (the "ImClone allegations"), (see, e.g., Compl. ¶¶ 57, 146-194), between October 19, 1999 and March 10, 2003 (the "Class Period").

  On May 30, 2003, Defendants BMS, Dolan, Ringrose and Bains provided Plaintiffs with a description of purported legal deficiencies in the Complaint. Plaintiffs were given the opportunity to amend a final time or to stand on the Complaint as written, with the understanding that no further amendments would be permitted. On June 19, 2003, Plaintiffs informed the Court that they did not intend to amend the Complaint. Thereafter, Defendants filed motions to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim.

  B. Facts

  The following facts are taken from allegations in the Complaint and the documents upon which it is based, which, except where noted, are accepted as true for purposes of the motion to dismiss. Page 3

  On September 19, 2001, BMS announced a $2 billion equity investment in ImClone pursuant to which the Company agreed to co-market and develop with ImClone the cancer treatment drug Erbitux. (Compl. ¶ 157.) At the time the investment was announced, ImClone had received "fast-track" approval of the Erbitux Biologics License Application ("BLA") by the Federal Drug Administration ("FDA"). (Compl. f 150.) This fast track approval meant that the FDA would facilitate the development and expedite the review of the Erbitux BLA. (Compl. ¶ 150.) However, on December 28, 2001, the FDA informed ImClone, by way of a "refusal-to-file" ("RTF") letter, that the FDA would not review the Erbitux BLA because the data submitted by ImClone was insufficient to support fast track approval at that time. (Compl. ¶¶ 181, 187-88.)

  In April, 2002, BMS issued its Form 10-K for the year ending December 31, 2001, in which it disclosed that certain of its domestic wholesalers had built up excess inventory of the Company's pharmaceutical products. (Compl. ¶¶ 113, 123.) Later the same month, BMS also made an adjustment to its Medicaid and Prime Vendor accrual accounts of $262 million. (Compl. f 123.) Also during April, the SEC began an informal inquiry into the Company's wholesaler inventory buildup, which later became a formal investigation. (Compl. ¶¶ 127, 130.) In October, 2002, the United States Attorney for the District of New Jersey Page 4 announced an investigation into the same issues. (Compl. ¶¶ 132.) The Company also initiated and publically disclosed a plan to workdown excess inventories held by wholesalers. (Declaration of Elizabeth Grayer, executed August 1, 2003 ("Grayer Decl.") Ex. A, at 2.) Throughout the spring and summer, BMS stated that its accounting for pharmaceutical sales to wholesalers during the inventory buildup was appropriate. (Compl. ¶¶ 127, 130, 134.) In late October, 2002, the Company announced that, based on the recent advice of its accountants, PricewaterhouseCoopers ("PwC"), the Company expected to restate its financial statements for certain prior periods, primarily to adjust the timing of the Company's recognition of certain incentivized pharmaceutical sales to wholesalers. (Compl. ¶ 134; Grayer Decl. Ex. A, at 48.)

  On December 12, 2002, the Wall Street Journal published an article in which BMS' accounting practices were discussed. (Compl. ¶ 135.) On March 10, 2003, BMS publicly announced the expected scope and substance of its restatement, which was formally contained in three amended public filings submitted to the SEC on March 19, 2003: a Form 10-K/A for the year ended December 31, 2001 and Forms 10-Q/A for the three-month periods ended March 31, 2002 and June 30, 2002 (collectively, the "Restatement"). (Compl. 1 2.) Page 5


  A. Legal Standards

  1. Rule 12(b)(6)

  For the purposes of a motion to dismiss under Rule 12(b)(6), all well-pleaded factual allegations of the complaint are accepted as true, and all inferences are drawn in favor of the pleader. See City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493 (1986); Miree v. Dekalb County, 433 U.S. 25, 27 n.2 (1977) (referring to "well-pleaded allegations"); Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). "`The complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.'" International Audiotext Network, Inc. v. American Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc. v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir. 1991)). The court need not accept as true an allegation that is contradicted by documents on which the complaint relies. see, e.g., In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp.2d 371, 405-06 (S.D.N.Y. 2001).

  In order to avoid dismissal, plaintiffs must do more than plead mere "conclusory allegations or legal conclusions masquerading as factual conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp.2d 331, 333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice ¶ 12.34 [a] [b] (3d ed. 1997)). Page 6 Dismissal is proper only when "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1967); accord Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994).

  2. Section 10(b) and Rule 10b-5 Section 10(b) of the Exchange Act provides that:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or the mails, or of any facility of any national securities exchange — (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
15 U.S.C. § 78j(b).

  In order to state a misrepresentation claim under Section 10(b) and Rule 10b-5 promulgated thereunder, a plaintiff must plead that defendants, "`in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiff's reliance on the defendant [s'] action caused injury to the plaintiff.'" Lawrence v. Cohn, 325 F.3d 141, 147 (2d Cir. 2003) (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000)); see also Grandon v. Merrill Lynch & Co., 147 F.3d 184, 189 (2d Page 7 Cir. 1998).

  3. Rule 9(b)

  Rule 9(b) requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b). A complaint alleging violations of Section 10(b) and Rule 10b-5 must satisfy the particularity requirement set forth in Rule 9(b). See Stevelman v. Alias Research, Inc., 174 F.3d 79, 84 (2d Cir. 1999) (citing Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982). The complaint must "(1) specify the statements that plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Novak v. Kasaks, 216 F.3d 300, 306 (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993))).

  Rule 9(b) also provides that "malice, intent, knowledge, and other condition of mind may be averred generally." Fed.R.Civ.P. 9(b). The Court of Appeals in Shields noted that :

  Since Rule 9(b) is intended "to provide a defendant with fair notice of a plaintiff's claim, to safeguard a defendant's reputation from improvident charges of wrongdoing, and to protect a defendant against the institution of a strike suit . . ., the relaxation of Rule 9(b)'s specificity requirement for scienter "must not be Page 8 mistaken for license to base claims of fraud on speculation and conclusory allegations.'"

 Shields, 25 F.3d at 1128 (internal citations omitted). Therefore, to give meaning to the overall purpose of Rule 9(b), a fraud plaintiff must "allege facts that give rise to a strong inference of fraudulent intent." The Private Securities Litigation Reform Act of 1995 ("PSLRA") also adopts this heightened pleading standard for scienter in securities fraud actions. See 15 U.S.C. § 78u-4(b)(1) (setting out the requirements for pleading securities fraud actions, including the requirement that a complaint "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind"). Chill v. Gen. Elec. Co., 101 F.3d 263, 267 (2d Cir. 1966) (quoting Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995)).

  Read together, Rule 9(b) and the PSLRA mandate that "plaintiffs must allege the first two elements of a securities fraud claim — fraudulent acts and scienter — with particularity". Elliott Assocs. L.P. v. Haves, 141 F. Supp.2d 344, 353 (S.D.N.Y. 2000) (citation omitted). Plaintiffs can establish the requisite "strong inference of fraudulent intent" either (a) by demonstrating "that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or Page 9 recklessness." Kalnit v. Eichler, 264 F.3d 131, 138-39 (2d Cir. 2001).

  B. The ImClone Allegations

  1. Statements Regarding the ImClone Investment

  Plaintiffs have compiled a laundry list of statements made by the Defendants between September 19, 2001 and December 28, 2001, which Plaintiffs contend are false or misleading. These statements were made in conference calls, meetings, interviews, press releases, the Company's Annual Reports to Shareholders and the Company's financial statements and pertained to, not surprisingly, matters such as management's expectations, the Company's financial outlook, management's business projections, and the Company's investment in ImClone. Plaintiffs have identified the speaker of the statements, as well as the time frames and venues in which they were made. Accordingly, Plaintiffs have satisfied the "time, place, speaker, and . . . content of the alleged misrepresentation" requirements. Shields, 25 F.3d at 1129 (quoting Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir. 1990)).

  However, these allegedly fraudulent statements are in all relevant respects identical to those that the Court of Appeals has repeatedly held to be nonactionable expressions of corporate optimism. It is well settled that a complaint alleging violations of the securities laws may not rely upon statements Page 10 that are true, or constitute puffery or ordinary expressions of corporate optimism. See In re Int'l Bus. Machs. Corp. Sec. Litig., 163 F.3d 102, 108 (2d Cir. 1998) (opinions regarding future dividends); Lasker v. N.Y. State Elec. & Gas Corp., 85 F.3d 55, 58-59 (2d Cir. 1996) (predictions about earnings and diversification plans); San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 811 (2d Cir. 1996) (holding nonactionable statements about earnings and expected product performance); Faulkner v. Verizon Communications, Inc., (Faulkner I), 156 F. Supp.2d 384, 388-89, 397-99 (S.D.N.Y. 2001) (holding nonactionable defendant's statements about merger prospects). Likewise, statements of opinion are insufficient to form the basis of a misrepresentation or omission complaint under § 10(b). See San Leandro. 75 F.3d at 811. Further, statements regarding future performance are actionable only ...

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