The opinion of the court was delivered by: LORETTA PRESKA, District Judge
MEMORANDUM OPINION AND ORDER
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
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.
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.
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
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.)
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)).
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.
2. Section 10(b) and Rule 10b-5 Section 10(b) of the Exchange Act
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
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
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
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.
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
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 ...