United States District Court, S.D. New York
AJIT SODHI, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
GENTIUM S.P.A., et al., Defendants.
OPINION AND ORDER
J. PAUL OETKEN, District Judge.
Plaintiff Ajit Sodhi brings this putative class action against Defendants Gentium S.p.A.  ("Gentium"); Jazz Pharmaceuticals Public Limited Company, Jazz Pharmaceuticals Italy, S.r.l.  (collectively "Jazz"); and Gentium directors and executives Khalid Islam, Gigliola Bertoglio, Laura Ferro, Bobby W. Sandage, Jr., Marco Brughera, Elmar Schnee, and Joyce Victoria Bigio. Sodhi alleges that Defendants violated Sections 14(e) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(e), 78t(a); that Defendants violated Article 2395 of the Italian Civil Code; and that defendants breached their fiduciary duties to Gentium stockholders under Italian law. According to the submissions on the docket, only Sandage has been served. Sandage now moves to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons that follow, Sandage's motion is granted.
Gentium was an Italian pharmaceutical company specializing in the treatment of vascular diseases related to cancer and cancer treatment. (Dkt. No. 19, Amended Complaint ¶ 2 ["Complaint"].) Its American Depositary Shares ("ADS") traded on the Nasdaq Global Select Market. Gentium reported "spectacular growth" for 2012 and the first half of 2013. (Id. ¶ 42.) Throughout 2013, Gentium was in the process of securing regulatory approval in Europe and elsewhere for its most promising product: Defitelio. In October of 2013, the European Commission granted marketing authorization for Defitelio. (Id. ¶ 47.) Third-quarter 2013 sales went up by 64% compared to the third quarter of 2012. (Id. ¶ 48.) By late 2013, based in large part on the success of Defitelio, market analysts valued Gentium at $68-$78 per share. (Id. ¶ 49.)
Jazz is a European pharmaceutical company with a broad portfolio of drugs authorized for sale in Europe and the United States. Jazz noticed Defitelio's strong performance and determined that "[i]ncorporating Gentium into Jazz Pharmaceuticals is a strong strategic fit as Defitelio would diversify [Jazz's] development and commercial portfolio and complement [its] clinical experience in hematology/oncology...." (Id. ¶ 51 (statement of Jazz CEO).) Jazz decided to buy Gentium.
On December 19, 2013, Jazz and Gentium jointly announced that the former company would acquire the latter through an all-cash tender offer. Gentium's ADS closed at around $55.66 the previous day. (Id. ¶ 64.) Jazz offered $57 per share to anyone who tendered her shares by January 22, 2013. (Id. ¶ 72.) In connection with its recommendation that shareholders tender at $57, the Gentium board issued an SEC Schedule 14D-9 ("14D-9") statement, including a fair-price opinion from Jefferies LLC ("Jefferies"), a financial advisory firm. (Id. ¶ 74.) The tender offer was contingent on Jazz's receiving a majority of all outstanding Gentium shares. (Id. ¶ 71.) By the initial closing date of the offer, Jazz had acquired 87% of outstanding Gentium shares. It then extended the offering period to February 21, 2013. When the offer finally closed, Jazz had acquired 98% of outstanding shares. (Id. ¶ 72.) Gentium was delisted from the Nasdaq Global Select Market and became a wholly owned subsidiary of Jazz.
Sodhi alleges that Defendants' filings in connection with the tender offer were materially misleading and that the offer itself was the result of a "hopelessly flawed" process that ultimately resulted in an inadequate price. (Id. ¶¶ 4-5.) He alleges that Defendants were motivated by a desire to liquidate their "illiquid holdings in Gentium stock." (Id. ¶ 4.) Sandage held "134, 500 options which fully vested upon the closing of the Merger... [resulting in a gain of] $6, 859, 500" ( id. ¶ 57). In order to close the deal with Jazz quickly, Defendants sought to depress the perceived valuation of Gentium, in breach of their fiduciary duties to Gentium shareholders. To depress the price, Sodhi contends, Defendants disseminated a materially false or misleading 14D-9 and helped negotiate preclusive "deal protection devices." (Id. ¶¶ 9, 12.) These devices prevented other suitors from bidding up the price for Gentium shares. Ultimately, Sodhi alleges, Defendants were successful at rushing the deal through at an unfairly low price, thereby advancing their own liquidity interests at the expense of long-term shareholder value.
Sandage moves to dismiss the Complaint on the grounds that (1) Sodhi has failed to allege any material omissions or misleading statements in the 14D-9; (2) Sodhi has failed to allege scienter; and (3) Sodhi has failed to allege an actionable breach of duty under Italian law.
A. Legal Standard
To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must plead sufficient factual allegations "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must accept as true all well-pleaded factual allegations in the complaint, and "draw[ ] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 250 (2d Cir. 2006) (internal quotation marks omitted). But "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.
Section 14(e) of the Securities Exchange Act provides, in pertinent part, that
[i]t shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer....
15 U.S.C. § 78n(e). To sustain a claim under Section 14(e), a plaintiff must plead that the defendants acted with scienter. See Conn. Nat'l Bank v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987) ("It is well settled in this Circuit that scienter is a necessary element of a claim for damages under § 14(e)...."). Thus, to state a claim under Section 14(e), "a plaintiff must plead... an intent to defraud, knowledge of falsity, or a reckless disregard for the truth." Id. (internal quotation marks omitted). Courts in this district have uniformly held that the heightened pleading requirements of the Private Securities Litigation Reform Act ("PSLRA") and Federal Rule of Civil Procedure 9(b) apply to claims brought under Section 14(e). See, e.g., Taro Pharm. Indus., Ltd. v. Sun Pharm. Indus., Ltd., No. 09 Civ. 8262 (PGG), 2010 WL 2835548, at *7 (S.D.N.Y. July 13, 2010) (stating that a "claim under Section 14(e)... is subject to a heightened pleading standard pursuant to Fed.R.Civ.P. 9(b) and the [PSLRA]"); Telenor E. Invest AS v. Altimo Holdings & Invs. Ltd., 567 F.Supp.2d 432, 444 (S.D.N.Y. 2008) (Chin, J.) ("As the claims pertaining to §... 14(e)... specifically invoke anti-fraud provisions of the Exchange Act, I subject them to the heightened standard of the PSLRA and Fed.R.Civ.P. 9(b)."); Gas Natural v. E.ON AG, 468 F.Supp.2d 595, 603 (S.D.N.Y. 2006) ("The heightened pleading standards of Rule 9(b)... and the PSLRA apply to claims brought under Section 14(e).").
The PSLRA and Rule 9(b) establish heightened pleading requirements for securities fraud cases. Rule 9(b) requires that allegations of fraud be pleaded with particularity. And the PSLRA requires plaintiffs to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). "To qualify as strong'... an inference of scienter must be more than merely plausible or reasonable-it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). Scienter can be successfully pleaded in two ways: by pleading facts sufficient to raise a "strong circumstantial" case of ...