Académique Documents
Professionnel Documents
Culture Documents
No. 13-2370
and
On
Behalf
of
All
Others
Plaintiff - Appellant,
and
CAMERON MCINTYRE, Individually and On Behalf of All Others
Similarly Situated
Plaintiff,
v.
CHELSEA THERAPEUTICS INTERNATIONAL,
WILLIAM D. SCHWIETERMAN,
LTD.;
SIMON
PEDDER;
Defendants Appellees,
and
L. ARTHUR HEWITT; J. NICK RIEHLE,
Defendants.
Appeal from the United States District Court for the Western
District of North Carolina, at Charlotte. Max O. Cogburn, Jr.,
District Judge. (3:12-cv-00213-MOC-DCK)
Argued:
Decided:
LTD.
(Chelsea)
and
several
of
its
corporate
78j(b). 2
Chelsea
stockholder
Roman
Zak,
both
of
regulatory
approval
for
new
drug,
Northera.
the
complaint,
holding
that
the
plaintiffs
defendants
motion
to
dismiss;
and
(2)
the
courts
harmless,
because
the
documents
as
court
supporting
incorrectly
its
holding
construed
that
these
the
plaintiffs
Finally, we
dismissing
the
complaint
and
remand
the
I.
The
plaintiffs
alleged
in
their
pleadings
the
following
12(b)(6).
Matrix
Capital
Mgmt.
Fund,
LP
v.
BearingPoint, Inc., 576 F.3d 172, 176 (4th Cir. 2009) (citing
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007)).
from the Food and Drug Administration (FDA) concerning the right
to
market
the
Northera 3
drug
as
treatment
for
symptomatic
NOH is a condition in
various
disorders
including
Parkinsons
disease,
multiple
considering
beneficial
the
significant
treatment
of
unmet
symptomatic
need
NOH,
for
the
a
FDA
conducted
numerous
clinical
trials
with
certain
safety.
As
relevant
to
this
appeal,
Chelsea
conducted
four
same
general
statistically
efficacy
significant
endpoint
effect
on
demonstrating
lightheadedness
301
was
set
forth
in
special
a
and
protocol
assessment
(SPA), which was an agreement between Chelsea and the FDA that
the study design, trial size, and clinical goals could support
regulatory approval.
and
demonstrated
that
symptoms
worsened
for
those
Chelsea
announced
to
investors
the
disappointing
results from Study 302, Chelsea petitioned the FDA to modify the
SPAs endpoint for Study 301, which was ongoing.
In November
302.
November
The
2009
FDA
officials
meeting
that
also
Chelsea
had
recommended
submit
at
the
confirmatory
failed
results
recommendation,
in
Chelsea
Study
302.
announced
Based
plans
on
to
this
additional
initiate
new
and
successfully
had
met
its
revised
endpoint
by
only
Chelsea
week,
that
met
was
its
the
sole
primary
efficacy
study
endpoint.
conducted
Study
303,
by
which
which
also
included
significantly
longer
Study
treatment
study
typically
was
not
sufficient
to
support
the FDA had agreed that Chelseas new drug application for
Northera could be submitted based on data from Study 301, the
only study to meet its primary endpoint, and data from Study
302, which had not met its primary endpoint, without the need
for any further efficacy studies.
During a conference call held with Chelsea investors, Dr.
Simon Pedder, Chelseas President and Chief Executive Officer,
described the December 2010 meeting as a successful outcome
that
reflect[ed]
the
strength
of
the
data
generated
by
call,
Dr.
William
Schwieterman,
On the same
Chelseas
Vice
December 2010 meeting, Chelsea was very pleased with the FDAs
responses
to
Chelseas
supporting data.
questions
about
its
application
and
the
FDA
its
new
drug
application
based
on
observed
by
the
FDA,
these
studies
purportedly
However, as
involved
treatment
Renal
Drugs
Advisory
Committee
(the
advisory
included
the
staff
members
committee),
The briefing
recommendation
against
was
made
press release.
available
to
the
public,
Chelsea
issued
analysis
of
Northera,
9
including
that
Chelseas
effect
as
clinical trials.
result
of
the
short
duration
of
the
not disclose that the FDA briefing document concluded with the
recommendation
that
Northera
not
be
approved.
Also
in
that
application
on
February
23,
2012.
Finally,
the
release
price
dropped
about
37.5
percent.
When
the
briefing
as
committee
new
raised
drug.
the
briefing document.
same
Several
concerns
members
of
outlined
the
in
advisory
the
staff
failed
benefit.
studies
do
not
provide
confirmatory
evidence
of
On March 28, 2012, the FDA denied the new drug application.
The FDA provided its decision in a complete response letter,
stating, among other things, that the FDA required an additional
successful study to support durability of effect.
About
week
after
the
FDAs
decision,
the
initial
In their complaint,
allegedly
misleading
statements
or
material
omissions
by
the
defendants.
In response, the defendants filed a motion to dismiss the
complaint
under
Rule
12(b)(6),
contending
that
the
complaint
or
omissions
were
omissions,
not
made
and
that
with
the
11
any
such
required
statements
scienter.
or
The
exhibits
relevant
to
this
appeal
include
three
documents that were filed with the SEC (collectively, the SEC
documents).
third
document
submitted
by
the
defendants,
lesser
amounts
of
Chelsea
stock.
However,
the
Proxy
hearing
represented
that
on
none
the
of
motion
the
to
Chelsea
dismiss,
officers
the
had
defendants
sold
any
The defendants
scienter
objected
to
on
the
the
part
courts
of
the
defendants.
consideration
of
the
The
plaintiffs
SEC
documents,
asserting that the record did not show definitively whether any
12
individual
purchased
stock
or
sold
stock
during
the
class
period because there had not been any discovery in the case.
At the conclusion of the hearing, the district court took
judicial
notice
of
the
SEC
of
(PSLRA),
15
the
Private
U.S.C.
plaintiffs
documents,
granted
the
Securities
78u-4(b)(2),
securities
and
fraud
Litigation
the
court
claims
Reform
held
failed
Act
that
the
because
the
those
of
statements
scienter
for
did
two
not
demonstrate
reasons.
First,
strong
the
court
the
the
sufficiency
court
found
of
the
that
when
new
drug
weighing
application.
the
competing
fact
that
none
of
the
individual
defendants
(Emphasis in original).
sold
stock
The court
of
plaintiffs
defendant[s]
allegations
motion
to
insufficient
13
dismiss,
as
rendering
matter
of
law
the
to
establish
the
required
district
court
entered
inference
of
its
dismissing
order
scienter.
the
After
the
case
with
II.
In addressing the plaintiffs arguments, we first state the
applicable standard of review.
courts
dismissal
of
the
plaintiffs
complaint
under
Federal
documents
Chelsea
none
during
the
stock
that
plaintiffs,
the
district
of
the
class
courts
individual
period.
defendants
According
improper
sold
to
the
consideration
and
considered
motion to dismiss.
the
SEC
documents
submitted
with
their
the defendants assert that the district court did not err in
taking
judicial
notice
of
the
contents
these
documents
supported
the
of
the
two
Form
district
courts
findings
and
did
statements.
not
knowingly
or
recklessly
make
misleading
We
also
review
principles
addressing
the
scienter
release
information
that
will
permit
investors
to
Equity, LLC, 744 F.3d 874, 884 (4th Cir. 2014) (citing Taylor v.
First Union Corp. of S.C., 857 F.2d 240, 246 (4th Cir. 1988)).
Under Section 10(b) of the Act, companies are prohibited from
using any manipulative or deceptive device or contrivance in
connection
rules.
with
See
15
the
sale
U.S.C.
of
security
78j(b).
in
violation
Pursuant
to
of
SEC
regulatory
15
must
omission
plaintiff
establish:
by
the
asserting
(1)
defendant;
material
(2)
claim
under
Section
misrepresentation
scienter;
(3)
or
connection
Yates,
Because the
acted
with
manipulate,
(citation omitted).
a
or
mental
state
defraud.
embracing
Tellabs,
551
intent
U.S.
at
to
319
Matrix
sufficient
Capital,
to
576
establish
F.3d
a
at
strong
181.
inference
Reckless
of
conduct
scienter
is
of
securities
fraud
are
subject
to
heightened
fraud
claim
must
state
with
particularity
facts
required
violating
state
the
of
Exchange
mind
Act.
regarding
15
U.S.C.
the
acts
allegedly
78u-4(b)(2).
To
comparing
the
from
facts
the
malicious
pled,
and
a
innocent
complaint
inferences
will
not
be
Id. (quoting
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th
Cir. 2009)).
view
of
these
principles,
we
turn
to
address
the
by
considering
the
SEC
documents
submitted
defendant
moves
to
dismiss
by
the
complaint
Generally,
under
Rule
set
forth
in
the
complaint
and
the
documents
E.I. du Pont de
Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 448 (4th Cir.
2011); see Clatterbuck v. City of Charlottesville, 708 F.3d 549,
557 (4th Cir. 2013).
court
during
converts
judgment.
the
the
motion
to
stage
dismiss
of
into
litigation
a
motion
improperly
for
summary
This
Courts
therefore
should
focus
their
inquiry
on
the
Consideration of a document
Inc., 190 F.3d 609, 618 (4th Cir. 1999)); see Cozzarelli, 549
F.3d at 625 (considering investment analyst reports attached to
the defendants motion to dismiss because the complaint quoted
from
those
reports
and
the
plaintiffs
did
not
challenge
the
reports authenticity).
We have recognized a narrow exception to this standard,
under which courts are permitted to consider facts and documents
subject
to
judicial
notice
without
converting
the
motion
to
stage, the court must construe such facts in the light most
favorable to the plaintiffs.
Id.
whether
considered
fact
properly
is
this
exception
(holding
contents
of
that
a
the
public
district
record
as
court
an
established
we
turn
to
consider
the
improperly
considered
fact
and
as
district
courts
use
of
the
the
case,
plaintiffs
counsel
had
reviewed
the
In fact, the
plaintiffs
asserting
securities
fraud
claims
sales
of
stock
by
individuals
accused
of
committing
of
unusual
stock
sales
are
not
And such
required
to
case.
See Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1253 n.3
referenced
plaintiffs
complaint,
in,
or
an
the
district
integral
court
part
should
of,
not
the
have
cannot
documents
and
reasonably
their
be
contents
questioned.
could
have
Even
been
if
the
reviewed
SEC
in
accordance with Rule 201, the district court in the present case
incorrectly
construed
the
information
contained
in
the
SEC
documents.
Instead of considering the information in the light most
favorable to the plaintiffs, the court found that the documents
established the fact that none of the individual defendants
sold Chelsea stock during the class period.
Notably, however,
officer,
Dr.
Schwieterman,
made
two
purchases
of
Chelsea stock during the class period, while the Proxy Statement
21
The
record does not reflect for comparative purposes how many shares
of stock the individual defendants held at the beginning of the
class period, or provide any other basis for determining whether
corporate officers other than Dr. Schwieterman purchased or sold
any of their Chelsea stock during that period.
Instead, the Form 4 documents list only Dr. Schwieterman as
the Reporting Person, and do not contain any reference to any
other corporate officer.
a
snapshot
in
time
of
stock
shares
owned
by
the
various
Therefore, regardless
that
no
individual
defendant
sold
Chelsea
stock
district
court
erred
in
this
regard,
the
courts
regarding
development program.
certain
weaknesses
of
Chelseas
drug
plaintiffs
argue
that
in
addition
to
the
district
further
erred
in
concluding
that
their
they
scienter,
pleaded
the
facts
plaintiffs
permitting
rely
on
their
strong
allegations
of
In asserting
inference
allegations
that
of
the
FDA
expected
Chelsea
to
produce
two
successful
studies
particular
that
emphasis
on
their
allegation
the
defendants
The
adverse
FDA
staff
recommendation
does
not
demonstrate
briefing
document.
We
disagree
with
the
defendants
position.
As
the
companies
Supreme
can
Court
control
emphasized
what
they
in
Matrixx
have
to
Initiatives,
disclose
under
corporate
affirmative
recommendation
duty
and
to
the
may
have
disclose
shortcomings
the
of
an
adverse
Chelseas
independent,
FDA
staff
evidence
of
See id.
Based
on
our
de
plaintiffs
complaint,
sufficient
allegations
scienter.
conduct
This
is
novo
when
review,
viewed
giving
strong
supported
by
the
conclude
in
its
to
rise
inference
we
of
entirety,
strong
the
contains
inference
intentional
plaintiffs
that
or
of
reckless
allegations
that
conflicted
with
the
defendants
public
statements
on
those subjects.
According
to
the
plaintiffs
allegations,
although
the
of
investors
Northera,
addressed
none
this
of
the
critical
defendants
statements
expectation.
After
to
the
defendants
instead
informed
investors
that
the
FDA
had
agreed that Chelsea could submit its new drug application for
Northera without the need for any further efficacy studies.
However,
represented
application
given
the
even
an
assuming
FDA
could
FDAs
be
that
this
communication
submitted,
continuing
the
that
statement
Chelseas
statement
expectation
that
truthfully
new
was
misleading
two
successful
drug
abandoned
Study
treatment periods.
306,
which
both
involved
much
longer
the
strength
of
the
data
gathered
during
the
clinical trials.
The issue of durability of effect is a core component of
the plaintiffs allegations, along with the FDAs expectation of
two successful studies.
of
Study
shortcomings.
301
and
Study
302s
durational-benefit
JA 65 106.
Additionally,
The
the
risk
of
submitting
26
the
new
drug
application
supported
only
by
single,
one-week
study
providing
scant
plaintiffs
also
made
significant
allegation
In its press
emerged,
including
that
the
efficacy
trials
of
the
information
regarding
the
may
not
Chelseas
adverse
FDA
staff
allegations
are
significantly
stronger
than
the
rely.
pharmaceutical
In
companys
Cozzarelli,
attempt
to
which
gain
also
FDA
involved
approval
for
a
a
corporate
officers
use
of
an
imprecise
medical
term
when
Id. at 627-28.
legitimate
allegations,
business
when
decision.
considered
in
Instead,
the
context
the
of
plaintiffs
the
entire
28
on
defendants
failure
to
disclose
information.
Ct. at 1322 (stating that companies can control what they have
As observed in the
times has concluded that a
claims failed to plead
inference
of
scienter.
necessarily fact-dependent
present case.
29
to
disclose
under
[Section 10(b)
and
Rule
10b-5(b)]
by
that
there
were
some
weaknesses
in
their
new
drug
the
conclude
FDA.
See
that
the
Yates,
552
plaintiffs
F.3d
at
891.
allegations
are
is
limited
regarding
the
element
to
the
sufficiency
of
scienter,
and
We
therefore
sufficient
to
Our conclusion,
of
does
the
not
complaint
address
the
III.
For these reasons, we hold that the district court erred in
dismissing
allegations
the
plaintiffs
supporting
an
complaint
inference
on
basis
the
legally
Section
30
scienter
that
were
10
of
the
insufficient.
Accordingly,
we
vacate
the
district
courts
31
See Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874,
(4th
Cir.
BearingPoint,
2014);
Inc.,
576
Matrix
F.3d
Capital
172,
176
Mgmt.
(4th
Fund,
Cir.
LP
2009);
v.
Pub.
Emps. Ret. Assn of Colo. v. Deloitte & Touche LLP, 551 F.3d
305, 306 (4th Cir. 2009); Cozzarelli v. Inspire Pharm. Inc., 549
F.3d 618, 628 (4th Cir. 2008); Teachers Ret. Sys. of La. v.
Hunter, 477 F.3d 162, 184 (4th Cir. 2007); In re PEC Solutions,
Inc. Sec. Litig., 418 F.3d 379, 388-90 (4th Cir. 2005); Ottmann
v. Hanger Orthopedic Grp., Inc., 353 F.3d 338, 352-53 (4th Cir.
2003); Phillips v. LCI Intl, Inc., 190 F.3d 609, 620 (4th Cir.
1999).
15 U.S.C. 78u-4(b)(2)(A).
not
strongly
recklessness.
while
imply
either
fraudulent
intent
or
severe
acknowledging
the
various
challenges
and
setbacks
with
justifiable
confidence
in
its
chances
for
success.
I.
A.
Scienter,
mental
state
defraud.
as
embracing
defined
by
intent
the
to
Supreme
deceive,
Court,
is
manipulate,
or
(1976).
may
enough
be
securities
fraud
to
satisfy
suit, 2
but
the
they
scienter
differ
requirement
on
the
in
degree
a
of
recklessness required.
include
referring
to
variations
the
in
recklessness
standard
with
courts
variously
as
Recklessness:
Doctrinal
Approach
to
Deterrence
of
this
circuit,
we
recognize
that
allegations
of
be
severe
--
that
intentional misconduct.
is,
slightly
lesser
species
of
to
settle
the
issue
Cir. 2007).
manipulative
device
intended
or
or
deceptive
contrivance
to
proscribe
used
strongly
knowing
in
suggest
or
conjunction
that
with
10(b)
intentional
was
misconduct.
fraudulent
intent
or
severe
recklessness
--
requires
There, a group
experimental
believing
succeed.
that
eye-disease
an
important
treatment
misled
clinical
investors
trial
was
into
likely
to
similar
(internal
to
previous
quotation
allegations
marks
supported
an
successful
omitted).
inference
trial.
We
that
Id.
concluded
the
at
625
that
the
drugmaker
sought
inference
deceive.
that
[the
drugmaker]
acted
with
an
intent
to
In
the
years
since
Cozzarelli,
our
court
has
Compare
Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874, 884 (4th Cir.
2014) (At the pleading stage, alleging either intentional or
severely reckless conduct is sufficient. (emphasis supplied)),
with Matrix Capital, 576 F.3d at 181 (Pleading recklessness is
sufficient
standard,
stated
to
satisfy
though,
that
an
the
remains
allegedly
scienter
unchanged.
reckless
requirement.).
We
act
have
must
be
The
consistently
so
highly
Capital,
576
F.3d
at
181
(internal
quotation
marks
omitted); see also Pub. Emps. Ret. Assn of Colo. v. Deloitte &
Touche LLP, 551 F.3d 305, 314 (4th Cir. 2009) (In order to
establish a strong inference of scienter, plaintiffs must do
more than merely demonstrate that defendants should or could
have done more.
as
to
apparent.).
be
oblivious
This
to
malfeasance
understanding
of
that
scienter
was
--
readily
that
it
F.3d
at
348
securities
--
preserves
fraud.
It
section
ensures
10(b)
that
as
prohibition
corporations
and
on
their
is,
purposeful
ignorance
of
the
truth
of
their
own
Though
at
inference
324.
of
Unless
reasonable
scienter . . . at
least
person
as
Tellabs, 551
would
compelling
deem
the
as
any
The
plaintiffs
complaint
here
does
not
satisfy
this
standard.
1.
Reviewing the complaint in its entirety, it is clear
that Chelsea had plenty of reason to believe the FDA would be
37
receptive
to
its
application.
More
importantly,
the
facts
merit
FDA
evidence
approval,
that
the
an
application
drug
will
have
must
the
present
effect
it
U.S.C.
355(d).
Though
here
the
plaintiffs
complaint
based
controlled
(obtained
solely
clinical
prior
to
or
Likewise,
Guidelines
note
of
multicenter study.
data
from
investigation
355(d).
persuasiveness
on
after
as
that
a
the
the
single,
such
one
and
adequate
confirmatory
investigation),
complaint
agency
and
internally
evidence
21
recognizes,
may
well-
U.S.C.
the
acknowledge
consistent,
FDA
the
strong
J.A. 60.
demonstrated
the
drugs
efficacy.
In
addition,
determined
to
be
nominally
statistically
significant
J.A. 42.
to
four,
to
recommend
approving
the
drug.
The
is
efficacious,
J.A. 203. 4
particularly
in
subset
of
patients.
vote no and deprive those patients from the benefits they can
derive at this point from this medication.
Id. at 67.
meeting.
There,
one
FDA
administrator,
Dr.
Steve
two studies.
J.A. 61.
Id.
However,
at
that
very
same
meeting,
Graham
its
that
Id. at 62.
December
the
FDA
20,
2010
press
had
agreed
release,
that
the
Chelsea
proposed
J.A. 233.
announcement.
Nor
is
there
any
reason
to
doubt
that
wait
to
complete
Study
306,
Chelsea
pressed
Rather
ahead
and
747
were
F.3d
good.
435,
See
441
Kuyat
(6th
v.
Cir.
BioMimetic
2014)
Therapeutics,
(concluding
that
statistically
sufficient
significant
to
obtain
results
approval
by
of
its
the
study
FDA,
would
despite
be
private
intentionally
another
problem,
unreservedly
fraudulent
which
is
or
severely
that
optimistic.
On
those
the
reckless
runs
statements
contrary,
into
were
the
not
company
December
2010
conference
call,
Chelseas
CEO
J.A. 81.
141.
opposing
When
the
Chelseas
FDA
staff
application,
issued
the
its
briefing
company
issued
Id.
document
a
press
lines
of
inquiry . . . have
emerged
as
significant
Id. at
our
clinical
studies,
the
41
limited
size
of
our
study
marks
omitted).
Similarly,
when
Id. (internal
the
FDA
rejected
Id. at 68.
The company
to
review
recommendations
the
and
to
Agencys
help
comments,
determine
clinical
appropriate
trial
next
steps
Id. at 69.
the
majority
notes,
Chelseas
stock
dropped
37.5
percent
document.
Likewise,
the
stock
fell
28
percent
in
of
droxidopa.
These
reactions
call
into
question
by
fueling
frivolous
litigation.
Id.
Todays
that
shareholders
will
exploit
the
judicial
process
to
This
43