Opinion
CASE NO. C13-0872JLR
09-09-2015
CHRISTOPH BOLLING, et al., Plaintiffs, v. MITCHELL H. GOLD, et al., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS IN PART PLAINTIFFS' THIRD AMENDED COMPLAINT
I. INTRODUCTION
Before the court is Defendants Dr. Mitchell H. Gold, M.D., Mr. Gregory T. Schiffman, and Mr. Hans E. Bishop's (collectively "Defendants") motion to dismiss portions of Plaintiffs' third amended complaint. (Mot. (Dkt. # 117).) The court has considered the motion and the submissions of the parties, the balance of the record, and the applicable law. Being fully advised, the court GRANTS in part and DENIES in part Defendants' motion.
Defendant Dendreon Corporation was dismissed from this action on May 7, 2015, pursuant to a stipulation and order of dismissal. (Stip. Ord. (Dkt. # 111).)
No party has requested oral argument and the court determines that this motion is appropriate for disposition without it.
II. BACKGROUND
This is a securities fraud case related to Dendreon Corporation and its only product, Provenge, which is a medical product designed to fight prostate cancer. (3d Am. Compl. (Dkt. ## 113 (redacted), 116 (sealed)).) Plaintiffs, who are numerous, all purchased or otherwise acquired Dendreon's publicly traded securities between April 29, 2010, and November 2, 2011. (Id. ¶¶ 1, 27-48.) Plaintiffs assert claims against Dendreon's Chairman and former President and Chief Executive Officer ("CEO") Mr. Gold, its former Chief Operating Officer ("COO"), Mr. Bishop, and its Chief Financial Officer ("CFO"), Mr. Schiffman, for violations of Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934, and common law fraud and negligent misrepresentation. (See id. ¶¶ 49-51, 346-93.)
Plaintiffs filed their initial complaint in this action on May 16, 2013 (Compl. (Dkt. ## 1 (redacted), 7 (sealed))), and their first amended complaint on July 16, 2013 (Am. Compl. (Dkt. ## 32 (redacted), 33 (sealed))). On August 9, 2013, Defendants filed their first motion to dismiss (Dkt. # 38). On January 28, 2014, the court granted in part and denied in part Defendants' motion. (1/28/14 Order (Dkt. # 54).) In its order, the court dismissed all of Plaintiffs' federal securities fraud claims but allowed Plaintiffs' state law claims to move forward. (See generally id.) Specifically, the court dismissed all of Plaintiffs' federal claims based on forward-looking revenue guidance and patient treatment predictions under a liability shield contained within the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-5(c)(1)(A)(i). (See 1/28/14 Order at 15-21.) The court granted Plaintiffs leave to amend their complaint. (Id. at 33.)
Plaintiffs filed their second amended complaint on February 17, 2014. (2d Am. Compl. (Dkt. ## 55 (redacted), 56 (sealed)).) Defendants filed their motion to dismiss Plaintiffs' second amended complaint on March 24, 2014 (Dkt. ## 60 (sealed), 61 (redacted)). On June 5, 2014, the court again dismissed Plaintiffs' federal securities claims, but this time focused its analysis on the lack of allegations supporting a strong inference of scienter rather than the PSlRA's safe harbor provisions. (See generally 6/5/14 Order (Dkt. # 75).) The court granted Plaintiffs leave to file a motion to amend within 20 days. (Id. at 31-32.) Plaintiffs did not file a motion within that timeframe, and instead proceeded to discovery on their state law claims.
On February 23, 2015, Plaintiffs filed a motion to amend their second amended complaint. (Mot. to Amend (Dkt. ## 101 (redacted), 102 (sealed)).) Plaintiffs attached a red-lined version of their proposed third amended complaint to their motion. (Red-lined 3d Am. Compl. (Dkt. # 102-1 (sealed)).) Plaintiffs argued that as a result of the discovery they obtained from Defendants on the state law claims, they had discovered direct evidence that Defendants knew their public statements were false or misleading—supplying the previously missing element of scienter. (Mot. to Amend at 1.) Accordingly, Plaintiffs argued that they were entitled to amend their complaint once more to re-allege their federal securities claims. (See generally id.)
The court granted Plaintiffs' motion to amend on May 19, 2015, finding that discovery conducted on Plaintiffs' state law claims had "changed the landscape" with respect to Plaintiffs' federal securities fraud claims. (See 5/19/15 Order (Dkt. # 112) at 14.) Plaintiffs filed their third amended complaint ON May 22, 2015. (See 3d Am. Compl.) The third amended complaint expands the relevant period of Defendants' alleged fraud from April 29, 2010 through August 3, 2011 to April 29, 2010 through November 2, 2011. (Compare 2d Am. Compl. ¶ 2 with 3d Am. Compl. ¶ 1.)
On June 8, 2015, Defendants filed the present motion to dismiss portions of Plaintiffs' third amended complaint. (See generally Mot.) Defendants assert that Plaintiffs have improperly revived certain portions of their federal securities claims—namely portions related to Dendreon's 2011 revenue guidance and its 2000-patient forecast—that the court previously dismissed under the PSLRA's safe harbor provision. (Id. at 3-6.) Defendants argue that these claims cannot be revived through amendment. (See id.)
In addition, Defendants move to dismiss Plaintiffs' new claims based on statements made after August 3, 2011, as time-barred and as inadequately pleaded under the heightened standards of the PSLRA. (Id. at 6-9.) Defendants also move to dismiss Plaintiffs' new claim under Item 303 of Regulation S-K, 17 C.F.R. § 229.303(a)(3)(ii), arguing that violations of Item 303 cannot form the basis of a private federal securities fraud claim. (Mot. at 9-10.) Finally, Defendants move to dismiss Plaintiffs' new claim for punitive damages as prohibited under Washington law. (Id. at 10.) Plaintiffs oppose each portion of Defendants' motion. (See generally Resp. (Dkt. ## 124 (redacted), 126 (sealed)).) The court addresses each issue in turn.
III. ANALYSIS
A. Dendreon's 2011 Revenue Guidance
In their third amended complaint, Plaintiffs revive federal claims based on two statements related to Dendreon's revenue guidance made on April 7, 2011 (see 3d Am. Compl. ¶¶ 135, 216, 270, 344; see also Dkt. ## 39-20, 62-11) and June 7, 2011 (see 3d Am. Compl. ¶¶ 281, 344; see also Dkt. # 62-12). The court had previously dismissed these federal claims based on the PSLRA's safe harbor provision contained in 15 U.S.C. § 78u-5(c)(1)(A)(i). (See 1/28/14 Order at 20, n.4.) This PSLRA liability shield protects securities fraud defendants from claims related to forward-looking statements that are identified as such and accompanied by meaningful cautionary language. See In re Cutera Sec. Litig. 610 F.3d 1103, 1111 (9th Cir. 2010).
Defendants argue that the court's previous ruling applying the PSLRA's safe harbor provision to these two statements forecloses Plaintiffs from reasserting these claims in the third amended complaint. (See Mot. at 3-5.) Plaintiffs respond that the allegations in their third amended complaint are more comprehensive and that the more detailed allegations render the claims based on the two revenue statements viable upon re-pleading. (Resp. at 3-4.) In addition, Plaintiffs argue that the PSLRA's safe harbor provision simply does not cover the statements at issue because Defendants did not identify these two statements as "forward-looking" and did not accompany these statements with any cautionary language. (Resp. at 5-6; see Dkt. ## 39-20, 62-11, 62- 12.) Defendants do not challenge these substantive arguments in their reply. (See generally Reply (Dkt. # 127) at 3-7.) Rather, Defendants reiterate their position that the court's prior January 29, 2015, order forecloses the re-pleading of these claims. (See id.)
With respect to the two revenue statements at issue, the court denies Defendants' motion and adheres to the ruling contained in its May 19, 2015, order granting Plaintiffs' motion to amend. (See 5/19/15 Order at 10.) As Plaintiffs have repeatedly asserted, Defendants did not identify these statements as "forward-looking" and did not accompany the statements with any cautionary language. (See Dkt. ## 39-20, 62-11, 62-12.) As such, they are not entitled to protection under the PSLRA's "safe harbor" provision. See 15 U.S.C. § 78u-5(c)(1)(A)(i).
Even if, as Defendants assert, this court's May 19, 2015, ruling (and its present ruling) is inconsistent with its January 29, 2015, ruling, the court is entitled to rule in accord with its May 19, 2015, order now. Under Federal Rule of Civil Procedure 54(b), an interlocutory order, such as the court's January 29, 2015, order, that "adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before entry of judgment adjudicating all the claims and all the parties' rights and liabilities." Fed. R. Civ. P. 54(b); see also WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1059 (9th Cir. 2011) (holding, in the context of a PSLRA case, that where some claims survive a motion to dismiss, the district court, in its discretion, has the power to allow an amended complaint even with regard to claims it earlier dismissed); Am. Canoe Ass'n v. Murphy Farms, Inc., 326 F.3d 505, 514-15 (9th Cir. 2003) (stating that a district court retains the power to modify rulings on partial dispositive motions); United States v. Martin, 226 F.3d 1042, 1048-49 (9th Cir. 2000) (stating that until final judgment is entered a district court has the "inherent jurisdiction to modify, alter, or revoke" interlocutory decisions). The court has explained this principle to the parties before. See Bolling v. Gold, No. C13-0872JLR, 2015 WL 2406487, at *3 & n.3 (W.D. Wash. May 19, 2015). Accordingly, Defendants' motion with respect to the two revenue statements at issue is DENIED.
To the extent that there is any confusion on the issue (see Reply at 4), the court clarifies as follows: All statements related to revenue guidance, except those made on April 7, 2011, and June 7, 2011, are immunized under the PSLRA's safe harbor provision.
B. 2000-Patient Prediction
In its May 19, 2015, order, the court ruled that Plaintiffs had sufficiently pleaded scienter with respect to Defendants' 2,000-patient prediction in their proposed third amended complaint. (See 5/19/15 Order at 10-11.) As Defendants point out, however, the court had previously dismissed these claims based on the PSLRA's safe harbor provision, 15 U.S.C. § 78u-5(c)(1)(A)(i), and unlike the two revenue statements discussed above, these statements were all identified as forward-looking and accompanied by cautionary statements. (See Mot. at 5-6.) Defendants therefore assert that the court should not permit Plaintiffs to revive these claims in their third amended complaint. (Id.)
Plaintiffs counter that "[a]s with the 2011 revenue guidance," the third amended complaint "adds new facts with respect to Defendants' 2,000 patients misstatements." (Resp. at 6.) Plaintiffs contend that their new allegations are "qualitatively different." (Id. at 7.) They assert that, "in repeatedly telling Dendreon investors that Dendreon was still on track with its 2,000-patient target, 'Defendants misled investors by failing to admit that they in fact had extended the timeline for meeting the 2,000 patient goal, and by failing to disclose the underlying reason that the Provenge launch was progressing badly.'" (Id. (quoting 3d Am. Compl. ¶ 233).) Plaintiffs argue that these omissions render Defendants' statements about the 2,000-patient prediction "not merely statements about future performance" and therefore not protected by the PSLRA's safe harbor. (Resp. at 7.)
The court disagrees. Unlike the revenue statements analyzed previously, Plaintiffs do not argue that Defendants' statements concerning the 2,000-patient forecast were not identified as forward-looking or were unaccompanied by cautionary statements. (See Resp. at 6-7.) Plaintiffs rely solely on their new allegations to plead themselves out of the PSLRA's safe harbor. (See id.) Defendants argue that, because the PSLRA's safe harbor is a definitive legal bar, it is impossible to plead one's way out. (See Mot. at 5 (citing In re Quality Sys., Inc. Sec. Litig., 60 F. Supp. 3d 1095, 1106 (C.D. Cal. 2014)).) Whether this is always true or not, Plaintiffs' additional allegations fail to accomplish the task here. Irrespective of Plaintiffs' additional allegations, Defendants' 2000-patient forecasts were nonetheless identified as forward-looking and accompanied by appropriate cautionary language. Unlike the revenue guidance discussed herein, Plaintiffs do not dispute these facts. Hence, these statements remain within the PSLRA's safe harbor provision. Accordingly, the court GRANTS this portion of Defendants' motion and DISMISSES Plaintiffs' federal securities claims challenging Defendants' 2,000-patient forecast.
The court denies Plaintiffs leave to amend these claims. Plaintiffs have already had multiple opportunities to amend these claims. (See, e.g., Am. Compl., 2d Am. Compl., 3d Am. Compl.) The court concludes that any further attempt to amend would be futile.
C. New Allegations Challenging August 3, 2011, Statements
In their third amended complaint, Plaintiffs allege for the first time that Dendreon's August 3, 2011, withdrawal of its previous revenue guidance not only revealed the fraud previously alleged in Plaintiffs' second amended complaint but also constituted an additional fraud of its own. (See 3d Am. Compl. ¶¶ 292-96.) Consequently, Plaintiffs expand the relevant time period of Defendants' alleged fraud from April 29, 2010, through August 3, 2011, to April 29, 2010, through November 2, 2011. (Compare 2d Am. Compl. ¶ 2 with 3d Am. Compl. ¶ 1.) Although Plaintiffs filed a red-lined version of their proposed third amended complaint that included these new allegations (see Dkt. # 102-1 at 103-04), Defendants did not challenge these new allegations in their opposition to Plaintiffs' motion to amend the second amended complaint (see generally 3/9/15 Resp. (Dkt. # 104)). Instead, Defendants waited until after the court granted Plaintiffs' motion their second amended complaint to raise their objections to these new allegations on statute of limitations and adequacy of pleading grounds. (See Mot. at 7-9.)
First, Defendants argue that the new claim, which is based on allegedly false statements made when Dendreon withdrew its previous revenue guidance on August 3, 2011, is barred by the two-year statute of limitations period that applies to Plaintiffs' federal securities claims, see 28 U.S.C. § 1658(b)(1), and the three-year limitations period that applies to Plaintiffs' state law claims, see RCW 4.16.080(4). (Mot. at 7.) Defendants assert that Plaintiffs must have discovered this new claim no later than November 2, 2011, when Dendreon provided "confirmation that there was a permanent demand issue with Provenge." (Mot. at 7 (quoting 3d Am. Compl. ¶ 327).) Accordingly, Defendants argue that the statutes of limitation expired on November 2, 2013 and November 2, 2014, respectively, and Plaintiffs' new claims, which were not filed until Plaintiffs' third amended complaint on May 22, 2015, are therefore barred. (Id.)
Plaintiffs assert, however, that they did not discover the facts constituting the new claim until August 14, 2014, at the earliest, which is the date Defendants began to produce documents to Plaintiffs in discovery. (Resp. at 8.) Plaintiffs assert that it was through their review of these documents that they discovered facts as to Defendants' scienter—that Defendants knew their statements during the August 3, 2011, conference call were false. (Id.) The federal statute of limitations at issue here states that the limitations period does not begin to run until "discovery of facts constituting the violation." 28 U.S.C. § 1658(b)(1). The Supreme Court has expressly held that "facts showing scienter are among those that 'constitut[e] the violation.'" Merck & Co. v. Reynolds, 559 U.S. 633, 649 (2010) (quoting 28 U.S.C. § 1658(b)(1)) (alterations in original). Indeed, the Court has specifically noted:
An incorrect prediction about a firm's future earnings, by itself, does not automatically tell us whether the speaker deliberately lied or just made an innocent (and therefore nonactionable) error. Hence, the statute may(Id.) Based on the foregoing, the court concludes that this issue is inappropriate for disposition on a motion to dismiss. It may be that this issue can be resolved on summary judgment, but the court declines to dismiss Plaintiffs' new claim based on the statute of limitations pending further factual development.
require "discovery" of scienter-related facts beyond the facts that show a statement (or omission) to be materially false or misleading.
Defendants also assert that Plaintiffs' new claim is inadequately pleaded under the PSLRA with regard to the required elements of falsity and scienter. (See Mot. at 7-9.) The court has previously set forth the standards for pleading in a securities fraud action, including the standards under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the PSLRA (see 1/28/15 Order at 11-13; 6/5/14 Order at 12-14) and, accordingly, need not restate them here. Having carefully reviewed the new allegations and claim contained in Plaintiffs' third amended complaint, the court agrees with Plaintiffs that Defendants' motion to dismiss this claim fails to address the specific misrepresentations and omissions actually alleged in Plaintiffs' new claim. For example, Defendants fail to address Defendant Gold's allegedly misleading statement on August 3, 2011, that the company had signed up more than 265 infusing accounts by the end of the second quarter of that year, when he knew that this figure was misleading as a result of other information he had obtain in June 2011. (Compare Mot. at 7-9 with 3d Am. Compl. ¶ 293.) Defendants also fail to address Gold's statement on August 3, 2011, in which he allegedly misrepresented that Dendreon's problems were newly discovered although Defendants allegedly knew of the problems for many months. (Compare Mot. at 7-9 with 3d Am. Compl. ¶ 294.) Based on its review, the court concludes that Plaintiffs have met the pleading requirements for the element of falsity by "specify[ing] each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading" and stating with particularity "all facts on which that belief is formed." See 15 U.S.C. § 78u-4(b)(1). The court also concludes that Plaintiffs have met the requisite standards for pleading an inference of scienter that is "cogent and at least as compelling as any opposing inference of nonfraudulent intent." See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). Accordingly, the court DENIES this portion of Defendants' motion.
Defendants also argue for the first time in their reply memorandum that Plaintiffs failed to adequately plead the element of "loss causation." (See Reply at 8-9.) The court need not address this issue raised for the first time in reply and to which Plaintiffs had no opportunity to respond. See United States v. Wright, 215 F.3d 1020, 1030 n.3 (9th Cir. 2000) (declining to consider an argument raised for the first time in reply brief).
Defendants' attempts to belatedly address these allegations in their reply memorandum (see Reply (Dkt. # 127) at 7-8) do not persuade the court that Plaintiffs fail to meet the necessary pleading standards with respect to their newly alleged claim. --------
D. Claim Based on Item 303
Plaintiffs allege for the first time in their third amended complaint that Defendants breached a duty under Item 303 of Regulation S-K. (3d Am. Compl. ¶¶ 300-04, 352.) Item 303 requires companies to disclose certain "known trends and uncertainties" in certain mandatory filings. 17 C.F.R. § 229.303(a)(3)(ii). Defendants move to dismiss this claim based on In re NVidia Corporation Securitites Litigation, 768 F.3d 1046, 1053-56 (9th Cir. 2014), which held that Item 303's duty to disclose is not actionable under Section 10(b) and Rule 10b-5. (Mot. at 9-10.) Plaintiffs do not dispute that this court is bound by the Ninth Circuit's ruling in NVidia. (See Resp. at 10 (". . . Plaintiffs acknowledge that NVidia is binding on the Court.").) Rather, Plaintiffs assert that they pleaded claims based on Item 303 "in order to preserve them" because Plaintiffs believe that the Ninth Circuit's decision in NVidia is "likely to be reconsidered." (Resp. at 10-11.) Whether reconsideration of the holding in NVidia is likely or not, this court is presently bound by it. Accordingly, the court GRANTS this portion of Defendants' motion and DISMISSES with prejudice Plaintiffs' claims based on Defendants' alleged failure to comply with Item 303.
E. Punitive Damages
Plaintiffs request for the first time in their third amended complaint an award of punitive damages. (3d Am. Compl. at 109 (prayer for relief).) Punitive damages are not available under the Securities Exchange Act. See Ambassador Hotel Co., Ltd. v. Wei-Chuan Inv., 189 F.3d 1017, 1031 (9th Cir. 1999) ("Punitive damages may not be awarded for the violation of federal securities law.") (citing 15 U.S.C. § 78bb(a)). In addition, punitive damages are prohibited under Washington law unless expressly authorized by statute. Dailey v. N. Coast Life Ins. Co., 919 P.2d 589, 590-91 (Wash. 1996). Accordingly, Defendants argue that Plaintiffs' request for punitive damages should be dismissed. (Mot. at 10.)
Plaintiffs, however, assert that they seek punitive damages based on the laws of other states in which Plaintiffs are located and where they heard and read Defendants' alleged misrepresentations or omissions. (Resp. at 11-12.) In so arguing, Plaintiffs cite to prior decisions from federal district courts in Washington State. (See id. at 11 (citing Bryant v. Wyeth, 879 F. Supp. 2d 1214, 1225 (W.D. Wash. 2012); Braun v. Crown Crafts Infant Prods. Inc., No. C12-5811 RBL, 2014 WL 345246, at *6 (W.D. Wash. Jan. 30, 2014); Bethlehem Constr., Inc. v. Transp. Ins. Co., No. CV-03-0324-EFS, 2006 WL 2818366 (E.D. Wash. Sept. 28, 2006); Specialty Surplus Ins. Co. v. Second Chance, Inc., No. C03-0927C, 2006 WL 581024 (W.D. Wash. Mar. 8, 2006)).)
Despite Plaintiffs' citation to the federal cases noted above, the court is skeptical that their request for punitive damages is viable. First, the court notes that despite Plaintiffs' recent assertion that they will rely on foreign law—at least with respect to their claim for damages—they expressly pleaded that their state law claims are governed by the common law of Washington. (See 3d Am . Compl. ¶ 22 ("The claims asserted herein arise under and pursuant to: (i) Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 . . . ; and (ii) Washington common law.").) Further, Defendants persuasively distinguish the cases upon which Plaintiffs rely because the challenged conduct or the conduct forming the basis for punitive damages in those cases took place, not in Washington, but in the foreign state at issue. (See Reply at 11 & n.3 (distinguishing cases).) Finally, the court notes Washington's strong policy against punitive damages. See Barr v. Interbay Citizens Bank of Tampa, 635 P.2d 441, 443-45 (Wash. 1981), amended on other grounds, 649 P.2d 827 (Wash. 1982) (concluding that Washington's strong policy against punitive damages gives it the most significant relationship for choice of law purposes with respect to the plaintiffs' claim for punitive damages despite the location of the defendant in Florida and the occurrence of at least some of the challenged conduct in that state).
Nevertheless, the court finds it inappropriate to address the issue of punitive damages at this stage of the proceedings. Although punitive damages are not available with respect to Plaintiffs' federal securities claims, whether they are available with respect to Plaintiffs' state law claims is an issue that involves a choice of law analysis. The Washington Supreme Court has recently emphasized that choice of law is a fact-intensive question that "does not lend itself readily to disposition on a [Rule] 12(b)(6) motion." See FutureSelect Portfolio Mgmt., 331 Pl3d 29, 36, n. 12 (Wash. 2014). Although the court has indicated its skepticism that punitive damages are available here, it will reserve its judgment pending further development of the factual record. See, e.g., Bingham v. Blair, LLC, No. C10-5005 RBL, 2010 WL 1608881, at *2 (W.D. Wash. Apr. 19, 2010) (denying motion to dismiss punitive damages without prejudice to further review following development of the factual record necessary for the choice of law analysis). Accordingly, the court DENIES Defendants' motion to dismiss Plaintiffs' request for punitive damages on Plaintiffs' state law claims, but without prejudice to raising the issue again on a record sufficient for conducting the required choice of law analysis.
IV. CONCLUSION
Based on the foregoing, the court GRANTS in part and DENIES in part Defendants' motion to dismiss portions of Plaintiffs' third amended complaint (Dkt. # 117) as delineated above.
Dated this 9th day of September, 2015.
/s/_________
JAMES L. ROBART
United States District Judge