1 

IN THE UNITED STATES DISTRICT COURT 

FOR THE SOUTHERN DISTRICT OF OHIO 

WESTERN DIVISION 

Barbara Forman, individually and on 

behalf of others similarly situated, 

 Plaintiff, 

 v. 

Meridian Bioscience, Inc., et al., 

 Defendants. 

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Case No. 1:17-cv-774 

Judge Susan J. Dlott 

Order Granting Motion to Dismiss

This matter is before the Court on Defendants’ Motion to Dismiss (Doc. 32) this 

securities fraud case. Defendants move to dismiss on the grounds that Plaintiff cannot state a 

claim for relief under the Private Securities Litigation Reform Act (“PSLRA”). For the reasons 

that follow, the Court will GRANT the Motion to Dismiss. 

I. FACTUAL ALLEGATIONS 

A. Introduction 

 The well-pleaded facts in the Amended Complaint (Doc. 29) are considered to be true for 

purposes of this Motion to Dismiss. Court-appointed Lead Plaintiff Barbara Forman alleges 

claims on behalf of herself and a proposed class of persons and entities who purchased or 

acquired securities of Defendant Meridian Bioscience, Inc. between March 4, 2016 and October 

23, 2017 (“the Class Period”). (Doc. 29 at PageID 178.) Meridian is a life sciences company 

which, among other things, develops, manufactures, sells, and distributes clinical diagnostic test 

kits. (Id.) It is a publicly-held company and its securities are registered with the SEC and traded 

on NASDAQ. (Id. at PageID 178–179.) Defendant John A. Kraeutler is the former CEO and 

Chairman of the Board of Directors of Meridian. Defendant Melissa A. Lueke has served as 

Meridian’s Vice President, CFO, and Secretary since 2001, and she was appointed Executive 
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Vice President in 2009. (Id. at PageID 178.) 

 Plaintiff alleges generally that Meridian made misstatements about blood lead level 

testing systems manufactured by Magellan Biosciences, Inc., a company which Meridian 

acquired in March 2016. Plaintiff alleges that Meridian misstated the efficacy of the blood lead 

level testing systems and concealed known regulatory problems. 

B. Meridian Business Difficulties in the Period Prior to March 24, 2016 

 In the period prior to the acquisition of Magellan, Plaintiff alleges that Meridian was 

facing a host of difficulties with its existing product lines. Plaintiff alleges that those difficulties, 

which are summarized in this subsection, created pressure for Meridian to secure future growth 

by acquiring a third-party company with an existing product line. 

 Meridian’s business lines are split into two reporting segments, diagnostics and life 

sciences. (Id. at PageID 181.) Diagnostics provided 75% of Meridian’s consolidated net 

revenues for fiscal year 2015. (Id. at PageID 182.) Meridian’s diagnostics business was focused 

on non-molecular diagnostic products prior to March 24, 2016. Meridian had launched a 

molecular testing platform called illumigene in 2011, but it did not perform as well as expected 

due to market competition. (Id. at PageID 182–184.) 

 Also, in early 2016, Meridian acknowledged the upcoming expiration of its patents for its 

H. pylori products in May 2016. (Id. at PageID 187.) Meridian stated in its quarterly Form 10-Q 

report on February 9, 2016 that it “expect[ed] competition with respect to our H. pylori products 

to increase” and that the increased competition could lead to an adverse impact on prices, on the 

ability to maintain business at current prices, and on future revenues and gross profits. (Id.) 

Meridian made similar statements about the effect of the expiration of the H. pylori products in 

the 2016 Form 10-K it filed with the SEC on November 29, 2016. (Id. at PageID 188.) 
3 

 Finally, Meridian had a low research and development budget, and a high dividend 

payout policy of 75% to 85%, that stunted its ability for organic growth. (Id.) 

 In early 2016, industry analysts were criticizing Meridian’s performance, its narrow 

product field, and its high prices relative to competitors. (Id. at PageID 185–187.) Industry 

analysts suggested that Meridian make an acquisition to compel growth. (Id. at PageID 183–

189.) Meridian, in fact, did acquire an outside company, Magellan, in March 2016. However, 

Plaintiff alleges that Meridian knew or learned, but did not reveal to the investing public, that 

Magellan’s blood level testing systems did not work as intended with venous blood samples. 

C. Magellan Biosciences, Inc. and Its LeadCare Products 

 Magellan Biosciences, Inc. and its wholly-owned subsidiary, Magellan Diagnostics, Inc. 

(jointly, “Magellan”), a company headquartered in Billerica, Massachusetts, manufacture 

systems to test lead levels in blood under the LeadCare name. (Id. at PageID 180, 190.) Amy 

Winslow was the President and CEO of Magellan starting in 2011. (Id. at PageID 264.) 

Magellan launched the LeadCare system in 1997, LeadCare II in 2006, LeadCare Ultra in August 

2013, and LeadCare Plus in July 2015. (Id. at PageID 192–193.) LeadCare products were 

intended to provide quick diagnoses at the point of care, such as a physician’s office, without 

having to send a blood sample to a laboratory. (Id. at PageID 194, 196.) 

 LeadCare systems were designed to test blood samples drawn either from a vein or from 

a capillary in the finger or heel. The blood samples are mixed with testing reagents and placed in 

the LeadCare testing device. The blood lead level results are displayed by the testing device. 

(Id. at PageID 196.) The tests are used for screening purposes only. No further testing is 

required for low lead blood level results, but patients are advised to take a confirmatory test if 

lead blood level results are high. (Id. at PageID 196–197.) LeadCare II, LeadCare Ultra, and 
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LeadCare Plus are subject to FDA regulation as Class II medical devices. They require FDA 

clearance through a premarket 510(k) notification. (Id. at PageID 198.)1

 Magellan learned in a September 2013 study entitled “Blood Treatment in Reagent 

Stability Study” (“Reagent Study”) that the accuracy of the LeadCare Ultra system improved 

when the reagent was allowed an incubation period. However, LeadCare Ultra’s original 

instructions or labeling called for immediate test analysis, not for the use of an incubation period. 

(Id. at PageID 199–200.) Magellan received two customer complaints in August 2014 that 

LeadCare Ultra had underestimated lead blood levels, and it received another complaint in 

October 2014 that LeadCare Ultra had underestimated lead blood levels for eight different 

patients. However, Magellan did not follow its own policy to report the issue to the FDA in a 

medical device report (“MDR”) within 30 days. (Id. at PageID 200–201.) Instead, it submitted 

one MDR to the FDA in April 2015 for the August 2014 complaints. (Id. at PageID 200.) 

 In November 2014, Magellan opened an internal corrective action request (“CAR”) 108 

to investigate underestimation issues in the LeadCare II, LeadCare Ultra, and LeadCare Plus 

systems. (Id. at PageID 201.) Magellan also issued a notice to customers instructing them to 

incubate the reagent mixture for twenty-four hours prior to testing in the LeadCare Ultra system, 

but it did not validate the twenty-four-hour incubation period, nor timely inform the FDA about 

the corrective action. It did send a copy of the notice to customers with the April 2015 MDR to 

the FDA. (Id. at PageID 201–202.) FDA regulations required that CEO Winslow be appraised 

 

1

 Plaintiff alleges that a 510(k) notification is a “premarket submission made to the FDA to demonstrate that the 

device to be marketed is at least as safe and effective, that is, substantially equivalent, to a legally marketed device 

(21 C.F.R. § 807.92(a)(3)) that is not subject to Premarket Approval.” (Doc. 29 at PageID 198.) The Sixth Circuit 

has described the 510(k) process as “a streamlined process” that is focused on equivalence to another product on the 

market, and that “does not comment on safety.” Rodriguez v. Stryker Corp., 680 F.3d 568, 573–74 (6th Cir. 2012). 
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of any quality problems and corrective actions undertaken by Magellan in regard to FDAregulated products. (Id. at PageID 267.) 

 In mid-2015, Magellan opened engineering change orders to change the labeling for 

LeadCare Plus and LeadCare Ultra to include a twenty-four-hour incubation period, but it did not 

report the changes to the FDA. (Id. at PageID 202–204.) Plaintiff asserts that the customer 

complaints and internal reports concerning the underestimation issue were required by federal 

regulation to be reported to Magellan management. (Id. at PageID 203–204.) 

D. Meridian Acquires Magellan 

 On March 24, 2016, Meridian announced the acquisition of Magellan for $66 million. 

(Id. at PageID 180.) Meridian recorded more than $42 million in goodwill on its financial 

statements following the acquisition which it said represented the amount of consideration paid 

exceeding Magellan’s fair market value. (Id. at PageID 191.) It described the goodwill as 

consisting of Magellan’s customer base, distribution channels, industry reputation, and 

management and workforce talent. (Id.) Winslow became the executive vice-president, 

president and CEO of the Magellan business unit when the acquisition was completed. (Id. at 

PageID 266.) As the head of the Magellan business unit within Meridian, Winslow was 

responsible for providing a powerpoint presentation regarding Magellan’s sale performance, 

forecast, and marketing program for a monthly business review meeting held at Meridian’s 

headquarters. Winslow also participated in business review meetings called “flash calls” the first 

Thursday of every month to discuss Magellan’s performance and outlook. (Id. at PageID 207.) 

 Meridian issued a press release in conjunction with the acquisition, which it attached to 

its March 2016 Form 8-K filed with the SEC, in which it described Magellan as “the leading 

provider of point-of-care lead testing systems with placements in more than 6,500 physician 
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offices and clinics nationwide.” (Id. at PageID 190, 211.) It stated that Magellan “pioneered the 

engineering, development, and manufacturing of FDA-cleared products for the testing of blood 

to diagnose lead poisoning in children and adults.” (Id.) It stated that from a “strategic 

perspective, the acquisition of Magellan provided” both “point-of-care capability” and “a new 

growth driver.” (Id.) It further stated that “Magellan [had] maintained a clear focus on 

developing and marketing test systems that are well recognized for their accuracy and ease-ofuse.” (Id. at PageID 191.) Meridian concluded that “there is excellent growth potential in 

Magellan Diagnostics on its own, both with the existing products and the pending new product 

pipeline.” (Id.) 

 Meridian attached a copy of the Merger Agreement between Meridian and Magellan to 

its May 2016 Form 10-Q filed with the SEC. (Id. at PageID 212.) Kraeutler signed the Merger 

Agreement on behalf of Meridian as its CEO, and Peter Glick signed it on behalf of Magellan as 

its executive chairman and president. (Id. at PageID 212; Meridian May 2016 Form 10-Q, Ex. 

10.1 at 79–80.)2

 Magellan made the following representations and warranties in the Merger 

Agreement: 

(g) The Company has made available to Parent all material reports, documents, 

claims, notices, filings, minutes, transcripts, recordings and other material 

correspondence between the Target Company Group, on the one hand, and any 

Healthcare Regulatory Authority, on the other hand, since January 1, 2013. 

(h) All material reports, documents, claims, applicable registration files and 

dossiers, notices and similar filings required to be filed, maintained, or furnished 

to any Healthcare Regulatory Authority by the Target Company Group since 

January 1, 2010 have been so filed, maintained or furnished and, to the 

 

2

 Plaintiff relied upon and quoted from SEC filings in its Complaint, but did not attach the filings as exhibits to the 

Complaint. Meridian, likewise, cites to additional information in certain SEC filings without attaching those SEC 

filings. The SEC filings all are publicly available. Meridian can cite to SEC filings as public records to rebut 

purported misstatements in a complaint without converting the dismissal motion into a summary judgment motion. 

In re Omnicare, Inc. Sec. Lit., 769 F.3d 455, 466–67 (6th Cir. 2014); In re Keithley Instruments, Inc. Sec. Litig., 268 

F. Supp. 2d 887, 893 (N.D. Ohio 2002). 
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Company’s Knowledge, were complete and correct in all material respects on the 

date filed (or were corrected in or supplemented by a subsequent filing). 

(i) All clinical testing conducted by or on behalf of the Target Company Group is 

being conducted in accordance with the Clinical Laboratory Improvement 

Amendments of 1988, 42 U.S.C. § 263a et seq. 

(Doc. 29 at PageID 204.) 

 Meridian acknowledged in the Merger Agreement that it had undertaken a due diligence 

investigation of such Magellan documents and information that it deemed necessary. (Id.) 

Meridian had sent its executive vice president for global and regulatory affairs and quality 

assurance, Susan Rolih, onsite to Magellan to conduct due diligence regarding regulatory 

compliance. (Id. at PageID 205.) Plaintiff alleges that Magellan’s customer complaints and 

FDA correspondence concerning the underestimation issue were the type of documents required 

to be made available to Meridian during the due diligence process when Meridian acquired 

Magellan. (Id. at PageID 203–204, 255.) 

E. Magellan’s Post-Acquisition Performance and Continued Problems 

 After Meridian acquired Magellan, Meridian expressed confidence in the Magellan 

business unit, despite the fact that problems continued to arise with the use of venous blood 

samples in the LeadCare systems. 

 Kraeutler stated at a healthcare conference in September 2016 that Magellan was beating 

its monthly expectations. (Id. at PageID 192, 208.) Magellan constituted 31.4% of Meridian’s 

total assets and 5.1% of its total net revenues for the fiscal year ending September 30, 2016. (Id. 

at PageID 219.) 

 On October 20, 2016, Meridian issued a press release, attached to a Form 8-K filed with 

the SEC, in which it noted that “Magellan performed above revenue expectations.” (Id. at 

PageID 215.) Meridian stated that it was “expecting low double-digit revenue growth on a 
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normalized annual basis from continued success in placing the LeadCare II platform in the 

domestic market.” (Id. at PageID 215–216.) 

 On November 4, 2016, Magellan, a subsidiary of Meridian by this time, sent a notice to 

customers letter informing them to implement a 4-hour incubation period for venous blood 

samples on the LeadCare II system. (Id. at PageID 261.) This notice to customers identified a 

rubber stopper for test tubes manufactured by non-party Becton Dickinson as causing the lead 

underestimation issue in the LeadCare II system. (Id. at PageID 205.) Approximately one week 

later, on November 11, 2016, Magellan issued a product bulletin again blaming the rubber 

stoppers made by Becton Dickinson for the inaccurate test results. (Id. at PageID 261.) On 

November 17, 2016, Meridian opened an engineering change order to revise the label for 

LeadCare II to include the four-hour incubation period. (Id. at PageID 206.) Meridian did not 

report this label change to the FDA. Magellan tried to send an MDR to the FDA regarding 

underestimation issue in the LeadCare II system in November 2016, but it was returned by the 

FDA for being submitted in the wrong format. Magellan did not re-submit the MDR to the FDA 

until May 8, 2017. (Id. at PageID 224, 261.) 

 On November 10, 2016, Meridian issued a press release, attached to its November 2016 

Form 8-K, giving guidance for the company’s prospects in 2017. (Id. at PageID 216.) The 

company stated that “[f]or the fiscal year ending September 30, 2017, management expects net 

revenues to be in the range of $205 million to $210 million and per share diluted earnings to be 

between $0.81 and $0.85.” (Meridian November 2016 Form 8-K, at Ex. 99.1 at 8.) Meridian 

stated that it “believe[d] these projections are reasonable, and will continue to be realistic, with 

quarter-to-quarter results supporting our expectations.” (Id., Ex. 99.1 at 7; see also Doc. 29 at 

PageID 216.) It also stated that the acquisition of Magellan had “exceeded [its] expectations in 
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satisfying the demand for testing children for elevated blood lead levels.” (Doc. 29 at PageID 

216.) It forecast that the Magellan business unit was “expected to report low-double-digit 

organic growth in fiscal 2017 with the potential for upside performance.” (Id.) 

 The November 10, 2016 press release included an express disclaimer for forward-looking 

statements: “All statements that address operating performance or events or developments that 

Meridian expects or anticipates will occur in the future, including but not limited to, statements 

relating to per share diluted earnings and revenue, are forward-looking statements.” (Meridian 

November 2016 Form 8-K, at Ex. 99.1 at at 10.) It also specifically stated that “[c]osts and 

difficulties in complying with [FDA] laws and regulations” and the “uncertainty of regulatory 

approvals and the regulatory process” could lead to “unanticipated expenses and delays and 

interruptions to the sale of new and existing products . . . .” (Id., Ex. 99.1 at 11.) 

 On December 14, 2016, Meridian filed a Definitive Proxy Statement with the SEC stating 

that Kraeutler had received 15,000 stock options valued at $53,300 and Lueke had received 

12,500 stock options valued at $44,416 in connection with the Magellan acquisition. (Doc. 29 at 

PageID 272.) 

 On January 13, 2017, Magellan received a customer complaint that the LeadCare Ultra 

system underestimated the lead level for five different patients despite using the twenty-fourhour incubation period. (Id. at PageID 206.) Meridian did not report this to the FDA. (Id. at 

PageID 206, 231.) 

 On January 25, 2017, Meridian issued a press release, attached to its January 2017 Form 

8-K, revising its 2017 guidance downward and reducing its regular cash dividend. (Id. at PageID 

222–223.) It reduced its expected net revenues from $205 million–$210 million to $193 

million–$199 million, and it reduced its per share diluted earnings from $0.81–$0.85 to $0.64–
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$0.69. (Id.) The press release explained that the reason for the downward adjustment was due to 

revenue declines in its Americas diagnostics business. (Meridian January 2017 Form 8-K, Ex. 

99.1.) Meridian specifically contrasted the difficulties in the Americas diagnostic business with 

the positive trends in the life sciences and Magellan diagnostic business units. (Id.) Meridian’s 

stock price fell from $16.45 on January 24, 2017 to $12.80 on January 25, 2018. (Doc. 29 at 

PageID 224.) Meridian would report later in the year that the Americas diagnostic business unit, 

including Magellan, constituted 71% of its revenues for 2017. (Meridian November 2017 Form 

10-K at 33.) 

F. FDA Inspection, Recall, and Warning Letter 

 The problems with Magellan’s LeadCare systems became more widely known starting in 

mid-2017 and, Plaintiff alleges, caused Meridian’s stock price to drop. Plaintiff alleges that two 

relevant events occurred on May 10, 2017. First, the FDA began a fifteen-day inspection of 

Magellan’s Billerica, Massachusetts facility. (Doc. 29 at PageID 174, 209.) Seven days later, 

the FDA issued a press release warning that certain Magellan lead tests provided inaccurate 

results when performed on blood drawn from a vein. (Id. at PageID 225–227.) The FDA 

warned that the lead tests, when conducted with a venous draw, “may provide results that are 

lower than the actual level of lead in the blood.” (Id. at PageID 226.) It warned that the issue 

possibly dated back to 2014 and that the Magellan LeadCare, LeadCare II, LeadCare Plus, and 

LeadCare Ultra were all covered by the warning. The FDA warning did not allege that the lead 

tests results were inaccurate when blood was drawn from a finger or heel stick. The price per 

share of Meridian’s stock fell from $14.75 on May 16, 2017 to $13.45 on May 17, 2017. (Id. at 

PageID 227.) 
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 Second, on May 10, 2017, Meridian announced that Kraeutler would retire. Kraeutler 

had signed an employment agreement the previous October which had contemplated him 

remaining employed by the company through September 30, 2018. (Id. at PageID 210, 263.) 

 The FDA began a Class I recall of all LeadCare Ultra and LeadCare Plus products on 

May 18, 2017 recommending the removal of venous blood samples as an allowable sample type. 

The recall was later expanded to include LeadCare and LeadCare II products. (Id. at PageID 

175, 227–228, 263.) 

 On June 29, 2017, the FDA issued to Magellan a Form-483 inspection report—later 

released to the public on July 13, 2017—in which the FDA concluded that Magellan had 

concealed regulatory violations and defects in the LeadCare products. (Id. at PageID 199, 229.) 

Plaintiff summarized the FDA observations to Meridian as follows: 

Defendants: (1) did not ensure the design validation for devices conformed to 

defined user needs and intended uses; (2) used an inadequate risk analysis with 

respect to falsely low lead results across the LeadCare product line; (3) did not 

maintain adequate procedures for receiving, reviewing and evaluating customer 

complaints which led to customer complaints going improperly addressed or not 

addressed at all; (4) failed to implement proper investigation or the institution of a 

Medical Device Report per FDA requirements; (5) failed to maintain procedures 

for corrective and preventative action with respect to inbound complaints, 

including several that were left indefinitely open or closed without verifying any 

corrective instruction remediated the issue; (6) failed to inform the FDA of 

several of its notices to customers that included incubation instructions to correct 

lead level underestimation; (7) failed to adequately establish procedures for 

design change, including their failure to report changes to labeling to include 

incubation periods; (8) expanded original acceptance criteria to fit results 

observed in validation studies rather than establishing these criteria prior to the 

study; (9) failed to report multiple MDRs upon learning of a marketed device 

malfunction that was likely to cause death or contribute to a death or serious 

injury if the malfunction were to recur related to the LeadCare Ultra system’s 

underestimation of lead levels; and (10) failed to establish a control product that 

conformed to specific requirements. 

(Id. at PageID 229, 233–248.) 
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 On October 23, 2017, the FDA issued a warning letter stating that the LeadCare II and 

LeadCare Ultra systems were adulterated and misbranded under federal law based on the 

unapproved labeling and design changes. (Id. at PageID 233–244.) Meridian’s stock price 

dropped from $15.80 on October 20, 2017, to $15.20 on October 23, 2017, to $14.50 on October 

24, 2017. (Id. at PageID 176, 245.) 

 In January 11, 2018, the FDA issued a press release addressing the role that Becton 

Dickinson’s vacutainer tubes played in the causing inaccurate venous draw testing results. The 

FDA stated that it did not “have evidence showing that other blood tests are adversely affected 

when [Becton Dickinson] blood collection tubes are used.” (Id. at PageID 252.) In March 2018, 

the FDA issued a press release crediting Becton Dickinson’s conclusion that the Anodic 

Stripping Voltammetry technology used in the LeadCare testing systems, and not in other 

products known to Becton Dickinson, is incompatible with thiuram, a material found in the 

rubber stoppers. (Id. at PageID 254.) 

 Meridian reported its first quarter 2018 results on January 28, 2018. (Id. at PageID 253.) 

It announced a 20% decrease in operating income for the entire company and a 20% decrease 

year-over-year for Magellan lead testing business unit revenues. (Id.) Meridian also reported 

that it experienced $500,000 in remedial costs with more expected to be incurred. (Id.)

3

G. Relevant Statements in Meridian’s SEC Filings

 Meridian made its regular SEC filings throughout the Class Period. Plaintiff highlights 

the following statement about the efficacy of Magellan products Meridian made in the May 2016 

 

3

 Plaintiff also makes allegations concerning importance of accurate lead blood level testing in light of the lead 

contamination crises experienced in Flint, Michigan and Sebring, Ohio during the past five years. The Court is 

troubled by the serious public health implications raised by Plaintiff’s allegations against Magellan and Meridian, 

but the Court will focus in this Order only on those allegations relevant to the securities fraud claim. 
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Form 10-Q, the August 2016 Form 10-Q, the November 2016 Form 10-K, the February 2017 

Form 10-Q, and the May 2017 Form 10-Q: 

Magellan is a leading manufacturer of FDA-cleared products for the testing of 

blood to diagnose lead poisoning in children and adults. Magellan is the leading 

provider of point-of-care lead testing systems in the U.S. 

(Id. at PageID 211–212.) 

 Meridian made other relevant statements in the November 2016 Form 10-K. Meridian 

stated that “[e]ach of the diagnostic products currently marketed by us in the United States has 

been cleared by the FDA pursuant to the 510(k) clearance process or is exempt from such 

requirements.” (Meridian November 2016 Form 10-K at 12; Doc. 29 at PageID 213.) It stated 

that its diagnostic products provided “accuracy, simplicity, and speed.” (Meridian November 

2016 Form 10-K at 6–7; Doc. 29 at PageID 214.) Meridian noted that Magellan constituted 

31.4% of its total assets and 5.1% of its total net revenues. (Id. at PageID 219.) 

 In November 2017, after the FDA recall, warning letter, and inspection report, Meridian 

issued its 2017 Form 10-K in which it changed its description of Magellan to emphasize its use 

with capillary blood samples: “Magellan is a leading manufacturer of products cleared by the 

Food & Drug Administration (“FDA”) for the point-of-care testing of capillary blood to 

diagnose lead poisoning in children and adults.” (Id. at PageID 246 (emphasis changed).) 

 Meridian also made statements about its internal controls in these SEC filings. The May 

2016 Form 10-Q and the August 2016 Form 10-Q both included language about the effectiveness 

of Meridian’s internal controls related to financial reporting. (Id. at PageID 217–222.) Meridian 

used the following language: 

As of [effective date], an evaluation was completed under the supervision and 

with the participation of our management, including our Chief Executive Officer 

and Chief Financial Officer, of the effectiveness of the design and operation of 

our disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) 

promulgated under the Securities Exchange Act of 1934, as amended. Based on 
14 

that evaluation, our management, including the CEO and CFO, concluded that our 

disclosure controls and procedures were effective as of [effective date]. There 

have been no changes in our internal control over financial reporting identified in 

connection with the evaluation of internal control that occurred during the [ ] 

fiscal quarter that have materially affected, or are reasonably likely to materially 

affect, our internal control over financial reporting, or in other factors that could 

materially affect internal control . . . . 

(Id. at PageID 217–218.) Meridian owned Magellan for the quarter preceding the August 2016 

Form 10-Q, but it did not address whether it had reviewed Magellan’s internal controls before 

issuing the form. (Id.) 

 In the November 2016 Form 10-K, Meridian for the first time disclaimed that it had 

reviewed Magellan’s internal controls: “The Company’s assessment of and conclusion on the 

effectiveness of its internal control over financial reporting did not include the internal controls 

of Magellan Biosciences, Inc. . . . .” (Id. at PageID 219.) Meridian again disclaimed that it had 

reviewed Magellan’s internal controls related to financial disclosures in its February 2017 Form 

10-Q. (Id. at PageID 220.) However, in the May 2017 Form 10-Q and the August 2017 Form 

10-Q, Meridian reverted to using the disclaimer-less language it had used in the August 2016 

Form 10-Q. (Id.) 

 Finally, in the November 2017 Form 10-K Meridian stated that it had “identified a 

material weakness in our internal control over financial reporting that, if not properly corrected, 

could materially adversely affect our operations and result in material misstatements in our 

financial statements.” (Id. at PageID 222.) It further stated, “deficiencies related to Information 

Technology General Controls (‘ITGC’) intended to restrict access to certain data and 

applications . . . impacting financial reporting functions and controls.” (Id.) 

II. PROCEDURAL POSTURE 

 On November 15, 2017, Forman filed a Class Action Complaint asserting claims under 

the Securities Exchange Act of 1934 (“Exchange Act”) on behalf of a class defined as “all 
15 

persons or entities, other than Defendants and their affiliates, who purchased or otherwise 

acquired Meridian securities from March 25, 2016 through July 13, 2017, both dates inclusive.” 

(Doc. 1 at PageID 1–2.) Three months later, the Court appointed Forman as lead plaintiff and 

Levi & Korsinsky, LLP as lead counsel. (Doc. 20.) 

 On April 16, 2018, Forman filed an Amended Complaint against Defendants Meridian, 

John Kraeutler, and Melissa Lueke “on behalf of herself and all other persons or entities who 

purchased or otherwise acquired securities of [Meridian] between March 24, 2016 and October 

23, 2017.” (Doc. 29.) She asserted two claims for relief: 

Count I: Violations of § 10(b) of the Securities Exchange Act of 1934 (“Exchange 

Act”), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC, 17 

C.F.R. § 240.10b-5, against all Defendants; and 

Count II: Violations of § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), against 

all Defendants. 

(Id. at PageID 278–282.) 

III. LEGAL STANDARD ON MOTION TO DISMISS

 Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss a complaint 

for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To 

withstand a dismissal motion, a complaint must contain “more than labels and conclusions [or] a 

formulaic recitation of the elements of a cause of action.” Bell Atlantic Corp. v. Twombly, 550 

U.S. 544, 555 (2007). In most cases, courts do not require “heightened fact pleading of specifics, 

but only enough facts to state a claim for relief that is plausible on its face.” Id. at 570. “A claim 

has facial plausibility 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). A district court examining the sufficiency of a complaint must accept 
16 

the well-pleaded allegations of the complaint as true. Id.; DiGeronimo Aggregates, LLC v. 

Zemla, 763 F.3d 506, 509 (6th Cir. 2014). 

 In a securities fraud case, the complaint also must satisfy the heightened standard for 

pleading fraud set forth in Federal Rule of Civil Procedure 9(b). Dougherty v. Esperion 

Therapuetics, Inc., 905 F.3d 971, 978 (6th Cir. 2018). “The complaint must (1) specify the 

statements that the 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.” Id. 

The PSLRA, 15 U.S.C. § 78u-4(b), imposes two further pleading requirements: (1) the 

complaint must identify each statement alleged to be misleading and explain the reason it is 

misleading, and (2) it must state facts with particularity that give rise to a strong inference that 

the defendant acted with the required state of mind. Id. 

IV. ANALYSIS

 Section 10(b) of the Exchange Act generally makes it unlawful for any person using 

mails or instrumentalities of interstate commerce to use a “manipulative or deceptive device” in 

connection with the purchase or sale of a security. 15 U.S.C. § 78j(b). SEC Rule 10b-5 

generally makes it unlawful for a person using mails or instrumentalities of interstate commerce 

to commit fraud in connection with the purchase or sale of a security. 17 C.F.R. § 240.10b-5. 

 A plaintiff must prove six elements to establish a claim for violation of § 10(b) of the 

Exchange Act or SEC Rule 10b-5: “(1) a material misrepresentation or omission by the 

defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the 

purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic 

loss; and (6) loss causation.” Dougherty, 905 F.3d at 979 (citation omitted). 
17 

 Section 20(a) of the Exchange Act, 15 U.S.C. § 78t, provides for joint and several 

liability for controlling persons for violations of the Exchange Act. 

A. Material Misrepresentation 

 The Sixth Circuit has explained that the analysis for when a misrepresentation has been 

made is different depending upon whether a misstatement or omission is alleged, and whether it 

concerns hard information or soft information. The Sixth Circuit stated the following standard 

for affirmative misstatements: 

A misrepresentation is an affirmative statement that is misleading or false. When 

an alleged misrepresentation concerns “hard information”—“typically historical 

information or other factual information that is objectively verifiable”—it is 

actionable if a plaintiff pleads facts showing that the statement concerned a 

material fact and that it was objectively false or misleading. When an alleged 

misrepresentation concerns “soft information,” which “includes predictions and 

matters of opinion,” a plaintiff must additionally plead facts showing that the 

statement was “made with knowledge of its falsity[.]” 

In re Omnicare, Inc. Sec. Litig., 769 F.3d 455, 470 (6th Cir. 2014) (citations omitted). The 

subjective aspect of the affirmative misstatement test requires plaintiffs “to allege particular facts 

demonstrating that defendants had actual knowledge that their statements concerning soft 

information were false or misleading at the time that they were made,” but it can be examined 

with the scienter prong. Id. at 471.4

 

4

 The Sixth Circuit set forth different standards for misrepresentations by omission: 

In lieu of targeting a defendant’s misleading or false statements, a plaintiff may focus on a defendant’s omission—

its failure to disclose information when it had a duty to do so. “A duty to affirmatively disclose ‘may arise when 

there is insider trading, a statute requiring disclosure,’ or, as relevant in this case, ‘an inaccurate, incomplete[,] or 

misleading prior disclosure.’” To complicate matters further, when a person or corporation comes into possession of 

information that makes a prior statement “inaccurate, incomplete, or misleading,” different duties to disclose the 

new information arise, perhaps unsurprisingly, depending on whether the new information is hard or soft. If the new 

information is hard, then a person or corporation has a duty to disclose it if it renders a prior disclosure objectively 

inaccurate, incomplete, or misleading. If the new information is soft, then a person or corporation has a duty to 

disclose it “‘only if [it is] virtually as certain as hard facts’” and contradicts the prior statement. In other words, the 

new information must be so concrete that the defendant must have actually known that the new information renders 

the prior statement misleading or false and still did not disclose it. Whether newly acquired soft information is 

sufficiently concrete to trigger a duty to disclose will undoubtedly depend upon the facts in a given case, and the 
18 

 The “materiality requirement is satisfied when there is a substantial likelihood that the 

disclosure of the omitted fact would have been viewed by the reasonable investor as having 

significantly altered the total mix of information made available.” Matrixx Initiatives, Inc. v. 

Siracusano, 563 U.S. 27, 38 (2011) (internal quotation and citation omitted). Context matters 

when determining materiality. In re Omnicare, 769 F.3d at 478. 

1. Statements Concerning LeadCare’s Efficacy 

 Plaintiff alleges that several categories of statements were misleading. First, Plaintiff 

contends that Meridian made material misstatements when it asserted during the Class Period in 

press releases and SEC filings that the LeadCare testing systems were FDA-cleared, accurate, 

and provided point-of-care capability. Plaintiff argues that the LeadCare systems failed to meet 

all of those standards. She alleges that when a venous blood sample was used, the LeadCare 

systems required a lengthy incubation period of up to twenty-four hours, and therefore did not 

provide immediate, accurate, point-of-care results. Although Plaintiff addresses all of 

Meridian’s statements regarding the efficacy of the LeadCare systems with a broad brush stroke, 

the Court will provide a closer examination of the purportedly misleading statements. 

 To begin, Meridian’s repeated statement in several Forms 10-Q and the November 2016 

Form 10-K that Magellan was “a leading manufacturer of FDA-cleared products for the testing 

of blood to diagnose lead poisoning in children and adults” and “the leading provider of point-ofcare lead testing systems” is not actionable. (Doc. 29 at PageID 211–212.) Plaintiff has not 

pleaded facts suggesting that this statement is false or gives a false impression. Even after the 

LeadCare products recall, it remained true that Magellan manufactured LeadCare systems that 

 

nature of both the prior disclosure and the new information will determine whether new information makes a prior 

disclosure false or misleading. 

Id. 
19 

were FDA-cleared and point-of-care accurate for use with capillary blood samples to diagnose 

lead poisoning in children and adults. Plaintiff has not identified any other company who 

manufactured lead testing systems which were FDA-cleared and point-of-care accurate. 

Therefore, Meridian did not mislead when it stated that Magellan was a leading manufacturer or 

provider of such systems. 

 However, Meridian stated in the November 2016 Form 10-K that all of its diagnostic 

products, including the Magellan LeadCare systems, were FDA cleared. (Doc. 29 at PageID 

213.) Plaintiff does not dispute that this statement was literally true, but she alleges that the 

statement gave a materially false impression. Plaintiff alleges that Meridian did not timely 

provide the FDA with its notices to customers to use incubations periods for venous blood 

samples, about changes to its package labeling to instruct about the incubation period, or about 

customer complaints. As such, Plaintiff alleges that the LeadCare systems were not FDAcleared to use with an incubation period for venous blood samples. The Court agrees that the 

particular statement that all Magellan products were FDA cleared is actionable on the theory that 

it gave a materially false impression. See Bondali v. YumA Brands, Inc., 620 F. App’x 483, 491–

92 (6th Cir. 2015).5 

 2. Statements in the Merger Agreement 

 Plaintiff next alleges that Meridian made false statements when it adopted and executed 

the Merger Agreement. In the Merger Agreement, Magellan made the statements that (1) it had 

filed all material reports with the FDA and that all reports were complete and accurate, and (2) it 

 

5

 To the extent that Plaintiff alleges that Meridian wrongly stated that the LeadCare systems provided accurate 

results with venous blood samples if an incubation period was utilized (as opposed to point-of-care accurate), this is 

not actionable. Plaintiff alleges that Meridian received complaints in January 2017 that the LeadCare Ultra tests 

gave inaccurate results even when the incubation period was used, but Plaintiff does not assert that Meridian made 

any particular statements about the accuracy of LeadCare tests after that date. 
20 

had conducted all clinical testing in accordance with FDA regulations. (Doc. 29 at PageID 204.) 

The representations at issue were part of the warranties made by Magellan to Meridian in Article 

III of Merger Agreement. (Meridian May 2016 Form 10-Q, Exhibit 10.1 at 29, 50.) The 

statements are not actionable because they were made by Magellan, not Meridian. The Supreme 

Court has held that only the person or entity with control of the content of a statement is the 

maker of the statement who can be liable for a misrepresentation under Rule 10b-5. Janus Cap. 

Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142–43 (2011). The Merger Agreement 

was signed by Kraeutler on behalf of Meridian and by Peter Glick on behalf of Magellan. 

Meridian cannot be held liable for the warranty representations made to it by the opposing party 

in an arms-length business transaction before the merger took effect. Plaintiff has not alleged 

that after the acquisition Meridian vouched for, adopted, or re-stated Magellan’s warranties to it. 

The Court will dismiss the Amended Complaint to the extent that Plaintiff asserts claims based 

on representations made by Magellan in the Merger Agreement. 

 3. Statements about Meridian’s Expectations for Magellan 

 Next, Plaintiff asserts that three statements made by Meridian in the November 10, 2016 

press release attached as an exhibit to November 2016 Form 8-K are actionable 

misrepresentations. The first statement is that Meridian expected its projections for fiscal year 

2017—specifically the expectation that Meridian’s net revenues would be in the range of $205 

million to $210 million with diluted earnings in the range of $0.81 to $0.85 per share—to be 

“reasonable, and [would] prove to be realistic, with quarter-to-quarter results supporting our 

expectations.” (Meridian November 2016 Form 8-K, Ex. 99.1 at 8; Doc. 29 at PageID 216.) 

Plaintiff asserts that statement was false because Meridian had no basis to believe that Magellan

would meets quarter-to-quarter projections. (Doc. 29 at PageID 216.) Plaintiff has mixed up 
21 

apples and oranges, so to speak. The statement that Meridian would meet its fiscal 2017 

expectations is not disproven by a general allegation one business unit, Magellan, would not 

meet its quarterly expectations. 

 Additionally, this is a forward-looking statement.6 The PSLRA contains a safe harbor for 

forward-looking statements. Forward looking statements are defined to include statements of 

revenue and earnings. 15 U.S.C. § 78u-5(c)(i)(1)(A). A forward-looking statement is one whose 

veracity cannot be determined at the time the statement is made. Dougherty, 905 F.3d at 983. 

Subject to limitations, a defendant will not be liable for a material forward-looking statement if 

either (1) the statement is “identified as a forward-looking statement, and is accompanied by 

meaningful cautionary statements identifying important factors that could cause actual results to 

differ materially from those in the forward-looking statement,” or (2) “the plaintiff fails to prove 

that the forward-looking statement . . . was made with actual knowledge . . . that the statement 

was false or misleading.” 15 U.S.C. § 78u-5(c)(1)(A)–(B). This Meridian press release 

contained cautionary language, including that the costs and difficulties of complying with FDA 

regulations could impact future growth. (Meridian November 2016 Form 8-K, Ex. 99.1 at 10–

11.) 

 Plaintiff argues that boilerplate cautionary language is not sufficient. However, the 

cautionary language here is analogous to the cautionary language found to be substantive and 

effective by a sister court in this District. See Willis v. Big Lots, Inc., No. 2:12-cv-604, 2016 WL 

 

6

 Plaintiff argues that this is a not purely forward looking because it is a mixed statement accompanied by present 

fact. The Court disagrees. Meridian’s guidance for its future revenues and earnings per share are distinguishable 

from the statements in the case cited by Plaintiff, In re EveryWare Global, Inc. Securities Litigation, 175 F. Supp. 3d 

837 (S.D. Ohio 2016), aff’d IBEW Loc. No. 58 Annuity Fund v. Everyware Global, Inc., 849 F.3d 325 (6th Cir. 

2017). The statement in the case was that the company was “on track” to meet its revenue projections. Id. at 855. 

The Court stated that the PSLRA safe harbor provisions did not apply because the statements were related to the 

company’s “then-current conditions.” Id. Here, conversely, Meridian stated that it believed its projections to be 

reasonable and that they would be proven in the future to be realistic. 
22 

8199124, at *15 (S.D. Ohio Jan. 21, 2016). The cautionary language in Willis stated that the 

following factors could influence future performance: the economic and credit crisis, the cost of 

goods, competitive pressures, economic pressures on the company and its customers, the 

availability of brand name closeout goods, and freight costs. Id. The language used by Meridian 

is different as it is tailored to a different industry, but it warns of similarly broad risks: the 

inability to protect its intellectual property, consolidation of hospitals and laboratories, economic 

recessionary pressures, difficulties in complying with FDA regulations, and economic conditions 

in foreign countries. (Meridian November 2016 Form 8-K, Ex. 99.1 at 10–11.) This Court finds 

that Meridian’s cautionary language is sufficiently meaningful. 

 Plaintiff also contends that the cautionary language is not meaningful because Meridian 

knew about, but did not disclose, specific problems with the LeadCare products likely to trigger 

FDA oversight. Some courts have concluded that cautionary language is not “meaningful” under 

§ 78u-5(c)(1)(A)(i) when a company knows that the potential risks they have identified have 

occurred already. See, e.g., In re Nash Finch Co., 502 F. Supp. 2d 861, 873 (D. Minn. 2007) 

(“[C]autionary language can not be ‘meaningful’ when defendants know that the potential risks 

they have identified have in fact already occurred, and that the positive statements they are 

making are false.”); In re SeeBeyond Techs. Corp. Sec. Litig., 266 F. Supp. 2d 1150, 1165 (C.D. 

Cal. 2003) (stating that § 78u-5(c)(1)(A)(i)’s requirement “that meaningful cautionary language 

accompany the forward-looking statement severely limits the possibility that false or misleading 

statements could be made with actual knowledge and yet be protected under the safe harbor 

provision”). 

 However, the Sixth Circuit has concluded that the speaker’s state of mind is irrelevant 

when the forward-looking statement is accompanied by objectively meaningful cautionary 
23 

language. “In other words, if the statement qualifies as ‘forward-looking’ and is accompanied by 

sufficient cautionary language, a defendant’s statement is protected regardless of the actual state 

of mind.” Miller v. Champion Enters. Inc., 346 F.3d 660, 672 (6th Cir. 2003); see also Beaver 

Cnty. Retirement Bd. v. LCA-Vision, Inc., No. 1:07-cv-750, 2009 WL 806714, at *14 (S.D. Ohio 

Mar. 25, 2009) (“Plaintiff’s allegation that Defendants had actual knowledge that consumer 

demand was slipping . . . does not save the claim because the existence of the meaningful 

cautionary statement renders the issuer’s state of mind irrelevant.”). In one case, the Sixth 

Circuit found that a memory-foam mattress company that had warned generally about risks from 

mattress competitors entering the market for memory-foam mattresses was protected under the 

safe harbor provision, even though the company did not disclose an internal analysis of the risks 

posed by a particular competitor. Pension Fund Grp. v. Tempur-Pedic Int’l, Inc., 614 F. App’x 

237, 244 (6th Cir. 2015). Here, Meridian warned about risks inherent in complying with FDA 

regulations. That is sufficient to make the cautionary language meaningful. 

 The second alleged misrepresentation in the November 2016 press release was that 

Magellan “exceeded [Meridian’s] expectations in satisfying the demand for testing children for 

elevated blood lead levels.” (Doc. 29 at PageID 216.) Plaintiff did not plead what expectations 

Meridian had for Magellan or how those expectations had not been exceeded as of November 

2016. Plaintiff has not pleaded facts to make this an actionable misrepresentation. 

 The third and final statement Meridian made in the November 10, 2016 press release was 

that it believed the Magellan business unit would report “low-double-digit organic growth in 

fiscal 2017 with the potential for upside performance.” (Id.) This is also a forward-looking 

statement under the PSLRA. The Court has concluded that Meridian used meaningful cautionary 

language when it warned about the potential impact of complying with the FDA regulatory 
24 

process that provides a safe harbor for the statements about future Magellan growth. The Court 

concludes that none of Meridian’s statements about its expectations for Magellan in the 

November 2016 press release are actionable misrepresentations under the PSLRA. The Court 

will dismiss the Amended Complaint to the extent the claims are based on these alleged 

misrepresentations about Magellan’s future performance. 

4. Meridian’s Statements about the Effectiveness of Its Internal Controls 

 Finally, Plaintiff alleges that Meridian misrepresented the effectiveness of its internal 

controls following the acquisition of Magellan. (Doc. 29 at PageID 217–222.) As the Court 

understands the allegations, Plaintiff alleges that Meridian made a series of disclosures about its 

internal controls related to financial reporting in its Forms 10-Q and 10-K issued between May 

2016 and November 2017. Meridian disclaimed that it had reviewed Magellan’s internal 

controls in some of those Forms 10-Q and 10-K, but it did not disclaim that it had reviewed 

Magellan’s controls in other Forms 10-Q and 10-K. Most relevantly, Meridian stated for the first 

time in the November 2017 Form 10-K that it had identified deficiencies in its internal controls 

that could result in material misstatements in its financial statements. (Id. at PageID 222.) 

Plaintiff interprets this to be an admission that Meridian knowingly or recklessly disregarded that 

Magellan lacked sufficient internal controls when it acquired Magellan. (Id.) 

 Defendants point out the inadequacy of these allegations. Meridian did not disclose any 

deficiencies related to internal controls until the November 2017 Form 10-K. The mere fact that 

Meridian disclosed a known deficiency in November 2017 does not, without more, suggest that it 

knew about the deficiency prior to that disclosure. Plaintiff fails to plead facts suggesting that 

Meridian knew prior to November 2017 about the internal control deficiencies. The Court will 
25 

dismiss the Amended Complaint to the extent the claims are based on these alleged 

misrepresentations about internal controls. 

B. Scienter 

 “In the securities-fraud context, scienter includes a knowing and deliberate intent to 

manipulate, deceive, or defraud, and recklessness.” Dougherty, 905 F.3d at 979 (citation 

omitted). Recklessness is defined in this context as a “highly unreasonable conduct which is an 

extreme departure from the standards of ordinary care ... akin to conscious disregard.” Id. at 980 

(citation omitted). 

 A court examining whether a plaintiff has adequately pleaded scienter must (1) accept all 

factual allegations as true, (2) consider the complaint, and the documents incorporated in the 

complaint, in their entirety, and (3) “take into account plausible opposing inferences.” Tellabs, 

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322–23 (2007); see also Dougherty, 905 F.3d 

at 979 (quoting Tellabs). This requires the Court to look at the allegations holistically and 

collectively, not on an allegation-by-allegation basis. Frank v. Dana Corp., 646 F.3d 954, 961 

(6th Cir. 2011). The third factor requires a court to “consider plausible, nonculpable 

explanations for the defendant’s conduct, as well as inferences favoring the plaintiff.” Tellabs, 

551 U.S. at 324. “A complaint will survive, we hold, only if a reasonable person would deem 

the inference of scienter cogent and at least as compelling as any opposing inference one could 

draw from the facts alleged.” Id. 

 The Sixth Circuit examines scienter with reference to nine non-exhaustive factors: 

(1) insider trading at a suspicious time or in an unusual amount; 

(2) divergence between internal reports and external statements on the same 

subject; 

(3) closeness in time of an allegedly fraudulent statement or omission and the 

later disclosure of inconsistent information; 
26 

(4) evidence of bribery by a top company official; 

(5) existence of an ancillary lawsuit charging fraud by a company and the 

company’s quick settlement of that suit; 

(6) disregard of the most current factual information before making statements; 

(7) disclosure of accounting information in such a way that its negative 

implications could only be understood by someone with a high degree of 

sophistication; 

(8) the personal interest of certain directors in not informing disinterested 

directors of an impending sale of stock; and 

(9) the self-interested motivation of defendants in the form of saving their salaries 

or jobs. 

Helwig v. Vencor, Inc., 251 F.3d 540, 552 (6th Cir. 2001); see also Dougherty, 905 F.3d at 979 

(quoting Helwig). 

 The Court must examine whether scienter exists only as to the November 2016 form 10-

K statement that all of the Meridian diagnostics products, including the Magellan LeadCare 

products, were FDA cleared. Plaintiff argues that four Helwig factors, plus several non-Helwig

factors, support a finding of scienter. Specifically, Plaintiff argues that the alleged facts show the 

following Helwig factors support a finding of scienter here: (2) a divergence between internal 

reports and external statements, (3) closeness in time between an alleged fraudulent statement 

and the later inconsistent disclosure, (6) disregard of the most current factual information before 

making statements, and (9) the self-interested motivation in terms of salary or jobs. 

 The second and sixth factors are related and will be addressed together. The Court 

concluded above that Plaintiff adequately has pleaded that Meridian made actionable false 

representations that all of the Magellan products were FDA cleared in the November 2016 Form 

10-K. Plaintiff pleaded that in doing so Magellan and Meridian disregarded internal documents 

demonstrating problems with the LeadCare systems when using venous samples such as the 
27 

September 2013 Reagent Study, CAR 108 opened in November 2014, the labeling changes to 

include an incubation period, the November 2016 notice to customers and product bulletin, and 

the customer complaints over several years. These internal documents suggest that an incubation 

period was required to achieve accurate results, but the FDA had not cleared LeadCare systems 

with the use of an incubation period. 

 To the extent that these Magellan documents were created or received prior to the 

acquisition by Meridian, Plaintiff has pleaded that the documents would have been made 

available to Meridian during the due diligence process. Plaintiff also pleaded that Winslow, the 

former Magellan president and CEO who became an executive vice-president and the head of the 

Magellan business unit for Meridian, participated in monthly “flash calls” with other Meridian 

executives to discuss monthly performance and outlook. Plaintiff specifically pleaded that 

customer complaints would have been discussed in these conference calls. The Court finds that 

the allegations are specific enough to withstand a Rule 12(b)(6) challenge. The second and sixth 

Helwig factors favor a finding that scienter exists. Such divergence between internal documents 

and public reports can be a “key factor” to finding scienter. Dougherty, 905 F.3d at 981. 

 However, the third Helwig factor does not support a finding of scienter. Meridian stated 

in the November 2017 Form 10-K that all of its products were FDA cleared. The FDA did not 

issue the recall of the LeadCare products until May 2017. A six-month distance in time between 

the false representation and the public disclosure of contrary facts is too remote to be suggestive 

of scienter. See Doshi v. Gen. Cable Corp., 823 F.3d 1032, 1042 (6th Cir. 2016) (stating that an 

86-day gap did not allow a scienter inference); City of Monroe Emps. Retirement Sys. v. 

Bridgestone Corp., 399 F.3d 651, 687–88 (6th Cir. 2005) (finding a four-month period to not be 

probative of scienter). 
28 

 Plaintiff makes only a bare-bones argument that the ninth Helwig factor weighs in favor 

of scienter. “[G]eneral allegations of an executive’s desire to protect his position within a 

company or increase his compensation do not comprise a motive for fraud, because such a desire 

is shared by all corporate officers.” Dougherty, 905 F.3d at 981–82 (internal quotation and 

citation omitted). Rather, “a plaintiff must show concrete benefits that could be realized by one 

or more of the false statements and wrongful nondisclosures alleged.” PR Diamonds, Inc. v. 

Chandler, 364 F.3d 671, 690 (6th Cir. 2004). Plaintiff does not plead facts to meet that standard 

here. 

 None of the other Helwig factors apply in this case. Instead, Plaintiff seeks to boost her 

scienter analysis with non-Helwig factors. For example, Plaintiff alleges that the fact that John 

Kraeutler announced his retirement as the CEO of Meridian in May 2017 on the same day the 

FDA began its fifteen-day inspection of Magellan’s facility in Massachusetts is evidence of 

scienter. See Willis, 2016 WL 8199124, at *34 (finding that resignation of a merchandising 

executive on the same day that the company announced it had not met earnings expectations was 

evidence of scienter). Kraeutler’s retirement was unexpected because he had an employment 

contract through September 2018. However, Meridian points out that the retirement 

announcement stated that Kraeutler would continue to serve as CEO until his successor was 

chosen and that he would remain as the executive chairman of the company’s board of directors. 

(May 2017 Form 8-K at Ex. 99.1.) Moreover, Kraeutler’s retirement was announced before the 

FDA issued the recall, its inspection report, or the warning letter. This factor weighs slightly in 

favor of a finding of scienter. 

 Next, Plaintiff asserts that the FDA recall, inspection report findings, and warning letter 

are themselves evidence of scienter. However, the case she cites in support of the proposition 
29 

that FDA violations can be indicative of scienter is distinguishable in material respect. In Guam 

v. Invacare Corp., No. 1:13cv1165, 2014 WL 4062456, at *5–7 (N.D. Ohio Aug. 18, 2014), the 

court found scienter where the company issued public statements to investors mischaracterizing 

the violations found by the FDA after the FDA issued its warning letters. Here, in contrast, 

Plaintiff does not allege that Meridian made any misstatements to the investing public after the 

FDA issued its product recall, findings, or warning letter. To the extent Plaintiff alleges that 

Meridian had prior knowledge of the underlying problems confirmed by the FDA findings and 

warning letter, those allegations have been addressed in the analysis of the second and sixth 

Helwig factors. The purported factor does not weigh in favor of a finding of scienter. 

 Finally, Plaintiff asserts that the Meridian’s January 2017 downward guidance adjustment 

is evidence of scienter. Meridian stated that it adjusted its guidance downward and reduced its 

dividend because it was experiencing continuing difficulty in its Americas diagnostic business 

unit. It stated in the same SEC filing that the Magellan business unit performance was strong. 

However, Plaintiff alleges that the real reasons for the downward adjustment were the problems 

with Magellan’s LeadCare systems which came to light in November 2016, including Meridian’s 

issuance of the public bulletin blaming the Becton Dickinson rubber stoppers for inaccurate test 

results, its decision to revise the labeling for LeadCare II to include a four-hour incubation 

period, and its failed attempt to send an MDR to the FDA concerning the LeadCare II labeling 

change. 

 Meridian responds that Plaintiff’s theory is facially implausible. Magellan products 

constituted only 5.1% of Meridian’s overall revenues for fiscal year 2016. It was only a fraction 

of the overall Americas diagnostic business unit. Moreover, the LeadCare Plus and LeadCare 

Ultra testing systems, which were primarily used with venous blood samples, constituted only 
30 

10% of Magellan’s annual revenues. The LeadCare and LeadCare II systems were used 

primarily with capillary blood samples. (Meridian November 2017 Form 10-Q at 30.) Meridian 

contends that it would not have reduced its 2017 projected earnings and cut its dividend—

blaming the decision on weakness in the larger portion of the Americas diagnostics business 

unit—to conceal a weakness in the smaller Magellan diagnostics business unit. That is, Meridian 

contends that it would not have adjusted its guidance downward—an action likely to cause a 

stock price drop—to conceal problems with a smaller business unit. 

 Also, Meridian points out that it made voluntary disclosures to the public about the need 

for an incubation period for the LeadCare systems when venous blood samples were used. 

Magellan issued notices to customers in November 2014 and November 2016 instructing them to 

use incubation periods for venous blood samples for certain LeadCare systems. It sent a medical 

device report to the FDA in April 2015 which includes the November 2014 notice to customers. 

The Court does not discount Plaintiff’s allegations that Meridian’s and Magellan’s disclosures to 

the FDA were untimely and insufficient, but their voluntary public disclosure of information 

about the need for incubation periods undercuts an inference of an intent to deceive or conceal. 

 Finally, it is useful to examine Plaintiff’s overarching theory of liability and Meridian’s 

response thereto. Plaintiff alleges that Meridian knowingly acquired a company facing serious 

regulatory problems, including a likely FDA product recall, to ameliorate its weakening financial 

position. Specifically, Plaintiff alleges that Meridian faced difficulties in its core diagnostic 

2016 business unit because (1) its illumigene product was not performing as well as expected, 

(2) it was going to lose the patents for its H. pylori products in May 2016, and (3) it had a small 

research and development budget. Therefore, Plaintiff alleges, Meridian acquired Magellan to 

provide it with new diagnostic products and new growth driver. However, Plaintiff also alleges 
31 

that Meridian knew that Magellan was facing serious regulatory problems, including a likely 

FDA product recall, because Magellan fraudulently was concealing the fact that its LeadCare 

products could not provide point-of-care accuracy without the use of an incubation period for 

venous blood samples. 

 Meridian contends this overall theory is nonsensical. Meridian asks why it would seek to 

boost it revenues and stock prices by acquiring a company with regulatory liabilities that would 

imperil its future prospects. Meridian asserts that it is more likely that Meridian believed that the 

acquisition of Magellan in fact would bolster its bottom line. Meridian does not dispute that it 

faced business difficulties prior to the acquisition of Magellan in early 2016. Meridian knew that 

Magellan’s LeadCare products had been FDA cleared for use with capillary and venous blood 

samples and that the use of the products with capillary blood samples accounted for the majority 

of Magellan’s revenues. Additionally, while Plaintiff has alleged that Meridian knew or should 

have known that Magellan had made changes to LeadCare’s labeling and instructions without 

timely informing the FDA, there is no allegation that Meridian would have known that the use of 

an incubation period did not ameliorate the underestimation problem for venous blood samples. 

Meridian did not receive customer complaints about problems with incubated samples until 

January 2017. Therefore, Meridian’s purportedly misleading, but literally true, statement in 

November 2016 that all of Magellan’s LeadCare systems were FDA cleared likely was not made 

with knowing, deliberate, or reckless intent to deceive investors. 

 Plaintiff’s theory of liability is not as compelling as Meridian’s non-culpable explanation. 

As such, the Court concludes that Meridian’s specific statement in November 2016 that all of its 

products were FDA cleared does not rise to the level of “a knowing and deliberate intent to 

manipulate, deceive, or defraud, and recklessness.” Dougherty, 905 F.3d at 878 (citation 
32 

omitted). Because Plaintiff has not met the scienter requirement, the Court need not consider the 

remaining element of a securities fraud claim. The Court will dismiss the Exchange Act claims 

against Defendants. 

V. CONCLUSION

 For the foregoing reasons, the Motion to Dismiss (Doc. 32) is GRANTED. 

IT IS SO ORDERED. 

Dated this 13th day of February, 2019. 

BY THE COURT: 

S/Susan J. Dlott__________ 

Susan J. Dlott 

United States District Judge