UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK 

IN RE BRISTOL-MYERS SQUIBB CO. 

SECURITIES LITIGATION 

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X

NO. 07-CV-5867 (PAC) 

Electronically Filed 

PLAINTIFFS’ MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ 

MOTIONS TO DISMISS 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 1 of 48
 i 

TABLE OF CONTENTS 

Page

PRELIMINARY STATEMENT ........................................................................................ 1 

SUMMARY OF FACTS .................................................................................................... 4 

ARGUMENT.................................................................................................................... 10 

I. THE COMPLAINT’S ALLEGATIONS MUST BE PRESUMED TRUE .......... 10 

II. THE COMPLAINT ALLEGES ACTIONABLE 

MISREPRESENTATIONS AND OMISSIONS .................................................. 11 

III. THE COMPLAINT ALLEGES NUMEROUS FACTS GIVING RISE TO 

A STRONG INFERENCE THAT DEFENDANTS ACTED WITH 

SCIENTER ........................................................................................................... 20 

IV. THE COMPLAINT ALLEGES CONTROL PERSON LIABILITY 

AGAINST DOLAN AND BODNAR .................................................................. 24 

V. THE COMPLAINT ALLEGES THAT BODNAR ENGAGED IN A 

SCHEME THAT DECEIVED INVESTORS....................................................... 28 

VI. THE COMPLAINT ALLEGES LOSS CAUSATION......................................... 32 

CONCLUSION................................................................................................................. 40 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 2 of 48
-iiTABLE OF AUTHORITIES 

Page(s) 

CASES

Affiliated Ute Citizens of Utah v. United States, 

406 U.S. 128 (1972).................................................................................................................28 

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 

493 F.3d 87 (2d Cir. 2007).................................................................................................10, 27 

Backman v. Polaroid Corp., 

910 F.2d 10 (1st Cir. 1990)......................................................................................................12 

Basic Inc. v. Levinson, 

485 U.S. 224 (1988).................................................................................................................11 

Boguslavsky v. Kaplan, 

159 F.3d 715 (2d Cir. 1998).....................................................................................................26 

Brumbaugh v. Wave Sys. Corp., 

416 F. Supp. 2d 239 (D. Mass. 2006) ................................................................................16, 35 

Caiola v. Citibank, N.A., 

295 F.3d 312 (2d Cir. 2002)...............................................................................................11, 12 

Catton v. Def. Tech. Sys., Inc., 

457 F. Supp. 2d 374 (S.D.N.Y. 2006)......................................................................................26 

Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 

511 U.S. 164 (1994).................................................................................................................31 

Compudyne Corp. v. Shane, 

453 F. Supp. 2d 807 (S.D.N.Y. 2006)................................................................................24, 33 

Dietrich v. Bauer, 

126 F. Supp. 2d 759 (S.D.N.Y. 2001)......................................................................................25 

Donohoe v. Consol. Operating & Prod. Corp., 

736 F. Supp. 845 (N.D. Ill. 1990) ............................................................................................15

Dura Pharms., Inc. v. Broudo, 

544 U.S. 336 (2005)...........................................................................................................32, 35 

Emergent Capital Inv. Mgmt. LLC v. Stonepath Group, Inc., 

343 F.3d 189 (2d Cir. 2003).....................................................................................................39 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 3 of 48
-iiiFogarazzo v. Lehman Bros., Inc., 

341 F. Supp. 2d 274 (S.D.N.Y. 2004)......................................................................................17 

Ganino v. Citizens Utils. Co., 228 F.3d 154 (2d Cir. 2000) .........................................................12

Glazer v. Formica Corp., 

964 F.2d 149 (2d Cir. 1992).....................................................................................................11 

In re Alstom SA Sec. Litig., 

406 F. Supp. 2d 433 (S.D.N.Y. 2005)......................................................................................15 

In re Am. Bank Note Holographics, Inc. Sec. Litig., 

93 F. Supp. 2d 424 (S.D.N.Y. 2000)........................................................................................24 

In re Apollo Group Inc. Sec. Litig., 

509 F. Supp. 2d 837 (D. Ariz. 2007) .......................................................................................20 

In re Avista Corp. Sec. Litig., 

415 F. Supp. 2d 1214 (E.D. Wash. 2005)................................................................................37 

In re Bradley Parms., Inc. Sec. Litig., 

421 F. Supp. 2d 239 (D.N.J. 2006) ..........................................................................................35

In re Bristol-Myers Squibb Sec. Litig., 

Civ. A. No. 00-1990 (SRC), 2005 U.S. Dist. LEXIS 18448 (D.N.J. Aug. 17, 

2005) ..................................................................................................................................35, 36 

In re Campbell Soup Co. Sec. Litig., 

145 F. Supp. 2d 574 (D.N.J. 2001) ..........................................................................................11 

In re Charter Commc’ns, Inc., 

443 F.3d 987 (8th Cir. 2006) ...................................................................................................32 

In re Converium Holding AG Sec. Litig., 

No. 04 Civ. 7897(DLC), 2007 WL 2684069 (S.D.N.Y. Sept. 14, 2007) ........................ passim 

In re Enron Corp. Sec., Derivative & ERISA Litig., 

235 F. Supp. 2d 549 (S.D. Tex. 2002) .....................................................................................30 

In re Global Crossing, Ltd. Sec. Litig., 

322 F. Supp. 2d 319 (S.D.N.Y. 2004)..........................................................................28, 29, 32 

In re Gulf Oil/Cities Serv. Tender Offer Litig., 

725 F. Supp. 712 (S.D.N.Y. 1989)...........................................................................................13 

In re Immucor Inc. Sec. Litig., 

No. 1:05-cv-2276-WSD, 2006 U.S. Dist. LEXIS 72335 (N.D. Ga. Oct. 4, 

2006) ........................................................................................................................................35 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 4 of 48
-ivIn re Independent Energy Holdings PLC Sec Litig., 

154 F. Supp. 2d 741 (S.D.N.Y. 2001)......................................................................................19 

In re Initial Pub. Offering Sec. Litig., 

241 F. Supp. 2d 281 (S.D.N.Y. 2003)....................................................................20, 26, 27, 28 

In re Interpublic Sec. Litig., 

No. 02 Civ. 6527 (DLC), 2003 WL 21250682 (S.D.N.Y. May 29, 2003) ..............................26 

In re Labranche Sec. Litig., 

405 F. Supp. 2d 333 (S.D.N.Y. 2005)................................................................................25, 27 

In re Lernout & Hauspie Sec. Litig., 

236 F. Supp. 2d 161 (D. Mass. 2003) ......................................................................................30 

In re Marsh & McLennan Cos. Sec. Litig., 

501 F. Supp. 2d 452 (S.D.N.Y. 2006)......................................................................................27 

In re Merrill Lynch Tyco Research Sec. Litig., 

No. 03-CV-4080 (MP), 2004 U.S. Dist. LEXIS 2247 (S.D.N.Y. Feb. 18, 

2004) ........................................................................................................................................37 

In re NPS Pharms., Inc. Sec. Litig., 

No. 2:06-CV-00570, 2007 WL 1976589 (D. Utah July 3, 2007) ............................................10 

In re Openwave Sys. Sec. Litig., 

No. 07 Civ. 1309, 2007 WL 3224584 (S.D.N.Y. Oct. 31, 2007) ............................................39 

In re Par Pharm., Inc. Sec. Litig., 

733 F. Supp. 668 (S.D.N.Y. 1990).....................................................................................12, 19 

In re Parmalat Sec. Litig., 

414 F. Supp. 2d 428 (S.D.N.Y. 2006)......................................................................................26 

In re Parmalat Sec. Litig., 

376 F. Supp. 2d 472 (S.D.N.Y. 2005).............................................................................. passim 

In re Quintel Entm’t Inc. Sec. Litig., 

72 F. Supp. 2d 283 (S.D.N.Y. 1999)........................................................................................26 

In re Refco, Inc. Sec. Litig., 

503 F. Supp. 2d 611 (S.D.N.Y. 2007)................................................................................11, 22 

In re Scottish Re Group Sec. Litig., 

No. 06 Civ. 5853(SAS), 2007 U.S. Dist. LEXIS 81565 (S.D.N.Y. Nov. 2, 

2007) ......................................................................................................................22, 24, 25, 33 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 5 of 48
-vIn re SeaChange International, Inc., 

No. 02-12116 (DPW), 2004 U.S. Dist. LEXIS 1687 (D. Mass. Feb. 6, 2004)........................14 

In re Sotheby’s Holdings, Inc. Sec. Litig., 

No. 00 CIV. 1041 (DLC), 2000 U.S. Dist. LEXIS 12504 (S.D.N.Y. Aug. 31, 

2000) ............................................................................................................................12, 19, 27 

In re Tellium, Inc. Sec. Litig., 

No. 02-cv-5878 (FLW), 2005 U.S. Dist. LEXIS 26332 (D.N.J. Aug. 26, 2005) ....................37 

In re Time Warner Inc. Sec. Litig., 

9 F.3d 259 (2d Cir. 1993) ........................................................................................................16 

In re Tommy Hilfiger Sec. Litig., 

No. 04 Civ. 7678, 2007 U.S. Dist. LEXIS 55088 (S.D.N.Y. July 20, 2007)...........................35 

In re Tower Auto. Sec. Litig., 

483 F. Supp. 2d 327 (S.D.N.Y. 2007)..........................................................................24, 27, 33 

In re Van Der Moolen Holding N.V. Sec. Litig., 

405 F. Supp. 2d 388 (S.D.N.Y. 2005)................................................................................18, 19 

In re Vivendi Universal, S.A., Sec. Litig., 

381 F. Supp. 2d 158 (S.D.N.Y. 2003)................................................................................24, 27 

In re Winstar Commc’ns, 

No. 01 CV 3014 (GBD), 2006 U.S. Dist. LEXIS 7618 (S.D.N.Y. Feb. 27, 

2006) ........................................................................................................................................35 

In re WorldCom, Inc. Sec. Litig., 

294 F. Supp. 2d 392 (S.D.N.Y. 2003).............................................................................. passim 

Klein v. PDG Remediation, Inc., 

937 F. Supp. 323 (S.D.N.Y. 1996)...........................................................................................20 

Lapin v. Goldman Sachs Group, Inc., 

506 F. Supp. 2d 221 (S.D.N.Y. 2006)................................................................................14, 35 

Lasker v. N.Y. State Electric & Gas Corp., 

85 F.3d 55 (2d Cir. 1996) ........................................................................................................14 

Lentell v. Merrill Lynch & Co., 

396 F.3d 161 (2d Cir. 2005)...............................................................................................33, 36 

Libon v. Infineon Techs. AG, 

No. 3:04CV929, 2006 U.S. Dist. LEXIS 76430 (E.D. Va. Aug. 7, 2006) ..............................23 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 6 of 48
-viMcMahon v. Wherehouse Entm’t, Inc., 

900 F.2d 576 (2d Cir. 1990).....................................................................................................17 

Menkes v. Stolt-Nielsen S.A., 

No. 3:03CV409(DJS), 2005 U.S. Dist. LEXIS 28208 (D. Conn. Nov. 10, 

2005) ........................................................................................................................................18 

Mishkin v. Ageloff, 

No. 97 Civ. 2690 LAP, 1998 WL 651065 (S.D.N.Y. Sept. 23, 1998) ..............................29, 32 

Montalvo v. Tripos, Inc., 

No. 4:03CV995SNL, 2005 WL 2453964 (E.D. Mo. Sept. 30, 2005) .....................................36 

Myzel v. Fields, 

386 F.2d 718 (2d Cir. 1967).....................................................................................................25 

Novak v. Kasaks, 

216 F.3d 300 (2d Cir. 2000) ....................................................................................................21 

Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, 

LLP, 322 F.3d 147 (2d Cir. 2003)............................................................................................23 

Rich v. Maidstone Fin., Inc., 

No. 98 Civ. 2569(DAB), 2002 WL 31867724 (S.D.N.Y. Dec. 20, 2002)...............................32 

Rubinstein v. Collins, 

20 F.3d 160 (5th Cir. 1994) .....................................................................................................12 

SEC v. First Jersey Sec., Inc., 

101 F.3d 1450 (2d Cir. 1996).......................................................................................25, 26, 32 

SEC v. PIMCO Advisors Fund Mgmt. LLC, 

341 F. Supp. 2d 454 (S.D.N.Y. 2004)......................................................................................32 

Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 

No. 06-43 (S.Ct. argued Oct. 9, 2007).....................................................................................32 

SEC v. U.S. Envtl., Inc., 

155 F.3d 107 (2d Cir. 1998).....................................................................................................32 

Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 

250 F.3d 87 (2d Cir. 2001).................................................................................................26, 27 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 

127 S. Ct. 2499 (2007).......................................................................................................10, 20 

STATUTES

15 U.S.C. 78u-4 .............................................................................................................................20 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 7 of 48
-viiRULES

17 C.F.R. § 240.12b-2....................................................................................................................24 

Fed. R. Civ. P. 8.................................................................................................................24, 27, 32 

Fed. R. Civ. P. 9(b) ..................................................................................................................32, 33 

Fed. R. Civ. P. 12(b)(6)............................................................................................................10, 32 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 8 of 48
 1 

Plaintiffs respectfully submit this memorandum opposing the motions of BristolMyers Squibb Co. (“BMS” or the “Company”), Peter Dolan (“Dolan”), and Andrew 

Bodnar (“Bodnar”) to dismiss the Amended Class Action Complaint (“Complaint”). 

PRELIMINARY STATEMENT

During the Class Period, Defendants materially deceived BMS investors by 

repeatedly stating that if the regulators disapproved their proposed patent infringement 

settlement with Apotex, a generic drug company, BMS would “vigorously” enforce its 

patents in Plavix, its largest-selling drug, and that any generic Plavix launch by Apotex 

would be “at risk.” Only at the end of the Class Period was it revealed that BMS had 

agreed that it could seek only reduced, not treble, damages and could not seek an 

injunction against any generic Plavix launch until after 5 business days. 

Securities analysts who covered BMS during the Class Period and opined that 

Apotex would not launch generic Plavix “at risk” given the potential of treble damages 

were shocked to learn that BMS had given up those rights and could not even seek 

injunctive relief until one week after Apotex’s generic launch. This news caused the 

price of BMS stock to fall in heavy trading, and analysts and the media immediately 

questioned Defendants’ credibility. Reuters summed up the story as follows: 

Before the details of the settlement were disclosed analysts expected the 

odds of Apotex introducing a Plavix copy at risk – before a court ruling – 

to be slim due to high costs Apotex could face if the court put [BMS] in 

the right. But the details showed that for Apotex damages would be 

much more limited than usual if a U.S. court ruled against its Plavix 

generic after its launch. [Emphasis added.] 

¶ 98.1

 Analysts who had seriously doubted an “at risk” launch, now fully expected 

Apotex to flood the market with its generic product in light of the newly disclosed terms. 

 

1

 Citations to “¶__” are to paragraphs of the Complaint. 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 9 of 48
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In the middle of the Class Period, Defendants also stated that BMS had modified 

its agreement with Apotex in response to “concerns” raised by the Federal Trade 

Commission (“FTC”) and state attorneys general. Yet they misleadingly reported only 

one amended term and did not disclose other material concessions to Apotex. Moreover, 

rather than addressing the regulators’ concerns as Defendants publicly stated, Defendants 

actually moved the objectionable parts of the original agreement into secret oral side 

agreements. Rather than addressing the regulators’ concerns, the side agreements made 

regulatory rejection much more likely and (when Apotex’s counsel reported them 

confidentially to the FTC) led to a criminal investigation by the Department of Justice 

(“DOJ”) and felony guilty pleas by BMS for making false statements to the FTC. BMS 

fired its CEO Dolan and its General Counsel for their roles in this matter, and Bodnar left 

BMS around the time the Company agreed to plead guilty to two federal crimes. 

Instead of squarely confronting the Complaint, Defendants argue that BMS 

disclosed that the regulators might not approve the proposed settlement. However, there 

is no dispute that the Company disclosed the possibility of regulatory disapproval of the 

settlement, and the Complaint does not allege otherwise. Contrary to Defendants’ 

mischaracterization of Plaintiffs’ allegations, the Complaint specifically alleges that 

Defendants – in repeatedly describing the settlement to the public – failed to disclose that 

the proposed settlement gave up critical legal rights that BMS would otherwise have had 

against Apotex in enforcing BMS’ patents, if the regulators disapproved the settlement. 

As the Complaint alleges, in detail, Defendants misled the market into believing that, like 

any other patent holder, BMS would be able to seek immediate injunctive relief against 

any generic launch and that Apotex risked treble damages measured by BMS’ lost profits. 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 10 of 48
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Even in their “risk disclosures,” Defendants did not disclose to the market that 

BMS had agreed to allow Apotex to market generic Plavix for at least a week before 

BMS could seek any injunction, and also agreed to limit damages to a fraction of 

Apotex’s sales, instead of BMS’ lost profits and treble damages. Defendants also 

concealed the improper oral side agreements that Bodnar, acting on behalf of BMS under 

Dolan’s supervision, made with Apotex, which made regulatory disapproval of the 

settlement and devastating financial and legal consequences for BMS much more likely. 

Fairly read, the Complaint alleges that Defendants made repeated material 

misstatements and omissions in violation of § 10(b) of the Securities Exchange Act of 

1934 (“Exchange Act”) and Securities and Exchange Commission (“SEC”) Rule 10b5(b). The Complaint’s numerous factual allegations, when accepted as true (as they must 

be at this stage) and read collectively, give rise to an inference of scienter against all 

Defendants that is at least as strong as any opposing inference. In fact, it is far stronger. 

Dolan and Bodnar, a Senior Vice President and member of the Company’s 

Executive Committee who reported directly to Dolan, participated directly in the 

wrongdoing relating to the proposed Apotex settlement. As BMS’ CEO and one of its 

top officers, respectively, and as the individuals who committed the wrongful acts about 

which BMS made misstatements and omissions, Dolan and Bodnar are liable under 

§20(a) of the Exchange Act as control persons for BMS’ liability under § 10(b). 

Bodnar, who acted deceptively by entering into the oral side agreements with 

Apotex and unlawfully concealing them from the regulators and the public, is also liable 

under Rule 10b-5(a) and (c) for employing a scheme to defraud and engaging in a course 

of business which operated as a fraud or deceit upon investors. 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 11 of 48
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Defendants argue that the mere fact of generic competition, not disclosure of the 

previously concealed facts, caused the sharp declines in the price of BMS stock at the end 

of the Class Period. However, the Complaint quotes numerous analysts and news articles 

specifically linking the stock price drop to the very facts that were concealed. In 

addition, the stock price drop that followed news of the DOJ investigation that ultimately 

led to BMS’ felony guilty pleas directly related to the improper side agreements. 

SUMMARY OF FACTS

BMS is one of the world’s largest drug companies, and its blood-thinning 

medicine, Plavix, is its biggest seller. ¶30. Apotex is a generic drug company. ¶1. 

Apotex filed the first Abbreviated New Drug Application (“ANDA”) for generic Plavix 

with the FDA in 2001. ¶31. BMS sued Apotex in 2002 in the Southern District of New 

York, alleging that Apotex’s ANDA infringed its Plavix patents. ¶32. 

From January to August 2006, while the patent case was pending, Apotex 

manufactured large quantities of generic Plavix and contracted with customers in 

preparation for its generic launch. ¶32. BMS learned of these preparations and sought to 

settle its patent case against Apotex to delay Apotex’s generic launch until shortly before 

BMS’ patent would expire in 2011. Id. BMS announced its proposed settlement with 

Apotex in a press release issued after the close of trading on March 21, 2006, the first day 

of the Class Period. ¶¶58, 63-65. This news caused the price of BMS stock to close up 

11% the next trading day on heavy trading volume, and analysts opined that the proposed 

settlement eliminated “the key risk in owning BMS shares.” ¶59. 

However, Defendants omitted critical facts from their public announcement of the 

proposed settlement with Apotex necessary to make their statements not misleading when 

made, including no mention of significant limits on BMS’ damages and patent 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 12 of 48
-5- 

enforcement rights if regulators disapproved the settlement. ¶¶36-37, 60, 66. Indeed, 

while the press release referred to the significant risk of regulatory denial of the proposed 

agreement, Defendants failed to disclose that if the regulators rejected the settlement: (1) 

BMS’ damages for any infringement by Apotex would be limited to 70% of Apotex’s net 

sales of generic Plavix if BMS had not launched an authorized generic and 60% of 

Apotex’s net sales if BMS had done so; (2) BMS agreed not to seek increased (up to 

treble) damages; (3) the parties would jointly ask the court hearing the patent case to set a 

trial date not earlier than 2 1⁄2 months after the request; and (4) BMS would not seek a 

temporary restraining order (“TRO”) or preliminary injunction against Apotex’s generic 

Plavix sales until five business days after either BMS gave notice it intended to do so, or 

Apotex launched generic Plavix (which would allow Apotex to flood the market with 

generic Plavix). Id. These material omissions made BMS’ public statements on March 

21, 2006 and repeatedly during the Class Period that it would “vigorously” enforce its 

Plavix patents if the regulators rejected the settlement and that a generic Plavix launch by 

Apotex would be “at risk,” materially misleading when made. Id.2

Defendants’ materially misleading statements and omissions continued in 

connection with the reporting of BMS’ first quarter results on April 27, 2006 and at the 

Company’s annual stockholders meeting on May 2, 2006. ¶¶67, 70-72. Defendants 

repeatedly stated that, in case of non-approval, BMS would “vigorously” enforce its 

patents and that any generic launch by Apotex would be “at risk,” without disclosing that 

BMS had agreed to significant limitations on its damages and enforcement rights that 

 

2

 The risk of non-approval was real. BMS was required to submit the Apotex Settlement for review and 

consent by the FTC and the attorneys general of the 50 states under prior consent decrees entered into by 

BMS resulting from prior anti-competitive behavior by BMS, and the Company was also subject to a 

deferred prosecution agreement. ¶¶34-35. Nonetheless, because investors did not know about the rights 

BMS had forfeited in case of non-approval, they reacted favorably to Defendants’ announcement. ¶59. 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 13 of 48
-6- 

made a launch by Apotex far more likely. ¶¶60, 68-69, 72, 73, 75.

On May 5, 2006, the state attorneys general notified BMS that they would not 

approve the settlement. ¶38. Defendants did not disclose this fact either in BMS’ Form 

10-Q filed on May 8, 2006, or at a May 31, 2006 conference when Dolan spoke about the 

prospects for regulatory approval of the settlement. ¶¶38, 75-78. Defendants instead 

renegotiated the settlement, which now included secret oral terms that Defendants 

disclosed neither to investors, nor to the regulators. ¶¶39, 41-46. By using the secret side 

agreements, Defendants hoped to keep Apotex on board with even more concessions and 

to secure regulatory approval of the settlement, by criminally deceiving the regulators. 

Id. Indeed, the very terms that the regulators objected to were now moved to the 

undisclosed side agreements, including a $60 million fee. Id.

Nearly a month after amending the proposed Apotex agreement, BMS issued a 

press release on June 25, 2006, reporting that the agreement was amended in response to 

regulators’ “concerns.” ¶¶40, 79. Misleadingly, Defendants disclosed only one 

substantive term of the amended agreement on June 25, 2006 or in any other public 

statement before the end of the Class Period, that Apotex’s license to manufacture and 

sell generic Plavix in the U.S. would be effective several months earlier than in the 

original agreement. Id. In addition, Defendants continued to repeatedly assure investors 

that BMS would “vigorously” enforce its patents in case of non-approval and that any 

generic launch by Apotex would be “at risk.” ¶¶82, 84, 87. Yet, the Amended Apotex 

Settlement further reduced BMS’ ability to “vigorously” enforce its patents and made a 

launch by Apotex in case of non-approval even more likely. Id. 

Defendants failed to publicly disclose at any time before the end of the Class 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 14 of 48
-7- 

Period that the Amended Apotex Settlement provided that if the regulators rejected the 

settlement: (1) BMS’ damages for any infringement by Apotex would be limited to 50% 

of Apotex’s net sales of generic Plavix if BMS had not launched an authorized generic 

and 40% of Apotex’s net sales if BMS had done so (reduced from 70% and 60%, 

respectively, in the original Apotex Settlement); (2) BMS agreed not to seek increased 

(up to treble) damages; (3) the parties would jointly ask the court hearing the patent case 

to set a trial date not earlier than 2 1⁄2 months after the request; and (4) BMS would not 

seek a TRO against Apotex’s generic Plavix sales (as the original Apotex Settlement 

permitted BMS to do after five business days), and would not seek a preliminary 

injunction until five business days after Apotex’s generic Plavix launch (which would 

allow Apotex to flood the market with generic Plavix). ¶¶41, 80. These material 

omissions made BMS’ public statements during the remainder of the Class Period that it 

would “vigorously” enforce its Plavix patents if the regulators rejected the settlement and 

that any Apotex launch would be “at risk” materially misleading. Id.

In addition to the undisclosed terms of the Amended Apotex Settlement, 

Defendants also made oral side agreements with Apotex, which they concealed from the 

regulators and the public. ¶¶42, 81. Defendants insisted that the side agreements be oral 

and not in writing because the FTC would not approve the amended agreement if it knew 

about the side agreements. Id. The side agreements included that (1) if the regulators 

approved the amended agreement, BMS would not launch an authorized generic during 

Apotex’s period of exclusivity, and (2) Apotex’s signing the new agreement would not 

waive its vested right to a $60 million break-up fee under the original Apotex Settlement. 

Apotex’s CEO Bernard Sherman reported these oral terms to two other Apotex 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 15 of 48
-8- 

executives in contemporaneous emails, describing them on May 14, 2006, as “a fraud 

upon FTC . . . which would expose [BMS], Dolan and [Bodnar] to serious consequences” 

and on May 24, 2006, as “once again . . . extraordinary.” ¶¶43, 45. Sherman also had 

his secretary listen to BMS’ outside counsel describe one of the key oral side 

commitments and instructed her to prepare and sign notes memorializing what the 

attorney said. ¶46. Sherman later told his own counsel of the side agreements. ¶49. 

Unbeknownst to Defendants, Robert S. Silver, Esq., counsel to Apotex, then reported the 

side agreements to the FTC and DOJ on June 5, 2006, and, as a result, the DOJ 

immediately opened a criminal investigation into BMS. ¶¶42, 49. 

Thus, while Defendants encouragingly stated on June 25, 2006 that they amended 

the Apotex Settlement in response to the regulators’ “concerns,” in fact, rather than 

making meaningful amendments to address those concerns, Defendants actually moved 

the objectionable parts of the original Apotex Settlement into oral side agreements. ¶¶79-

81. Rather than improving the chances of approval, these side agreements greatly 

increased the risk of rejection by the regulators, and also led to a criminal investigation 

by the DOJ and eventual felony guilty pleas by BMS for making false statements to the 

FTC about the Amended Apotex Settlement. Id. 

The true facts began to be revealed to investors on July 27, 2006, when 

Defendants were forced to confirm news of an FBI search of BMS’ headquarters in New 

York City and a criminal investigation by the DOJ relating to the Apotex agreement. 

¶82. The price of BMS stock declined by approximately 7.5% immediately following 

this news on unusually heavy trading. ¶85. Nonetheless, Defendants stated that the 

Company’s conduct was “entirely appropriate . . . coordinated throughout with senior 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 16 of 48
-9- 

outside counsel” and that the Company would “vigorously” enforce BMS’ patents in 

response to any Apotex launch of generic Plavix. ¶¶82-84. Analysts, in response, began 

to upgrade their ratings for BMS stock. ¶86. 

On July 28, 2006, Defendants announced that the Amended Apotex Settlement 

had not received regulatory approval and that Apotex could launch generic Plavix “at 

risk,” in which case BMS would “vigorously” enforce its patents. ¶¶87-88. Importantly, 

securities analysts continued to report that they seriously doubted that Apotex would 

launch generic Plavix at the risk of what they believed to be treble damages. ¶¶89-93. 

On August 8, 2006, the last day of the Class Period, investors finally learned the 

previously undisclosed material terms of the Apotex Settlement that significantly 

weakened BMS’ damages and enforcement rights in case of non-approval (which now 

had occurred) and greatly increased the risk of a generic launch by Apotex (which now 

had begun). ¶95. The price of BMS stock declined by 7% immediately upon disclosure 

of these terms, on unusually heavy trading volume, with numerous analysts and news 

reports highlighting the importance of the specific settlement terms that Defendants had 

previously omitted in all of their Class Period disclosures to investors. ¶¶96-104. 

Analysts went from seriously doubting an “at risk” launch by Apotex to fully 

expecting one given the newly disclosed terms. Id. JP Morgan opined that “[t]he 

settlement appears to be so favorable to Apotex that one would have to assume they 

would launch at risk.” ¶98. “Only a week ago, many of the same experts predicted a 

generic Plavix launch was unlikely.” ¶102. Analysts now expected Apotex to “flood the 

market with cheaper generic Plavix” during its five-business-day window. ¶104.

Shortly after the end of the Class Period, BMS announced the involuntary 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 17 of 48
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termination of Dolan and its General Counsel, effective immediately, because of their 

conduct relating to the Apotex settlement. ¶¶55, 105. Several months later, BMS agreed 

to plead guilty to two felonies for making false statements to a government agency, 

admitting that it had not disclosed important facts to the FTC regarding the proposed 

Apotex agreement. ¶¶56, 107-08. Bodnar left BMS at around the same time. ¶107.

Even though BMS obtained a preliminary injunction against Apotex, because of 

the rights it waived (including having to wait five business days to go to court), BMS lost 

approximately $563 million in sales to generic Plavix. ¶106. 

ARGUMENT

I. THE COMPLAINT’S ALLEGATIONS MUST BE PRESUMED TRUE

In considering the motions to dismiss the Complaint for failure to state a claim 

under Fed. R. Civ. P. 12(b)(6), the Court must accept all factual allegations in the 

Complaint as true and draw all reasonable inferences in Plaintiffs’ favor. ATSI 

Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). 

In reviewing a 12(b)(6) motion to dismiss under the Private Securities Litigation 

Reform Act of 1995 (“PSLRA”), the Supreme Court has reiterated that “courts must, as 

with any motion to dismiss for failure to plead a claim on which relief can be granted, 

accept all factual allegations in the complaint as true.” Tellabs, Inc. v. Makor Issues & 

Rights, Ltd., 127 S. Ct. 2499, 2509 (2007). Thus, a motion to dismiss is not a place to 

challenge the credibility of Plaintiffs’ witnesses or alleged facts or to make evidentiary 

objections, including those based on hearsay. See id. at 2513; see also In re NPS 

Pharms., Inc. Sec. Litig., No. 2:06-CV-00570, 2007 WL 1976589, at *5 (D. Utah July 3, 

2007) (applying Tellabs and holding that a court may not weigh evidence or “entertain a 

challenge to the credibility of confidential witnesses” on a motion to dismiss); In re 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 18 of 48
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Converium Holding AG Sec. Litig., No. 04 Civ. 7897(DLC), 2007 WL 2684069, at *3 

(S.D.N.Y. Sept. 14, 2007); In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 623 

(S.D.N.Y. 2007).3

II. THE COMPLAINT ALLEGES ACTIONABLE MISREPRESENTATIONS

AND OMISSIONS

Defendants are liable under § 10(b) and Rule 10b-5(b) for affirmative 

misstatements and material omissions. The Supreme Court has repeatedly stated that the 

fundamental policy of the federal securities laws is complete and accurate disclosure. For 

example, in Basic Inc. v. Levinson, the Court held: 

There cannot be honest markets without honest publicity. Manipulation 

and dishonest practices of the market place thrive upon mystery and 

secrecy . . . This Court repeatedly has described the fundamental purpose 

of the Act as implementing a philosophy of full disclosure. 

485 U.S. 224, 230 (1988) (quoting Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-78 

(1977)). Thus, courts recognize that a duty to disclose material facts arises when a 

corporation has made inaccurate, incomplete, or misleading disclosures. Glazer v. 

Formica Corp., 964 F.2d 149, 157 (2d Cir. 1992) (“‘[W]hen a corporation does make a 

disclosure – whether it be voluntary or required – there is a duty to make it complete and 

accurate.’”) (citations omitted); In re Campbell Soup Co. Sec. Litig., 145 F. Supp. 2d 574, 

583 (D.N.J. 2001). 

“‘To fulfill the materiality requirement there must be 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.’” Caiola v. 

 

3

 In any event, Defendants’ effort to raise questions about the credibility of the sworn declaration of 

Apotex’s CEO Sherman (BMS Br. at 15 n.10) fails, because the declaration is corroborated by, inter alia, 

attorney Robert S. Silver’s June 5, 2006 letter to the FTC and DOJ (¶42); the FBI raid on BMS’ 

headquarters on July 26, 2006 (¶82); BMS’ guilty plea to two felonies on June 11, 2007 (¶108); and the 

termination of Dolan and the Company’s General Counsel on September 12, 2006 (¶105). 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 19 of 48
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Citibank, N.A., 295 F.3d 312, 329 (2d Cir. 2002) (quoting Basic, 485 U.S. at 231-32 

(internal quotation marks omitted)). “At the pleading stage, a plaintiff satisfies the 

materiality requirement . . . by alleging a statement or omission that a reasonable investor 

would have considered significant in making investment decisions.” Ganino v. Citizens

Utils. Co., 228 F.3d 154, 161 (2d Cir. 2000). A “complaint may not properly be dismissed 

. . . on the ground that the alleged misstatements or omissions are not material unless they 

are so obviously unimportant to a reasonable investor that reasonable minds could not 

differ on the question of their importance.” Id. at 162 (internal citations omitted).4

The Complaint details numerous instances where Defendants chose to speak, but 

did not speak fully and truthfully concerning the Apotex Settlement. On March 21, 2006, 

the first day of the Class Period, BMS disclosed the original Apotex Settlement and 

stated that “[i]f the litigation were reinstated, sanofi-aventis and Bristol-Myers Squibb 

intend to vigorously pursue enforcement of their patent rights in PLAVIX.” ¶58 

(emphasis added). On numerous occasions throughout the Class Period, BMS and Dolan 

repeated their statements that the Company would “vigorously” or “aggressively” enforce 

its patents if the regulators rejected the Apotex Settlement and Apotex launched generic 

Plavix. ¶¶61, 63, 65, 67, 68, 71, 73, 77, 82, 84, 87. They also misleadingly stated on 

 

4

 The Second Circuit has long followed the well-settled rule that a duty to speak the full truth arises when a 

defendant undertakes to speak. Caiola v. Citibank, N.A., 295 F.3d at 331 (“[U]pon choosing to speak, one 

must speak truthfully about material issues. Once Citibank chose to discuss its hedging strategy, it had a 

duty to be both accurate and complete.”) (citations omitted); In re Sotheby’s Holdings, Inc. Sec. Litig., No. 

00 CIV. 1041 (DLC), 2000 U.S. Dist. LEXIS 12504, at *13 (S.D.N.Y. Aug. 31, 2000) (“[W]hen a 

corporation does make a disclosure – whether it be voluntary or required – there is a duty to make it 

complete and accurate. This duty to disclose exists even where the omitted information relates to allegedly 

illegal conduct.”) (citation omitted); In re Par Pharm., Inc. Sec. Litig., 733 F. Supp. 668, 675 (S.D.N.Y. 

1990) (same); see also Rubinstein v. Collins, 20 F.3d 160, 170 (5th Cir. 1994) (“‘a duty to speak the full 

truth arises when a defendant undertakes a duty to say anything’”) (citation omitted). Indeed, it is well 

established that even if a defendant is not otherwise obliged to disclose information, but voluntarily 

chooses to make a statement that is reasonably calculated to influence the investing public, the defendant 

then has a duty to disclose sufficient information so that the statement made is not “so incomplete as to 

mislead.” Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en banc) (citing SEC v. Tex. Gulf 

Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968)).

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 20 of 48
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numerous occasions that any Apotex launch would be “at risk.” ¶¶58, 61, 63, 73, 87. 

However, Defendants failed to disclose at any time before the end of the Class 

Period that the Apotex Settlement waived many of BMS’ enforcement and damages 

rights. Thus, the March 21, 2006 announcement of the settlement and Defendants’ other 

statements were materially incomplete and misleading when made, because the Company 

had actually abandoned many of its most important legal rights as a patent holder, greatly 

reducing the risk to Apotex of any generic launch. 

On June 25, 2006, Defendants disclosed that there was an Amended Apotex 

Settlement in response to the regulators’ “concerns” and misleadingly disclosed only one 

amended term of the agreement. Again, Defendants failed to disclose material terms of 

the agreement which now further reduced BMS’ ability to “vigorously” enforce its 

patents and greatly reduced the risk to Apotex of a generic launch. These undisclosed 

facts made Defendants’ continued public statements that BMS would “vigorously” 

enforce its Plavix patents if the regulators rejected the settlement, and that any generic 

launch by Apotex would be “at risk,” materially misleading when made. 

In a similar case, Judge Mukasey held that a company’s statement that it would 

“vigorously contest” any FTC effort to block a proposed merger on antitrust grounds was 

materially misleading because plaintiffs adduced evidence that the company in fact did 

not plan to vigorously oppose the FTC’s action. In re Gulf Oil/Cities Serv. Tender Offer 

Litig., 725 F. Supp. 712, 750 (S.D.N.Y. 1989). Likewise in this case, the Complaint 

alleges specific legal rights that BMS already abandoned in the Apotex Settlements, 

which meant that the Company would not be able to “vigorously” enforce its patents in 

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the normally understood manner in a patent infringement action.5

The Complaint also alleges numerous specific statements by securities analysts 

demonstrating that Defendants’ misleading statements and omissions succeeded in 

leading investors to believe that the Company retained all the normal, expected rights of a 

patent holder. For example, J.P. Morgan wrote on July 28, 2006 that launching “at risk” 

would be a “bet-the-company” endeavor for Apotex because it would face the possibility 

of treble damages. ¶89. Reuters reported on July 31, 2006 that industry analysts said that 

Apotex was unlikely to launch its generic Plavix “because of huge financial risks to the 

generic drug maker” and noted the availability of treble damages. ¶90. J.P. Morgan 

again wrote on August 4, 2006 that Apotex would be subject to treble damages if it 

launched at risk (¶91); Citigroup made a similar statement on the same date, noting that 

an “at risk” launch could “potentially bankrupt Apotex (3x damages with a loss in court)” 

(¶92); and the New York Times reported on August 5, 2006, that “an ‘at-risk launch’ . . . 

means Apotex could be responsible for repaying the brand-name companies three times 

their sales losses if they end up successfully defending their patent in court” (¶93). 

 

5

 Defendants argue that statements that the Company would “vigorously” enforce its patents were mere 

“puffery” and not actionable. BMS Br. at 12 n.7. However, even “optimistic statements may be actionable 

upon a showing that the defendants did not genuinely or reasonably believe the positive opinions they 

touted (i.e., the opinion was without a basis in fact or the speakers were aware of facts undermining the 

positive statements) . . .” Lapin v. Goldman Sachs Group, Inc., 506 F. Supp. 2d 221, 239 (S.D.N.Y. 2006). 

In this case, the Complaint alleges specific facts about the Company’s undisclosed abandonment of a 

number of its legal rights to enforce the Plavix patents, which made Defendants’ public statements 

materially misleading. Moreover, the cases on “puffery” cited by Defendants do not apply here. Lasker v. 

N.Y. State Electric & Gas Corp., 85 F.3d 55 (2d Cir. 1996), involved only statements that defendant’s 

“business strategies [would] lead to continued prosperity,” id. at 59, unlike Defendants’ specific statements 

of purportedly present intention in this case that they would “vigorously” enforce legal rights, many of 

which Defendants had actually waived. In In re SeaChange International, Inc., No. 02-12116 (DPW), 

2004 U.S. Dist. LEXIS 1687 (D. Mass. Feb. 6, 2004), the court held that defendant’s statement that it 

would “oppose the [patent] allegations against [it] and assert [its] claims against the other parties 

vigorously” was not actionable because “[t]he only factual allegation plaintiffs offer to support their 

contention that SeaChange knew the statements to be false or misleading is the jury verdict [against 

SeaChange], subsequent to the Offering.” Id. at *23 (emphasis added). Thus, unlike this case, there was no 

allegation of specific undisclosed facts at the time of the allegedly false statement. 

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Moreover, after the terms of the Apotex Settlements were finally disclosed on the 

last day of the Class Period, analysts confirmed that the previously concealed terms 

described above were important and surprising to them. J.P. Morgan highlighted the 

Company’s relinquishment of its right to seek treble damages and an immediate TRO or 

preliminary injunction against Apotex (¶97), and Reuters reported that “settlement details 

surprised analysts” and “[t]he settlement appears to be so favorable to Apotex that one 

would have to assume they would launch at risk” (¶98). Similarly, Dow Jones reported 

the previously undisclosed terms to have been “a rather disadvantageous patent 

settlement with Apotex” (¶99); the New York Times reported that “at least two significant 

disadvantageous” terms “raised doubts about the leadership of BMS,” would give Apotex 

“an opportunity to potentially flood the market,” and “removed one of the major 

deterrents” to Apotex entering the market (¶100); and the Newark Star-Ledger reported 

that “only a week ago [before the terms were disclosed], many of the same experts 

predicted a generic Plavix launch was unlikely” (¶102).6

Thus, Defendants’ argument that the concealed terms of the Apotex Settlement 

were immaterial must fail in light of the importance that the market, itself, attributed to 

those terms. Analysts’ expressions of surprise after a corrective disclosure are strong 

evidence that the information was material and was not previously disclosed adequately. 

In re Alstom SA Sec. Litig., 406 F. Supp. 2d 433, 453 (S.D.N.Y. 2005). 

 

6

 Defendants make much of Judge Stein’s observation, while reciting the patent case’s background, that 

Apotex made “an at-risk launch” of generic Plavix. BMS Br. at 13. Judge Stein was simply noting the 

history of the patent case, not interpreting the phrase “at risk” to assess the accuracy of BMS’ disclosures 

under the securities laws. Moreover, as discussed above, the risk Apotex faced in its launch was far less 

than a normal “at risk” launch because of the previously undisclosed terms. See Donohoe v. Consol. 

Operating & Prod. Corp., 736 F. Supp. 845, 870 (N.D. Ill. 1990) (holding on motion to dismiss that oil 

company’s claims of “successful prior drilling” were materially misleading in light of “common usage” of 

“successful”), aff’d in relevant part, 982 F.2d 1130 (7th Cir. 1992). At most, these arguments raise issues 

of fact about the meaning of Defendants’ statements, which should not be decided as a matter of law.

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 23 of 48
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Defendants argue that they had no duty to disclose every term of the Apotex 

Settlement. BMS Br. at 9-11. However, Defendants’ voluntary statements obligated 

them to disclose the terms described above, because those terms were material in light of 

Defendants’ specific repeated statements and significantly altered the total mix of 

information available to investors. In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267-68 

(2d Cir. 1993) (“A duty to disclose arises whenever secret information renders prior 

public statements materially misleading, not merely when that information completely 

negates the public statements.”); In re WorldCom, Inc. Sec. Litig., 294 F. Supp. 2d 392, 

428 (S.D.N.Y. 2003) (“When a person speaks, but chooses to omit information, the 

liability for that omission will be judged by its materiality.”) (citing Halperin v. 

eBankerUSA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002)). 

It is well settled that incomplete statements about corporate agreements are 

actionable when the undisclosed terms are material. For example, in Brumbaugh v. Wave 

Systems Corp., 416 F. Supp. 2d 239 (D. Mass. 2006), Wave Systems, a small, moneylosing company, announced that it had entered into agreements with Intel Corp. and IBM, 

but failed to disclose that the agreements required no minimum payments to Wave. Id. at 

246. The court held that “[b]y volunteering ‘relevant, material information’ regarding the 

lucrative nature of impending agreements, Defendants assumed an obligation, in 

announcing Wave’s new relationship with Intel, to convey ‘the whole truth.’” Id. at 250 

(citing Roeder v. Alpha Indus., Inc., 814 F.2d 22, 26 (1st Cir. 1987)). Similarly in this 

case, Defendants chose to emphasize that, in case of a regulatory denial, the Company 

would “vigorously” enforce its patents against Apotex. In making those repeated 

statements, Defendants undertook a duty to disclose the legal rights that BMS had given 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 24 of 48
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up in the settlement so as to make their statements to investors accurate and not 

materially misleading when made and not conceal facts that, when finally disclosed, were 

immediately described by analysts as completely changing their views. 

Defendants also argue that their statements that the Company would “vigorously” 

enforce its Plavix patents were literally true, because BMS ultimately did obtain an 

injunction and a finding of patent infringement against Apotex. BMS Br. at 11-14. 

However, Defendants ignore the Complaint’s allegation that “[s]ignificantly, BMS first 

attempted to enjoin Apotex’s generic launch without giving 5 business days’ notice as it 

had agreed with Apotex, but the Court required BMS to comply with that contractual 

term and renew its preliminary injunction motion after 5 business days.” ¶ 106. As a 

result of BMS’ undisclosed abandonment of its right to seek an immediate injunction 

against Apotex, Apotex was able to flood the market with generic Plavix between its 

launch on August 8, 2006 and the issuance of the preliminary injunction on August 31, 

2006, costing BMS $563 million in sales. Id. Thus, BMS’ litigation efforts against 

Apotex cannot accurately be described as “vigorous” when compared with the normally 

understood drug patent holder’s rights to secure immediate injunctive relief against 

launch of an unauthorized generic even before it happens and treble damages if it does. 

Even if Defendants’ statements were “literally accurate, . . . the disclosure 

required by the securities laws is measured not by literal truth, but by the ability of the 

material to accurately inform rather than mislead” investors. McMahon v. Wherehouse 

Entm’t, Inc., 900 F.2d 576, 579 (2d Cir. 1990). Defendants’ statements in this case 

“bec[a]me, through their context and manner of presentation, devices which misle[]d 

investors.” Id.; see also Fogarazzo v. Lehman Bros., Inc., 341 F. Supp. 2d 274, 294 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 25 of 48
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(S.D.N.Y. 2004) (“A statement can also be misleading, though not technically false, if it 

amounts to a half-truth by omitting some material fact.”). 

The June 25, 2006 press release was also materially false, incomplete and 

misleading when issued because while Defendants publicly stated that they amended the 

Apotex Settlement in response to “concerns” raised by the regulators, in fact, rather than 

making meaningful amendments to address the regulators’ concerns, Defendants actually 

moved the objectionable parts of the original Apotex Settlement into oral side agreements 

which only increased the chance of a regulatory denial. ¶¶79-81. Thus, the concealment 

of the unlawful oral side agreements made BMS’ description of the terms of the 

Amended Apotex Settlement (¶¶40, 79) materially incomplete and misleading. 

Defendants argue that they had no obligation to disclose these facts because “the 

‘federal securities laws do not require a company to accuse itself of wrongdoing.’” BMS 

Br. at 16 (quoting In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377 (S.D.N.Y. 

2004)). However, “management may be compelled to disclose uncharged illegal conduct 

when . . . disclosure is necessary to prevent another statement from misleading the 

public.” Menkes v. Stolt-Nielsen S.A., No. 3:03CV409(DJS), 2005 U.S. Dist. LEXIS 

28208, at *20 (D. Conn. Nov. 10, 2005). In Stolt-Nielsen, the court held that disclosure 

of an illegal price-fixing conspiracy was required, because the concealed facts rendered 

defendant’s statements about its competitive market and one of its major contracts 

misleading. Id. at *23-24. Similarly, in In re Van Der Moolen Holding N.V. Sec. Litig., 

405 F. Supp. 2d 388 (S.D.N.Y. 2005), the court held that a NYSE specialist brokerage 

had a duty to disclose that its traders engaged in unlawful practices that accounted for 

much of its revenue, because the undisclosed facts made the company’s statements that 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 26 of 48
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its revenue came from legitimate sources misleading. Id. at 400-01. 

“The illegality of corporate behavior is not a justification for withholding 

information that the corporation is otherwise obligated to disclose.” In re Par Pharm., 

Inc. Sec. Litig., 733 F. Supp. 668, 675 (S.D.N.Y. 1990). The Par Pharmaceutical court 

held that defendants had a duty to disclose that they won FDA approval of their drugs by 

paying bribes, because the undisclosed facts made their statements about Par’s supposed 

particular expertise in obtaining FDA approvals materially misleading. Id. at 675, 677-

78; see also In re Sotheby’s Holdings, Inc. Sec. Litig., No. 00 CIV. 1041 (DLC), 2000 

U.S. Dist. LEXIS 12504, at *10-13 (S.D.N.Y. Aug. 31, 2000), aff’d, 31 Fed. Appx. 762 

(2d Cir. 2002) (holding that defendants had duty to disclose price-rigging conspiracy 

because undisclosed facts made their statements about Sotheby’s supposed competition 

with Christie’s misleading). 

The facts that Defendants concealed in this case regarding their illegal conduct in 

connection with the oral side agreements made their statements about the Amended 

Apotex Settlement materially false and misleading, and they had a duty to disclose those 

facts when they voluntarily chose (1) to announce that they had reached an amended 

Apotex Agreement to address “concerns” raised by the regulators, and (2) to comment on 

the risk of non-approval by the regulators, a risk which unbeknownst to investors greatly 

increased as a result of the undisclosed oral side agreements.7

 

7

 Defendants’ argument that they had no duty to disclose the regulators’ rejection of the initial Apotex 

Settlement in May 2006 (BMS Br. at 14 n.9) fails, because the undisclosed rejection made BMS’s 

statements before and after the rejection materially misleading. ¶¶38, 73-78. In In re Independent Energy 

Holdings PLC Sec Litig., 154 F. Supp. 2d 741 (S.D.N.Y. 2001), the court held that an electric company’s 

failure to disclose a regulatory investigation into customer service problems was materially misleading, 

notwithstanding the company’s general disclosure that it was subject to regulation: “While defendants 

correctly note that the securities laws may not require disclosure of possible future sanctions, . . . they 

certainly require disclosure of information that would permit an investor to appreciate the risk that the 

future sanction may arise.” Id. at 760. (The court later abrogated Independent Energy’s holding that § 

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III. THE COMPLAINT ALLEGES NUMEROUS FACTS GIVING RISE TO A 

STRONG INFERENCE THAT DEFENDANTS ACTED WITH SCIENTER

The PSLRA requires the Complaint to “state with particularity facts giving rise to 

a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 

78u-4(b)(2). In Tellabs, the Supreme Court addressed this requirement and held that 

courts must “accept all factual allegations in the complaint as true,” and determine 

“whether all of the facts alleged, taken collectively, give rise to a strong inference of 

scienter, not whether any individual allegation, scrutinized in isolation, meets that 

standard.” 127 S. Ct. at 2509. Importantly, “[t]he inference that the defendant acted with 

scienter need not be irrefutable . . . or even the ‘most plausible’ of competing inferences,” 

and personal stock sales by senior executives are not required. Id. at 2510. 

The Supreme Court cautioned that a “court’s job is not to scrutinize each 

allegation in isolation but to assess all the allegations holistically,” and determine 

whether the allegations “accepted as true and taken collectively, would [allow] a 

reasonable person [to] deem the inference of scienter at least as strong as any opposing 

inference.” Id. The Court may consider only those “plausible opposing inferences” that 

may be “rationally drawn from the facts alleged.” Id. at 2504 (emphasis added). If the 

inference of scienter is at least as compelling as any plausible opposing inference, the 

Complaint must be sustained. Id. at 2509. Thus, it is Defendants’ burden to show that 

the Complaint’s allegations give rise to innocent inferences that are stronger than the 

inference of scienter. Id. at 2504-05. They cannot meet that showing in this case. 

 20(a) requires scienter in In re Initial Public Offering Securities Litigation, 241 F. Supp. 2d 281, 397 & 

n.187 (S.D.N.Y. 2003).) See also In re Apollo Group Inc. Sec. Litig., 509 F. Supp. 2d 837, 842-43 (D. 

Ariz. 2007) (rejecting argument that defendants did not have duty to disclose negative interim regulatory 

findings where those findings made public statements regarding regulatory process false or misleading); 

Klein v. PDG Remediation, Inc., 937 F. Supp. 323, 325, 328 (S.D.N.Y. 1996) (rejecting argument that 

environmental company had no duty to disclose state grand jury, agency, and legislative investigations and 

reports that threatened its future state reimbursements, which governor later suspended).

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The Second Circuit has given further guidance for the analysis of recklessness by 

specifically highlighting cases in which plaintiffs’ allegations demonstrate that 

defendants (1) possessed knowledge of facts or had access to information contradicting 

their public statements, or (2) “failed to review or check information that they had a duty 

to monitor, or ignored obvious signs of fraud.” Novak v. Kasaks, 216 F.3d 300, 308 (2d 

Cir. 2000). This is precisely what is alleged in this case. 

The Complaint alleges specifically that Dolan authorized Bodnar (a person he 

worked closely with and personally promoted within BMS) and the Company’s outside 

counsel to negotiate the publicly undisclosed terms of the original and Amended Apotex 

Settlements; was made aware of all of those terms by Bodnar, outside counsel, and his 

own review of the written agreements; approved the Company’s materially incomplete 

and misleading public disclosures; personally made materially incomplete and misleading 

statements about the status of the regulatory review of the proposed settlement after the 

regulators rejected the original Apotex Settlement; authorized Bodnar and outside 

counsel to negotiate the secret, unlawful oral side agreements to the Amended Apotex 

Settlement; and approved the Company’s materially false and misleading submissions to 

the FTC and state attorneys general and its public disclosures about the Amended Apotex 

Settlement, which all concealed the side agreements. ¶122; see also ¶¶39, 42-46, 57. 

Moreover, Dolan knew that these matters were of the highest importance to 

investors because, as he stated at the May 31, 2006 analysts conference, Plavix was “the 

largest product in the Company” and was “critical to our future,” and “maintaining Plavix 

exclusivity” was “key to revenue growth.” ¶76. 

While Defendants argue that “any duty to disclose was unclear” (BMS Br. at 21; 

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see also Dolan Br. at 7), that argument fails because in this case, unlike any of the cases 

cited by BMS, Defendants’ repeated statements were designed to and did give investors a 

false and misleading portrayal of the true facts. Indeed, the Complaint further alleges that 

Dolan did not inform his own Board about the true facts and was involuntarily terminated 

because of his conduct in relation to the Apotex Settlements. ¶¶123-24. The Complaint 

quotes U.S. Attorney Christie as stating that BMS’ Chairman of the Board “asked the 

right questions at the right time, but he didn’t get answers” from Dolan. Id. A board’s 

request for a corporate executive to resign at the same time that the corporation makes 

adverse disclosure supports a strong inference of scienter. Refco, 503 F. Supp. 2d at 649-

50. The Complaint also alleges that Bodnar left BMS around the time of BMS’ criminal 

plea agreement. ¶107. “[T]he resignations of [corporate officers at the same time as 

adverse disclosure] although not sufficient in and of themselves, add to the overall 

pleading of circumstantial evidence of fraud.” In re Scottish Re Group Sec. Litig., No. 06 

Civ. 5853(SAS), 2007 U.S. Dist. LEXIS 81565, at *57 n.176 (S.D.N.Y. Nov. 2, 2007).

Although a showing of motive and opportunity is not required at this stage, both 

Dolan and Bodnar had the opportunity to perpetrate the fraudulent scheme described 

herein, because Dolan was BMS’ most senior officer and issued statements and press 

releases on behalf of the Company, and Bodnar was the Company’s principal negotiator 

with Apotex, reporting directly to Dolan, and personally executed the original and 

Amended Apotex Settlements on behalf of BMS. As recognized by Apotex’s CEO, these 

Defendants’ motive was to protect Plavix’s exclusivity at all costs.8

 

8

 Sherman noted in a May 14, 2006 internal e-mail: “While Bodnar is clearly an intelligent man, it appears 

to me that he is very naïve and/or blinded by the eagerness to preserve the monopoly . . . . [H]e should 

recognize that what he has proposed would be a fraud upon FTC and/or a fraud on us, which would expose 

BMS, Dolan and him to serious consequences.” ¶126 (emphasis added). 

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The Court also should give substantial weight to BMS’ guilty plea to two felonies 

for making false statements to the FTC about the improper oral side agreements that 

Bodnar, acting on behalf of BMS under Dolan’s supervision, made with Apotex. ¶¶107-

08. Indeed, this should be nearly dispositive at this stage. Libon v. Infineon Techs. AG, 

No. 3:04CV929, 2006 U.S. Dist. LEXIS 76430, at *30 n.6 (E.D. Va. Aug. 7, 2006) 

(finding scienter of company that issued false statements concealing illegal price-fixing, 

where “the corporation itself[] pled guilty to price-fixing, thereby establishing a strong 

inference that the corporate defendant had knowledge of the illegal activity”).9

Thus, the Complaint’s detailed allegations create a strong inference that Dolan 

and Bodnar actually knew that BMS’ disclosures about the Apotex Settlements during the 

Class Period were materially misleading, or were at least reckless. Cf. WorldCom, 294 F. 

Supp. 2d at 402 (CEO’s “position . . ., his statements, his close relationship with [CFO], 

his reputation for acting as a ‘hands on’ manager, the size of the fraud, and certain 

decisions he made . . . provide evidence that [he] was aware of WorldCom’s fraudulent 

accounting practices.”); id. at 417 (“The inference of [his] scienter arises from the 

combined force of the allegations; the weighing of each piece of evidence and the 

impeachment of each source must await trial.”). 

Of course, because Dolan was BMS’ CEO, a Director, and Chairman of the 

Executive Committee, and Bodnar its SVP and a member of its Executive Committee, 

their scienter is attributable to BMS. ¶127. Official Comm. of Unsecured Creditors of 

Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 165 (2d Cir. 2003) (“where . . 

 

9

 Defendants’ denial of the existence of any unlawful side agreements (BMS Br. at 22-23; Bodnar Br. at 3 

n.5) improperly disputes the facts alleged in the Complaint (notwithstanding the Company’s guilty pleas). 

At this stage, the sworn Sherman declaration and other corroborating facts demonstrating false statements 

to the FTC cannot be dismissed merely as “speculative” or “conclusory” allegations under Tellabs. 

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. ‘the persons dominating and controlling the corporation orchestrated the fraudulent 

conduct, their knowledge is imputed to the corporation as principal’”); In re Am. Bank 

Note Holographics, Inc. Sec. Litig., 93 F. Supp. 2d 424, 445 (S.D.N.Y. 2000).

IV. THE COMPLAINT ALLEGES CONTROL PERSON LIABILITY

AGAINST DOLAN AND BODNAR

A § 20(a) claim is subject to the liberal notice pleading requirements of Rule 8(a). 

In re Tower Auto. Sec. Litig., 483 F. Supp. 2d 327, 350-51 (S.D.N.Y. 2007); In re Vivendi 

Universal, S.A., Sec. Litig., 381 F. Supp. 2d 158, 189-90 (S.D.N.Y. 2003). Furthermore, 

“[i]n the Second Circuit, the ‘control person’ provisions are broadly construed as they 

‘were meant to expand the scope of liability under the securities laws.’” Compudyne 

Corp. v. Shane, 453 F. Supp. 2d 807, 829 (S.D.N.Y. 2006). 

Moreover, control person liability is necessarily fact intensive and generally 

cannot be resolved on motions to dismiss. Scottish Re, 2007 U.S. Dist. LEXIS 81565, at 

*75; see also Compudyne, 453 F. Supp. 2d at 829 (citing In re Oxford Health Plans Inc. 

Sec. Litig., 187 F.R.D. 133, 143 (S.D.N.Y 1999)). Nonetheless, Defendants challenge 

Plaintiffs’ § 20(a) claims. As illustrated above, Plaintiffs adequately plead primary 

violations of § 10(b) by BMS. As set forth herein, Plaintiffs also properly plead Dolan’s 

and Bodnar’s control-person liability for BMS’ violations. 

Dolan, as CEO, does not contest his control over BMS. Bodnar, however, claims 

that even though he negotiated and signed the original and Amended Apotex Settlements 

and negotiated the secret side agreements, he did not control BMS. Bodnar Br. at 10-11. 

The SEC defines “control” as “possession, direct or indirect, of the power to direct or 

cause the direction of the management and policies of a person, whether through the 

ownership of voting securities, by contract, or otherwise.” 17 C.F.R. § 240.12b-2; see 

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also SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1473 (2d Cir. 1996) (adopting this 

standard for § 20(a) claims). Section 20(a) requires “only some indirect means of 

discipline or influence short of actual direction to hold a ‘controlling person’ liable.” 

Myzel v. Fields, 386 F.2d 718, 738 (2d Cir. 1967). In this Circuit, “control requires only 

the ability to direct the actions of the controlled person, and not the active exercise 

thereof.” Dietrich v. Bauer, 126 F. Supp. 2d 759, 764 (S.D.N.Y. 2001). 

The Complaint adequately pleads that Bodnar exercised control over BMS. 

Bodnar was the SVP for Strategy and Medical and External Affairs, a member of the 

Executive Committee, and was presented to the market and Apotex as responsible for 

BMS’ day-to-day business, operations, and strategic direction. ¶¶170-71. Bodnar was 

BMS’ negotiator in the Apotex Settlement, and he signed the original and Amended 

Apotex Settlements for BMS. ¶57. Bodnar also negotiated and committed BMS to the 

secret side agreements with Apotex that were at the heart of the fraud. ¶¶42-46. Thus, 

Bodnar possessed “‘the power to direct or cause the direction of the management and 

policies’” of BMS. In re Labranche Sec. Litig., 405 F. Supp. 2d 333, 363 n.18 (S.D.N.Y. 

2005) (quoting 17 C.F.R. § 240.12b-2); see also Scottish Re, 2007 U.S. Dist. LEXIS 

81565, at *75-76 (finding “control” where individual “held a ‘senior executive 

position[],’ was direct[ly] involve[d] in [the Company’s] day-to-day operations” and was 

involved in the allegedly fraudulent decisions); In re Converium Holding AG Sec. Litig., 

No. 04 Civ. 7897(DLC), 2006 U.S. Dist. LEXIS 93413, at *46 (S.D.N.Y. Dec. 28, 2006). 

To state a claim under § 20(a), Plaintiffs must allege (a) an underlying primary 

violation of the securities laws by the controlled person and (b) control over the 

controlled person. WorldCom, 294 F. Supp. 2d at 415. Defendants, however, argue that 

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a third element is required at the pleading stage, namely, culpable participation by the 

controlling person. Bodnar Br. at 11; Dolan Br. at 12-13. Courts have repeatedly held 

that there is no such requirement at this stage. In re Parmalat Sec. Litig., 414 F. Supp. 2d 

428, 439 (S.D.N.Y. 2006) (Kaplan, J.) (to assert claim under § 20(a), “this Court 

repeatedly has held that plaintiffs need not allege culpable participation”); Converium, 

2006 U.S. Dist. LEXIS 93413, at *45-46; Catton v. Def. Tech. Sys., Inc., 457 F. Supp. 2d 

374, 382 (S.D.N.Y. 2006); In re Interpublic Sec. Litig., No. 02 Civ. 6527 (DLC), 2003 

WL 21250682, at *15 (S.D.N.Y. May 29, 2003); WorldCom, 294 F. Supp. 2d at 415; In 

re Initial Pub. Offering Sec. Litig., 241 F. Supp. 2d 281, 397 (S.D.N.Y. 2003); In re 

Quintel Entm’t Inc. Sec. Litig., 72 F. Supp. 2d 283, 297-98 (S.D.N.Y. 1999).10

Nonetheless, if the Court concludes that culpable participation must be pled, the 

Complaint fully satisfies such requirement. As shown above in Section III, both 

individual Defendants were directly involved in the alleged fraud.11

Dolan argues that the PSLRA’s heightened pleading standard applies to culpable 

 

10 Boguslavsky v. Kaplan, 159 F.3d 715, 720 (2d Cir. 1998), cited by Dolan, does not require pleading 

culpable participation for a § 20(a) claim. Boguslavsky is a summary judgment decision decided on a 

complete evidentiary record. At summary judgment, the court was required under SEC v. First Jersey, 101 

F.3d at 1472, to rule on the sufficiency of the evidence that plaintiff must prove at trial. Thus, while both 

Boguslavsky and First Jersey held that culpable participation is an element of a § 20(a) claim that must be 

proven at trial, those cases did not decide how a § 20(a) claim must be pled. Indeed, one court noted that 

whenever the Second Circuit has evaluated § 20(a) claims, “it has essentially rendered the ‘culpable 

participation’ requirement meaningless.” IPO, 241 F. Supp. 2d at 395. In First Jersey, the Second Circuit 

upheld § 20(a) claims based on allegations of control coupled with an underlying violation, without any 

allegations of culpable participation. First Jersey, 101 F.3d at 1473 (finding evidence of primary violation 

and control, and then turning to issue of whether defendant had satisfied his affirmative defense, without 

discussing whether plaintiff had established culpable participation). The Second Circuit reached a similar 

result in Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 101 (2d Cir. 2001) (allegation 

that “DeRoziere was an officer of the Bank and that he had primary responsibility for the dealings of that 

Bank and the other corporate defendants with SAM Group . . . [w]hile somewhat broad, [were] sufficient to 

plead controlling-person liability for the Bank derived from DeRoziere, the purported primary violator”). 

11 Indeed, Bodnar does not contest Plaintiffs’ claims on this basis beyond a conclusory statement that 

Plaintiffs have not sufficiently alleged Bodnar’s culpable participation. Bodnar Br. at 11. The Complaint 

alleges his culpable direct involvement in the Apotex negotiations and secret side deals in detail. ¶¶42-46. 

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participation under § 20(a). Dolan Br. at 12-13. However, as the court explained in IPO, 

“culpable participation” does not require scienter, and the PSLRA’s requirements do not 

apply to § 20(a). 241 F. Supp. 2d at 395. Instead, in accordance with the Second Circuit 

holding that “somewhat broad” allegations of control suffice to plead control-person 

liability, Suez Equity Investors, 250 F.3d at 101, Rule 8(a) applies. IPO, 241 F. Supp. 2d 

at 396; see also In re Tower Auto. Sec. Litig., 483 F. Supp. 2d 327, 350-51 (S.D.N.Y. 

2007) (“Section 20(a) violations are governed by Rule 8’s pleading standard.”); Vivendi, 

381 F. Supp. 2d at 189-90; WorldCom, 294 F. Supp. 2d at 415-16.12

In any event, the Complaint’s well-pled allegations refute Dolan’s argument that 

he did not culpably participate in the fraud. Dolan was responsible for ensuring that 

BMS’ public disclosures were complete and accurate and certified the accuracy of BMS’ 

Forms 10-Q during the Class Period. ¶¶73-74, 161. He led BMS’ conference calls with 

the investment community and publicly discussed the Apotex Settlement. ¶¶71-72, 76-

78, 83-84, 86, 161. He oversaw the negotiations with Apotex that led to the secret side 

deals, concealed the side agreements from BMS’ Board, and was terminated for his role 

in the matter. ¶¶122-24. See Labranche, 405 F. Supp. 2d at 363-64 (denying motion to 

dismiss § 20(a) claims where defendants “exercised direct day-to-day management of 

[the primary violators], and . . . had responsibility for their statements to the public”); 

Sotheby’s, 2000 U.S. Dist. LEXIS 12504, at *23-24 (control adequately alleged against 

Chairman and CEO who participated in price-fixing).13

 

12 ATSI, 493 F.3d at 99, cited by Dolan (Dolan Br. at 12), is not to the contrary. In ATSI, the Second 

Circuit did not analyze control-person liability at all, except to note that because the Court had already 

found that the plaintiff had failed to allege a primary violation, there could be no control-person liability. 

13 See also In re Marsh & McLennan Cos. Sec. Litig., 501 F. Supp. 2d 452, 494 (S.D.N.Y. 2006) 

(upholding § 20(a) claims under heightened pleading standard where plaintiffs had shown scienter with 

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V. THE COMPLAINT ALLEGES THAT BODNAR ENGAGED IN A 

SCHEME THAT DECEIVED INVESTORS

As discussed above, the Complaint alleges that Bodnar negotiated the original and 

Amended Apotex Settlements and the improper side agreements, whose material terms 

were concealed from investors until the end of the Class Period. The Complaint also 

alleges that Bodnar was a senior BMS executive, acted with scienter, and exercised 

control over the Company. Together, these allegations adequately plead that Bodnar 

“employed [a] device, scheme, or artifice to defraud” and “engage[d] in [an] act, practice, 

or course of business which operate[d] or would operate as a fraud or deceit upon any 

person,” in violation of Rule 10b-5(a) and (c). 

Bodnar argues that the 10b-5 claim against him fails because he made no false 

statements. Bodnar Br. at 1-2, 5-6. “But in attempting to reduce plaintiffs’ arguments to 

a mere theory of ‘fraudulent statement by another name,’ [Defendant] conflates the 

distinct elements of a claim for false statements under subsection (b) of Rule 10b-5 with 

those of a claim for engaging in a fraudulent scheme under subsections (a) or (c).” In re 

Global Crossing, Ltd. Sec. Litig., 322 F. Supp. 2d 319, 335 (S.D.N.Y. 2004). As Judge 

Lynch held in Global Crossing, and as Judge Kaplan held in In re Parmalat Securities 

Litigation, 376 F. Supp. 2d 472, 491 (S.D.N.Y. 2005), the elements of a claim for 

misstatements under Rule 10b-5(b) are different from the elements of a claim based on a 

fraudulent device, scheme, artifice, act, practice, or course of business under Rule 10b5(a) and (c). The latter does not require any misrepresentation or omission by Defendant. 

Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 152-53 (1972); Parmalat, 

 regard to § 10(b) claims against each § 20(a) defendant); IPO, 241 F. Supp. 2d at 395, n.183 (denying 

motion to dismiss § 20(a) claim when defendants themselves made false and misleading statements). 

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376 F. Supp. 2d at 491-92; Global Crossing, 322 F. Supp. 2d at 328-29, 335; Mishkin v. 

Ageloff, No. 97 Civ. 2690 LAP, 1998 WL 651065, at *17 (S.D.N.Y. Sept. 23, 1998). 

Rather, the elements of a claim under Rule 10b-5(a) and (c) are that Defendant: 

(1) committed a deceptive or manipulative act, (2) with scienter, that (3) 

the act affected the market for securities or was otherwise in connection 

with their purchase or sale, and that (4) defendants’ actions caused the 

plaintiffs’ injuries. 

Parmalat, 376 F. Supp. 2d at 492; see also Global Crossing, 322 F. Supp. 2d at 336 (“All 

that is required in order to state a claim for a primary violation under Rule 10b-5(a) or (c) 

is an allegation that the defendant (1) committed a manipulative or deceptive act (2) in 

furtherance of the alleged scheme to defraud, (3) scienter, and (4) reliance.”) (citing SEC 

v. U.S. Envtl., Inc., 155 F.3d 107, 111 (2d Cir. 1998)). 

The Complaint alleges with specificity that Bodnar negotiated secret oral side 

agreements with Apotex that BMS would, among other things, pay a $60 million breakup fee and not introduce an authorized generic competitor to Apotex’s generic Plavix, 

both terms that were known to be particularly objectionable to the antitrust regulators. 

¶¶42, 45, 47. The Complaint further alleges that Bodnar directly participated in 

concealing these secret side agreements from the regulators and investors. ¶¶42-43, 45-

46, 57. Indeed, the FBI raided Bodnar’s (and Dolan’s) office at BMS headquarters on 

July 26, 2006, and BMS’ plea agreement preserved the Government’s right to file 

criminal charges against Bodnar (and Dolan). ¶¶51, 56. Together, these facts 

demonstrate that Bodnar’s conduct was inherently deceitful and therefore satisfies the 

first element of a claim under Rule 10b-5(a) and (c). Parmalat, 376 F. Supp. 2d at 505-

06 (banks’ “factoring and securitization of worthless invoices were deceptive devices or 

contrivances for purposes of Section 10(b)” and were actionable under 10b-5(a) and (c) 

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because “[t]he transactions in which the defendants engaged were by nature deceptive”). 

Contrary to Bodnar’s argument (Bodnar Br. at 8), the Complaint easily satisfies 

the “in connection with the purchase or sale of any security” element of a 10b-5 claim. 

“A plaintiff makes out a sufficient nexus with the purchase or sale of securities when the 

defendants’ deceptive conduct affects a market for securities.” Parmalat, 376 F. Supp. 

2d at 506. By entering into the secret side agreements and concealing them from the 

regulators and the market, Bodnar misled investors about the true terms of the Amended 

Apotex Settlement and its prospects for regulatory approval. The market’s adverse 

reaction when the truth was revealed confirms that Bodnar’s deceptive conduct 

artificially inflated the market price of BMS stock by creating false appearances about 

important facts affecting the Company’s most important product. 

Bodnar also wrongly argues that Plaintiffs do not adequately allege that they and 

the other Class members relied on his conduct. Bodnar Br. at 6-7. This argument echoes 

the argument that only misrepresentations or omissions under Rule 10b-5(b) can give rise 

to liability. To the contrary, under Rule 10b-5(a) and (c), Plaintiffs need not “have relied 

on particular actions of the defendants,” but may instead rely on the “fraud on the 

market” presumption. Parmalat, 376 F. Supp. 2d at 508; see also In re Lernout & 

Hauspie Sec. Litig., 236 F. Supp. 2d 161, 174 (D. Mass. 2003); In re Enron Corp. Sec., 

Derivative & ERISA Litig., 235 F. Supp. 2d 549, 693 (S.D. Tex. 2002). Bodnar “knew 

that the very purpose of certain of [his] transactions was to allow [BMS] to make such 

misrepresentations” and thus caused Plaintiffs’ losses. Parmalat, 376 F. Supp. 2d at 509. 

Loss causation, the final element of the 10b-5 claim against Bodnar, is discussed 

in detail in Point VI. Briefly, loss causation as it applies to “claims [] based on deceptive 

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or manipulative conduct in violation of Rule 10b-5(a) and (c)” is satisfied where a 

defendant’s deceptive conduct created false appearances about an issuer’s business and 

concealed the risk of adverse consequences of the defendant’s conduct for the issuer, and 

“that risk materialized” when the adverse consequences occurred and the harm to the 

issuer was disclosed. Parmalat, 376 F. Supp. 2d at 510. 

The Complaint’s scheme liability claim against Bodnar is not, as he asserts, 

contrary to the Supreme Court’s holding in Central Bank of Denver, N.A. v. First 

Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), that there is no private cause of 

action for “aiding and abetting” a violation of Rule 10b-5. Bodnar Br. at 5-6. Simply 

put, the Complaint seeks to hold Bodnar liable for his own deceptive conduct in entering 

into and concealing the improper oral side agreements, which created false appearances 

about BMS’ business, upon which investors relied, and which caused enormous losses to 

BMS stockholders. The Complaint does not seek to hold Bodnar liable for merely 

assisting the other Defendants in making false statements, in the absence of deceptive 

conduct by Bodnar that satisfies every element of Rule 10b-5. As Judge Kaplan has held: 

This analysis is not an end run around Central Bank. If a defendant has 

committed no act within the scope of Section 10(b) and Rule 10b-5 – as in 

fact was the case in Central Bank – then liability will not arise on the 

theory that that defendant assisted another in violating the statute and rule. 

But where, as alleged here, a [defendant] enters into deceptive transactions 

as part of a scheme in violation of Rule 10b-5(a) and (c) that causes 

foreseeable losses in the securities markets, that [defendant] is subject to 

private liability under Section 10(b) and Rule 10b-5. 

Parmalat, 376 F. Supp. 2d at 509-10. 

Finally, Bodnar erroneously argues that the 10b-5 claim against him fails because 

he did not engage in manipulative trading in BMS stock. Bodnar Br. at 6 n.7. 

Subsections (a) and (c) are not limited to manipulative trading such as wash sales, 

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matched orders, or rigged prices. Global Crossing, 322 F. Supp. 2d at 336-37. Rather, 

“subsections (a) and (c) encompass much more than illegal trading activity: they 

encompass the use of ‘any device, scheme or artifice, or any act, practice, or course of 

business’ used to perpetrate a fraud on investors,” id. at 336 (emphasis in original), and 

“courts including this country’s highest court have held that a cause of action lies for 

claims that involve allegations of manipulative schemes used in connection with 

securities markets,” id. at 337; see also Parmalat, 376 F. Supp. 2d at 492 (same).14

VI. THE COMPLAINT ALLEGES LOSS CAUSATION

Loss causation is the causal link between the alleged fraudulent misconduct and 

the Class’s losses. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005). 

Analogizing loss causation to “proximate cause” in tort, the Second Circuit has held that 

 

14 The Supreme Court is currently considering the parameters of scheme liability under § 10(b) and Rule 

10b-5(a) and (c) in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., No. 06-43 (on appeal 

from In re Charter Commc’ns, Inc., 443 F.3d 987 (8th Cir. 2006)). Under current Second Circuit law, 

Plaintiffs’ scheme liability claim against Bodnar is clearly viable. Notably, Stoneridge concerns scheme 

liability claims not against corporate insiders like Bodnar, but rather against outside companies that did 

business with a publicly traded company, which misrepresented the financial impact of its transactions with 

the defendants in its own public statements. Current Second Circuit law validates scheme liability claims 

not only against outside business counterparties like those in Stoneridge, Global Crossing, and Parmalat, 

but a fortiori against insiders. SEC v. U.S. Environmental, Inc., 155 F.3d at 112 (upholding 10b-5 claims 

against stock trader who did not make false statements, but participated in his company’s manipulative 

trading); SEC v. First Jersey Sec., Inc., 101 F.3d at 1471-72 (upholding 10b-5 claims against corporate 

insider who did not make false statements, but planned and orchestrated his company’s program of 

fraudulent securities trading); SEC v. PIMCO Advisors Fund Mgmt. LLC, 341 F. Supp. 2d 454, 469 

(S.D.N.Y. 2004) (“If the SEC were able to charge [insider defendants] with knowledge of the inherently 

fraudulent selective disclosures, [defendants’] activities would fit squarely into the rule articulated in U.S. 

Environmental . . . in which ‘participat[ion] in a fraudulent scheme or other activity proscribed by the 

securities laws,’ 155 F.3d at 111, gives rise to primary 10b-5 liability.”); Rich v. Maidstone Fin., Inc., No. 

98 Civ. 2569(DAB), 2002 WL 31867724, at *9 (S.D.N.Y. Dec. 20, 2002) (upholding 10b-5 claim against 

brokerage insider who made no misstatement but carried out fraudulent scheme); Mishkin v. Ageloff, 1998 

WL 651065, at *18-19 (same). U.S. Environmental, First Jersey, and PIMCO were SEC enforcement 

actions, but the cited sections of those cases address primary liability under Rule 10b-5, not aiding and 

abetting. Thus, these cases’ reasoning and holdings are applicable to private actions under 10b-5, and it is 

irrelevant that the PSLRA authorized 10b-5 aiding and abetting claims by the SEC but not by private 

plaintiffs. The complaints in Rich and Mishkin were dismissed for failure to plead defendants’ participation 

in the fraudulent schemes with sufficient particularity under Fed. R. Civ. P. 9(b). Rich, 2002 WL 

31867724, at *10; Mishkin, 1998 WL 651065, at *21. This in no way weakens these decisions’ reasoning 

regarding the ability to state scheme liability claims under Rule 10b-5(a) and (c) and Fed. R. Civ. P. 

12(b)(6). The Complaint here is replete with details about Bodnar’s fraudulent conduct.

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“a misstatement or omission is the ‘proximate cause’ of an investment loss if the risk that 

caused the loss was within the zone of risk concealed by the misrepresentations and 

omissions alleged by a disappointed investor.’” Lentell v. Merrill Lynch & Co., 396 F.3d 

161, 173 (2d Cir. 2005) (emphasis in original). Plaintiffs must allege “that the 

misstatement or omission concealed something from the market that, when disclosed, 

negatively affected the value of the security.” Id. at 174. Plaintiffs’ “damages must be a 

foreseeable consequence of the misrepresentation.” Id. at 172. “This does not mean that 

the misrepresentation itself must cause the drop in value of the security, but rather that 

‘the risk that caused the loss was within the zone of risk concealed by the 

misrepresentations and omissions alleged.’” Scottish Re, 2007 U.S. Dist. LEXIS 81565, 

at *59 (quoting Lentell, 39 F.3d at 172-73). 

Following Dura, plaintiffs need only satisfy Rule 8 notice pleading for loss 

causation. In re Tower Auto. Sec. Litig., 483 F. Supp. 2d at 348 (“[N]early all courts 

addressing [loss causation] since [Dura] have also applied Rule 8, rather than the 

heightened pleading standard of Rule 9.”); Compudyne Corp. v. Shane, 453 F. Supp. 2d 

807, 827 (S.D.N.Y. 2006). 

Defendants argue that (1) the BMS stock price declines resulted from disclosed 

risks; (2) the July 27, 2006 announcement was not a corrective disclosure; and (3) the 

August 8, 2006 stock price decline after the disclosure that day was due to Apotex’s 

generic launch, not Defendants’ alleged fraud. These arguments fail at this stage. 

Defendants argue, with little explanation, that the BMS stock price declines 

resulted from already disclosed risks: the risks of a generic launch and of regulatory 

disapproval. BMS Br. at 17-18; Bodnar Br. at 7. But Defendants misinterpret the 

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Complaint by arguing that these risks were “accurately disclosed.” BMS Br. at 17. 

Indeed, at the same time that Defendants represented to the public that BMS would 

“vigorously” enforce its patents if Apotex launched generic Plavix and that any Apotex 

launch would be “at risk,” Defendants concealed that the settlement agreements limited 

BMS’ damages and patent enforcement rights, thereby encouraging Apotex’s generic 

launch and allowing it to be more profitable at BMS’ cost. ¶¶3, 41. And while BMS 

announced to the public that it had negotiated the Amended Apotex Settlement in 

response to the regulators’ “concerns,” BMS concealed from both the public and the 

regulators that the parties had entered into oral side agreements that Defendants knew 

would cause the regulators, if they became aware of these terms, to reject the Amended 

Apotex Settlement and subject them to criminal investigation. ¶¶4, 42. These risks – the 

risk that BMS’ agreement would actually aid Apotex in its generic launch in case of 

regulatory denial and the increased risk that BMS’s unlawful side agreements would 

result in regulatory denial and other adverse consequences for BMS – were not publicly 

disclosed before the end of the Class Period, and fundamentally differ from Defendants’ 

characterization of the risks as the mere risks of regulatory denial and an “at risk” launch. 

Defendants assert that the July 27, 2006 announcement of the DOJ’s investigation 

is not a corrective disclosure because it “does not discuss the subject matter of any of the 

non-disclosures alleged in the Amended Complaint.” BMS Br. at 18. This assertion is 

factually incorrect, as the July 27 announcement was specifically linked to the Apotex 

Settlement. ¶82 (“The Company learned yesterday that the Antitrust Division of the 

United States Department of Justice is conducting a criminal investigation regarding the 

proposed settlement of the Apotex litigation described above.”) (emphasis added). 

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Furthermore, Defendants’ theory that only a detailed revelation of all the previously 

misrepresented or concealed facts supports loss causation is contrary to law. 

There is no specific requirement as to the type of disclosures that may reveal the 

truth, how specific a disclosure should be, or that the disclosure take a particular form. 

See Dura, 544 U.S. at 347; In re Tommy Hilfiger Sec. Litig., No. 04 Civ. 7678, 2007 U.S. 

Dist. LEXIS 55088, at *7-8 (S.D.N.Y. July 20, 2007); In re Winstar Commc’ns, No. 01 

CV 3014 (GBD), 2006 U.S. Dist. LEXIS 7618, at *45 (S.D.N.Y. Feb. 27, 2006). A 

corrective disclosure need not be the “linguistic mirror image” of the alleged fraud. In re 

Bristol-Myers Squibb Sec. Litig., Civ. A. No. 00-1990 (SRC), 2005 U.S. Dist. LEXIS 

18448, at *57 (D.N.J. Aug. 17, 2005). 

Moreover, courts commonly treat announcements of government investigations 

into the subject matter of the fraud as corrective disclosures. See, e.g., Lapin v. Goldman 

Sachs Group, Inc., 506 F. Supp. 2d 221, 243 (S.D.N.Y. 2006); In re Bradley Pharms., 

Inc. Sec. Litig., 421 F. Supp. 2d 822, 828 (D.N.J. 2006); In re Immucor Inc. Sec. Litig., 

No. 1:05-cv-2276, 2006 U.S. Dist. LEXIS 72335, at *59-60 (N.D. Ga. Oct. 4, 2006); 

Brumbaugh, 416 F. Supp. 2d at 256. For example, in Bradley Pharmaceuticals, the court 

held that plaintiffs sufficiently alleged loss causation where defendants announced that 

the SEC was conducting an informal inquiry to determine whether there had been 

violations of securities laws. 421 F. Supp. 2d at 829. The court rejected defendants’ 

“rigid and dogmatic” interpretation of Dura and held that plaintiffs sufficiently alleged 

loss causation since the “truth” about the transaction did not take the form of a single 

disclosure, but occurred through a series of disclosing events. Id. at 828-29.15

 

15 As in this case (BMS Br. at 19), defendants in Bradley unsuccessfully argued that when a post-class 

period restatement revealed the full extent of the fraud, the stock price rose, disproving loss causation. 421 

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Plaintiffs in this case have sufficiently alleged that the July 27, 2006 statement 

was a partial disclosure. ¶¶52, 82-86. On that date, BMS revealed, in a press release 

before the market opened, that “the Antitrust Division of the [DOJ] is conducting a 

criminal investigation regarding the proposed settlement of the Apotex litigation 

described above.” ¶82. As a result of the disclosure, the stock price fell almost $2, or by 

approximately 7.5%, on heavy trading volume. ¶¶ 52, 85, 111(a). The disclosure that the 

DOJ was investigating criminal conduct relating to the Amended Apotex Settlement is 

“perfectly congruent” to the alleged fraud, Bristol-Myers Squibb, 2005 U.S. Dist. LEXIS 

18448, at *57, and within the zone of risk of the facts withheld from investors – that 

Defendants criminally concealed the side agreements with Apotex from the regulators, 

knowing that they would not approve the Amended Apotex Settlement if they became 

aware of the side agreements. ¶81. Disclosure of the criminal investigation does not 

merely “suggest” that regulatory approval of the settlement would not be forthcoming, as 

Defendants suggest. BMS Br. at 18. Such an “unprecedented” probe (¶85) into the 

settlement suggested to the public the possibility that BMS acted criminally in 

negotiating the Amended Apotex Settlement. “[T]he risk that caused the loss was within 

the zone of risk concealed by the misrepresentations and omissions alleged by a 

disappointed investor.” Lentell, 396 F.3d at 173 (emphasis in original). 

 F. Supp. 2d at 828. However, the court compared the stock price’s significant drop on large trading volume 

after the initial disclosure of the investigation to the price’s slight increase on low volume after the 

company’s post-class period admissions, and held that “by the time [the company] announced its 

restatement of earnings [after the class period], the market had already incorporated that the previously 

released financial statements could not be relied upon.” Id. at 829. Defendants here point to trading in 

BMS long after the Class Period, but this argument is premature and ignores other factors at those later 

dates that also affected BMS stock price. This question should be addressed in discovery and with expert 

witnesses. See also Montalvo v. Tripos, Inc., No. 4:03CV995SNL, 2005 WL 2453964, at *9 (E.D. Mo. 

Sept. 30, 2005) (rejecting argument “that the plaintiffs have failed to adequately plead loss causation 

because the 2004 restatements were not announced until after the end of the Class Period, and moreover, 

little if any significant decline in the stock price occurred following these restatements,” where stock price 

fell significantly at end of class period after disclosure of failure to meet important contract milestone).

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In In re Merrill Lynch Tyco Research Securities Litigation, No. 03-CV-4080 

(MP), 2004 U.S. Dist. LEXIS 2247 (S.D.N.Y. Feb. 18, 2004), cited by Defendants (BMS 

Br. at 18), plaintiffs alleged fraud based on statements by Merrill Lynch that Tyco’s 

financial subsidiary could be sold or spun off for a certain amount of money. Id. at *6. 

The “corrective disclosure” was alleged to be reports about Tyco’s former CEO’s misuse 

of company funds. Id. at *7. The court held that plaintiffs did not assert any causal 

relationship between the alleged fraud and the decline in trading price because the 

“corrective disclosure” did not discuss anything about the financial subsidiary, any 

improper relationship between Tyco and Merrill Lynch, or anything related to the subject 

matter of the fraud. Id. at *7-8. In this case, disclosure of the DOJ’s criminal 

investigation was closely related to an important part of the alleged fraud, BMS’ criminal 

conduct in concealing the side agreements from regulators and investors.16

Defendants’ argument that the August 8, 2006 stock price decline resulted from 

the Apotex launch rather than the disclosure, on the same day, of the disadvantageous 

settlement terms of the original and Amended Apotex Settlements is likewise unavailing. 

BMS Br. at 19. Defendants’ argument assumes that the generic launch and the revelation 

of the settlement terms can be separated as causal factors, but they cannot at the pleading 

stage. Moreover, this argument overlooks the allegation that news of the regulatory 

denial of the Amended Apotex Agreement on July 28, 2006 caused a far smaller decline 

in the price of BMS stock, because, until the additional terms were disclosed on August 

 

16 Defendants’ reliance on In re Tellium, Inc. Securities Litigation fails for the same reason – unlike the 

present case, in Tellium, there was an insufficient connection between the fraud and the alleged “corrective 

disclosure.” No. 02-cv-5878 (FLW), 2005 U.S. Dist. LEXIS 26332, at *10-13 (D.N.J. Aug. 26, 2005). 

Moreover, in In re Avista Corporation Securities Litigation, 415 F. Supp. 2d 1214 (E.D. Wash. 2005), 

plaintiffs admitted that defendant’s misrepresentations had not been disclosed to the public. Id. at 1219-20. 

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8, 2006, analysts, investors and the media still did not expect a truly “at risk” launch by 

Apotex given the risks such a launch would have normally entailed. ¶¶87-104. 

Indeed, as analysts and the media immediately noted, it was the undisclosed 

settlement terms, themselves, that made a generic launch not only possible, but far more 

advantageous to Apotex. Thus, on August 8, 2006, Defendants – contrary to their often 

repeated statements that BMS would “vigorously” enforce its patents and any Apotex 

launch would be “at risk” – revealed that BMS had agreed to give Apotex a five-businessday window after its generic launch before BMS was permitted to seek a preliminary 

injunction, and the Company had relinquished its right to seek treble damages. ¶¶53, 58, 

61, 63, 65, 67, 73, 77, 82, 95. These previously undisclosed terms not only increased the 

risk of a generic launch, but increased the risk that the launch would be successful and 

much more financially disadvantageous to BMS than if these terms had not existed. 

Defendants point to three articles quoted in the Complaint, which they assert link 

the stock price decline on August 8, 2006 to the generic launch, and contend that these 

statements contradict Plaintiffs’ theory that the revelation of the previously concealed 

settlement terms caused the decline. BMS Br. at 19. However, the Complaint contains 

specific quotations from media reports and analysts that emphasized the highly 

disadvantageous settlement terms agreed to by BMS and confirmed that the stock price 

drop was in reaction to the disclosure of those previously undisclosed terms. ¶¶37, 97-

104. The fact that Defendants’ selected excerpts of only three of the eight sources quoted 

in the Complaint mention some causal link between the generic launch and the stock 

price decline does not support Defendants’ contention that the generic launch solely 

caused the stock price decline. Indeed, the news articles themselves highlight the 

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interdependence of the generic launch and the settlement terms. The facts are before the 

terms were disclosed, Apotex was not expected to launch a generic at risk due to the 

danger of treble damages, but, after the disclosure, analysts assumed that Apotex would 

launch a generic during the five-business-day window, at great financial cost to BMS. ¶98.17 

Where Plaintiffs show that the corrective disclosures were related to the subject 

matter of the fraud and defendants argue that some other event caused the stock drop, the 

disputed facts are inappropriate for resolution at the pleading stage, and the motion to 

dismiss should be denied. Emergent Capital Inv. Mgmt. LLC v. Stonepath Group, Inc., 

343 F.3d 189, 197 (2d Cir. 2003); In re Openwave Sys. Sec. Litig., No. 07 Civ. 1309 

(DLC), 2007 WL 3224584, at *14 (S.D.N.Y. Oct. 31, 2007); Converium, 2007 WL 

2684069, at *4; WorldCom, 294 F. Supp. 2d at 428-29.

 

17 See also ¶100 (“[t]he companies must wait five business days before seeking a federal injunction against 

Apotex’s shipments, giving the generic company an opportunity to potentially flood the market with its 

generic drug. . . [The waiver of treble damages] removed one of the major deterrents to a generic 

competitor’s entering the market while a drug is still under patent.”); ¶102 (“Only a week ago, many of the 

same experts predicted a generic Plavix launch was unlikely); ¶104 (“the five-day window . . . is likely to 

have lasting effects on the market for Plavix . . . [T]he five-day window has opened the market to Apotex, 

which could flood the market with cheaper generic Plavix . . .”). 

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CONCLUSION

Plaintiffs respectfully request that the Court deny Defendants’ motions to dismiss. 

Dated: December 17, 2007 

BERNSTEIN LITOWITZ 

BERGER & GROSSMANN LLP 

By: /s/ Salvatore J. Graziano 

Salvatore J. Graziano (SG-6854) 

Jai K. Chandrasekhar (JC-3789) 

Katherine M. Sinderson 

1285 Avenue of the Americas 

New York, NY 10019 

Tel.: 212-554-1400 

Fax: 212-554-1444 

Attorneys for Lead Plaintiff Ontario 

Teachers’ Pension Plan Board and 

Lead Counsel for the Class 

KAPLAN FOX & KILSHEIMER 

LLP 

Frederic S. Fox (FF-9102) 

Joel B. Strauss (JS-6585) 

850 Third Avenue 

New York, NY 10022 

Tel.: (212) 687-1980 

Fax: (212) 687-7714 

-andLOCKRIDGE GRINDAL 

NAUEN P.L.L.P. 

Richard A. Lockridge 

Karen H. Riebel 

100 Washington Avenue South, 

Suite 2200 

Minneapolis, MN 55401 

Tel.: (612) 339-6900 

Fax: (612) 399-0981 

Attorneys for Plaintiff Minneapolis 

Firefighters’ Relief Association 

Case 1:07-cv-05867-PAC Document 39 Filed 12/17/2007 Page 48 of 48