Opinion ID: 203426
Heading Depth: 2
Heading Rank: 4

Heading: New Claims About Shortened Class Period on Motion To Dismiss

Text: The plaintiffs filed four successive complaints in this matter over a period of twenty months before oral argument on the motions to dismiss on September 11, 2007. [22] Despite ample opportunity to assert their claims earlier, plaintiffs came up with a new theory, the shortened class period theory, in their memorandum in opposition to the motion to dismiss. The district court permitted argument on the theory but was not persuaded. Indeed, the court does not discuss the theory at all in its memorandum supporting its ruling on the motion to dismiss. Defendants argue the theory was waived. Our concern about theories raised for the first time by plaintiffs in response to defendants' motions to dismiss in securities cases is based in part on traditional notions of waiver and in part on the unusual requirements of the PSLRA. In enacting the PSLRA, Congress intended to raise the standards plaintiffs must meet to survive a motion to dismiss, for defendants to have a fair chance to test the viability of a complaint, and for courts to carefully scrutinize complaints. See Tellabs, 127 S.Ct. at 2509. That deliberate scheme is thrown into disarray when new theories are first produced in response to a motion to dismiss. The need for clarity and specificity about what plaintiffs' theories actually are is undercut. The PSLRA did not impose special burdens on Fed.R.Civ.P. 15(a), regarding amendments of complaints. See ACA Fin., 512 F.3d at 56. But plaintiffs here did not attempt to present this new theory in any of their amended complaints. That meant neither the court nor defendants had prior notice of the theory, much less prior opportunity to consider whether the theory met the PSLRA standards. The district court would have acted well within its discretion in declining to permit advancement of the new theory. And in future cases, honoring the purposes of the PSLRA, we may decline to hear arguments challenging dismissal based on belatedly advanced theories not contained clearly in amended complaints.
Here, even considering the theory, it fails. There was a ten-day period between the earliest knowledge on February 18, 2005 of one PML death and the potential PML diagnosis of a second patient, and the announcement on February 28, 2005 that TYSABRI was being withdrawn due to the PML diagnoses. That was a reasonable period of time for defendants to make their disclosures. [23] See Higginbotham, 495 F.3d at 761 (Managers cannot tell lies but are entitled to investigate for a reasonable time, until they have a full story to reveal.). At a minimum, Biogen needed to understand whether PML was caused by TYSABRI. This entailed understanding whether both patients with PML had any medical history showing they were susceptible to PML and sorting through whether, if there were a causal connection, it involved TYSABRI alone or an interaction between TYSABRI and AVONEX, since both patients were participating in the combination trial. During the ten-day period, the company was also cooperating with the FDA. The company would have behaved irresponsibly (and possibly in violation of the securities laws) if it had made a public announcement which was possibly inaccurate because the situation of the PML incidences had not yet been adequately investigated. This obligation on drug companies to investigate and to be accurate in their material public statements holds even when the adverse information comes from clinical trials on drugs to treat very ill patients. See id. at 758 (Knowing enough to launch an investigation ([the defendants] could not simply assume that the initial report of bad news was accurate) is a very great distance from convincing proof of intent to deceive.); id. at 760-61 (Prudent managers conduct inquiries rather than jump the gun with half-formed stories as soon as a problem comes to their attention.); cf. Carter-Wallace I, 150 F.3d at 157 (Drug companies need not disclose isolated reports of illnesses ... until those reports provide statistically significant evidence that the ill effects may be caused by  rather than randomly associated with  use of the drugs and are sufficiently serious and frequent to affect future earnings.).