Court Opinion

ID: 4401997
Source: CourtListenerOpinion
Date Created: 2019-05-30 17:00:33.563502+00
Date Added: 2024-06-11T14:24:17.975343
License: Public Domain

NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  _____________

                                       No. 18-2474
                                      _____________

GREGORY VIZIRGIANAKIS; PHONG THOMAS DINH; JAMSHID KHODAVANDI

                                             v.

     AETERNA ZENTARIS, INC.; JUERGEN ENGEL; DAVID A. DODD; PAUL
                 BLAKE; NICHOLAS J. PELLICCIONE

                                                Appellants
                                      ____________

                     On Appeal from the United States District Court
                              for the District of New Jersey
                                   (No. 3:14-cv-07081)
                         District Judge: Hon. Peter G. Sheridan

                      Submitted under Third Circuit L.A.R. 34.1(a)
                                    April 2, 2019

           Before: CHAGARES, HARDIMAN, and SILER, JR.,* Circuit Judges

                                  (Filed: May 30, 2019)

                                      ____________

                                        OPINION
                                      ____________

       *
       The Honorable Eugene E. Siler, Jr., United States Circuit Judge for the Court of
Appeals for the Sixth Circuit, sitting by designation.
       
        This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
SILER, Circuit Judge.

       Pursuant to Federal Rule of Civil Procedure 23(f), defendants Aeterna Zentaris,

Inc., and its named former employees,1 appeal the district court’s order granting class

certification in this securities action. We will affirm the decision of the district court.

                                               I.

       We write for the parties and relate only the necessary facts. In 2009, the

biopharmaceutical company Aeterna acquired the rights to AEZS-130, a drug in

development it sought to have approved for commercialization by the Food and Drug

Administration (“FDA”). To this end, Aeterna agreed to continue an ongoing study of

the drug according to the terms of a Special Protocol Assessment (“SPA”), an agreement

between Aeterna and the FDA regarding how the study should be completed to show the

drug’s safety and efficacy.

       According to the complaint, Aeterna issued numerous press releases and other

statements indicating that the study showed the drug was effective in accordance with the

protocol agreed to by the FDA in the SPA. Based on the strength of the “successful”

study, Aeterna sold nearly $75 million of its common stock to the investing public.

       In reality, says the complaint, AEZS-130 failed to show efficacy. And in

November 2014, the FDA denied Aeterna’s application to market AEZS-130 publicly,

       1
        These former employees are: David A. Dodd, Juergen Engel, Nicholas J. Pelliccione,
and Paul Blake.
                                               2
because the planned analysis of Aeterna’s “pivotal trial did not meet its stated primary

efficacy objective as agreed to in the Special Protocol Assessment agreement letter

between [Aeterna] and the FDA.”

       The current action was filed by Aeterna shareholders. The class action complaint

alleges Aeterna violated Section 10(b) of the Exchange Act and Rule 10b-5 by carrying

out a plan to deceive the investing public and cause class members to purchase Aeterna

stock at artificially inflated prices. It further alleges that several former Aeterna

employees are liable under Section 20(a) of the Exchange Act by virtue of their influence

and control over the false and misleading statements by Aeterna. The district court

granted plaintiffs’ motion for class certification under Federal Rule of Civil Procedure

23(b)(3). Pursuant to Rule 23(f), Aeterna timely appealed.

                                              II.2

       “We review a class certification order for abuse of discretion.” Neale v. Volvo

Cars of North America, LLC, 794 F.3d 353, 358 (3d Cir. 2015) (quoting Grandalski v.

Quest Diagnostics Inc., 767 F.3d 175, 179 (3d Cir. 2014)). We bear in mind “[t]he trial

court, well-positioned to decide which facts and legal arguments are most important to

each Rule 23 requirement, possesses broad discretion to control proceedings and frame

issues for consideration under Rule 23.” In re Hydrogen Peroxide Antitrust Litigation,

552 F.3d 305, 310 (3d Cir. 2008) (citation omitted).

       2
        The district court had jurisdiction under 28 U.S.C. § 1331. We have jurisdiction
under 28 U.S.C. § 1292(e) and Rule 23(f).
                                               3
                                             III.

       In a § 10(b) private action, a plaintiff must prove reliance upon the alleged

misrepresentation or omission. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552
U.S. 148, 157 (2008) (citing Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-

42 (2005)). The district court found that plaintiffs could proceed under a fraud-on-the-

market theory of reliance. This theory “accords plaintiffs in Rule 10b-5 class actions a

rebuttable presumption of reliance if plaintiffs bought or sold their securities in an

efficient market.” In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410,

1419 n.8 (3d Cir. 1997) (internal quotation omitted).

       Here, plaintiffs provided an expert report completed by Dr. Adam Werner to prove

market efficiency; the report relied on four dates on which information related to the

development of AEZS-130 was disseminated to conclude that Aeterna stock reflected

publicly available information. On appeal, Aeterna does not contest that plaintiffs raised

the presumption of an efficient market, and therefore class-wide reliance. It argues the

district court erred in finding that it had not rebutted the presumption.

       Aeterna’s hired expert, Dr. David Tabak, responded to the declaration of

plaintiffs’ expert, pointing out that Dr. Werner had not proven—to a 95% confidence

level—that the alleged misrepresentations made on August 30, 2011 impacted the price

of Aeterna’s common stock. The district court found this evidence insufficient to rebut

the presumption. It aptly noted that plaintiffs do not have the burden to prove price

impact (or lack thereof), so it was not surprising that their expert’s report did no such

thing. And even were plaintiffs’ study attempting to demonstrate a price impact, the

                                              4
district court reasoned that its failure to do so is not necessarily proof of the opposite.

This conclusion is consistent with the opinion of Dr. Werner and other district courts

weighing similar event studies, including two in this circuit. See West Palm Beach Police

Pension Fund v. DFC Global Corp., No. 13-6731, 2016 WL 4138613, *14 (E.D. Pa.

Aug. 4, 2016) (“[I]t does not necessarily follow from the mere absence of a statistically

significant change in the stock price that there was no price impact” (internal quotation

omitted)); City of Sterling Heights Gen. Empl. Ret. Syst. v. Prudential Finan., Inc., No.

12-5275, 2015 WL 5097883, *12 (D.N.J. Aug. 31, 2015) (failure of statistical

significance on one of six alleged misstatement dates did not show a lack of price impact

sufficient to rebut presumption of reliance).

       Further, Dr. Werner found abnormal stock return to a 95% confidence level for the

other three events in his study, one of which was Aeterna’s June 26, 2012 representation

regarding AEZS-130. Dr. Tabak’s contention that plaintiffs’ legal theory precludes them

from relying on the 2012 representation is a legal conclusion, which the district court

could reject. See Berckeley Inv. Grp. Ltd. v. Colkitt, 455 F.3d 195, 217 (3d Cir. 2006)

(explaining that “an expert witness is prohibited from rendering a legal opinion”). Dr.

Tabak’s contention that the 2012 representation did not provide any new, market-relevant

information conflicts with Dr. Werner’s opposite conclusion. Weighing conflicting

expert testimony is a normal task of the district court at the certification stage and

Aeterna has not shown the district court abused its discretion weighing it here. See In re

DVI, Inc. Sec. Lit., 639 F.3d 623, 633 (3d Cir. 2011), abrogated on other grounds by

Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455 (2013).

                                                5
       Finally, Aeterna misreads the district court opinion when it contends the district

court required it to rebut the presumption by proving “with scientific certainty” that the

alleged misrepresentation caused no price movement, a burden it deems “impossible” and

unknown to science and law. Given that the bulk of the reliance challenge centered on

statistical analysis, and a certainty level agreed to by both parties, it is hollow indeed that

Aeterna would read the opinion and believe it divorced from this context.

                                              IV.

       In sum, the district court considered the expert report tendered by Aeterna. In

light of plaintiffs’ expert and caselaw concluding otherwise, it rejected Dr. Tabak’s

conclusion that lack of price impact was proven by Dr. Werner’s failure to prove price

impact in his report on market efficiency. The district court also credited Dr. Werner’s

conclusion that the 2012 statement conveyed new, valuation-relevant information, despite

Dr. Tabak’s concluding the opposite. Weighing conflicting expert testimony and making

factual findings are normal functions of the district court at this stage. DVI, 639 F.3d at

633. Aeterna has not shown that either decision was an abuse of discretion.

       We will affirm.

                                               6