New Jersey District Court Denies Motion To Dismiss Opt-Out Action

• Published date: 07 October 2021
• Subject Matter: Corporate/Commercial Law, Anti-trust/Competition Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Antitrust, EU Competition , Class Actions, Trials & Appeals & Compensation, Securities
• Law Firm: Shearman & Sterling LLP
• Author: Shearman & Sterling LLP

On September 30, 2021, Judge Katherine S. Hayden of the United States District Court for the District of New Jersey denied a motion to dismiss an "opt-out" action arising from a pending class action that asserts claims under the Securities Exchange Act of 1934 against a pharmaceutical company, certain of its executives, and alleged "co-conspirators," in connection with an alleged price-fixing scheme for generic drugs. TIAA-CREF Large-Cap Growth Fund v. Allergan PLC, No. 17-CV-11089-KSH-CLW, 2021 WL 4473156 (D.N.J. Sept. 30, 2021). The opt-out action also added claims under the Securities Act of 1933 and related to an illegal "market allocation" scheme. The Court denied defendants' motion to dismiss the opt-out action, holding that the action was timely and that scienter was adequately alleged.

The Court held that the Securities Act claims were timely because they had been filed exactly one year after media reports that federal prosecutors were "bearing down on generic pharmaceutical companies"'including the company named as a defendant in the opt-out action'"in a sweeping criminal investigation into suspected price collusion" and that charges could be imminent. Id. at *3. Although defendants had identified previous public reporting about the generic drug industry, other government investigations that received media attention, and other litigants' antitrust claims (including some represented by the same plaintiffs' counsel as in the opt-out action), the Court observed that those matters did not involve alleged securities law violations arising from the same price-fixing scheme alleged in the opt-out action. Rather, the Court concluded, the "more plausible inference" was that plaintiffs were not aware of their claims until the company-specific media report that indicated charges against the company might be imminent. Id. Moreover, the Court held that the involvement of plaintiffs' counsel in prior litigation, without any allegation that plaintiffs themselves had knowledge regarding that prior litigation, was "not persuasive." Id.

For similar reasons, the Court rejected defendants' arguments that the Exchange Act claims were untimely because plaintiffs should have been on notice of their claims based on previously filed antitrust litigation. Id. at *9. Moreover, the Court held, even if plaintiffs had been on notice of their claims previously, their claims had been tolled under American Pipe v. Constr. Co v. Utah, 414 U.S. 538 (1974), based on the filing of...