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Northern District Of California Narrows Claims In Securities Class Action Against Medical Devices Company
06/17/2025On June 3, 2025, Judge Jacqueline S. Corley of the Northern District of California granted in part a motion to dismiss a putative securities class action brought against a medical devices company (the “Company”), its CEO, and certain other of its officers. Glazing Emps. & Glaziers Union Local #27 Pension and Ret. Fund v. iRhythm Techs., Inc., et al., No. 24-cv-706 (N.D. Cal. June 3, 2025). Plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, alleging that defendants made false or misleading statements about the Company’s heart-monitoring device. The Court held that certain of the alleged misstatements were not false or misleading, and that for the remaining alleged misstatements plaintiffs sufficiently alleged scienter only as to the CEO. Accordingly, the Court granted the motion to dismiss of the remaining individual defendants, but allowed certain of the alleged misstatements against the Company and its CEO to survive.
The Court organized the alleged misstatements about the Company’s device into four categories: (i) its suitability for “high-risk” patients across the “spectrum of care”; (ii) its ability to transmit heart arrhythmia data “near real time”; (iii) its classification as a mobile cardiac telemetry (“MCT”) device; and (iv) its accuracy in transmitting data to patients and doctors.
The Court rejected defendants’ argument that certain alleged “high-risk” statements were vague and inactionable, holding that the phrase “high-risk” had a discernible meaning—patients needing timely notification of life-threatening arrhythmias—and that plaintiffs plausibly alleged the device could not serve such patients once it hit undisclosed transmission caps or when technician queues delayed review. Similarly, the Court held that alleged misstatements regarding “near real time” transmission were actionable because plaintiffs sufficiently alleged that once a transmission limit was hit, the device would not transmit any data. The Court further held that alleged misstatements concerning the accuracy of the data transmission were actionable and sufficiently supported by allegations regarding customer complaints and on the basis of purported former employee confidential statements. The Court did, however, dismiss the claims related to the alleged misstatements that the device spanned the “spectrum of care” for “high-risk” patients as too vague to be provably false and dismissed claims related to alleged misstatements classifying the device as an MCT monitor because plaintiffs failed to plead a well-understood definition of MCT that could be proven false.
Turning to the issue of scienter, the Court held that plaintiffs sufficiently alleged a strong inference of scienter as to the CEO because he allegedly personally received an FDA Warning Letter and corresponded with the FDA regarding the device’s data transmission cap. The Court, however, dismissed the claims against all other individual defendants, holding that plaintiffs failed to sufficiently allege with particularity that any of the other individual defendants knew of the FDA’s findings and therefore none exhibited the strong inference of scienter necessary to support a claim.
The Court separately held that plaintiffs sufficiently alleged loss causation as to the remaining alleged misstatements made by the CEO, rejecting defendants’ argument that price declines following the disclosure of regulatory investigations are not actionable and finding that plaintiffs sufficiently alleged a chain of events—customer notices, regulatory filings, the FDA’s public Warning Letter, and a subsequent subpoena from the Department of Justice—that when disclosed were followed by statistically significant price declines.
Having sustained the Section 10(b) claim against the CEO, the Court denied the motion to dismiss the Section 20(a) control person claim as against him but dismissed the control person claims against the other individual defendants for whom plaintiffs failed to sufficiently plead a primary violation. The Court granted leave to further amend.
