On January 19, 2017, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s decision to dismiss a securities class action against Hewlett-Packard Co. (“HP”) and its former chief executive officer.  Retail Wholesale & Department Store Union Local 338 Retirement Fund v. Hewlett-Packard Co., No. 14-16433, 2017 WL 218026 (9th Cir. Jan. 19, 2017).  Plaintiffs alleged that HP and its former CEO violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) when the CEO breached HP’s code of ethics after he and the company had publicly promoted HP’s high ethical standards.  The court concluded that plaintiffs failed to allege an actionable fraud because, among other reasons, the alleged statements about HP’s code of ethics were not objectively false, but were instead “transparently aspirational.”

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On January 23, 2017, a panel of the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s decision to dismiss a proposed shareholder class action against Bank of America, N.A. and LaSalle Bank, N.A. (the “Bank”).   Richek v. Bank of America, N.A. and LaSalle Bank, N.A., 2017 WL 279498 (7th Cir. Jan. 23, 2017).  Plaintiffs alleged that the Bank was collecting a fee on their custodial accounts without informing customers, and, on this basis, brought a putative class action in state court alleging state law claims for breach of contract and breach of fiduciary duty.  The Bank removed the suit to federal court and successfully argued that the Securities Litigation Uniform Standards Act (“SLUSA”) preempted their state law claims.  The Seventh Circuit affirmed and held that SLUSA preempted the state law claims because they necessarily required consideration of whether there had been an omission in connection with the purchase or sale of a security based on plaintiffs’ claim that the Bank had not disclosed its collection of the fee.  A dissenting opinion criticized the majority’s approach, noting that the panel’s reasoning deepened a split among the Circuits over how courts should apply SLUSA to class actions alleging breach of contract or breach of fiduciary duty claims, and that this split requires resolution by the Supreme Court. 

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On January 17, 2017, Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed with leave to amend a putative securities class action against TriNet Group, Inc. (“TriNet”), its officers and directors, a former controlling shareholder, and the underwriters of TriNet’s initial public offering (“IPO”) and a secondary offering (“SPO”).  Welgus v. TriNet, — F. Supp. 3d —, 2017 WL 167708 (N.D.Cal. 2017).  The Court held that plaintiff had not adequately alleged facts showing that the officer defendants knowingly made false statements in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) or facts sufficient to establish control person liability against TriNet’s controlling shareholder under Section 20 of the Exchange Act.  Nor had plaintiff stated a claim under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”) because, among other things, plaintiff had not sufficiently alleged that its shares were traceable to the IPO or SPO.

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On January 9, 2017, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities class action against InVivo Therapeutics Holdings Corporation and its former CEO, Frank Reynolds.  Battle Const. Co., Inc. v InVivo Therapeutics Holdings Corp., No. 15-1544, 2017 WL 74702 (1st Cir Jan. 9, 2017).  The Court held that InVivo’s press releases that allegedly failed to identify caveats and conditions imposed by the Food and Drug Administration (FDA) on clinical trials of a particular medical device did not constitute false or misleading statements under federal securities law.  Plaintiff alleged that defendants violated Sections 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5, and that Reynolds violated Section 20(a) of the Exchange Act pursuant to control person liability, by failing to disclose in the company’s press releases the FDA’s conditions that may impact the timing of the clinical trials.

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On December 29, 2016, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California dismissed a putative securities class action against Solazyme, Inc. (“Solazyme”), certain of its officers and directors, and the underwriters of two of its securities offerings.  Norfolk Cty. Ret. Sys. v. Solazyme, Inc., et al., No. 15-cv-02938 (N.D. Ca. Dec. 29, 2016).  Plaintiffs, investors who allegedly purchased Solazyme securities traceable to public offerings of notes and common stock that were both made on March 27, 2014, claimed that defendants made false statements about Solazyme’s oil production facility in Moema, Brazil (the “Moema Facility”), in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  The Court granted defendants’ motion to dismiss, in part, because plaintiffs failed to plead with particularity that the challenged statements were false or misleading at the time they were made.  

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On December 27, 2016, Judge Arthur J. Tarnow of the United States District Court for the Eastern District of Michigan dismissed a putative class action against Esperion Therapeutics, Inc. (“Esperion” or the “Company”), a pharmaceutical company, and its chief executive officer.  Dougherty v. Esperion Therapeutics, Inc., No. 16 Civ. 10089 (E.D. Mich. Dec. 27, 2016).  Plaintiffs, purchasers of Esperion common stock, alleged that defendants made false statements regarding the U.S. Food and Drug Administration’s (“FDA”) approval process for a new drug in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  The Court held, among other things, that plaintiffs failed to allege facts giving rise to a strong inference of scienter, and, in particular, that “[t]he inquiry is inherently comparative” in that it considers whether the inference of scienter is as strong or stronger than the opposing inference of non-culpability.  The Court also held that forward-looking statements about the approval process were protected under the PSLRA safe harbor.  The decision, one of many recent decisions involving statements about drug approvals, highlights the case-specific nature of the analysis and that specific disclosures about regulatory approval risks can provide a meaningful defense in securities cases.  

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