Kempen International Funds v. Health

Background

Plaintiffs Kempen International Funds, in two identified funds, and Merclin Institutional Fund sued Syneos Health, Inc., Alistair MacDonald, Michelle Keefe, Jason Meggs, and Paul Colvin. Plaintiffs alleged that Syneos and its executives misrepresented Syneos’s post-pandemic recovery and manipulated important performance measures. They asserted claims under Section 10(b) and Section 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5.

The court had dismissed plaintiffs’ first amended complaint on April 25, 2024, because it did not plead the claims with the required particularity. The court explained that the complaint used “puzzle pleading”: it quoted many statements and supplied broad facts, leaving the court to determine which statements were allegedly false or misleading and how the facts supported an inference that defendants acted knowingly or recklessly. The court allowed an amendment and instructed plaintiffs to identify specific statements, the facts showing why each statement was false or misleading when made, and facts supporting defendants’ required state of mind. It also instructed plaintiffs to organize the allegations by category of allegedly false or misleading statements.

Problems with the Second Amended Complaint

The court found that the second amended complaint did not follow those instructions. Instead of analyzing each statement separately, it continued to group multiple statements together and highlighted numerous lines in lengthy block quotations. The complaint contained more than 100 allegedly false or misleading statements, but did not explain individually why each statement was actionable. The court stated that plaintiffs might need to focus on a smaller number of statements and ensure, consistent with their lawyers’ obligations, that those statements were not merely opinions, promotional language, or protected predictions about the future, and that the required allegations of falsity and defendants’ state of mind were supported.

The court also found that the allegations about a January 2021 presentation to Syneos’s Executive Leadership Team did not connect the presentation’s information to specific alleged misstatements. The complaint did not clearly explain the scope of the presentation, the meaning of its numbers and terms, or whether the reported problems affected the parts of Syneos’s business relevant to the challenged statements. Showing that problems existed somewhere in the company was not enough; plaintiffs needed to explain what the facts meant and why they contradicted particular statements.

The court identified similar problems with allegations concerning a GlaxoSmithKline contract and reimbursable expenses. The complaint described the contract as worth different amounts in different places—$300 million, $400 million, and $600 million—and referred to it using two different contract descriptions without defining one of them. The court said plaintiffs needed to explain the contract’s nature, its relevance to particular statements, and how the backlog calculation applied. Regarding reimbursable expenses, the complaint did not clearly explain why the reported percentage or amount would have surprised analysts and investors, how much defendants allegedly knew would not be collected, or when they acquired that knowledge. It also gave conflicting figures for the allegedly uncollectible expenses.

Ruling and Effect

The court stated that it could have dismissed the complaint with prejudice, meaning without another opportunity to amend, but concluded that the complaint’s excessive length made it unclear whether a viable case might exist. The court therefore gave plaintiffs one final chance to amend. It granted the motion to dismiss and directed plaintiffs to file the amended complaint within 21 days. Any motion to dismiss the new complaint was due within 21 days after that filing. The Clerk of Court was directed to terminate the motion docketed as Dkt. 58.