MYL Litigation Recovery I LLC v. Mylan N.V.

Background

MYL Litigation Recovery I LLC (MLR), the assignee of claims held by certain investment funds that purchased Mylan N.V. common stock, sued Mylan N.V., Mylan Inc., and several individual defendants under Sections 10(b), 18, and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. MLR opted out of a related class action and focused this case on alleged fraud involving the EpiPen, excluding the generic-drug-pricing allegations included in the class action. MLR also added allegations concerning Mylan’s disclosures about the effectiveness of its disclosure controls.

Mylan moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. On such a motion, the court generally accepts well-pleaded factual allegations as true, but securities-fraud claims must also satisfy heightened pleading requirements under Rule 9(b) and the Private Securities Litigation Reform Act.

Section 10(b) and Section 20(a) claims

Rebate statements. MLR alleged that Mylan’s statements that its Medicaid Drug Rebate Program calculations carried a “risk of errors” were misleading because they did not disclose that Mylan allegedly knew it was misclassifying the EpiPen. Mylan argued that the Right Rebate Act showed the governing law was ambiguous and therefore undermined allegations that Mylan knew the EpiPen was misclassified or acted with the required intent.

The court rejected those arguments. It found that the Right Rebate Act did not make MLR’s allegations implausible, particularly because MLR alleged that the Centers for Medicare and Medicaid Services repeatedly told Mylan that the EpiPen was misclassified. The court therefore allowed MLR’s Section 10(b) and Section 20(a) claims based on the “risk of errors” statements to proceed.

Income statements. The court also allowed MLR’s Section 10(b) and Section 20(a) claims concerning Mylan’s statements about its sources of income to proceed. The court reasoned that the underlying misclassification claims survived and that statements attributing EpiPen strength to “favorable pricing and volume” could be misleading if they omitted alleged anticompetitive agreements and knowingly miscalculated Medicaid rebates.

Alleged anticompetitive conduct. MLR alleged that Mylan used rebates and discounts to pharmacy benefit managers to obtain preferred or exclusive formulary placement for the EpiPen and block a competing product. The court dismissed the related Section 10(b) and Section 20(a) claims because MLR’s allegations were too conclusory. Unlike the allegations in the related class action, MLR’s complaint did not plead with the required particularity an actual adverse effect on competition as a whole or that the alleged anticompetitive effects outweighed any procompetitive effects. The court also found that MLR had not adequately pleaded the required fraudulent intent.

Disclosure-control certifications. MLR alleged that Mylan falsely certified that it had effective disclosure controls and procedures. MLR primarily relied on Mylan’s Control Integrity Agreement with the Department of Health and Human Services’ Office of Inspector General. The court found that the agreement concerned compliance with federal health-care programs and that MLR had not adequately linked it to Mylan’s securities-disclosure controls. MLR’s additional allegations were conclusory and did not specifically explain how the controls were inadequate. The court dismissed the related Section 10(b) and Section 20(a) claims, including for failure to adequately plead fraudulent intent.

Regulatory-risk statements. The court dismissed MLR’s Section 10(b) and Section 20(a) claims based on regulatory-risk statements in Mylan’s 2013 annual report, to the extent those claims relied on the report. Mylan argued that the report predated a Department of Justice subpoena that MLR claimed Mylan should have disclosed. MLR did not respond to that argument, so the court treated any opposition as waived.

Section 18 claims

Mylan argued that MLR’s Section 18 claims were barred by the two-year limitations period. The court held that the period had been suspended under the rule from American Pipe & Construction Co. v. Utah because MLR’s claims rested on the same facts as the related class action. The court explained that the tolling rule can apply when a class member later brings an individual action under a different legal theory, so long as the later claims do not rest on a new factual basis.

The court also held that MLR adequately pleaded actual reliance, which Section 18 requires. MLR identified specific Mylan filings and alleged that a Greenlight investment analyst read and relied on statements concerning Mylan’s financial statements, Medicaid rebates, drug-classification risks, regulatory scrutiny, EpiPen competition, and disclosure controls when making the purchases at issue. The Section 18 claims therefore survived the motion to dismiss.

Claims against Rajiv Malik

Mylan moved to dismiss all claims against Rajiv Malik for failure to adequately plead the required fraudulent intent for primary liability. MLR did not oppose the motion and acknowledged that the court had already decided the issue in the related class action. The court dismissed all claims against Malik and terminated him as a party.

Disposition

The court granted in part and denied in part Mylan’s motion to partially dismiss the complaint. The court directed that MLR could file an amended complaint consistent with the opinion by April 20, 2020. If MLR did not do so, defendants were required to answer the remaining claims by May 4, 2020. The order did not state that the dismissals were with or without prejudice.