Strougo v. Mallinckrodt Public Limited Company

Background

Barbara Strougo brought a proposed class action under the federal securities laws against Mallinckrodt Public Limited Company and Mark C. Trudeau, Bryan M. Reasons, George A. Kegler, and Matthew K. Harbaugh. She sought to represent people who purchased or otherwise acquired Mallinckrodt securities between February 28, 2018, and July 16, 2019.

The complaint alleged that the defendants made materially false or misleading statements and failed to disclose information about Mallinckrodt’s business, operations, and compliance policies. In particular, it alleged that Acthar posed significant safety concerns that made it an unsuitable treatment for amyotrophic lateral sclerosis and that Mallinckrodt therefore overstated Acthar’s viability for that use. On July 16, 2019, Mallinckrodt announced that it was permanently discontinuing the study of Acthar for amyotrophic lateral sclerosis after the study’s independent safety board identified a higher rate of pneumonia among patients receiving Acthar than among those receiving a placebo, along with other adverse events. The complaint alleged that Mallinckrodt’s stock price fell approximately 7.8 percent after the announcement.

Lead-Plainiff Motion

The pending motion was filed by the Canadian Elevator Industry Pension Trust Fund, a class member. It asked to be appointed lead plaintiff and to have Robbins Geller Rudman & Dowd LLP appointed lead counsel. Other class members had also sought those appointments, but the opinion states that the other applicants either withdrew, stated that they did not oppose competing motions, or, in the case of Timothy J. Wilcox, failed to file an opposition brief. The court treated Wilcox’s application as abandoned or withdrawn. The Pension Trust Fund’s motion therefore stood unopposed.

The Private Securities Litigation Reform Act, a federal law governing proposed securities class actions, directs the court to appoint the class member most capable of adequately representing the class. The statute creates a presumption in favor of the applicant who timely responds to public notice, has the largest financial interest in the requested relief, and satisfies the relevant requirements of Rule 23 of the Federal Rules of Civil Procedure. That presumption can be defeated by proof that the applicant cannot fairly and adequately protect the class or has defenses that uniquely impair its ability to represent the class.

Court’s Analysis

Judge Ramos found that the Pension Trust Fund satisfied the timing requirement because it filed a timely motion in response to the public notice of the lawsuit. The court also found that the fund had the largest financial interest. The fund reported a loss of $1,832,996.61, while the opinion identified Brad Davis as having the next-largest reported loss, $390,387.67.

For the Rule 23 requirements, the court said that at the lead-plaintiff stage an applicant need only make a preliminary showing of typicality and adequacy; a full class-certification analysis was not required. The court found the fund’s claims typical because it purchased Mallinckrodt securities during the class period, allegedly was harmed by the defendants’ misleading statements, and sought substantially the same relief under substantially the same legal theories as the other class members. The court also found the fund adequate because it had retained experienced counsel, had a substantial interest in the outcome, and had no reported conflicts with other class members.

Ruling

The court concluded that the Pension Trust Fund was presumed to be the most adequate plaintiff and that no class member had rebutted that presumption. The court therefore appointed the Pension Trust Fund lead plaintiff. It also found Robbins Geller experienced and qualified to conduct the securities class action and approved the firm as lead counsel. The Pension Trust Fund’s motion for appointment as lead plaintiff and approval of Robbins Geller as lead counsel was granted. The Clerk was directed to terminate the corresponding motions.