IN RE: PHILIP MORRIS INTERNATIONAL INC. SECURITIES LITIGATION
- Ronnie Abrams
- 1:18-cv-08049
- U.S. District Court · Southern District of New York
- 17
Judge Abrams denied reconsideration in In re Philip Morris Securities Litigation, leaving most securities-fraud claims dismissed with prejudice.
The lead plaintiffs and the putative investor class could not revive most dismissed securities-fraud claims, while claims concerning four allegedly undisclosed scientific studies remained eligible for amendment by the stated deadline. Philip Morris International Inc. and the individual defendants retained the benefit of the prior dismissal of most claims.
What happened
In In re Philip Morris International Inc. Securities Litigation, investors alleged that Philip Morris and individual defendants made misleading statements about the iQOS tobacco device and its Japanese sales. The court had previously dismissed most claims.
The investors asked the court to reconsider that decision, arguing that it mishandled disclosure claims, a statement about what was “on the horizon,” and the dismissal with prejudice. The court rejected each argument.
Judge Abrams denied the reconsideration motion, but allowed the investors to amend claims concerning four allegedly undisclosed scientific studies by September 28, 2020. The court also terminated the pending oral-argument motion.
The detailed version
- IN RE: PHILIP MORRIS INTERNATIONAL INC. SECURITIES LITIGATION · No. 1:18-cv-08049
- Ronnie Abrams
- Sept. 21, 2020
Background
Lead plaintiffs Union Asset Management Holding AG and Teamsters Local 710 Pension Fund brought a securities-fraud class action against Philip Morris International Inc. and six individual defendants. They alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by making false or misleading statements to the Food and Drug Administration about clinical trials for the iQOS device and about iQOS’s performance in Japan.
The alleged class period ran from July 26, 2016, through April 18, 2018. On April 19, 2018, Philip Morris announced slower-than-expected iQOS growth in Japan. The company’s stock price fell more than 15 percent that day, according to the opinion.
On February 4, 2020, the court granted the defendants’ motion to dismiss under Federal Rules of Civil Procedure 9(b) and 12(b)(6), as well as the Private Securities Litigation Reform Act. The court held that the plaintiffs had not adequately alleged that the statements were false or misleading or that the defendants acted with the required fraudulent intent. Most claims were dismissed with prejudice, except claims concerning the alleged failure to timely disclose four scientific studies.
Motion for Reconsideration
The plaintiffs moved for reconsideration under Federal Rule of Civil Procedure 54(b) and Local Civil Rule 6.3. Reconsideration is an exceptional remedy generally available only when there has been a change in controlling law, newly available evidence, or a clear error or manifest injustice.
The plaintiffs challenged three parts of the February 4 decision:
- They argued that the court improperly dismissed claims based on Items 303 and 503 of Securities and Exchange Commission Regulation S-K. Item 303 concerns disclosure of known trends or uncertainties that may materially affect financial results. Item 503, now located at Item 105, concerns disclosure of significant investment risks.
- They argued that the court wrongly treated Defendant Calantzopoulos’s statement that “there’s nothing in the horizon” likely to change prior results as a forward-looking statement.
- They asked the court to reconsider dismissing most claims with prejudice so they could replead them.
Item 303 and Item 503 Claims
The plaintiffs argued that Philip Morris failed to disclose the risk that the Japanese iQOS market had begun to saturate among early adopters and innovators, which could slow device and HeatStick sales.
The court rejected the argument. It held that Philip Morris’s 2017 Form 10-K adequately disclosed relevant risks, including the need to persuade adult smokers to switch to reduced-risk products, changing consumer preferences, and competition. The court concluded that these disclosures addressed the risk the plaintiffs identified, even though they did not expressly describe it as saturation among early adopters and innovators. The court therefore found no basis to reconsider its earlier dismissal of the Item 303 and Item 503 claims.
The “Horizon” Statement
The court also declined to reconsider its treatment of Calantzopoulos’s statement that “there’s nothing in the horizon that would . . . cause any change in what happened in the previous years.” It first noted that the plaintiffs had already made substantially the same argument during the original motion to dismiss. The court further held that the statement focused on the future because it referred to what was “in the horizon.” The court concluded that the statement was wholly forward-looking and did not contain a separate present-tense representation that would change that analysis.
Dismissal With Prejudice and Amendment
Although the plaintiffs said they were not formally seeking leave to amend, the court construed their request as a motion to amend. Under Rule 15(a), leave to amend is generally allowed when justice requires, but it may be denied when amendment would be futile. Amendment is futile when the proposed allegations would still fail to state a claim.
The court held that amendment would be futile for most of the dismissed claims. The plaintiffs had already filed a lengthy amended complaint after consolidation and appointment of lead plaintiffs and counsel. They had also chosen to rely on that complaint after the defendants identified deficiencies in a motion to dismiss. The court found that the plaintiffs’ proposed additional allegations were either vague or appeared to fall within the scientific-study claims for which amendment had already been permitted. The court therefore denied reconsideration of the decision to dismiss most claims with prejudice.
Disposition
The court denied the plaintiffs’ motion for reconsideration. It directed that any Second Amended Class Action Complaint concerning the four allegedly undisclosed scientific studies be filed by September 28, 2020, and stated that no extensions would be granted. It also directed the Clerk of Court to terminate the reconsideration motion and the pending motion for oral argument.
Classification Note
This is a procedural order because the court denied reconsideration of an earlier dismissal and addressed amendment and case-management issues rather than deciding a new underlying securities-fraud claim.
Read the full 17-page opinion on CourtListener, the free public archive maintained by the Free Law Project.