In Re Allergan PLC Securities Litigation

Background

Plaintiffs accuse Allergan PLC and associated individual defendants of securities fraud. They allege that Allergan failed to disclose or downplayed information about a possible connection between its textured silicone-gel breast implants and breast-implant-associated anaplastic large cell lymphoma, a rare form of cancer. They also allege that Allergan minimized the risk that its implants would be recalled.

The surviving theory, after an earlier ruling on Allergan’s motion to dismiss, is that Allergan’s statements before a European recall gave investors a false impression that Allergan’s implants were no more closely linked to BIA-ALCL than implants made by other manufacturers. The alleged corrective disclosure was a December 2018 recall by France’s National Agency for the Safety of Medicines and Health Products, followed by Allergan’s announcement that it had suspended sales and withdrawn remaining supplies in European markets. Allergan’s common stock price fell nearly 7 percent on December 19, 2018, according to the opinion.

The court had previously denied a class-certification motion brought by Boston Retirement System because that proposed lead plaintiff could not adequately represent the class. The court later appointed DeKalb County Pension Fund as lead plaintiff. DeKalb filed the second motion for class certification, which Allergan opposed only on the predominance requirement.

Proposed Class

The proposed class covers all individuals and entities that purchased or otherwise acquired Allergan preferred stock or common stock between January 30, 2017, and December 19, 2018, inclusive, and were damaged thereby. The order excludes the defendants; Allergan’s officers, directors, and affiliates; certain employee retirement or benefit-plan participants; entities controlled by defendants; immediate family members of excluded persons; and the legal representatives, heirs, successors, and assigns of excluded persons or entities.

Rule 23 Requirements

Federal Rule of Civil Procedure 23 requires a proposed class to satisfy four basic requirements: enough members that joining everyone individually would be impractical, shared legal or factual questions, claims typical of the class, and a representative who will fairly and adequately protect the class. The proposed class must also be identifiable using objective criteria. Because DeKalb sought certification under Rule 23(b)(3), it additionally had to show that common questions would outweigh individual questions and that a class action would be a better method of resolving the dispute.

The court found numerosity based on Allergan’s large number of publicly traded shares and substantial trading volume. It found commonality because class members’ claims involved common questions about Allergan’s statements, its knowledge, and whether those statements affected the market price. It found typicality because DeKalb claimed, like the other proposed class members, that it bought Allergan securities at allegedly inflated prices and suffered losses from the alleged fraud.

The court found DeKalb adequate to represent the class. Allergan did not identify a conflict between DeKalb and other class members, and the court found no such conflict. The court also found the class ascertainable because membership could be determined from investor records during the class period.

Predominance and Reliance

The main dispute concerned predominance, particularly whether investors’ reliance on Allergan’s statements could be shown with common evidence. The court applied the Basic presumption of reliance, which can allow securities-fraud plaintiffs to presume that public misstatements affected the price of stock traded in an efficient market when other requirements are met.

The court found that the alleged statements were public, that DeKalb had alleged purchases during the class period, and that the market for Allergan securities was efficient. The court relied on factors including trading volume, analyst coverage, trading on major exchanges, institutional ownership, market capitalization, narrow bid-ask spreads, and the large percentage of shares held by the public.

Allergan argued that the presumption was rebutted because its alleged misstatements had no effect on the stock price. The court rejected that argument. It found that Allergan’s expert’s analysis of the absence of immediate price increases did not address DeKalb’s theory that the statements maintained an already inflated price. The court also relied on evidence of a statistically significant negative return after the December 2018 recall. It concluded that Allergan had not shown, by the required evidentiary standard, that the recall had no effect on the stock price.

Damages and Other Predominance Arguments

Allergan argued that DeKalb lacked a damages model capable of separating losses caused by the surviving theory from losses caused by theories that had already been dismissed. DeKalb’s expert proposed an event-study model that would estimate price inflation during the class period and calculate each class member’s loss by comparing inflation at purchase and sale. The court found that the model corresponded to DeKalb’s remaining theory and could measure damages on a class-wide basis. The court held that further separation of legitimate outside influences was not required at the class-certification stage.

The court also rejected Allergan’s arguments that individual investors’ knowledge and risk tolerance created dominant individual issues. It concluded that the key question was whether investors knew about the specific risk associated with Allergan’s products compared with other manufacturers’ products, rather than whether they generally knew about a possible connection between textured implants and ALCL. The court found that this issue could be addressed with common evidence. It also held that DeKalb’s price-inflation theory did not depend on proving that each investor would have avoided buying Allergan stock entirely if the alleged statements had not been made.

Superiority and Disposition

The court found that a class action was superior to individual lawsuits. It was not aware of proposed class members seeking separate actions or of related litigation involving the same class members. The court found no management problem and noted the large number of shares traded during the class period.

Judge Colleen McMahon granted DeKalb’s motion to certify the class. The court certified the stated class, appointed DeKalb’s attorneys at Faruqi & Faruqi, LLP as class counsel, and directed the Clerk of Court to close the motion at Docket No. 198. The opinion addressed class certification rather than the ultimate merits of the securities-fraud claims.