IN RE APHRIA, INC. SECURITIES LITIGATION

Background

Lead Plaintiffs Shawn Cunix and Elizabeth Alexander brought claims against Aphria Inc.; Victor Neufeld; Carl Merton; Cole Cacciavillani; John Cervini; Andrew DeFrancesco; and SOL Global Investments Corp., formerly known as Scythian Biosciences Corp. The claims arose under Section 10(b) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rule 10b-5(b), and Section 20(a).

In an earlier order, the court denied Aphria Inc., Neufeld, and Merton’s motion to dismiss. It granted Cacciavillani and Cervini’s motion to dismiss for lack of personal jurisdiction, meaning the court concluded it could not exercise authority over them in this case. It also granted DeFrancesco’s motion to dismiss under the rules governing fraud pleading, failure to state a claim, and the Private Securities Litigation Reform Act.

Motions for Reconsideration

Plaintiffs asked the court to reconsider DeFrancesco’s dismissal or, alternatively, to allow them to amend their amended complaint. Plaintiffs argued that the court had overlooked claims under Securities and Exchange Commission Rule 10b-5(a) and (c) alleging scheme liability. The court rejected that argument because Plaintiffs had raised those claims for the first time in their opposition to DeFrancesco’s dismissal motion. Plaintiffs also acknowledged that the amended complaint asserted only a Rule 10b-5(b) claim because of a typographical error, and the relevant count did not mention DeFrancesco or the other individual defendants. The court therefore concluded that it had not overlooked a properly asserted scheme-liability claim.

Aphria Inc., Neufeld, and Merton separately asked the court to reconsider its decision not to dismiss their claims. They argued that the court had disregarded their acquisition of Aphria shares when evaluating whether the allegations supported an improper state of mind and had failed to apply Second Circuit pleading law correctly. The court found no clear error. It concluded that the defendants had repeated arguments made in their original dismissal briefing and that the earlier order had applied the required standard. The court also found that Plaintiffs’ allegations about site visits, meetings with local representatives, due diligence, and access to financial information plausibly supported the required state of mind under Second Circuit law.

Ruling

The court denied Plaintiffs’ motion for reconsideration and denied the defendants’ motion for reconsideration. The court granted Plaintiffs leave to seek to amend their amended complaint by submitting a letter application with a proposed second amended complaint explaining why the amendment would not be futile. Judge George B. Daniels directed the Clerk of Court to close the motions.