Bisel v. Acasti Pharma, Inc.

Background

Lead plaintiff Michael Castaldo pursued a putative class action against Acasti Pharma, Inc. and four members of its Board of Directors: Roderick Carter, Jan D’Alvise, John Canan, and Donald Olds. The case was consolidated with another action, and Castaldo was appointed lead plaintiff. The operative pleading alleged that Acasti’s proxy statement for its proposed merger with Grace Therapeutics omitted Grace’s financial projections and upward adjustments that Acasti allegedly made to those projections.

The complaint asserted claims under Section 14(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 14a-9, alleging that the proxy statement contained misleading omissions. It also asserted a Section 20(a) claim against the individual defendants as alleged controlling persons. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), Rule 9(b), and the heightened pleading requirements of the Private Securities Litigation Reform Act.

Court’s analysis

The court explained that a Section 14(a) and Rule 14a-9 claim requires a plaintiff to allege a material misrepresentation or omission in a proxy statement, injury, and a connection between the proxy solicitation and the transaction. An omission is actionable if disclosure was required by regulation or if the omission made other statements in the proxy materially false or misleading. The plaintiff also had to plead the alleged misleading statements and omissions with the specificity required by the securities laws and, to the extent the allegations rested on fraudulent conduct, Rule 9(b).

The court held that the complaint did not adequately support the allegation that Acasti made upward adjustments to Grace’s projections. The proxy stated that Acasti adjusted the projections but did not say that the adjustments were upward. The complaint relied mainly on cautionary statements about the uncertainty of Grace’s business and on plans to expand the potential market for one product. The court found that this did not provide specific facts showing who made the alleged adjustments, when they were made, or why they were fraudulent.

The court also held that the complaint did not explain why the alleged omissions made the proxy’s statements false or misleading. The proxy disclosed that adjustments had been made, described the bases for the financial analyses, summarized Oppenheimer’s fairness opinion, and warned that the projections depended on uncertain assumptions. The court concluded that the proxy provided a fair summary of the financial advisor’s analyses and that the complaint did not show that disclosure of the full projections or adjustments would have meaningfully changed the total information available to shareholders.

The court separately treated the challenged fairness opinion, financial analyses, and merger recommendation as statements of opinion. It held that the complaint did not plead particular facts showing that those opinions were objectively false or that the defendants did not actually believe them. The court also noted that the complaint did not identify any regulation requiring disclosure of the projections or adjustments.

Because the complaint did not adequately allege a primary violation of Section 14(a) or Rule 14a-9, the Section 20(a) claim against Carter, D’Alvise, Canan, and Olds also failed. The court did not address all of defendants’ other dismissal arguments, including the alleged failure to plead loss causation.

Disposition

The court granted defendants’ motion to dismiss in full. It declined to grant leave to amend because the plaintiff had already amended his pleadings twice and had not indicated that he could plead viable claims. The court found that Rule 11 sanctions were not warranted, directed the Clerk to terminate the pending motions and remaining dates, and closed both the Bisel case and the consolidated Castaldo case. The opinion does not expressly state that the dismissal was with or without prejudice.