In Re Allergan PLC Securities Litigation

Background

DeKalb County Pension Fund sued Allergan PLC and seven individual defendants under Section 10(b) of the Securities Exchange Act, Securities and Exchange Commission Rule 10b-5, and Section 20(a) of the Exchange Act. DeKalb alleged that Allergan failed to disclose information suggesting that its textured silicone-gel breast implants were more closely associated with breast implant-associated anaplastic large-cell lymphoma, or BIA-ALCL, than textured implants made by other manufacturers. DeKalb claimed that the alleged nondisclosure caused investors losses when Allergan’s stock price fell after a French regulator recalled Allergan’s textured implants in December 2018.

After an earlier ruling on the motion to dismiss, only a limited theory remained: that four identified statements gave investors the false impression that Allergan’s implants were no more closely linked to BIA-ALCL than competitors’ implants. The four statements were an Allergan response to an ABC News article, a May 2018 press release, and statements in Allergan’s 2016 and 2017 annual reports. The parties later conducted discovery, and DeKalb became the lead plaintiff after the court denied the former lead plaintiff’s class-certification motion and granted DeKalb’s class-certification motion.

Motions and Ruling

The parties filed cross-motions for summary judgment. Allergan sought summary judgment dismissing the complaint, while DeKalb sought partial summary judgment on liability. The parties also filed five motions under the rule governing expert testimony, commonly called Daubert motions, seeking to exclude expert opinions and proposed testimony.

The court granted defendants’ motion for summary judgment, denied DeKalb’s motion for partial summary judgment, dismissed the complaint, and denied the Daubert motions as moot. The court entered these rulings without needing to rely on expert testimony.

Section 10(b) and Rule 10b-5 Claim

A private securities-fraud claim under Section 10(b) and Rule 10b-5 requires proof of, among other things, a material false statement or omission, and that the alleged fraud caused the investor’s loss. The court held that DeKalb had not produced enough evidence to create a genuine dispute about falsity, materiality, or loss causation. Because these failures independently supported summary judgment, the court did not address defendants’ arguments about fraudulent intent, or scienter.

Falsity and Duty to Disclose

The court held that none of the four statements was literally false or misleading. Allergan’s statement that BIA-ALCL had been reported in patients with textured implants from all manufacturers was true and did not compare the relative safety of different manufacturers’ products. The May 2018 press release’s statements about Allergan’s safety record, clinical experience, published studies, and reports involving multiple manufacturers likewise were not shown to be false.

The court also rejected DeKalb’s argument that Allergan had to disclose comparative BIA-ALCL incidence information after making those statements. The court reasoned that the studies and regulatory information DeKalb relied on were publicly available and did not establish reliable comparative incidence rates. The case involved whether Allergan’s textured implants were more closely associated with BIA-ALCL than competitors’ textured implants, not the general distinction between textured and smooth implants.

The court rejected DeKalb’s interpretation of the annual-report language about negative European regulatory reports concerning an unaffiliated manufacturer. It found that this language referred to the separate Poly Implant Prothèse, or PIP, scandal involving industrial-grade silicone, not to BIA-ALCL or comparative risks among textured-implant manufacturers.

The court further held that the scientific studies did not establish the alleged comparative association. Some studies reported raw case counts but lacked information needed to calculate relative incidence rates, such as market share, time on the market, or manufacturer identification. The studies that attempted to calculate rates identified significant data limitations. The court also noted that regulators, including the French regulator involved in the recall and regulators in other countries, declined during the relevant period to draw definitive conclusions that a particular manufacturer’s textured implants presented a greater BIA-ALCL risk.

The court considered later studies that concluded Silimed polyurethane implants, rather than Allergan’s implants, were associated with the highest risk. It stated that these studies supported its conclusion that DeKalb had not shown Allergan’s alleged disclosures to be objectively false.

Materiality

The court separately held that DeKalb had not shown materiality. Materiality asks whether a reasonable investor would consider the information important and whether it significantly changed the overall information available to the market. During the class period, textured breast-implant sales represented approximately 0.8 percent of Allergan’s global net revenue, and textured-implant sales in countries using the European conformity mark represented 0.4 percent of revenue. Textured implants represented 3 percent of Allergan’s aesthetics business, and Allergan’s breast-implant business was not among its ten largest products.

The court concluded that these figures created a presumption that the alleged misrepresentations were immaterial and that DeKalb had not overcome that presumption. It also held that the seriousness of BIA-ALCL and the decline in Allergan’s stock price after the recall did not establish materiality. The stock-price decline showed a connection to the recall, but not that investors had been misled about comparative BIA-ALCL risks.

Loss Causation

The court held that DeKalb had not shown loss causation—the required connection between the alleged fraud and the investment loss. The December 2018 recall followed GMED’s decision not to renew the European conformity marks for Allergan’s textured implants. According to the court, GMED’s stated concerns involved the risks of textured implants compared with smooth implants and technical-file issues, not a conclusion that Allergan’s textured implants were riskier than competitors’ textured implants.

The court also noted that the French regulator’s recall announcement focused on the expired conformity marks and recommended smooth implants while awaiting further review of textured implants generally. In April 2019, the regulator recalled all heavily textured implants regardless of manufacturer. The court concluded that DeKalb had not shown that the December recall revealed new information about comparative BIA-ALCL incidence rates or that those rates caused the stock-price decline.

Limits on DeKalb’s Theories

The court declined to consider theories that DeKalb had not pleaded in the operative complaint or that had already been rejected at the motion-to-dismiss stage. These included the theory that Allergan should have disclosed a strong or definitive link, rather than a possible link, between its implants and BIA-ALCL, and a new theory concerning the extent of regulatory scrutiny and the possibility of a European ban. The court stated that summary judgment could not be used as a second chance to develop inadequate or new pleadings.

Section 20(a) Claim and Final Disposition

Section 20(a) provides potential liability for people who control an entity found primarily liable under the Exchange Act. Because the court found no underlying Section 10(b) violation, it granted defendants’ motion for summary judgment on the Section 20(a) claims as well.

The final dispositions were: defendants’ motion for summary judgment was granted; DeKalb’s motion for partial summary judgment was denied; the complaint was dismissed; and the five expert-evidence motions were denied as moot. The clerk was directed to close the file.