Kasilingam v. Tilray, Inc.

Background

Ganesh Kasilingam, individually and on behalf of others similarly situated, brought a proposed class action against Tilray, Inc. and Brendan Kennedy. The complaint asserted securities-fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, along with claims under Sections 20(a) and 20A. The allegations concerned statements about Tilray’s financial information and its global co-marketing agreement with Authentic Brands Group.

The court had previously dismissed an earlier complaint without prejudice and allowed amendment. After the plaintiffs filed a second amended complaint, the court granted in part and denied in part the defendants’ renewed motion to dismiss on September 28, 2022. The defendants then sought reconsideration under Federal Rule of Civil Procedure 54(b) and the Southern District of New York’s local rule.

Reconsideration standard

Reconsideration is an extraordinary remedy. The moving party must identify controlling decisions or information that the court overlooked and that could reasonably change the result. The court explained that reconsideration may be appropriate to correct a clear legal error, but it is not a vehicle for presenting new arguments or evidence.

Scienter analysis

The central issue on reconsideration was scienter, meaning the required fraudulent state of mind for the Section 10(b) and Rule 10b-5 claim. The court concluded that its earlier analysis had overlooked controlling Second Circuit precedent concerning stock sales made under Rule 10b5-1 trading plans.

In the earlier decision, the court had found that Kennedy’s stock trades supported a strong inference that he acted fraudulently. On reconsideration, the court applied the Second Circuit’s decision in Arkansas Public Employees’ Retirement System v. Bristol-Myers Squibb Co. The court determined that the complaint did not allege that Kennedy entered the trading plans in bad faith. The plans covered at least 12 of the 14 trades at issue, making the defendants’ innocent explanation for those trades stronger than the plaintiffs’ competing inference. The court also found that the remaining sales, considered in light of their amount and percentage of available shares, did not independently create a strong inference of fraudulent intent.

The court separately considered whether the complaint adequately alleged that Kennedy acted knowingly or recklessly. It concluded that the complaint did not meet the demanding standard for that theory. The confidential-witness allegations did not sufficiently show that Kennedy knew, or should have known, about alleged inventory discrepancies or that the ABG agreement was worse for Tilray than publicly represented. The court also found insufficient connections between the other allegations—concerning accounting practices, extract revenue, trading volume, and the use of stock in acquisitions—and Kennedy’s alleged intent to deceive.

Because the plaintiffs failed to adequately allege scienter as to Kennedy, the court concluded that their scienter allegations against Tilray also failed. The court did not address the defendants’ other arguments because its scienter analysis resolved the motion.

Disposition

The court granted the defendants’ motion for reconsideration. On reconsideration, it granted the defendants’ motion to dismiss and dismissed the Section 10(b), Rule 10b-5, Section 20(a), and Section 20A claims without prejudice. The court gave the plaintiffs one final opportunity to amend within 30 days of the order.

The court denied as moot the defendants’ request for an interlocutory appeal, the plaintiffs’ motion to lift the discovery stay, and the parties’ requests for oral argument. The opinion does not state what happened after the 30-day amendment period.