Kempen International Funds v. Health

Background

Syneos Health is described in the opinion as a clinical-research company that helps pharmaceutical companies conduct clinical trials and commercialize products. Its business depends on winning new business, and it reports financial measures concerning its business pipeline and backlog.

The plaintiffs alleged that Syneos and its executives misreported those measures and made misleading statements about the company’s business. They asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5(b). Syneos moved to dismiss the amended complaint.

Legal standard

The court explained that securities-fraud complaints must satisfy heightened pleading requirements under the Private Securities Litigation Reform Act and Federal Rule of Civil Procedure 9(b). For each allegedly misleading statement, a complaint must identify the statement, its speaker, where and when it was made, and why it was false or misleading. It must also plead particular facts supporting a strong inference that the defendants acted with the required state of mind.

Court’s analysis

Judge Subramanian found that the complaint was not pleaded with the required particularity. The court described it as “puzzle pleading.” The complaint divided the alleged misstatements into twelve sections. Most sections quoted lengthy statements, followed by paragraphs that sometimes identified specific language but also made broad allegations. Each section then included a lengthy, largely repeated list of adverse facts said to make the statements false or misleading.

The court concluded that this structure left the court to search through the quotations to identify specific false statements and then determine for itself why each statement was false and how the other facts supported the required state of mind. The court also noted that the class period covered several years, multiple defendants, mergers, and changing financial information. Broad allegations—such as that Syneos faced serious competitive disadvantages or that its reported backlog was inflated by at least $500 million—did not specifically identify when the problems arose or when the defendants knew about them.

Disposition

The court granted Defendants’ motion to dismiss. The court gave Plaintiffs an opportunity to amend. Any second amended complaint had to identify specific statements, the contrary facts existing when each statement was made, and facts supporting an inference that the defendants had the required state of mind. The court also directed Plaintiffs to organize the amended complaint by categories of allegedly false or misleading statements. The deadline for the second amended complaint was May 20, 2024.