Though down from the previous year on both an absolute and a relative basis, securities class action lawsuit filings against life sciences companies remained a significant component of all securities class action lawsuit filings during 2011, according to a March 20, 2012 memorandum entitled “Survey of Securities Fraud Class Actions Brought Against Life Sciences Companies” by David Kotler of the Dechert law firm (here).


According to the report, there were 17 securities class action lawsuits filed against life sciences companies during 2011, representing approximately 9% of all 2011 securities class action suits. The number of 2011 life sciences suits represents a decline both in absolute and relative terms from the prior year, when there were 29 securities suits involving life sciences companies, representing 16% of all securities class action lawsuits. However, the 2011 figures are consistent with albeit slightly below prior years (for example, during both 2008 and 2009, suits against life sciences companies represented 10% of all securities lawsuits).


It should be noted that these filings statistics do not reflect lawsuits filed against life sciences companies involving merger objection allegations. If the M&A suits were included, the statistics would reflect an even greater frequency of corporate and securities lawsuits involving life sciences companies.


The lawsuits filed against life science companies in 2010 had been weighted toward the larger companies. However, the lawsuits filed in 2011 were more focused on smaller companies. During 2011, 58% of all life sciences companies hit with securities suits had market capitalizations under $250 million, compared with only 31% in 2010. By contrast, during 2010, 29% of the securities lawsuits involving life sciences firm related to companies with market caps over $10 billion, whereas during 2011, there were no suits filed involving those larger life sciences companies.


Allegations relating to financial proprieties and financial misrepresentations remain an important part of suits involving life sciences companies, but to a lesser extent than in the previous year. During 2010, over half of all complaints against life sciences companies involved these financially-related allegations, but during 2011, only 35% of the suits involved these types of allegations. The report notes with respect to the 2011 suits that “half of the claims alleging financial improprieties were brought against China-based companies.”


By contrast, the report notes, “industry specific allegations were comparatively on the rise in 2011.” Eleven of the 17 lawsuits of the complaints filed against life sciences companies involved allegations of misrepresentations involving product safety or efficacy. Allegations of allegedly fraudulent life sciences product marketing were raised in seven of the suits. Allegations involving misrepresentations in connection with prospects for FDA approval were involved in four cases, and allegations relating to manufacturing were involved in three cases. (Some complaints involved more than one of these categories of allegations).


Though life sciences companies are a frequent target of securities suits, these cases are also often dismissed. During 2011, according to the report, “courts continued to gran with relative frequency life sciences companies’ motions to dismiss due to plaintiffs’ inability to sufficiently plead scienter.” On the other hand, “it is also worth noting that, even in cases that are settled, securities fraud class action lawsuits can result in very large payments.”


One development during 2011 potentially of significance with respect to securities litigation involving life sciences companies was that in March 2011, the U.S. Supreme Court issued its opinion in Matrixx Initiatives v. Siracusano (about which refer here). In its opinion, the Court rejected the argument of Matrixx Initiatives that adverse product reports must be "statistically significant" in order for a manufacturer to have an obligation to disclose the reports to investors.


As the law firm memo notes, of particular importance to life sciences companies is the question whether, as a result of the Matrixx Initiatives case, “a publicly traded life sciences company can be held liable for securities fraud for failing to disclose adverse reports” regarding its products. Life sciences companies are faced with the task of “where to draw the disclosure line in the absence of a bright line standard.”


Fortunately, the report notes, thus far, the Matrixx Initiatives decision “has not resulted in any noticeable increase in securities fraud lawsuits brought against life sciences companies,” and the case’s holding has “not yet shown any significant impact on existing case law beyond rejection of the bright line rule based on lack of statistical significance.”


The author concludes with a number of practical suggestions for life sciences companies to take to minimize the risk of, and impact from, securities fraud class actions.


Directors and Officers’ Liabilities in Failed Bank Lawsuits: In a recent post (here), I examined the February 27, 2012 decision in the FDIC lawsuit involving the failed Integrity Bank of Alpharetta, Georgia, in which Northern District of Georgia Judge Steve Jones determined that allegations of mere ordinary negligence against the bank’s former directors and officers were barred by the business judgment rule under Georgia law.


A March 2012 memorandum from the Jones Day law firm entitled “FDIC Failed Bank Director and Officer Claims – Recent Court Decisions Better Define the Landscape” (here) takes a look at the Integrity Bank decision as well as recent developments in the FDIC’s failed bank lawsuit in the Northern District of Illinois involving Heritage Community Bank (for background involving the Heritage Community Bank case, refer here).


Among other things, the memo’s authors conclude that the decision in these cases “have helped inform the strategy of former directors and officers facing potential FDIC claims or actual litigation.” Even more importantly, according to the authors, “the Integrity decision appropriately set the bar higher for FDIC claims based on ordinary negligence, at least in jurisdictions with law similar to Georgia.” Obviously the decision is particularly important in Georgia itself, which has had more bank failures than any other state during the current bank failure wave.


Wage & Hour Litigation: Big and Getting Bigger: According to the title of a March 19, 2012 Corporate Counsel article, wage and hour litigation is “Big – and Getting Bigger” (here). Among other things, the article notes that “there has been more than a 325 percent increase in wage and hour lawsuits filed over the last ten years.” In the reporting year ended March 31, 2011, there were over 7,000 wage and hour claims filed in federal courts, which is “higher than the total filings of all other types of employment cases combined.”


Among other reasons cited in the article for this upsurge in wage and hour litigation is that these cases, according to one commentator quoted in the article “are very lucrative for plaintiffs lawyers,” as well as easier and less expensive for plaintiffs’ lawyers than discrimination class actions. Another reason for the increase in cases is that “employers continue to struggle with the law,” which in many ways is maladapted to today’s work place (where, for example, workers often find they must check blackberries, even outside of normal work hours). Employers struggling with how to apply the law are “confounded by the scarcity of case law” – although, as the article notes, the U.S. Supreme Court is scheduled to hear argument in a wage and hour case on April 16, 2012, in the Christopher v. SmithKline Beacham Corp. case. (Background on the Christopher case can be found here.)


A Break in the Action: Over the next several days, I will likely not be posting as frequently due to extended travel oblligations. The D&O Diary will resume its normal publication schedule in April.