In an opinion written in unusually direct language, a federal district court has denied the motion to dismiss in a coronavirus-related securities class action lawsuit filed against a vaccine development company. However, the motion to dismiss was granted with leave to amend as to the vaccine company’s major outside shareholder. The significant context of the pandemic itself and the swirl of media coverage surrounding it proved to be a significant factor in the court’s denial of the motion to dismiss as to the company defendants. The court’s December 22, 2021 opinion in the Vaxart securities litigation can be found here.



Vaxart is a vaccine development company. Prior to the coronavirus outbreak, the company had not successfully brought a vaccine candidate to market. In the months prior to the pandemic, the company’s fortunes had slumped and its share price declined. However, the coronavirus outbreak presented the company with a potential opportunity. In a series of public statements , the company touted its capability of developing a vaccine for COVID-19. After the U.S. government announced Operation Warp Speed to develop a coronavirus vaccine, the company issued a series of press releases to suggest that it was a candidate to participate in the government effort.


During the relevant period, the company issued two press releases that later became the subject of the securities class action lawsuit. First on June 25, 2020, the company issued a press release announcing that it had entered a memorandum of understanding with a company called Attwill Medical Solutions, which, among other things, the company said would “enable the production of a billion or more Covid-19 doses per year.” The subsequent complaint alleges that Attwill did not have the FDA certifications to manufacture any dose, and lacked the practical ability to manufacture one billion doses.


A June 26, 2020 press release stated that “Vaxart’s COVID-19 Vaccine Selected for the U.S. Government’s Operation Warp Speed,” but the “small print” clarified that the company’s vaccine candidate had “been selected to participate in a non-human primate challenge study, organized and funded by Operation Warp Speed.” As the subsequent complaint alleged, and as the Department of Health and Human Services later confirmed, the federal government had not, in fact, chosen Vaxxart as one of its leading vaccine developers, nor had the company received federal funding. The complaint further alleges that the motivation for these press statements was to permit the company’s major investor, Armistice, to trade profitably in the Vaxart securities and warrants that it held.


On July 25, the New York Times published an article entitled “Corporate Insiders Pocket $1 Billion in Rush for Coronavirus Vaccine” (here), reporting, among other things, on Vaxart’s executives’ and major shareholder’s significant profits in trading in the company’s shares following the company’s announcement of its participation in Operation Warp Speed. The Times article reported that Vaxart “is not among the companies selected to receive significant financial support from Warp Speed.” The complaint alleges that the company’s share price declined on this news.


On August 24, 2020, a plaintiff shareholder filed a securities class action lawsuit against Vaxart and certain of its directors and officers and against Armistice. The defendants filed motions to dismiss.


The December 22, 2021 Opinion

In an unusually blunt opinion, Northern District of California Judge Vince Chhabria denied the motions to dismiss of Vaxart and of its officers and directors, but granted the motion to dismiss of Armistice, with leave to amend.


Judge Chhabria opened by saying that this is “unusual securities fraud case,” in that it “easily satisfies” the scienter requirement that most private plaintiffs often struggle with. The complaint “cogently alleges” that Vaxart “issued a series of statements with the intent to mislead the investing public into believing that the company was … on the precipice of mass-producing a successful coronavirus vaccine.”


The question of whether the plaintiffs had adequately alleged that the statements on which they relied were misleading is “somewhat challenging” because the statements included “several accurate passages alongside highly misleading ones” in a way that might allow an investor to “sift through” and “discern” that Vaxxart’s statements “were not to be trusted.” But the “totality of the statements and the unique context in which they were made – with the investing public on the edge of its seat” to find out which vaccine companies would be selected to participate in Operation Warp Speed – suggest that a “reasonable investor might would have been misled in material way.” Only a “sophisticated investor would have been able to avoid being fooled by the company’s series of head-fakes.” That, the court said, “is not enough for Vaxxart to avoid liability.”


Judge Chhabria said that “considering the context, circumstances, and the manner in which the company communicated its progress to market, the complaint does enough to identify specific statements that would have misled a reasonable investor.”


While Judge Chhabria denied the motion to dismiss as to the Vaxart defendants, he granted the motion as to Armistice, commenting that while “it is certainly plausible that Armistice was involved in the alleged fraud, the allegations in the complaint are insufficient to state a claim against” Armistice. The dismissal was without prejudice and the plaintiffs were given leave to seek to replead against Armistice.



By my count, since the initial coronavirus outbreak in the U.S. in March 2020, there have been 42 coronavirus-related securities class action lawsuits filed. Only a small number of these cases have yet made it to the motion to dismiss stage. By and large, the cases that have reached the motion to dismiss stage have not fared all that well. In particular, the several cases that were filed in the very early days of the outbreak against cruise ship lines largely have been dismissed (as discussed, for example, here). However, in at least one other coronavirus-related securities suit, also involving a vaccine development company (Inovio), the court denied the motion to dismiss. At a minimum, this case and the Inovio case do suggest that in at least some circumstances the coronavirus-related lawsuits will be able to survive the initial pleading hurdles.


Judge Chhabria’s opinion is interesting not only because of the usually direct language he used in denying the motion to dismiss, but also because of the extent to which he was willing to take into account the extraordinary context of the coronavirus outbreak in assessing whether the statements on which the plaintiff sought to rely were misleading. He gave particular weight to the keen interest investors had in finding out which vaccine manufacturers might be chosen to participate in Operation Warp Speed; in considering Vaxart’s statements, he was able to consider the possibility that the company was trying to capitalize on this investor interest in order to suggest that the company would profit in ways in which it was unlikely to do (and in fact did not). This aspect of the decision shows that these various coronavirus-related lawsuits are somewhat distinct, and that because of this courts may be willing to consider the allegations in a different light.


In any event, as I noted in a recent post, even as the coronavirus outbreak approaches the second-year mark, the coronavirus-related lawsuits continue to be filed. This decision shows that in at least some instances, these lawsuits may be sustained, and that the context of the coronavirus will be important to courts’ consideration of these cases.