As readers know, since the initial outbreak of COVID-19 in the U.S. in March 2020, plaintiffs’ lawsuits have hit dozens of companies with pandemic-related securities suits; indeed, even though we are now well into the fifth year since the outbreak, plaintiffs’ lawyers continue to file COVID-related securities suits. But while these kinds of suits have proven to be popular with plaintiffs’ lawyers, how have they fared? Recent developments in two of these COVID-related securities suits underscore the fact that the results in these cases have been mixed.

Peloton

The securities class action lawsuit filed in November 2021 against exercise equipment company Peloton and certain of its directors and officers in its own way exemplified a separate category of COVID-related securities suits. This category of cases, and the Peloton suit itself, involve companies whose fortunes soared at the outbreak of the pandemic but whose results later flagged as pandemic conditions changed. The plaintiffs’ initial securities suit complaint against Peloton was based upon the company’s alleged misrepresentations about the company’s ability to sustain its pandemic-related sales boost.

As discussed here, in March 2023, Southern District of New York Judge Andrew L. Carter Jr. granted the defendants’ motion to dismiss the Peloton complaint without prejudice. Among other things, Judge Carter found that several of the allegedly misleading statements on which the plaintiffs sought to rely were forward-looking and accompanied by meaningful precautionary language, and therefore came with the safe harbor for forward-looking statements. Judge Carter found that other statements on which the plaintiffs sought to rely were “inactionable corporate puffery.” Finally, Judge Carter found with respect to certain other statements that the plaintiffs had not sufficiently alleged that the challenged statements were false.

While granting the dismissal motion, Judge Carter also allowed plaintiffs leave to seek to file an amended complaint, which the plaintiffs subsequently did. The defendants then renewed their motion to dismiss.

In order dated September 30, 2024, Judge Carter granted the defendants’ renewed motion to dismiss, this time with prejudice. Judge Carter again found that the forward-looking statements on which the plaintiffs sought to rely were accompanied by meaningful cautionary language, observing that the disclosures sufficiently warned investors of the uncertainty of future subscriber growth. Judge Carter found with respect to two additional statements on which the plaintiffs sought to rely in their amended complaint that no reasonable investor could have been misled by these statements because “they were, in fact, true.” Judge Carter found that the plaintiffs had failed to plead any actionable statements or omissions.

Talis Biomedical

If the lawsuit against Peloton represented one kind of COVID-related securities suit, then the securities lawsuit filed in January 2022 against Talis Biomedical Corporation represented another – that is, lawsuits against vaccine development or diagnostic testing companies whose fortunes soared after the companies announced they had products or services that would be beneficial in responding to the pandemic, but whose fortunes flagged when the companies failed to fulfill their pandemic related promise.

Talis develops diagnostic tests for infectious diseases. Talis completed an IPO in February 2021. At the time of the IPO, the company had a request for Emergency Use Authorization (EUA) for its COVID-related diagnostic test. In March 2021, just after its IPO, the company withdrew its EUA request and implemented an updated validation testing timeline. The company’s share price declined. In a series of subsequent statements, the company further lengthened its validation testing timeline; at each additional statement, the company’s share price declined further. As discussed here, plaintiffs’ lawyers filed a securities suit in January 2022. The defendants moved to dismiss the complaint.

As discussed here, in December 2022, Northern District of California Judge Susan Illston granted the defendants’ motion to dismiss the complaint, albeit without prejudice. She found that the allegedly misleading pre-IPO statements were based on confidential witness statements that were conclusory, vague, or based on hearsay or rumors. With respect to the allegedly misleading post-IPO statements, Judge Illston found that the plaintiffs had failed to sufficiently allege that the statements were false when made. Judge Illston granted the plaintiffs lead to file an amended complaint, which they subsequently did. The defendants renewed their dismissal motion.

In a brief April 2023 order (here), Judge Illston found that the plaintiffs’ revised allegations plausibly alleged that that the IPO documents contained false and misleading statements, as the amended complaint alleges with specificity why the challenged statements were false when made. Earlier this year, Judge Illston granted the plaintiffs’ motion for class certification.

On an October 1, 2024, joint filing (here), the parties to the Talis Biomedical securities lawsuit petitioned the court for approval of their agreement to settle the action for $32.5 million. In seeking judicial approval, the parties’ noted the company’s declining financial state, as well as the rapidly diminishing amount of D&O insurance remaining. According to a Law360 article about the settlement, of the $32.5 million settlement amount, $27.5 million is to come from the company and $5 million is to come from D&O insurance.

Discussion

The dismissal motion grant in the Peloton case is not unusual; dismissal motions have been granted in a significant number of the COVID-related securities suits – although it is worth noting that the dismissal motion had initially been granted in the Talis Biomedical case, but the subsequent amended complaint managed to survive the dismissal motion.

The settlement in the Talis case is substantial and noteworthy. It seems that while many COVID-related securities suits, like the one filed against Peloton, have not fared particularly well, the cases against one class of litigants does seem to have fared better. There have been a number of significant settlements of COVID-related cases filed against diagnostic testing and vaccine development companies. These cases typically alleged that the diagnostic testing or vaccine development company was positioned to profit from the pandemic, leading to a share price increase, followed by a share price decline with the promised prosperity failed to materialize. Several of these kinds of cases, including among others the one filed against Talis, resulted in significant settlements.

Among other settlements of cases of this type, in December 2023, the parties to the COVID-related securities suit filed against vaccine development company Novavax announced that the case had settled for $47 million.  (As discussed here, the Novavax lawsuit survived the defendants’ dismissal motion.) Similarly, securities lawsuit filed against vaccine development company settled for $12.015 million. Diagnostic testing company Chembio settled its COVID-related securities lawsuit for $8.1 million. Readers are encouraged to point out to me any other related settlements that I may have missed.

The bottom line on the COVID related litigation is that it has been a mixed bag. Many of the cases have been dismissed, with a smaller number surviving the dismissal motion stage and moving on to the settlement stage. All of that said, the plaintiffs’ lawyers appear to remain interested in these kinds of lawsuits as they continue to file them, even at this late date.