Tuesday, May 19, 2009

Judge: CafePharma Postings May Be Evidence of Schering-Plough's Scienter ("Guilty Knowledge")

In the Schering-Plough ENHANCE Securities Litigation (Case No. 08-285, U.S. Dist. Ct. NJ Dist.), a federal securities fraud putative class action, Judge Cavanaugh just ruled that the various statements made -- by six confidential witnesses (former employees), as well as the public, but anonymous, CafePharma postings (which very-accurately pre-saged, by months, the disappointing study results in the pivotal ENHANCE trial -- on Vytorin/Zetia) are properly to be included in the moving papers which frame the suit -- thus ". . .The CafePharma postings and confidential witness statements are relevant to the ultimate issue of scienter [or "guilty knowledge"] in that they purport to show the timing within which Defendants became aware of the ENHANCE study’s results. . . ."

More from today's Opinion (PDF file), entered by Judge Cavanaugh:

. . . .Defendants move under Rule 12(f) to strike a series of statements in the Complaint as "immaterial, impertinent and scandalous." Specifically, Defendants object to the Complaint’s reference to: (1) anonymous postings on the CafePharma Web site; and (2) statements from six anonymous former Schering-Plough employees. Because the Court finds that these statements are neither immaterial, impertinent, nor scandalous, however, Defendant’s motion to strike is denied. . . .

Defendants argue that the Complaint’s references to anonymous postings on the CafePharma Web site and to statements by confidential witnesses should be stricken from the record as impertinent and scandalous. The Court disagrees. The CafePharma postings and confidential witness statements are relevant to the ultimate issue of scienter in that they purport to show the timing within which Defendants became aware of the ENHANCE study’s results.

Arguments over the statements’ admissibility are unpersuasive because such considerations are improper at this stage of the litigation. See Biovail Corp. Int’l v. Hoechst Aktiengesellschaft, 49 F. Supp. 2d 750, 771–72 (D.N.J. 1999). Nor is the Court persuaded by Defendants’ arguments under Tellabs, Chubb, and Avaya that Plaintiffs’ anonymous source allegations should be stricken from the record. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007); Cal. Pub. Emp. Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004); Inst. Inv. Group v. Avaya, Inc., 2009 WL 1151943 (3d Cir. Apr. 30, 2009). These cases deal primarily with the proper weight to be accorded to evidence of scienter at the motion to dismiss stage, and say nothing about taking the "drastic step" of striking materials from the record.

Finally, the Court rejects Defendants’ argument that the contested statements are “scandalous” because all of the statements appear relevant to scienter and the Court sees no evidence suggesting that they "improperly cast[] a derogatory light" on Defendants. See 5C Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. § 1382 (3d ed. 2008). Accordingly, because the Court finds that the contested citations to the CafePharma Web site and confidential witnesses are relevant to the issue of scienter, and because it appears that Defendants will not be unfairly prejudiced by their remaining in the record, the Exchange Act Defendants’ motion to strike is denied. . . .

Buckle-up, buttercup. This is a subtle suggestion, from the very-able jurist, that Schering-Plough's lawyers ought to be thinking settlement, rather than scorched-Earth, at or after, trial.


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