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City of Cape Coral Municipal Firefighters' Retirement Plan v. Emergent Biosolutions, Inc.

United States District Court, D. Maryland

June 8, 2018

CITY OF CAPE CORAL MUNICIPAL FIREFIGHTERS' RETIREMENT PLAN, ET AL., Plaintiffs,
v.
EMERGENT BIOSOLUTIONS, INC., HQ, ET AL., Defendants.

          MEMORANDUM OPINION

          ROGER W. TITUS UNITED STATES DISTRICT JUDGE

         This case involves alleged violations of federal securities laws by Defendant Emergent Biosolutions, Inc., HQ (“Emergent”) and a number of Emergent executives, including Defendants Fuad El-Hibri, Daniel J. Abdun-Nabi (“Abdun-Nabi”), Robert G. Kramer, and Adam R. Havey (“Individual Defendants”) (collectively, “Defendants”). Emergent is a specialty biopharmaceutical company and sole provider of the only U.S. Food and Drug Administration-licensed anthrax vaccine, BioThrax. Am. Compl. ¶¶ 34-35, ECF No. 23. The primary purchaser of BioThrax has been the United States Government via the Center for Disease Control and Prevention (“CDC”). Id. ¶ 35. In July 2010, the U.S. Biomedical Advanced Research and Development Authority awarded a six-year contract to Emergent to expand its BioThrax manufacturing capabilities at a new facility, Building 55. Id. ¶ 44.

         In 2011, Emergent obtained a five-year BioThrax procurement contract from the CDC for Emergent to supply up to 44.75 million doses of BioThrax for the Strategic National Stockpile (“SNS”). Id. ¶ 41. This contract was set to expire on September 30, 2016. Id. In August 2015, Defendants began discussions with the CDC about the renewal of the BioThrax contract. Id. ¶ 46.

         Plaintiffs allege that beginning on January 11, 2016, Defendants made material misrepresentations and omissions that made investors believe that the Government intended to purchase Emergent's newly increased production capacity. Id. ¶¶ 54-57. On May 5, 2016, in a press release filed with the U.S. Securities and Exchange Commission, Emergent confirmed that the Government would award it a renewed BioThrax contract and described the new contract as requiring “significantly increased deliveries in order to satisfy the U.S. government's stated requirements for a licensed anthrax vaccine in the Strategic National Stockpile” as well as making other related statements. Id. ¶¶ 55, 91. On a company conference call with investors on that same day, Abdun-Nabi, President and C.E.O. of Emergent, called the anticipated follow-on contract “one big, beautiful package.” Id. ¶ 93.

         From May 5, 2016 to June 1, 2016, the price of Emergent's Common Stock, which is traded on the New York Stock Exchange (“NYSE”), increased nearly fifteen percent, from $37.85 per share on May 5, 2016 to $43.49 per share on June 1, 2016. Id. ¶¶ 6, 15. On June 22, 2016, Emergent disclosed that the Government sought “the continued procurement of 29.4 million doses of BioThrax” over a five-year period, which was less than the expiring contract that called for 44.75 million. Id. ¶ 118. The same day, the price of Emergent Common Stock “declined by approximately $8 per share, falling from its close of $39.32 per share on June 21, 2016 to a close of $31.33 per share on June 22, 2016 . . . on unusually high trading volume of more than 9.5 million shares traded, or 21 times the average daily trading volume over the preceding ten trading days.” Id. ¶ 119.

         On July 19, 2016, Plaintiff William Sponn (“Sponn”), individually and on behalf of all others similarly situated, initiated this lawsuit against Defendants, alleging violations of federal securities laws. Compl., ECF No. 1. On October 26, 2016, the Court granted Plaintiffs' Motion for Appointment as Lead Plaintiff and Approval of Selection of Lead Counsel (ECF No. 16), appointing Plaintiffs City of Cape Coral Municipal Firefighters' Retirement Plan (“Cape Coral Fire”) and City of Sunrise Police Officers' Retirement Plan (“Sunrise Police”) as Lead Plaintiffs and Robbins Geller Rudman & Dowd LLP (“Robbins Geller”) as Lead Counsel pursuant to the Private Securities Litigation Reform Act (PSLRA) of 1995, 15 U.S.C. § 78u-4 (2012). ECF No. 22. On December 27, 2016, Lead Plaintiffs filed an Amended Complaint, asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder against all Defendants and claims under Section 20(a) of the Exchange Act against the Individual Defendants. ECF No. 23. On February 27, 2017, Defendants filed a Motion to Dismiss Plaintiffs' Amended Complaint (“Motion to Dismiss”). ECF No. 36. After a hearing, the Court denied the Motion to Dismiss by order on July 7, 2017. ECF No. 46.

         Having prevailed on the Motion to Dismiss, Lead Plaintiffs returned with a Motion for Class Certification and Appointment of Class Representatives and Class Counsel, filed on November 29, 2017. ECF No. 60. On December 20, 2017, Lead Plaintiffs filed an Amended Motion for Class Certification and Appointment of Class Representatives and Class Counsel (“Amended Motion for Class Certification”), seeking to appoint Geoffrey L. Flagstad (“Flagstad”) instead of Sponn, in addition to Lead Plaintiffs, as Class Representative.[1]ECF No. 68. Defendants oppose class certification and ask the Court to strike the opinions in the Report on Market Efficiency of Lead Plaintiffs' expert. Defs.' Mot. to Exclude Expert Op., ECF No. 81. Having conducted a hearing on the pending motions, the Court will, for the reasons discussed below, certify the proposed Class based on a shortened Class Period.

         1. The Proposed Class

         In their Amended Motion, Lead Plaintiffs seek certification of a plaintiff class, pursuant to Federal Rule of Civil Procedure 23, consisting of:

All persons or entities who, between January 11, 2016 and June 21, 2016 (the “Class Period”), purchased or otherwise acquired Emergent BioSolutions Inc. publicly traded common stock listed on the New York Stock Exchange (“NYSE”), Inc. and who were damaged thereby.

         ECF No. 69 at 2 (footnotes omitted). They seek to appoint themselves and Flagstad as Class Representatives. ECF No. 69 at 8. Cape Coral Fire and Sunrise Police are benefit pension plans that acquired 7, 900 and 7, 800 shares, respectively, of Emergent Common Stock during the proposed Class Period, but before May 5, 2016. Id. at 9. Flagstad is an individual who acquired 165 shares of Emergent Common Stock during the proposed Class Period, after May 5, 2016. Id.

         Finally, Lead Plaintiffs seek to appoint Robbins Geller, a law firm specializing in complex civil litigation cases and the current Lead Counsel, as Class Counsel. Id. at 1.

         2. Legal Standard Under Rule 23

         To maintain a class action, a party moving for class certification bears the burden of demonstrating that the proposed class meets the two-step inquiry outlined in Federal Rule of Civil Procedure 23. See Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 423 (4th Cir. 2003). First, the movant must show that the proposed class meets the four prerequisites set forth in Rule 23(a):

(1) Numerosity: “the class is so numerous that joinder of all members is impracticable”;
(2) Commonality: “there are questions of law or fact common to the class”;
(3) Typicality: “the claims or defenses of the representative parties are typical of the claims or defenses of the class”; and
(4) Adequacy: “the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a)(1)-(4); Gunnells, 348 F.3d at 423. Second, the court must determine if the proposed class meets one of the three requirements set forth in Rule 23(b). Gunnells, 348 F.3d at 423. Here, Lead Plaintiffs seek to proceed under Rule 23(b)(3), which requires that “the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3); Gunnells, 348 F.3d at 423; see ECF No. 69 at 18. District courts have wide discretion in deciding whether to certify a class and should liberally construe Rule 23. Gunnells, 348 F.3d at 424.

         3. The Proposed Class Meets the Rule 23 Standard

         A. The Class Period

         As a preliminary matter, the parties dispute the appropriate timeframe of the Class Period, assuming the Class is certified. Lead Plaintiffs propose that the Class Period should be from January 11, 2016, the date Lead Plaintiffs claim the alleged material misstatements about the follow-on contract began, through June 21, 2016, the day before the alleged “corrective” disclosure. ECF No. 69 at 2. Defendants argue that the Class Period should only begin on May 5, 2016, the date they assert the first actionable statement under the PSLRA was made, to June 21, 2016. Defs.' Opp'n to Lead Pls.' Am. Mot. for Class Certification 16, ECF No. 78.

         Although the Court has not made any final determinations regarding the materiality and actionability of any of the specifically alleged misstatements, it does recognize, as it did at the July 6, 2017 hearing on Defendants' Motion to Dismiss, that the May 5, 2016 statement by Abdun-Nabi calling the anticipated follow-on contract “one big, beautiful package, ” at this stage in the litigation “is where this case goes from puffery to fraud.” Mots. Hr'g Tr. 97:20-21, ECF No. 79-3. Because the Court is required at the class certification stage to limit the proposed Class based on the alleged misrepresentations found to be actionable, the Court will at this time certify the proposed Class based on the shortened Class Period of May 5, 2016 to June 21, 2016 (“shortened Class Period”). See Malone v. Microdyne Corp., 26 F.3d 471, 480 (4th Cir. 1994) (remanding case to district court to narrow and recertify the plaintiff class consistent with actionable statements).

         Certification of the Class for the shortened Class Period necessarily results in the Court finding that Lead Plaintiffs cannot be appointed Class Representatives at this time because they do not meet the adequacy requirement under Rule 23(a)(4). Accordingly, only Flagstad is eligible to be appointed Class Representative. It does not result, however, in any impact on Lead Plaintiffs' ability to continue to serve and fulfill their duties as Lead Plaintiffs. Lead Plaintiffs may remain in the case and retain their obligations under the PSLRA and Rule 23 even when they are not appointed class representatives. See, e.g., Lumen v. Anderson, No. 08-0514-CV-W-HFS, 2011 WL 3794144, at *2 (W.D. Mo. Aug. 24, 2011); In re Oxford Health Plans Sec. Litig., 191 F.R.D. 369, 378-79 (S.D.N.Y 2000). Moreover, certification based on the shortened Class Period does not mean that the parties cannot at a later date move this Court to expand the Class Period to include statements made between January 11, 2016 and May 5, 2016, should they later be found to be actionable based on information obtained in discovery. This Court “remains free to modify [a certification order] in the light of subsequent developments in the litigation.” Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 160 (1982); see Fed. R. Civ. P. 23(c)(1)(C) (“An order that grants or denies class certification may be altered or amended before final judgment.”).

         B. The Proposed Class Satisfies Rule 23(a)

         The proposed Class, based on the shortened Class Period, meets all four Rule 23(a) prerequisites. The first three prerequisites are easily met in this case and are undisputed by Defendants. For the sake of brevity, the Court will dispense with an in depth analysis and will find ...


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