City of Sterling Heights Police & Fire Ret. Sys. v. Reckitt Benckiser Grp. PLC
| Decision Date | 28 February 2022 |
| Docket Number | 20-cv-10041 (PKC) |
| Citation | 587 F.Supp.3d 56 |
| Parties | CITY OF STERLING HEIGHTS POLICE & FIRE RETIREMENT SYSTEM, City of Birmingham Retirement and Relief System and City of Pontiac General Employees’ Retirement System, Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. RECKITT BENCKISER GROUP PLC, Rakesh Kapoor, Adrian Hennah, Shaun Thaxter and Adrian Bellamy, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Christopher Adam Seeger, David R. Buchanan, Seeger Weiss LLP, Ridgefield Park, NJ, Alan Ian Ellman, Christopher Thomas Gilroy, Sarah Delaney, David Avi Rosenfeld, Mario Alba, Jr., Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP, Melville, NY, Christopher Lewis Ayers, Anderson Kill P.C., New York, NY, for Plaintiff City of Sterling Heights Police & Fire Retirement System.
Christopher Adam Seeger, Seeger Weiss LLP, Ridgefield Park, NJ, Alan Ian Ellman, Christopher Thomas Gilroy, Sarah Delaney, David Avi Rosenfeld, Mario Alba, Jr., Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP, Melville, NY, for Plaintiff City of Birmingham Retirement and Relief System.
Jessica L. Lewis, Timothy Perla, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, Michael G. Bongiorno, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Defendants Reckitt Benckiser Group PLC, Rakesh Kapoor.
Israel Dahan, Paul A. Straus, King & Spalding LLP, New York, NY, for Defendant Shaun Thaxter.
This federal securities class action centers on the marketing of a pharmaceutical drug that has been a useful tool in combating opioid addiction. Suboxone
in Tablet form was first brought to market by a former subsidiary of defendant Reckitt Benckiser Group PLC ("Reckitt"). By 2009, its sales exceeded $700 million. With the drug's FDA-granted exclusivity period set to expire in 2009 and the prospect of generic competition on the horizon, Reckitt's former subsidiary, then known as Reckitt Benckiser Pharmaceuticals Inc. ("RBP") and now known as Indivior Inc. ("Indivior"), developed a new means for delivering the drug's active ingredients. The new delivery system is a dissolvable Suboxone Film that is placed under the tongue by the patient.
As alleged in the Third Amended Complaint ("the Complaint"), merely introducing Suboxone
Film as an alternative to Suboxone in Tablet form would not insulate Reckitt from generic competition. So Reckitt allegedly embarked on a campaign to portray Suboxone Tablets as unsafe because of the possibility of their inadvertent consumption by children and abuse by addicts, and touted Suboxone Film as vastly superior in these respects. The Complaint alleges that Reckitt was highly successful in its plan, initially generating about $3 billion in revenue between 2010 and 2014 from sales of Suboxone Film.
Reckitt, according to the Complaint, "engineered a plan to coerce patients and physicians to switch from Tablets to Film under false pretenses" and told investors that Suboxone
Film was safer than the Tablets when, in truth and in fact, it was more dangerous. (Compl't ¶¶ 11-12, 113.) When, on July 24, 2017, Reckitt announced a £318 million charge relating to Department of Justice ("DOJ") and Federal Trade Commission ("FTC") investigations, there was a stock price drop in the 3-5% range. (Compl't ¶ 275.) Follow-on announcements and developments allegedly caused even greater drops. (Compl't ¶¶ 278-79.)
Plaintiffs are public-employee pension plans who assert that they acquired either Reckitt's American Depository Shares ("ADSs") or its ordinary shares at artificially inflated prices and were injured when the market learned the truth about defendants’ tactics to boost the sales of Suboxone
Film. Plaintiffs assert that defendants violated section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. They also assert that the individual defendants are liable as control persons under section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). In addition, the City of Pontiac General Employees’ Retirement System ("Pontiac"), which purchased shares of Reckitt on the London Stock Exchange (the "LSE"), brings three claims under the laws of England, where Reckitt and many of the individual defendants are located.
Defendants have moved to dismiss the Complaint pursuant to Rule 12(b)(6), Fed. R. Civ. P., urging that the Complaint does not plausibly allege a claim for relief or allege fraud with the particularity required by Rule 9(b), Fed. R. Civ. P., and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4. They also urge that the Court should stay or dismiss Pontiac's claims arising under English law because they fall within arbitration and forum-selection provisions in Reckitt's articles of association, and, moreover, fail to allege Pontiac's reliance on any misstatement. Thaxter has separately moved to dismiss all claims asserted against him.
As will be explained, the Complaint adequately alleges that certain statements made by defendants Shaun Thaxter and Rakesh Kapoor omitted information that would be material to a reasonable investor. Those statements placed at issue the reasons for the commercial success of Suboxone
Film without disclosing the role of the allegedly misleading sales and marketing campaign. The Complaint also raises a strong inference of scienter as to Thaxter and Kapoor. In other respects, the Complaint strains to identify misstatements and omissions that would have been material to a reasonable investor. Many statements quoted in the Complaint are vague expressions of enthusiasm or puffery, or else are so general in nature that a reasonable investor would not consider them to be material, or even to relate to Suboxone Film. But, as will be discussed, the Court concludes that the Complaint has adequately alleged claims under section 10(b) and Rule 10b-5 against Thaxter, Kapoor and Reckitt, and under section 20(a) as to Kapoor.
Regarding Pontiac's claims under English law, the Court concludes that the arbitration and forum-selection provisions cited by defendants apply to disputes over enforcement of Reckitt's articles of association and not to the shareholder claims raised here. However, because Pontiac does not allege that it knew of any alleged misrepresentation at the time it purchased Reckitt shares, it fails to allege the reliance required to state a claim for relief on Counts III, IV and V.
The Complaint will therefore be dismissed as to defendants Hennah and Bellamy. Defendants’ motion to dismiss the Exchange Act claims will be granted in part and denied in part. The claims of Pontiac set forth in Counts III, IV and V will be dismissed.
BACKGROUND.
The Court summarizes the Complaint's factual allegations, and, for the purposes of the motion, accepts them as true, drawing all reasonable factual inferences in favor of the plaintiffs as non-movants. See In re Hain Celestial Grp., Inc. Sec. Litig., 20 F.4th 131, 133 (2d Cir. 2021).
City of Sterling Heights Police & Retirement System ("Sterling Heights") is a pension fund that provides benefits to the police officers and firefighters of Sterling Heights, Michigan. (Compl't ¶ 32.) It purchased ADSs of Reckitt in the United States through the over-the-counter OTC Pinks platform. (Compl't ¶ 34.) City of Birmingham Retirement and Relief System ("Birmingham") is a public pension fund organized for the benefit of current and retired public employees of Birmingham, Alabama. (Compl't ¶ 35.) Birmingham purchased ADSs of Reckitt through an outside financial adviser that bought Reckitt's ordinary shares on the LSE and held them on Reckitt's behalf in a deposit bank. (Compl't ¶¶ 35-37.) Sterling Height and Birmingham assert claims under the Exchange Act on behalf of themselves and a putative class of shareholders who purchased Reckitt's ADSs between July 28, 2014 and April 9, 2019 (the "Relevant Period"). (Compl't ¶¶ 1, 326-33.)
Pontiac is a defined-benefit municipal retirement plan that provides benefits to public employees in Pontiac, Michigan. (Compl't ¶ 38.) It purchased ordinary shares of Reckitt on the LSE. (Compl't ¶ 38 & Ex. C.) Pontiac brings claims only under the laws of England, and purports to bring claims on behalf of other purchasers of Reckitt's ordinary shares during the Relevant Period. (Compl't ¶¶ 334-57.)
Reckitt is a consumer-goods and health-products company headquartered in the United Kingdom, with substantial operations in the United States. (Compl't ¶ 39.) Reckitt formerly had a wholly owned subsidiary named Reckitt Benckiser Pharmaceuticals Inc. ("RBP"), which was "demerged" from Reckitt in 2014 and became a standalone public company called Indivior Inc. ("Indivior"). (Compl't ¶ 48.) Although Indivior, as the successor to RBP, is a non-party to this action, plaintiffs’ allegations are principally directed toward the actions and statements of the defendants as they related to RBP, which earned a substantial portion of its revenues from the sale of Suboxone
products. (Compl't ¶ 90.) Plaintiffs characterize RBP as a "one-drug business" centered on Suboxone. (Compl't ¶ 90.)
Reckitt's ordinary shares trade on the LSE and its ADSs trade on the United States over-the-counter ("OTC") market. (Compl't ¶¶ 56-57.) Reckitt sponsors the ADSs, with five ADSs representing one ordinary share. (Compl't ¶ 57.) The purchase of an ADS is equivalent to the purchase of the underlying security, which is held in a bank of American Depository Receipts maintained by J.P. Morgan Chase for the benefit of the ADS purchaser. (Compl't ¶¶ 60, 66.)
Four individuals are named as defendants. Defendant Rakesh Kapoor was CEO and a director of Reckitt from September 2011 until September 2019. (Compl't ¶ 40.) Adrian Hennah was Chief Financial Officer of Reckitt from February 2013 until October 2020 and was on the board of Indivior from 2014 to 2016. (Compl't ¶ 41.) Shaun Thaxter...
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