In re Cardinal Health Inc. Securities Litigations, No. C2-04-575.
| Decision Date | 12 April 2006 |
| Docket Number | No. C2-04-575. |
| Parties | In re CARDINAL HEALTH INC. SECURITIES LITIGATIONS, Plaintiff, This Document Relates to: All Securities Actions. |
| Court | U.S. District Court — Southern District of Ohio |
John R. Climaco, Scott D. Simpkins, Climaco Lefkowitz Peca Wilcox & Garofoli LPA, Cleveland, OH, Daniel Richard Karon, Goldman Scarlato & Karon, P.C., Cleveland, OH, Jack Landskroner, Landskroner — Grieco — Madden, Ltd., Cleveland, OH, James M. Wilson, Martin D. Chitwood, James M. Wilson, Chitwood Harley Harnes LLP, Atlanta, GA, Joseph F. Murray, Brian K. Murphy, Geoffrey J. Moul, Murray Murphy Moul & Basil, Columbus, OH, Patrick G. Warner, David P. Meyer & Associates Co. LPA, Columbus, OH, Daniel N. Abraham, Colley Shroyer & Abraham Co., L.P.A., Columbus, OH, Marc A. Topaz, Schiffrin & Barroway LLP, Radnor, PA, Trig R. Smith, Luke 0. Brooks, Darren J. Robbins, Henry Rosen, Jeffrey W. Lawrence, Lesley E. Weaver, Ramzi Abadou, Shirley H. Huang, Sylvia Wahba-Keller, Tor Gronborg, William S. Lerach, Lerach Coughlin Stoia Geller Rudman & Robb, San Diego, CA, Melvyn I. Weiss, David Bershad, Peter E. Seidman, Steven G. Schulman, Milberg Weiss Bershad Hynes & Lerach, Robert N. Cappucci, Stephen D. Oestreich, Vincent R. Cappucci, William W. Wickersham, Entwistle & Cappucci LLP, New York, NY, Richard Stuart Wayne, Joseph J. Braun, Strauss & Troy, Cincinnati, OH, Scott E. Smith, Smith Phillips & Associates Co., LPA, Worthington, OH, Solomon B. Cera, Gold Bennett, Cera & Sidener, LLP, San Francisco, CA, for Plaintiffs.
Geoffrey J. Ritts, John M. Newman, Jr., Jones Day Reavis & Pogue, Cleveland, OH, Paul P. Eyre, Baker & Hostetler, Cleveland, OH, Brian G. Selden, J. Kevin Cogan, J. Todd Kennard, Shawn J. Organ, Jones Day, Mark Alan Johnson, Baker & Hostetler, Columbus, OH, Roger Philip Sugarman, Kegler Brown Hill & Ritter, John Ryan Gall, Pamela H. Thurston, Squire Sanders & Dempsey, Columbus, OH, Robert H. Nichols, Daniel M. Anderson, John Patrick Gilligan, John Cooper McDonald, Schottenstein Zox & Dunn, Columbus, OH, Arthur S. Greenspan, Richards, Spears, Kibbe & Orbe, New York, NY, Charles D. Riely, Christopher T. Schulten, James J. Benjamin, Jr., Stephen M. Baldini, Akin, Gump, Strauss, Hauer, Feld, LLP, New York, NY, Michele L. Odorizzi, Mayer, Brown, Rowe & Maw, LLP, Chicago, IL, for Defendants.
Plaintiffs, investors in Cardinal Health, Inc. ("Cardinal" or "the Company") bring securities fraud actions against Cardinal, Cardinal executives, Robert D. Walter, George L. Fotiades, Richard J. Miller. James F. Millar, Gary S. Jensen, and Mark Parrish (collectively, the "Individual Defendants"1), and Cardinal's independent auditor, accounting firm Ernst & Young ("E & Y"). Plaintiffs allege that from 1998 through 2002, while Cardinal's pharmaceutical distribution unit underwent a reorganization, the corporation engaged in an elaborate accounting scheme designed to artificially inflate its earnings and conceal debt. Further, Plaintiffs allege that E & Y, hired as the Company's independent auditor in 2002, aided Cardinal in perpetuating its fraudulent accounting.
Cardinal and the Individual Defendants filed a joint motion to dismiss Plaintiffs' Complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), alleging that Plaintiffs failed to state a claim upon which relief can be granted. Defendants Miller, Millar, and Jensen, and E & Y also filed separate motions dismiss Plaintiffs' Complaint under Rules 12(b)(6) and 9(b) and the PSLRA. Plaintiffs filed a Motion to Strike Defendants' Appendixes ## 58-60, 64-65, and 70, as well as any and all arguments relying on these Appendixes in Defendants' various motions to dismiss.
This Court holds that: (1) Plaintiffs allegations of Defendants' accounting fraud, insider trading, motive, and opportunity were sufficient to state a § 10(b) claim against the Corporation and all of the various Individual Defendants except Defendant Jensen, and Defendants failed to show they were entitled to the protection of the statutory safe harbor for certain allegedly fraudulent forward-looking statements upon which Plaintiffs relied; (2) Plaintiffs stated 20(a) claims against the Corporation and all of the Individual Defendants except Defendant Jensen; (3) Plaintiffs' failed to state a § 10(b) claim against Defendant E & Y because their allegations that E & Y had intimate knowledge of Cardinal's fraudulent activities and that E & Y had failed to adhere to GAAP and GAAS rules did not establish the necessary inference of scienter required under the law.
Defendants' motions are GRANTED in part and DENIED in part. The following motions are GRANTED: (1) Cardinal Defendants' Motion to Dismiss as to Defendant Jensen; (2) Defendant E & Y's Motion to Dismiss. The following motions are DENIED: (1) Cardinal Defendants' Motion to Dismiss as to Cardinal and Defendants Walter, Fotiades, Miller, Millar and Parrish; (2) Defendant Miller's Motion to Dismiss; (3) Defendant Millar's Motion to Dismiss. Plaintiffs' Motion to Strike is GRANTED in part and DENIED in part.2
This case involves a securities class action lawsuit brought on behalf of all persons and entities who purchased Cardinal's publicly traded securities between October 24, 2000 and July 26, 2004, inclusive (the "Class Period").4 The Complaint alleges that all Defendants knowingly or recklessly disregarded errors in Cardinal's methods of revenue recognition, and that, through their public misrepresentations about the Company's Operating Revenue, Defendants fraudulently induced Plaintiffs to purchase Cardinal stock at artificially inflated prices in violation of Section 10(b) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the Securities Exchange Commission ("SEC"), including Rule 10b-5, 17 C.F.R. § 240.10b-5. The Complaint further alleges that the Individual Defendants are liable as "controlling persons" of Cardinal, under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).5
The Complaint asserts causes of action against numerous defendants. The defendants have...
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