In re Iso Ray, Inc. Secs. Litig.

• Decision Date: 01 June 2016
• Docket Number: Master File No. CV-15-5046-LRS
• Citation: 189 F.Supp.3d 1057
• Court: U.S. District Court — District of Washington
• Parties: In re Iso Ray, Inc. Securities Litigation This document relates to: All actions

189 F.Supp.3d 1057

In re Iso Ray, Inc. Securities Litigation This document relates to: All actions

Master File No. CV-15-5046-LRS

United States District Court, E.D. Washington.

Signed June 1, 2016

Matthew M. Guiney, Wolf Haldenstein Adler Freeman & Herz LLP, New York City, Phillip Kim, Sara Fuks, The Rosen Law Firm PA, New York City, Rachele R. Rickert, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, CA, Clifford Allen Cantor, Law Offices of Clifford A Cantor PC, Sammamish, WA, for Plaintiffs.

Barry M. Kaplan, Gregory L. Watts, John C Roberts, Jr, Wilson Sonsini Goodrich & Rosati, Seattle, WA, for Defendant.

ORDER DENYING MOTION TO DISMISS, INTER ALIA

LONNY R. SUKO, Senior United States District Judge

BEFORE THE COURT are Defendants' Motion To Dismiss Amended Complaint For Violation Of The Federal Securities Laws (ECF No. 61), Defendants' Request For Judicial Notice (ECF No. 63), and Plaintiffs' Request For Judicial Notice (ECF No. 67). These motions were heard with oral argument on May 12, 2016.

I. BACKGROUND

This is a putative class action brought by investors pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA). The Plaintiffs are individuals who purchased common stock of Defendant, IsoRay, Inc., between 8:15 a.m. Eastern Standard Time (EST) on May 20, 2015, and 11:36 a.m. EST on May 21, 2015. Plaintiffs allege that during this period:

Defendants issued a press release that materially misrepresented the findings of a medical journal study concerning IsoRay's cancer treatment. The misleading press release artificially inflated the price of IsoRay stock. When investors and the market subsequently learned that the statements in the Company's positive press release completely mischaracterized the study's findings, IsoRay's stock price dropped precipitously, damaging investors who purchased IsoRay stock after issuance of the Company's press release.

(Amended Complaint, ECF No. 55 at Paragraph 3).

The medical journal study referred to above—"Analysis of Stereotactic Radiation vs. Wedge Resection vs. Wedge Resection Plus Cesium-131 Brachytherapy in Early-stage Lung Cancer"—was authored by Bhupesh Parashar, M.D., and published on May 19, 2015 in Brachytherapy (hereinafter referred to as "the Study"). The Press Release referred to was issued by Defendant IsoRay, Inc., on May 20, 2015. Plaintiffs allege they learned that the statements in the Press Release mischaracterized the Study's findings because of an article authored by Adam Feuerstein entitled "IsoRay Takes Liberties with Lung Cancer Study Results To Prop Up Drug Price" which was published on May 21 at 11:36 a.m. EST on The Street.com website.

Plaintiffs assert causes of action for violation of § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, promulgated thereunder, 17 C.F.R. § 240.10b-5, as well as a § 20(a) Exchange Act claim against IsoRay Chief Executive Officer (CEO) Dwight Babcock, 15 U.S.C. §§ 78t(a) -(b).

II. LEGAL STANDARDS

A. 12(b)(6) Standard of Review

To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corporation v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). Where the plaintiff fails to "nudge[ ] his claims across the line from conceivable to plausible, his complaint must be dismissed." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. A claim is facially plausible if the plaintiff has pled "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. 662, 129 S.Ct. 1937. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice." Id . (citing Twombly , 550 U.S. at 555, 127 S.Ct. 1955 ). In other words, the plaintiff must provide grounds for his entitlement to relief that amount to more than labels or conclusions and extend beyond a formulaic recitation of the elements of a cause of action. Twombly , 550 U.S. at 545, 127 S.Ct. 1955. In making a Rule 12(b)(6) assessment, the court accepts all facts alleged in the complaint as true, and makes all inferences in the light most favorable to the non-moving party. Barker v. Riverside County Office of Educ. , 584 F.3d 821, 824 (9th Cir.2009) (internal citations omitted).

B. Heightened Pleading Standard for Private Securities Fraud Claims

Securities fraud claims are subject to heightened pleading standards under Fed. R. Civ. P. 9(b) and the PSLRA.

To satisfy Rule 9(b), a claim of fraud must "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). Particularity under Rule 9(b) requires the plaintiff to plead the "who, what, when, where, and how" of the misconduct alleged. Kearns v. Ford Motor Co. , 567 F.3d 1120 (9th Cir.2009).

The PSLRA was enacted to establish uniform and stringent pleading requirements for securities fraud actions and "to put an end to the practice of pleading ‘fraud by hindsight.’ " In re Silicon Graphics , 183 F.3d 970, 988 (9th Cir.1999). Pursuant to the PSLRA, a complaint alleging private securities fraud must "plead with particularity both falsity and scienter." In re Daou Systems, Inc. , 411 F.3d 1006, 1014 (9th Cir.2005) (quoting Gompper v. VISX , 298 F.3d 893, 895 (9th Cir.2002) ). A securities fraud complaint must consequently "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." Id ., 15 U.S.C. § 78u-4(b)(1). If the complaint does not satisfy these pleading requirements, the court, upon motion by defendant, must dismiss the complaint. 15 U.S.C. § 78u-4(b)(3)(A).

C. Incorporation By Reference and Judicial Notice

As a general rule, a court may consider only the pleadings and properly attached documents on a Rule 12(b)(6) motion. Lee v. City of Los Angeles , 250 F.3d 668, 688–89 (9th Cir.2001). There are two exceptions to this rule.

First, under the "incorporation by reference" doctrine, the court may consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading." Knievel v. ESPN , 393 F.3d 1068, 1076 (9th Cir.2005).

Second, courts may take judicial notice of "matters of public record," but not of facts that may be "subject to reasonable dispute."

United States v. Corinthian Colleges , 655 F.3d 984, 999 (9th Cir.2011). Specifically, courts "may not, on the basis of evidence outside the Complaint, take judicial notice of facts favorable to Defendants that could be reasonably disputed." Id . This rule applies with equal force in securities cases. In re Am. Apparel, Inc. S'holder Litig. , 855 F.Supp.2d 1043, 1062 (C.D.Cal.2012). Fed. R. Evid. 201(b)(2) provides that the court "may judicially notice a fact that is not subject to reasonable dispute because it: (1) is generally known within the trial court's jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot be reasonably questioned."

Plaintiffs do not take issue with the documents which Defendants ask be considered by the court under the "incorporation by reference" doctrine.¹ They do, however, take issue with Defendants' request that the court take judicial notice that an Abstract of the Study ("Analysis of Stereotactic Radiation vs. Wedge Resection vs. Wedge Resection Plus Cesium-131 Brachytherapy in Early-stage Lung Cancer") was available on the Brachytherapy journal website on May 19, 2015, and that an Abstract of the Study was available on the ScienceDirect website on May 19, 2015.² Defendants assert this is beyond reasonable dispute because the Amended Complaint alleges the Study was published online on May 19, 2015. (ECF No. 55 at Paragraph 66).

Paragraph 86 of Plaintiffs' Amended Complaint quotes from the Press Release which IsoRay issued on May 20. The Press Release states: "To review [the Study] as published online as of May 19, 2015, please follow the link provided here: http://www.sciencedirect.com/science/article/pii/S1538472115004559." As Defendants point out, their Exhibit 7, "a copy of an abstract of the Study published on the ScienceDirect website on May 19, 2015," is already incorporated by reference in the Amended Complaint and therefore, can be considered by the court for the proposition that the Abstract of the Study was available on the website on May 19, 2015.

The court agrees with Defendants that their Exhibit 7, and Exhibit 6 (abstract of the Study published on the Brachytherapy website on May 19, 2015), are subject to judicial notice. There is no dispute that the Abstract, as opposed to the full text of the Study, was available on these websites on May 19, 2015, free of charge.³ In securities fraud actions relying on the fraud-on-the-market presumption, courts may take judicial notice of information posted on publicly available websites for the fact that the information is available to the market. Makaeff v. Trump Univ., LLC , 715 F.3d 254, 259 n. 2 (9th Cir.2013). All that Defendants ask the court to judicially notice is the availability of the Abstract on the websites, not the full text of the Study, which Defendants do not dispute was not available on the websites without payment of a fee in excess of $30. Furthermore, the court agrees with Defendants that the fact Plaintiffs may dispute the legal significance of Exhibits 6 and 7 as pertains to what Plaintiffs contend is Defendants' "truth-on-the-market" affirmative defense, does not mean those exhibits cannot be judicially noticed by the court. The legal implications of...