In re Myovant Scis. Ltd. Section 16(B) Litig.

• Decision Date: 16 January 2021
• Docket Number: 20-cv-1807 (JGK), 20-cv-2542 (JGK)
• Citation: 513 F.Supp.3d 365
• Parties: IN RE MYOVANT SCIENCES LTD. SECTION 16(B) LITIGATION
• Court: U.S. District Court — Southern District of New York

513 F.Supp.3d 365

IN RE MYOVANT SCIENCES LTD. SECTION 16(B) LITIGATION

20-cv-1807 (JGK), 20-cv-2542 (JGK)

United States District Court, S.D. New York.

Signed January 16, 2021

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The plaintiffs, shareholders of Myovant Sciences Ltd. ("Myovant"), brought this derivative action on behalf of Myovant pursuant to the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78a et seq. The plaintiffs allege that Roivant Sciences Ltd. ("Roivant"), a holder of approximately 45% of Myovant's common stock, bought and sold shares of Myovant's stock within a six-month window, thus making a short-swing profit in violation of Section 16(b) of the Act, 15 U.S.C. § 78p(b). Roivant moves to dismiss the action pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons explained below, the motion is granted .

I

The following facts are drawn from the Second Amended Complaint ("SAC") and are accepted as true for the purposes of this motion.

On September 6, 2019, Roivant entered into a "Memorandum of Understanding" (the "MOU") with Sumitomo Dainippon Pharma Co., Ltd. ("Sumitomo") to create a strategic alliance. SAC ¶ 14. As part of the transaction, among other terms, Sumitomo was to acquire all shares of Myovant held by Roivant which were equivalent to roughly 45% of Myovant's publicly outstanding common stock. SAC ¶ 15. Additionally, the MOU contemplated a sale of equity of Roivant, equity in another company held by Roivant, Roivant's interest in several subsidiaries, options to purchase certain other subsidiaries and affiliates of Roivant, and rights to certain technology platforms developed by Roivant. SAC ¶¶ 15-18. In exchange for this package of assets, Sumitomo agreed to make a cash payment of $3 billion to Roivant. SAC ¶ 19.

As part of the subsequent Transaction Agreement signed on October 31, 2019, Roivant agreed to a condition precedent to closing that Sumitomo would be able to consolidate Myovant in its financial statements when the transaction closed. SAC ¶ 24. To facilitate consolidation, Roivant agreed to transfer not less than a majority of Myovant's common stock and to acquire additional shares of Myovant necessary to increase its ownership to over 50%. SAC ¶ 25. In order to fulfill this condition, Roivant purchased additional shares of Myovant between the execution of the Transaction Agreement and the closing of the transaction on December 27, 2019 (the "Top-Up Shares"). Specifically, on November 25, 2019, Roivant purchased a block of 3,500,000 shares of Myovant in a private transaction for $15.00 per share and purchased the remaining 743,005 shares in several open-market transactions at prices ranging from $11.80 to $18.85, between November 20, 2019 and December 17, 2019. SAC ¶¶ 29-30. These prices were significantly above the $5.46 price per share of Myovant stock on public exchanges on the date of the Transaction Agreement, at least in part due to a material positive clinical trial result announced by Myovant on November 19, 2019. SAC ¶¶ 41-42.

The Top-Up Shares were delivered to Sumitomo at the closing of the transaction on December 27, 2019. SAC ¶ 32. No cash was paid for the Top-Up Shares. Id. Under the Transaction Agreement, Sumitomo's payment obligations had been limited to the shares already owned by Roivant as of the agreement date. Id. Instead, the rights in the Top-Up Shares were governed by a "Share Return Agreement" signed at the closing of the transaction, pursuant to which Sumitomo acquired legal title to the shares, while Roivant retained all pecuniary benefits of ownership, along with the right to acquire the shares back to the extent that Sumitomo succeeded in acquiring sufficient Myovant shares on its own to maintain majority ownership. SAC ¶ 34.

The plaintiffs allege that these transactions amounted to a short-term swing profit by an insider in violation of Section 16(b). They allege that the purchases of the Top-Up Shares of Myovant can be matched with the sale of Myovant shares that occurred as part of the transaction with Sumitomo, even if the Top-Up Shares were never sold. SAC ¶ 32-34, 37. Furthermore, the plaintiffs allege that the public market price of Myovant shares at the time of the execution of the Transaction Agreement is a poor measure of the price at which Roivant sold its shares of Myovant because it did not reflect (a) the control premium that Sumitomo had bargained for and (b) the material clinical trial results that they contend Roivant "would have been crazy to hide" from Sumitomo, and that were ultimately announced publically on November 19, 2019. SAC ¶ 41, 42-45. The plaintiffs estimate that the sale price was $22.0915. SAC ¶ 48.

II

In deciding a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), a district court may consider evidence outside the pleadings. Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986). "A plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that it exists." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). When evaluating whether a plaintiff has constitutional standing to sue, the courts "borrow from the familiar Rule 12(b)(6) standard, construing the complaint in plaintiff's favor and accepting as true all material factual allegations contained therein." Donoghue v. Bulldog Inv'rs Gen. P'ship, 696 F.3d 170, 173 (2d Cir. 2012).

In deciding a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id. When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

III

As an initial mater, the Court must address Roivant's argument that the plaintiffs do not have standing to bring their claims under Section 16(b). See United States v. Cambio Exacto, S.A., 166 F.3d 522, 526 (2d Cir. 1999) ("Whether a claimant has standing is the threshold question in every federal case, determining the power of the court to entertain the suit.").¹

"[T]he irreducible constitutional minimum of standing consists of three elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision." Spokeo, Inc. v. Robins, 578 U.S. 330, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016) (citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). "Injury in fact [is] an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical." Lujan, 504 U.S. at 560, 112 S.Ct. 2130. In Spokeo, the Supreme Court clarified that " Article III standing requires a concrete injury even in the context of a statutory violation" 136 S. Ct. at 1549. Therefore, a plaintiff does not "automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right." Id. As a result, an alleged "bare procedural violation, divorced from any concrete harm," does not always "satisfy the injury-in-fact requirement of Article III." Id. But when the "particular procedural violations alleged ... entail a degree of risk [of harm] sufficient to meet the concreteness requirement," id. at 1550, "a plaintiff ... need not allege any additional harm beyond the one Congress has identified," id. at 1549 (emphasis in original). Thus, a plaintiff suing for a procedural violation can satisfy the concreteness requirement either by pleading that a distinct concrete injury resulted from that violation, id., or by demonstrating that the violation entailed a "risk of real harm" "sufficient to meet the concreteness requirement," id. at 1549, 1550.

After Spokeo, the Second Circuit Court of Appeals has explained that "whether the particular procedural violations alleged ... entail a degree of risk sufficient to meet the concreteness requirement ... depends on whether the particular bare procedural violation may present a material risk of harm to the underlying concrete interest Congress sought to protect in enacting the statutory requirement." Katz v. Donna Karan Co. Store, L.L.C., 872 F.3d 114, 118 (2d Cir. 2017). Accordingly, a plaintiff can have standing to sue for "a bare procedural violation of law" if and only if (1) "Congress conferred the procedural right to protect a plaintiff's...