Mississippi Pub. Employees' Ret. v. Boston Scient.

Decision Date16 April 2008
Docket NumberNo. 07-1794.,07-1794.
Citation523 F.3d 75
PartiesMISSISSIPPI PUBLIC EMPLOYEES' RETIREMENT SYSTEM, Plaintiff, Appellant, v. BOSTON SCIENTIFIC CORPORATION; James R. Tobin; Paul A. LaViolette; Fredericus A. Colen; Lawrence C. Best; Stephen F. Moreci; Robert G. MacLean; Peter M. Nicholas; Paul W. Sandman; James H. Taylor, Jr., Defendants, Appellees.
CourtU.S. Court of Appeals — First Circuit

Carolyn G. Anderson with whom Timothy J. Becker, Anne T. Regan, Zimmerman Reed, P.L.L.P., David S. Nalven, Steve Berman, Hagens Berman Sobol Shapiro, LLP, Richard A. Lockridge, Gregg M. Fishbein, Lockridge Grindal Nauen, P.L.L.P., Mike Moore, and Moore Law Firm were on brief for appellant.

Stuart J. Baskin with whom John Gueli, Kirsten M. Nelson, Shearman & Sterling LLP, William H. Paine, Timothy J. Perla, and Wilmer Cutler Pickering Hale & Dorr LLP were on brief for defendants.

Before TORRUELLA, Circuit Judge, TASHIMA, Senior Circuit Judge,* and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

This securities case was brought against Boston Scientific, a publicly traded manufacturer of medical devices based in Natick, Massachusetts. The appeal concerns dismissal of claims based on the company's launch of a new product, the drug-eluting TAXUS coronary stent, and its eventual recalls. Plaintiff, a Mississippi pension fund and purchaser of Boston Scientific stock, alleges that company executives both withheld material information about problems with the stent and decisions addressing those problems, and made misleading positive statements, in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and the attendant rules and regulations, including Rule 10b-5, 17 C.F.R. § 240.10b-5.

Plaintiff appeals the district court's grant of defendants' motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). The district court held, in a thoughtful decision, that plaintiff failed to meet the heightened pleading requirements imposed by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub.L. No. 104-67, 109 Stat. 737. In re Boston Scientific Corp. Sec. Litig., 490 F.Supp.2d 142, 152, 162 (D.Mass.2007).

Applying the standards recently articulated by the Supreme Court in Tellabs, Inc., v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), and by this court in ACA Financial Guaranty Corp. v. Advest, Inc., 512 F.3d 46 (1st Cir.2008), we hold that plaintiff has pled claims sufficient to withstand a motion to dismiss and so we remand the case. Our remand permits the court, should it choose to do so, to allow a limited discovery period on the issues raised. See, e.g., Greebel v. FTP Software, Inc., 194 F.3d 185, 188 (1st Cir.1999); Gross v. Summa Four, Inc., 93 F.3d 987, 990 (1st Cir.1996). "Our ruling does not mean that plaintiffs' claims have any merit. It means only that the claims are not to be dismissed at this very early stage. Nothing has been proven yet." In re Cabletron Sys., Inc., 311 F.3d 11, 20 (1st Cir.2002).

I.

On September 23, 2005, the Public Employees' Retirement System of Mississippi ("PERS") brought suit in federal district court as the lead plaintiff in a class action against Boston Scientific and company executives Peter M. Nicholas (Chairman of the Board of Directors); James R. Tobin (President and Director); Paul A. LaViolette (Chief Operating Officer and member of the Executive Committee1); Fredericus A. Colen (Senior Vice President and Chief Technology Officer); Lawrence C. Best (Senior Vice President and Chief Financial Officer); Stephen F. Moreci (Senior Vice President and Group President of Endosurgery); Robert G. MacLean (Vice President of Human Resources); Paul W. Sandman (Senior Vice President, Secretary, and General Counsel); and James H. Taylor, Jr. (Senior Vice President of Corporate Operations). Consolidated Am. Compl. ("CAC") ¶¶ 1, 15-23.

Plaintiff sued on behalf of a putative class of individuals and entities who purchased equity securities in Boston Scientific from March 31, 2003 to August 23, 2005. Id. ¶ 1. Plaintiff alleged that during that period, defendants made false and misleading statements and caused the market price of the company's securities to be artificially inflated, both harming investors and allowing the individual insider defendants to enrich themselves in excess of $332 million. Id.

Plaintiff's original complaint divided into four categories its allegations regarding defendants' statements about a civil lawsuit with Medinol Ltd., a Department of Justice investigation into a 1998 product recall, the company's introduction of TAXUS stents to the market, and FDA investigations and warnings regarding Boston Scientific's plants. Only the TAXUS stent issue is before us on appeal following the dismissal of all claims.

In particular, plaintiff advances these theories. By late 2003 defendants became aware of serious problems in patients in Europe resulting from the insertion of the new TAXUS stent, not yet introduced in the United States. The TAXUS stent was introduced in the United States in March 2004; American doctors reported similar problems. In the spring of 2004 defendants made affirmative statements attributing the problems reported about the new TAXUS stent to the unfamiliarity of doctors with the new stent. They did not correct the statements even though they had become aware that the problem was not doctor unfamiliarity, but rather a manufacturing defect in the stent that caused the balloon to fail to deflate. Defendants continued to withhold information about a manufacturing change Boston Scientific had instituted in December 2003 which would address the defect. They withheld the information to build up inventory, in order to preserve market share, before announcing recalls of TAXUS stents based on the potential defects. Meanwhile, while withholding this material information, several of the individual defendants traded on the open market in unusual patterns and unusual amounts. When the material information was finally and belatedly disclosed, the market price for Boston Scientific stock plummeted downward. The stock price dropped 7.6% after the company announced an expanded recall and revealed that three deaths and several dozen serious injuries had been connected to balloon deflation failure, and it dropped another 6.6% when the company expanded the recall of the TAXUS stent for a second time. CAC ¶¶ 100, 102.

The defendants' theory is that at the time the company received some thirty to forty reports of problems in Europe of balloon non-deflation following stent insertion, it was unable to identify anything about the device itself that would cause the problem and attributed the problem to doctor unfamiliarity. Defendants' brief argues that independently and

[i]n an effort to improve the device, Boston Scientific tried completely to eliminate the possibility of balloon non-deflation. It eventually identified a means to do so, by changing the manner of bonding the delivery catheter to the balloon and by implementing an additional inspection test at the end of the manufacturing process. These proposed modifications were submitted to the FDA for approval in April 2004 and approved by the FDA the following month. In June 2004 Boston Scientific began manufacturing the "new" device.

After it identified how to completely eliminate what was already an infrequently occurring issue, Boston Scientific was able to re-analyze its "old" Taxus inventory. That process led to the identification of specific lots that had the potential for non-deflation. Out of an abundance of caution, Boston Scientific voluntarily recalled a limited number of specific production lots of its "old" Taxus stents in July and August 2004.

It is the company's position that the changes would have been implemented "whether it got a complaint or not." The removal of the possibility that the balloon would fail to deflate by the manufacturing change did not prove there was a defect, much less that the company knew at an earlier date of a connection between the manufacturing change and the problem that necessitated the recalls, or that it was obliged to disclose it.

A. Plaintiff's Allegations

Plaintiff brought the suit as a putative class action. The class period plaintiff claims is relevant to this narrowed appeal is December 2, 2003 to August 5, 2004.

In 2001, Boston Scientific decided to produce a drug-eluting stent2 to compete with a similar product manufactured by Johnson & Johnson. CAC ¶ 86. Boston Scientific's product is known as TAXUS® Express Paclitaxel-Eluting Monorail® Coronary Stent System. Id.

TAXUS debuted in Europe in January 2003. Id. ¶¶ 87, 92. Plaintiff alleges that defendants felt "tremendous pressure" to introduce TAXUS into the U.S. market because the company was losing market share to Johnson & Johnson. Id. ¶ 87. While in the process of obtaining final FDA approval for TAXUS, defendants allegedly downplayed news that could delay the U.S. launch, such as failing to disclose in a timely manner an FDA major deficiency letter that the company received in September 2003. Id. ¶ 89. Meanwhile, defendants "provided to the investment community a drum roll leading up to the FDA's approval of TAXUS which was deafening." Id. ¶ 90. Plaintiff alleges that in anticipation of FDA approval and in response to positive comments made by defendants, analysts upgraded their rating of Boston Scientific stock, and by March 2004, the price of Boston Scientific stock on the New York Stock Exchange hit a new high, trading at over $40 a share. Id. ¶¶ 15-23, 91, 100.

On March 4, 2004, the FDA approved TAXUS for marketing and distribution in the United States. Id. ¶ 92. Plaintiff alleges that Boston Scientific "trumpeted [TAXUS's] immediate impact in the Company's effort to take over market share for stents." Id. Meanwhile, defendants did not disclose complaints they had received from...

To continue reading

Request your trial
185 cases
  • In Re Synchronoss Securities Litigation.
    • United States
    • U.S. District Court — District of New Jersey
    • April 7, 2010
    ...as to render the statement, as a whole, misleading. See Texas Gulf Sulphur, 401 F.2d at 862; see also Miss. Pub. Emples. Ret. Sys. v. Boston Sci. Corp., 523 F.3d 75, 85 (1st Cir.2008) Bielski v. Cabletron Sys., 311 F.3d 11, 36 (1st Cir.2002)). Then, as the next step, the defendant may also ......
  • Ortiz v. Canopy Growth Corp.
    • United States
    • U.S. District Court — District of New Jersey
    • May 6, 2021
    ...subsumed and supplemented by the requirements of Section 78u-4(b)(1) of the PSLRA. Id. (citing Miss. Pub. Emps. Ret. Sys. v. Boston Scientific Corp. , 523 F.3d 75, 85 n.5 (1st Cir. 2008) ). Like Rule 9(b), the PSLRA requires that a plaintiff plead the "who, what, when, where and how." Id. S......
  • S.E.C. v. Tambone
    • United States
    • U.S. Court of Appeals — First Circuit
    • December 3, 2008
    ...from the SEC's second complaint, is presented in the light most favorable to the plaintiff. Miss. Pub. Employees' Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75, 85 (1st Cir.2008). During the relevant time period, defendants Tambone and Hussey were senior executives of Columbia Funds Dis......
  • Rivera–concepciÓn v. Commonwealth of P.R.
    • United States
    • U.S. District Court — District of Puerto Rico
    • September 30, 2010
    ...in the complaint as true and make all reasonable inferences in the plaintiff's favor.” Miss. Public Employees' Retirement System v. Boston Scientific Corp., 523 F.3d 75, 85 (1st Cir.2008). While a complaint need not contain detailed factual allegations in order to withstand dismissal, a pla......
  • Request a trial to view additional results
1 books & journal articles
  • White collar crime's gray area: the anomaly of criminalizing conduct not civilly actionable.
    • United States
    • Albany Law Review Vol. 72 No. 1, January 2009
    • January 1, 2009
    ...Partners, L.P.v. Blackwell, 440 F.3d 278, 287 (5th Cir. 2006))). (123) Miss. Pub. Employees' Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75, 85 (1st Cir. 2008) ("This circuit has held that a plaintiff can demonstrate scienter by showing that defendants either 'consciously intended to def......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT