Vladimir v. Bioenvision Inc., 07 Civ. 6416 (SHS).
| Decision Date | 31 March 2009 |
| Docket Number | No. 07 Civ. 6416 (SHS).,07 Civ. 6416 (SHS). |
| Citation | 606 F.Supp.2d 473 |
| Parties | Bert VLADIMIR, Individually and On Behalf Of All Others Similarly Situated, Plaintiff, v. BIOENVISION INC., Christopher B. Wood, Joseph P. Cooper, Steven A. Elms, Michael G. Kauffman, Andrew Schiff James S. Scibetta, and Perseus-Soros Biopharmaceutical Fund, LP, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Olimpio Lee Squitieri, Lee Squitieri, Squitieri & Fearon, LLP, Jeffrey Michael Norton, Robert I. Harwood, Harwood, Feffer, L.L.P., Jules Brody, Aaron Lee Brody, Jason Robert D'Agnenica, Stull Stull & Brody, New York, NY, for Plaintiff.
John D. Donovan, Jr., Amy D. Roy, Christopher G. Green, Ropes & Gray LLP, Boston, MA, Lee S. Gayer, Ropes & Gray, LLP, New York, NY, for Defendants.
This securities fraud action arises from a merger between Bioenvision, Inc. and Genzyme Corporation, two pharmaceutical companies. Plaintiffs—sellers of securities in Bioenvision during the period from April 11, 2007 through May 28, 2007 (the "class period")—bring this putative class action against Bioenvision and six of its corporate officers and directors (collectively, the "Bioenvision defendants"), and against Perseus-Soros Biopharmaceutical Fund, LP ("Perseus-Soros"), the largest pre-merger shareholder in Bioenvision. The action is brought pursuant to section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder and includes both claims against Perseus-Soros for violation of section 13(d) of the Exchange Act, 15 U.S.C. § 78m(d), and control person liability against the individual defendants and Perseus-Soros pursuant to section 20(a) of the Exchange Act. In their supplemental amended class action complaint, plaintiffs claim that defendants artificially deflated the value of Bioenvision's stock by issuing and by failing to correct or update statements that contained material misrepresentations and omissions as to Bioenvision's plan to enter into a merger with Genzyme. As a result, plaintiffs allegedly sold their Bioenvision securities during the class period at prices below the actual value of those securities.
Defendants have now moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. They contend that the complaint does not plead securities fraud with the particularity required by Fed.R.Civ.P. 9(b) and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub.L. No. 104-67, 109 Stat. 737 (1995) (), and therefore should be dismissed. The defendants also argue that, contrary to plaintiffs' assertions, they had no duty to disclose the merger discussions until May 29, 2007, the date when the merger was announced publicly.
For the reasons set forth in this Opinion, defendants' motions to dismiss the complaint are granted without prejudice. As alleged, the statements that form the basis of this action either did not give rise to a duty to disclose the merger discussions or are not pled with sufficient particularity.
The supplemental amended complaint alleges the following relevant facts, which the Court assumes to be true for the purposes of this motion to dismiss.
Prior to its October 23, 2007 merger with Genzyme, Bioenvision was a Delaware biopharmaceutical corporation with its principal place of business in New York City. (Supp. Am. Compl. ¶ 8.)
Perseus-Soros was, until the merger, the largest common stockholder of Bioenvision, owning approximately twenty percent of Bioenvision equity as of January 2007. (Id. ¶ 9.) Prior to and during the class period, Perseus-Soros exercised control over Bioenvision's Board of Directors (the "Board") and the company itself. (Id.) Plaintiffs allege that as an insider to Bioenvision, Perseus-Soros had a duty to disclose all material non-public information concerning the company or to abstain from trading, and yet Perseus-Soros failed to amend its Schedule 13D/A to disclose the events leading up to the merger, specifically, Perseus-Soros's plan to change control of Bioenvision. (Id.)
Two Bioenvision officers who were also board members have been named as individual defendants. Christopher B. Wood was Bioenvision's Chairman and Chief Executive Officer. (Id. ¶ 10.) James S. Scibetta served as the Chief Financial Officer of Bioenvision. (Id. ¶ 16.) According to plaintiffs, Wood and Scibetta issued public statements and signed SEC filings on behalf of the company that were materially false and misleading. (Id. ¶¶ 10, 16.)
The other individual defendants had connections to Perseus-Soros or Perseus-Soros affiliates. Joseph P. Cooper served as a director of Bioenvision after Perseus-Soros recommended him to that position in 2006. (Id. ¶ 11.) He also served as the Executive Vice President of Medicis Pharmaceutical Corp. ("Medicis"), which had extensive business dealings with Perseus-Soros and its senior management. (Id.) Steven A. Elms at all relevant times served as a director of Bioenvision and as a managing director of Perseus-Soros Management LLC ("Perseus-Soros Management"), an affiliate of Perseus-Soros. (Id. ¶ 12.) Michael G. Kauffman served as a director of Bioenvision at all relevant times and served as President and Chief Executive Officer of Predix Pharmaceuticals ("Predix"), in which Perseus-Soros had a significant investment. (Id. ¶ 13.) Perseus-Soros recommended Kauffman to become a member of the Board in 2004. (Id.) Andrew Schiff served as a director of Bioenvision and served as a Managing Director of Perseus-Soros Management. (Id. ¶ 14.)1
The lead plaintiffs in this putative class action are Bert Vladimir and Gary Thesling. They sold Bioenvision securities during the class period and claim to have been injured by defendants' conduct. (Id. ¶¶ 4-5.)
Bioenvision developed a variety of pharmaceutical products, but its "flagship product" was clofarabine, a drug for the treatment of pediatric leukemia that Bioenvision developed with Genzyme in Europe under the brand name Evoltra. (Id. ¶ 25.) From 2005 to 2006, representatives of Genzyme and Bioenvision met from time to time to discuss licensing opportunities for clofarabine and to explore the possibility that Genzyme would acquire Bioenvision. (Id. ¶ 26.)
Beginning in August 2006, Genzyme took a number of steps that led to the eventual acquisition of Bioenvision. It engaged Banc of America Securities LLC ("BOA") as its investment adviser. (Id. ¶ 27.) In January 2007, its executive vice president, Earl M. Collier, met with Dennis Purcell, a Senior Managing Director of Aisling Capital, an investment manager for Perseus-Soros. (Id. ¶ 28.) Collier discussed with Purcell the possibility that Genzyme might be interested in acquiring Bioenvision. (Id.) Purcell suggested that Genzyme should speak directly to Bioenvision about a possible acquisition. (Id.)
The Complaint then makes allegations, not on plaintiff's own knowledge, but rather on the basis of allegations made in a New York State litigation filed by former General Counsel and Chief Financial Officer of Bioenvision, David P. Luci, that Bioenvision improperly terminated his employment agreement. Specifically, plaintiffs here allege on the basis of Luci's state court allegations that, after Collier and Purcell discussed the possibility of a Genzyme-Bioenvision combination, Genzyme and Perseus-Soros "secretly agreed upon a course of action pursuant to which Genzyme would make a tender offer to acquire all of the outstanding Bioenvision stock owned by Perseus-Soros and the public shareholders (including management of Bioenvision) and then merge Bioenvision into a wholly owned subsidiary of Genzyme." (Id. .) After the January 2007 meeting between Collier and Purcell, the Perseus-Soros-connected directors, including Elms, Schiff, Cooper, and Kauffman, according to plaintiffs' quotation from Luci's state court complaint, "determined to accept an offer from Genzyme to acquire Bioenvision." (Id. ¶ 29 .)
In March 2007, plaintiffs continue, Genzyme and Bioenvision became more involved in discussions and negotiations concerning a merger. (Id. ¶¶ 33-34.) On March 6, BOA sent Bioenvision requests for information from Genzyme, and on March 15, Wood sent an email to BOA requesting that Genzyme submit a bid specifying a price at which Genzyme would be prepared to acquire Bioenvision. (Id. ¶¶ 33, 34(a).) Again relying on Luci's employment action complaint as the basis of its allegations, plaintiffs allege that, the Bioenvision Board met "secretly" on March 16 to discuss the anticipated Genzyme offer, and the Perseus-Soros-connected directors allegedly insisted that Bioenvision's management agree to sell their shares of Bioenvision's stock to Genzyme. (Id. ¶ 34(b) .) According to Luci's complaint, as cited by plaintiffs here, Wood "believes" that Scibetta was in constant contact with the Perseus-Soros-connected directors during this time. (Id. ¶ 34(c) .)
In early April 2007, Bioenvision put forward a dilutive public offering of 8 million shares of its common stock at a price of $3.75 per share. (Id. ¶ 35.) A Supplemental Prospectus issued in anticipation of the offering noted the challenges facing Bioenvision in realizing value from Evoltra, including the possibility that Genzyme might fail to meet the obligations of a co-development agreement with Bioenvision. (Id. ¶ 37.) It explained that the price of Bioenvision's common stock might decline, and that even if...
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