Wang Yan v. Rewalk Robotics Ltd.
| Decision Date | 25 August 2020 |
| Docket Number | No. 19-1614,19-1614 |
| Citation | 973 F.3d 22 |
| Parties | Wang YAN, Plaintiff, Appellant, Joanne Geller, Movant, Appellant, Qian Deng ; David Hershlikovitz; Jackie888, Inc.; Michael C. Kemmerling; Narbeh Nathan; Paul Sislin, individually and on behalf of all other similarly situated parties, Plaintiffs, v. REWALK ROBOTICS LTD. ; Larry Jasinski; Ami Kraft ; Amit Goffer; Jeff Dykan; Hadar Ron; Asaf Shinar; Wayne B. Weisman; Yasushi Ichiki; Aryeh Dan; Glenn Muir; Barclays Capital Inc.; Jefferies LLC; Canaccord Genuity Inc.; Kevin Hershberger, Defendants, Appellees. |
| Court | U.S. Court of Appeals — First Circuit |
Omar Jafri, with whom Patrick V. Dahlstrom, Chicago, IL, Pomerantz LLP, Edward F. Haber, Boston, MA, Adam M. Steward, and Shapiro Haber & Urmy LLP were on brief, for appellants.
Douglas P. Baumstein, with whom Susan L. Grace, New York, NY, White & Case LLP, Barry Sher, Anthony Antonelli, New York, NY, Paul Hastings LLP, David S. Godkin, Boston, MA, James E. Kruzer, and Birnbaum & Godkin, LLP were on brief, for appellees.
Before Lynch, Stahl, and Kayatta, Circuit Judges.
On behalf of proposed classes of investors, Wang Yan alleged that ReWalk Robotics, Ltd. ("ReWalk") violated both the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act") by misrepresenting and omitting details about its dealings with the FDA in its initial public offering (IPO) Registration Statement and in subsequent quarterly and annual disclosures. The district court dismissed the Securities Act claims for failure to state a claim and found that Yan did not have standing to bring the Exchange Act claims. We agree with the district court both that Yan failed to allege a violation of the Securities Act and that he lacked standing to challenge ReWalk's alleged failures to make certain disclosures after his purchases of ReWalk securities. The district court also determined that, because Yan lacked standing, it lacked jurisdiction to consider Yan's request to amend the complaint to add Joanne Geller as a named plaintiff to press the Exchange Act claims on behalf of a putative class. While we disagree with that reasoning, we affirm dismissal of the action because the proposed amendment would have been futile, as it failed to state an Exchange Act claim.
ReWalk (previously Argo Medical Technologies, Inc.) designs and manufactures robotic exoskeletons that allow for upright locomotion by individuals with spinal cord injuries
. One such exoskeleton, ReWalk Personal ("the device"), is intended for long-term use at the user's home and in the community. The device is subject to FDA regulation. ReWalk successfully applied to the FDA for permission to market the device. See 21 U.S.C. § 360e(f). The FDA's order granting that permission labeled the device as a class II medical device, meaning its use carries a medium risk requiring some "special controls," such as training and warning labels, to ensure safe operation. See
id. § 360c(a)(1)(B).
The FDA's letter conveying its permission also contained an order pursuant to Section 522 of the Food, Drug, and Cosmetic Act (FDCA), id. § 3601 (a)(1)(A), that ReWalk conduct a postmarket surveillance study on the device. Section 522 grants the FDA the authority to investigate risks related to class II devices where, as relevant here, the device's failure "would be reasonably likely to have serious adverse health consequences." Id. For such devices, the FDA can order a postmarket surveillance study in order to "understand the nature, severity or frequency of suspected problems," "obtain more information on device performance," "address the long term or infrequent safety and effectiveness issues for implantable and other devices," and "better define the association between problems and devices when unexpected or unexplained serious adverse events occur." Div. of Epidemiology, U.S. Dep't of Health & Hum. Servs., Postmarket Surveillance Under Section 522 of the Federal Food, Drug, and Cosmetic Act: Guidance for Industry and Food and Drug Administration Staff (2016). The Section 522 order, central to several issues on this appeal, stated in relevant part as follows:
[The device's] failure to prevent a fall would be reasonably likely to cause user injury and/or death through fall related sequelae
such as traumatic brain injury (TBI), spinal cord injury (SCI), and fractures to the user .... In addition, during intervention due to a loss of balance of the patient, the device may potentially harm a "companion".
...
[The] FDA is concerned with the following: The safety and effectiveness of the ReWalkTM has been demonstrated in an institutional environment (e.g. hospital, rehabilitation institution). However, there is limited information on use outside of the institutional setting (e.g. community and at home use) given that [ReWalk] intends for the product's use in non-institutional settings. [ReWalk] has not provided a complete community and at home use dataset; however, the institutional data provided demonstrate that the benefits outweigh the risks if used in conjunction with a comprehensive training program. A 522 study is ordered to effectively evaluate the training program and long-term safety of the device .... Because successful use of the ReWalkTM device requires training and a companion, we believe that a rigorous multi-tiered training program may mitigate the risk of serious injury to the user and companion. Therefore, an assessment that your training regimen is adequate will be required.
Accordingly, under section 522 of the Act, we are ordering you to conduct a postmarket surveillance study of your device to report the rate and nature of all falls and associated injuries which may occur when the device is used in institutional and non-institutional environments such as the clinic, home, and community. Additionally, data should be collected to reflect all incidences of injury to a companion in conjunction with the use of the device.
...
1. What is the 12-month incidence of serious adverse events in institutional and non-institutional environments ... ?
2. What is the 12-month incidence of falls and companion injuries in institutional or non-institutional environments ... ?
3. What device malfunctions are reported and observed?
The FDA required ReWalk to submit for FDA approval a proposed study plan, which ReWalk did (albeit five days late), and to commence its study within fifteen months. See 21 U.S.C. § 3601 (b)(1).
Before hearing back from the FDA on its proposed plan, ReWalk issued, on August 26, 2014, a Registration Statement for an IPO. That Statement touted the device's success in clinical studies and "rigorous trials," calling it a "breakthrough product," with "compelling clinical data" "demonstrat[ing] the functionality and utilization" of the device. It further noted that the FDA ordered "performance of a postmarket surveillance clinical study demonstrating a reasonable assurance of safety and effectiveness in urban terrain," regarding which "[f]ailure to comply ... could lead to removal of ReWalk from the market." It did not explicitly state that the FDA ordered this study specifically because the device's failure "would be reasonably likely to have serious adverse health consequences" -- namely, a risk of spinal cord, brain
, or skeletal injuries as a result of falls. But it did state elsewhere that "[i]f any part of [the device]'s hardware or software were to fail, the user could experience death or serious injury" and that "there is no long-term clinical data with respect to the safety or physical effects" of the device. ReWalk went public under this Statement on September 12, 2014, selling 3,450,000 shares and raising over $41 million. Yan was an early purchaser, paying $35,460 for shares on September 15 and 17.
Thereafter, ReWalk and the FDA entered into a lengthy back-and-forth necessitated by ReWalk's halting performance of its obligations under the FDA's grant of marketing permission. ReWalk missed deadlines for submitting plans for the postmarket surveillance study, and the plans it did submit and revise were repeatedly deemed inadequate by the FDA. Eventually, on September 30, 2015, the FDA issued a warning letter stating the device "is currently misbranded under [the FDCA]" and threatening sanctions absent corrective action by ReWalk. See 21 U.S.C. § 352(t)(3). The letter also noted that the company failed to make much progress towards meeting the statutory, fifteen-month deadline by which it was to commence an approved postmarket surveillance study. Labeling a device as misbranded can carry grave consequences, including seizure of the device, injunctions against its manufacture and sale, prosecution, and civil monetary penalties. See, e.g., id. §§ 331, 334(a)(1).
Throughout 2015, ReWalk's management held several quarterly calls with investors, making no mention of the FDA's dissatisfaction with ReWalk's progress toward commencing the required study. It was not until the end of February 2016 that ReWalk disclosed the FDA's warning, right before the FDA published the warning letter on March 1. ReWalk stock had closed the day before at $10.48/share, but it ended March 1 at $9.07/share, a 13% one-day drop. Proposed plaintiff Geller, who had purchased ReWalk securities in late 2015, was among those who suffered a loss when the stock price dropped.
The FDA exercised its discretion to allow ReWalk to continue marketing the device as long as it commenced a postmarket surveillance study by June 1, 2016. It approved ReWalk's study plan on May 5, 2016, although, as of the date of the amended complaint, the FDA still described ReWalk's progress towards completing the study as "inadequate." Nonetheless, plaintiffs do not allege that the FDA has undertaken any enforcement action against ReWalk.
After a number of lawsuits against ReWalk not relevant here had been filed, six individuals (including Yan) and one institution filed this proposed class action on January 31,...
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