Superior Court of Massachusetts, Suffolk, Business Litigation Session
In re Ovascience, Inc. Stockholder Litigation No. 135842
MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS'
MOTION TO DISMISS
L. Sanders, Justice
a putative class action brought pursuant to Sections 11, 12
and 15 of The Securities Act of 1933. Plaintiffs are
investors who purchased stock in the defendant Ovascience,
Inc. (Ovascience or the Company). They allege that a
Registration Statement issued in connection with a secondary
offering of Ovascience stock on January 8, 2015 (the January
8 Offering), contained false statements and material
omissions of fact concerning an experimental fertility
treatment (AUGMENT) that Ovascience was in the process of
developing. In addition to suing Ovascience, plaintiffs have
also named as defendants certain of the Company's
officers and directors (collectively, The Ovascience
defendants) as well as three investment banks, J.P. Morgan,
Credit Suisse and Leerink Partners, which were the
underwriters in the January 8 Offering (the Underwriters).
The case is now before the Court on the defendants'
Motion to Dismiss pursuant to Rule 12(b)(6), Mass.R.Civ.P.
After careful review of the parties' submissions, the
Court concludes that the Motion should be DENIED .
This memorandum sets forth a brief explanation of the reasons
for that decision.
defendants makes two arguments in support of their motion.
First, they contend that the Complaint fails to allege
sufficient facts, under the standard set forth in
Iannachino v. Ford Motor Co., 451 U.S. Mass. 623
(2008), that the Registration Statement contained material
misrepresentations. This Court disagrees. The Complaint
sets forth detailed allegations that the Registration
Statement contained misleading statements or failed to
include material facts regarding: 1) the science behind
AUGMENT; 2) the success rate; 3) the reason why the Company
undertook its studies outside of the United States; and 4)
the profitability of the Company. Plaintiffs allege that, as
a result of the falsely optimistic picture The Registration
Statement painted regarding AUGMENT's prospects as a
fertility treatment, stocks prices for Ovascience briefly
shot up (with certain of the individual defendants profiting
from that rise), then sharply declined when the facts
regarding AUGMENT emerged just a few months later-facts that
were known at the time the Registration Statement issued.
This more than satisfies the requirement that the Complaint
set forth facts " plausibly suggesting (not merely
consistent with) an entitlement to relief . . ."
Iannacchino, supra, quoting Bell A. Corp. v.
Twombly, 550 Mass. 544, 555 (2007).
second argument concerns the issue of standing. The claims
are brought pursuant to Section 11, 12 and 15 of the
Securities Act. In order to have standing to bring a claim
under Section 11, a plaintiff must have purchased shares
either in the offering in question or, if the shares were
purchased in an aftermarket, they must be "
traceable" to the offering at issue. Where a company has
made more than one stock offering, it may be quite difficult
for a plaintiff to meet Section 11's standing
requirement. Standing is even more difficult to demonstrate
if the claim is asserted under Section 12, which imposes
liability only on a " seller" as defined by the
statute. A " seller" includes a non-owner (like an
underwriter) if the defendant solicited the purchase,
motivated at least in part by its own financial interest. See
Pinter v. Dahl, 486 U.S. 622 (1988). However, the
plaintiff must show a direct connection between the purchase
and the offering in question. Language that the shares were
purchased " pursuant and/or traceable to" the
offering documents is not enough. Plumbers Union Local
No. 12 v. Nomura Asset Acceptance Corp., 632 F.3d 762
(1st Cir.) (2011) (affirming dismissal of Section 12 claim
for lack of standing); See also, ARIAD Pharmaceuticals,
Inc. Securities Litigation No. 15-1491, (Nov. 28, 2016)
(affirming dismissal of Section 11 claim where plaintiff
alleged only that shares were traceable to the offering).
instant case, the Complaint alleges that all plaintiffs
purchased stock " pursuant and/or traceable to" the
January 8 Offering. Relying on Nomura and
ARIAD, defendants argue this is insufficient to give
the plaintiff's standing to bring this case. Ovascience
points out that, at the time of the offering, there were over
24 million shares of Ovascience outstanding; it argues that,
because the Registration Statement related to a secondary
offering, some greater level of specificity is required. See
In re Century Aluminum Securities Litigation, 729
F.3d 1105, 1107 (9th Cir. 2013) (if it is only "
possible" that the plaintiff purchased the stock in the
offering, that is not enough to confer standing under Section
Complaint alleged only that plaintiffs' shares were
traceable to the January 8 Offering, the defendants would be
correct. But as to plaintiff Westmoreland, it alleges more,
stating that Westmoreland purchased its stock on the day of
the January 8 Offering and at the Offering price. This Court
concludes that these additional facts are sufficient to
permit a reasonable inference that Westmoreland purchased its
stock directly in the Offering, so as to have standing under
both Section 11 and section 12. With at least one named
plaintiff (Westmoreland) having satisfied standing
requirements, dismissal of this class action is not warranted
under Rule 12(b)(6).
There have been three iterations of the
complaint since this case began. This Court looks to the most
recent one, entitled " Class Action Complaint for
Intervention for Violation of the Securities Act of 1933,
filed November 4, 2016.
The Complaint also asserts a claim against
the individual defendants under Section 15, which imposes
secondary liability on " control persons." Given
this Court's ruling on the Section 11 and Section 12