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In re Tokai Pharmaceuticals, Inc.

Superior Court of Massachusetts, Suffolk, Business Litigation Session

December 14, 2018


          File Date: December 17, 2018


          Janet L. Sanders, Justice Superior Court

         This is a putative class action alleging violations of the Securities Act of 1933. Plaintiffs seek to certify a nationwide class consisting of individuals and entities who purchased stock in an initial public offering (IPO) of Tokai Pharmaceuticals, Inc. (Tokai) that occurred on September 17, 2014. Plaintiff alleges that Tokai and other defendants conducted the IPO using a materially false and misleading Registration Statement.

         Defendants now move to strike the class allegations on the grounds that this Court cannot, consistent with due process, exercise personal jurisdiction over absent class members who are not residents of Massachusetts. In support, they rely on a decision by this judge declining to certify a nationwide class in a case which, like this one, alleged federal Securities Act violations. In Re Ovascience Litigation, SUCV2015-3087-BLS2, 2017 WL 7362335 Mass.Super.Ct. Nov. 7, 2017) [34 Mass.L.Rptr. 610] (Ovascience). In opposing the motion, plaintiffs cite a key difference between the instant case and Ovascience, which is that absent class members in this case will be foreclosed from seeking relief in any other state if the motion to strike is allowed. Plaintiffs also argue that issues regarding class certification should be decided after a decision on a pending motion to dismiss and after they have had an opportunity to conduct discovery. This Court concludes that the motion is indeed premature and that the issues it raises are too important to be decided on a motion to strike.


         The procedural history of this case is complicated. The first class action challenging Tokai’s Registration Statement was filed in California Superior Court by plaintiff Jackie888, Inc. (Jackie888) in August 2016. Defendants moved to dismiss on forum non conveniens grounds, asserting that Massachusetts, where Tokai was headquartered, was the more convenient place to litigate the dispute. In the alternative, the defendants asked that the action be stayed in favor of an earlier filed action pending in the United States District Court here in Massachusetts. The California court ordered a stay.

         On December 5, 2016, plaintiff Hao Wu filed a Complaint in this Court making allegations identical to those in the California and federal court actions referenced above. Wu’s case was removed to federal court, but remanded to this Court on March 27, 2018. On May 5, 2018, Wu filed an Amended Complaint identical to the first one, but defined the nationwide class in a way that would permit any putative class member to opt out of the class. This was apparently an attempt to deal with the fact that Rule 23, Mass.R.Civ.P., does not contain an opt-out provision. On May 24, 2018, plaintiff Jackie 888 refiled in this Court the complaint it had filed in California, with the parties agreeing to dismiss the California lawsuit. The two actions (Wu’s claim and Jackie888’s claim) were consolidated.

         On May 29, 2018, the parties appeared before this Court (Salinger, J.) to discuss a case schedule. Defense counsel indicated that they planned to file a motion to dismiss and also intended to challenge class certification; they asked that the class certification challenge be heard first. Plaintiff’s counsel demurred, saying that some discovery was needed on the class issues. Judge Salinger agreed with plaintiffs’ counsel, setting a schedule for the filing of a Consolidated Complaint and for a hearing on a motion to dismiss. A Consolidated Complaint was filed on June 29, 2018 containing the same definition of the nationwide class as that in Wu’s Amended Complaint. Contrary to Judge Salinger’s order, however, defendants decided to proceed first on the class question, filing the instant motion. The Motion to Dismiss was filed a month later and is currently scheduled for a hearing on December 20, 2018.


         Since the motion is described as a motion to strike, defendants presumably bring it pursuant to Rule 12(f), Mass.R.Civ.P, which permits a party to request an order striking from any pleading "any insufficient defense, or any redundant, immaterial, impertinent or scandalous matter." Although the motion before this Court would not appear to fall within the meaning of this rule, federal courts under the identical federal rule have entertained requests to strike class allegations. See Manning v. Boston Medical Center, 725 F.3d 34, 59 (1st Cir. 2013), and cases cited therein. Following this lead, another BLS judge, applying the standard applicable to Rule 12(b)(6), struck class allegations where the factual allegations in the complaint did not support a plausible claim that the plaintiff could proceed on behalf of a class of similarly situated individuals. Kantzelis v. Commerce Ins. Co., 34 Mass.L.Rptr. 534, 2017 WL 7053905 (November 9, 2017) (Kaplan, J.); compare DeOliveira v. Liberty Mutual Ins. Co., 35 Mass.L.Rptr. 126, 2018 WL 3118545 (May 10, 2018) (Kaplan, J.). Still, such motions are generally disfavored in that they ask a court to preemptively terminate the class aspects of the litigation solely based on what is alleged in the complaint and before plaintiffs engage in any discovery on the questions relevant to class certification. See Mazzola Roomster Corp., 849 F.Supp.2d 395, 410 (S.D.N.Y. 2012), and cases cited therein. They should be allowed only rarely and then only where it is obvious from the pleadings that the proceeding cannot possibly move forward on a classwide basis. See Manning v. Boston Medical Center, 725 at 59 (reversing lower court’s allowance of such a motion). In particular, questions about the "appropriate contours of the putative class, including redefining the class during the certification process or creating subclasses" are not grounds to strike class actions allegations. Id. In other words, class definitional issues are not properly addressed on such a motion.

         Plaintiffs contend that the Consolidated Complaint does contain sufficient factual allegations. This Court agrees. It alleges that Tokai was headquartered in Massachusetts and provides details as to how the Boston-based lawyers for the defendants conducted the IPO, all that activity occurring in Boston. The Consolidated Complaint further refers to a "multicity road show" prior to the IPO where Tokai representatives met with potential investors to discuss the company. The Complaint notes that Section 22 of the Securities Act, 15 U.S.C. § 77v(a), the venue provision, clearly contemplates that this action be brought in Massachusetts. And although venue is not the same as personal jurisdiction, the question of whether a court can exercise personal jurisdiction over a particular party is itself a fact intensive inquiry. At very least, plaintiffs should be given a chance to review Tokai records to determine the contours of the class before this Court makes a definitive ruling with regard to whether it can exercise personal jurisdiction over absent class members.

         There is a second reason for this Court’s reluctance to determine the class certification question at this very early stage in the case: the legal issue that the defendants raise is far from clear cut. In support of their motion, defendants rely almost exclusively on this Court’s decision in Ovascience. But that decision was made in a different procedural context. The question of whether this Court could certify a nationwide class was raised by way of a motion for class certification-after this Court had denied defendant’s motion to dismiss challenging the factual sufficiency of the Complaint’s allegations and after the plaintiffs had an opportunity to conduct discovery on the class issues. There was another important difference between the instant case and Ovascience: in this case, there appears to be no dispute that the three-year statute of repose has expired on any claims under the Securities Act not yet asserted against the Tokai defendants related to the September 2014 Registration Statement. In contrast, in the Ovascience litigation, the decision not to certify a nationwide class did not prevent absent members of the putative class from asserting claims on their own since the limitations period had not run.

         Quite apart from the differences between Ovascience and the instant case, this judge would be the first to admit that the decision in Ovascience is not precedent and that a Massachusetts appellate court could well reach a different result. In reaching the decision that it did, this Court relied on two decisions: Phillips Petroleum Co. v. Stutts, 472 U.S. 797 (1985), and Moelis v. Berkshire Life Ins. Co., 451 Mass. 483 (2008). This Court concluded that, under reasoning of those two cases, it had no power to certify a nationwide class: certification necessarily required the court to exercise personal jurisdiction over absent class members who were not residents-an exercise that was circumscribed by the Due Process Clause of the United States Constitution. Because Rule 23 did not permit putative class members to opt out of the class, certification of a nationwide class would violate Due Process. Both Moelis and Stutts however, involved claims asserted under state law. Neither involved attempts to define the class as plaintiffs have here (to exclude those who opt out). Neither dealt with the question of what would happen if the failure to certify a nationwide class meant that no absent class member could assert a claim, any such claim at this point being time barred.

         These differences may not compel a different result in the instant case. But they are serious enough to suggest that this Court proceed with caution and not decide these issues in the absence of any discovery and before it has been determined that plaintiffs do indeed state a claim upon which relief ...

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