Goodwin Procter securities litigators obtained an important victory last week when the First Circuit Court of Appeals affirmed dismissal of a securities class action for client NeuroMetrix, a medical device maker, and its senior management.
The securities fraud class action had alleged that NeuroMetrix and its senior officers violated the Securities Exchange Act and Rule 10b-5 by making false and misleading statements regarding the future insurance reimbursement and profitability prospects for its NC-stat device, failing to disclose material information regarding “serious” reimbursement risks and employing questionable marketing practices. The plaintiffs also alleged a scheme to artificially inflate NeuroMetrix’ stock price and reap millions in insider trading profits.
Goodwin attorneys for NeuroMetrix moved to dismiss the complaint, arguing that the plaintiffs failed to allege an actionable misstatement or omission where they merely alleged that the defendants failed to predict that reimbursement levels of NC-stat would change. They also argued that allegations that the company’s former director of reimbursement believed that the current reimbursement billing codes were “improper” amounted to no more than an internal disagreement within the company and did not create any disclosure obligation.
In December 2009, Judge Zobel of the U.S. District Court for the District of Massachusetts granted the motion, dismissing the complaint in its entirety with prejudice. On appeal, the First Circuit issued an order on March 18 affirming the dismissal.
“This decision is important because it clarifies that when a company discloses risks such as the uncertain future of medical reimbursement for its products, not all information that may arguably be material is subject to a duty to disclose under the securities laws,” said Deborah Birnbach, who led Goodwin’s litigation team. “In particular, where risk disclosures increase over time as news develops during the class period, there is not a duty to characterize that risk in a particular matter, or to disclose disagreement within the company over strategy.”