Goodwin securities litigators recently obtained the complete dismissal with prejudice of a securities class action suit brought against Metabolix, Inc. and its senior management in the U.S. District Court for the District of Massachusetts.
Metabolix, an innovation-driven bioscience company based in Cambridge, Mass., is focused on bringing environmentally-friendly solutions to the plastics, chemicals and energy industries. Its products include a bioplastic marketed under the trade name Mirel, which presents a biodegradable, but functionally equivalent, alternative to petroleum-based plastics.
This case arose out of the 2012 termination of Metabolix’s joint venture with an affiliate of the Archer-Daniels Midland Corporation (“ADM”) to produce and commercialize Mirel. When Metabolix entered the joint venture, its extensive public disclosures fully disclosed a number of substantial risks associated with the joint venture, including that Metabolix was forced to rely heavily on ADM, which provided the upfront financing for the joint venture, and that ADM could terminate the joint venture for virtually no reason and on limited notice.
In January 2012, ADM informed Metabolix that it was exercising its unilateral right to terminate the joint venture, leading to a decline in Metabolix’s stock price. ADM’s press release stated that ADM terminated the joint venture not because of any quality issues with Mirel or lack of sales, but because of uncertain projected financial returns for ADM. ADM announced significant restructuring, cost reductions and layoffs at the same time.
A securities class action complaint soon followed. The plaintiffs alleged that Metabolix and two of its senior officers violated the Securities Exchange Act of 1934 and Rule 10b-5 by making purportedly false and misleading statements about Metabolix’s ability to meet certain projected milestones associated with the joint venture, and failing to disclose alleged issues regarding product quality and sales. The defendants moved to dismiss the case on the grounds that the plaintiffs had not sufficiently alleged: (i) any material misrepresentation (as the risks of the joint venture had been fully and accurately disclosed); (ii) that the defendants knew any alleged misrepresentation was false, even if one did exist; and (iii) that any alleged misrepresentation was the cause of the plaintiffs’ losses.
U.S. District Court Judge Douglas Woodlock granted the motion to dismiss with prejudice, adopting Metabolix’s reasoning that the plaintiffs’ complaint relied too heavily on assumed facts, unalleged connections and selective readings of the operative documents to state a proper claim for securities fraud.
According to Judge Woodlock, the overwhelmingly more plausible inference was that ADM terminated the joint venture pursuant to its contractual right to do so for precisely the reasons it stated. The plaintiffs declined to appeal the decision.
The Metabolix litigation team was led by partner Deborah Birnbach. Partner Michael Jones and counsel Brian Mukherjee provided additional support.