IN THIS ISSUE
Delaware Federal Court docket Dismisses Shareholder By-product Go well with Regarding Lack of Board Variety; California Federal Court docket Dismisses Shareholder Class Motion Towards Sorrento Therapeutics Relating to COVID-19 Remedy; Delaware Court docket of Chancery Dismisses Hashish Firm Buyers’ Go well with as Sanction for “Contumacious” Discovery Conduct
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DELAWARE FEDERAL COURT DISMISSES SHAREHOLDER DERIVATIVE SUIT CONCERNING LACK OF BOARD DIVERSITY
On November 15, 2021, Decide Richard G. Andrews of the U.S. District Court docket for the District of Delaware dismissed a by-product go well with filed by Qualcomm Inc. stockholders asserting that Qualcomm’s 2019 and 2020 proxy statements included false statements and deceptive omissions concerning its dedication to board range. In dismissing the case, Decide Andrews concluded that the challenged statements had been inactionable puffery or weren’t alleged to be false and that the challenged omissions weren’t alleged to have rendered the proxy deceptive.
Plaintiffs alleged that “Qualcomm ha[d] repeatedly falsely represented that it has made substantial progress in the direction of range and inclusion in its office and on the board,” that Qualcomm “is likely one of the few remaining publicly-traded corporations and not using a single African American director,” and that ladies and different minority teams face discrimination all through the corporate.
Plaintiffs asserted that Qualcomm’s administrators had violated Part 14(a) of the Change Act, and Rule 14a-9 promulgated thereunder, by approving proxy statements for 2019 and 2020 that contained false statements and deceptive omissions and likewise by alleged oversight failures. Plaintiffs additionally asserted that Qualcomm’s administrators had breached their fiduciary duties by failing to make sure board range and the corporate’s compliance with federal and state anti-discrimination and variety legal guidelines.
With respect to the Part 14(a) claims, the court docket concluded that plaintiffs had did not sufficiently allege an actionable false assertion or deceptive omission in Qualcomm’s proxy statements. For instance, Decide Andrews famous that the corporate’s aim of assembling a board that “brings to us a range of views and expertise,” as acknowledged within the 2019 proxy assertion, amounted to puffery and was immaterial. The court docket additionally famous that plaintiffs did not allege that Qualcomm’s 2020 proxy assertion, which referred to the corporate’s plan to instruct its recruiters to seek for and embody feminine and “racially/ethnically various” candidates within the recruiting pool from which administrators could be chosen, was false or deceptive. The court docket additionally rejected plaintiffs’ Part 14(a) declare primarily based on alleged oversight failures as impermissibly “bootstrapping” a federal securities declare to a breach of fiduciary responsibility declare.
With respect to the breach of fiduciary responsibility claims, the court docket concluded that plaintiffs had did not sufficiently allege {that a} demand that the Qualcomm board pursue plaintiffs’ claims would have been futile. Underneath Delaware regulation, pleading demand futility requires alleging particularized information creating an affordable doubt {that a} majority of the board could be disinterested with respect to the underlying claims or unbiased of any director. The court docket rejected plaintiffs’ efforts to point out that Qualcomm administrators confronted a considerable chance of non-public legal responsibility, which, in mild of the exculpation provision in Qualcomm’s certificates of incorporation, requires alleging particularized information displaying a breach of the responsibility of loyalty. The court docket discovered that the grievance lacked the mandatory particularized information as a result of “[p]laintiffs by no means determine any particular legal guidelines governing racial/ethnic range or discrimination that had been violated” and “if . . . legal guidelines had been violated …, [p]laintiffs by no means allege the who, what, the place, when, and the way of these violations.” The court docket additionally famous that “if the [b]oard [had in fact] determined to implement a enterprise technique designed to bypass federal and state legal guidelines prohibiting racial discrimination, there are not any particularized information concerning both the choice or the technique.”
Whereas the court docket dismissed the grievance in its entirety, the court docket granted plaintiffs depart to amend sure of their causes of motion.
CALIFORNIA FEDERAL COURT DISMISSES SHAREHOLDER CLASS ACTION AGAINST SORRENTO THERAPEUTICS REGARDING COVID-19 TREATMENT
On November 18, 2021, Decide Anthony J. Battaglia of the U.S. District Court docket for the Southern District of California dismissed a putative class motion go well with filed by Sorrento Therapeutics Inc. shareholders asserting that the biopharmaceutical firm and two of its executives had made false statements and deceptive omissions concerning the efficacy of a monoclonal antibody often known as STI-1499, which Sorrento had found, in opposition to COVID-19. In dismissing the case, Decide Battaglia concluded that the grievance not solely did not allege adequately that the challenged statements and omissions had been false or deceptive, but additionally that it did not allege adequately that defendants acted with scienter.
Plaintiffs asserted claims beneath Part 10(b), and Rule 10b-5 promulgated thereunder, and Part 20(a) of the Securities Change Act of 1934. In Might 2020, Sorrento introduced that it found an antibody that “demonstrated 100% inhibition of SARS-CoV-2 virus an infection” and Sorrento’s executives made comparable statements, together with Sorrento’s CEO describing the antibody as a 100% “remedy.” Plaintiffs asserted that these statements mislead traders as a result of the antibody was solely in preclinical testing and that Sorrento’s share value fell when Sorrento later clarified that the antibody “may be” or “doubtlessly” might be a remedy and acknowledged that the antibody couldn’t “remedy late-stage sufferers.”
The court docket concluded that plaintiffs did not sufficiently allege an actionable false assertion or deceptive omission, noting that the grievance “fail[ed] to offer particular data to efficiently argue that defendants allegedly made false statements in regards to the effectivity of the antibody, lied or misled traders about its preclinical testing standing, or schemed to bolster check outcomes to extend Sorrento’s inventory costs.” Specifically, Decide Battaglia famous that the CEO’s assertion that the antibody was a 100% “remedy” amounted to puffery and was immaterial. The court docket additionally famous that plaintiffs’ contentions in regards to the alleged misstatements had been undercut when the statements had been considered within the context. For instance, sure of the challenged statements appeared in articles that famous that the antibody was not but accredited by the FDA. The court docket additional concluded that it discovered “nothing in regards to the illustration of [the antibody’s] success that [was] inaccurate or deceptive.” The court docket additionally discovered that plaintiffs’ allegations failed to determine a powerful interference of scienter, concluding that the “allegations that defendants had been motivated by improper monetary motives” lacked the requisite particularity “to point that defendants’ motivations had been something aside from routine enterprise aims.” Lastly, the court docket dismissed the Part 20(a) claims primarily based on its dismissal of the first violation claims.
Whereas the court docket dismissed the grievance in its entirety, the court docket granted plaintiffs depart to file an amended grievance.
DELAWARE COURT OF CHANCERY DISMISSES CANNABIS COMPANY INVESTORS’ SUIT AS SANCTION FOR “CONTUMACIOUS” DISCOVERY CONDUCT
On November 19, 2021, Vice Chancellor Morgan T. Zurn of the Delaware Court docket of Chancery dismissed an traders’ fraud go well with referring to hashish firm American Basic Sources LLC, citing plaintiffs’ “sample of contumacious habits” throughout discovery. The dismissal order got here after the court docket cancelled the scheduled trial and indicated that it supposed to dismiss the case primarily based on plaintiffs’ discovery misconduct.
Plaintiffs filed the go well with in opposition to AGR and its principals, who function the hashish enterprise Bloom Farms, in June 2020. Plaintiffs alleged that AGR and its principals lured them him into investing $5 million into AGR with fraudulent monetary projections and different misrepresentations that painted a very optimistic image of the corporate.
In August 2021, Vice Chancellor Zurn discovered plaintiffs in contempt of court docket for a litany of intentional discovery misconduct, together with failing to seek for and produce digital data from the laptops and e mail accounts utilized by plaintiffs, failing to institute a litigation maintain, deleting textual content messages, freely giving laptops with related data, refusing to reply written discovery questions concerning plaintiffs’ due diligence in reference to their funding in AGR, and failing to adjust to plenty of associated court docket orders.
The Vice Chancellor concluded that plaintiffs’ discovery misconduct warranted the “final sanction” of entry of a default judgment as a result of, amongst different causes, plaintiffs’ violations had been willful, extremely prejudicial to defendants, and persevered even after the court docket gave plaintiffs a number of alternatives to right their course. The order additionally awarded defendants charges related to the invention points and ordered additional briefing concerning defendants’ entitlement to extra charges.
