In re Immune Response Securities Litigation

375 F.Supp.2d 983

In re: IMMUNE RESPONSE SECURITIES LITIGATION.

No. 01CV1237JWMC.

United States District Court, S.D. California.

June 7, 2005.

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Edward Phillip Dietrich, Lerach Coughlin Stoia Geller Rudman and Robbins, San Diego, CA, for plaintiff and movant.

Patrice Lyn Bishop, Stull Stull and Brody, Los Angeles, CA, Darren Jay Robbins, Lerach Coughlin Stoia Geller Rudman and Robbins, Brian J. Robbins, Robbins Umeda and Fink, San Diego, CA, for plaintiffs.

Richard Mark Segal, Pillsbury Winthrop Shaw Pittman, Daniel Evan Eaton, Seltzer Caplan McMahon Vitek, San Diego, CA, Dennis J. Block, Jonathan M. Hoff, Danielle D. Dooley, Cadwalader Wickersham and Taft, New York, NY, for defendants.

ORDER: (1) DENYING DEFENDANTS' MOTIONS TO DISMISS THE COMPLAINT; AND (2) DENYING DEFENDANTS' REQUESTS FOR JUDICIAL NOTICE

JONES, District Judge.

This is a class action¹ on behalf of all persons ("Plaintiffs") who bought shares of Immune Response Corporation ("IRC") between May 17, 1999 and July 6, 2001 (the "Class Period"). (Compl.¶ 1.) Plaintiffs allege IRC and its representatives made false and misleading statements about the efficacy of REMUNE — a drug IRC developed for the treatment of human immunodeficiency virus ("HIV"). Specifically, Plaintiffs allege securities fraud under the 1933 Securities Exchange Act §§ 11, 12(a)(2), and 15, as well as, Securities Exchange Commission ("SEC") Rule 10b-5 and §§ 10(b), 20(a) of the 1934 Act. Defendants² now move to dismiss under Fed.R.Civ.P. 12(b)(6) and 9(b). Plaintiffs oppose the Motions. For the reasons set forth below, Defendants' Motions are DENIED.

Request for Judicial Notice

Defendants request incorporation by reference and judicial notice of various documents, some of which Plaintiffs oppose.³ As set forth below, the Court DENIES Defendants' requests.

"As a general rule, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.2001); Pelletier v. Federal Home Loan Bank of San Francisco, 968 F.2d 865, 872 (9th Cir.1992) (review "on a motion to dismiss is limited to the contents of the complaint"). Additionally, the Court is "required to presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the non-moving party." U.S. v. LSL Biotechnologies, 379 F.3d 672, 698 (9th Cir.2004); see also Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1096 (9th Cir.2004) ("When ruling on a motion to dismiss, we accept all material allegations of a complaint and view them in the light most favorable to the plaintiff."). "Indeed, factual challenges to a plaintiff's complaint have no bearing on the legal sufficiency of the allegations under Rule 12(b)(6)." Lee, 250 F.3d at 688.

"There are, however, two exceptions[.]" Id. Incorporation by reference is one exception. See Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir.1998). Under that exception, "a court may consider material which is properly submitted [or attached] as part of the complaint[.]" Id.; see also Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir.1997), superseded by statute on other grounds, see In re Vantive Corp. Secs. Litig., 283 F.3d 1079, 1091 (9th Cir.2002). "If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them." Lee, 250 F.3d at 688. But, "this is a narrow exception...It is not intended to grant litigants license to ignore the distinction between motions to dismiss and motions for summary judgment." Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir.1998).

Then there is judicial notice. Under Fed.R.Evid. 201, "a court may take judicial notice of matters of public record." Lee, 250 F.3d at 688-89. "But a court may not take judicial notice of a fact that is `subject to reasonable dispute.'" Id. at 689-690 (internal citation omitted).⁴

Here, Defendants seek to incorporate by reference twenty eight (28) documents, twelve (12) of which — Exs. 1, 2, 3, 5, 6, 15, 16, 21, 23, 24 25, andF — Plaintiffs oppose. None of the opposed documents are central to, or form the basis of, Plaintiffs' claims. Moreover, the Complaint does not "extensively" refer to any of them; nor do Plaintiffs' claims necessarily rely on them. See U.S. v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003) ("[A] document ... may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of plaintiff's claim."); Lee, 250 F.3d at 688. Rather, Defendants offer the documents as evidence that Defendants did not commit securities violation.

Also, considering these documents as part of the pleadings at this stage would expand the "narrow exception" and eliminate the distinction between a motion for summary judgment and a motion to dismiss. See Levenstein, 164 F.3d at 347. In other words, granting Defendants' requests would turn the proceedings into a summary judgment motion without invoking the normal consequences. See In re Network Equip. Techs., Inc. Litig., 762 F.Supp. 1359, 1368 (N.D.Cal.1991) ("Court[s] should not ... generate an evidentiary record and then weigh evidence ... to dismiss [a] complaint."). Furthermore, consideration of the exhibits encourages a weighing of factual disputes; a process that is improper on a motion to dismiss. See In re Northpoint Communications Group, Inc., 221 F.Supp.2d 1090, 1095 (N.D.Cal.2002). At this stage, the Court must resolve any ambiguities in Plaintiffs' favor. Accordingly, the Court denies Defendants' request and will not consider the opposed documents. See Cooper, 137 F.3d at 622-23.⁵

Next, Defendants request judicial notice of seven (7) documents, four (4) of which — Exs. 4 and 13, G andH — Plaintiffs oppose. For the following reasons, Defendants' request is denied. "Courts may only take judicial notice of adjudicative facts that are not subject to reasonable dispute." Ritchie, 342 F.3d at 908-09. "Facts are indisputable, and thus subject to judicial notice, only if they either `generally known'...or capable of accurate and ready determination by resort to sources whose accuracy cannot be questioned[.]" Id. The contested exhibits are not the type of documents readily capable of judicial notice, and Plaintiffs contest their authenticity. There is no indication that Plaintiffs intentionally omitted material facts to disguise any deficiency in their claims. See Parrino, 146 F.3d at 706. Moreover, the Court did not rely on the documents and finds them irrelevant in deciding the Motions. See Osher v. JNI Corp., 308 F.Supp.2d 1168, 1177 n. 2 (S.D.Cal.2004).

Having found that the exceptions do not apply, the Court's Review "on [this] motion to dismiss is limited to the contents of the [C]omplaint." Pelletier, 968 F.2d at 872. As noted above, the Court is "required to presume all factual allegations of the [C]omplaint to be true and draw all reasonable inferences in favor of the non-moving party"the Plaintiffs. LSL Biotechnologies, 379 F.3d at 698. Regarding the unopposed documents, the Court will refer to them as it finds appropriate.

Factual Background

For purposes of these Motions, the Court must construe the facts in a light most favorable to Plaintiffs. Accordingly, for the purpose of adjudicating the instant Motions to Dismiss, the Court assumes the following facts to be true.

A. Defendants IRC, Moss and Carlo

IRC is a biopharmaceutical company that develops immune-based therapies for the treatment of HIV. (Compl.¶ 1.) IRC's stock is traded on NASDAQ. Defendant Dennis J. Carlo, Ph.D. ("Carlo"), is a co-founder of IRC and was its Chief Executive Officer during the Class Period. Defendant Dr. Ronald B. Moss ("Moss") was Director of Medical and Scientific Affairs until January 2000, and then was named Vice President of Medical and Scientific Affairs.

Moss and Carlo had the authority to control the contents of IRC's quarterly reports, press releases and presentations to securities analysts. They also had copies of IRC's reports and press releases before or shortly after their issuance, and had the ability and opportunity to prevent their issuance or correct them.

IRC invented REMUNE in 1987 to treat HIV. To market REMUNE, IRC had to get approval from the Food and Drug Administration ("FDA"). In fact, every drug sold in the United States must first be approved by the FDA. Approval by the FDA requires preclinical trials, usually done on animals, then at least three phases of clinical trials on humans; these trials are referred to as phases I, II, and III. Phase I trials are mainly aimed at determining if the metabolic and pharmacologic actions of the drug in humans are safe enough to proceed to Phase II studies. Phase II studies are controlled clinical studies that involve a limited population infected with the disease the drug proposes to treat. Phase III studies usually involve many more people than Phase II studies and are intended to gather additional information on the drug's efficacy and safety that will be used in evaluating its overall risks and benefits.

By 1996, IRC had completed phases I and II, which proved REMUNE had a positive effect on secondary markers such as CD4 cells.⁶ But impact on secondary markers was not enough to obtain FDA approval. At phase III, IRC had to further show that REMUNE slowed the progression from HIV to Acquired Immune Deficiency Syndrome ("AIDS") or from AIDS to death. This was the only measure of efficacy in 1996.⁷

B. Defendant Agouron and Study 806

In February 1996, IRC received clearance from the FDA to begin phase III studies of REMUNE ("Study 806")...