The former head of Valeant Pharmaceuticals International Inc.’s dermatology division was unable to convince a court to rethink the validity of a class action lawsuit accusing the generic drugmaker and its executives of engaging in a massive scheme to fraudulently inflate the company’s stock prices.
Deborah Jorn, who oversaw Valeant’s U.S. dermatology business for more than two years, had moved for reconsideration in New Jersey federal court of an April ruling denying her motion to dismiss the case.
In court documents, Jorn said that lead plaintiffs TIAA-CREF had failed to plead that she had any actual knowledge of the alleged scheme, which ended up costing the Canadian company $80 billion in market capitalization. And she argued that U.S. District Judge Michael A. Shipp of the District of New Jersey had drifted from Third Circuit precedent in not assessing her “individual association” with the alleged fraud.
In a short memorandum opinion, however, Shipp on Tuesday said Jorn had simply recited arguments already raised on her motion to dismiss, and declined to revisit his earlier ruling.
“Jorn’s arguments amount to a mere disagreement with the court’s decision, which is inappropriate for reconsideration,” he said in the four-page ruling.
Jorn was one of six Valeant executives and 11 board members accused of making false or misleading statements that caused Valeant’s stock to be traded at artificial prices between January 2013 and March 2016.
During that time, investors said that Valeant, whose U.S. operations are based in New Jersey, used a network of secretly controlled pharmacies, deceptive pricing and reimbursement practices and fake accounting to prop up an unsustainable business model.
The alleged misconduct has led to congressional hearings, multiple lawsuits and two government investigations into Valeant’s accounting practices, and caused the company’s market capitalization to decline by nearly $80 billion, plaintiffs said. According to the complaint, Valeant’s stock had fallen from a high of more than $262 per share to less than $25 when discrepancies in the company’s accounting came to light in 2016.
Investors sued in 2015, alleging violations of the Securities Exchange Act, and the cases were later consolidated and TIAA-CREF was named lead plaintiff.
Shipp denied separate motions by Valeant and the individual defendants to dismiss the case in April, finding that TIAA-CREF and its Robbins Geller Rudman & Dowd attorneys had adequately plead that Valeant’s brass was aware of wrongdoing but still mislead investors about what was going on within the company.
Jorn, who left Valeant in 2016, in her own motion had accused TIAA-CREF of “group pleading” and challenging the “threadbare allegations” levied against her in the 286-page complaint.
She filed for reconsideration in May, arguing that Shipp had committed a clear legal error by failing to address her scienter claim individually and noted that the complaint only cited a few sentences she had spoken on a single conference call with investors.
“The court denied Jorn’s motion to dismiss without analyzing the complaint’s scienter allegations specific to Jorn. This analysis is required under Third Circuit law,” she said.
Jorn continued: “Plaintiffs’ scienter allegations against Jorn boil down to nothing more than the following: Jorn was an executive; Jorn received a raise during the class period; and Jorn knew that dermatology products were sold through Philidor. That is not enough.”
On Tuesday, Shipp declined to address Jorn’s assertions in detail, saying only that he had “applied the relevant legal standards” to Jorn’s motion.
“Accordingly, the court does not find that it committed a clear error of law or overlooked controlling authority in denying Jorn’s motion to dismiss,” Shipp wrote.
An attorney for Jorn did not return a call Wednesday seeking comment on the ruling. She is represented by Barry A. Bohrer, Michael L. Yaeger and Cara David of Schulte Roth & Zabel.
The case is captioned In re Valeant Pharmaceuticals International Securities Litigation.