Appeals Court Affirms Decision to Dismiss Securities Fraud Shareholder Suit Against Bioenvision
In a victory for Ropes & Gray client Genzyme Corporation, the U.S. Court of Appeals for the Second Circuit affirmed a lower court’s 2009 decision to dismiss a shareholder suit against Bioenvision, Inc. (since merged with Genzyme Corp.) and some of its leaders. The April 7 decision in Vladimir et al. v. Bioenvision Inc. et al. found deficient the plaintiffs’ claims that the defendants made materially misleading statements by not disclosing ongoing merger negotiations with Genzyme Corp.
The suit dates to July 2007 when the plaintiffs, who sold stock in Bioenvision over a six-week period in the spring of 2007, alleged they lost out on the chance to sell their stock for a higher price because of false statements and a dilutive stock offering made by Bioenvision. The plaintiffs claimed that Bioenvision artificially deflated the value of its stock by issuing and by failing to correct or update statements that contained material misrepresentations as to Bioenvision’s plan to enter into a merger agreement with Genzyme. They also argued that once Bioenvision spoke about the primary focus of Bioenvision and recent events in the company’s history, they had a duty to disclose the ongoing merger negotiations with Genzyme in order to keep those statements from becoming misleading. In the district court’s dismissal of the case, the judge found that since none of the alleged misleading statements even raised the subject of mergers, Bioenvision was under no duty to disclose the ongoing merger discussions.
In affirming the decision to dismiss the suit, the appeals court said the judge was right to conclude that the plaintiffs had not identified any legal duty that required the defendants to disclose the omitted information relating to the merger negotiations. “As the district court correctly observed ... no express duty requires the disclosure of merger negotiations, as opposed to a definitive merger agreement,” the appeals court said.
Securities Litigation partner John Donovan, who led the Ropes & Gray team for the defendants, said he was pleased with the Second Circuit's finding that the defendants did not have an obligation to disclose the information about the merger discussions. Other members of the Ropes & Gray team included associates Amy Roy and Thomas Brown.