Bass, Berry & Sims attorney Chris Lazarini examined a putative class action case in which the plaintiffs claimed that defendants omitted and concealed material information in the company’s IPO registration statement in violation of the Securities Act, and continued to make materially false statements after the initial offering in violation of the Exchange Act. The court, however, found that:

• Defendant’s registration statement accurately summarized the FDA’s warning letter
• Defendant’s statements about conducting further clinical studies fell squarely within the statutory safe harbor for “forward looking” statements about management’s plans and objectives for future operations
• The company’s registration statement described the regulatory risks in considerable detail, noting that it is unnecessary to set out every possible regulatory consequence of every possible contingent event

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication.

Yan vs. ReWalk Robotics, Ltd., No. 17-10169 (D. Mass., 8/23/18)

*Generic expressions of corporate optimism and statements that are vague, lacking in particularity, or clearly the opinions of the speaker are not statements a reasonable investor would consider material.

**It is unnecessary for a registration statement to set out every regulatory consequence of every possible contingent event.

***The PSLRA does not require courts to choose a lead plaintiff with standing to sue on every claim.

ReWalk makes exoskeleton devices to help persons with spinal cord injuries walk. In 2014, the FDA approved the ReWalk device for marketing, but ordered the company to conduct post-market surveillance to study the product’s risks. Despite several extensions from the FDA, ReWalk did not timely satisfy the FDA’s surveillance requirement, and management did not disclose its failure to comply in a quarterly earnings call. On the day a warning letter from the FDA became public, the stock price declined 13% and continued to fall thereafter. Plaintiffs in this putative class action allege that ReWalk, its officers and directors, and the IPO underwriters, concealed material information in ReWalk’s IPO registration statement in violation of the Securities Act, and continued to make materially false statements after the initial offering in violation of the Exchange Act. Defendants moved to dismiss under FRCP 12(b)(6) and the PSLRA.

For the Securities Act claims, the Complaint alleged that defendants failed to disclose in the registration statement that if a fall occurs, the ReWalk device was reasonably likely to cause serious injury or death to the user and posed a threat of serious injury to persons assisting the user. The Court deems this a mischaracterization of the FDA’s warning letter, and finds that the registration statement accurately summarized why the post-market surveillance study was imposed.

The Complaint also alleged that the registration statement’s description of ReWalk’s device as a “breakthrough product” based on “compelling clinical data” and its description of the FDA-directed post-market surveillance requirement and regulatory risk were materially false. The Court finds the terms “breakthrough product” and “compelling clinical data” are mere puffery; generic expressions of corporate optimism that a reasonable investor would not consider material. The Court then finds ReWalk’s statements about conducting further clinical studies to fall squarely within the statutory safe harbor for “forward looking” statements about management’s plans and objectives for future operations.

Finally, the Court finds no basis to conclude that ReWalk’s description of the FDA’s post-market surveillance requirement or the regulatory risks was inadequate. The registration statement, the Court points out, disclosed that the FDA imposed the requirement and discussed the risks of non-compliance. The Court also finds that the registration statements described the regulatory risks in considerable detail, noting that it is unnecessary to set out every possible regulatory consequence of every possible contingent event.

Before considering the merits of the motion on the Exchange Act claims, the Court must address whether the lead plaintiff lacks standing to assert Exchange Act claims because he purchased shares only at the IPO and could not have relied on the alleged misstatements in the earnings calls. While this lack of standing would ordinarily dispose of the Exchange Act claims, a lead plaintiff need not have standing to bring every claim under the PSLRA. Because the parties did not brief how these principles apply, the Court directs them to submit additional briefing and affords Plaintiffs time to seek appointment of a substitute or supplemental lead plaintiff.

We earlier reported on the Court’s grappling with selection of the lead plaintiff and the interplay between the Federal Rules of Civil Procedure and the PSLRA on timely service of process in SOLA 2018-16.