Forman v. Meridian Bioscience, 2019 WL 2177030 (S.D. Ohio May 20, 2019)

On May 20, 2019, Judge Susan J. Dlott of the Southern District of Ohio granted plaintiff’s motion to reconsider and amend a prior order dismissing an action against Meridian Bioscience, Inc. and two of its executives.

Plaintiff brought claims under Section 10(b) of the Exchange Act and SEC Rule 10b-5, alleging that defendants had misrepresented the efficacy of, and concealed known regulatory problems with, blood lead level testing products manufactured by Meridian’s subsidiary, Magellan Diagnostics.

In its original order, the Court held that plaintiff had adequately pleaded that Meridian’s Form 10-K disclosure that the FDA had “cleared” each of its marketed diagnostic products was actionable because Magellan’s blood-testing products were instructing customers to use an incubation period to achieve accurate results, notwithstanding that Magellan failed to notify the FDA of these instructions, and the FDA had not yet cleared those products for use with an incubation period.  In that order, however, the Court dismissed the action based on plaintiff’s failure to allege scienter, crediting defendants’ argument that “it would not have made sense” for Meridian to knowingly acquire Magellan if it had regulatory liabilities when the Company’s goal was to boost revenues and stock prices.

However, the Court subsequently granted plaintiff’s motion to reconsider and amend the order dismissing the action on scienter grounds.  The Court reasoned that defendant’s contention that “it would not have made sense” to acquire Magellan if it knew of the regulatory issues was not responsive to the alleged misstatements in the Form 10-K, which was issued eight months after the acquisition.  Moreover, the Court explained that its previous scienter analysis had improperly conflated two issues—the efficacy of the blood-testing products and their FDA clearance requirement—and reasoned that the efficacy of the product was separate from the Company’s obligation to notify the FDA of a significant modification.

This case highlights the need for defense counsel to scrupulously address each individual statement that is alleged to have been misleading, and that dismissal motions should specifically address why a plaintiff has failed to adequately allege scienter in connection with each analytically distinct statement.