On March 30, Judge J. Paul Oetken of the U.S. District Court for the Southern District of New York largely denied the core of Mylan N.V.’s motion to dismiss a securities fraud opt-out case brought by a Mylan investor. Finding that the Lowenstein-filed complaint alleged actionable misrepresentations and omissions by Mylan with respect to its misclassification of the EpiPen for purposes of the Medicaid rebate, the court’s decision ensured that the opt-out action will proceed against Mylan. The court dismissed select other allegations but granted the plaintiff the opportunity to replead those allegations.
The opt-out case against Mylan concerns Mylan’s knowing misclassification of the EpiPen, a well-known epinephrine auto-injector used to treat allergic reactions. Although the EpiPen is a brand-name drug, for years, Mylan covertly misclassified it as a generic drug for purposes of calculating the rebate it owes Medicaid, resulting in an underpayment by Mylan of over $1 billion. When Mylan’s fraudulent conduct was revealed, its stock price fell significantly. Mylan argued that subsequent action by Congress somehow excused Mylan’s prior misrepresentations. The court rejected this argument, agreeing with the plaintiff that the subsequent legislation–the Right Rebate Act–was passed to stop misclassifications–like the EpiPen misclassification–from ever happening again, primarily by giving regulators more enforcement tools.
In an important victory for investors, the court also found that American Pipe tolling–which allows investors to rely on the filing of a class action to toll the running of the statute of limitations on their securities claims while the class action continues–applied to the plaintiff’s Section 18 claim. This is an important decision for investors, as Section 18 claims cannot generally be brought by class action plaintiffs but can be valuable to investment funds pursuing their own claims and cases. This is the second time Lowenstein has secured a positive decision on this issue, including the prior case, Broadway Gate Master Fund, Ltd. v. Ocwen Fin. Corp., No. 16-80056-CIV-WPD, 2016 WL 9413421, (S.D. Fla. June 29, 2016).
“Opt-out actions can bring unique claims against those who violate the securities laws, and it’s great to see another decision in favor of investment funds’ opt-out claims,” said Lawrence M. Rolnick, Chair of Lowenstein’s Securities Litigation group. “Opt-out claims can result in greater recoveries, and sooner, for investment funds–something that we’ve seen in multiple cases, including the Ocwen matter.”