The opinion of the court was delivered by: The Honorable David O. Carter, Judge
[I hereby certify that this document was served by first class mail or Government messenger service, postage prepaid, to all counsel (or parties) at their respective most recent address of record in this action on this date.]
Date:____________ Deputy Clerk: ___________________________________
JULIE BARRERA Not Present
Courtroom Clerk Court Reporter
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
NONE PRESENT NONE PRESENT
PROCEEDING (IN CHAMBERS): ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS
Before the Court is Defendant Douglas C. MacLellan ("MacLellan") and Akio Ariura's ("Ariura") (jointly, "Individual Defendants") Motion to Dismiss Plaintiffs' Amended Complaint ("Motion to Dismiss") (Docket 19) in the above-captioned case. The Court finds this matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; Local Rule 7-15. After considering the moving, opposing and replying papers, and for the reasons discussed below, the Court hereby GRANTS IN PART AND DENIES IN PART the Motion to Dismiss.
Lead Plaintiffs Reydel Quintana, Dat Tan Tran, and Agnes Cho bring this federal securities class action on behalf of all persons and entities who purchased the common stock of Defendant Radient Pharmaceuticals Corporation ("Radient") from January 18, 2011 through March 4, 2011 (the "Class Period") (collectively, "Plaintiffs"). Amended Complaint ("Amd. Cmpl."), ¶ 1. The action is brought against Radient, Douglas C. MacLellan ("MacLellan"), and Akio Ariura ("Ariura") (collectively, "Defendants"). Radient is a small pharmaceutical company whose main business is the research, development, manufacturing and sale of its primary product, Onko-Sure, a U.S. Food and Drug Administration ("FDA") approved In-Vitro Diagnostic Cancer Test. Id. at ¶¶ 2-3. Since 2008, MacLellan was Radient's Chairman of the Board and CEO and, since August 2006, Ariura was
Since at least the early 1980's, Onko-Sure has allegedly competed with the industry standard, the Carcinoembryonic Antigen marker test (the "CEA"). Id. at ¶ 3. Radient's efforts to convince medical practitioners and institutions to utilize Onko-Sure, instead of the CEA, have allegedly been a slow and expensive process. Id. at ¶ 4. Radient's reported revenue for the 2010 fiscal year was $231,662, its operating expenses were over $14 million, and its net loss was $85,711,853. Id. at ¶ 5. Radient allegedly acknowledged in its SEC filings that its ability to continue operations was dependent upon raising additional capital. Id. at ¶ 6. In short, Plaintiffs aver that, in the time leading up to the Class Period, Radient was desperate for operating cash. Id. at ¶ 9.
Additionally, Plaintiffs claim that, in the time leading up to the Class Period, Radient was also engaged in litigation with investors for either being in default or breach of its financing
Id. at ¶ 11. On June 11, 2010, Hudson Bay Fund, L.P. allegedly sued Radient in connection with its purchase of Convertible Promissory Notes. Id. Whalehaven Capital and Alpha Capital Anstalt also allegedly commenced suit against Radient, on December 21, 2010, for failing to increase the number of shares covered by the warrants issued to those entities as a result of Radient's decreasing
Id. Therefore, Plaintiffs allege that, in the time leading up to the Class Period, Radient's stock price declined and its financing costs increased, including its ongoing obligations to pay interest and issue additional stock to existing investors. Id. Accordingly, Plaintiffs claim that Radient was under intense pressure to prevent any further stock price declines. Id.
Plaintiffs argue that, against this backdrop, on January 18, 2011, Defendants issued a materially false and misleading press release stating that Radient and the prestigious Mayo Clinic were conducting a clinical trial together for Onko-Sure and that the Mayo Clinic and Radient would jointly provide clinical study results. Id. at ¶¶ 12, 35-36.*fn1 Plaintiffs aver that Defendants intentionally misled investors to believe that it was conducting its clinical trial with the Mayo Clinic because: (1) Defendants wanted to attach greater prestige, importance, and a higher likelihood of success to the Onko-Sure clinical trial in an effort to inflate its stock price and (2) Defendants believed such a trial would help raise additional financing. Id. at ¶¶ 13, 37. Plaintiffs claim that just twelve days after the press release, on January 30, 2011, Radient successfully raised additional financing when it completed its largest offering ever. Id. at ¶ 14. Specifically, Radient received $6.73 million in proceeds when it signed a definitive agreement for the private placement of $8.4 million in Convertible Promissory
Plaintiffs allege that the press release was materially false and misleading because, according to an article issued by Thestreet.com on March 7, 2011: (1) the Mayo Clinic did not have a partnership agreement with Radient; (2) the Mayo Clinic was not engaged in clinical studies with Radient; (3) the Mayo Clinic was not to provide any clinical study results about Onko-Sure; and (4) the Mayo Clinic's only relationship with Radient was a contract between Radient and a subsidiary of the Mayo Clinic that sold blood and tissue samples for Radient's clinical trial.*fn2 Id. at ¶ 15. Plaintiffs aver that the adverse news that the Mayo Clinic was not conducting a clinical trial with Radient caused Radient's stock to drop dramatically.*fn3 Id. at ¶¶ 16, 40.
On March 11, 2011, a copy of the Complaint was filed in this Court (Docket 1). Plaintiffs filed the Amd. Cmpl. (Docket 14), on July 8, 2011, alleging two causes of action: (1) violation of section 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 against all defendants and (2) violation of section 20(a) of the Exchange Act against MacLellan and Ariura. On August 5, 2011, Moving Defendants MacLellan and Ariura brought the instant Motion to Dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6) and for failure to satisfy the heightened pleading requirements of Fed R. Civ. P. 9(b) and the Private Securities Litigation Reform Act of 1995.
Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1968 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957)). In order for a complaint to survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. , 129 S.Ct. 1937, 1950 (2009). A claim for relief is facially plausible when the plaintiff pleads enough facts, taken as true, to allow a court to draw a reasonable inference that the defendant is liable for the alleged conduct. Id. at 1949. If the facts only allow a court to draw a reasonable inference that the defendant is possibly liable, then the complaint must be dismissed. Id. Mere legal conclusions are not to be accepted as true and do not establish a plausible claim for relief. Id. at 1950.Determining whether a complaint states a plausible claim for relief will be a context-specific task requiring the court to draw on its judicial experience and common sense. Id.
In evaluating a 12(b)(6) motion, review is "limited to the contents of the complaint." Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). However, exhibits attached to the complaint, as well as matters of public record, may be considered in determining whether dismissal was proper without converting the motion to one for summary judgment. See Parks School of Business, Inc. , 51 F.3d 1480, 1484 (9th Cir. 1995); Mack v. South Bay Beer Distributors, Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Further, a court may consider documents "on which the complaint 'necessarily relies' if: (1) the complaint ...