United States District Court, N.D. California, San Jose Division
IN RE KALOBIOS PHARMACEUTICALS, INC. SECURITIES LITIGATION
ORDER GRANTING DEFENDANT MARTIN SHKRELI'S MOTION
TO DISMISS RE: DKT. NO. 61
J. DAVILA, UNITED STATES DISTRICT JUDGE
Plaintiffs Kaniz Fatema, Zeke Ingram, Bhaskar R.
Gudlavenkatasiva, and Abuhena M. Saifulislam, as well as
Plaintiff Austin Isensee (collectively the
“Plaintiffs”), individually and on behalf of all
the other persons similarly situated, bring this putative
securities class action against KaloBios Pharmaceuticals,
Inc. (“KaloBios”) and individuals Ronald Martell,
and Herb Cross, and Martin Shkreli, alleging violations of
Sections 10(b), 20(a) and 20A of the Securities Exchange Act
of 1934 and U.S. Securities and Exchange Commission
(“SEC”) Rule 10b-5 promulgated thereunder.
Defendants KaloBios, Ronald Martell, and Herb Cross reached a
partial settlement with Plaintiffs, which the court granted
final approval of concurrently with the entry of this order.
Dkt. No. 93. Accordingly, Defendant Shkreli remains the sole
non-settling defendant in this case.
before the court is Shkreli's Motion to Dismiss for
failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6), and for failure to plead claims with the
requisite level of particularity under Federal Rule of Civil
Procedure 9(b) and the Private Securities Litigation Reform
Act of 1995 (the “PSLRA”), 15 U.S.C. 78u-4 et
seq. (1995). Def. Shkreli Mot. to Dismiss
(“MTD”), Dkt. No. 61. Having carefully considered
the papers submitted by both parties in this matter,
Shkreli's Motion will be granted for the reasons
REQUEST FOR JUDICIAL NOTICE
preliminary matter, Shkreli requests that the court take
judicial notice of certain documents in connection with his
Motion to Dismiss. See Dkt. No. 61-3
(“RJN”). Specifically, Shkreli requests judicial
notice of Exhibits 1-14 to the Declaration of Peter C.
Buckley, filed in support of Shkreli's Motion. Exhs.
1-14, Buckley Decl., Dkt. Nos. 61-1, 61-2. Shkreli's
request for judicial notice is unopposed as to Exhibits 1-4
and 7-10, and it is therefore GRANTED. However, Plaintiffs
oppose Shkreli's request as to Exhibits 5 and 6,
purported transcriptions of interviews quoted in FAC, as well
as Exhibits 11-14, four news articles Plaintiffs assert are
not cited in the FAC. See Opp. at 16.
ruling on a motion to dismiss, courts may consider documents
incorporated by reference in a complaint or upon which a
complaint necessarily relies, as well as matters subject to
judicial notice. Metzler Inv. GMBH v. Corinthian Colls.,
Inc., 540 F.3d 1049, 1061 (9th Cir. 2008) (citing
Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179, (2007)).
Federal Rule of Evidence 201 allows a court to take judicial
notice of adjudicative facts “not subject to reasonable
dispute in that [they are] ... capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned.” Fed.R.Evid. 201(b)(2).
notice of news articles may be appropriate in securities
fraud cases to show “that the market was aware of the
information contained in news articles.'” In re
Am. Apparel, 855 F.Supp.2d at 1062 (quoting
Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d
971, 981 n.18 (9th Cir. 1999); see ScripsAmerica, Inc. v.
Ironridge Glob. LLC, 119 F.Supp.3d 1213 (C.D. Cal. 2015)
(“Taking judicial notice of news reports and press
releases is appropriate to show that the market was aware of
the information contained in news articles”); In re
Splash Tech. Holdings, Inc. Sec. Litig., No. C 99-00109
SBA, 2000 WL 1727405, at *7, n. 6 (N.D. Cal. Sept. 29, 2000)
(holding that because omitted information in the case had
been disclosed elsewhere, “the Court may take judicial
notice that the market already was aware of the
information.”); see also Benak ex rel. All. Premier
Growth Fund v. All. Capital Mgmt. L.P., 435 F.3d 396,
401 n. 15 (3d Cir. 2006) (“We see no basis to upset the
District Court's decision to take judicial notice of
newspaper articles supplied by appellees.”). However,
judicial notice of news articles is generally “limited
to a narrow set of circumstances . . . e.g., in securities
cases for the purpose of showing that particular information
was available to the stock market.” Gerritsen v.
Warner Bros. Ent. Inc., 112 F.Supp.3d 1011, 1028 (C.D.
Shkreli requests judicial notice of four news articles
regarding his alleged misconduct in connection with his other
companies prior to the Class Period. See Exhs.
11-14, Buckley Decl. Specifically, Exhibit 11 is an article
published by The New York Times on September 22, 2015
entitled “Martin Shkreli, the Mercurial Man Behind
the Drug Price Increase That Went Viral;” Exhibit
12 is an article published by FierceBioTech on August 17,
2015 entitled “Retrophin goes after Shkreli with a
$65M suit, claims of flagrant mismanagement;”
Exhibit 13 is an article published by Newsweek on September
13, 2015 entitled “Federal Prosecutors Target
Martin Shkreli in a Criminal Investigation;” and
Exhibit 14 is an article published by Forbes on August 18,
2015 entitled “Retrophin Sue Founder Martin Shkreli
For $65M. His Reply: ‘Preposterous.'”
RJN at 2-3.
does not offer these news reports for the truth of their
content, but rather to refute Plaintiffs'
“fraud-on-the-market” theory by demonstrating
that public news sources had “already widely
disseminated the alleged omissions to the investing
public” at the time of his arrest and public release of
the indictments on December 17, 2015. Id. at 3.
Because Shkreli's request is for the purposes of showing
“that the market was [already] aware of the information
contained in news articles, ” it therefore fits the
“narrow set of circumstances” in securities
litigation where judicial notice of newspaper articles is
appropriate. See Gerritsen, 112 F.Supp.3d at 1028;
Heliotrope, 189 F.3d at 981, 975-76 (explaining that
where the market has already been made aware of the
purportedly concealed information “the facts allegedly
omitted by the defendant would already be reflected in the
stock's prices and the market will not be
misled.”); Benak, 435 F.3d at 401 n. 15
(affirming district court's decision to take judicial
notice of news articles, explaining “[w]hether
appellants read the articles or were aware of them is
immaterial” because the articles “serve only to
indicate what was in the public realm at the time, not
whether the contents of those articles were in fact
true.”); In re Merrill Lynch & Co. Research
Reports Sec. Litig., 289 F.Supp.2d 416, 425 n. 15
(S.D.N.Y.2003) (“The Court may take judicial notice of
newspaper articles for the fact of their publication without
transforming the motion into one for summary
unlike in cases such as Gerritsen, where the court
declined to take judicial notice of articles published by
third party sources like Wikipedia and Answers.com based in
part on the fact that such sources are not reliable, there
can be little dispute as to the authenticity of the articles
here, which include publications by credible and mainstream
sources like The New York Times, Forbes and Newsweek.
Accordingly, the court GRANTS Shkreli's request for
judicial notice as to Exhibits 11-14. As to Exhibits 5 and 6,
Shkreli's request for judicial notice is DENIED because
the court did not rely on these exhibits in reaching this
is a biopharmaceutical company founded in 2000 and
headquartered in South San Francisco, California. FAC ¶
4. KaloBios's stock traded on the NASDAQ under the ticker
symbol “KBIO.” Id. Martin Shkreli served
as the Chief Executive Officer (“CEO”) and
Chairman of KaloBios during the Class Period. Id.
¶ 29, 54. Prior to the Class Period, Shkreli was a hedge
fund manager and pharmaceutical investor who co-founded the
investment company MSMB in September 2009 and the
biopharmaceutical company Retrophin in 2011. Id.
¶ 5. Shkreli served as a managing partner of MSMB
Capital until it ceased to operate in 2013, and CEO of
Retrophin from December 17, 2012 until October 13, 2014.
Id. ¶¶ 62(a), 63.
in early January 2015, prior to the Class Period, KaloBios
was under “severe financial distress, ” and by
mid-2015, the company's leadership began searching for
other potential investors. Id. ¶¶ 43-44.
On November 5, 2015, KaloBios announced “a 61%
workforce reduction and the pursuit of ‘strategic
alternatives, '” including the potential sale of
the company or its assets, a corporate acquisition, further
restricting its activities, winding down operations, and/or
bankruptcy proceedings. Id. ¶¶ 46-47. By
November 9, 2015, KaloBios announced it was halting
enrollment in its clinical studies, and on November 13, 2015,
KaloBios issued a press release stating that its limited cash
resources precluded continued investigation of strategic
alternatives, and as a result, it would begin efforts to
“wind down its operations” and liquidate its
assets. Id. ¶¶ 47, 48. As a result of this
news, KaloBios's stock further declined, closing at $0.90
on November 13, 2015. Id. ¶ 49.
November 10, 2015 and November 24, 2015, Shkreli purchased 2,
075, 200 shares of KaloBios common stock on “the open
market, ” making him the largest shareholder of
KaloBios, and prompting discussions with KaloBios'
“regarding possible direction for the company to
continue in operation.” Id. ¶¶ 6,
50. Just prior to the Shkreli's purchase of the majority
shares of KaloBios stock, between August and September 2015,
reports of criminal investigations into Shkreli's
management of Retrophin and MSMB Capital were published by
mainstream news sources including The New York Times, Forbes
and Newsweek. Buckley Decl., Exhs. 11-14, Dkt. No. 61-2. For
example, an article published by Newsweek on September 13,
2015 entitled “Federal Prosecutors Target Martin
Shkreli in a Criminal Investigation;” stated that
Shkreli was under investigation for allegations of
“insider trading, disguising the purpose of corporate
payments for his benefit, defrauding shareholders by
snatching business opportunities for himself, destruction of
evidence, failure to disclose material facts to shareholders
and other potential crimes.” Id., Exh. 13.
Nevertheless, by November 19, 2105, KaloBios' Board had
accepted Shkreli's financing proposal and appointed him
as CEO. FAC ¶¶ 50-54. The existing Board then
resigned. See id. ¶ 62(b).
Shkreli was appointed as CEO, he made a number of public
statements regarding KaloBios' strong potential and
positive progress, as well statements regarding his efforts
to turn the company around financially and why he was
qualified to be the CEO. See id. ¶¶ 54,
57, 60, 62, 65, 68, 70, 73, 75, 78. Plaintiffs allege that
these statements led to a recovery and rise in KaloBios stock
price. Id. However, on December 17, 2015, Shkreli
was arrested for alleged misconduct at his previous company,
Retrophin, the details of which were outlined in a 30-page
federal indictment and a 22-page SEC Complaint made public
the same day. Id. ¶¶ 15, 81-82. Shkreli
was immediately terminated as CEO. Id. ¶ 81.
When the news of Shkreli's arrest broke, KaloBios stock
price fell dramatically, “plummet[ing] 53% in pre-open
trading before NASDAQ halted all trading so it could request
more information from KaloBios.” Id. ¶
16. Soon thereafter on December 24, 2015, NASDAQ announced
that KaloBios's stock would be delisted, and on ...