Pomerantz Scores Critical Victory for Investors in Perrigo Company plc Litigation

ATTORNEY: JOSHUA B. SILVERMAN | POMERANTZ MONITOR JANUARY/FEBRUARY 2020

Pomerantz recently set important precedent for global investors. In the Perrigo securities litigation (Roofer’s Pension Fund v. Papa, et al.), Judge Arleo of the District of New Jersey certifi ed parallel classes of investors that purchased Perrigo shares in the United States on the New York Stock Exchange (“NYSE”) and in Israel on the Tel Aviv Stock Exchange (“TASE”). The ruling was the fi rst to certify a foreign purchaser class since the Supreme Court’s landmark 2010 ruling in Morrison v. National Australia Bank, Ltd.

Pomerantz Managing Partner, Jeremy Lieberman, commented, “We are very pleased with the district court’s decision granting class certification to both TASE and NYSE investors. We hope it paves the way for those investors that purchase on non-U.S. exchanges, particularly investors in dual-listed securities, to procure a recovery in the U.S. courts which would have otherwise been foreclosed by Morrison.”

Morrison appeared to close the door of U.S. federal courts to investors who purchased on foreign exchanges, reasoning that the Securities Exchange Act of 1934 was not intended to have extraterritorial effect. In that decision, the Supreme Court stated that “Section 10(b) [of the Exchange Act] reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”

Morrison was particularly limiting for investors in dual-listed shares, a staple of most global portfolios. Dual-listed shares are traded both on U.S. and foreign exchanges, affording institutional investors the opportunity to execute trades on the venue offering the most favorable trading hours, pricing, and liquidity at any given moment. However, under Morrison, two purchasers of the same dual-listed stock at the same time injured by the same fraudulent misrepresentations and omissions might have very different remedies, depending on the trading venue. Those that purchased on a U.S. exchange would be able to join together with other similarly situated investors to collectively seek compensation in a U.S. class action. Investors purchasing on a foreign exchange, under Morrison, were generally left to pursue claims individually in a foreign court likely to be less familiar with and less favorable to securities fraud litigation.

The Perrigo action offered the perfect opportunity to test the bounds of Morrison. Perrigo is a global pharmaceutical company that has been dual-listed on the NYSE and the TASE for more than a decade. In connection with its dual-listing, Perrigo had elected to take advantage of a provision of the Israel Securities Act providing that its disclosure obligations in Israel would be governed by the standards of its country of primary listing – here, the United States – rather than by Israeli standards. Thus, for companies like Perrigo, Israeli law applies the standards of Section 10(b) of the Securities Exchange Act of 1934 to assess claims of securities fraud.

Perrigo violated Section 10(b) by making material misrepresentations and omissions that injured investors whether they purchased on the TASE or the NYSE. Specifically, to defeat a hostile tender offer and to artificially inflate its share price, Perrigo concealed problems with its largest acquisition, Omega, and anticompetitive pricing practices in its generic prescription drug business. While Perrigo’s misrepresentations and omissions helped convince shareholders to reject the tender offer, shares plummeted as the truth was disclosed.

In the litigation that followed, Pomerantz brought claims under Israeli law applying the Section 10(b) standard for TASE purchasers, as well as traditional claims under U.S. law for U.S. purchasers. In its opinion sustaining the core parts of the amended complaint over motions to dismiss, the Court held that supplemental jurisdiction was properly exercised over the TASE purchaser claims, noting that they applied the same standards as the claims asserted under U.S. law.

Class certification proved a larger battle. Pomerantz asked the Court to certify three classes: a U.S. purchaser class, a TASE purchaser class, and a tender offer class for investors who held Perrigo shares at the expiration of the failed tender offer. We bolstered arguments for certifying the TASE purchaser class with expert reports from a world-class econometrician, demonstrating that Perrigo shares traded efficiently on the TASE, just as they did on the NYSE, and from an Israeli law professor explaining the identity between the Section 10(b) cause of action incorporated under the Israel Securities Act for dual-listed companies, and under U.S. law. While defendants conceded that Perrigo shares traded efficiently in the United States, they vigorously disputed the efficiency of TASE trading. As a result, defendants argued, TASE purchasers were not entitled to a presumption of reliance and individual issues regarding reliance would defeat predominance, rendering class certification inappropriate.

However, Pomerantz and its expert marshalled evidence demonstrating that TASE trading satisfied each of the criteria traditionally used to assess market efficiency under Cammer v. Bloom: volume, analyst coverage, market makers, float and financial disclosure requirements relevant to Form S-3 eligibility, and cause-and-effect relationship between dissemination of value-relevant company-specific information and abnormal returns in stock prices.

The Court accepted these arguments, finding that “the majority of the Cammer factors … tip the balance in favor of finding market efficiency” and that the TASE purchaser class was therefore also “entitled to the Basic presumption of reliance.” As a result, the Court certified all three proposed classes. Defendants did not challenge certification of the TASE purchaser class in their petition for interlocutory appeal, which was limited to the tender offer class.

We expect other courts to follow Judge Arleo’s lead. Exercising supplemental jurisdiction of foreign securities claims while adjudicating U.S. claims does not offend Morrison and offers substantial efficiencies that benefit both plaintiffs and defendants. Litigating all claims in a single forum avoids duplicative discovery and motion practice, eliminates the risk of inconsistent judgments, and facilitates global settlement discussions.