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In re St. Jude Medical Inc. Securities Litigation

United States District Court, D. Minnesota

December 8, 2014

In re St. Jude Medical Inc. Securities Litigation.

Dennis J. Herman, Luke O. Brooks, Matthew S. Melamed, Armen Zohrabian, and Ekaterini M. Polychronopoulos, Robbins Geller Rudman & Dowd LLP, Post Montgomery Center, Daniel S. Drosman and X. Jay Alvarez, Robbins Geller Rudman & Dowd LLP, and Carolyn G. Anderson and Brian C. Gudmundson, Zimmerman Reed, P.L.L.P., for Plaintiffs.

James K. Langdon, Michelle S. Grant, and Jaime Stilson, Dorsey & Whitney LLP, for Defendants.



This matter is before the Court on Defendants' Motion for Leave to File Motion to Decertify the Class [Doc. No. 373]. For the reasons set forth below, Defendants' Motion is denied.


A. Plaintiffs' Claims

In this securities fraud action, Lead Plaintiff Building Trades United Pension Trust Fund and Plaintiff City of Taylor Police and Fire Retirement System claim that Defendant St. Jude Medical, Inc. ("STJ"), and four of its officers-Defendant Daniel J. Starks, Defendant John C. Heinmiller, Defendant Eric S. Fain, and Defendant Michael T. Rousseau (collectively, the "Individual Defendants")-violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(b), and the Securities Exchange Commission's Rule 10b-5, 17 C.F.R. § 240.10b-5. In Count I, Plaintiffs assert a claim under Section 10(b) and Rule 10b-5 against all Defendants, alleging that Defendants made false statements of material fact that deceived Plaintiffs. (Consolidated and Amended Class Action Complaint [Doc. No. 23] ("Complaint") ¶¶ 189-93.) In Count II, Plaintiffs assert a derivative claim under Section 20(a) against all Defendants, alleging that they were liable as "control persons" under the Exchange Act. (Id. ¶¶ 194-95.) At its core, the Complaint is premised largely on alleged misrepresentations about STJ's true growth and market share in the cardiac rhythm management device market- allegedly masked by STJ's alleged practice of "channel stuffing, " that is, seeking or pressuring its customers to acquire large quantities of STJ's products at the end of a financial quarter so as to artificially inflate STJ's revenues and earnings for a particular quarter, and STJ's accounting for such sales. According to Plaintiffs, Defendants' fraud first materialized and manifested itself when STJ's stock price dropped on October 6, 2009 after STJ announced that it had missed its 3Q09 earnings.[1]

On October 15, 2010, Defendants moved to dismiss the Complaint, claiming that the allegations failed to satisfy the heightened pleading requirements of the Private Securities Litigation Reform Act of 1985, Pub. L. 104-67, 109 Stat. 743, 758 (codified at 15 U.S.C. § 78u-4), with respect to the identification of false or misleading statements and the requisite state of mind, and that Plaintiffs failed to adequately plead loss causation. On December 23, 2011, this Court granted Defendants' motion only to the extent that it sought dismissal of Count I with respect to Defendants Fain and Rousseau. In re St. Jude Med., Inc. Sec. Litig., 836 F.Supp.2d 878, 912 (D. Minn. 2011).

B. Plaintiffs' Motion for Class Certification

On August 31, 2012, Plaintiffs filed a motion to certify this action as a class action pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure. (Mot. to Certify Class [Doc. No. 74] at 2.) Defendants stipulated to certification on those grounds. (Defs.' Mem. in Resp. to Pls.' Mot. to Certify Class [Doc. No. 80] at 2.) Accordingly, on October 25, 2012, the Court certified the following class:

All persons who purchased or otherwise acquired the publicly traded securities of St. Jude Medical, Inc. between April 22, 2009 and October 6, 2009, [2] inclusive. Excluded from the Class are: (i) defendant St. Jude Medical, Inc., its parents, subsidiaries, and any other entity owned or controlled by St. Jude Medical, Inc.; (ii) defendants Daniel J. Starks, John

C. Heinmiller, Eric S. Fain, and Michael T. Rousseau; (iii) all other executive officers and directors of St. Jude Medical, Inc., or of any of its parents, subsidiaries, or other entities owned or controlled by St. Jude Medical, Inc.; (iv) all immediate family members of the foregoing individuals, including grandparents, parents, spouses, siblings, children, grandchildren, and step-relations of similar degree; and (v) all predecessors and successors in interest or assigns of any of the foregoing.

(Order dated Oct. 25, 2012 [Doc. No. 86] at 3.)

C. Defendants' Motion for Summary Judgment

Defendants moved for summary judgment on October 15, 2013. Defendants' motion was premised on a purported lack of evidence of the same three elements of securities fraud that Defendants attacked in their motion to dismiss-a material misrepresentation or omission, scienter, and loss causation. (See Defs.' Mem. of Law in Supp. of Mot. for Summ. J. [Doc. No. 172] ("Defs.' SJ Mem.") at 28.) Specifically, they asserted that their use of bulk sales was neither an uncommon nor improper means of generating revenue and was well known by the market, that the alleged misrepresentations were non-actionable puffery or forward-looking statements, that they did not stand to profit from the alleged fraudulent conduct, and that the market did not attribute the earnings miss to channel stuffing. (See id. at 1-3.) Plaintiffs, on the other hand, argued that Defendants misled investors by recklessly failing to disclose sufficient information about their bulk sales practices and the potential risks of using such practices, that the financial guidance they provided was not supported by internal sales forecasts, and that STJ's third-quarter earnings miss resulted from the effects of their channel stuffing. (Pls.' Opp. to Defs.' Mot. for Summ. J. [Doc. No. 196] ("Pls.' SJ Opp.") at 1-2.)

On August 11, 2014, this Court issued its Order granting the motion in part, and denying it in part (the "Summary Judgment Order"). As for Count I, the Court found that Plaintiffs had created a genuine issue of material fact regarding their fraud claim to the extent that it was based on allegations related to channel stuffing. (Mem. Op. and Order dated Aug. 11, 2014 [Doc. No. 229] ("SJ Order") at 75.) However, the Court dismissed Plaintiffs' claim to the extent that it was based on allegations of accounting fraud because Plaintiffs failed to establish loss causation. (Id. at 73, 75.) Specifically, the Court found that, although Plaintiffs described the allegedly improper accounting methods used by STJ, they did not attempt to explain what the associated risks were or how they materialized and negatively impacted earnings. (Id. at 73.) The Court also stated-in a footnote-that, to the extent that Plaintiffs' claims were based on the actual ...

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