Vaitkueviene v. Syneos Health Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NORTH CAROLINA

WESTERN DIVISION

NO. 5:18-CV-29-FL

EGLE VAITKUVIENE, Individually and on )

Behalf of All Others Similarly Situated, )

)

Plaintiff, )

)

v. )

)

SYNEOS HEALTH, INC., ALISTAIR )

MACDONALD, GREGORY S. RUSH, )

ORDER

MICHAEL A. BELL, ROBERT )

BRECKON, DAVID F. BURGSTAHLER, )

LINDA S. HARTY, RICHARD N. )

KENDER; WILLIAM E. KLITGAARD; )

KENNETH F. MEYERS, MATTHEW E. )

MONAGHAN, DAVID Y. NORTON, )

AND ERIC P. PACQUES, )

)

Defendants. )

This putative securities fraud class action is before the court upon defendants’ motion to

dismiss (DE 54), pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), and lead

plaintiffs’ motion to strike (DE 62). Pursuant to 28 U.S.C. § 636(b)(1)(A) and (B), United States

Magistrate Judge Kimberly A. Swank, entered an order and memorandum and recommendation

(“M&R”), granting in part and denying in part motion to strike, and recommending that

defendants’ motion to dismiss be denied. (DE 98). Defendants filed objections, and lead plaintiffs

responded thereto. In this posture, the issues raised are ripe for ruling. For the following reasons,

the court adopts the M&R in part, grants in part and denies in part lead plaintiffs’ motion to strike,

and grants defendants’ motion to dismiss on the terms set forth herein.

STATEMENT OF THE CASE

Plaintiff Egle Vaitkuviene commenced this action January 25, 2018, alleging defendant

Syneos Health Inc. (“Syneos”), and its officers defendants Alistair MacDonald (“MacDonald”)

and Gregory S. Rush (“Rush”), violated the Securities Exchange Act of 1934 (“Exchange Act”),

§§ 10(b) and 20(a), and applicable regulations by making fraudulent misrepresentations and

omissions to investors in connection with a merger between defendant Syneos and inVentiv

Health, Inc. (“inVentiv”).

On May 29, 2018, the court appointed San Antonio Fire & Police Pension Fund and the El

Paso Firemen & Policemen’s Pension Fund as lead plaintiffs and approved lead plaintiffs’

selection of counsel. Lead plaintiffs filed the operative amended complaint July 30, 2018,

asserting claims for: 1) violations of Section 10(b) of the Exchange Act and Securities and

Exchange Commission (“SEC”) Rule 10b-5 against defendants Syneos, MacDonald, Rush, and

Michael A. Bell (“Bell”), the chief executive officer of inVentiv prior to the merger, (“count one”);

2) control person liability under Section 20(a) of the Exchange Act, predicated on the alleged

Section 10(b) violations, against defendants MacDonald, Rush, and Bell (“count two”); 3)

violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against defendants Syneos,

MacDonald, Rush, Bell, as well as defendant Syneos’s board of directors, including Robert

Breckon (“Breckon”), David F. Burgstahler (“Burgstahler”), Linda S. Harty (“Harty”), Richard N.

Kender (“Kender”), William E. Klitgaard (“Klitgaard”), Kenneth F. Meyers (“Meyers”), Matthew

E. Monaghan (“Monaghan”), David Y. Norton (“Norton”), and Eric P. Paques (“Paques”) (“count

three”); and 4) control person liability under Section 20(a) of the Exchange Act, predicated on

alleged Section 14(a) violations, against defendants Syneos, MacDonald, Rush, Bell, Breckon,

Burgstahler, Harty, Kender, Klitgaard, Monaghan, Norton, and Eric P. Paques (“count four”).

Lead plaintiffs seek to certify a class action on behalf of all purchasers of defendant

Syneos’s common stock between May 10, 2017, and November 8, 2017, (“class period”) and all

persons or entities that held defendant Syneos’s common stock as of June 29, 2017. Lead plaintiffs

also seek damages, costs, attorneys’ fees and other relief.

On September 20, 2018, defendants filed the instant motion to dismiss for failure to state

a claim.1 Defendants argue that lead plaintiffs fail to plead an actionable misstatement or omission,

fail to allege facts which raise a strong inference of scienter, and have failed to plead loss causation.

In support of the motion, defendants rely upon several exhibits, including press releases, SEC

filings, transcripts of investor calls, and investor presentations. Reference is made to defendants’

index of exhibits submitted for the court’s consideration, lodged on the docket at (DE 55-1), for a

complete listing of exhibits. Lead plaintiffs responded in opposition, and defendants replied. In

the meantime, lead plaintiffs filed the instant motion to strike certain exhibits filed in support of

motion to dismiss, or in the alternative, to convert the motion to dismiss to a motion for summary

judgment. Defendants responded in opposition on November 21, 2018, and lead plaintiffs replied

December 5, 2018.

The motions were referred to magistrate judge on December 11, 2018. A few months later,

related case Murakami v. Syneos Health, Inc., 3:19-CV-7377, was instituted against defendant

Syneos in the United States District Court for the District of New Jersey. Upon notice that lead

plaintiffs moved to intervene and transfer Murakami to this court, the magistrate judge stayed the

instant action pending further litigation in Murakami. On June 2, 2020, the parties filed joint

notice, indicating that Murakami was dismissed, with no appeal being filed.

1 Defendants also moved to dismiss lead plaintiff El Paso Firemen and Policemen’s Pension Fund for lack of

subject matter jurisdiction, arguing that it lacks the capacity to sue. The magistrate judge recommended defendants’

motion be denied in this part, and defendants did not object to the magistrate judge’s determination. Finding no clear

error, the court adopts the M&R in this part.

On August 7, 2020, the magistrate judge lifted stay and entered order and M&R, granting

in part and denying in part lead plaintiffs’ motion to strike, and recommending that that defendants’

motion to dismiss be denied. Defendants filed objections to the M&R on September 4, 2020, and

lead plaintiffs responded thereto on October 2, 2020.2 Defendants filed notice of suggestion of

subsequently controlling authority on February 24, 2021, citing to the case In re Triangle Cap.

Corp. Sec. Litig., 988 F.3d 743, 751 (4th Cir. 2021).

STATEMENT OF FACTS

The court incorporates herein the summary of alleged facts, as set forth in the M&R, for

ease of reference.

Defendant Syneos Health, Inc. (“Syneos”), formerly known as INC

Research Holdings, Inc. (“INCR” or “Company”), is a publicly traded Delaware

corporation with its principal place of business in Raleigh, North Carolina. (Am.

Compl. at ¶¶ 18, 28.). INCR was primarily a contract research organization

(“CRO”) that assisted biopharmaceutical companies in conducting clinical trials.

(Id. at ¶ 1.) In looking to expand its services, INCR sought a merger with inVentiv

Health, Inc. (“inVentiv”), which was both a CRO and the top contract commercial

organization (“CCO”) in the world offering commercialization and post-Food &

Drug Administration (“FDA”) approval services. (Id. at ¶ 2.) inVentiv was a

privately held company based in Boston, Massachusetts, and the biopharmaceutical

industry’s only provider of a full suite of commercialization and post-FDA approval

services. (Id. at ¶¶ 31–32.) INCR looked to gain access to inVentiv’s CCO or

“commercial” segment and its strong connections to large biopharmaceutical

companies. (Id. at ¶¶ 2, 30.) Lead Plaintiffs assert they and other INCR

stockholders suffered damages and actual economic losses as a result of

Defendants’ materially false and misleading statements leading up to the merger of

INCR with inVentiv. Lead Plaintiffs bring this action on behalf of themselves and

(a) all persons or entities that purchased or otherwise acquired shares of INCR

common stock between May 10, 2017, and November 8, 2017 (“Class Period”),

and were damaged thereby (“Section 10(b) Class”); and (b) all persons or entities

that held shares of INCR common stock as of June 29, 2017 (“Section 14(a)

Class”). (Id. at ¶ 13.)

Defendant Alistair Macdonald (“Macdonald”), served as INCR’s Chief

Executive Officer (“CEO”) and as a board member of INCR. (Am. Compl. at ¶

19.) Defendant Gregory S. Rush (“Rush”) served as INCR’s Executive Vice

2 The case was reassigned to the undersigned on January 20, 2021.

President and Chief Financial Officer (“CFO”) until his departure from INCR on

February 21, 2018. (Id. at ¶ 20.) Defendant Michael A. Bell (“Bell”) served as

inVentiv’s CEO and Chairman of the Board before the merger and has served as

the Executive Chairman of the Board of INCR since August 1, 2017. (Id. at ¶ 21.)

The foregoing individual defendants are named as defendants in the Section 10(b),

Section 14(a), and both Section 20(a) claims asserted by Lead Plaintiffs.

In November 2016, Defendants Macdonald and Bell had an initial meeting

to discuss a merger between INCR and inVentiv. (Am. Compl. at ¶ 35.)

Macdonald, Rush, Bell and other INCR and inVentiv executives continued these

discussions among themselves and with the INCR board over a period of five

months. (Id.) After five months of discussion, the companies reached an

agreement, subject to approval by INCR stockholders, to merge the two companies

in 2017. (Id.) It was agreed that Macdonald would serve as CEO of the combined

company, Rush would serve as CFO, and Bell would serve as Executive Chairman

and manage the commercial segment of the combined company. (Id.)

INCR and inVentiv issued a joint press release announcing the merger on

May 10, 2017. (Am. Compl. at ¶ 36.) Defendants Macdonald, Rush, and Bell

began to promote the merger to obtain the necessary vote from the outstanding

shares of INCR common stock. (Id.) The individual Section 10(b) Defendants

stated that the combined company was expected to achieve immediate mid- to high-

single-digit accretion to adjusted earnings per share in 2018 and 9% or double-digit

growth in 2018, driven by growth in the commercial business. (Id. at ¶ 37.) The

Section 10(b) Defendants suggested that the CCO acquired from inVentiv would

grow more than the industry average of 8% and would be a long-term growth story.

(Id.) The merger was also promoted by highlighting the leadership strengths and

capabilities of Defendants Macdonald, Rush, and Bell as the key leaders of the

combined company. (Id. at ¶ 38.) Defendant Rush emphasized that INCR and

inVentiv both had “a history of value creation through successful integration of past

acquisitions,” while continuing to grow and expand their consumer base without

negatively impacting customers. (Id.) Rush noted that, since 2007, INCR had

completed seven acquisitions and inVentiv had completed twenty-five acquisitions.

(Id.) Defendant Rush stated that many of the team involved in leading the

successful integrations are within INCR and “[c]learly, we know how to integrate

and drive value creation.” (Id.) Due to inVentiv being a privately held company,

statements from the Section 10(b) Defendants were investors’ primary exposure to

inVentiv’s recent operating condition, financial results, and prospects. (Id. at ¶ 39.)

inVentiv had previously been successful at winning large contracts with big

pharmaceutical companies who hired CCOs to commercialize drugs newly

approved by the Food and Drug Administration (“FDA”) and with its ability to win

contracts from pharmaceutical companies with sales teams of 100 or more sales

representatives (“100-plus sales team contracts”). (Am. Compl. at ¶ 7, 41, 42.)

Such contracts contributed to the 15% annual revenue growth in its commercial

business from 2013 to 2016. (Id.) However, dependence upon contracts from such

large pharmaceutical companies and its lack of pursuit of smaller contracts with

smaller companies left inVentiv susceptible to “revenue swings.” (Id. at ¶ 43.)

The number of FDA-approved drugs fell from 45 in 2015 to 22 in 2016; out

of the newly approved drugs that were put out to bid for commercial services,

inVentiv won only two. (Am. Compl. at ¶ 44.) In 2017, new drug approvals

increased to historical levels, but only two 100-plus sales team contracts were

available for bid, neither of which inVentiv won. (Id. at ¶ 45.) Defendant Rush

explained there was a one-year lag between inVentiv’s sales and revenue growth.

(Id. at ¶ 44.) Although inVentiv experienced double-digit growth in 2016, the

results did not continue to 2017 and 2018 due to the decline in 100-plus sales team

contracts secured by inVentiv and an increase in cancellations of existing

commercial contracts. (Id. at ¶¶ 45, 46.) Defendant Rush also stated the Company

was underbid by competitors who offered to perform the work for less money. (Id.

at ¶ 45.) At the time of the merger announcement, the Section 10(b) Defendants

knew but did not disclose that inVentiv’s CCO segment was struggling to win any

new business and had yet to win any 100-plus sales team contracts in 2017. (Id. at

¶ 47.) Instead, the Section 10(b) Defendants highlighted that FDA new drug

approval numbers were on track to double in 2017, stating “[t]his trend, coupled

with inVentiv’s pipeline, sets the foundation for a strong growth in 2018 and

beyond.” (Id. at ¶¶ 48, 99.)

On July 27, 2017, INCR announced its second quarter 2017 earnings, and

the Section 10(b) Defendants confirmed their confidence in the combined

company’s 2018 growth prospects, stating “[W]e’re more optimistic today than we

were on May 10.” (Am. Compl. at ¶ 50.) Defendant Rush stated that “new drug

approvals are pretty strong so far this year, which is a precursor to the commercial

business.” (Id.) Defendant Rush reiterated “a lot of people are predicting 40 to 50

approvals this year which if we go back to that level that should, in theory, give us

an opportunity to return to strong growth in commercial in 2018.” (Id. at ¶ 51.)

On July 31, 2017, INCR held a special shareholder meeting at which the

proposed merger was approved by nearly 99% of voting shares. (Am. Compl. at

¶¶ 52, 244.) Before the meeting, INCR made various filings with the SEC pursuant

to Section 14(a), which included a May 10, 2017, press release; a May 10, 2017,

Investor Presentation; a transcript of the May 10, 2017, Investor Conference Call;

a Preliminary Proxy statement; a Definitive Proxy statement; and “definitive

additional material” to the Definitive Proxy statement (“Proxy Materials”). (Id. at

¶¶ 229–34.) The Proxy Materials were distributed to INCR shareholders before the

July 31, 2017, meeting and solicited the vote of shareholders in favor of the merger.

(Id. at ¶ 237.) These Proxy Materials described the terms of the transaction, the

background giving rise to the agreement, and information on merger-related

compensation. (Id. at ¶¶ 235–36.) The Proxy Materials were disseminated and

approved by Defendants INCR, Macdonald, Rush, Bell, and the Board of INCR

(which included Robert Breckon, David F. Burgstahler, Linda S. Harty, Richard N.

Kender, Williams E. Klitgaard, Kenneth F. Meyers, Matthew E. Monaghan, David

Y. Norton, and Eric P. Pâques). (Id. at ¶¶ 214–24.) Among other things, the Proxy

Materials stated the Board of INCR had performed due diligence, which included

the review of detailed information about inVentiv, and developed an

“understanding of the respective businesses, operations, financial condition,

earnings, strategy and prospects of INCR and inVentiv.” (Id. at ¶¶ 226–27.)

The merger of inVentiv and INCR was completed on August 1, 2017, with

INCR designated as the surviving corporation. (Am. Compl. at ¶ 52.) As a result

of the merger, Defendants Macdonald and Rush earned over $21 million combined

in merger-related compensation. (Id. at ¶¶ 53, 73.) Defendants Macdonald and

Rush also sold shares of their personal INCR stock during the Class Period. (Id.)

From June 30, 2017 to September 18, 2017, Defendant Macdonald sold 21,731

shares of INCR common stock—approximately 18% of his total holdings—for a

total of $1.2 million. (Id. at ¶ 76.) From August 30, 2017 to September 18, 2017,

Defendant Rush sold 139,862—approximately 18% of his total holdings—for a

total of $8.1 million. (Id. at ¶ 77.) The “vast majority” of these sales took place

before September 6, 2017 (id. at ¶ 78), an important date for the reason described

below.

On September 6, 2017, Defendant Rush stated at the Wells Fargo Securities

Healthcare Conference that INCR’s commercial business was a “wild card” and

that uncertainties of revenue growth might occur in 2018. (Am. Compl. at ¶ 54,

167.) These statements caused INCR’s stock price to decline over 5%. (Id.) The

following day at the Robert W. Baird Global Healthcare Conference, when

questioned by analysts, Defendant Rush stated that a “wild card” is the most

valuable card in a poker game and, in response to question whether INCR could

foresee a decline in CCO revenue for the next year, assured investors there were no

new developments that would change the company’s growth rate for 2018. (Id. at

¶¶ 55–56.) Rush stated that “there’s nothing that—there’s not new news here on

that that we’re trying to lay out to the market.” (Id. at ¶ 56.) Rush also said that

Defendant Macdonald had “banned” him from using the “wild card” term again.

(Id. at ¶ 55.) Rush did not mention that, up to that point, the commercial sector of

inVentiv, now part of the newly formed company, had not secured any 100-plus

sales team contracts for that year. (Id. at ¶ 56.)

On November 9, 2017, Section 10(b) Defendants announced that the

Company would experience “roughly flat” commercial revenue growth in 2018 and

that this would reduce total company-wide (i.e. across both the CRO and CCO

sectors) revenue growth from double-digit growth to mid- to high-single-digit

growth. (Am. Compl. at ¶ 57.) Defendants also disclosed that the “best leading

indicator” for revenue growth in the commercial sector was the ability to win 100-

plus sales team contracts, rather than the number of new drug approvals by the

FDA, and that they had not secured any such contracts in 2017. (Id. at ¶ 58.) These

announcements caused INCR’s stock price to drop over 28% in a single day. (Id.

at ¶¶ 58–59.) Over the next four days, the share price fell over 40%, causing

millions of dollars’ worth of investor losses. (Id. at ¶¶ 59, 145.)

On December 7, 2017, the Company filed a Form 8-K with the SEC

disclosing that Defendant Bell ceased to be President of the commercial sector of

the new company and as an executive officer of the Company but would continue

to serve as Chairman of the Board. (Am. Compl. at ¶ 147.) After the market closed

on January 3, 2018, the Company announced Defendant Rush’s departure effective

April 30, 2018; INCR’s share price fell 5.7% the next day. (Id. at ¶ 148, 170.) On

February 22, 2018, INCR filed another Form 8-K disclosing that Defendant Rush

would step down as CFO that day and that Christopher L. Gaenzle, INCR’s Chief

Administrative Officer, General Counsel, and Secretary, had resigned

approximately one week earlier. (Id. at ¶¶ 153, 171.) This news caused stock prices

to fall approximately 16%. (Id. at ¶¶ 60, 153–156, 171.) Around this time,

Defendant Macdonald stated that the company was shifting its focus from 100-plus

sales team contracts to contracts with smaller sales teams in order to diversify and

“build a much more stable trajectory” for its commercial sector. (Id. at ¶ 60, 151–

152.).

(M&R at 4-12).3

COURT’S DISCUSSION

A. Motion to Strike

1. Standard of Review

A district court may designate a magistrate judge to hear and decide any “pretrial matter

not dispositive of a party’s claim or defense.” Fed. R. Civ. P. 72(a); see also 28 U.S.C. §

636(b)(1)(A). Upon timely objection by a party, the court must modify or set aside any part of a

magistrate judge’s order that is “clearly erroneous” or “contrary to law.” Fed. R. Civ. P. 72(a);

see also Local Civil Rule 72.4(a). “A factual finding is clearly erroneous when [the court is] ‘left

with the definite and firm conviction that a mistake has been committed.’” TFWS, Inc. v.

Franchot, 572 F.3d 186, 196 (4th Cir. 2009) (quoting Anderson v. Bessemer City, 470 U.S. 564,

573 (1985)). “Contrary to law” indicates plenary review of legal conclusions. Stonecrest Partners,

LLC v. Bank of Hampton Roads, 770 F. Supp. 2d 778, 782 (E.D.N.C. 2011) (citing PowerShare,

3 Unless otherwise specified, the court uses the page numbers assigned by its case management and electronic

case filing system (“CM/ECF”).

Inc. v. Syntel, Inc., 597 F.3d 10, 15 (1st Cir. 2010)). Therefore, “for questions of law, there is no

practical difference between review under Rule 72(a)’s ‘contrary to law’ standard and review

under Rule 72(b)’s de novo standard.” PowerShare, 597 F.3d at 15.

2. Analysis

Defendants object to the magistrate judge’s exclusion of Forms 4 filed with the SEC by

defendants Macdonald and Rush (“exhibits 18 through 32”), attached to defendants’ motion to

dismiss.4

Ordinarily, “[i]f, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings

are presented to and not excluded by the court, the motion must be treated as one for summary

judgment under Rule 56.” Fed. R. Civ. P. 12(c). However, a court may consider a document

attached to the motion to dismiss if “the document is ‘integral to and explicitly relied on in the

complaint,’ and when ‘the plaintiffs do not challenge the document’s authenticity.’” Zak v.

Chelsea Therapeutics Int’l, Ltd., 780 F.3d 597, 606-07 (4th Cir. 2015) (quoting Am. Chiropractic

Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004)). A “document is integral to

the complaint where the complaint relies heavily upon its terms and effect.” Goines v. Valley

Cmty. Servs. Bd., 822 F.3d 159, 166 (4th Cir. 2016) (citation omitted).

Here, the documents at issue are SEC Forms 4, which reflect defendants Macdonald’s and

Rush’s stock transactions. The amended complaint refers to these transactions in explicit detail,

providing the exact number of shares sold, the price of those shares, and the dates on which the

4 Defendants also object to the magistrate judge’s exclusion of 1) defendant Syneos’s Form 8-K, filed with the

SEC on July 27, 2017, (“exhibit eight”) (DE 55-11); 2) defendant Syneos’s presentation at the Wells Fargo Healthcare

Conference on September 6, 2017, (“exhibit 12”) (DE 55-15); and 3) defendant Syneos’s presentation at the Baird

Global Healthcare Conference on September 7, 2017, (“exhibit 14”) (DE 55-17). According to defendants, the Private

Securities Litigation Reform Act requires the court to consider these documents when deciding whether to dismiss

Section 10(b) claims. (See Mem. (DE 101) at 24-25). As stated in more detail herein, the court grants defendants’

motion to dismiss the Section 10(b) claims, without consideration of exhibits eight, 12, and 14. Therefore, defendants’

objection to this part of the M&R is moot.

transactions occurred. (Am. Compl. ¶¶ 53, 74-78). Defendants contend that the Forms 4 were

lead plaintiffs’ exclusive source for such allegations, and lead plaintiffs do not suggest otherwise.

Moreover, lead plaintiffs’ scienter theory relies heavily on these transactions. (See, e.g., id. ¶ 74)

(“Defendants Macdonald and Rush also profited through their fraud by selling significant portions

of their holdings at artificially-inflated prices.”). Finally, lead plaintiffs do not dispute that the

Form 4s attached to the motion to dismiss are the same Forms 4 that defendant Macdonald and

Rush filed with the SEC. Therefore, the court may consider the Forms 4.

Lead plaintiffs argue, nonetheless, that the court must exclude the Forms 4, relying upon

Zak. In Zak, the United States Court of Appeals for the Fourth Circuit held that the district court

improperly considered Forms 4 that were attached to motion to dismiss. 780 F.3d at 607. Zak is

instructively distinguishable, however, because the complaint in that case did not include any

allegations about stock sales. See id. (“Although plaintiffs asserting securities fraud claims

frequently bolster allegations regarding scienter by asserting unusual sales of stock by individuals

accused of committing securities fraud, the plaintiffs in the present case did not include this type

of allegation in their complaint . . . Therefore, because the SEC documents were not explicitly

referenced in, or an integral part of, the plaintiffs’ complaint, the district court should not have

considered those documents in reviewing the sufficiency of the plaintiffs’ allegations.”).5

Accordingly, in Zak, the Forms 4 were not an integral part of the complaint. See id.

Here, in contrast, lead plaintiffs have placed defendants Rush’s and Macdonald’s stock

sales in issue, and they rely heavily on those sales to support their scienter theory. Under such

5 Lead plaintiffs also cite Epstein v. World Acceptance Corp., No. 6:14-CV-01606-MGL, 2015 WL 2365701,

at *1 (D.S.C. May 18, 2015) for the proposition that Forms 4 should not be considered on a motion to dismiss.

However, as in Zak, the complaint in Epstein did not include insider trading allegations, which makes it distinguishable

from the instant matter.

circumstances, courts routinely consider Forms 4 attached to motions to dismiss. See Yates, 744

F.3d at 891 (explaining that Forms 4 attached to motion to dismiss reflecting trades made pursuant

to a non-discretionary Rule 10b5-1 plans weakened the scienter inference)6; In re PEC Sols., Inc.

Sec. Litig., 418 F.3d 379, 390, n. 10 (4th Cir. 2005) (taking judicial notice of the defendants’ SEC

filings related to sale of stock).

Accordingly, the court denies that part of lead plaintiffs’ motion seeking to strike exhibits

18 through 32, and affirms the magistrate judge’s ruling on motion to strike in remaining part.

B. Motion to Dismiss

1. Standard of Review

“To survive a motion to dismiss” under Rule 12(b)(6), “a complaint must contain sufficient

factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft

v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“Factual allegations must be enough to raise a right to relief above the speculative level.”

Twombly, 550 U.S. at 555. In evaluating whether a claim is stated, “[the] court accepts all well-

pled facts as true and construes these facts in the light most favorable to the plaintiff,” but does not

consider “legal conclusions, elements of a cause of action, . . . bare assertions devoid of further

factual enhancement[,] . . . unwarranted inferences, unreasonable conclusions, or arguments.”

Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009) (citations

omitted).

6 As here, the Rule 10b5-1 plans were part of the record because they were reflected in Forms 4 attached to

the motion to dismiss. See In re Mun. Mortg. & Equity, LLC, Sec. & Derivative Litig., 876 F. Supp. 2d 616, 642 (D.

Md. 2012), aff’d sub nom. Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874 (4th Cir. 2014) (“Joseph established

his Rule 10b5–1 plan in March 2005, see Apr. 28, 2005 Form 4, Holland Ex. 11, and Falcone established his plan in

September 2003, see Oct. 4, 2004 Form 4, Holland Ex. 7.”).

Ordinarily, a plaintiff need only make “a short and plain statement of the claim showing

that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). However, Rule 9(b) creates an

exception to this liberal pleading standard and requires that “[i]n alleging fraud or mistake, a party

must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).

“This heightened pleading requirement serves to protect defendants’ reputations from baseless

accusations, eliminate meritless suits brought only to extract a settlement, discourage fishing

expeditions, and provide defendants with enough information about a plaintiff’s allegations to

mount a defense.” Maguire Fin., LP v. PowerSecure Int’l, Inc., 876 F.3d 541, 546 (4th Cir. 2017)

(citing Pub. Emps.’ Ret. Ass’n of Colo. v. Deloitte & Touche LLP, 551 F.3d 305, 311 (4th Cir.

2009)).

“[T]he inconsistent application and interpretation of Rule 9(b) and other abuses in

securities cases prompted Congress to enact the PSLRA [Private Securities Litigation Reform

Act].” Maguire Fin., 876 F.3d at 546 (quoting Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162,

171 (4th Cir. 2007)). Where plaintiff alleges defendant made an untrue material statement or

omitted a material statement of fact that would be necessary to make a statement not misleading,

“the complaint shall specify each statement alleged to have been misleading, the reason or reasons

why the statement is misleading, and, if an allegation regarding the statement or omission is made

on information and belief, the complaint shall state with particularity all facts on which that belief

is formed.” 15 U.S.C. § 78u-4(b)(1).

The district court reviews de novo those portions of a magistrate judge’s M&R to which

specific objections are filed. 28 U.S.C. § 636(b). Absent a specific and timely filed objection, the

court reviews only for “clear error,” and need not give any explanation for adopting the M&R.

Diamond v. Colonial Life & Accident Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005); Camby v. Davis,

718 F.2d 198, 200 (4th Cir. 1983). Upon careful review of the record, “the court may accept,

reject, or modify, in whole or in part, the findings or recommendations made by the magistrate

judge.” 28 U.S.C. § 636(b)(1).

2. Analysis

a. Section 10(b) Claims – Count One

Section 10(b) of the Exchange Act, makes it unlawful “[t]o use or employ, in connection

with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance

in contravention of such rules and regulations as the Commission may prescribe.” 15 U.S.C.

§ 78j(b). Section 10(b) is implemented by Rule 10b-5, which makes it unlawful “[t]o employ any

device, scheme or artifice to defraud[;] [t]o make any untrue statement of a material fact or to omit

to state a material fact necessary in order to make the statements made . . . not misleading, or[;]

[t]o engage in any act, practice, or course of business which operates or would operate as a fraud

or deceit upon any person.” 17 C.F.R. § 240.10b-5. Section 10(b) provides an implied private

right of action, and the plaintiff in such an action “must prove (1) a material misrepresentation or

omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or

omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or

omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners v. Sci.-Atlanta, Inc.,

552 U.S. 148, 157 (2008).

Here, the magistrate judge determined that lead plaintiffs sufficiently alleged the foregoing

elements. Defendants object to the magistrate judge’s determination, arguing that lead plaintiffs

have not pleaded a strong inference of scienter, among other elements.7

7 Where the court agrees that lead plaintiffs fail to plead a strong inference of scienter, the court dismisses lead

plaintiffs’ 10(b) claims on this basis, and does not reach defendants’ additional objections to M&R.

Scienter refers to “a mental state embracing intent to deceive, manipulate, or defraud.”

Tellabs Inc. v. Makor Issues & Rts, Ltd., 551 U.S. 308, 319 (2007). This state of mind

“encompasses ‘severe recklessness’, defined as ‘an act so highly unreasonable and such an extreme

departure from the standard of ordinary care as to present a danger of misleading the plaintiff to

the extent that the danger was either known to the defendant or so obvious that the defendant must

have been aware of it.’” In re Triangle Cap., 988 F.3d at 751 (quoting Ottmann v. Hanger

Orthopedic Grp., Inc., 353 F.3d 338, 343 (4th Cir. 2003)).

Under the PLSRA, a plaintiff must “state with particularity facts giving rise to a strong

inference” of scienter. 15 U.S.C. § 78u-4(b)(2). “Evaluating the strength of an inference is

necessarily a comparative inquiry.” Yates, 744 F.3d at 885 (citing Tellabs, 551 U.S. at 326–27).

“A scienter inference is ‘strong’ if, when ‘weighed against the opposing inferences that may be

drawn from the facts in their entirety,’ it ‘is at least as compelling as any opposing innocent

inference.’” In re Triangle, 988 F.3d at 751 (quoting Yates, 744 F.3d at 885). In determining the

strength of a scienter inference, the court “review[s] the facts holistically and afford[s] them the

inferential weight warranted by context and common sense.” Id. (internal quotation and citation

omitted).

Here, lead plaintiffs argue that, prior to defendant Syneos’s merger with inVentiv,

defendants knew inVentiv’s commercial segment was highly dependent on obtaining contracts

with 100-plus sales team pharmaceutical companies, that only two such contracts were available

for bid as of May, June, and July 2017, and inVentiv failed to secure either of those contracts.

Lead plaintiffs further assert that defendants withheld this information in order to obtain

shareholder approval of the merger, and instead told shareholders that the key metric for growth

was the number of new drug approvals by the Federal Drug Administration (“FDA”). Once the

shareholders approved the merger, lead plaintiffs assert defendant benefited from their alleged

omissions by selling their stock at an inflated price and only then revealed the purported true key

metric—the 100-plus sales team contracts.

Lead plaintiffs’ allegations fail to support this scienter theory. First, lead plaintiffs rely

heavily on the notion that defendants knew, prior to the merger, that the key metric for inVentiv’s

commercial success was its ability to obtain contracts with 100-plus sales team pharmaceutical

companies. To establish this knowledge, lead plaintiffs point to allegations that defendants had

experience with acquisitions, and they performed due diligence by reviewing inVentiv’s

“relationships with key customers”, “financial, operating and other information”, “non-public

financial forecasts”, “material contracts”, and “customer overlap” prior to the merger. (Am.

Compl. ¶¶ 62-66, 226). While relevant to the court’s holistic analysis, defendants’ access to

information, alone, does not establish scienter. Yates, 744 F.3d at 890 (“A pleading of scienter .

. . may not rest on a bare inference that a defendant must have had knowledge of the facts or must

have known of the fraud given his or her position in the company.” (citation omitted)); see also

Lerner v. Nw. Biotherapeutics, 273 F. Supp. 3d 573, 593 (D. Md. 2017) (“Courts have routinely

held that corporate executives’ access to information and internal affairs is not enough to

demonstrate scienter under the PSLRA.”); In re PXRE Grp., Ltd., Sec. Litig., 600 F. Supp. 2d 510,

538 (S.D.N.Y.) (explaining that “bare assertions that the defendants, due to their high-level

positions in the Company, had access to adverse undisclosed financial information through internal

corporate documents, meetings, and reports, without any further facts or details, do not adequately

demonstrate defendants’ knowledge of facts or access to information contradicting their public

statements”).

Instead, to demonstrate scienter, lead plaintiffs must provide “additional detailed

allegations establishing the defendants’ actual exposure” to information identifying 100-plus sales

team contracts as the key metric for success. Yates, 744 F.3d at 890 (emphasis added). Here,

lead plaintiffs have not pleaded such allegations with sufficient particularity. Specifically, lead

plaintiffs do not allege when defendants learned that 100-plus sales teams were the key metric,

who informed them, how confident the source was in this metric, or whether the source informed

defendants how many 100-plus sales team contracts were required for commercial success. See

In re Triangle Cap., 988 F.3d at 752 (finding allegations of scienter to be insufficient where lead

plaintiff “never specifies when this advice was given, how firm in their conviction these investment

advisors were in recommending that Triangle should avoid mezzanine deals moving forward, or

what a mix of mezzanine and unitranche investments should look like”). These “omissions and

ambiguities count against inferring scienter, for plaintiffs must ‘state with particularity facts giving

rise to a strong inference that the defendant acted with the required state of mind.’” Id. (citing

Tellabs, 551 U.S. at 326))

In fact, the only instance where lead plaintiffs allege any specific connection between

defendants and the phrase “100-plus sales team” is during defendants’ post-merger November 9,

2017, conference call with shareholders. (Am. Compl. ¶¶ 134-137). During that call, in response

to a question posed by a shareholder about the decline in the commercial segment, defendant Rush

stated:

John, one of the things that we’re going to try to do, and I’m not going to make a

commitment that we’ll be able to do it is, obviously, one of the things that we’re

getting a handle on is what are the best leading indicators of revenue growth. . .

One of the things that I would tell you that we’re – we saw this year, even though

new drug approvals are upon and probably going to be in the low 40s, the mix of

those drugs that are approved are smaller compounds and not producing some of

the big sales teams that we saw even in ’16. So I may have that wrong, so use, this,

what I’m about to say as directional. But I think last year, we had 4 – there was 4

or 5 100-plus sales teams that went out to bid to the industry. So there’s only 4 or

5 proposals last year whereas in the years before, it was much greater than that Two

were actually awarded to us last year, and we lost 3. So we had a 40% hit rate last

year. I believe this year, there’s only been 2 that have even gone out to bid to the

sector and both of those were awarded to others based on price. We weren’t willing

to match the price and our competitors were willing to do that . . . And so that’s one

of the reasons why we also tempered our expectation for ’18. We had expected

commercial to have double-digit growth next year in our original proxy filing. But

they – that’s not going to happen right now because we haven’t won those big 100-

plus selling teams this year that we would have expected to.

(Am. Compl. ¶ 137 (emphasis added)); see November 9, 2017, Transcript (DE 55-19) 12-13).

Reliance on defendant Rush’s statement to show that defendants knew the purported key

metric all along “amounts to little more than pleading fraud by hindsight.” In re Triangle Cap.,

988 F.3d at 753. Rather than evincing an intent to deceive or severe recklessness, the statement

reveals that defendants’ understanding of inVentiv’s commercial segment continued to evolve

following the merger. (Am. Compl. ¶ 137) (“[O]ne of the things that we’re getting a handle on . .

. So I may have that wrong, so use, this, what I’m about to say as directional.”). Lead plaintiffs

“cannot connect the backwards-looking statements of [defendant Rush] to actual contemporaneous

knowledge” that 100-plus sales team contracts were the true metric. In re Triangle Cap., 988 F.3d

at 752. Lead plaintiffs’ “argument is purely speculative.” Id.

Next, lead plaintiffs argue that defendants’ pre-merger statements reflecting confidence in

growth prospects support a strong inference of scienter. In particular, lead plaintiffs point to

defendants’ pre-merger statements that: 1) they “expect[ed] the combined company to grow

revenue at 9% per year”, (Am. Compl. ¶ 99); 2) “there’s over 70 new drug applications this year.

Not all of those will get approved, but we think they’re on pace to double. That is a leading

indicator as you’re thinking about modeling the commercial business going forward as to what

that market looks like”, (id.); 3) “I wouldn’t give that kind of commentary if we didn’t feel at this

stage, based on what we see today, that we were confident in it”, (id.); 4) “We’re more optimistic

today than we were on May 10 on . . . the combined compan[y’s] numbers for 2018”, (id. ¶ 50);

5) “[N]ew drug approvals are pretty strong so far this year, which a is a precursor to the commercial

[business]. We got to go close that business in the second half of this year in the commercial

business for sure, but at least the leading indicator is good for that business. So we’re more

optimistic today than we were in May given our first half results”, (id.); and 6) “a lot of people are

predicting 40 to 50 approvals this year which if we go back to that level, that should in theory,

give us an opportunity to return to strong growth in commercial in 2018”, (id. ¶ 51).

These bullish statements, reflecting defendants’ optimism, do not give rise to a strong

inference of scienter. “The PSLRA reflects Congress’s determination that liability for securities

fraud should not be predicated solely on an overly optimistic view of a future which may, in fact,

encounter harsh economic realities down the road.” Maguire Fin., 876 F.3d at 548. In this vein,

“courts have long accepted that immaterial boasting and exaggerations, often called puffery, do

not normally constitute actionable fraud.” Xia Bi v. McAuliffe, 927 F.3d 177, 183 (4th Cir. 2019)

(citations omitted). Otherwise, if courts “inferred scienter from every bullish statement by a

pharmaceutical company that was trying to raise funds, [they] would choke off the lifeblood of

innovation in medicine by fueling frivolous litigation—exactly what Congress sought to avoid by

enacting the PSLRA.” Cozzarelli v. Inspire Pharms. Inc., 549 F.3d 618, 627 (4th Cir. 2008).

Lead plaintiffs also suggest that the temporal proximity between defendants’ optimistic

statements in May and July 2017; their September 6, 2017, statement that the commercial sector

was a “wild card”; and their more conservative projections in November 2017, demonstrates

wrongful intent. This argument ignores the fact that inVentiv’s results were “subject to some

quarterly variability”, (see Proxy (DE 55-13) at 172), and that its revenues were weighted towards

the end of the year. (See id. (“inVentiv has historically experienced an increase in net revenues

in the fourth quarter.”); (Transcript July 27, 2017 (DE 55-10) at 8 (“[N]ew drug approvals are

pretty strong so far this year, which is a precursor to the commercial. We got to go close that

business in the second half of this year in the commercial business for sure.”); (Transcript

September 7, 2017 (DE 55-16) at 6 (“[End-year sales drive this business”). Given the seasonality

of inVentiv’s business, it is reasonable that defendants’ optimistic projections evolved in response

to developments in the commercial sector, including disappointing revenues in the latter half of

2017. See Hillson Partners Ltd. P’ship v. Adage, Inc., 42 F.3d 204, 209 (4th Cir. 1994) (“Where

fraudulent projections are alleged, the plaintiff must [] identify in the complaint with specificity

some reason why the discrepancy between a company’s optimistic projections and its subsequently

disappointing results is attributable to fraud.”). For this same reason, the fact that only two 100-

plus sales team contracts were available for bid during the first half of 2017 does not undermine

defendants’ contemporaneous optimistic projections, since “end-year sales drive this business”,

(Transcript September 7, 2017 (DE 55-16) at 6).

Next, lead plaintiffs argue that defendants Rush’s and Macdonald’s merger-based

compensation gives rise to a strong inference of scienter. In particular, lead plaintiffs point to the

merger proxy, which indicated that defendant Macdonald could receive $11,416,629.00 and

defendant Rush could receive $9,818,872.00 in cash and equity as compensation related to the

merger, which was two times more than defendant Macdonald’s 2016 compensation and more

than three times defendant Rush’s 2016 compensation. (Am. Compl. ¶ 72). However, “the

motivations to raise capital or increase one’s own compensation are common to every company

and thus add little to an inference of fraud.” Cozzarelli, 549 F.3d at 627; see Ottmann, 353 F.3d

at 352 (“[C]ourts have repeatedly rejected these types of generalized motives—which are shared

by all companies—as insufficient to plead scienter under the PSLRA.”) (emphasis in original)

(citations omitted)).

Lead plaintiffs also rely upon defendants Rush’s and Macdonald’s stock sales during the

class period to establish scienter. Insider trading can imply scienter only if the timing and amount

of a defendant’s trading were “unusual or suspicious.” In re PEC Sols., Inc. Sec. Litig., 418 F.3d

379, 390 (4th Cir. 2005); see Teachers’ Ret. Sys., 477 F.3d at 184. Here, lead plaintiffs allege that

from June 30, 2017, to September 18, 2017, defendant Macdonald sold 21,731 shares of defendant

Syneos’s common stock, representing approximately 18% of his total holdings, for over $1.2

million, and that from August 30, 2017, to September 18, 2017, defendant Rush sold 139,862

shares of defendant Syneos’s common stock, representing approximately 64% of his total

holdings, yielding total gross proceeds of $8.1 million. (Am. Compl. ¶¶ 76-77). These transactions

occurred during the class period, and the sale price of the stock ranged from $54.48 to $59.21 per

share, which is higher than the stock’s 2017 low point of $40.65. (Id. ¶¶ 13, 74, 76-77). Such

allegations are consistent with an inference that the insiders who traded during the class period had

a motive to commit fraud.

However, the inference that the trades were innocent is stronger. First, while the sales

occurred during the class period, none of the sales coincide with defendants’ May 10, 2017, July

27, 2021, September 6, 2017, or September 7, 2017, disclosures. (See id. ¶¶ 76-77) (alleging sale

dates of June 30, July 3, August 17, August 30, and September 18, 2017). Moreover, as shown

in defendants Rush’s and Macdonald’s Forms 4, the sales were made pursuant to non-discretionary

Rule 10b5-1 plans that were formed in 2016, well before the class period, (see, e.g., Form 4 (DE

21)). “[A]lthough the Rule 10b5–1 plan[s] do[ ] not completely immunize [defendants Macdonald

and Rush] from suspicion, it does mitigate any inference of improper motive surrounding [their]

sales.” Yates, 744 F.3d at 891.8 Finally, the amended complaint does not provide defendants

Rush’s and Macdonald’s trading patterns outside the class period to permit comparison with their

trades within the class period, which also weakens any scienter inference. Teachers’ Ret. Sys, 477

F.3d at 185 (faulting plaintiff for stating defendants’ trading history for only during the class

period).

Next, lead plaintiffs argue that the executive departures following the merger demonstrate

scienter. They point to allegations that defendant Syneos announced on December 7, 2017, that

defendant Bell was no longer president of the commercial segment, and approximately one month

later, it announced that defendant Rush would remain the chief financial officer only until April

30, 2018. (Am. Compl. ¶¶ 147-48). Then, on February 21, 2018, defendant Syneos announced

that defendant Rush was no longer chief financial officer, and that Gaenzle, its chief administrative

officer, general counsel, and secretary, had resigned on February 14, 2018. (Id. ¶ 153). No reasons

were given for Gaenzle’s resignation or defendant Rush’s accelerated departure. (Id.).

While these allegations are relevant to the court’s holistic analysis, without more, they do

not give rise to a strong inference of scienter. First, lead plaintiffs do not allege that Gazenzle and

defendants Rush and Bell departed from defendant Syneos because they were suspected of

wrongdoing. Moreover, there are a number of reasons executives may depart from a company,

including disappointing revenues under their leadership, such as those that preceded defendants

8 Lead plaintiffs argue that the court may not consider the Rule 10b5-1 plans on a motion to dismiss because

such plans are subject to manipulation and present questions of fact, citing Freudenberg v. E*Trade Fin Corp., 712 F.

Supp. 2d 171, 200 (S.D.N.Y. 2011). However, in Yates, Fourth Circuit considered the fact that trades were conducted

under Rule 10b5-1 plans when evaluating scienter allegations on a motion to dismiss. 744 F.3d at 891. As here, the

Rule 10b5-1 plans were part of the record because they were reflected in Forms 4 attached to the motion to dismiss.

See In re Mun. Mortg. & Equity, LLC, Sec. & Derivative Litig., 876 F. Supp. 2d 616, 642 (D. Md. 2012), aff’d sub

nom. Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874 (4th Cir. 2014) (“Joseph established his Rule 10b5–1 plan

in March 2005, see Apr. 28, 2005 Form 4, Holland Ex. 11, and Falcone established his plan in September

2003, see Oct. 4, 2004 Form 4, Holland Ex. 7.”). The Fourth Circuit held that “although the Rule 10b5–1 plan does

not completely immunize Joseph from suspicion, it does mitigate any inference of improper motive surrounding his

sales.” Yates, 744 F.3d at 891.

Rush’s and Bell’s departures. Cf. Yates, 744 F.3d at 889 (“[R]esignation of the defendant’s

independent public accountant did not support a strong inference of scienter because the firm had

just been partially responsible for the corporation’s failure to adequately control its accounting

procedures.”); see also Rosenzweig v. Azurix Corp., 332 F.3d 854, 867 (5th Cir. 2003) (explaining

that “the successive resignations of key officials . . . is more likely probative only of the fact that

the company was failing”). These departures do not support a strong inference of scienter.

Lead plaintiffs cite Epstein v. World Acceptance Corp., 203 F. Supp. 3d 655 (D.S.C. 2016)

and Willis v. Big Lots, Inc., No. 2:12-CV-604, 2016 WL 8199124 (S.D. Ohio Jan. 21, 2016).

However, those cases do not compel a different result. In Epstein, the court simply held that while

executive departures, alone, could not establish scienter, they factor into the court’s “holistic

analysis.” 203 F. Supp. 3d at 671. Likewise, the court in Willis considered corporate resignations

in “viewing the evidence as a whole” and found the timing of those resignations to be noteworthy,

where they occurred on the last day of the class period and on the wake of an investigation by the

United States Department of Justice. 2016 WL 8199124, at *34. Here, the departures occurred

months after the class period ended, and none of the departing executives were under investigation.

In sum, weighing the competing inferences, lead plaintiffs’ allegations of fraud are not

cogent and compelling compared to the alternative explanation — that defendants, genuinely

optimistic about the growth prospects of a merger, in an industry driven by end-year sales,

conveyed such optimism to shareholders in the middle of 2017; then, when year-end revenues did

not rise to expected levels, defendants revised their earlier projections to take into account

developments in the commercial sector following the complex integration of two companies.

Accordingly, lead plaintiffs have not met their heightened burden under the PSLRA to

plead scienter, and defendants’ motion to dismiss is granted in this part. Lead plaintiffs’ Section

10(b) claims are dismissed without prejudice.

b. Section 20(a) Claims – Count Two

Lead plaintiffs asserts claims for control person liability under Section 20(a) of the

Exchange Act against defendants Bell, Rush, and Macdonald.

Section 20(a) of the Exchange Act imposes liability on “every person who, directly or

indirectly, controls any person liable under any provision of [the Exchange Act]” . . . “to the same

extent as such controlled person” . . . “unless the controlling person acted in good faith and did not

directly or indirectly induce the act or acts constituting the violation or cause of action.” 15 U.S.C.

§ 78t(a). “Section 20(a) is the vehicle for imposing liability on control persons. The liability of a

control person under section 20(a) is derivative of—and dependent upon—liability of a controlled

person under section 10(b).” Singer v. Reali, 883 F.3d 425, 438 (4th Cir. 2018) (citing Yates, 744

F.3d at 894 n.8); see also In re Genworth Fin. Inc. Sec. Litig., 103 F. Supp. 3d 759, 790–91 (E.D.

Va. 2015) (“On a motion to dismiss, a Section 20(a) claim will thus stand or fall based on the

court’s decision regarding the Section 10(b) claim.” (citation omitted).

Accordingly, where the court dismisses without prejudice lead plaintiffs’ Section 10(b)

claims, it also dismisses without prejudice lead plaintiffs’ Section 20(a) claims against defendants

Bell, Rush, and Macdonald.

c. Section 14(a) Claims – Count Three

Lead plaintiffs assert claims under Section 14(a) of the Exchange Act and Rule 14a-9

against all defendants.

Section 14(a) makes it unlawful to solicit a proxy “in contravention of such rules and

regulations as the [SEC] may prescribe.” 15 U.S.C. § 78n(a)(1). SEC Rule 14a-9, promulgated

pursuant to Section 14(a), prohibits the solicitation of proxies through a proxy statement that

contains false or misleading material facts or omits any material fact that leaves a proxy statement

false or misleading. 17 C.F.R. § 240.14a-9(a). “Whether a statement or omission is materially

misleading ‘depends on the perspective of a reasonable investor.’” Paradise Wire & Cable Defined

Benefit Pension Plan v. Weil, 918 F.3d 312, 318 (4th Cir. 2019) (quoting Omnicare, Inc. v.

Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 185 (2015)). “A fact is material

if there is ‘a substantial likelihood that the disclosure of the . . . fact would have been viewed by

the reasonable investor as having significantly altered the total mix of information made

available.’” In re Willis Towers Watson PLC Proxy Litig., 937 F.3d 297, 304 (4th Cir.

2019) (quoting Greenhouse v. MCG Capital Corp., 392 F.3d 650, 656 (4th Cir. 2004)).

“Projections of future performance are generally not actionable under the federal securities

laws as long as they are not worded as guarantees.” Paradise Wire, 918 F.3d at 321 (citing Raab

v. Gen. Physics Corp., 4 F.3d 286, 290 (4th Cir. 1993)). However, opinion statements may be

actionable if they omit material facts that “conflict with what a reasonable investor would take

from the statement itself.” Omnicare, 575 U.S. at 189. This inquiry “always depends on context”

because “[a]n investor reads each statement ‘in light of all its surrounding text, including hedges,

disclaimers, and apparently conflicting information.’” Paradise Wire, 918 F.3d at 322 (quoting

Omnicare, 575 U.S. at 190). “[A]n omission that renders misleading a statement of opinion when

viewed in a vacuum may not do so once that statement is considered, as is appropriate, in a broader

frame.” Id. Ultimately, “[a] reasonable investor is expected to understand a statement of opinion

in its full context and there will only be liability for ‘the omission of material facts that cannot be

squared with such a fair reading.’” Id.

The magistrate judge determined that lead plaintiffs sufficiently alleged material

misrepresentations and omissions in proxy materials. Defendants object to the magistrate judge’s

determination, arguing that the alleged misrepresentations and omissions are not actionable

because they are forward-looking statements accompanied by cautionary language. Defendants’

argument invokes what is known as the “bespeaks caution” doctrine. “Under that doctrine, claims

are subject to dismissal if cautionary language in the offering document negates the materiality of

the alleged misrepresentations or omissions.” Paradise Wire, 918 F.3d at 319 (quotations and

citations omitted). “While general warnings may not negate the materiality of misrepresentations

or omissions, specific warnings that are tailored to address the alleged misrepresentation or

omission may negate their materiality when the total mix of information would not be significantly

altered by the disclosures sought by the plaintiffs.” Id.

Here, lead plaintiffs allege that defendants made statements in proxy materials projecting

that the merger would result in high single-digit accretion in 2018 and double-digit accretion in

2019; forecasting inVentiv’s net service revenue growth, adjusted EBITDA9 growth, and

predicting a return to historical growth in 2018; indicating that the commercial business was well

positioned for growth due to the increase in drug approvals; stating that drug approvals were a

“huge leading indicator” for modeling what the commercial business looks like going forward;

and indicating that they were confident in the prospect of double digit growth. (Am. Compl. ¶¶

96-99, 106-108, 229-234). According to lead plaintiffs, these statements constitute material

misrepresentations and omissions because the “commercial business critically depended on the

9 EBITDA refers to “earnings before interest, taxes, depreciation, and amortization.” Sharma v. USA Int’l, LLC, 851 F.3d

308, 311 (4th Cir. 2017).

number of 100-plus sales team contracts it was able to win, irrespective of the total number of new

drug approvals for the year”; as of May, June, and July of 2017, no more than two such contracts

were available for bidding, neither of which inVentiv’s commercial business had won; the number

of new drug approvals was not a huge leading indicator for modeling the commercial business

going forward; the commercial business was not track to beat industry wide growth; and revenues

would decrease into 2018. (Id. § 241).

The statements at issue are projections and opinions, which must be considered in their full

context, including “hedges, disclaimers, and apparently conflicting information’”, Paradise Wire,

918 F.3d at 322 (quoting Omnicare, 575 U.S. at 190), to determine if a reasonable investor would

find them materially misleading. Considering the total mix of information available to the

reasonable investor, including the extensive and specific cautionary language provided by

defendants, the alleged misrepresentations and omissions were not materially misleading.

In particular, regarding the accretive potential of the merger, defendants warned in their

Definitive Proxy Statement:

The merger may not be accretive and may cause dilution to the combined company’s earnings per share, which may negatively affect the market price of

common stock af the combined company.

INC Research and inVentiv currently anticipate that the merger will be accretive to INC Research’s adjusted eamings per share beginning in first full

year subsequent to the completion of the merger. However, this expectation is based on preliminary estimates, which may change materially. The combined

company could also fail to realize any or all of the benefits anticipated in the merger or experience material delays or inefficiencies in realizing such benefits,

which could cause dilution to the combined company’s adjusted diluted earnings per share or decrease or delay the expected accretive effect of the merger

and cause a decrease in the market value of the combined company’s common stock. This could negatively impact INC Research's eamings per share or

decrease or delay the expected accretive effect of the merger and cause a decrease in the market price of common stock of the combined company.

(Definitive Proxy Statement (DE 55-13) at 45). Relatedly, in defendant Syneos’s May 10, 2017,

Press Release, defendants cautioned that:

[F]orward-looking statements are not guarantees of future results and are subject to

risks uncertainties and assumptions that could cause actual results to differ

materially from those expressed in any forward-looking statements . . . Important

risk facts that may cause such a difference include, but are not limited to risks and

uncertainties related to . . . (111) the ability of [defendant Syneos] and inVentiv to

integrate their businesses successfully and to achieve anticipated synergies, (iv) the

possibility that other anticipated benefits of the proposed transaction will not be

realized, including without limitation, anticipated revenues, expenses, earnings and

26

other financial results and growth and expansion of the new combined company’s

operations...

(May 10, 2017, Press Release (DE 55-6) at 27) (emphasis added); (see also Transcript of May 10,

2017, Conference Call (DE 55-5) at 3) (“Actual results may differ materially from those indicated

by these forward-looking statements as a result of various important factors. . . any forward-

looking statements represent our views as of today and should not be relied upon as representing

our views as any subsequent date. While we might update forward-looking statements at some

point in the future, unless legally required, we specifically disclaim any obligation to do so.”).

Regarding growth of the commercial business, defendants specifically warned:

The combined company may not successfully run a successful contract commercial organization,

The combined company anticipates significant value will be realized by the acquisition of inVentiv’s commercial business segment. However, because

INC Research has not historically had a commercial business segment in the past, it is possible that the combined company will fail to achieve the anticipate

benefits of the combination. The combined company may not be as successful in cross-selling its clinical and commercial services as projected prior to the

consummation of the merger.

In addition, the commercial business segment will introduce risks to the combined company that INC Research has not been subject to historically.

Those risks include:

* commercial segment contracts tend to have shorter durations and it can be difficult to predict whether these contracts will be renewed;

+ biopharmaceutical companies can encounter difficulties raising capital to fund their R&D and commercialization projects;

* governmental reform or private market initiatives intended to reduce the cost of biopharmaceutical products, or governmental, medical

association or biopharmaceutical industry initiatives designed to regulate the manner in which biopharmaceutical companies promote their

products, each of which can limit the value of inVentiv commercialization services;

* further consolidation in the biopharmaceutical industry, which could negatively affect certain of the combined company’s commercial service

offerings by reducing overall outsourced expenditures if the combined company is unsuccessful in winning business from the consolidated

entity, or could result in the delay or cancellation of existing projects, cause reductions in overall outsourcing expenditures, or lead to increased

pricing pressures; and

* companies electing to perform clinical development and commercialization services the combined company will provide intemally based on

industry or company specific factors, such as the rate of new product development, the number of professionals employed intemally in relation to

demand or the need to promote new and existing products or develop new products.

(Id. at 49).

Finally, regarding inVentiv’s forecasted revenue growth, defendants cautioned

Financial forecasts regarding INC Research and inVentiv may not be realized.

In connection with the merger, internal, stand-alone, pre-transaction financial forecasts were prepared for INC Research and inVentiv. These financial

forecasts were based on numerous variables and assumptions that were deemed to be reasonable by the management of each respective party. These variables

and assumptions are inherently uncertain and may be beyond either party’s control. Important factors that may affect actual results and cause these financial

forecasts not to be achieved include, but are not limited to, risks and uncertainties relating to each party’s business, the regulatory environment generally,

general business and economic conditions and other factors. These forecasts were not prepared with a view to public disclosure. The failure of INC Research’s

or inVentiv’s businesses to achieve projected results could have a material adverse effect on the price of combined company’s common stock, the combined

company’s financial position, and the combined company’s operating results and cash flows.

(Id. at 44); (see id. at 103) (“A summary of the INC Research forecasts and the adjusted inVentiv

forecasts is not included in this document to influence your decision whether to vote for or against

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the proposal to adopt the merger agreement. The inclusion of this information should not be

regarded as indication that the Board, INC Research’s advisors or other representatives or any

other person considered, or now considers such financial forecasts to be material or to be

necessarily predictive of actual future results, and these financial forecasts should not be relied

upon as such.”).

The foregoing warnings were extensive and tailored specifically to the statements

challenged by lead plaintiffs. Indeed, defendants reiterated numerous times that their growth

projections were subject to various risks and uncertainties, that they would not be updating their

projections to reflect the occurrence of future events, and they did not include the revenue forecasts

for purposes of influencing the shareholders’ vote on the merger. In light of these cautionary

statements, the court finds that a reasonable investor would not have viewed the total mix of

information significantly altered if the alleged omission regarding 100-plus sales team contracts

had been disclosed. See Paradise Wire, 918 F.3d 312 (finding warnings such as “there can be no

assurance that the AFIN Standalone Projections will be realized or that actual results will not be

significantly higher or lower than forecasted” and “AFIN Standalone Projections reflect

assumptions that are subject to change and do not reflect revised prospects for AFIN’s business,

changes in general business or economic conditions or any other transaction or event that has

occurred or may occur” to sufficiently negate materiality of defendant’s projections); cf. Singer,

883 F.3d at 442 (finding that defendant’s general warning that it “may be subject to or otherwise

affected by federal and state healthcare laws, including fraud and abuse and health information

privacy and security laws, and could face substantial penalties if we are unable to fully comply

with such laws” did not negate the materiality of its failure to divulge its illegal activities and

fraudulent reimbursement scheme).

Importantly, “[t]he federal securities laws provide important protections against false and

misleading statements and omissions. However, they do not provide guarantees of financial

success. Likewise, they do not render carefully tailored warnings meaningless.”

Paradise Wire, 918 F.3d at 323. Accordingly, the court grants defendants’ motion to dismiss in

this part, and lead plaintiffs’ Section 14(a) claims are dismissed without prejudice.

d. Section 20(a) Claims - Count Four

Lead plaintiffs assert claims for control person liability under Section 20(a) of the

Exchange Act, predicated on alleged Section 14(a) violations, against defendants Bell, Macdonald,

Rush, Breckon, Burgstahler, Harty, Kender, Klitgaard, Meyers, Monaghan, Norton, and Pâques.

Because control person liability claims asserted under Section 20 of the Exchange Act require an

underlying violation of another section of the Act, these claims must also be dismissed without

any need to address whether or to what extent defendants Bell, Macdonald, Rush, Breckon,

Burgstahler, Harty, Kender, Klitgaard, Meyers, Monaghan, Norton, and Paques are “control

persons” under Section 20. See In re Willis Towers Watson PLC Proxy Litig., 937 F.3d at 309

(“A Section 20(a) claim requires an underlying violation of the Exchange Act. When the district

court dismissed the Section 14(a) claim, the only substantive Exchange Act claim, it also dismissed

the Section 20(a) claim for lack of a predicate.”) (internal citation omitted)). Accordingly,

defendants’ motion to dismiss is granted in this part, and lead plaintiffs’ Section 20(a) claims are

dismissed without prejudice.

CONCLUSION

Based on the foregoing, the court ADOPTS IN PART and REJECTS IN PART the M&R,

as set forth herein. Lead plaintiffs’ motion to strike is GRANTED IN PART and DENIED IN

PART. (DE 62). Defendants’ motion to dismiss (DE 54) is GRANTED, and lead plaintiffs’

amended complaint is DISMISSED WITHOUT PREJUDICE. Lead plaintiffs are allowed

opportunity to file a motion to amend their amended complaint within 21 days of the date of this

order. In the event lead plaintiffs do not do so, without further order of the court, the clerk shall

enter judgment in favor of defendants on the basis of this order, and close this case.

SO ORDERED, this the 30th day of August, 2021.

( De W. FLANACMON

United States District Judge

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