# In re Dentsply Sirona, Inc. Securities Litigation

> District Court, E.D. New York · March 29, 2023

URL: https://www.frixlaw.com/law-library/cases/10309490

## Case

- **Court:** District Court, E.D. New York
- **Decided:** March 29, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10309490

## How later opinions describe it (automated extraction)

- holding that Item 303 requires a plaintiff to allege that a defendant actually knew about the trend or uncertainty, and not merely should have known
- explaining that “it is not necessary to assert that the investor would have acted differently if an accurate disclosure was made”
- stating the two central issues for Securities Act Sections 11 and 12(a)(2) claims: “(1) the existence of either a misstatement or an unlawful omission; and (2) materiality”

## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------------------------- x

IN RE DENTSPLY SIRONA, INC. OPINION & ORDER
SECURITIES LITIGATION 18-cv-7253 (NG)(PK)

--------------------------------------------------------- x
GERSHON, United States District Judge:

This action, initially brought by plaintiff Boynton Beach General Employees’ Pension
Plan on December 19, 2018, is a proposed class action on behalf of shareholders of Dentsply
Sirona, Inc. (“Dentsply Sirona”). On March 8, 2019, Strathclyde Pension Fund was appointed
Lead Plaintiff (“Plaintiff”) and subsequently filed an Amended Complaint on May 6, 2019. It
makes claims pursuant to Section 10(b) (15 U.S.C. § 78j(b)) of the 1934 Securities and Exchange
Act and SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), as well as Section 20(a) (15 U.S.C. § 78t(a))
of the Exchange Act. It also brings claims under Sections 11 (15 U.S.C. § 77k), 12(a)(2) (15
U.S.C. § 77l(a)(2)), and 15 (15 U.S.C. § 77o) of the 1933 Securities Act. The claims are brought
in connection with the merger of Dentsply International, Inc. (“Dentsply Intl.”) and Sirona
Dental Systems, Inc. (“Sirona”) on or about February 29, 2016, and statements made in
Securities and Exchange Commission (“SEC”) filings by these companies and their successor in
interest, Dentsply Sirona, and in public disclosures to the market between February 20, 2014 and
August 7, 2018 (“the Class Period”).
Following a fully briefed motion to dismiss, but before I issued an opinion, Dentsply
Sirona, on December 16, 2020, settled charges with the SEC, relating to the SEC’s investigation
into Dentsply Sirona’s “accounting and disclosures relating to transactions with a significant”
distributor. See Defs.’ Ex. 25, at 32. Based on this new development, Plaintiff filed a Second
Amended Complaint (“Complaint”) on January 25, 2021.1
Dentsply Sirona is named as a defendant in the Section 10(b) and Rule 10b-5 claims, as
well as the Sections 11 and 12(a)(2) claims. Additionally, Section 10(b) and Rule 10b-5 and
Section 20(a) claims are brought against Nicholas W. Alexos, Donald M. Casey, Christopher T.

Clark, Ulrich Michel, Jeffrey T. Slovin, Bret W. Wise, and Mark A. Thierer (the “Officer
Defendants”), and the Section 11 and 15 claims are brought against Michael C. Alfano, Eric K.
Brandt, Paula H. Cholmondeley, Michael J. Coleman, Willie A. Deese, William F. Hecht,
Francis J. Lunger, John L. Miclot, and John C. Miles II (the “Director Defendants”) and certain
of the Officer Defendants, specifically, Bret W. Wise, Christopher T. Clark, Jeffrey T. Slovin,
and Ulrich Michel. All Defendants move to dismiss the Complaint for failing to meet the
pleading standards of Federal Rules of Civil Procedure 9(b) and 12(b)(6), the Securities Act, the
Exchange Act, and the Private Securities Litigation Reform Act of 1995 (“PSLRA”).2
For the reasons that follow, while I find that certain of the alleged misrepresentations or

omissions are not actionable, the motion is denied.
I. Facts
The following facts, as alleged in the Complaint, are accepted as true for the purposes of
this motion.

1 There have been four complaints filed. The first, by Boynton Beach General Employees’
Pension Plan, the second by Plaintiff, the third by Plaintiff following the first motion to dismiss,
and the fourth—and operative—complaint filed by Plaintiff a day later to correct an error. I refer
to the operative complaint in this opinion as the Complaint.

2 Although, in their original motion to dismiss, Defendants moved under Federal Rule of Civil
Procedure 12(b)(6), they do not mention that rule in their second motion. Plaintiff correctly
recognizes that the present motion is nonetheless based on that Rule.
Defendant Dentsply Sirona is the world’s largest manufacturer of professional dental
products. Prior to their merger, Dentsply Intl. designed and manufactured dental equipment and
dental consumables (i.e., products that are used on patients by dental professionals while
performing dental procedures), while Sirona designed and manufactured technologically
advanced dental equipment, including computer-aided design/computer-aided manufacturing

(“CAD/CAM”) restoration systems and 3D imaging systems (equipment that allows dental
offices to design and create dental prostheses). With respect to its CAD/CAM segment, Sirona
pioneered the application of high-tech CAD/CAM techniques to the traditional lab-based
restoration process with the Chairside Economical Restorations of Esthetic Ceramics (“CEREC”)
method in 1987. In brief, the CEREC system gave dentists the ability to complete a dental
crown in a single visit. At the time of the merger, a CEREC system cost well over six figures,
with higher-end units costing up to $200,000. As for Sirona’s Imaging Systems segment, it
included a broad range of systems for diagnostic imaging in the dental practice. In 2005, Sirona
cemented its place as a leader in the dental imaging market when it purchased Schick

Technologies, Inc. (“Schick”). Schick’s name was changed to Sirona Dental, Inc. on October 1,
2012.
There are three major non-party distributors of dental consumable supplies and
equipment such as those produced by Dentsply Sirona. According to the Complaint, those
distributors—Schein, Patterson, and Benco—held an 80-85% market share, with Patterson and
Schein holding 75% market share. Prior to the merger, Patterson accounted for between 28%
and 38% of Sirona’s revenue in any given quarter and was Sirona’s largest customer. Following
the merger, in 2016, Patterson accounted for 12% of Dentsply Sirona’s worldwide sales.
The relationship between Patterson and Sirona, dating back to 1998, was governed by
agreements, collectively referred to as the “Exclusive Distribution Agreements,” which gave
Patterson exclusive rights to distribute, in the United States and Canada, current and future
Sirona CAD/CAM products and Schick and Sirona-branded imaging products. In June 2005,
Sirona and Patterson entered into a Consolidated and Restated Amendment to Distributorship

Agreement concerning all current and future Sirona CAD/CAM equipment sold in the United
States and Canada, for which Patterson made a one-time payment to Sirona of $100 million.
This agreement was then amended on May 31, 2012, for purposes of selling Sirona CAD/CAM
equipment in the United States, but left the 2005 Agreement in place for sales in Canada. In
May 2010, Schick, which was owned by Sirona, and Patterson entered into an Amendment to
Distributorship Agreement concerning sales to Patterson of Schick products, including Schick x-
ray systems and software. This agreement was amended by Sirona and Patterson on May 31,
2012, for purposes of selling Schick products in the United States but left the 2010 Agreement in
place for sales in Canada. In addition to sales of Schick products, the 2012 amended agreement

also concerned sales of certain Sirona products, including Sirona branded imaging products and
equipment, in the United States.
The Exclusive Distribution Agreements mandated that Patterson purchase minimum
quantities of Sirona’s products, referred to as the “minimum purchase requirements,” in order to
retain exclusivity. If Patterson failed to purchase the minimum amount required, it would be
subject to a fee; and Sirona could terminate the Agreements if Patterson failed to maintain the
agreed-to purchasing levels over a prolonged period of time. The Exclusive Distribution
Agreements also required Patterson to make detailed reports to Sirona, and later Dentsply Sirona,
on a monthly basis, about the state of the market, and sales of Sirona’s, and, thereafter, Dentsply
Sirona’s products. The reports included information about “the market situation, economic
situation and forecast, trade policies, business prospects, activities of competitors;” “order
entry/turnover and backlog, sorted out as to number of units and value, relative to sale regions;”
stock of products “relative to sale branches;” “the sales targets and results for each of Patterson’s
branch offices for that month;” and a “schedule of Patterson’s sales for that month with respect”

to each product. Complaint ¶¶ 46–49. The Exclusive Distribution Agreements had an expiration
date of September 30, 2017, unless renewed.
Sirona filed the Exclusive Distribution Agreements in 2015 as exhibits to its SEC filings,
and investors were aware that the contracts expired in September 2017. Investors were also
aware that the publicly filed contracts included minimum purchase requirements, but the exact
figures required by the minimum purchase requirements were redacted from public filings.
Patterson’s reports to Sirona and, thereafter, Dentsply Sirona about the market and inventory
were not made public.
At least as early as 2014, Plaintiff alleges, Schein, Patterson, and Benco were engaged in

an anticompetitive conspiracy. While traditionally, independent dentists, or solo practitioners,
had purchased dental products for their own practices alone, the distributors were aware that, in
related dental markets, dentists had joined dental buying groups, as a means to “aggregate and
leverage” their collective purchasing power in exchange for lower prices. Id. ¶ 76. Concerned
that the formation of dental buying groups would drive down prices, the distributors entered into
an illegal conspiracy to not “deal with” dental buying groups and to block lower-priced, rival
distributors, who could sell to dental buying groups, from entering the market. Id. ¶ 79. Plaintiff
alleges that the distributors pressured state dental associations — including the Texas Dental
Association and Arizona Dental Association — not to form dental buying groups that would be
supplied by a lower-priced distributor, by boycotting their annual trade shows. Their
anticompetitive conduct slowed the formation and growth of dental buying groups, enabling the
distributors to charge supra-competitive prices for their dental products.
Citing email correspondence involving the distributors and Dentsply Intl. and Sirona,
Plaintiff alleges that Dentsply Intl., Sirona, and Dentsply Sirona, thereafter, were “well aware of”

the conspiracy and “acquiesced in” the boycott of the state dental associations. Id. ¶ 85.
Dentsply Sirona also “benefitted from” the distributors’ conspiracy. Id. ¶ 89. As long as dental
buying groups and lower-priced distributors were excluded from the market, the distributors
could sell products at supra-competitive prices, which, in turn, allowed Defendants to sell their
products to the distributors at inflated prices and high profit margins. While the distributors’
conspiracy continued, Dentsply Sirona’s “revenues, earnings and profit margins” were
artificially inflated. Id. ¶ 91.
Dentsply Intl., and Dentsply Sirona, thereafter, also took “affirmative steps” to assist the
distributors in eliminating gray market competitors, who sold products online at discounted

prices. Id. ¶ 86. In coordination with the distributors, Dentsply Sirona told dentists not to
purchase from unauthorized distributors and threatened and filed allegedly vexatious trademark
and tortious interference litigation against unauthorized distributors.
As early as the quarter ended August 1, 2015, Patterson held a glut of Sirona inventory
that it was unable to sell. This was because end-user demand in the market for Sirona’s products
was inadequate. Specifically, Plaintiff alleges that Patterson’s inventory of Sirona products
increased by $112.9 million in the quarter ended August 1, 2015 when compared to the quarter
ended April 25, 2015. Though end-user demand was insufficient, Patterson continued making
purchases of Sirona’s products in order to comply with the Exclusive Distribution Agreements’
minimum purchase requirements, which led to Patterson amassing additional excess inventory.
Plaintiff alleges that Dentsply Sirona and the Officer Defendants were well-aware of the supply,
demand, and resultant build-up of excess inventory by Patterson because of the disclosure
requirements in the Exclusive Distribution Agreements.
On February 29, 2016, a “merger of equals” occurred, and Dentsply Intl. completed a

$5.5 billion stock-for-stock acquisition of Sirona. Sirona shareholders received 1.8142 shares of
Dentsply Intl. for each share of Sirona, and the combined company was renamed Dentsply
Sirona. Dentsply Intl.’s registration statement, which was filed with the SEC and became
effective on December 7, 2015, expressly incorporated by reference, inter alia, Annual Reports
on Form 10-K, Proxy Statements on Schedule 14A, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K for both Dentsply Intl. and Sirona for the preceding fiscal year.
Patterson’s inventory build-up continued into 2016. By the quarter ended October 28,
2016, Plaintiff alleges that Patterson’s inventory of Sirona’s and, thereafter, Dentsply Sirona’s
products increased $191.7 million when compared to the quarter ended April 25, 2015. In

November 2016, as a result of a lack of end-user demand and the glut of inventory that it held,
Patterson publicly announced that it would not renew the existing Exclusive Distribution
Agreements when they expired in September 2017. Patterson then began to purchase fewer
products from Dentsply Sirona in an effort to destock inventory.
The Complaint alleges that the market was unaware of the magnitude of the build-up at
Patterson and the lack of end-user demand. For example, according to the Complaint, in the
question-and-answer portion of a conference call on May 5, 2016, a Goldman Sachs analyst
specifically asked Dentsply Sirona about Patterson “carrying a higher level of inventory coming
into this year” and sought input on what the stockpile was as compared to “what the end-
market’s really doing.” Id. ¶ 132. Plaintiff alleges that Defendants Slovin and Michel failed to
answer that specific question. Plaintiff also cites analyst reports from late 2016 to late 2017,
indicating that analysts considered market demand to be “healthy.” Id. ¶ 65.
In early 2017, the distributors could no longer thwart the rise of dental buying groups,
and they were forced to sell products to them. As they feared, the dental buying groups were

able to force lower prices that reduced the distributors’ profit margins. After the first few
months of 2017, “the effects of the Distributors’ conspiracy waned” or “began to dissipate.” Id.
¶¶ 91, 124. Dentsply Sirona’s “reported sales, profits and earnings could no longer be buoyed by
the conspiracy.” Id. ¶ 91.
In May 2017, after Patterson decided to end exclusivity, Dentsply Sirona announced that
it had entered into a new non-exclusive distribution agreement with Patterson. At the same time,
Dentsply Sirona announced that it had engaged a new non-exclusive distributor, Schein. To
“soften the significant financial impact this development would have,” it described the new non-
exclusive distribution agreements as a new “go-to-market strategy” that would “accelerate”

growth. Id. ¶ 142. Plaintiff alleges that Dentsply Sirona knew at the time that the new non-
exclusive agreements could not drive faster growth because of the glut of inventory Patterson
held and the lack of sufficient end-user demand.
Dentsply Sirona’s 2016 Form 10-K, filed on March 1, 2017, acknowledged that the
disruption caused by Patterson’s failure to renew the exclusivity contract negatively impacted
fourth quarter sales by approximately $30 million. In Dentsply Sirona’s first quarter 2017 filings
with the SEC and in a contemporaneous conference call with analysts and investors, Dentsply
Sirona reported that inventory of Sirona equipment by Patterson decreased by $9 million in the
first quarter and that Patterson was projected to further reduce inventory another $50-60 million
in the second and third quarters of 2017. Thereafter, in its Form 10-Q for the second quarter
2017, Dentsply Sirona announced that the SEC had opened an investigation into its “accounting
and disclosures relating to transactions” with Patterson. Id. ¶ 100.
Plaintiff alleges that the “full scope” of the distributors’ conspiracy was not revealed until
February 12, 2018, when the Federal Trade Commission (“FTC”) filed a complaint against

Patterson, Schein, and Benco. Quoting the FTC complaint, Plaintiff alleges that the distributors’
conspiracy was a “horizontal agreement to restrain price competition” which constituted a “per
se violation of Section 5 of the Federal Trade Commission Act.” Id. ¶ 81. Plaintiff alleges that
the FTC complaint includes “hundreds of emails, texts and telephone calls” exchanged by the
distributors in furtherance of the scheme. Id.
On May 6, 2018, Dentsply Sirona announced that its first quarter results had been
impacted by approximately $8 million of Patterson inventory reductions, and it anticipated $40
million of total destocking in 2018. Then, it shocked the market, on August 7, 2018, when it
announced that it anticipated an additional $66 million to $76 million in destocking. Its 2018

Form 10-K confirmed that there had been approximately $100 million in destocking for the full
year 2018. In total, Patterson’s destocking of Sirona products from the end of 2016 through
2018 was, at a minimum, $189 million.
As a result of the SEC’s investigation, and in anticipation of the SEC instituting cease-
and-desist proceedings pursuant to Section 21C of the Exchange Act, Dentsply Sirona submitted
an offer of settlement, which the SEC accepted. On December 16, 2020, the SEC announced the
issuance of a consensual Cease-and-Desist Order (“SEC Order”), resulting in Dentsply Sirona’s
agreeing to cease-and-desist from violations of the charged provisions and payment of a one
million dollar fine with no admission of liability. The SEC Order made numerous findings,
which were neither admitted nor denied by Defendants.
As summarized in the SEC Order, the SEC found the following:
[Dentsply Sirona] failed to make required disclosure of known trends and
uncertainties in its periodic filings for the first three quarters of 2016 (“Relevant
Period”). [Dentsply Sirona] sold more of its dental technologies equipment to
[Patterson] than [Patterson] could sell to retail purchasers. [Dentsply Sirona]
knew during the Relevant Period that retail demand for certain of its technology
products was not keeping pace with [Patterson]’s purchases and that inventory
levels at [Patterson] were at an all-time high. By second quarter 2016, [Dentsply
Sirona] also knew that [Patterson] wanted to negotiate key terms of its next
contract to reduce its inventory levels. In third quarter 2016, [Dentsply Sirona]
was negotiating with [Patterson] to minimize the financial impact of the excess
inventory on [Dentsply Sirona]’s net sales in the future, but knew the outcome of
those negotiations was uncertain. Each quarter, [Dentsply Sirona] knew the
trends or uncertainties were reasonably likely to have a material unfavorable
impact on net sales or revenues. When preparing its quarterly filings, however,
[Dentsply Sirona] did not disclose these known trends and uncertainties to
investors in its Forms 10-Q for the first three quarters of 2016. By failing to
disclose these known trends and uncertainties, [Dentsply Sirona] violated Section
13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.

Id., App’x A at ¶ 1.
Plaintiff asserts claims on behalf of two categories of plaintiffs. First, it sues on behalf of
investors who purchased or otherwise acquired the common stock of Dentsply Intl. and its
successor-in-interest, Dentsply Sirona, between February 20, 2014, and August 7, 2018, pursuant
to Exchange Act sections 10(b) and 20(a), and SEC Rule 10b-5. Second, it sues on behalf of
investors who acquired shares of the common stock of Dentsply Sirona in exchange for their
shares of common stock of Sirona in connection with the merger of Dentsply Intl. and Sirona on
or about February 29, 2016, pursuant to Securities Act sections 11, 12(a)(2), and 15.
The Complaint alleges that, in light of the above-recited facts, Defendants made
materially misleading statements and omissions including in the following respects:
(1) attributed its growth to strong demand for its products;
(2) stated that the primary drivers of internal growth were global dental market
growth, innovation, and new products launched, and continued investments in
sales and marketing resources;
(3) explained that its growth was the result of price increases;
(4) claimed that the dental markets were “highly competitive;”

(5) inflated goodwill valuations; and
(6) failed to disclose the lack of end-user demand, and the distributors’ conspiracy.
Additionally, Plaintiff alleges that Defendants violated Item 303 of SEC Regulation S-K by
failing to disclose known trends and uncertainties relating to the lack of end-user demand and
uncertainty with respect to the Patterson relationship and the distributors’ conspiracy’s impact on
the company’s financial results.3
According to the Complaint, a series of corrective disclosures occurred in 2017 and 2018
that revealed the truth to the market. First, the lack of end-user demand and impact of
Patterson’s inventory backlog, as well as the distributors’ conspiracy’s effect, on revenues,

margins and earnings were partially revealed on August 9, 2017, when Dentsply Sirona
announced second quarter net losses and an impairment charge of approximately $1.17 billion,
consisting of approximately $1.09 billion for goodwill and $79.8 million for indefinite-lived
intangibles, in a Form 10-Q for the second quarter of 2017. On this news, the price of Dentsply
Sirona stock fell 8.4%, from $61.41 to $56.23 per share. In a conference call, Defendant Michel
attributed the impairment charge, in part, to “significantly lower retail sales” “by the company’s
exclusive North American equipment distributor,” “significant acceleration of sales decline,”
“new distribution agreements,” an “increase in competition,” and “changes in the channels of

3 Plaintiff also alleges a violation of Item 503(c) of SEC Regulation S-K based on the same facts.
distribution for the company and its competitors.” Id. ¶ 173. Plaintiff alleges that these
disclosures first led it to learn about the glut of Patterson inventory and lack of end-user
demand’s effect and the distributors’ conspiracy’s impact on Dentsply Sirona’s financial results.
Defendants “implicitly admitted” that the distributors’ conspiracy “no longer existed.” Id. ¶ 174.
A second curative disclosure is alleged to have occurred on October 2, 2017, when the

resignations of Defendants Slovin, Wise, and Clark were disclosed and Dentsply Sirona’s stock
fell 5.8%, from $59.81 to $56.33 per share. A third curative disclosure is alleged to have
occurred between May 6-8, 2018, when Dentsply Sirona reported its first quarter 2018 financial
results, which included disclosing that its results were impacted by $8 million in dealer inventory
reductions and an anticipated $40 million in destocking for 2018. Based on these disclosures,
Dentsply Sirona’s stock price fell 11%, from $49.99 to $44.47 per share.
Fourth, and finally, on August 7, 2018, Dentsply Sirona announced additional
impairments that totaled approximately $1.26 billion, consisting of approximately $1.08 billion
for goodwill and $179.2 million for indefinite-lived intangibles. Dentsply Sirona further

announced, as noted, on an earnings call that day that it anticipated an additional $66 to $76
million in destocking, with a total destocking for 2018 of $100 to $110 million. Following these
disclosures, Dentsply Sirona’s stock price declined 18.6% from $48.44 to a five-year low of
$39.41 per share on August 7, 2018, the end of the Class Period.
In total, Dentsply Sirona’s reported goodwill was reduced from $5.96 billion as of March
31, 2017, to $5.02 billion as of June 30, 2017, to $4.54 billion as of December 31, 2017, and
ultimately to $3.46 billion as of June 30, 2018—an aggregate 42% reduction in the value of
goodwill totaling $2.5 billion.
Further factual allegations will be discussed as relevant to the legal discussion below.
II. Pleading Standards
Under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain sufficient
factual matter 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)). “The court
accepts as true all well-pleaded factual allegations in the complaint, [and] draws all reasonable

inferences in favor of the nonmoving” party. Gamm v. Sanderson Farms, Inc., 944 F.3d 455,
462 (2d Cir. 2019) (internal quotation marks omitted). However, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678. Facial plausibility exists when a plaintiff “pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id. In addition to the complaint, a court may consider “written instruments attached, statements
incorporated by reference, [] public disclosure documents filed with the SEC,” and “items of
which it has taken judicial notice under Federal Rule of Evidence 201.” Gamm, 944 F.3d at
462.4

Claims of fraud are subject to the heightened pleading standard of Federal Rule of Civil
Procedure 9(b), which requires a plaintiff alleging fraud to “state with particularity the
circumstances constituting fraud.” The PSLRA imposes similar requirements on claims of fraud
brought under the Exchange Act: “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). To

4 Except for the SEC order, which is discussed below, the parties do not dispute what I may
consider, namely, the Exclusive Distribution Agreements and the SEC Filings of Patterson,
Dentsply Intl., Sirona, and Dentsply Sirona.
adequately plead scienter, the PSLRA further requires that a plaintiff “state with particularity
facts giving rise to a strong inference that the defendant acted with the required state of mind.”
15 U.S.C. § 78u-4(b)(2).
III. Overview of the Applicable Law

Plaintiff’s claims can be divided into two categories: (1) claims against Dentsply Sirona
and the Officer Defendants under Sections 10(b) and 20(a) of the Exchange Act and SEC Rule
10b-5 on behalf of itself and others who purchased or otherwise acquired Dentsply Intl. and
Dentsply Sirona common stock during the Class Period; and (2) claims against Dentsply Sirona,
the Director Defendants and certain of the Officer Defendants under Sections 11, 12(a)(2), and
15 of the Securities Act on behalf of itself and others who acquired Dentsply Sirona common
stock in exchange for their shares of Sirona common stock in connection with the merger of
Dentsply Intl. and Sirona on February 29, 2016.5
A. Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5
To state a private claim under Section 10(b) of the Exchange Act and SEC Rule 10b-5, a

plaintiff “must plausibly allege: (1) a material misrepresentation (or omission); (2) scienter, i.e.,
a wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance;
(5) economic loss; and (6) loss causation.” In re Hain Celestial Grp., Inc. Sec. Litig., 20 F.4th
131, 136 (2d Cir. 2021). Section 20(a) of the Exchange Act provides for joint and several
liability of any person who directly or indirectly controls a person found liable for a primary
violation of Section 10. 15 U.S.C. § 78t(a).

5 Following Defendants’ initial pre-motion conference letter, Plaintiff withdrew its claim
pursuant to Section 14(a) of the Exchange Act and SEC Rule 14a-9, acknowledging that it was
time-barred by the three-year statute of repose.
B. Sections 11, 12(a)(2), and 15 of the Securities Act
Section 11 of the Securities Act creates a private right of action for registration
statements that contain materially false or misleading information, while Section 12 creates a
private right of action for those who were offered or sold securities by means of a prospectus or
oral communication that contained materially false or misleading information. 15 U.S.C. §§

77k(a); 77l(a)(2). To state a claim under Section 11 of the Securities Act, a plaintiff must allege
that “the registration statement ‘contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the statements therein not
misleading.’” In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358–59 (2d Cir. 2010)
(quoting § 77k(a)). Similarly, Section 12(a)(2) requires a plaintiff to allege that “the prospectus
or oral communication ‘include[d] an untrue statement of a material fact or omit[ted] to state a
material fact necessary in order to make the statements, in the light of the circumstances under
which they were made, not misleading.’” Id. at 359 (quoting § 77l(a)(2)). Unlike the Exchange
Act, scienter, reliance, economic loss, and loss causation are not elements of a plaintiff’s prima

facie Securities Act claims. See id. at 358–60. The absence of loss causation, however, is an
affirmative defense to the Sections 11 and 12(a)(2) claims. Fed. Hous. Fin. Agency v. Nomura
Holding Am., Inc., 873 F.3d 85, 99 (2d Cir. 2017); McMahan & Co. v. Wherehouse Ent., Inc., 65
F.3d 1044, 1048 (2d Cir. 1995). Section 15 “creates liability for individuals or entities that
‘control[] any person liable’ under section 11 or 12.” Morgan Stanley, 592 F.3d at 358 (quoting
15 U.S.C. § 77o).
IV. Discussion
A. References to the SEC Order Will Not Be Stricken
Defendants seek to strike any allegations in the Complaint that reference the SEC Order,
under Federal Rule of Civil Procedure 12(f), which permits a court to strike any matter deemed
“redundant, immaterial, impertinent, or scandalous” from a pleading. Relying primarily on the

Second Circuit’s decision in Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir.
1976), they argue that it is never appropriate for allegations in a pleading to be taken from an
SEC consent judgment.
Defendants, however, misapprehend Lipsky’s reach. Lipsky stands for an evidentiary
principle that SEC consent decrees, like pleas of nolo contendere, may not be used for collateral
estoppel purposes because the issues in the underlying action were not fully adjudicated. See
United States v. Gilbert, 668 F.2d 94, 97 (2d Cir. 1981). It does not stand for the broad
proposition that the content of SEC orders may never support allegations in a complaint. See,
e.g., VNB Realty, Inc. v. Bank of Am. Corp., 2013 WL 5179197, at *4 (S.D.N.Y. Sept. 16, 2013)

(explaining that Lipsky “has limited utility if a plaintiff has adequately identified the material
omissions and misstatements in the offering documents relevant to his claim”); In re Bear
Stearns Mortgage Pass–Through Certificates Litig., 851 F. Supp. 2d 746, 768 n.24 (S.D.N.Y.
2012) (stating that “[n]either Circuit precedent nor logic supports” reading Lipsky as imposing
“such an absolute rule”).
Indeed, since Lipsky, the Second Circuit has both explicitly and implicitly sanctioned the
inclusion of allegations taken from SEC Orders, in pleadings, where a plaintiff “also allege[s]
[additional] non-conclusory facts” that “render unproblematic any implied reliance on the SEC
findings.” Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 180 (2d Cir.
2015); see also Hain, 20 F.4th at 135; Puddu v. 6D Glob. Techs., Inc., 742 F. App’x 553, 556 (2d
Cir. 2018). Such allegations “are in the nature of allegations ‘upon information and belief,’”
which can support a fraud claim for “matters peculiarly within the opposing party’s knowledge.”
Loreley, 797 F.3d at 180.
Here, any implied reliance on the SEC’s findings is unproblematic. For the most part, the

SEC Order does not add materially new facts to the Complaint; it merely overlaps, and supports,
Plaintiff’s separately stated allegations. In addition, what new, or at least more specific,
information is found in the SEC Order — such as that the minimum purchase requirements
“increased annually by ten percent for each product line” and details about a presentation to the
Dentsply Sirona Board — are matters peculiarly within Defendants’ knowledge. Nor is
Plaintiff’s reliance on this information of the kind contemplated by Lipsky. Plaintiff does not
reference the SEC Order for the purposes of asserting collateral estoppel and proving liability for
the underlying claims. I thus deny Defendants’ application to strike references to the SEC Order.
B. Plaintiff’s Securities Act Claims Are Subject to Rule 9(b)

In assessing Section 11 or Section 12(a)(2) Securities Act claims, courts must “conduct a
preliminary inquiry into whether plaintiffs’ allegations are premised on fraud, or merely on
negligence, to determine the appropriate pleading standard.” City of Pontiac Policemen’s &
Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 183 (2d Cir. 2014) (internal quotation marks
omitted). The Second Circuit explained in Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004), that,
while “[f]raud is not an element or a requisite to a claim under Section 11 or Section 12(a)(2),”
claims brought under Section 11 or Section 12(a)(2) of the Securities Act that “sound in fraud”
must meet the particularity requirement of Rule 9(b). Id. at 171. The question is whether a
plaintiff’s allegations “are classically associated with fraud.” Id. at 172. Courts must look
beyond formalisms, such as separating the Exchange Act and Securities Act claims into different
sections of the complaint and disclaiming allegations of fraud as to the latter claims. City of
Omaha Police & Fire Ret. Sys. v. Evoqua Water Techs. Corp., 450 F. Supp. 3d 379, 402
(S.D.N.Y. 2020). Instead, the conduct alleged must be assessed, considering whether the same
course of conduct that forms the basis for the Sections 11 or 12(a)(2) claims would support a

Section 10(b) and Rule 10b-5 claim. Rombach, 355 F.3d at 171.
Here, Plaintiff separates the Exchange Act and Securities Act claims into two different
sections of the Complaint and “disclaim[s] any allegations of fraud or intentional misconduct” in
connection with the Securities Act claims, Complaint ¶ 263, but makes no effort to plead
different theories of Defendants’ wrongdoing. With respect to the allegations of excess
inventory, Plaintiff alleges that the SEC Order “confirms that Sirona received reports from
Patterson from 2013 through the end of 2015 indicating that Patterson’s inventory had increased
. . . [and] was nearing its all-time high.” Id. ¶ 276. The inference to be drawn from this
allegation is that Sirona knew that sales were being driven by the minimum purchase

requirements, and not by end-user demand, but failed to disclose it. Similarly, with respect to the
distributors’ conspiracy, Plaintiff alleges that “Dentsply Int’l as well as Sirona were aware of,
and beneficiaries of” the anticompetitive scheme, id. ¶ 288, but did not disclose its impact on
their financial results. These allegations are “classically associated with fraud.”
Plaintiff also does not distinguish different theories of wrongdoing between its Exchange
Act and Securities Act claims in its opposition. It argues that the false or misleading statements
that form the basis of its Securities Act claims are viable for the same reasons as its Exchange
Act claims. E.g., Opp. 15–16, 21. Accordingly, for purposes of this motion, Plaintiff’s
Securities Act claims are assessed under Rule 9(b).
C. Statute of Limitations
i. The Legal Landscape
The statute of limitations for claims brought under § 10(b) of the Exchange Act and SEC
Rule 10b-5 provides that a claim may not be brought “2 years after the discovery of the facts
constituting the violation.” 28 U.S.C. § 1658(b)(1). The statute of limitations for Securities Act

Sections 11 and 12(a)(2) claims, which is in Section 13 of the Securities Act, requires that the
action be “brought within one year after the discovery of the untrue statement or the omission, or
after such discovery should have been made by the exercise of reasonable diligence.” 15 U.S.C.
§ 77m.
In Merck & Co. v. Reynolds, 559 U.S. 633 (2010), involving a claim under § 10(b), the
Supreme Court construed the word “discovery” in the Exchange Act’s statute of limitations as
encompassing “those facts the plaintiff actually knew [and] those facts a reasonably diligent
plaintiff would have known.” Id. at 648. Merck abrogated the “inquiry notice” standard.
In City of Pontiac General Employees’ Retirement System v. MBIA, Inc., 637 F.3d 169

(2d Cir. 2011), the Second Circuit summarized the statute of limitations standard for claims
brought under § 10(b). Following Merck, “the limitations period commences not when a
reasonable investor would have begun investigating, but when such a reasonable investor
conducting such a timely investigation would have uncovered the facts constituting a violation.”
Id. at 174. The Second Circuit also explained that “the reasonably diligent plaintiff has not
‘discovered’ one of the facts constituting a securities fraud violation until he can plead that fact
with sufficient detail and particularity to survive a 12(b)(6) motion to dismiss.” Id. at 175.
A question that was not resolved in Merck and MBIA is whether the inquiry notice
standard still applies to Sections 11 and 12(a)(2) Securities Act claims. District courts in this
circuit have reached different conclusions. See Yi Xiang v. Inovalon Holdings, Inc., 268 F. Supp.
3d 515, 520–22 (S.D.N.Y. 2017). The Second Circuit has not expressly resolved this question,
but in Federal Housing Finance Agency v. Nomura Holding America, Inc., 873 F.3d 85 (2d Cir.
2017), where the issue was undisputed, it assumed arguendo that Merck “applies with equal
force to the statute of limitations in Section 13 of the Securities Act,” and seemingly cited with

approval two decisions that had found that the Merck standard applies to such claims. Id. at 119
n.37 (citing Pension Tr. Fund for Operating Eng’rs v. Mortg. Asset Securitization Transactions,
Inc., 730 F.3d 263, 273 (3d Cir. 2013) and Fed. Hous. Fin. Agency v. UBS Ams., Inc., 858 F.
Supp. 2d 306, 318–20 (S.D.N.Y. 2012)). I, too, will apply Merck to the statute of limitations in
Section 13 of the Securities Act. See Pension Tr. Fund, 730 F.3d at 273.
Finally, the parties dispute what particular facts need to be “discovered” to commence the
limitations period for the Exchange Act and Securities Act claims. With respect to the Exchange
Act claims, Plaintiff argues that the limitations period did not commence until it had sufficient
facts to plead not only the misrepresentations and omissions and scienter elements of its claim,

but also loss causation. In Merck, the Supreme Court held that “scienter” is among the “facts
constituting the violation.” Merck, 559 U.S. at 648–49. Merck explicitly did not resolve whether
“other facts necessary to support a private § 10(b) action,” such as reliance, loss, and loss
causation, are among those facts. Id. at 649. However, in explaining why “scienter” was among
the “facts constituting the violation,” Merck stated that “scienter ‘constitut[es]’ an important and
necessary element of a § 10(b) ‘violation.’” Id. at 648. Under the logic of Merck, because loss
causation is an element of a § 10(b) claim, I agree with Plaintiff that it must have discovered
sufficient facts to plead the misrepresentations and omissions, scienter, and loss causation
elements before the statute of limitations began to run.6
With respect to the Securities Act claims, Defendants note that the text of the statute of
limitations in Section 13 provides that it commences upon the “discovery of the untrue statement
or the omission” rather than the “facts constituting the violation.” They argue that this textual

distinction means that the limitations period commences upon “discovery” of the “untrue
statement or the omission” rather than any other facts. Plaintiff contends that it must have
“discovered” the facts supporting its claimed damages before the limitations period commences.
I agree with Defendants. The text of the statute plainly requires only discovery of the “untrue
statement or the omission” before the limitations period commences. Additionally, under the
logic of Merck, unlike the “scienter” element of a § 10(b) claim, damages are not an element of
Plaintiff’s Securities Act claims.
ii. Defendants’ Factual Burden
At the evidentiary stage of the case, it is Defendants’ “burden to prove that a reasonable

investor in the [plaintiffs’] shoes would have conducted a fulsome investigation and uncovered
information sufficient to make out a plausible claim for relief.” Nomura, 873 F.3d at 122.
Defendants must adduce “evidence of . . . how long it would take a reasonably diligent investor
in the [plaintiffs’] position to investigate [its] claims such that it could adequately plead them.”
Id. (second alteration in original).

6 Defendants’ argument in its Reply, at page 3, that “[t]he Second Circuit has since recognized
that reliance, economic loss and loss causation are not elements of a Section 10(b) violation”
misreads United States v. Vilar, 729 F.3d 62, 75 (2d Cir. 2013), which expressly differentiated
between the criminal case before the court and a private civil action. Vilar noted, to the contrary,
that these are elements of a private, civil claim.
At the pleading stage, it is possible for a securities fraud complaint to be dismissed as
untimely, but Defendants must make a showing, from the face of the complaint and matters of
which the court may take judicial notice, that would enable the court, drawing all reasonable
inferences in Plaintiff’s favor, to identify the “precise moment” at which Plaintiff would have
had “sufficient information to plead its claims with ‘sufficient detail and particularity to survive a

12(b)(6) motion to dismiss.’” Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 95 (2d
Cir. 2018) (quoting MBIA, 637 F.3d at 175).
iii. Application to Plaintiff’s Exchange Act and Securities Act Claims
Plaintiff filed this action on December 19, 2018. Defendants do not contest, for purposes
of this motion, that Plaintiff’s Securities Act claims, but not its Exchange Act claims, were tolled
on June 7, 2018.7 Accordingly, Defendants must show that a reasonably diligent plaintiff would
have “discovered” the facts necessary to plead the misrepresentations and omissions, scienter,
and loss causation for the Exchange Act claims earlier than December 19, 2016, and the
misrepresentations and omissions for the Securities Act claims earlier than June 7, 2017.

Defendants have not made that showing.
Beginning with the misrepresentations and omissions element of Plaintiff’s Exchange Act
and Securities Act claims, with respect to the distributors’ conspiracy, it is necessary to briefly
discuss Plaintiff’s claims. The core of Plaintiff’s claims relating to the distributors’ conspiracy is
that Dentsply Sirona was “aware of,” “acquiesced in,” and “benefitted from” the distributors’
conspiracy to not “deal with” dental buying groups and block lower-priced, rival distributors,
who could sell to dental buying groups. Complaint ¶¶ 79, 85, 89. Plaintiff alleges that the

7 On that date, a since-dismissed state court complaint, alleging Securities Act violations against
Defendants, was filed. See In re Dentsply Sirona, Inc. S’holders Litig., 191 A.D.3d 404, 404 (1st
Dept 2021).
distributors boycotted state dental associations that had planned to start dental buying groups that
would buy from a rival, low-priced distributor. Plaintiff cites a series of emails, which show that
Dentsply Intl. and Sirona were “aware of” the conspiracy and “acquiesced in” the boycott of the
state dental associations. Id. ¶ 85. According to the Complaint, these emails became publicly
accessible after December 2017. Dentsply Sirona also “benefitted from” the conspiracy because,

while it was ongoing, it was able “to report inflated revenues, earnings and profit margins.” Id. ¶
91. Plaintiff alleges that it was only after Dentsply Sirona announced its August 2017
impairment charge that it learned that Dentsply Sirona “benefitted from” the distributors’
conspiracy because Dentsply Sirona’s “reported sales, profits and earnings could no longer be
buoyed by the conspiracy.” Id.
In an effort to show that a reasonably diligent plaintiff would have possessed sufficient
information to plead Plaintiff’s claims with sufficient detail and particularity to survive a
12(b)(6) motion to dismiss earlier than June 2017, Defendants attach to their motion numerous
lawsuits, and news articles reporting on those lawsuits, that were brought against the distributors

relating to their anticompetitive conduct. The vast majority of these lawsuits and news articles,
however, do not appear to mention Sirona, Dentsply Intl., or Dentsply Sirona. Defendants have
not shown that these lawsuits and news articles would have provided a reasonably diligent
plaintiff with sufficient information to plead Plaintiff’s claims, namely, that Dentsply Sirona was
“aware of,” “acquiesced in,” and “benefitted from” the distributors’ conspiracy.
In its Reply, responding to Plaintiff’s argument that none of the lawsuits or news articles
reference Dentsply Sirona, Defendants point to counterclaims, which were filed against Dentsply
Sirona by a “gray market” distributor of Dentsply Sirona’s products, Dental Brands for Less
LLC, and a single allegation from an antitrust class action complaint that was filed against the
distributors.8 Neither the cited portions of the counterclaims nor the allegation from the antitrust
class action complaint allege that Dentsply Sirona “benefitted from” the distributors’ conspiracy.
They do not provide facts showing that the distributors’ conspiracy inflated Dentsply Sirona’s
“revenues, earnings and profit margins.” Id. ¶ 91.
The counterclaims and the allegation in the antitrust class action complaint also lack

other facts necessary to Plaintiff’s claims. The counterclaims allege that Dentsply Sirona
“enforce[d]” the distributors’ “price fixing agreement” through efforts to eliminate gray market
distributors. Dentsply Int’l Inc. v. Dental Brands for Less LLC, 2016 WL 6310777, at *1
(S.D.N.Y. Oct. 27, 2016). Specifically, the counterclaims allege that Dentsply Sirona engaged
in: (1) a “disinformation campaign” directed at dentists, warning them not to purchase products
from unauthorized distributors; and (2) litigation against unauthorized distributors. Id. at *2.
While Plaintiff also alleges that Dentsply Sirona took “affirmative steps” to assist the distributors
in eliminating gray market sellers, Complaint ¶ 86, the core of Plaintiff’s claim in this case is not
related to Defendants actions with respect to gray market sellers, but to Defendants’ knowledge

of and acquiescence in the distributors’ conspiracy to not deal with dental buying groups and
block lower-priced rival distributors who could sell to dental buying groups. Defendants
acknowledge as much by arguing that “Plaintiff’s allegations regarding ‘gray market’ goods are
unrelated to the alleged Distributor Conspiracy.” Motion 40 n.15; see Reply 10 n.11. Apart
from the allegations concerning Dentsply Sirona’s conduct relating to “gray market” sellers, the
counterclaim allegations concerning the distributors’ “price fixing agreement,” Dental Brands,
2016 WL 6310777, at *1, are general. They would not have allowed Plaintiff to plead that

8 As a “gray market” distributor, Dental Brands for Less purchased Dentsply Sirona’s products
overseas at a discount and sold them in the U.S. market.
Defendants were “aware of” and “acquiesced in” the conspiracy to block the formation of dental
buying groups and boycott state dental associations.
As for the allegation in the antitrust class action complaint, the allegation concerns an
email that Benco wrote to Dentsply Sirona about the distributors’ boycott of the Arizona Dental
Association. However, here, Plaintiff relies on a series of emails to allege with sufficient detail

and particularity that Defendants were aware of the distributors’ conspiracy and acquiesced in
the boycott of the state dental associations. Defendants have not shown that the lone email they
rely on provided Plaintiff with enough information to plead its claims.
In sum, while these lawsuits and news articles may have put Plaintiff on “inquiry notice,”
that is no longer the standard after Merck. Drawing all reasonable inferences in Plaintiff’s favor,
Defendants have not established that a reasonably diligent investor would have had sufficient
information to plead Plaintiff’s claim with sufficient detail and particularity to survive a 12(b)(6)
motion to dismiss earlier than Plaintiff alleges that it did.
Defendants also have not shown when a reasonably diligent investor would have

discovered the facts underlying Plaintiff’s excess inventory allegations. Plaintiff claims that
demand for Sirona’s and, thereafter, Dentsply Sirona’s products was lacking, but that Sirona and,
thereafter, Dentsply Sirona continued to sell product to Patterson as a result of the minimum
purchase requirements. This led to Patterson holding an increasing glut of inventory. Even if a
reasonably diligent investor may have been able to determine that Patterson was carrying a
higher level of inventory, Plaintiff makes numerous allegations that it was not known to the
market, including market analysts, that Patterson’s situation was driven by the minimum
purchase requirements and not by end-market demand. See, e.g., Complaint ¶¶ 65, 132. For
example, Plaintiff alleges that analyst reports between late 2016 and late 2017 continued to
portray market demand as “healthy.” Id. ¶ 65. Additionally, in a mid-2016 Q&A, a Goldman
Sachs analyst asked Defendants Slovin and Michel “what the end-market’s really doing;” in
response, Plaintiff alleges that they did not directly answer the question, but misled the market
into believing that Dentsply Sirona CEREC sales were “poised for strong future growth.” Id. ¶
132.

Freidus v. Barclays Bank PLC, 734 F.3d 132 (2d Cir. 2013), relied upon by Defendants,
does not support their position. There, the Second Circuit charged the plaintiffs with knowledge
of the fraud from the date that Barclays Bank PLC (“Barclays”) issued a corrective disclosure
that disclosed “the same alleged untruths and omissions” that plaintiffs alleged were absent from,
or misstated in, its filings. Id. at 138. The Circuit also found it significant that the subject of the
fraud, deteriorating credit markets linked to the mortgage-backed securities market, had already
been “widely and publicly exposed,” including by Barclay’s peer banks. Id. at 139. Here,
Defendants have not pointed to any disclosures revealing the “same alleged untruths and
omissions” that Plaintiff alleges were absent from, or misstated in, its filings. Nor is the market

comparable to the “widely and publicly exposed” deteriorating credit market at issue in Freidus.
iv. The Exchange Act Claims Are Not Untimely For Additional Reasons
Defendants have also not shown, for purposes of Plaintiff’s Exchange Act claims, that a
reasonably diligent investor could have discovered sufficient facts to survive a motion to dismiss
on the loss causation and scienter elements earlier than December 19, 2016. Plaintiff could not
have sufficiently alleged loss causation until Dentsply Sirona’s August 2017 impairment charge.
Plaintiff relies on a number of facts which support an inference of scienter that could not have
been alleged until late 2017, including the magnitude of the August 2017 impairment charge and
the resignations of top executives in October and November 2017. See scienter discussion infra
Section E, at pp. 41–43.
For these additional reasons, Defendants have not shown that Plaintiff’s Exchange Act
claims were untimely.
D. Plaintiff Has Pleaded Actionable Misstatements or Omissions9

There are three bases for liability under Section 10(b) of the Exchange Act and Rule 10b-
5(b), and Sections 11 and 12(a)(2) of the Securities Act: “(1) a material misrepresentation; (2) a
material omission in contravention of an affirmative legal disclosure obligation; or (3) a material
omission of information that is necessary to prevent existing disclosures from being misleading.”
Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715–16 (2d Cir. 2011) (Sections 11 and 12(a)(2)
of the Securities Act); see In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 239–40 (2d Cir. 2016)
(Section 10(b) of the Exchange Act and Rule 10b-5(b)).
As noted above, in a securities fraud case, a plaintiff must “state with particularity the
circumstances constituting fraud.” Plaintiff must, therefore, “explain why the statements were

fraudulent” when made. Novak v. Kasaks, 216 F.3d 300, 306, 312–13 (2d Cir. 2000). However,
unlike a violation of clauses (a) and (c) of Rule 10b-5, which give rise to liability for a
“fraudulent scheme or practice,” a plaintiff need not allege that the conduct underlying the
misrepresentation or omission was “fraudulent or otherwise illegal.” Hain, 20 F.4th at 136–37.

9 Because, as discussed below, Plaintiff has alleged at least some actionable misrepresentations
or omissions, it is unnecessary to address every misrepresentation or omission alleged in the
Complaint. The “exact parameters” of Plaintiff’s claims can be evaluated “following discovery,
either in connection with a motion for summary judgment or in advance of trial.” In re MF
Glob. Holdings Ltd. Sec. Litig., 982 F. Supp. 2d 277, 318 n.26 (S.D.N.Y. 2013). Below I address
those categories of misrepresentations or omissions that Defendants have challenged as not
actionable in their motion. In certain instances, Defendants cited to an allegation in the
Complaint, but did not offer any argument or authority to explain why they viewed that alleged
misrepresentation or omission as insufficient. I do not address such misrepresentations or
omissions here.
The focus, rather, of Sections 11 and 12(a)(2) and clause (b) of Rule 10b-5 is on the “statements
made” and “whether something said was materially misleading.” Id. at 136 (explaining pleading
requirements for clause (b) of Rule 10b-5); see Morgan Stanley, 592 F.3d at 360 (stating the two
central issues for Securities Act Sections 11 and 12(a)(2) claims: “(1) the existence of either a
misstatement or an unlawful omission; and (2) materiality”). Subsequent events can lend support

to an inference that a statement was fraudulent when made. See Novak, 216 F.3d at 312–13.
i. Statements Relating to Patterson’s Excess Inventory
1. Misleading Statements Regarding Strong Demand
Plaintiff alleges actionable false or misleading statements in, or incorporated by, the
registration statement, which was declared effective on December 7, 2015. Plaintiff alleges that
Sirona’s 2015 Form 10-K, which was incorporated in the registration statement, stated that
“[r]evenues benefited primarily from strong demand for our CAD/CAM Systems and Imaging
products,” while omitting to state that sales were driven by the minimum purchase requirements,
not end-user market demand. A reasonable investor could have understood this statement to

mean that end-user demand was strong when, in fact, sales were driven by the minimum
purchase requirements. These allegations bear similarities to those asserted in Oklahoma
Firefighters Pension & Retirement System v. Lexmark International, Inc., 367 F. Supp. 3d 16
(S.D.N.Y. 2019), in which the court found that statements attributing revenue growth to “‘strong’
end-user demand,” while failing to disclose that growth had, in fact, been inflated by sales to its
distributors, were actionable. Id. at 32. The statements could mislead a reasonable investor
because, whether the revenues were driven by “inflated channel inventory” or “end-user
demand” “fundamentally differ in sustainability.” Id. at 33. So too here.
Plaintiff has also plausibly alleged actionable post-merger statements, such as in the 2016
Forms 10-Q. “[A] violation of federal securities law cannot be premised upon a company’s
disclosure of accurate historical data,” Plumber & Steamfitters Loc. 773 Pension Fund v. Danske
Bank A/S, 11 F.4th 90, 99 (2d Cir. 2021), but Plaintiff’s allegations do more. Plaintiff identifies
post-merger statements attributing “sales growth” to “increased demand” or “higher demand.”

Complaint ¶¶ 133, 137. As discussed above, these statements could plausibly mislead a
reasonable investor to believe that sales growth was driven by end-market demand when, in fact,
it was driven by the minimum purchase requirements.
Plaintiff also sufficiently alleges why these statements were false or misleading when
made. Plaintiff alleges that, at the time of the registration statement, inventory at Patterson had
increased substantially, including a $112.9 million increase in the quarter ended August 1, 2015.
This fact supports an inference that, at that time, end-user demand was inadequate, and Patterson
held a glut of inventory that it could not sell. Subsequent facts and events also lend support to
this inference. See Novak, 216 F.3d at 312–13. By the end of the first quarter 2016, the SEC

Order stated, Defendants were aware that Patterson’s inventory levels were at all-time highs and
end-user sales were not keeping pace. It also stated that, in the second quarter 2016, a
presentation was delivered to Dentsply Sirona’s Board acknowledging that the minimum
purchase requirements, and not end-user demand, was driving its sales to Patterson. By the
quarter ended October 28, 2016, Plaintiff further alleges that Patterson inventory had increased
by $191.7 million as compared to the quarter ended April 25, 2015. By November 2016,
Patterson announced that it would end exclusivity, which was the result of lack of end-user
demand. Finally, in August 2017 and 2018, Dentsply Sirona announced approximate $1.2
billion and $1.3 billion impairment charges, respectively. These facts also support Plaintiff’s
allegations that the post-merger statements were fraudulent when made.
2. Statements Regarding the Patterson and Schein Relationships
Are Not Puffery

Defendants challenge certain statements that were made on a conference call and in an
investor presentation on February 17, 2017, and on a May 9, 2017 conference call, regarding
Dentsply Sirona’s relationship with Patterson and Schein, as inactionable puffery. See Motion
19; Complaint ¶ 144 (describing Schein relationship as a “very strong and terrific relationship”
and the Patterson relationship as “strong”); id. ¶ 146 (explaining that they have a “unique and
important relationship with Patterson”); id. ¶ 147 (stating that they “are confident that the way
we’ve set up our structure benefits both Henry Schein and Patterson”).
Statements that “are too general to cause a reasonable investor to rely upon them”
constitute “puffery,” which do not give rise to securities violations. ECA, Loc. 134 IBEW Joint
Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 206 (2d Cir. 2009). Characteristic
examples include “general statements about reputation, integrity, and compliance with ethical
norms,” particularly when used with aspirational qualifiers, such as “aims to,” “wants to,” and
“should,” UBS AG, 752 F.3d at 183, as well as expressions of “corporate optimism,” Rombach,
355 F.3d at 174. “No investor would take such statements seriously in assessing a potential
investment,” ECA, 553 F.3d at 206, and thus, they do not rise “to the level of materiality required
to form the basis” for an actionable claim. UBS AG, 752 F.3d at 183. “Whether a representation

constitutes mere puffery depends, in part, on the context in which it was made.” In re Signet
Jewelers Ltd. Sec. Litig., 2018 WL 6167889, at *11 (S.D.N.Y. Nov. 26, 2018). “While certain
statements, viewed in isolation, may be mere puffery, when the statements are made repeatedly
in an effort to reassure the investing public about matters particularly important to the company
and investors, those statements may become material to investors.” Id. (internal quotation marks
omitted). This is especially so where the statements are made in response to direct questions on
the subject. See id. at *12.
Applying these principles, I cannot conclude, as a matter of law, that no reasonable
investor would take the challenged statements seriously in assessing an investment in Dentsply

Sirona stock. Patterson had just publicly announced, in November 2016, that it would not renew
exclusivity. The Complaint alleges that the statements were made “in an effort to soften the
significant financial impact this development would have on the Company” and to reassure
investors. Complaint ¶ 142. They were made as part of an effort to portray the non-exclusive
Patterson and Schein contracts as a new “go-to-market” strategy that would drive faster growth.
Id. ¶¶ 143, 145. Some of these statements were also made in response to direct questions by
analysts about the Schein and Patterson relationships. In fact, Plaintiff alleges that Patterson’s
undisclosed glut of inventory would adversely impact sales to Patterson and Schein, and not
allow faster growth. In this context, the challenged statements concerning Dentsply Sirona’s

relationship with Schein and Patterson are not mere puffery. Novak v. Kasaks, 216 F.3d 300 (2d
Cir. 2000), supports this conclusion. There, allegations that the defendants’ “inventory situation
was ‘in good shape’ or ‘under control’ while they allegedly knew that the contrary was true”
were not puffery, but actionable statements. Id. at 315; see also Signet, 2018 WL 6167889, at
*11–12 (describing credit portfolio as “strong,” “very strong,” and “very healthy” to reassure the
investing public about the portfolio’s health is “not puffery at all”).10

10 Nor does anything in Arkansas Public Employees Retirement System v. Bristol-Myers Squibb
Co., 28 F.4th 343 (2d Cir. 2022), relied upon by Defendants, suggest a different result here. That
decision did not address puffery. In any event, there, the Second Circuit concluded that the
defendant’s disclosure that it was conducting a clinical trial, which targeted patients with a
“strong” expression of the “PD-L1” protein, could not plausibly mislead a reasonable investor,
ii. Statements Relating to Distributors’ Conspiracy
1. Statements Regarding the Company’s Reported Financial
Results, Drivers of Internal Growth, and Product Pricing

As noted earlier, “a violation of federal securities law cannot be premised upon a
company’s disclosure of accurate historical data.” Plumber, 11 F.4th at 99. Accordingly,
“accurately reported financial statements do not automatically become misleading by virtue of
the company’s nondisclosure of suspected misconduct that may have contributed to the financial
results.” Id. at 98–99. Thus, to the extent that Plaintiff relies on accurately reported historical
financial results, such as Dentsply Intl.’s and Dentsply Sirona’s “reported net sales, gross profit,
net income, and adjusted operating margin” reflected in quarterly filings from “Q1 2013”
through “Q1 2017,” Complaint ¶ 120, and accurately reported price increases, id. ¶¶ 128–29,
such statements are not actionable.
As with the excess inventory allegations, however, Plaintiff alleges more. Courts in this
circuit have drawn a distinction between accurately reported financial results and statements in
which the defendant “puts at issue the cause of its financial success . . . [but] fails to disclose that
a material source of its success is the use of improper or illegal business practices.” Speakes v.
Taro Pharm. Indus., Ltd., 2018 WL 4572987, at *7 (S.D.N.Y. Sept. 24, 2018); In re Mylan N.V.
Sec. Litig., 2018 WL 1595985, at *6 (S.D.N.Y. Mar. 28, 2018). Thus, for example, statements
attributing growth to factors that omit that a portion of growth is a result of anticompetitive
conduct are actionable. Speakes, 2018 WL 4572987, at *7, Mylan, 2018 WL 1595985, at *6.

Here, Plaintiff has adequately alleged that Defendants’ statements relating to the sources
of their success were false or misleading. These include statements in various SEC filings that

because there was no consensus in the industry, and even in the plaintiff’s own complaint, about
the meaning of the word in context. Id. at 353–54. No similar lack of consensus about the
meaning of Defendants’ language exists here.
“the ‘primary drivers of internal growth’ included global dental market growth, innovation and
new products launched by the Company, and continued investments in sales and marketing
resources, including clinical education,” Complaint ¶¶ 121–22, and statements relating to
product pricing, such as that “there’s no doubt that price is a component of the 1.9% organic
growth.” Id. ¶ 127. These statements attribute growth to certain factors but omit that a portion

of the growth was the result of anticompetitive conduct.
Plaintiff has also sufficiently alleged why these statements were false or misleading when
made. It alleges that the distributors, at least from 2014 through 2017, were engaged in a
conspiracy to slow the formation and growth of dental buying groups and block low-priced, rival
distributors, who could sell to dental buying groups, enabling the distributors to charge supra-
competitive prices and maintain high profit margins. According to the Complaint, the
distributors pressured state dental associations — including the Texas Dental Association and
Arizona Dental Association — not to form dental buying groups that would be supplied by a
lower-priced distributor, by boycotting their annual trade shows. Dentsply Intl., Sirona, and

Dentsply Sirona, thereafter, were “well aware” of the conspiracy and “acquiesced” in the boycott
of the state dental associations. Id. ¶ 85. The Complaint also sufficiently alleges that Defendants
“benefitted from” the conspiracy. Id. ¶ 89. As long as dental buying groups and lower-priced
distributors were excluded from the market, the distributors could sell products at supra-
competitive prices, which, in turn, allowed Defendants to sell their products to the distributors at
inflated prices and high profit margins. They also took “affirmative steps” to assist the
distributors in eliminating gray market rivals, who sold discounted products online.11 Id. ¶ 86.

11 Two additional arguments of the Defendants do not warrant finding that these statements are
not actionable. Defendants argue that, because Plaintiff’s claims are based on the nondisclosure
of illegal conduct, Plaintiff must “state a plausible claim that the underlying conduct occurred,”
2. Statements Regarding Competition

Defendants argue that statements concerning “highly competitive” markets are not
actionable. They point to, for instance, the statements that the “[c]ompany conducts its
operations, both domestic and foreign, under highly competitive market conditions,” id. ¶¶ 116–
18, “dental and medical device supplies markets are highly competitive,” id. ¶ 295, and
“[c]ompetition in the global dental market is fragmented by both geography and products.” Id. ¶
297. I disagree. These allegations are similar to those asserted in In re Henry Schein, Inc.
Securities Litigation, 2019 WL 8638851 (E.D.N.Y. Sept. 27, 2019), in which the court held that
Schein’s statements that the “dental distribution business was ‘highly competitive’” and
“characterized by . . . intense competition,” when, in fact, Schein was engaged in anticompetitive
conduct, were plausibly false or misleading. Id. at *10–11. A reasonable investor could have

which it has failed to do. Reply 10. It is true that recent Second Circuit decisions have
explained that, under Rule 9(b) and the PSLRA, “when the nondisclosure of an illegal act is the
basis of a 10(b) complaint, the illegal act must be alleged with particularity.” Gamm, 944 F.3d at
463–64; see Mucha v. Winterkorn, 2022 WL 774877, at *2–3 (2d Cir. Mar. 15, 2022). Plaintiff,
however, is not basing its claim on the nondisclosure of illegal conduct. In Gamm and
Winterkorn, the claim was that the defendants did not disclose their own unlawful or
anticompetitive conduct. Here, Plaintiff alleges that the statements were false or misleading
because Defendants were “aware of,” “acquiesced in,” and “benefitted from” the unlawful
conduct of the distributors. They also took “affirmative steps” to assist the distributors in
eliminating competition from gray market sellers. As noted, Plaintiff need not allege that
Defendants’ conduct underlying their misrepresentations or omissions was “fraudulent or
otherwise illegal.” Hain, 20 F.4th at 136–37. In any event, even if Plaintiff’s claims are subject
to this requirement, Plaintiff alleges that the distributors “engaged in a per se violation of Section
5 of the Federal Trade Commission Act,” Complaint ¶ 81, and pleads sufficient facts to establish
the basic elements of the violation, which “overlaps the scope of § 1 of the Sherman Act.” 1-800
Contacts, Inc. v. Fed. Trade Comm’n, 1 F.4th 102, 114 (2d Cir. 2021).

Defendants also argue that Plaintiff’s theory that Defendants would benefit from the distributors’
conspiracy “makes no sense,” since an anticompetitive conspiracy among distributors “would
likely harm” a manufacturer. Motion 22. At this stage, however, I am required to accept the
allegations in the Complaint as true and draw all reasonable inferences in Plaintiff’s favor.
Plaintiff’s allegations — that the distributors’ conspiracy benefitted Defendants because they
could sell their products at inflated prices to the distributors — are plausible.
been misled into believing that Schein operated in a competitive environment. Similarly, here,
Plaintiff plausibly alleges that the statements regarding competition would have misled a
reasonable inventor into believing that the dental and medical device supplies markets were
highly competitive when, in fact, Defendants were “aware of,” “acquiesced in” and “benefitted
from” the distributors’ anticompetitive conspiracy. Complaint ¶¶ 85, 89.

Defendants’ arguments that these statements are not actionable are unpersuasive.
Defendants argue that no reasonable investor would have understood these statements as
referring to competition among its distributors; rather, they argue that investors would have
understood the statements as referring to competition among dental supply manufacturers. When
evaluating a Rule 12(b)(6) motion, however, I am required to credit Plaintiff’s plausible reading
of the statements, not Defendants’ competing explanation. IWA Forest Indus. Pension Plan v.
Textron Inc., 14 F.4th 141, 146 (2d Cir. 2021). The statements speak of competition in the
“market,” the “dental and medical device supplies markets,” and the “global dental market.”
Plaintiff’s reading of these statements as referring to markets that included sales by Defendants’

distributors is plausible. Likewise unpersuasive is Defendants’ argument that the statements
were puffery. Unlike the vague, general, and aspirational statements that characterize puffery, as
discussed above, I cannot conclude, as a matter of law, that describing the dental product market
as “highly competitive,” while simultaneously being aware of, acquiescing in, and benefitting
from a conspiracy to stifle competition, would not be taken seriously by a reasonable investor, in
assessing an investment in Dentsply Sirona. See Schein, 2019 WL 8638851, at *12 (rejecting
argument that competition statements were puffery).
iii. Statements Regarding Goodwill
Plaintiff contends that Dentsply Sirona’s estimates of goodwill in the registration
statement, and post-merger statements, are actionable because the goodwill calculations were
inflated by sales of inventory to Patterson that were based on minimum purchase requirements,
not end-user demand, and the distributors’ conspiracy. The parties agree that the challenged

estimates of goodwill are statements of opinion. See City of Omaha, Neb. Civilian Emps.’ Ret.
Sys. v. CBS Corp., 679 F.3d 64, 67–68 (2d Cir. 2012); Fait v. Regions Fin. Corp., 655 F.3d 105,
110–11 (2d Cir. 2011). A statement of opinion gives rise to liability where (1) the speaker does
not hold the professed belief; (2) the supporting facts supplied are untrue; or (3) the speaker
omits information whose omission makes the statement misleading to a reasonable investor.
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 185–86
(2015).
In elaborating on the third basis for finding an opinion statement actionable, the Supreme
Court explained that “a reasonable investor may, depending on the circumstances, understand an

opinion statement to convey facts about how the speaker has formed the opinion—or, otherwise
put, about the speaker’s basis for holding that view.” Id. at 188. A reasonable investor expects
that the opinion “fairly aligns with the information in the issuer’s possession at the time.” Id. at
189. But “if the real facts are otherwise, but not provided,” and “if those facts conflict with what
a reasonable investor would take from the statement itself,” then “the opinion statement will
mislead its audience.” Id. at 188–89. To plead a claim under the third basis, then, the “investor
must identify particular (and material) facts going to the basis for the issuer’s opinion—facts
about the inquiry the issuer did or did not conduct or the knowledge it did or did not” have. Id.
at 194. If such facts are identified, “the court must ask whether the alleged omission rendered . .
. [the] opinions misleading . . .—i.e., because the excluded fact shows that [the defendants]
lacked the basis for making those statements that a reasonable investor would expect.” Id. at
196.
Here, Plaintiff has sufficiently alleged at least the third basis for an actionable opinion
statement.12 The Complaint identifies particular facts, i.e., sales of “excess inventory” to

Patterson and a lack of end-user demand and Defendants awareness of, acquiescence in and
benefit from the distributors’ conspiracy, going to the basis for Dentsply Sirona’s goodwill
calculations and alleges that, in light of those facts, Defendants lacked a reasonable basis for
their statements regarding goodwill. See In re Chi. Bridge & Iron Co. N.V. Sec. Litig., 2018 WL
2382600, at *8 (S.D.N.Y. May 24, 2018).
Defendants argue that securities law claims cannot be premised on mere disagreements
with “accounting judgments” or “fraud-by-hindsight.” But Defendants have not shown, as a
matter of law, that this is such a claim. Plaintiff identifies specific facts that they allege were
known to Defendants at the time they calculated goodwill that rendered their goodwill

calculations unreasonable.
iv. Item 303 of Regulation S-K
As noted, one of the potential bases for liability under Sections 11 and 12(a)(2) and
Section 10(b) and Rule 10b-5b is an omission in contravention of an affirmative legal disclosure
obligation. Item 303 of SEC Regulation S-K can “serve as the basis for claims under Sections 11
and 12(a)(2), and for a claim under” Section 10(b). Moab Partners, L.P. v. Macquarie
Infrastructure Corp., 2022 WL 17815767, at *2 (2d Cir. Dec. 20, 2022). “Item 303 requires that

12 Because I find that Plaintiff has alleged the third Omnicare basis, for purposes of this motion, I
do not address Plaintiff’s argument that it has also sufficiently alleged that Defendants did not
believe in the accuracy of the goodwill calculations.
a company disclose certain information where a trend, demand, commitment, event or
uncertainty is both presently known to management and reasonably likely to have material
effects on the registrant’s financial conditions or results of operations.” Id. (internal quotation
marks omitted). Plaintiff alleges that, by not disclosing the lack of end-user demand and
“excess” inventory glut as well as the distributors’ conspiracy’s impact on their financial results,

Defendants violated Item 303.
Beginning with the distributors’ conspiracy allegations, Plaintiff alleges that the known
trend or uncertainty that was reasonably likely to have a material effect on Defendants’ financial
results was the “public exposure and cessation” of the distributors’ conspiracy. Complaint ¶ 248.
Plaintiff alleges that it was reasonably likely to (and did) have material effects on Dentsply
Sirona’s financial results; its cessation contributed to Defendants’ taking impairment charges in
August 2017 and 2018. Plaintiff, however, must also allege that the trend or uncertainty was
known to Defendants. See Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 95 (2d Cir. 2016)
(holding that Item 303 requires a plaintiff to allege that a defendant actually knew about the trend

or uncertainty, and not merely should have known). While Plaintiff alleges that Defendants were
aware of the conspiracy, it does not plead that Defendants knew that it ended until August 2017.
At that time, Defendants “implicitly admitted” that the distributors’ conspiracy “no longer
existed” when they took the approximate $1.2 billion impairment charge.13 Complaint ¶ 174.

13 Plaintiff’s argument that it alleged Defendants’ knowledge of the conspiracy “going back to
2014,” Opp. 26, is misplaced. The trend or uncertainty that Plaintiff alleges was reasonably
likely to materially impact Defendants’ financial results was not the distributors’ conspiracy, but
its “public exposure and cessation.” Complaint ¶ 248. Additionally, Plaintiff cites no authority
for the proposition that knowingly deriving a benefit from unlawful conduct, with an unknown
end date, constitutes a known trend or uncertainty reasonably likely to materially impact
financial results. There is reason to think that it does not, either because a company does not
have a duty under Second Circuit law to disclose “uncharged, unadjudicated wrongdoing” or
because Item 303 should not be construed as “so broad as to require defendants to disclose
Accordingly, the Item 303 claims based on the distributors’ conspiracy allegations are not
actionable from the start of the Class Period until August 2017.14
I reach a different conclusion with respect to the excess inventory allegations. In Stratte-
McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015), the Second Circuit held that Morgan
Stanley had an Item 303 disclosure obligation when it knew, but failed to disclose, that there was

a “significant downward trend in the subprime residential mortgage market” which, because of
its significant exposure to that market, was “likely to cause trading losses that would materially
affect the company’s financial condition.” Id. at 104. In Panther Partners Inc. v. Ikanos
Communications, Inc., 681 F.3d 114 (2d Cir. 2012), the Second Circuit found a known
“uncertainty” when Ikanos Communications Inc. knew that it “might have to accept returns of a
substantial volume, if not all, of the chips it had delivered to [two] major customers,” which
jeopardized its relationship with the customers. Id. at 121–22.
Similarly, here, and for many of the reasons discussed above in regard to Defendants’
affirmative misrepresentations, Plaintiff sufficiently alleges a known trend or uncertainty under

Item 303. At least as early as August 1, 2015, Sirona and, thereafter, Dentsply Sirona were
aware, through the market reports that they received monthly, that the market was trending
downward, i.e., that there was insufficient end-user demand.15 This downward trend only

[speculative]” uncertainties. See Mucha v. Volkswagen Aktiengesellschaft, 540 F. Supp. 3d 269,
298 (E.D.N.Y. 2021), aff’d on other grounds sub nom. Winterkorn, 2022 WL 774877, at *4.

14 I express no view as to whether the Item 303 claims based on the distributors’ conspiracy are
actionable from August 2017 until the end of the Class Period, which can be revisited at a later
stage of the litigation. The parties did not address this more specific question in their briefing,
instead disputing generally whether they are actionable for the entire Class Period.

15 Defendants argue that the “trend” was not occurring sufficiently far in advance of the SEC
filings to qualify as a “trend” and was more akin to an “isolated event” that did not require
disclosure under Item 303. Motion 26. But “whether a pattern or occurrence is sufficiently
continued after the merger. Plaintiff also alleges that, as early as the registration statement,
Sirona and, thereafter, Dentsply Sirona were aware of a known uncertainty relating to a
relationship with an important customer, Patterson, which was in jeopardy. At that time,
according to the Complaint, the lack of end-user demand and increasing inventory glut “made it
highly likely” that Patterson would start a large destocking program and “highly unlikely” that it

would continue purchasing products as it had pursuant to the minimum purchase requirements.
Complaint ¶ 276.
Plaintiff plausibly alleges that the trend or uncertainty was “reasonably likely to have
material effects” on Sirona’s and, thereafter, Dentsply Sirona’s financial condition or results of
operations. It alleges that Patterson was Sirona’s largest customer. It was the exclusive
distributor of certain of Sirona’s and, thereafter, Dentsply Sirona’s products from the time the
registration statement was filed until late 2017. Prior to the merger, Patterson represented 28%
to 38% of Sirona’s revenue in any given quarter. Following the merger, Patterson accounted for
12% of Dentsply Sirona’s worldwide sales in 2016.

Defendants contend that Plaintiff does not sufficiently allege that any required Item 303
disclosure obligation was “material” under Basic Inc. v. Levinson, 485 U.S. 224 (1988). It is true
that Item 303 claims are subject to Basic’s test for materiality, which requires “a balancing of
both the indicated probability that the event will occur and the anticipated magnitude of the
event in light of the totality of the company activity.” Stratte-McClure, 776 F.3d at 102–03
(quoting Basic, 485 U.S. at 238). But materiality is an “inherently fact-specific finding,” which
imposes a low bar on a plaintiff at the motion to dismiss stage. Litwin, 634 F.3d at 718. A
“district court may not dismiss for lack of materiality unless the alleged misstatements or

lengthy to constitute a trend is a question that should not be resolved at the motion to dismiss
stage.” In re CPI Card Grp. Inc. Sec. Litig., 2017 WL 4941597, *3 (S.D.N.Y. Oct. 30, 2017).
omissions ‘are so obviously unimportant to a reasonable investor that reasonable minds could not
differ on the question of their importance.’” Moab, 2022 WL 17815767, at *3 (quoting Litwin,
634 F.3d at 717). At this stage, I cannot find, as a matter of law, that no reasonable investor
would find the omitted information important.16
E. Plaintiff Has Pleaded Facts Supporting a Strong Inference of Scienter

The requisite “strong inference” of fraud, required by the PSLRA “may be established
either (a) by alleging facts to show that defendants had both motive and opportunity to commit
fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious
misbehavior or recklessness.” Novak, 216 F.3d at 307. In the absence of a cognizable motive
allegation, “the strength of the circumstantial allegations must be correspondingly greater.”
ECA, 553 F.3d at 199. “Recklessness” under this standard means “‘conscious recklessness’—
i.e., a state of mind approximating actual intent, and not merely a heightened form of”
negligence. Novak, 216 F.3d at 312 (internal quotation marks omitted). Allegations that
Defendants’ “knew facts or had access to information suggesting that their public statements

were not accurate” or that they “failed to check information they had a duty to monitor” can give
rise to a strong inference of scienter. Id. at 308–11. The “inference of scienter must be more
than merely plausible or reasonable — it must be cogent and at least as compelling as any
opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S.
308, 314 (2007). The inquiry is whether “all of the facts alleged, taken collectively, give rise to

16 Plaintiff has also alleged that Defendants “failed to meet their disclosure obligations under
Item 503 of Regulation S-K (“Item 503”), since recodified as Item 105.” Moab, 2022 WL
17815767, at *3 n.2. No party argues that Item 503 should be treated differently from Item 303.
Accordingly, the Item 503 claim, with respect to the distributors’ conspiracy allegations until
August 2017, is insufficient. As to the excess inventory allegations, it survives.
a strong inference of scienter, not whether any individual allegation, scrutinized in isolation,
meets that standard.” Id. at 323.
Plaintiff has alleged facts supporting a strong inference of scienter. Beginning with the
excess inventory allegations, the Complaint alleges that, from 2005 through September 30, 2017,
the Exclusive Distribution Agreements required detailed monthly information to be relayed from

Patterson to Sirona and, thereafter, Dentsply Sirona. Those reports provided, inter alia,
information on the market, as well as the stock of contractual products in addition to Patterson’s
sales for that month with respect to each product included within the contractual products. The
Complaint pleads that receipt of this information furnished the Officer Defendants with non-
public knowledge that their statements and omissions concerning Patterson’s inventory were
false or misleading.
With regard to the distributors’ conspiracy, the Complaint cites emails between Dentsply
Intl. and Sirona and the distributors which raise an inference that Dentsply Intl., Sirona, and
Dentsply Sirona, thereafter, not only were “aware of the conspiracy,” but “acquiesced in the

Distributors’ boycotts of meetings of the Arizona and Texas dental associations” undertaken in
an effort to block the formation of new dental buying groups. Complaint ¶ 85. The Complaint
further alleges that Dentsply Intl. and Dentsply Sirona, thereafter, took “affirmative steps” to
assist the distributors in eliminating online distributors, who sold “gray market” products at
discounted prices. Id. ¶ 86.
Plaintiff further relies on the following alleged facts: the resignations of Dentsply
Sirona’s four top executives; the fraud’s impact on the core operations; and the magnitude of the
company’s impairment charges. See New Orleans Emps. Ret. Sys. v. Celestica, Inc., 455 F.
App’x 10, 14 n.3 (2d Cir. 2011) (explaining that “allegations of a company’s core operations,
GAAP violations, and removal of its executives can provide supplemental support for allegations
of scienter”).
Defendants argue that none of the facts relied upon by Plaintiff conclusively
demonstrates scienter. But the “job is not to scrutinize each allegation in isolation but to assess
all the allegations holistically.” Tellabs, 551 U.S. at 326. Considering the Complaint’s

allegations as a whole, as I must, I conclude that the allegations against Dentsply Sirona and the
Officer Defendants support an inference of scienter that is at least as compelling as any
nonculpable inference. Plaintiff has pleaded an inference of scienter with regard to Dentsply
Sirona and the Officer Defendants sufficient to survive a motion to dismiss.
F. Plaintiff Has Pleaded Loss Causation
Loss causation “is the causal link between the alleged misconduct and the economic harm
ultimately suffered by the plaintiff.” Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d Cir.
2005). It concerns “the relationship between the plaintiff’s investment loss and the information
misstated or concealed by the defendant.” Id. at 174. “If that relationship is sufficiently direct,

loss causation is established,” but if “the connection is attenuated, or if the plaintiff fails to
demonstrate a causal connection between the content of the alleged misstatements or omissions
and the harm actually suffered,” the claim fails. Id. (internal quotation marks omitted). Put
simply, “to establish loss causation, a plaintiff must allege . . . that the subject of the fraudulent
statement or omission was the cause of the actual loss suffered.” Id. at 175 (internal quotation
marks omitted); see also Vivendi, 838 F.3d at 260–61. Loss causation is “a fact-based” inquiry,
Lentell, 396 F.3d at 174, and, at the pleading stage, a plaintiff’s burden “is not a heavy one.”
Loreley, 797 F.3d at 187. “The complaint must simply give Defendants ‘some indication’ of the
actual loss suffered and of a plausible causal link between that loss and the alleged
misrepresentations.” Id. (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005)).
Plaintiff adequately alleges loss causation for both the excess inventory and distributors’
conspiracy allegations. With respect to the former, Plaintiff alleges that Dentsply Sirona’s
August 9, 2017 and August 7, 2018 approximate $1.2 billion and $1.3 billion goodwill and

intangible impairment charges, respectively, “resulted in large part,” Complaint ¶ 215, from “the
subject” of the alleged misstatements and omissions, namely, the lack of end-user demand and
excess inventory build-up. Plaintiff alleges that Dentsply Sirona attributed its August 9, 2017
impairment charge to, for example, “significantly lower retail sales,” “significant acceleration of
sales declines,” and “new distribution agreements,” id., and its August 7, 2018 impairment
charge to “destocking in both our major partners,” reductions in “forecasts of current and future
third-party demand” and lack of “demand creation.” Id. ¶¶ 233–236. On Dentsply Sirona’s
August 7, 2018 earnings call, Mr. Casey admitted “we have a wholesale issue.” Id. ¶ 235. On
the news of Dentsply Sirona’s second quarter 2017 and 2018 financial results, its common stock

dropped more than 8% and 18%, respectively.
Similarly, with respect to the distributors’ conspiracy, Plaintiff alleges that after “the first
few months of 2017, the effects of the Distributors’ conspiracy began to dissipate,” or “waned,”
and Dentsply Sirona’s “projected sales, earnings and margins” fell. Id. ¶¶ 91, 124. This “fall-off
. . . could no longer support the valuations of goodwill and intangible assets on its balance
sheet,” and Plaintiff suffered losses when Dentsply Sirona reported impairment charges for the
second quarters 2017 and 2018. Id. ¶ 124. Defendants also attributed the August 2017
impairment charge to an “increase in competition,” “implicitly admit[ing]” that the distributors’
conspiracy had ended. Id. ¶ 174. These allegations suffice to create a plausible causal link
between the alleged misconduct and the economic harm ultimately suffered.
G. Materiality of Misrepresentations and Omissions in Registration Statement
to Sirona’s Shareholders

Defendants contend that any misrepresentations or omissions asserted on behalf of
persons who acquired the common stock of Dentsply Sirona in exchange for their shares of
Sirona stock in the merger were not material. Defendants argue that Sirona shareholders would
have exchanged Sirona stock for Dentsply Sirona stock even if the truth were known. This is
because, their argument goes, if the truth were known about the lack of end-user demand and
Patterson’s excess inventory, Sirona’s stock would have been devalued, and a reasonable Sirona
shareholder would still have exchanged its shares for Dentsply Sirona stock. But a “material fact
need not be outcome-determinative.” Folger Adam Co. v. PMI Indus., Inc., 938 F.2d 1529, 1533
(2d Cir. 1991). Rather, it is sufficient that the fact is one that “would have assumed actual
significance in the deliberations of the reasonable shareholder.” Id. (quoting TSC Indus. Inc. v.
Northway, Inc., 426 U.S. 438, 449 (1976)); see also Litwin, 634 F.3d at 717 (explaining that “it
is not necessary to assert that the investor would have acted differently if an accurate disclosure
was made”). Here, the misstatements or omissions are not “so obviously unimportant to a
reasonable investor” to warrant dismissal at this stage. Whether the truth would have “assumed
actual significance” in a reasonable investor’s deliberations is a question that will be best
determined on a more developed factual record.

H. PSLRA Safe Harbor for Forward-Looking Statements
Defendants challenge numerous statements concerning “financial forecasts,” see, e.g.,
Complaint ¶ 98 (relating to “EPS [presumably earnings per share] guidance”) and “perceptions
about how [Sirona] would benefit from industry trends,” see, e.g., id. ¶ 282 (relating to statement
that “Sirona is uniquely positioned to benefit from several trends in the global dental industry”),
which they argue are protected under the PSLRA’s safe-harbor provisions for forward-looking
statements. 15 U.S.C. § 78u-5(c); 15 U.S.C. § 77z-2(c). Under these provisions, a defendant is
not liable if (1) “the forward-looking statement is identified and accompanied by meaningful
cautionary language,” (2) the forward-looking statement is “immaterial,” or (3) “the plaintiff

fails to prove that it was made with actual knowledge that it was false or misleading.” Slayton v.
Am. Express Co., 604 F.3d 758, 766 (2d Cir. 2010). Because the safe harbor provisions are
“written in the disjunctive,” id., a forward-looking statement is protected if any of the three
prongs applies. Defendants contend that the first and third prongs are applicable. For purposes
of this motion, I have assumed that the statements identified by Defendants are forward-looking;
however, they are not protected by the safe harbor provisions.
“To avail themselves of safe harbor protection under the meaningful cautionary language
prong, defendants must demonstrate that their cautionary language was not boilerplate and
conveyed substantive information.” Id. at 772. The Second Circuit has cited with approval a

decision from the Fifth Circuit, which held “that cautionary language was not meaningful where
the warning was ‘very vague and general’ and did not ‘disclose the specific risks and their
magnitude.’” Id. (quoting Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 246–47 (5th Cir.2009)).
The cautionary language employed by Defendants, which I have reviewed, was not meaningful.
Defendants note that the “safe harbor provision also requires dismissal if the plaintiffs do
not ‘prove that the forward-looking statement . . . was . . . made or approved by [an executive
officer] with actual knowledge by that officer that the statement was false or misleading.’” Id. at
773 (quoting 15 U.S.C. § 78u–5(c)(1)(B)). Because “the safe harbor specifies an ‘actual
knowledge’ standard for forward-looking statements, the scienter requirement for forward-
looking statements is stricter than for statements of current fact.” Id. (internal quotation marks
omitted). “Whereas liability for the latter requires a showing of either knowing falsity or
recklessness, liability for the former attaches only upon proof of knowing falsity.” Id. For
forward-looking statements, a complaint gives rise to a strong inference of scienter when it
alleges that the defendants (1) “did not genuinely believe” the statement, (2) “actually knew that

they had no reasonable basis for making the statement,” or (3) “were aware of undisclosed facts
tending to seriously undermine the accuracy of the” statement. Id. at 775. As with
misrepresentations of current fact, the inference of scienter must be “cogent and at least as
compelling as any opposing inference of nonfraudulent intent” and the “job is not to scrutinize
each allegation in isolation but to assess all of the allegations holistically.” Id. at 773, 775
(quoting Tellabs, 551 U.S. at 314, 326). For the reasons set forth in the scienter section above,
and considering the Complaint’s allegations as a whole, I conclude that Plaintiff raises an
inference that Defendants were aware of undisclosed facts tending to seriously undermine the
accuracy of their forward-looking statements that is at least as compelling as any nonculpable

inference.
I. The Control Person Claims Are Pleaded Sufficiently
Under Section 20(a) of the Exchange Act, “[t]o establish a prima facie case of control
person liability, a plaintiff must show (1) a primary violation by the controlled person, (2)
control of the primary violator by the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled person’s fraud.” ATSI Commc’ns, Inc.
v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007). Similarly, “[t]o establish § 15 liability, a
plaintiff must show a ‘primary violation’ of § 11 [or § 12(a)(2)] and control of the primary
violator by defendants.” In re Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167, 185 (2d
Cir. 2011). Control over a primary violator may be established by showing that the defendant
has “the power to direct or cause the direction of the management and policies” of a primary
violator. Id. at 185.
As to the Officer Defendants, Plaintiff alleges that each of the Officer Defendants
“possessed the power and authority to control the contents of Dentsply Sirona’s reports to the

SEC, press releases, and presentations to securities analysts, investment managers and
investors.” Complaint ¶ 25. The Complaint further alleges that they
were provided with copies of the Company’s reports and press releases alleged in
this Complaint to be misleading prior to, or shortly after, their issuance and had
the ability and opportunity to prevent their issuance or cause them to be corrected.
Because of their positions and access to material non-public information available
to them, the Officer Defendants knew that the adverse facts and omissions
specified in this Complaint had not been disclosed to, and were being concealed
from, the public, and that the positive representations and omissions which were
being made were then materially false and/or misleading.

Id.
An individual’s “status as officer or committee member is generally not enough to
constitute control, and thus a mere recitation of [an individual’s] title as CEO along with the
committees upon which he sat is not sufficient [to constitute control.]” In re Alstom SA Sec.
Litig., 406 F. Supp. 2d 433, 494 (S.D.N.Y. 2005). As indicated in the quotations set forth above,
however, here Plaintiff presents more. Plaintiff’s allegations provide a sufficient basis for the
establishment of the Officer Defendants’ control and culpable participation. Additionally,
Plaintiff alleges that false and misleading statements in Dentsply Intl.’s and Dentsply Sirona’s
10-K Forms, and Dentsply Sirona’s 10-Q Forms, were signed by Wise, Clark, Slovin, Michel,
Casey and Alexos, and Slovin and Michel, respectively. It “comport[s] with common sense to
presume that a person who signs his name to a report has some measure of control over those
who write the report.” Jacobs v. Coopers & Lybrand, L.L.P., 1999 WL 101772, at *18
(S.D.N.Y. Mar. 1, 1999).17
As to the Director Defendants, Plaintiff alleges that they “signed the Registration
Statement.” Complaint ¶ 26. “At the pleading stage, this is sufficient to make out a control
claim against these individuals.” Evoqua Water, 450 F. Supp. 3d at 428.

Last, Defendants argue that Plaintiff improperly pleads primary liability and control
person liability as to the same defendants for the same conduct. However, “alternative theories
of liability are permissible at the pleading stage.” Police & Fire Ret. Sys. of City of Detroit v.
SafeNet, Inc., 645 F. Supp. 2d 210, 241 (S.D.N.Y. 2009).
In sum, the control person claims arising from primary violations of the Exchange Act
and Securities Act, as detailed above, survive.

17 In a footnote of their motion, Defendants argue that the claims against Thierer, an Officer
Defendant who served as the Interim CEO of Dentsply Sirona from September 28, 2017 through
February 12, 2018, must be dismissed because Plaintiff did not identify any actionable statement
made by him when Dentsply Sirona made false statements. On the contrary, while the
Complaint does not assign any specific statements to Defendant Thierer, it does allege actionable
statements by Dentsply Sirona during the period in which Thierer served as Interim CEO. For
example, Dentsply Sirona filed its Form 10-Q for the Third Quarter of 2017 on November 11,
2017, and Plaintiff alleges that this filing contained false and misleading statements. At this
stage, dismissal of the claims against Defendant Thierer is unwarranted.
V. Conclusion
Defendants’ application to strike references to the SEC Order is denied.
Although certain of the alleged misrepresentations and omissions are found not to be
actionable, Defendants’ motion to dismiss is denied.
Claims 6 and 7 asserting claims under Section 14(a) and SEC Rule 14a-9 are withdrawn.

SO ORDERED.

/S/
NINA GERSHON
United States District Judge

March 29, 2023
Brooklyn, New York

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10309490. Public record. Not legal advice.