# Ball v. Baker

> District Court, S.D. New York · August 16, 2021

URL: https://www.frixlaw.com/law-library/cases/10334339

## Case

- **Court:** District Court, S.D. New York
- **Decided:** August 16, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UsDC SUNY
DOCUMENT
MEMORANDUM ENDORSEMENT BOC RILED
Ball v. Baker et al., DATE FILED: _— 8/16/2021
21cv6418 (NSR)
The Court has received (1) Plaintiff's letter requesting a pre motion conference or leave to file a
q gap
© motion to remand (ECF No. 13); (2) Defendants’ letter requesting a pre motion conference or
leave to file a motion to dismiss (ECF No. 14); (3) Defendants’ response to Plaintiffs request to
Zz, file a motion to remand (ECF No. 15); (4) Plaintiffs motion for leave to file under seal his
response to Defendants’ request for leave to file a motion to dismiss (ECF No. 16.); (5)
© Plaintiff's redacted response (ECF No. 17); and (6) Plaintiff's unredacted response (ECF No.
> 18).
[LJ The Court GRANTS Plaintiff's request to file the confidential information in its response to
= Defendants’ pre motion conference letter under seal and orders that ECF No. 18 be sealed. For
this reason, ECF No. 18 is not attached to this memorandum endorsement.
The Court waives the pre motion conference requirement and grants the parties leave to
simultaneously file their respective motions for remand and to dismiss as follows: moving papers
shall be served (not filed) on September 16, 2021; opposition papers shall be served (not filed)
on October 18, 2021; and reply papers shall be served on November 2, 2021. Two hard courtesy
copies of all motion papers shall be provided to the Court as they are served. All motion papers
shall be filed on the reply date, November 2, 2021.
The Clerk of Court is directed to terminate the motions at ECF Nos. 13, 14, 16.
Dated: August 16, 2021 SO ORDERED:
White Plains, NY se
IN-NECSON.S. ROMAN
UNITED STATES DISTRICT JUDGE

ATTORNEY S AT LAW
NEW YORK ● CALIFORNIA ● ILLINOIS ● LOUISIANA ● DELAWARE

David L. Wales
davidw@blbglaw.com
(212) 554-1409

August 6, 2021

VIA ECF

Hon. Nelson S. Román
U.S. District Court for the Southern District of New York
The Hon. Charles L. Brieant, Jr.
Federal Building and U.S. Courthouse
300 Quarropas Street
White Plains, NY 10601-4150

Re: Request for Pre-Motion Conference
Ball v. Baker, et al., No. 7:21-cv-06418-NSR

Dear Judge Román:

We are counsel for plaintiff Donald A. Ball (“Plaintiff”) in the above-referenced
shareholder derivative action (the “Derivative Action”) brought for the benefit of nominal
Defendant Regeneron Pharmaceuticals, Inc. (“Regeneron” or the “Company”), a New York
corporation. Pursuant to Your Honor’s Individual Rules of Practice in Civil Cases and in
compliance with Local Rule 37.2, Plaintiff respectfully requests a pre-motion conference to
address the improper removal of the Derivative Action to this Court by Defendants,1 and Plaintiff’s
requests for permission to timely file a motion to remand the Derivative Action to the Supreme
Court of the State of New York, Westchester County (the “State Court”), and for costs related to
the remand motion. As set forth below, this Court lacks jurisdiction to hear this case. We have
conferred with counsel for Defendants and as of the filing of this letter they have not agreed to
voluntarily remand this Action.

On June 29, 2021, Plaintiff filed the Derivative Action, captioned Ball v. Baker, et al.,
Index No. 58819/2021, in the Commercial Division of the State Court, a sophisticated Court which
is well-equipped to handle complex disputes such as the Derivative Action. Critically, as
Regeneron is a New York corporation, the Derivative Action exclusively asserts claims under New

1 The “Defendants” are Charles A. Baker, Bonnie L. Bassler, Michael S. Brown, N. Anthony
Coles, Murray Goldberg, Joseph L. Goldstein, Robert E. Landry, Christine A. Poon, Arthur F.
Ryan, Leonard S. Schleifer, George L. Sing, Robert Terifay, Marc Tessier-Lavigne, P. Roy
Vagelos, George D. Yancopoulos, and Huda Y. Zoghbi (the “Individual Defendants”), and
nominal Defendant Regeneron.
Hon. Nelson S. Román
August 6, 2021
Page 2 of 3

York law for breach of fiduciary duty on behalf of the Company against the Individual
Defendants.2 Plaintiff’s complaint, on its face, does not arise under federal law as no federal law
creates any cause of action asserted by Plaintiff, and no disputed, substantial question of federal
law is a necessary element of Plaintiff’s New York state law claims. Moreover, the Derivative
Action is not removable on diversity of citizenship grounds.3 In short, there is no proper basis for
removal of the Derivative Action, and Plaintiff respectfully submits that remand to the State Court
is not a close call.

On a motion for remand, the removing defendants bear the burden of demonstrating the
propriety of removal. See Veneruso v. Mount Vernon Neighborhood Health Ctr., 933 F. Supp. 2d
613, 618 (S.D.N.Y. 2013). Here, the Defendants’ only argument in support of removal is that the
Derivative Action is based on substantially similar factual allegations raised in two federal actions
against Regeneron for violations of various federal laws: (a) the lawsuit pending in the U.S. District
Court for the District of Massachusetts captioned United States of America v. Regeneron
Pharmaceuticals, Inc., No. 1:20-cv-11217-FDS (the “DOJ Action”);4 and (b) the lawsuit pending
in this Court before the Hon. Vincent L. Briccetti (“Judge Briccetti”) captioned Unitedhealthcare
Insurance. Co., et al. v. Regeneron Pharmaceuticals, Inc., No. 7:20-cv-10664-VLB (the “UHC
Action”).5

Defendants’ removal “theory” is simply not the law. An action filed in a state court may
be removed only if the federal court has original jurisdiction over the action. 28 U.S.C. §1441(a).
A federal court has original jurisdiction over cases involving a federal question -- specifically, all
civil actions “arising under” the Constitution, laws, or treaties of the United States. 28 U.S.C.
§1331. The question as to whether a claim “arises under” federal law must be determined by
reference to the “well-pleaded complaint rule.” Merrell Dow Pharms. Inc. v. Thompson, 478 U.S.

2 Plaintiff asserts a claim for breach of fiduciary duty against all of the Individual Defendants
pursuant to N.Y. Bus. Corp. Law § 717 and New York common law, and another claim for breach
of fiduciary duty for insider selling under New York common law against certain of the Individual
Defendants.
3 Upon information and belief, several Defendants are New York citizens, including
Regeneron (which maintains its principal place of business in New York) and at least some of the
Individual Defendants. Therefore, under the “no local defendant” rule (also known as the “forum
defendant rule”), this Derivative Action was not and is not properly removable based on diversity
of citizenship. See Lincoln Property Co. v. Roche, 546 U.S. 81, 89-90 (2005); 28 U.S.C. §1441(b).
4 The DOJ Action, brought by the U.S. Department of Justice (the “DOJ”), raises claims
against Regeneron for violation of the federal Anti-Kickback Statute and the False Claims Act.

5 The UHC Action, brought by affiliates of United Healthcare, arises from similar facts as
the DOJ Action and asserts claims against Regeneron for violation of the federal Racketeer
Influenced and Corrupt Organizations Act, in addition to state law claims.
BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP
Hon. Nelson S. Roman
August 6, 2021
Page 3 of 3
804, 808 (1986). That is, “federal jurisdiction exists only when a federal question is presented on
the face of the plaintiff's properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386,
392 (1987).
Here, the Derivative Action does not present any substantial federal question, as Plaintiff
asserts only New York state law claims. The State Court is fully qualified to and can evaluate the
Derivative Action under New York state law standards. See, e.g., Flynn ex rel Moody’s Corp. v.
McDaniel, 689 F. Supp. 2d 686, 691 (S.D.N.Y 2010) (rejecting defendants’ argument that
derivative plaintiff's exclusive New York state law claims required application of federal laws
asserted against corporation in separate federal action and granting remand motion); Laruffa v.
Wells Fargo Bank, N.A., 2016 WL 759442, at *2 (C.D. Cal. Feb. 12, 2016) (rejecting defendant’ □
argument that plaintiff's exclusive state law claims depended on violations of federal statutes
referred to in plaintiffs complaint, and granting remand motion).
Indeed, if the federal courts were to accept Defendants’ overly expansive interpretation of
the law, then quite literally any case that arose from a similar set of facts as a separate action
brought by the DOJ (or any other federal government agency) asserting violations of federal law
would automatically be entitled to federal subject matter jurisdiction. The federal courts, which
“jealously guard” their own limited jurisdiction (Laruffa, 2016 WL 759442, at *I(quoting RDF
Media Ltd. v. Fox Broad. Co., 372 F. Supp. 2d 556, 560 (C.D. Cal. 2005)), would become flooded
with such cases overnight. See Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941)
(removal jurisdiction of the federal courts is limited and should be “scrupulously confine[d].”);
Noel y. J.P. Morgan Chase Bank N.A., 918 F. Supp. 2d 123, 125 (E.D.N.Y. 2013) (same, quoting
Shamrock Oil & Gas Corp.).
Finally, the Defendants’ unsuccessful recent attempt to relate the Derivative Action to the
UHC Action pending before this Court underscores that there is no legitimate basis for removal.
Specifically, on July 30, 2021, Judge Briccetti declined to accept the Derivative Action as related
to the UHC Action and returned the Derivative Action to the wheel for assignment. This should
end any inquiry regarding the propriety of removal.
For the foregoing reasons, Plaintiff respectfully seeks the scheduling of a pre-motion
conference and this Court’s permission to file a motion for remand. In the alternative, Plaintiffs
are prepared to file their remand motion on August 27, 2021, the date it is due under the applicable
rules absent a different schedule set by the Court.
Very truly yours,
OAR WES
David L. Wales

1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 Bai Big ees □□□ 100020, CI

DIRECT DIAL NUMBER Te SaeeNn pon CENTRAL
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DIRECT FACSIMILE TS
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DIRECT E-MAIL ADDRESS FUKOKU SEIMEI BUILDING
cboehning@paulweiss.com CHIYODA-KU, TOKYO 100-001 1, JAPAN
August 10, 2021 TORONTO-DOMINION CENTRE
BY ECF emai
Hon. Nelson S. Roman ———
United States District Court ee
Southern District of New York TELEPHONE (202) 223-7300
300 Quarropas St. eeeiese
White Plains, NY 10601-4150 Di eee □□
Ball v. Baker et al.,
7:21-cv-06418-NSR
Dear Judge Roman:
We write on behalf of Defendants—current and former officers and members of
the Board of Directors of Regeneron Pharmaceuticals, Inc. (“Regeneron” or the “Company”)—in
response to the August 6, 2021 request (ECF 13) by Plaintiff for a pre-motion conference in
anticipation of Plaintiff's motion to remand this case to the Supreme Court of the State of New York,
Westchester County (the “State Court”).
Plaintiff asserts that Defendants’ removal of this action was improper because, despite
the fact that the action depends entirely on an underlying question of federal law, according to Plaintiff
it does not raise a substantial federal question. ECF 13 at 2; Compl. ¥ 194.
Plaintiff is wrong, and ignores controlling Second Circuit precedent authorizing federal
jurisdiction under precisely the circumstances present here.
In this lawsuit, which Plaintiff purports to bring derivatively on behalf of the Company,
Plaintiff alleges that Regeneron engaged in “systemic Medicare fraud” and violated the federal Anti-
Kickback Statute (““AKS”) and federal False Claims Act (“FCA”) when it made donations to an
independent charity, CDF, that helped low-income patients satisfy federal Medicare co-payment
obligations. E.g., Compl. 3, 47-53, 142-44. Plaintiff claims that Defendants, “by .. . causing
Regeneron to enter into [an] i//egal copay reimbursement scheme with CDF, . . . violat[ed] their
fiduciary duties” under New York law. Compl. § 194 (emph. added). In other words, contrary to
the assertions in Plaintiff's letter, “Plaintiff's complaint, on its face,” makes clear that a “disputed,
substantial question of federal law is a necessary element of Plaintiff's New York State law
claims.” ECF 13 at 2. This is because there can be no violation of the duty alleged here absent an
underlying “illegal . . . scheme,” and whether the “scheme” was “illegal” is without dispute a
question of federal statute. Adjudicating Plaintiffs claims will require the factfinder to interpret
and apply the federal AKS and FCA.

PAUL, WEISS, RIFRINIY, WrIAKIVN & UAKRKRISWN □□

Where, as here, “[a]n examination of the allegations contained in the complaint
establishes that [plaintiff's] suit is rooted in violations of federal law,” the Second Circuit has
held—consistent with Supreme Court precedent—that “federal question jurisdiction exists.”
D’Alessio v. New York Stock Exch., Inc., 258 F.3d 93, 101-02 (2d Cir. 2001) (quotation marks and
citation omitted). In D’Alessio, for example, the Second Circuit held that because the “gravamen
of [plaintiffs] state law claims” was that defendants “conspired to violate the federal securities
laws” and failed to perform a duty created under federal law, “resolution of [plaintiff's] claims
requires a court to construe federal securities laws” and evaluate the scope of the entity’s duty to
enforce compliance with federal laws. Jd. at 101-02. The Second Circuit underscored that federal
question jurisdiction was proper because—as here—the “‘central premise’” of the case was that
an entity and its officers allegedly “encouraged” others “to violate” federal law (the Exchange
Act). Jd. at 102 (citation omitted). Likewise, in Bracey v. Bd. of Educ. of City of Bridgeport, the
Second Circuit concluded that—as in this case—because “vindication of [a party’s] state-law
rights . . . requires that a court construe federal First Amendment law and evaluate its scope,” the
“federal question raised by [the party’s] claim” was “substantial,” and the district court was
“correct in exercising jurisdiction over the claim.” 368 F.3d 108, 116 (2d Cir. 2004) (quotation
marks and citation omitted).
Plaintiff, in claiming that “Defendants’ removal ‘theory’ is simply not the law,”
conspicuously neglects this precedent, citing instead an out-of-Circuit case and an inapposite case
from the Southern District. ECF 13 at 2.' For example, the Southern District case cited by Plaintiff
does not—like this case—involve an actual need to construe federal law; there, defendants’
attempt to remove was based solely on the contentions that plaintiff's state law case stemmed from
the “same theory of ‘fraud,’” and relied on the same “purported misstatements and omissions,” as
federal claims in other pending actions. Flynn, 689 F. Supp. 2d at 690. Here, by contrast, the
interpretation of federal statutes plays a necessary and dispositive role in resolving Plaintiff's state
law claims, which depend entirely on whether Plaintiff can establish an underlying federal
violation.” If Regeneron’s donations did not violate federal law, plaintiff's claim for breach of
fiduciary duty evaporates. There is undisputedly “a serious federal interest” in interpretation of
federal law, and thus a substantial federal question here. See generally Grable & Sons Metal
Prods., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 313 (2005); Gunn v. Minton, 568 U.S. 251,
260 (2013).

1 ECF 13 at 2 (citing Laruffa v. Wells Fargo Bank, N.A., 2016 WL 759442, at *2 (C.D. Cal. Feb. 12, 2016) and
Flynn ex rel Moody's Corp. v. McDaniel, 689 F. Supp. 2d 686, 691 (S.D.N.Y 2010)).
2 Plaintiff attempts to distract here, arguing that under Defendants’ theory, “quite literally any case that arose from
a similar set of facts as a separate action brought by the DOJ . .. would automatically be entitled to federal subject
matter jurisdiction.” ECF 13 at 3. But the basis for Defendants’ removal, and this Court’s jurisdiction, is not
facts, but that interpretation of federal laws is a necessary element of Plaintiff’s claims.
Moreover, because Defendants’ removal is not based merely on whether this case is factually similar to the two
pending cases in this District, Judge Briccetti’s unexplained decision not to accept this case as related to the case
already before him is of no moment—and certainly does not, as Plaintiff claims, “end any inquiry,” ECF 13 at
particularly given Local Rule 13’s stipulation that the relatedness rule “is adopted for the internal management
of the case load of the court and shall not be deemed to vest any rights in litigants or their attorneys,” and that
“nothing in this Rule is intended to preclude parties from moving for consolidated proceedings under Fed. R. Civ.
P. 42,” which is proper where actions “involve a common question of law or fact.” Local Civ. Rule 13; Fed. R.
Civ. P. 42. The SDNY’s “concepts of relatedness” are “narrow.” Committee Note to Local Crim. Rule 1.1
(describing civil rules).

PAUL, WEISS, RIFRINIY, WrIAKIVN & UAKRKRISWN □□

Federal question jurisdiction is warranted for two further reasons. First, the federal
government has a “serious” interest in regulating federal health billing and reimbursement
practices, which are at the heart of this Medicare-centered lawsuit. Grable, 545 U.S. at 313; accord
Compl. 453. For instance, in Prince v. Berg, plaintiffs brought a derivative action, as here, against
officers and directors relating to federal FCA violations, and the court found that “because the
heart of the claims in this action go to the propriety of Oracle’s billing practices with respect to the
federal government, issues that are of paramount federal concern and therefore the subject of
extensive federal regulation and legislation, the questions of federal law are necessarily
substantial, and are appropriately resolved in a federal forum.” 2011 WL 9103, at *3 (N.D. Cal.
Jan. 3, 2011).
Second, federal question jurisdiction is warranted based on the risk of inconsistent
judgments between this Action and three other pending federal lawsuits that turn on the same
alleged AKS and FCA violations, one brought by the Department of Justice in federal court in
Massachusetts (the “DOJ Action”) and two brought by insurance conglomerates in this District
(the “UHC and Humana Actions”).*> There is a “substantial” federal interest in preventing an
inconsistent judgment by a state court of an issue actively being litigated in two federal
jurisdictions. E.g., VariBlend Dual Dispensing Sys. LLC v. Crystal Int’l (Grp.) Inc., 2019 WL
4805771, at *12 (S.D.N.Y. Sept. 30, 2019) (finding “substantial” federal question under Grable
based on “the potential for conflict between state and federal courts” in deciding the central issue
in the case).
In sum, Defendants’ removal of this action to federal court was entirely proper.
Respectfully submitted,

/s/_H. Christopher Boehning
H. Christopher Boehning

3 Plaintiff’s allegations are principally lifted from the DOJ Action, filed in June 2020 and currently pending in
federal district court in Massachusetts—brought against Regeneron for allegedly violating the AKS and FCA.
The UHC and Humana Actions allege RICO and state law violations relating to Regeneron’s alleged violation
of the federal AKS and FCA in connection with its contributions to CDF.

1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10019-6064 Bai Big ees □□□ 100020, Ct

DIRECT DIAL NUMBER 18 QUEEN's ROAD, CENTRAL
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cboehning@paulweiss.com meee
August 10, 2021 TORONTO-DOMINION CENTRE
BY ECF 77 KING STREET WEST, SUITE 3100
Hon. Nelson S. Roman BORON, Opa □□
United States District Court soo! w ernest nw
Southern District of New York □ ean Beers □□
300 Quarropas St.
White Plains, NY 10601-4150 rostorrice soxe2
Ball v. Baker et al. TELEPHONE (302) 655-4410
7:21-cv-06418-NSR
Dear Judge Roman:
We write on behalf of Defendants—current and former officers and members of
the Board of Directors (the “Board”) of Regeneron Pharmaceuticals, Inc. (““Regeneron” or the
“Company”)—to respectfully request, pursuant to Rule 3(A) of Your Honor’s Individual Rules of
Practice in Civil Cases, a pre-motion conference in anticipation of Defendants’ motion to dismiss
the Complaint.!
Plaintiff purports to bring this action derivatively, for the benefit of Regeneron,
against certain of the Company’s current and former officers and directors for alleged breaches of
fiduciary duty. These alleged breaches are premised on allegations by the Department of Justice
related federal action (“DOJ Action”), that certain charitable donations by Regeneron violated
federal law. But there has been no such finding in the DOJ Action (or any other action).
Defendants intend to move to dismiss the complaint in its entirety for several independent reasons.
I. This Case Should Be Dismissed Because Plaintiff Failed To Make a Demand Upon
the Board, Which Is a Precondition to Suit.
First, the complaint should be dismissed because it fails sufficiently to allege
demand futility, which is a precondition to filing suit. The business of a corporation—including
decisions whether to pursue legal clatims—is managed by its board of directors. E.g., N.Y. Bus.
Corp. L. § 715. To establish a right to sue derivatively, a shareholder must demonstrate that she
or he attempted to “secure the initiation of such an action by the board,” or must plead with
particularity that demand would be futile. N.Y. Bus. Corp. L. § 626(c); Goldstein v. Bass, 31
N.Y.S.3d 15, 17 (2016). A plaintiff claiming that demand was futile is subject to a “heightened
pleading standard,” and the Complaint must be dismissed if that stringent standard 1s not satisfied.
Bezio v. General Electric Company, 114 N.Y.S.3d 595, 601 (N.Y. Sup. Ct. 2019) (dismissing
case); accord M+J Savitt, Inc. v. Savitt, 2009 WL 691278, at *8 (S.D.N.Y. Mar. 17, 2009).
1 On August 6, 2021, Plaintiff filed a pre-motion conference letter concerning his anticipated motion to remand
this action, to which Defendants will respond on before August 11, 2021.

PAUL, WEISS, RIFRINIY, WrIAKIVN & UAKRKRISWN □□

The Complaint does not plead with particularity any of the three tests of demand
futility: that (1) the “majority” of directors were “interested in the challenged transaction” or lack
“independence because [the board] is ‘controlled’ by a self-interested director’; (2) the board “did
not fully inform themselves about the challenged transaction to the extent reasonably appropriate
under the circumstances”; or (3) “the challenged transaction was so egregious on its face that it
could not have been the product of sound business judgment of the directors.” Marx v. Akers, 88
N.Y.2d 189, 200-01 (1996). Plaintiff cannot satisfy any of the Marx factors:
° The first factor does not support a showing of demand futility. Plaintiffs allege that the
Defendants were “interested” in the decisions at issue. But the only such “interest” alleged
is that Defendants, as shareholders, might benefit from an increase in Regeneron’s stock
price, see Compl. § 189. But that would be a benefit “shared in by stockholders,” Marx,
88 N.Y.2d at 202, and thus does not establish interestedness as a matter of law. Matter of
Comverse Tech., Inc. Deriv. Litig., 56 A.D.3d 49, 54 (2008). Nor are there any allegations
that Regeneron’s outside directors—who constitute a substantial majority of its Board and
who are prominent scientists (including Nobel laureates) and independent business
people—were in any way controlled by an interested director.
° Nor does the Complaint establish demand futility under the second prong. Plaintiff claims
that the Defendant directors were aware of Regeneron’s charitable donations, e.g., Compl.
4 171, but such donations are not unlawful per se. Plaintiff alleges no particularized facts
showing that the Board was “presented with red flags warning” that these donations were
unlawful, or that they “consciously chose to overlook or ignore them.” Gammel v. Immelt,
2019 WL 2869378, at *4 (N.Y. Sup. 2019). Plaintiffs failure to “plead with the requisite
particularity” that Defendants had “significant reason to question or investigate” the matter
at issue “and failed to do so” is fatal here. Wandel ex rel. Bed Bath & Beyond, Inc. v.
Eisenberg, 871 N.Y.S.2d 102, 106 (2009); Goldstein, 138 A.D.3d at 557 (affirming
dismissal).
° As to the third prong, nothing about the challenged decision to make corporate
contributions to a charitable fund providing assistance in making copayments is “so
egregious on its face that it could not have been the product of sound business judgment of
the directors.” Marx, 88 N.Y.2d at 200-01. Plaintiff alleges that “the Board caused or
permitted Regeneron to violate federal regulations and federal laws,” and was “presented
with detailed information regarding” an allegedly “illegal business strategy” at “Board
meetings.” Compl. 13, 173. But Plaintiff points to not a single instance of the Board
being told that the conduct at issue was illegal or suspect, as opposed to being told merely
that it was occurring. See Levy v. Huszagh, 2012 WL 4512038, at *5 (E.D.N.Y. Sept. 28,
2012); Goldstein, 138 A.D.3d at 557. On the contrary, the law expressly permits and even
encourages pharmaceutical companies such as Regeneron to make such contributions, and
they routinely do so. E.g., 70 Fed. Reg. 70623 (November 22, 2005).
I. This Case Should Be Dismissed For Failure To Allege Breach of Fiduciary Duty.
The complaint should be dismissed for the independent reason that Plaintiff has
failed plausibly to allege any breach of fiduciary duty by Defendants. Plaintiff must carry this
burden as to each Defendant, and “may not rely,” as Plaintiff has tried to do here, on “group
pleading to assert a breach of fiduciary duty claim.” Steinberg v. Sherman, 2008 WL 2156726, at
*5 (S.D.N.Y. May 8, 2008) (dismissing claims).

PAUL, WEISS, RIFRINIY, WrIAKIVN & UAKRKRISWN □□

Plaintiff concedes that his claim that Defendant directors must have been told of
“the details” of purportedly unlawful activity rests on “inference,” not fact. Compl. § 172. But
“speculative and vague allegations” that information was provided to Defendants are “insufficient
to establish that . . . [d]Jefendants were aware of illegal conduct and consciously failed to act.” See
ITT Corp. Deriv. Litig., 653 F. Supp. 2d 453, 461-62 (S.D.N.Y. 2009).
Count I (for breach of fiduciary duty) should also be dismissed because it is
premature. Where, as here, the only damages the Plaintiff is eligible to seek are those the
corporation “might be ordered to pay” in a separate, pending lawsuit (here, the DOJ Action,
described infra), shareholder derivative actions are properly dismissed as not ripe. In re United
Telecommce’ns, Inc., Sec. Litig., 1993 WL 100202, at *3 (D. Kan. Mar. 4, 1993); In re Facebook,
Inc., IPO Secs. & Deriv. Litig., 922 F. Supp. 2d 445, 474 (S.D.N.Y.2013). That is because
damages are speculative and “unrecoverable” where “they are contingent on the outcome” of a
lawsuit “in which no judgment has been entered or settlement reached.” Facebook, 922 F. Supp.
2d at 474.
Count II (for breach of fiduciary duty for alleged insider selling) should be
dismissed because Plaintiff has failed to allege “that each sale by each individual defendant was
entered into and completed on the basis of, and because of, adverse, material non-public
information.” Rattner v. Bidzos, 2003 WL 22284323, at *11 (Del. Ch. Oct. 7, 2003) (quotation
marks omitted). Plaintiffs claim that Defendants executed trades while in possession of “non-
public knowledge” is wholly conclusory, and is not accompanied by any allegation that the trades
were made “on the basis of, and because of,” that information. Compl. 4 199.
All of Plaintiff's claims for monetary damages also should be dismissed because
they are barred by Regeneron’s Certificate of Incorporation, which provides that “no director or
office . . . shall be personally liable to the Corporation or its shareholders for monetary damages
for any breach of fiduciary duty in such capacity.” Regn. Cert. of Inc., Art. VII. Plaintiff has made
no adequate allegation of any conduct barring exculpation here. NY Bus. Corp. L. § 402(b)(1).
Ill. This Case Should Be Stayed Pending Resolution of the DOJ Action.
In the alternative, Defendants intend to request that this case be stayed pending
resolution of an action by the U.S. Department of Justice against Regeneron for civil False Claims
Act violations, which is nearing trial in federal court in Massachusetts. U.S. v. Regeneron Pharm.,
Inc., 20-cv-11217-FDS (D. Mass.). This Court has inherent authority to “stay or dismiss a suit
that is duplicative of another federal court suit.” Curtis v. Citibank, N.A., 226 F.3d 133, 138 (2d
Cir. 2000). Because the DOJ Action will resolve the question at the core of this lawsuit—whether
there was an underlying violation of law when Regeneron made donations to CDF—staying this
action while that issue is resolved in Massachusetts will avoid waste and duplication, and indeed,
dispose of this case. Compl. §§ 142-144. Courts routinely stay cases in similar circumstances,
and a stay is appropriate here. E.g., Simms, et al. v. Philip Morris, Inc., et al., 01-1107 (GK)
(D.D.C. July 7, 2003); Mortland v. OhioHealth Corp., 2007 WL 9728545, at *2 (S.D. Ohio Feb.
7, 2007).
Respectfully submitted,
/s/_H. Christopher Boehning
H. Christopher Boehning

ATTORNEY S AT LAW
NEW YORK ● CALIFORNIA ● ILLINOIS ● LOUISIANA ● DELAWARE

David L. Wales
davidw@blbglaw.com
(212) 554-1409

August 13, 2021
VIA ECF

Hon. Nelson S. Román
U.S. District Court for the Southern District of New York
The Hon. Charles L. Brieant, Jr.
Federal Building and U.S. Courthouse
300 Quarropas Street
White Plains, NY 10601-4150

Re: Request to File Under Seal Response to Defendants’ Pre-Motion
Conference Request
Ball v. Baker, et al., No. 7:21-cv-06418-NSR
Dear Judge Román:

We are counsel for plaintiff Donald A. Ball (“Plaintiff”) in the above-referenced
shareholder derivative action (the “Action”) brought for nominal Defendant Regeneron
Pharmaceuticals, Inc. (“Regeneron”). We write to request leave to file a letter under seal.
Specifically, Plaintiff seeks to file under seal Plaintiff’s accompanying letter dated August 13,
2021, responding to Defendants’ August 10, 2021 pre-conference letter that seeks to permission
to file, inter alia, a motion to dismiss.

Pursuant to Rule 4.A of Your Honor’s Individual Rules of Practice in Civil Cases, Plaintiff
must identify the redactions and the reasons for the redactions.

Prior to commencing this Action, Plaintiff made a demand for books and records on
Regeneron. In response, Plaintiff and Regeneron entered into a Confidentiality Agreement
stipulating that the documents produced by Regeneron in response to Plaintiff’s demand pursuant
to New York Business Corp. Law § 624 and New York common law to inspect certain documents
of Regeneron (the “Demand”) include non-public, confidential, proprietary or commercially
sensitive information of the Company. The Complaint includes documents produced pursuant to
the Confidentiality Agreement that Regeneron has identified as confidential and commercially
sensitive. When the case was removed to this Court, Defendants applied for and were granted
permission to file the complaint under seal, with a redacted version publicly filed.

Defendants’ August 10, 2021 pre-conference letter argues that the complaint should be
dismissed both for failure to allege demand futility and breach of fiduciary duty. Plaintiff’s letter
responds to those arguments, and discusses certain factual allegations in the complaint to
demonstrate that Defendants’ arguments are without merit. Plaintiff provided a copy of Plaintiff’s
Hon. Nelson S. Román
August 13, 2021
Page 2 of 2

August 13, 2021 letter to counsel Defendants, who advised us in relevant part as follows, “[t]he
last paragraph on page 2 of your letter reflects Confidential Information as defined in our
confidentiality agreement. . . . Pursuant to paragraph 13 of that agreement, the highlighted
information should be filed under seal/redacted.

In accordance with the confidentiality agreement and Defendants statement that one
paragraph of Plaintiff’s letter contains confidential information that should be filed under seal, we
make this motion.

Courts have repeatedly recognized the importance of protecting confidential business
information of Regeneron. Encyclopedia Brown Prods., Ltd. v. Home Box Office, Inc., 26 F. Supp.
2d 606, 614 (S.D.N.Y. 1998) (sealing defendants’ confidential business information). Courts in
the Second Circuit recognize the importance of protecting against public disclosure of confidential
business information where such disclosure could cause competitive harm, and have permitted
parties to protect such information by filing documents under seal or with redactions. Lugosch v.
Pyramid Co. of Onondaga, 435 F.3d 110 (2d Cir. 2006); Mark v. Gawker Media LLC, 2015 WL
7288641, at *2 (S.D.N.Y. Nov. 16, 2015) (granting request for redactions “[i]n the interest of
protecting confidential business information”) (citing Standard Inv. Chartered, Inc. v. FINRA,
2009 WL 2778447, at *2 (2d Cir. 2009) (upholding district court’s finding that the defendant’s
interest in protecting the confidential business information at issue outweighed the qualified
presumption of public access)).

Based on Regeneron’srepresentation that the paragraph in Plaintiff’s August 13, 2021 letter
they identified contains confidential business information, it is appropriate that Plaintiff be allowed
to file Plaintiff’s August 13, 2021 letter under seal, with a redacted public version. Defendants
support this sealing motion, although for the avoidance of doubt, Defendants do not otherwise
support the arguments in Plaintiff’s August 13, 2021 letter.

Very truly yours,

s/ David L. Wales
David L. Wales
ATTORNEY S AT LAW
NEW YORK ● CALIFORNIA ● ILLINOIS ● LOUISIANA ● DELAWARE

David L. Wales
davidw@blbglaw.com
(212) 554-1409
August 13, 2021
VIA ECF

Hon. Nelson S. Román
U.S. District Court for the Southern District of New York
The Hon. Charles L. Brieant, Jr.
Federal Building and U.S. Courthouse
300 Quarropas Street
White Plains, NY 10601-4150

Re: Response to Defendants’ Pre-Motion Conference Request
Ball v. Baker, et al., No. 7:21-cv-06418-NSR
Dear Judge Román:

We are counsel for plaintiff Donald A. Ball (“Plaintiff”) in the above-referenced
shareholder derivative action (the “Action”) brought for nominal Defendant Regeneron
Pharmaceuticals, Inc. (“Regeneron”). Plaintiff submits this letter pursuant to Rule 3(A) in response
to Defendants’ pre-motion conference letter dated August 10, 2021. As set forth in our August 6,
2021 pre-motion letter, this Action was improperly removed as there is no basis for removal. Judge
Briccetti declined to accept this Action as related to another action pending before him which was
Defendants’ primary basis for claiming jurisdiction. Plaintiff’s motion to remand this Action to
the Supreme Court of the State of New York, Westchester County (the “State Court”) should be
decided first. Once this Court determines whether it has jurisdiction, the parties should then brief
the motions to dismiss and stay to the Court that will be handling the Action.

1. The Court Should Address Its Jurisdiction To Hear This Action First

A threshold issue for this Court is whether it has jurisdiction to hear this Action. Plaintiff
contends this Action was removed improperly. “In light of the congressional intent to restrict
federal court jurisdiction, as well as the importance of preserving the independence of state
governments, federal courts construe the removal statute narrowly, resolving any doubts against
removability.” Lupo v. Human Affairs Int’l, Inc., 28 F.3d 269, 274 (2d Cir. 1994) (quoting Somlyo
v. J. Lu-Rob Enters., Inc., 932 F.2d 1043, 1045–46 (2d Cir. 1991)). Courts have long recognized
that the Court’s jurisdiction should be decided prior to ruling on merits motions. See, e.g., Macro
v. Indep. Health Ass’n, Inc., 180 F. Supp.2d 427, 431 (W.D.N.Y. 2001) (“[W]hen an action is
removed from state court, the district court first must determine whether it has subject matter
jurisdiction over the claims before considering the merits of a motion to dismiss ....”). As such,
Courts routinely exercise their discretion to schedule briefing on and decide motions to remand
prior to briefing motions to dismiss. See, e.g., L.Y.E. Diamonds Ltd. v. Gemological Inst. of Am.
Inc., 2017 WL 1207839 (S.D.N.Y. March 31, 2017) (Court set remand briefing schedule and
deferred setting pre-motion conference for motion to dismiss until remand decided); Gurney’s Inn
Resort & Spa Ltd. v. Benjamin, 743 F. Supp.2d 117, 119 n.2 (E.D.N.Y. 2010) (remand briefing
required prior to briefing on defendants’ motions, noting “[t]he Court addresses Gurney’s motion
to remand before addressing Benjamin’s proposed motion because the remand motion challenges
the Court’s jurisdiction to hear this case.”). Particularly, where, as here, Defendants’ removal is so
far off the mark, deferring briefing on motions to dismiss and stay pending a resolution on the
motion to remand will promote efficiency and avoid waste.

2. The Complaint Properly Alleges Demand Futility and Breaches of Fiduciary Duty

Plaintiff sufficiently alleges pre-suit demand excusal as to Regeneron’s Board of Directors
(the “Board”). In the seminal case of Marx v. Akers, 88 N.Y.2d 189, 200-201 (1996), the New
York Court of Appeals held that pre-suit demand is futile under New York law in three
circumstances: (1) where a majority of the corporation’s directors are interested in the challenged
transactions; (2) where the directors did not fully inform themselves about the challenged
transactions to the extent reasonably appropriate under the circumstances; and (3) where the
challenged transactions are so egregious on their face that they could not have been the product of
sound business judgment. As Defendants are well-aware given their own firsthand experience, if
a derivative plaintiff establishes any one of these three Marx prongs, pre-suit demand is excused.
Cement Masons Local 780 Pension Fund v. Schleifer, 2017 WL 2855101, *5 (Sup. Ct., June 28,
2017) (denying motion to dismiss derivative action in substantial part and holding that pre-suit
demand on Regeneron’s Board was futile and excused under New York law).

With respect to the first Marx prong, eight out of twelve Board members are alleged to
have collectively sold over $475 million worth of their personally-held Regeneron stock during
the relevant period. These sales were made while in possession of material, adverse, non-public
corporate information -- specifically, that Regeneron’s blockbuster Eylea sales were based in
material part on an illegal scheme, excusing demand. Directors are interested when they receive
personal benefits from the transactions at issue which are different from those received by all
shareholders. Rubenstein v. Rubenstein, 2006 WL 624890, *5 (Sup. Ct. Mar. 13, 2006). A classic
example of this is where, as here, directors are alleged to have received direct financial benefits
through insider stock sales. Tsutsui v. Barasch, 67 A.D.3d 896, 898 (2d Dep’t 2009); Forbush v.
Goodale, 2013 WL 664189 (Sup. Ct. Feb. 4, 2013).

As to the second and third Marx prongs, Defendants claim that Plaintiff alleges “no
particularized facts” showing the Board’s knowledge or conscious disregard of the illegal scheme
perpetrated at Regeneron, and that “Plaintiff points to not a single instance of the Board being told
that the conduct at issue was illegal or suspect, as opposed to being told merely it was occurring.”
Plaintiff alleges based on evidence from Regeneron’s own internal, non-public, Board-level
corporate documents obtained pursuant to New York Business Corp. Law § 624 that:

.

When accepting all allegations as true and drawing all inferences in favor of Plaintiff, there
are only two possible scenarios. Either the Board failed to reasonably inform itself of the CDF
scheme and acted as nothing more than a rubber-stamp by approving or acquiescing to tens of
millions of dollars in illegal, sham “donations” to the CDF or it did so knowingly, in violation of
federal law. Either scenario excuses demand under prongs two or three of the Marx test. See, e.g.,
Forbush, 2013 WL 664189 (“It may be inferred from the allegations that she either turned a blind
eye to Kenneth’s numerous self-interested transactions or she went along with them.”); Barr v.
Wackman, 36 N.Y.2d 371, 380-381 (1975) (excusing demand where performance of directors’
duties of due care and diligence would have put them on notice of the wrongdoing at issue).

Further, Plaintiff adequately states claims for breach of fiduciary duty pursuant to N.Y.
Bus. Corp. Law § 717 and New York common law, as well as a separate claim for breach of
fiduciary duty for insider selling under New York common law. Plaintiff alleges that the
Individual Defendants caused Regeneron to enter into an illegal copay reimbursement scheme with
CDF, and thus acted in bad faith, willfully, and/or recklessly in violating their fiduciary duties.
Twelve Individual Defendants took advantage of their knowledge that Eylea sales were largely
based on the illegal scheme, selling over $650 million worth of stock from 2012 through 2015.
See, e.g., Tsutsui, 67 A.D.3d at 898-899 (sustaining claim for breach of fiduciary duty based on
allegations of insider sales based on material inside information). Defendants cannot escape
Plaintiff’s strong breach of fiduciary duty claims at the pleading stage.

3. The Motion For An Indefinite Stay Is Without Basis

Defendants also seek a stay pending the resolution of the Government’s civil action against
Regeneron. Yet Defendants ignore that the parties are different, that this Action asserts breach of
fiduciary duty claims against officers and directors of Regeneron who are not parties to the
Government action, and asserts insider trading claims which are not an issue in the Government
action. The Government action will not resolve or dispose of this Action. The Defendants’ letter
incorrectly states that the Government action “is nearing trial”, yet no trial date has been set there.

The Supreme Court has set a high standard for staying a case in favor of another proceeding
and have expressed a strong hostility to an indefinite stay of the sort sought by Defendants here.
A court should stay proceedings in one case in deference to another case “[o]nly in rare
circumstances[.]” Landis v. N. Am. Co., 299 U.S. 248, 255 (1936). The proponent must “make out
a clear case of hardship or inequity” in being required to go forward with litigation. Id. Nor do
Defendants’ cited cases support their application. Curtis v. Citibank, N.A., 226 F.3d 133, 138 (2d
Cir. 2000) involves a stay of a second action filed by the same parties, and even there the Court
partially reversed the stay. While Defendants argue that courts routinely grant the stay they seek,
the only cases they cite are 14 and 18 years old, one is not reported anywhere, and the other is a
pro se case involving the same plaintiff filing both a civil and regulatory complaint for the same
misconduct against him. In actuality, courts routinely deny the type of stay Defendants seek here
for the harm it causes to plaintiffs. See, e.g., In re Universal Health Servs., Inc. Deriv. Litig., 2018
WL 8758704 (E.D. Pa. Dec. 10, 2018).
Very truly yours,

s/ David L. Wales
David L. Wales

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10334339. Public record. Not legal advice.