# IN RE CORMEDIX INC. SECURITIES LITIGATION

> District Court, D. New Jersey · June 30, 2025

URL: https://www.frixlaw.com/law-library/cases/11088208

## Case

- **Court:** District Court, D. New Jersey
- **Decided:** June 30, 2025
- **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/11088208

## How later opinions describe it (automated extraction)

- finding materialization of risk is “consistent” with the Third Circuit’s loss causation jurisprudence
- finding scienter where executives’ public statements about FDA compliance were 15 contradicted by internal findings
- holding that at the pleading stage, courts must consider whether all allegations “collectively” support a strong inference of scienter and must assess the defendant’s state of mind “at the time the statements were made,” not in bindsight
- noting that a court may grant a motion to dismiss a fraud-based claim if the plaintiff fails to plead with the required particularity
- declining to consider the materialization of risk theory because the Third Circuit has not endorsed it as a way to establish loss causation

## Opinion text

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

Lead Plaintiff John C. LEVON, individually
and on behalf of all others similarly situated, Civil Action No. 21-14020 (JXN) (CLW)
Plaintiffs,
OPINION
CORMEDIX INC., KHOSO BALUCH,
ROBERT COOK, MATTHEW DAVID,
PHOEBE MOUNTS, JOHN L,
ARMSTRONG, and JOSEPH TODISCO,
Defendants.

NEALS, District Judge:
Before the Court is Defendants CorMedix Inc., Khoso Baluch, Robert Cook, Matthew
David, Phoebe Mounts, John L. Armstrong, and Joseph Todisco’s (collectively, “Defendants”)
Motion to Dismiss the Third Amended Consolidated Class Action Complaint (“TAC”), pursuant
to Federal Rules of Civil Procedure 12(b)(6) and 9(b), and the Private Securities Litigation Reform
Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4 (ECF No. 104); Plaintiff's opposition (ECF No, 106);
and Defendants’ Reply (ECF No. 107). Jurisdiction is proper under 28 U.S.C. § 1331. Venue is
proper under 28 ULS.C. § 1391(b). The Court has carefully considered the parties’ written
submissions and decides this matter without oral argument pursuant to Federal Rule of Civil
Procedure 78(b) and Local Civil Rule 78.1(b). For the reasons stated below, Defendants’ motion
to dismiss is DENIED.

I. BACKGROUND AND PROCEDURAL HISTORY!
Plaintiff John C. Levon brings this putative securities class action on behalf of himself, and
all others similarly situated who purchased or otherwise acquired common stock of CotMedix Inc.
(“CorMedix” or the “Company”’) between October 16, 2019, and August 8, 2022 (the “Class
Period”), and who were damaged thereby. (TAC 9§ 1, 19, ECF No. 97). CorMedix is a
biopharmaceutical company headquartered in New Jersey, focused on the development and
commercialization of products for the prevention and treatment of infectious diseases. Its lead
product candidate, DefenCath (formerly known as Neutrolin), is a catheter lock solution designed
to prevent bloodstream infections in patients undergoing hemodialysis. Ud. ¥§ 2, 47).
The action arises out of CorMedix’s efforts to obtain U.S. Food and Drug Administration
(“FDA”) approval of its New Drug Application (*NDA”) for DefenCath. Plaintiff alleges that
throughout the Class Period, Defendants made materially false and misleading statements and
omissions concerning the Company’s ability to secure FDA approval. (Ud. 3-5). Specifically,
Plaintiff contends that Defendants misrepresented the regulatory readiness and compliance of
CorMedix’s third-party manufacturing organization, ROVI Contract Manufacturing, S.L.
(“ROVI”), and a key active pharmaceutical ingredient (“API”) supplier. Ud. 3-5, 80-87).
According to Plaintiff, an internal audit conducted in 2018, concluded that ROVI would not pass
an FDA inspection due to systemic manufacturing deficiencies, yet Defendants allegedly
concealed these findings while repeatedly assuring investors that all manufacturing issues had
been resolved. Ud. Ff] 81-87, 104-08, 112). Plaintiff further alleges that Defendants raised over
$60 million in capital during the Class Period through public offerings, while continuing to

' The following factual allegations are taken from Plaintiffs’ Third Amended Complaint, which are accepted as □□□□□
Sheridan v. NGK Metals Corp,, 609 F.3d 239, 262 0.27 (3d Cir, 2010).

mislead investors about DefenCath’s regulatory prospects. Ud. 9] 16-17, 89, 102-03, 139-41).
On February 26, 2021, the FDA issued a Complete Response Letter (“CRL”) identifying
multiple deficiencies at ROVI, including issues involving aseptic process validation, quality
assurance, and data integrity, which prevented approval of the NDA. (Ud. JJ 20, 178-83).
CorMedix publicly disclosed the FDA’s rejection on March 1, 2021, causing a decline in its stock
price. (Ud. | 21). Defendants subsequently announced that they would work with ROVI to address
the FDA’s concerns. (/d. § 22). CorMedix resubmitted the NDA on February 28, 2022, (Ud. { 144).
However, the FDA issued a second CRL on August 4, 2022, citing unresolved deficiencies at both
ROVI and the API supplier, including a failure to ensure cGMP (current Good Manufacturing
Practice) compliance. (/d. Jf 33, 193-217). The Company disclosed this second CRL on August
8, 2022, prompting another drop in its share price. Ud, { 36). Plaintiff alleges that both the first
and second CRLs stemmed from the same core issues identified in the 2018 audit, which
Defendants never disclosed. (ld. J] 81-87, 178-217).
On July 22, 2021, Plaintiff filed the initial class action complaint. (ECF No. i). On
December 14, 2021, Plaintiff filed the First Amended Complaint, asserting claims under both the
Securities Act of 1933 and the Securities Exchange Act of 1934, (ECF No. 43) (the “First Am.
Comp.”). On March 28, 2022, Defendants moved to dismiss the Consolidated Amended Class
Action Complaint.(ECF No. 57),” On August 30, 2022, the parties entered a stipulation allowing
the filing of a Second Amended Complaint and permitting Defendants to file a motion to dismiss
in response thereto. See ECF No. 75. On December 9, 2022, the Court granted in part and denied

2 On February 21, 2022, Defendants moved to dismiss. (ECF No. 50}. The Court administratively terminated the
motion at ECF No. 50 based on the parties’ joint stipulation amending the briefing schedule. See ECF No. 55, The
motion to dismiss was refiled under ECF No. 57.

in part the motion, dismissing Plaintiff's Securities Act claims with prejudice while allowing
Plaintiff to amend the Exchange Act claims, (ECF Nos. 65-66).
On October 10, 2022, Plaintiff filed a Second Amended Complaint (“SAC”) alleging
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.
(ECE No. 79). On November 23, 2022, Defendants moved to dismiss the SAC. (ECF No. 86). On
March 21, 2024, the Court denied Defendants’ motion without prejudice and granted Plaintiff
leave to amend, (ECF No. 91).
On April 22, 2024, Plaintiff filed the operative TAC. (ECF No. 97). The TAC again alleges
that Defendants violated Section 10(b) and Section 20(a) of the Exchange Act and Rule 10b-5 by
issuing materially misleading statements concerning the regulatory status and manufacturing
readiness of DefenCath. (TAC 4 5, 40, 80-87, 104-12, 178-217, 293). _
Defendants moved to dismiss the TAC with prejudice on June 6, 2024, (ECF No, 104),
On July 22, 2024, Plaintiff opposed. (ECF No. 106). On August 21, 2024, Defendants replied.
(ECF No. 107). Defendants’ motion to dismiss is now ripe for adjudication.
Il. LEGAL STANDARD
A. Rule 12(b)(6)
Rule 8 requires that a pleading include “a short and plain statement of the claim showing
that the pleader is entitled to relief” and provide the defendant with “fair notice of what the claim
is and the grounds upon which it rests[.[? Bef? Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(citation and internal quotations and ellipses omitted). On a Rule 12(b)(6) motion, the “facts
alleged must be taken as true” and dismissal is not appropriate where “it appears unlikely that the
plaintiff can prove those facts or will ultimately prevail on the merits.” Phillips v. Cnty. of
Allegheny, 515 F.3d 224, 231 Gd Cir. 2008) (citation omitted), A complaint will survive a motion

to dismiss if it provides a sufficient factual basis to state a facially plausible claim for relief,
Ashcroft v. Igbal, 556 U.S. 662, 678 (2009).
To determine whether a complaint is sufficient, the Third Circuit requires a three-part
inquiry: (1) the court must first recite the elements that must be pled in order to state a claim; (2)
the court must then determine which allegations in the complaint are merely conclusory and
therefore need not be given an assumption of truth; and (3) the court must “assume the[] veracity”
of well-pleaded factual allegations and ascertain whether they plausibly “give rise to an
entitlement for relief.” Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (citations
omitted).
Motions to dismiss in a Section 10(b) action under the Securities Exchange Act, similarly,
follow a three-step process. First, as with any Rule 12(b)(6) motion, courts must “accept all factual
allegations in the complaint as true.” Winer Family Tr. v. Queen, 503 F.3d 319, 327 (3d Cir. 2007).
Second, “courts must consider the complaint in its entirety.” Jd (quoting Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)), Third, in determining whether the pled facts give
rise to a “strong” inference of scienter, the court must take into account plausible opposing
inferences. [d.; Cont’l Gen, ins, Co, v, Olafsson, No. CV 23-3662 (ZNQ) (JBD), 2024 WL
4263211, at *4~-5 (D.NJ. Sept. 23, 2024).
Fraud-based claims brought under the Securities Exchange Act, and alleged as part of a
private securities class action, are additionally subject to the heightened pleading requirements of
both Rule 9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. § 78u, ef seg., (the
“PSLRA”). See In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 276-77 (3d Cir. 2006);
see also Inve Rockefeller Ctr. Props., inc. See. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Rule 9(b)
provides that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake.” Fed. R. Civ. P. 9(b); see Frederico v. Home Depot, 507 F.3d 188,
200-02 (3d Cir. 2007) (noting that a court may grant a motion to dismiss a fraud-based claim if
the plaintiff fails to plead with the required particularity). Particularity requires sufficient details
to put the defendant “on notice of the precise misconduct with which [it is] charged.” Jd. at 201
(alteration in original) (quoting Lum v. Bank of Am., 261 F.3d 217, 223-24 (3d Cir. 2004)
(abrogated on other grounds)) (internal quotation marks omitted). A plaintiff must plead “the who,
what, when, where and how” of the alleged fraud. U.S. ex rel. Moore & Co., PA. v. Majestic Blue
Fisheries, LLC, 812 F.3d 294, 307 Gd Cir. 2016).
The PSLRA provides two distinct pleading requirements, both of which must be met for a
securities complaint to survive a motion to dismiss. Institutional Invs. Grp. v. Avaya, Inc., 564
F.3d 242, 252 (3d Cir. 2009). Both provisions of the PSLRA require facts to be pled with
“particularity.” Jd. at 253. A complaint must: (1) “specify each statement alleged to have been
misleading [and] the reason or reasons why the statement is misleading”; and (2) “state with
particularity facts giving rise to a strong inference that the defendant acted with the required state
of mind,” i.¢., scienter. 15 U.S.C. § 78u-4(b)(1)-(2).
B. Rule 9(b) and the PSLRA
The scienter requirement under the PSLRA is satisfied only if the complaint pleads “an
inference of scienter [that] is cogent and at least as compelling as any opposing inference of
nonfraudulent intent.” Tellabs, Inc, 551 U.S. at 314. In the Third Circuit, scienter may be
established by alleging either (1) a motive and opportunity to commit fraud or (2) “circumstantial
evidence of either reckless or conscious behavior.” Just] Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242,
(3d Cir. 2009) (quoting In re Advanta Corp. See. Litig., 180 F.3d 524, 534-35 (3d Cir. 1999).
The Third Circuit has repeatedly held that allegations of recklessness—defined as “highly

unreasonable conduct which is an extreme departure from the standards of ordinary care”—imay
satisfy the scienter requirement for securities fraud. J re Advanta Corp. Sec. Litig., 180 F.3d 524,
535 (3d Cir. 1999),
Iii. DISCUSSION
Defendants contend that the TAC fails to meet any of the required elements of a securities
fraud claim. (Defs.’ Br. at 3). Defendants assert Plaintiff fails to plead facts supporting the
“compelling” inference of scienter required by the PSLRA. (Defs.’ Br. at 3), Plaintiff asserts to
the contrary that the TAC contains detailed allegations of contemporaneous knowledge, including
confidential witness statements, internal audit reports, and FDA communications known to
Defendants at the time of their alleged misstatements, (Pl.’s Br. at 27).
1, Plaintiffs Adequately Allege Material Misrepresentation
To adequately plead material misrepresentation under the PSLRA, plaintiffs must plead
with particularity each alleged material misstatement, identifying “the reason or reasons why each
flagged statement is false or misleading — or how an omission makes another disclosure false or
misleading.” J re Galena Biopharma, Inc. See. Litig., 336 F. Supp 3d 378, 393 (D.N.J, 2018).
Materiality is determined “if there is a substantial likelihood that [a fact or omission] would have
been viewed by [a] reasonable investor as having significantly altered the ‘total mix’ of
information available to the investor.” In re Celgene Corp. Sec. Litig., No. 18-4772, 2019 WL
6909463, at *11(D.N.J, May 19, 2017), Particularity “requires that plaintiffs plead the ‘who, what,
when, where and how.’” Jn re Galena, 336 F. Supp. 3d at 388. However, “Rule 9(b) and the
PSLRA do not insist upon irrefutable evidence of a statement’s falsity at the pleading stage; rather,
a complaint must contain particularized factual allegations that plausibly allege that a statement
was misleading.” City of Warren Police and Fire Ret. Sys. v. Prudential Fin, Ine., 70 ¥ Ath 668,

681 (3d Cir. 2023). The statement or omissions must also “have been misleading at the time it was
made; liability cannot be imposed on the basis of subsequent events.” Jd. at 693.
Furthermore, “when an allegation of fraud is based upon nondisclosure, there can be no
fraud absent a duty to speak.” Infelligroup Sec, Litig., 527 F. Supp. 2d 262, 281 (D.N.J, 2007).
“(Such a duty to disclose may arise [only] when...[there was] an inaccurate, incomplete or
misleading prior disclosure [requiring] a corrective statement.” /n re Intelligroup Sec. Litig., 527
F. Supp. 2d 262, 281 (D.N.J. 2007). “Disclosure is required under § 10(b) and Rule 10b-5 when
‘necessary to make ... statements made, in light of the circumstances under which they were made,
not misleading.” Jn re Amarin Corp. PLC See. Litig., No. 21-2071, 2022 WL 2128560, at *3 (3d
Cir, June 14, 2022). Otherwise put, “there is no affirmative duty to disclose all material
information, but such a duty may arise when a company chooses ‘to speak about a material subject
to investors.’” Id.
Defendants categorize the alleged material misrepresentations into four groups: (1) true
statements before the first CRL; (2) true statements after the first CRL; (3) forward-looking
statements; and (4) opinion/non-actionable statements. (Defs.’ Br. at 19, 21, 24, 26),
Plaintiff categorizes Defendants’ alleged misstatements and omissions into four groups:
(1) those about the then-current state of manufacturing deficiencies; (2) those about being on track;
(3) those claiming FDA support; and (4) those about non-manufacturing-related risks. (Pl.’s Br. at
14, 17, 19, 20). Plaintiff also contends that Defendants’ misstatements and omissions are not
protected opinions or forward-looking statements. (/d. at 22).
The Court adopts three of Defendants’ categories for the purpose of its analysis,

i. True Statements before the first CRL
First, Defendants state that because “virtually none” of the true statements made before the
first CRL amount to “‘affirmative characterizations’ regarding the likelihood of FDA ‘approval’”
that the statements do not put “in play” allegedly omitted information. (Defs.’ Br. at 19), “Virtually
none” is not “none,” though. Defendants note a statement Defendants made on March 16, 2020,
that “fits CMO] may not be able to comply with the applicable FDA regulatory requirements,
which .,. could prevent [Defendants] from ultimately receiving product marketing approval.”
(Defs.’ Br. at 19). By making such a statement, Defendants had a duty to disclose any material
information relating to that material subject. Ja re Amarin Corp. PLC Sec. Litig., No. 21-2071,
2022 WL 2128560, at *3 (3d Cir. June 14, 2022) (holding that “there is no affirmative duty to
disclose all material information, but such a duty may arise when a company ‘chooses to speak
about a material subject to investors.’”). Yet, Defendants still allegedly failed to disclose the 2018
Audit, which states that the CMO should not be used because it would not be able to pass an FDA
inspection. (TAC { 5). Plaintiff specifically alleges the same in the TAC: that the statement is
materially false or misleading because CorMedix omitted material, adverse facts about
CorMedix’s operations, particularly the deficiencies revealed by the 2018 Audit. (TAC 193).
Additionally, Defendants’ argument—that the 2018 Audit does not contradict any of their pre-
CRL statements as Defendants do not speak to the CMO’s ability to pass FDA inspection—is
unpersuasive at this stage of the proceedings. (Defs.’ Br. at 21).
Defendants next allege that Plaintiff did not plead any concerns raised by the FDA prior to
the First CRL. (Defs.’ Br. at 20). Specifically, Defendants claim that the FDA’s additional records
request did not indicate that the FDA was “concerned” but was instead a part of an ongoing
dialogue between Defendants and the FDA. (dd. at 20). Defendant, citing Bauer v. Eagle Pharms.

Inc., No. 16-3091, 2017 WL 2213147, at *9 (D.N.J. May 19, 2017), contends that such a dialogue
cannot give rise to an inference that the FDA expressed concerns. (/d. at 20). However, Bauer held
that “because the Court finds that Plaintiff has not pled falsity as to [certain] statements, there is
no basis from which to conclude that the Company’s on-going discussions with the FDA, coupled
with the core operations doctrine, supports an inference that Defendants knew that the Product’s
NDA would not be approved.” Jd. at *11, Bauer essentially held that because falsity was not
adequately pled, dialogue with the FDA cannot support scienter. /d.
Here, Plaintiff alleges the falsity of Defendants’ statements based on the ongoing dialogue
between the FDA and Defendants, specifically Defendants’ failure to disclose the FDA’s concerns
about records submitted during the NDA, which allegedly prompted an additional records request.
(TAC JJ 205, 208, 213). Plaintiff alleges that the severity of the FDA’s concerns (established
through records review and this “ongoing dialogue”) was not conveyed to the public, despite
Defendant’s public statements about the FDA’s records review and this “ongoing dialogue.” (TAC
{ 103). Defendants had a duty to disclose the FDA’s concerns stemming from its review of records
submitted with the NDA when Defendants stated that additional records were requested by the
FDA; Defendants commented on a material subject and had a duty to disclose other material
information available. Ja re Amarin Corp. PLC See. Litig., No. 21-2071, 2022 WL 2128560, at *3
(3d Cir, June 14, 2022). Relatedly, Plaintiff alleges that Defendants “failed to inform investors
that the request for additional information was based on identified deficiencies in the
manufacturing process, in addition to mounting deficiencies at the CMO’s manufacturing
facilities.” (TAC { 103). Moreover, Plaintiff pleads with particularity that Defendants misled
Plaintiff and the public by failing to disclose that the request for additional information was based
on deficiencies at the CMO. (TAC 205, 208, 213).

10

ii. True Statements after the first CRE
Defendants first argue that they had no duty to disclose material adverse facts about the
likelihood of success of the NDA because, “for the most part,” Defendants do not comment on
this. (Defs.’ Br. at 22), Defendants argue that if they had a duty to disclose material adverse facts
about the likelihood of success of the NDA, Plaintiff fails to allege the facts that Defendants failed
to disclose. (id. at 22). However, Plaintiff does allege that Defendants had a duty but still failed to
disclose that its CMO manufactured contaminated vials of Moderna vaccine due to protocols
relating to changeover of manufacturing lines at the facility. (TAC 260). Defendants contend
that because the FDA gave no indication that the Moderna contamination would impact its NDA
approval, they had no duty to disclose that information. (Defs.’ Br. at 22), To support their
arguinent, Defendants cite Jn re Genzyme Corp. See. Litig,, 754 F.3d 31, 43 (ist Cir. 2014), which
held that its defendant had no obligation to disclose bioreactor failures at one plant where failures
“bore no relation to FDA approval of [the NDA]” at another plant and where FDA had not given
“any indication that the bioreactor failures would hinder approval” of the NDA. (/d.). However,
Genzyme is not instructive here. There is one glaring difference between the present issue and
Genzyme: the contaminated Moderna vaccines were being manufactured at the same facility that
CorMedix contracted to manufacture DefenCath. (TAC ¥ 163). Plaintiff alleges, based on cGMP
and Defendants’ dialogue with the FDA, that Defendants were responsible for ensuring processes
were in place to assure the control of outsourced activities and quality of purchased
substances. (TAC 17). Plaintiff also alleges that:
[Slince the CMO manufactured multiple different drug products,
Defendants also knew or reckfessly ignored that they needed to
ensure that its protocols relating to changeover of manufacturing
lines... met cGMP standards and that deficient protocois relating
to changeover of manufacturing lines . . . could and would cause
contaminated vials, which would delay the CMO’s ability to obtain

11

the data requested by the FDA relating to the qualification of the
filling operation.
(TAC 4 118).
Plaintiff adequately pleads with particularity that Defendants’ post-CRL statements are
misleading because Plaintiff alleges that Defendants, despite having a duty, failed to disclose
material adverse facts regarding the Moderna contamination.
iii. Forward looking statements
A “safe harbor,” as afforded under the PSLRA, “immunizes liability from any forward-
looking statement[s], provided that: the statement[s] fare] identified as such and accompanied by
meaningful cautionary language; or [are] immaterial; or the plaintiff fails to show the statement[s]
{were] made with actual knowledge of [their] falsehood.” Jnstitutional Invs, Group v. Avaya, Inc.,
564 F.3d 242, 254 (Gd Cir. 2009), Cautionary statements are “meaningful” when they are
“substantive and tailored to the specific future projections, estimates or opinions in the
[documents] which the plaintiffs challenge.” OFT Asset Mgmt v. Cooper Tire & Rubber, 834 F.3d
481, 491 (d Cir. 2016). Cautionary statements are tailored when they “[identify] important
factors that could cause actual results to differ materially from those in the forward-looking
statement.” Nat'l Junior Baseball League v. Pharmanet, 720 F. Supp. 2d 517, 530 (D.N.J. 2010).
Boilerplate disclaimers that warn of general risks that accompany investments are not sufficient
to immunize a defendant from liability. OFT Asset Mgmt, 834 F.3d at 491, Rather, cautionary
statements must be “substantive and tailored” and “extensive and specific.” /nstitutional Invs.
Group, 564 F.3d at 257. Defendants claim that some of the alleged misstatements are forward-
looking (“AFL”) and accompanied by an adequate cautionary statement, so Defendants are
immunized by the PSLRA’s safe harbor. (Defs.’ Br. at 24). Plaintiff, though, contends that because
Defendants failed to disclose adverse events and risks that had already occurred or were occurring,

12

the AFL are neither truly forward-looking nor supported by truly cautionary language and thus,
are not immunized. (P1.’s Br. at 22-24), Plaintiff alleges in the TAC that the AFL are misleading
not because they fail to “correctly predict that the FDA would not approve DefenCath[,]” but
because Defendants concealed events that had occurred or were occurring. (PI.’s Br. at 22).
This Court is not persuaded by Defendants’ argument; the AFL cannot be protected by the
PSLRA’s safe harbor. Defendants liken their statements to cases that found similar statements
regarding FDA to be forward-looking. (Defs.’ Br. at 24-25), But central to this issue is not what
the AFL state, but rather what the AFL fai/ to caution. Put otherwise, Plaintiff does not allege that
the AFL are misleading because their predictions are incorrect but instead alleges that the AFL are
misleading because adverse events and risks underlying their predictions were not disclosed. (PL’s
Br. at 22), Cautionary statements are not truly cautionary when the defendant knows that an
identified risk has or will occur. In re Bristol-Myers Squibb Sec. Litig., No. 00-1990, 2005 WL
2007004, *51-52 (D.NJ. Aug. 17, 2005). The Court in Bristol-Myers found that “even though
statements [were] forward-looking ..., and even if these statements were accompanied by adequate -
cautionary language, [the] [p]laintiff adequately alleges that [the] [d]efendants had enough
information ... to know that this status would not be attained.” Jd. Essentially, “safe harbor...
provides no protection to someone who warns his hiking companion to walk slowly because there
might be a ditch ahead when he knows with near certainty that the Grand Canyon is one foot
away.” Id. For the AFL made before the first CRL, Plaintiff adequately alleges that Defendants
failed to disclose concerns that the FDA raised (those which prompted an additional records
request as discussed above) and deficiencies at the CMO, which make the AFL misleading. (TAC
205, 208, 213). For the AFL made after the first CRL, Plaintiff adequately alleges in the TAC
that Defendants failed to disclose various events and risks that affected the CMO’s ability to

13

address the deficiencies identified in the first CRL that make the AFL misleading. (TAC { 228).
Defendants’ cautionary statements do not disclose, (and, allegedly, Defendants did not generally
disclose) that these events and risks had occurred or were occurring; they state, in one instance,
that “[their] CMO may not be able to comply with the applicable FDA regulatory requirements,
which could result in delays” while allegedly concealing information related to their CMO’s
ability to comply with the applicable FDA regulatory requirements. (Defs.’ Br. at 25).
2. Plaintiffs Adequately Allege Scienter
To plead scienter, the PSLRA requires a plaintiff to allege facts which give rise to a strong
inference that the defendant acted with the required state of mind in making misleading statements
and/or omissions. 15 U.S.C. §78u-4(b)(2). In the Third Circuit, scienter is sufficiently alleged
when the allegations give rise to a strong inference of “either reckless or conscious behavior.” See
In re Advanta Corp. Sec. Litig., 180 F.3d 524, 534-35 (3d Cir, 1999), Recklessness encompasses
“an extreme departure from the standards of ordinary care, and which presents a danger of
misleading buyers or sellers that is either known to the defendant or is so obvious that the actor
must have been aware of it.” Avaya, 564 F.3d at 280 (quoting Advanta, 180 F.3d at 535), Conscious
behavior, meanwhile, exists where a plaintiff “specifically allege{s] defendants’ knowledge of
facts or access to information contradicting their public statements.” Jn re Campbell Soup Co, Sec.
Litig., 145 F, Supp. 2d 574, 599 (D.N.J. 2001).
In analyzing scienter, a court must determine “[w]hen the allegations are accepted as true
and taken collectively, would a reasonable person deem the inference of scienter at least as strong
as any opposing inference?” Tellabs, 551 U.S. at 326. That inference “need not be itrefutable, 7e.,
of the ‘smoking-gun’ genre.” Jd. at 326. The analysis must be “case specific” and should
“ultimately rest not on the presence or absence of certain types of allegations but on a practical

14

judgment about whether, accepting the whole factual picture painted by the Complaint, it is at least
as likely as not that defendants acted with scienter.” Avaya, 564 F.3d at 269. The Complaint is
clear that Defendants either knew of, or recklessly disregarded, the truth when making their false
and misleading statements to investors during the Class Period.
i. Defendants’ Public Representations of Expertise and Direct Oversight
Support a Strong Interference of Scienter
The Court finds that the Individual Defendants repeated public representations of their
regulatory expertise, technical manufacturing experience, and direct oversight over CorMedix’s
core FDA approval process for DefenCath support a strong inference of scienter. These statements,
which Plaintiff alleges falsely reassured investors about compliance and manufacturing readiness,
are contradicted by allegations that Defendants had access to internal information detailing
ROVI’s manufacturing deficiencies and regulatory noncompliance. As such, Plaintiffs have
sufficiently alleged that Defendants either knew of or recklessly disregarded material facts
undermining their public assurances. To plead scienter under the Private Securities Litigation
Reform Act (“PSLRA”), a plaintiff must allege facts giving rise to a “strong inference” that the
defendant acted either with intent to deceive, manipulate, or defraud, or at least with
recklessness—‘“an extreme departure from the standards of ordinary care.” Jn re Hertz Glob.
Holdings Inc., 905 F.3d 106, 114 Gd Cir, 2018). The inference “must be mote than merely
plausible or reasonable—it must be cogent and at least as compelling as any opposing inference
of nonfraudulent intent.” Tellabs, Inc., 551 U.S. at 314. Courts in this Circuit have repeatedly
found a strong inference of scienter where executives make public statements asserting regulatory
expertise or direct oversight, which are later contradicted by internal reports or known
deficiencies. See, e.g., Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335, 349 (E.D. Pa.
2014) (finding scienter where executives’ public statements about FDA compliance were

15

contradicted by internal findings); SEB Inv. Mgmt. AB y. Endo Int'l PLC, 351 F. Supp. 3d 874,
905 (E.D. Pa. 2018) (finding scienter where executives made public statements contradicting
information from internal meetings); City of Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108,
2024 WL 3219616, at *8 (D.N.J. June 28, 2024) (holding that public misstatements concerning a
flagship product support a strong inference of scienter where the product is critical to the
company’s core operations and financial viability).
Here, Plaintiffs adequately allege that Defendants Joseph Todisco and John Armstrong
made repeated public representations about their direct involvement in the DefenCath regulatory
process—particularly regarding manufacturing readiness—while possessing or recklessly
disregarding information that contradicted those statements. During the Class Period, Todisco
publicly stated that CorMedix was “on track” with the FDA and had “resolved all issues related to
manufacturing.” (TAC 4 6). Similarly, Armstrong told investors in August 2019, that his team had
“carried out technical transfer and validation of the manufacturing process,” and had submitted
multiple NDAs that were ultimately approved. (id), These were not vague expressions of
optimism. but detailed assurances asserting personal knowledge and technical mastery. Similarly,
CorMedix issued statements in October 2019, that the FDA was “supportive” of the manufacturing
program and that the company had “all necessary controls and processes in place for approval.”
(TAC ¥ 7). The Complaint alleges, however, that Defendants had access to a 2018 audit warning
that CorMedix’s contract manufacturing organization (ROVI) would likely fail an FDA
inspection. (Compl. {{] 5, 40, 79-84). According to former employees, this audit recommended

that ROVI not be used. Nonetheless, Defendants continued to reassure investors that
manufacturing issues had been resolved. Like the executives in Frater and SEB, who spoke as □
authoritative sources while withholding known compliance deficiencies, Todisco and Armstrong’s

16

statements suggest either actual knowledge or at least recklessness in failing to disclose these
material issues.
Defendants argue that the 2018 audit should be discounted because it predates the NDA
submission by two years and involves a third-party entity. (Defs.’ Reply Br. at 2-3). But this
ignores that the audit addressed precisely the type of manufacturing deficiencies that later formed
the basis of the FDA’s Complete Response Letters (CRLs). (TAC {J 7, 40). And Defendants’
arguinent that ROV] later passed inspection is irrelevant at the pleading stage, where the question
is whether the Complaint supports a strong inference of scienter at the time of the alleged
misstatements. See Tellabs, Inc., 551 U.S. at 323 (holding that at the pleading stage, courts must
consider whether all allegations “collectively” support a strong inference of scienter and must
assess the defendant’s state of mind “at the time the statements were made,” not in bindsight).
Defendants further assert that the absence of insider stock sales undermines scienter.
(Defs.’ Br. at 11; Defs.’ Reply Br. at 3). But courts have repeatedly rejected that contention. See
City of Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108, 2024 WL 3219616, at *13 (D.N.J. June
28, 2024) (“The absence of insider trading is not dispositive.”); In re Valeant Pharims. Int’l, Ine.
Sec. Litig., No. 15-7658 2017 WL 1658822, at *10 (D.N.J. Apr. 28, 2017). Here, other indicia—
such as direct oversight of a single-product company and repeated reassurances to the market—
tip the balance toward a culpable inference. Tellabs, Inc., 551 U.S, at 314, Indeed, DefenCath was
CorMedix’s only product during the Class Period. (TAC 4 2; Pls.’ Br. at 4). Courts have held that
misrepresentations concerning a flagship product are especially probative of scienter. See City of
Warwick Ret. Sys. v. Catalent, Inc., No. 23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024)
(“The importance of the product to the company’s financial success supports the inference of
scienter.”). Because the FDA approval of DefenCath was core to CorMedix’s operations, Todisco

17

and Armstrong~~who held themselves out as experts in FDA compliance—are presumed to have
known about the company’s regulatory and manufacturing failures. Ja re Viropharma Inc. Sec.
Litig., 21 F, Supp. 3d 458, 472-73 CE.D, Pa, 2014).
Defendants attempt to characterize their statements as permissible corporate optimism, but
these were not vague generalities. They were concrete, repeated assertions about resolved
manufacturing issues and regulatory readiness—amade by senior executives who portrayed
themselves as having firsthand knowledge. (TAC § 6-7). Such statements are actionable when
contradicted by internal documents, audit findings, and regulatory correspondence. See Wu v. □□□
Techedu Inc., No. 20-4457, 2024 WL 3163219 (D.N.J. June 25, 2024); Dang v. Amarin Corp.
PLC, 750 F. Supp. 3d at 467-469 (D.N.J. 2024).
Accordingly, the Court finds that Plaintiffs have adequately alleged a strong inference of
scienter based on Defendants’ public representations of their regulatory expertise and direct
oversight, which were materially contradicted by internal warnings and adverse regulatory
feedback.
ii. Defendants’ Access to Contradictory Information Supports a Strong
Interference of Scienter
The Court finds that Plaintiffs have adequately pled scienter by alleging that CorMedix
executives had access to internal audit findings and other contradictory information concerning
serious manufacturing deficiencies that were not disclosed to investors. Under the PSLRA,
plaintiffs must allege facts that give rise to a “strong inference” of scienter, meaning a mental state
embracing intent to deceive or at least severe recklessness. See Teflabs, Inc., 551 U.S. at 314; 15
U.S.C. § 78u-4(b)(2). In the Third Circuit, a strong inference may arise where a plaintiff pleads
that executives had access to internal documents that directly contradicted their public statements.
See Institutional Inv’rs Grp. v. Avaya Inc., 564 F.3d 242, 259-60 (3d Cir. 2009).

18

In Avaya, the Third Circuit held that internal reports containing negative data can support
scienter when executives make contrary public statements, particularly where confidential
witnesses corroborate the executives’ access to such information. Courts applying Avaya have
consistently found scienter adequately alleged when internal audits or internal data—known to
executives—contradict positive public messaging. See, e.g., SEB Inv. Mgmt. AB v. Endo Int'l,
PLC, 351 F, Supp. 3d 874, 904-06 (E.D, Pa. 2018); fn re Campbell Soup Co. Sec, Litig., 145 F.
Supp. 2d 574, 599 (D.N.J. 2001); Wu v. GSX Techedu Inc, No. 20-4457, 2024 WL 3163219
(D.N.J. June 25, 2024). In Wu, the court credited specific and corroborated confidential witness
accounts that executives had access to internal reports contradicting the company’s public
financial disclosures. Similarly, in Stichting Pensioenfonds Metaal en Techniek v. Verizon
Comme ns Inc., No. 23-05218, 2021 WL 3540968, at *15-17 (S.D.N.Y. Aug, 10, 2021), access
to internal emails and memos warning about inaccuracies supported a finding of scienter.
Here, Plaintiffs allege that Defendants Todisco and Armstrong had access to a 2018

- internal audit that warned CorMedix’s contract manufacturer, ROVI, was likely to fail FDA
inspection due to systemic deficiencies (TAC ff 79-84). According to two confidential witnesses
(FEI and FE2), this audit was known to senior executives, including Armstrong, and its findings
were not disclosed to the public. (See Pl.’s Br. at 4-5). Yet throughout the Class Period, Defendants
repeatedly reassured investors that manufacturing issues had been “resolved” and the NDA was
“on track.” (See Pl.’s Br, at 6-8), This internal audit directly contradicted Defendants’ public
statements and fits squarely within the scienter framework articulated in Avaya and its progeny.
In SEB, for instance, scienter was found where executives attended meetings discussing negative
trial data while publicly issuing optimistic statements.? Likewise, in Campbell Soup,’ weekly

3351 F. Supp. 34 874.
4145 F, Supp. 2d 574, 599.
19

internal reports showing poor sales contrasted sharply with public optimism, which the court found
indicative of recklessness. Here, Plaintiffs allege no meaningful corrective action was taken in
response to the 2018 audit, and the same deficient manufacturer was used when the NDA was
resubmitted in 2022—only to be rejected again for the same unresolved issues. (TAC ff 2, 5, 40,
84). Defendants’ argument that the audit was outdated lacks merit. (See Defs.’ Reply Br. at 2-3).
As in Dang v. Amarin Corp. PLC, courts recognize that contemporaneous internal documents—
such as Form 483s, audits, or CRLs—contradicting public assurances provide “classic evidence
of scienter.” Dang v. Amarin Corp. PLC, 750 F. Supp, 3d 431, 464-65 (D.N.J. 2024).
The fact that CorMedix re-used the same non-compliant CMO without disclosing the
audit's findings reinforces the inference of deliberate concealment or recklessness. Further, the
reliability of the confidential witness statements is supported by their specificity, consistency, and
corroboration with the audit and CRL history (See Pl.’s Br, at 31-33). FEI allegedly authored the
2018 audit report, and FE2 described its dissemination to Armstrong and other senior staff. These
details, like those credited in Wu, strengthen the inference that CorMedix executives knew of
ROVI’s deficiencies and concealed this knowledge while assuring investors of compliance.
Finally, CorMedix’s business during the Class Period centered exclusively on DefenCath,
heightening the inference that Defendants were closely involved in and knowledgeable about the
FDA approval process. As the court explained in City of Warwick Ret. Sys. v. Catalent, Inc., No.
23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024), statements regarding a comparty’s
core product made with access to contradicting internal data warrant a strong inference of scienter,
even absent a motive such as insider stock sales.
Plaintiffs have adequately alleged that Defendants had access to internal documents and
data that contradicted their public statements and failed to correct them, supporting a strong

20

inference of at least severe recklessness under Tel/labs, Inc.. Thus, the Court finds Plaintiff
adequately pleads scienter in terms of the Defendant’s access to contradictory information.
iii. The Core Operations Theory Supports an Inference of Scienter
The Court further finds that Plaintiffs have sufficiently pleaded a strong inference of
scienter under the core operations doctrine because DefenCath was central to CorMedix’s
business, and the Individual Defendants had direct oversight of the product’s regulatory progress.
These facts support the inference that the Defendants were aware of, or recklessly disregarded, the
serious manufacturing deficiencies that undermined their public assurances. Under the core
operations doctrine, courts may infer scienter when a company’s high-ranking executives make
materially false or misleading statements about issues central to the company’s core business.
While the Third Circuit has not adopted a standalone core operations presumption, it has
recognized that allegations involving a product or issue that is “critical to a company’s core
operations” may contribute to a strong inference of scienter when coupled with individualized
allegations of knowledge or access to contradictory facts. See Institutional Inv'rs Grp. v. Avaya
Inc., 564 F.3d 242, 270 (3d Cir. 2009); Carmignac Gestion, S.A. v. Perrigo Co., No. 17-10467,
2019 WL 3451523, at *16 (D.N.J, July 31, 2019); City of Warwick Ret. Sys. v. Catalent, Inc., No.
23-1108, 2024 WL 3219616, at *13 (D.N.J. June 28, 2024).
In Avaya, the Third Circuit acknowledged that a plaintiff may strengthen an inference of
scienter by alleging that executives had access to or oversight over internal facts contradicting
their public statements, particularly where the subject matter involves core operations, Similarly,
Carmignac held that when senior executives made statements concerning a product line that
accounted for 22% of revenue—and were specifically alleged to have reviewed reports showing
declining market share—the scienter requirement was met. Carmignac Gestion, S.A. v. Perrigo

21

Co., No. 17-10467, 2019 WL 3451523, at *16 (D.N.J. July 31, 2019); see also Hall v. Johnson &
Johnson, No. 18-1833, 2019 WL 7207491, at *21 (D.N.J. Dec. 27, 2019) (the court also found
scienter adequately pled where defendants made public misstatements about a “flagship product”
despite internal knowledge of adverse information.).
CorMedix’s case is analogous. DefenCath was the company’s only commercial product,
and its approval was critical to CorMedix’s viability. (See TAC §f 5, 40, 293). The Individual
Defendants— including Armstrong, the EVP of Technical Operations, and Baluch, the CEO—held
themselves out as possessing direct oversight of DefenCath’s NDA process and manufacturing
readiness. (TAC { 52). As in Catalent, scienter can be inferred not just from the product’s
centrality, but also from the Defendants’ public representations of their personal knowledge, City
of Warwick Ret. Sys. v. Catalent, Inc., No. 23-737, 2024 WL 3219616, at *13 (D.N.J. June 28,
2024). Courts have rejected scienter arguments where executives were removed from the subject
matter, or the product was peripheral to operations. See, e.g., Hoey v. Insmed Inc., No. 16-4323,
2018 WL 902266, at *23 (D.N.J. Feb. 15, 2018). But those facts are not present here. Plaintiffs
have alleged that Armstrong and Baluch were not only deeply involved in the NDA process but
also received internal audit findings and FDA feedback identifying manufacturing deficiencies
that contradicted their public statements. (See TAC 9 5, 40, 85-87, 104, 112). These allegations
go beyond mere titles or positions; they demonstrate contemporaneous awareness and direct
involvement—key factors that distinguish this case from those where core operations allegations
were deemed insufficient.
In Dang v. Amarin Corp. PLC, the court applied the core operations doctrine where
executives made misleading statements about Vascepa, the company’s only product, while
ignoring FDA Form 483s and audits identifying significant regulatory risks, Dang v. Amarin Corp.

22

PLC, 750 E. Supp. 3d at 471-472 (D.N.J. 2024). Here, Plaintiffs similarly allege that CorMedix
executives knew of a 2018 audit warning that ROVI was unlikely to pass FDA inspection but
proceeded to submit the NDA without switching CMOs or disclosing the risk. As in Dang, the
executives’ active roles and knowledge of serious compliance deficiencies support scienter under
both the core operations doctrine and the general PSLRA standard. Defendants argue that because
ROVI was a third-party CMO, CorMedix cannot be held responsible for its compliance issues.
(See Defs.’ Reply at 2-3). But the FDA regulations clearly place the burden of ensuring CMO
compliance on the NDA sponsor, See 21 C.F.R. §§ 211.1, 314.50(d)(1)@). As such, CorMedix
could not disclaim responsibility for ROVI’s deficiencies. The Individual Defendants repeated
public assurances that manufacturing issues had been resolved, in light of contrary internal
findings, were misleading and material.
Finally, CorMedix’s post-Class Period statements reinforce the inference of scienter. In its
March 2023 announcement, the company admitted it did not have “the right team” to address
manufacturing deficiencies—an implicit acknowledgment that Armstrong and Baluch had failed
in their oversight roles. (See P1.’s Br. at 6). This admission underscores their centrality to the NDA

process and supports the conclusion that they were aware of the underlying issues at the time their
public statements were made. Because DefenCath was central to CorMedix’s operations and the
Individual Defendants repeatedly emphasized their expertise and personal oversight, the Court
finds that Plaintiffs have adequately pled scienter under the core operations doctrine.
iv. SOX Certifications and Resubmission Efforts Further Support Scienter
The Court finds that Plaintiffs have sufficiently pled a strong inference of scienter based

on Defendants’ Sarbanes-Oxley (“SOX”) certifications and their decision to resubmit the NDA
despite their alleged awareness of persistent regulatory deficiencies. These actions support the

23

inference that Defendants either knew or recklessly disregarded that their public statements were
misleading, which is sufficient to survive a motion to dismiss under the PSLRA. To plead scienter
under the PSLRA, a plaintiff must allege facts giving rise to a “strong inference” that the defendant
acted with the intent to déceive, manipulate, or defraud investors. This inference must be “cogent
and at least as compelling as any opposing inference one could draw from the facts alleged.”
Tellabs, Inc., 551 U.S. at 324. Courts have repeatedly held that SOX certifications can support a
strong inference of scienter when executives certify internal controls while aware of or recklessly
disregarding serious deficiencies, especially when the issues pertain to core operations. See Jn re
Intelligroup Sec. Litig., 527 F. Supp. 2d 262, 348-49 (D.N.J. 2007); In re Toronto-Dominion Bank
Sec. Litig., No. 17-1665, 2018 WL 6381882, at *19 (D.N.J. Dec. 6, 2018); Zn re Celgene Corp.
Sec. Litig., No. 18-4772, 2019 WL 6909463, at *22 (D.N.J. Dec, 19, 2019).
In Jntelligroup, the court found that certifying executives made actionable misstatements
by signing SOX certifications despite knowledge of serious internal control failures. The
certifications became “false statements in their own right” where executives were aware of red
flags or contradictory information. Ud. at 348). Similarly, in Toronto-Dominion Bank, the court
conchided that a strong inference of scienter existed where certifiers failed to disclose known
deficiencies despite signing SOX certifications that affirmed the accuracy of financial statements.
In re Toronto-Dominion Bank Sec. Litig., No. 17-1665, 2018 WL 6381882, at *19 (DNL. Dec. 6,
2018), And in Celgene, the court denied a motion to dismiss where defendants certified regulatory
compliance despite undisclosed adverse FDA communications related to drug approvals—
circumstances comparable to those in this case. In re Celgene Corp. Sec. Litig., No. 18-4772, 2019
WL 6909463, at *22 (D.NJ. Dec. 19, 2019).

24

Here, the scienter allegations are at least as compelling, Defendants Armstrong and Baluch
signed SOX certifications throughout the Class Period attesting to the adequacy of CorMedix’s
internal controls, even as they allegedly knew of systemic manufacturing deficiencies at ROVI—
CorMedix’s contract manufacturing organization—dating back to a 2018 audit. These deficiencies
were never remediated and led to repeated Form 483s and Complete Response Letters (CRLs)
from the FDA. Nevertheless, Defendants resubmitted the NDA without addressing the core
deficiencies. This sequence of conduct—certifying internal controls, failing to disclose known
regulatory failures, and proceeding with a flawed NDA—parallels the misconduct that courts in
Intelligroup and Celgene found sufficient to support scienter,
Moreover, Plaintiffs allege that these SOX certifications were not mere formalities.
Defendants repeatedly reassured investors that manufacturing issues were resolved, even as_
internal reports and confidential witness accounts showed otherwise. (See TAC ff 5, 40, 85-87,
104, 112). CorMedix later acknowledged the failure by admitting it lacked the “right team” to
handle regulatory challenges when Armstrong and Baluch resigned following the NDA rejection.
(TAC J 103). These facts further tie Defendants’ SOX certifications to alleged actual knowledge
of material risks, Defendants’ reliance on Jn re Cognizant Tech. Sols. Corp. Sec. Litig., No. 16-
5805, 2018 WL 3772675 (D.N.J. Aug. 9, 2018), is misplaced. In Cognizant, the court declined to
infer scienter because plaintiffs failed to allege concrete knowledge of red flags or internal reports
undermining the SOX certifications. (/d. at 22), In contrast, Plaintiffs here allege specific
documents, meetings, and confidential witness testimony showing that Armstrong and Baluch
were aware of the unresolved regulatory issues at ROVI when they made public assurances and
signed certifications.

25

The inference of scienter is further strengthened by the strategic timing of the NDA
resubmission. Defendants chose to proceed with the same CMO, knowing that FDA observations
and the 2018 audit had flagged ongoing violations. As the Celgene court explained, misleading
the market while withholding adverse regulatory information—particularly when the withheld
issues concern a flagship product—is classic evidence of scienter. Jn re Celgene Corp. Sec. Litig.,
No. 18-4772, 2019 WL 6909463, at *22 (D.N.J, Dec. 19, 2019). Because Defendants knowingly
or recklessly certified internal controls and proceeded with a deficient NDA despite adverse
findings from regulators and internal audits, the Court finds that Plaintiffs have adequately pled a
strong inference of scienter in terms of SOX Certification and Resubmission efforts.
v. The Lack of Any Plausible Nonculpable Explanation Reinforces the Inference
of Scienter
The Court concludes that Plaintiffs have adequately pled a strong inference of scienter
because Defendants have failed to offer any plausible nonculpable explanation for their conduct.
When viewed in conjunction with the repeated regulatory failures, concealment of adverse
manufacturing findings, and pattern of misstatements, the inference of scienter is at least as
compelling as any competing nonfraudulent inference and satisfies the heightened pleading
standard under the PSLRA. Under the PSLRA, plaintiffs must “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). Scienter is defined as “a mental state embracing intent to deceive, manipulate, or
defraud,” or at a minimum, “recklessness.” Tellabs, inc., 551 U.S. at 319-20. Courts must consider
all allegations holistically and determine whether “a reasonable person would deem the inference
of scienter at least as strong as any opposing inference.” Id. at 324; Institutional Inv. Grp. v. Avaya,
564 F.3d 242, 267-68 (3d Cir. 2009),

26

A recognized factor in favor of scienter is the absence of a plausible, nonculpable
explanation. Courts in this District have emphasized that when plaintiffs offer a coherent and
factually supported theory of fraud, and defendants fail to identify any comparably plausible
innocent explanation, the inference of scienter is strengthened. See Roofer’s Pension Fund v.
Papa, No. 16-2805, 2018 WL 3601229, at *11 (D.N.J. July 27, 2018) (“The lack of any competing
inference that is more plausible than Plaintiffs’ suggested inference... reinforces a strong inference
of scienter.”); Frater v. Hemispherx Biopharma, Inc., 996 F. Supp. 2d 335, 349 CE.D. Pa, 2014)
(rejecting alternative inferences where plaintiffs plausibly alleged intentional or reckless
deception).
Here, Plaintiffs have pled a plausible and well-supported theory of scienter: Defendants
were aware as early as 2018—based on an internal audit—that ROVI, CorMedix’s contract
manufacturing organization (ROVI), faced serious compliance issues that could preclude FDA
approval. (See TAC {f 20, 88, 178-217). Despite this knowledge and despite receiving a Complete
Response Letter (CRL) in 2021, confirming ROVI’s deficiencies, Defendants reassured investors
that manufacturing issues had been resolved and resubmitted the NDA in 2022, which again failed
for similar reasons. (/d.) Defendants never disclosed the earlier audit or any of the regulatory red
flags to investors.
Defendants’ reply fails to provide any equally compelling nonculpable explanation.
Instead, they offer post hoc assertions that the problems stemmed from a third-party vendor
(ROVD) and that the NDA was eventually approved. (See Defs,” Reply Mem. at 2-3). But courts
routinely reject “fraud by hindsight” defenses where plaintiffs allege contemporaneous knowledge
of red flags. City of Warwick Ret. Sys. v. Catalent, Inc., No, 23-737, 2024 WL 3219616, at *15

27

(D.N.J. June 28, 2024); In re Valeant Pharms. Int'l, Inc. Sec. Litig., No. 15-7658, 2017 WL
1658822, at *15 (D.N.J.Apr.28,2017).
Moreover, the lack of insider trading or direct financial gain does not negate scienter. The
Third Circuit has made clear that “the absence of a motive allegation is not fatal” when the overall
factual context supports fraudulent intent. Avaya, 564 F.3d at 277. Here, CorMedix had a strong
motive to maintain investor confidence and inflated stock prices to facilitate two public offerings
totaling $60 million during the Class Period. (See TAC {J 17, 89, 139-41). Defendants’ suggestion
that they misunderstood the audit’s implications or were unaware of ROVI’s readiness is less
compelling than Plaintiffs’ detailed allegations. Courts do not credit vague or unsupported
alternative explanations, Tellabs, Inc., 551 U.S. at 323-24, Given the absence of any viable
nonculpable inference and the strength of Plaintiffs’ factually supported theory, the Court finds
that the inference of scienter is both cogent and compelling. Dismissal under Rule 12(b)(6) is
therefore unwarranted.
3, Plaintiff adequately alleges loss causation.
To adequately allege loss causation, a plaintiff must plead a causal link between the
disclosure of the alleged fraud and the economic harm that was ultimately suffered by the plaintiff.
In ve Bradley Pharmaceuticals, Inc. Sec, Litig., 421 F. Supp 2d 822, 828 (D.N.J, 2006). The
plaintiff must plead that the defendant’s “misstatement or omission concealed something from the
market that, when disclosed, negatively affected the value of the security,” which relates to the
plaintiff's economic loss, De Vito y. Liquid Holdings Group, Inc., No, 15-6969, 2018 WL
6891832, at *39 (D.N.J. December 31, 2018), The PSLRA’s and Rule 9(b)’s heightened pleading
requirements, as applied in earlier sections of this opinion, are not applicable to loss causation
analysis; a plaintiff must only satisfy Rule 8(a)(2)’s pleading standard to adequately plead loss

28

causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 US. 336, 346 (2005). Rule 8(a)(2) simply
requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Id.
Loss causation, therefore, is adequately pled when a plaintiff alleges that a defendant’s
misrepresentations “directly or proximately caused, or were a substantial contributing cause of,
the damages sustained by [the] plaintiff.” EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865,
883 (3d Cir. 2000).
The Dura Court noted that pleading requirements are not meant to impose a great burden
on a plaintiff, and function to provide defendants “with some indication of the loss and the causal
connection that [plaintiffs have] in mind.” 544 U.S. at 347, Bradley applied Dura at the motion to
dismiss stage of its litigation when holding that its plaintiffs pled sufficient facts to satisfy the loss
causation requirement by alleging that the price of Defendant-Company’s stocks dropped after the
truth regarding Defendants’ aileged misrepresentation became known, 421 F, Supp 2d at 828.
Plaintiff relies on two theories to plead loss causation: corrective disclosure and
materialization of concealed risk. (PL’s Br. at 38). A “plaintiff may adequately piead loss
causation by alleging either a corrective disclosure of a previously undisclosed truth that causes a
decline in the stock price or the materialization of a concealed risk that causes a stock price
decline.” In re Wilmington Tr. Sec. Litig., 29 F. Supp. 3d 432, 450 (D. Del. 2014). There is dispute
within the District as to whether the Third Circuit has endorsed the materialization of risk theory.
Compare Pharmanet, 720 F. Supp. 2d at 563 (declining to consider the materialization of risk
theory because the Third Circuit has not endorsed it as a way to establish loss causation) and
Glover y. DeLuca, No. 2:03-0288, 2006 WL 2850448, at *33 (W.D. Pa. Sep. 29, 2006)
(acknowledging that the Third Circuit has not explicitly endorsed materialization of risk theory
while still considering (but ultimately rejecting) the merits of Plaintiffs materialization of risk

29

argument) with McCabe v. Ernset & Young, LLP, 494 F.3d 418, 429 (3d Cir, 2007) (finding
materialization of risk is “consistent” with the Third Circuit’s loss causation jurisprudence).
However, as the De Vito Court recognized, “the ultimate loss causation inquiry under either the
corrective disclosure theory or the materialization of a concealed risk theory is the same: whether
a ‘misstatement or omission concealed something from the market that, when disclosed, negatively
affected the value of the security.’” No. 15-6969, 2018 WL 6891832, at *39 (D.N.J. December
31, 2018). This Court will proceed by evaluating the ACDs by addressing “the ultimate loss
causation inquiry” as it relates to this matter. fd.
Plaintiff contends that he adequately pled loss causation by alleging: (1) that on five
occasions throughout the class period ACDs were disclosed to the market; (2) the information that
was provided in each disclosure; and (3) the ways in which each disclosure relates to the
concealment, and 4) that stock prices dropped following each disclosure. (P!.’s Br. at 39).
The first ACD was issued via press release on March 1, 2021, in which CorMedix disclosed
that it recetved its first CRL based on the FDA’s review of records requested from the CMO. (TAC
219). Plaintiff alleges that the first ACD relates to CorMedix’s misrepresentations and omissions
regarding the “true scope” of the CMO’s deficiencies. (TAC [ 221), CorMedix stock price fell
54.4%, purportedly as a result of the first ACD. (TAC {] 220). The second ACD was issued via
press release on April 14, 2021, and stated that, to address the FDA’s concerns about the CMO,
CorMedix may need to make adjustments and generate more data. Plaintiff alleges that the second
ACD relates to CorMedix’s misrepresentations and omission regarding the “true scope” of the
CMO’s deficiencies. (TAC § 237). CorMedix stock price fell 18.36%, purportedly as a result of
the second ACD. (id).

30

The third ACD was issued via press release and the1Q21 call on May 13, 2021, disclosing
that more must be done to address the deficiencies identified by the FDA, specifically process
qualification. (TAC 9] 242, 244, 246). Plaintiff alleges that the third ACD relates to CorMedix’s
misstatements and omissions regarding the “true scope” of the CMO’s deficiencies and the amount
of time to correct the deficiencies. (TAC J 248). CorMedix stock price fell by 19.97%, purportedly
as a result of third ACD. (TAC § 247). The fourth ACD was issued via press release on September
7, 2021, stating that because of delays at the CMO (unrelated to DefenCath) that the timeline to
address FDA concerns is uncertain. (TAC § 261). Plaintiff alleges that the fourth ACD relates to
CorMedix’s misrepresentation of the CMO’s ability to pass an FDA on-site inspection, and the
concealment of ongoing manufacturing issues at the CMO, potential supply chain risks, and
serious, materialized risks about manufacturing deficiencies at their heparin supplier facility.
(TAC 4 265). CorMedix stock price fell by 27.40%, purportedly as a result of the fourth ACD,
(TAC Jf 262-63). The fifth ACD was issued via press release on August 8, 2022, stating that
CorMedix received another CRL based on manufacturing issues at its CMO and that DefenCath
will not be approved until CorMedix satisfactorily resolves the deficiencies with its CMO. (TAC
{4 281-285). Plaintiff alleges that fifth ACD represents “the truth fully emerging.” (TAC § 281).
CorMedix stock price fell by 57.45%, purportedly as a result of the fifth ACD. (TAC 4f 281-285),
Defendants argue that the five ACDs are not “truly corrective of any prior statement.”
(Defs’ Br, at 28), Rather, Defendants contend that the disclosures reveal new information about
the FDA approval process. (/d. at 29). Defendants also argue that Plaintiff never pled that the □

market discovered a fraud, (Defs’ Br. at 28).
The ACDs are allegedly corrective of Defendants’ prior statements and omissions. (TAC
219, 236, 242-46, 261, 281). Bradley notes that Dura only “suggest{s] that the plaintiffs [need]

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to have alleged in some fashion that ‘the truth became known’ before ‘the share price fell’” and
that Dura does not specify what type of events or disclosures or even how specific any disclosures
or events must be. 421 F. Supp 2d at 828.
Taking Plaintiff's allegations as true, it does appear that Plaintiff alleged that the market
discovered fraud through the ACDs and that it responded accordingly. Defendants are correct in
their analysis of Dura; it does hold that, even when applying the softer Rule 8(a)(2) pleading
requirements, a plaintiff must allege more than purchase price inflation or a stock price drop
following the release of any information. 544 U.S. at 346, The Dura Court held that loss causation
was not adequately alleged because of “the complaint’s failure to claim that [the defendant’s] share
price fell significantly after the truth became known” and consequently the plaintiff's suggestion
“that...the allegation of purchase price inflation alone [was] sufficient.” /d, at 347, However, the
Court disagrees with Defendants’ application of Dura to this matter. Plaintiff does allege multiple
times throughout his complaint that Defendants’ artificially inflated stock price promptly and
drastically fell after each ACD; he submits that each ACD represents the market discovering the
truth (or partial truth) of the fraud, (TAC 9] 286-290) (“The price of CorMedix securities declined
significantly when the misrepresentations made to the market, and/or the information alleged
herein to have been concealed from the market, and/or the effects thereof, were disseminated and
publicly revealed”). Each ACD informed the market that Defendants did or must have previously
misstated or omitted — or both — material facts that artificially inflated the stock price,
Plaintiffs allegations are sufficiently pled to meet the Rule 8(a)(2) standard, as were the
plaintiff's allegations in Bradley, There, the plaintiffs alleged that “the false and misleading
statements in the Third Quarter Press Release and... 10-Q inflated [defendants’] stock price by
$3.50 per share, and that [piaintiffs] suffered actual economic loss .. . when [a] sham transaction,

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which was concealed by defendants’ misrepresentations and omissions was disclosed to the market
causing inflation to be removed from [defendants’] stock price.” Bradley, 421 F. Supp 2d at 828.
Here, Plaintiff alleges that false and misleading statements and omissions inflated
CorMedix’s stock price and that Plaintiff suffered actual economic loss when five press releases
disclosed to the public the truth of CorMedix’s issues with its CMO for DefenCath, causing
inflation to be removed from CorMedix’s stock price. (TAC §ff 219, 236, 242-46, 261, 281).
TV. CONCLUSION
For the reasons set forth above, Defendants’ motion to dismiss (ECF No. 144) is
DENIED. An appropriate Order accompanies this Opinion,

$4
DATED: June 30, 2025 MEN\XA VIER NEALS
frcid tes TAstrict Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11088208. Public record. Not legal advice.