Drug Company Presses for Dismissal of Second Amended Complaint in Securities Suit

McDERMOTT WILL & EMERY LLP
Andrew B. Kratenstein
340 Madison Avenue
New York, NY 10173
(212) 547-5400
akratenstein@mwe.com

Counsel for Defendant Uwe Roehrhoff

DECHERT LLP
Hector Gonzalez
Three Bryant Park
1095 Avenue of the Americas
New York, NY 10036
(212) 698-3500
hector.gonzalez@dechert.com

Angela Liu (admitted pro hac vice)
35 West Wacker Drive
Suite 3400
Chicago, IL 60601
(312) 646-5816
angela.liu@dechert.com

Counsel for Defendant Ronald L. Winowiecki

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TABLE OF CONTENTS

TABLE OF AUTHORITIES

TABLE OF ABBREVIATIONS

PRELIMINARY STATEMENT

BACKGROUND

ARGUMENT

CONCLUSION

TABLE OF AUTHORITIES

Cases

Acito v. IMCERA Grp., 47 F.3d 47 (2d Cir. 1995)

ATSI Commc'ns v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007)

Basic Inc. v. Levinson, 485 U.S. 224 (1988)

California Pub. Emps.' Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004)

C.D.T.S. v. UBS AG, 2013 WL 6576031 (S.D.N.Y. Dec. 13, 2013)

Chill v. Gen. Elec. Co., 101 F.3d 263 (2d Cir. 1996)

City of Sterling Heights Police & Fire Ret. Sys. v. Vodafone Grp. Pub. Ltd. Co., 655 F. Supp. 2d 262 (S.D.N.Y. 2009)

City of Taylor Gen. Emps. Ret. Sys. v. Magna Int'l, Inc., 967 F. Supp. 2d 771 (S.D.N.Y. 2013)

ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009)

Emps. Ret. Sys. of City of Providence v. Embraer S.A., 2018 WL 1725574 (S.D.N.Y. Mar. 30, 2018)

Epirus Capital Mgmt. LLC v. Citigroup Inc., 2010 WL 1779348 (S.D.N.Y. Apr. 29, 2010)

Espinoza v. Whiting, 8 F. Supp. 3d 1142 (E.D. Mo. 2014)

Fidel v. Rampell, 2005 WL 5587454 (S.D. Fla. Mar. 29, 2005)

Fort Worth Employers' Ret. Fund v. Biovail Corp., 615 F. Supp. 2d 218 (S.D.N.Y. 2009)

Gillis v. QRX Pharma Ltd., 197 F. Supp. 3d 557 (S.D.N.Y. 2016)

Gissin v. Endres, 739 F. Supp. 2d 488 (S.D.N.Y. 2010)

Glaser v. The9, Ltd., 772 F. Supp. 2d 573 (S.D.N.Y. 2011)

Gregory v. ProNAi Therapeutics Inc., 297 F. Supp. 3d 372 (S.D.N.Y. 2018)

Higginbotham v. Baxter Int'l Inc., 495 F.3d 753 (7th Cir. 2007)

Hutchinson v. Perez, 2012 WL 5451258 (S.D.N.Y. Nov. 8, 2012)

In re Agnico-Eagle Mines Ltd. Sec. Litig., 2013 WL 144041 (S.D.N.Y. Jan. 14, 2013)

In re AOL, Inc. Repurchase Offer Litig., 966 F. Supp. 2d 307 (S.D.N.Y. 2013)

In re Aratana Therapeutics Inc. Sec. Litig., 315 F. Supp. 3d 737 (S.D.N.Y. 2018)

In re Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564 (S.D.N.Y. 2013)

In re Bear Stearns Cos. Inc. Sec., Derivative, & ERISA Litig., 763 F. Supp. 2d 423 (S.D.N.Y. 2011)

In re BearingPoint, Inc. Sec. Litig., 525 F. Supp. 2d 759 (E.D. Va. 2007)

In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148 (S.D.N.Y. 2008)

In re Bristol-Myers Squibb Sec. Litig., 312 F. Supp. 2d 549 (S.D.N.Y. 2004)

In re Carter-Wallace, Inc. Sec. Litig., 1999 WL 1029713 (S.D.N.Y. Nov. 10, 1999)

In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367 (S.D.N.Y. 2004)

In re Express Scripts Holdings Co. Sec. Litig., __ Fed. Appx. __, 2019 WL 2004302 (2d Cir. May 7, 2019)

In re Federated Dep't Stores, Inc. Sec. Litig., 2004 WL 444559 (S.D.N.Y. Mar. 11, 2004)

In re Focus Media Holding Ltd. Litig., 701 F. Supp. 2d 534 (S.D.N.Y. 2010)

In re Hansen Nat. Corp. Sec. Litig., 527 F. Supp. 2d 1142 (C.D. Cal. 2007)

In re Iconix Brand Grp., Inc., 2017 WL 4898228 (S.D.N.Y. Oct. 25, 2017)

In re Incyte S'holder Litig., 2014 WL 707207 (D. Del. Feb. 21, 2014)

In re Lions Gate Entm't Corp. Sec. Litig., 165 F. Supp. 3d 1 (S.D.N.Y. 2016)

In re Magnum Hunter Res. Corp. Sec. Litig., 26 F. Supp. 3d 278 (S.D.N.Y. 2014)

In re Manulife Fin. Corp. Sec. Litig., 276 F.R.D. 87 (S.D.N.Y. 2011)

In re Marsh & Mclennan Cos., Inc. Sec. Litig., 501 F. Supp. 2d 452 (S.D.N.Y. 2006)

In re Pretium Res. Inc. Sec. Litig., 256 F. Supp. 3d 459 (S.D.N.Y. 2017)

In re Rockwell Med., Inc. Sec. Litig., 2018 WL 1725553 (S.D.N.Y. Mar. 30, 2018)

In re Sanofi Sec. Litig., 87 F. Supp. 3d 510 (S.D.N.Y. 2015)

In re TVIX Sec. Litig., 25 F. Supp. 3d 444 (S.D.N.Y. 2014)

In re UBS AG Sec. Litig., 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012)

Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001)

Kalnit v. Eichler, 99 F. Supp. 2d 327 (S.D.N.Y. 2000)

Kleinman v. Elan Corp., plc, 706 F.3d 145 (2d Cir. 2013)

Kramer v. Time Warner, Inc., 937 F.2d 767 (2d Cir. 1991)

Lucescu v. Zafirovski, 2018 WL 1773134 (S.D.N.Y. Apr. 11, 2018)

Malin v. XL Capital Ltd., 499 F. Supp. 2d 117 (D. Conn. 2007)

Martin v. Quartermain, 732 F. App'x 37 (2d Cir. 2018)

Miller v. PCM, Inc., 2018 WL 5099722 (C.D. Cal. Jan. 3, 2018)

Nicosia v. Amazon.com, Inc., 834 F.3d 220 (2d Cir. 2016)

Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000)

Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015)

Padnes v. Scios Nova Inc., 1996 WL 539711 (N.D. Cal. Sept. 18, 1996)

Perrigo Pharma Int'l Desig. Activity Co. v. McNamara, No. 2019/104 JR (H. Ct.) (Ir.)

Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004)

Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87 (1995)

Smallen v. W. Union Co., 2019 WL 1382823 (D. Colo. Mar. 27, 2019)

Société Générale Sec. Servs., GbmH v. Caterpillar, Inc., 2018 WL 4616356 (N.D. Ill. Sept. 26, 2018)

Teamsters Allied Benefit Funds v. McGraw, 2010 WL 882883 (S.D.N.Y. Mar. 11, 2010)

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007)

Tongue v. Sanofi, 816 F.3d 199 (2d Cir. 2016)

Total Equity Capital, LLC v. Flurry, Inc., 2016 WL 3093993 (S.D.N.Y. June 1, 2016)

Turner v. MagicJackVocalTec, Ltd., 2014 WL 406917 (S.D.N.Y. Feb. 3, 2014)

Wyche v. Advanced Drainage Sys., 710 F. App’x 471 (2d Cir. 2017)

Statutes and Rules

Fed. R. Civ. P. 9(b)

Fed. R. Civ. P. 12(b)(6)

Securities Exchange Act of 1934,

SEC Rule 10b-5, 17 C.F.R. § 240.10b-5

Taxes Consolidation Act, 1997 (Ir.)

Other Authorities

Financial Accounting Standards Board,

H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730

TABLE OF ABBREVIATIONS

ABBREVIATION	DESCRIPTION	EXHIBIT*
Perrigo Company plc Exchange Act Filings
12/19/13 8-K	Perrigo Company plc Current Report, filed with the SEC on Form 8-K on December 19, 2013	2
2/6/14 10-Q	Perrigo Company plc Quarterly Report for the quarter ending December 28, 2013, filed with the SEC on Form 10-Q on February 6, 2014	3
3/29/17 8-K	Perrigo Company plc Current Report, filed with the SEC on Form 8-K on March 29, 2017	4
3/1/18 10-K	Perrigo Company plc Annual Report for the year ending December 31, 2017, filed with the SEC on Form 10-K on March 1, 2018	5
3/23/18 14A	Perrigo Company plc Definitive Proxy Statement, filed with the SEC on Schedule 14A on March 23, 2018	6
5/8/18 10-Q	Perrigo Company plc Quarterly Report for the quarter ending March 31, 2018, filed with the SEC on Form 10-Q on May 8, 2018	7
8/9/18 10-Q	Perrigo Company plc Quarterly Report for the quarter ending June 30, 2018, filed with the SEC on Form 10-Q on August 9, 2018	8
11/8/18 10-Q	Perrigo Company plc Quarterly Report for the quarter ending September 29, 2018, filed with the SEC on Form 10-Q on November 8, 2018	9
12/20/18 8-K	Perrigo Company plc Current Report, filed with the SEC on Form 8-K on December 20, 2018	10
2/27/19 10-K	Perrigo Company plc Annual Report for the year ending December 31, 2018, filed with the SEC on Form 10-K on February 27, 2019	11
3/14/19 14A	Perrigo Company plc Definitive Proxy Statement, filed with the SEC on Schedule 14A on March 14, 2019	12
3/20/19 8-K	Perrigo Company plc Current Report, filed with the SEC on Form 8-K on March 20, 2019	13
Forms 4
Winowiecki 3/5/18 Form 4	Form 4 for Ronald Winowiecki, filed with the SEC on March 5, 2018	14
Roehrhoff 3/7/18 Form 4	Form 4 for Uwe Roehrhoff, filed with the SEC on March 7, 2018	15
Winowiecki 7/3/18 Form 4	Form 4 for Ronald Winowiecki, filed with the SEC on July 3, 2018	16
Winowiecki 7/24/18 Form 4	Form 4 for Ronald Winowiecki, filed with the SEC on July 24, 2018	17
Kessler 11/9/18 Form 4	Form 4 for Murray Kessler, filed with the SEC on November 9, 2018	18
Perrigo Company Exchange Act Filings
Perrigo Co. 10/15/13 14A	Perrigo Company Definitive Proxy Statement, filed with the SEC on Schedule 14A on October 15, 2013	19
Elan Corporation, plc Exchange Act Filings
Elan 2/6/13 6-K	Elan Corporation, plc Report of Foreign Private Issuer, filed with the SEC on Form 6-K on February 6, 2013	20
Elan 11/18/13 6-K	Elan Corporation, plc Report of Foreign Private Issuer, filed with the SEC on Form 6-K on November 18, 2013	21
Irish Revenue Communications
11/20/17 Letter	Audit Notification Letter, dated November 20, 2017	22
11/29/17 Enquiry	Revenue Online Service MyEnquiries correspondence, dated November 29, 2017	23
Audit Findings Letter 10/30/18 Letter	Audit Findings Letter, dated October 30, 2018	24
NoA 11/29/18 NoA	Notice of Amended Assessment, dated November 29, 2018	25
Other
3/20/19 Press Release	Press release by Perrigo Company plc announcing the appointment of Ray Silcock as Chief Financial Officer, dated March 20, 2019	26
ASC 450-20	Financial Accounting Standards Board Topic 450-20, last updated February 2, 2018	27
6/5/08 FASB Proposed Update	Financial Accounting Series Exposure Draft, Proposed Statement of Financial Accounting Standards: Disclosure of Certain Loss Contingencies, An Amendment of FASB Statement No. 5 and 141(R), dated June 5, 2008	28
7/20/10 FASB Proposed Update	Financial Accounting Series Exposure Draft, Proposed Accounting Standards Update: Contingencies (Topic 450), dated July 20, 2010	29
ASC 740-10	Financial Accounting Standards Board Topic 740-10, last updated July 16, 2018	30
ASC 855-10	Financial Accounting Standards Board Topic 855-10, last updated June 16, 2016	31

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PRELIMINARY STATEMENT

In November 2017, Perrigo Company plc (“Perrigo” or the “Company”) learned that Ireland's Office of the Revenue Commissioners (“Irish Revenue”), in essence Ireland's IRS, was auditing the 2012 and 2013 tax years for one of Perrigo's Irish-domiciled subsidiaries (the “Audit”). Perrigo disclosed this audit, along with pending audits in other jurisdictions, in its next Form 10-K, as well as in its Form 10-Qs filed thereafter, reiterating each time that the resolution of the Audit “remains uncertain.”

Nearly a year after the Audit began, Perrigo received an Audit Findings letter (the “Audit Findings Letter”) from Irish Revenue, notifying Perrigo¹ of the regulator's preliminary position regarding the 2013 tax year. Promptly thereafter, Perrigo voluntarily disclosed this development, reporting in its Form 10-Q that Perrigo disagreed with Irish Revenue's position and intended to contest any assessments — if Irish Revenue ultimately made assessments based on its preliminary position.

Due to the preliminary nature of the Audit Findings Letter and Perrigo's firm and constant position that no tax is due, Perrigo also disclosed that the amount of any assessment Irish Revenue might make in the future “cannot be quantified at this stage.” Indeed, Irish Revenue made explicit in the Audit Findings Letter: “We invite you now to inform us of your view on the findings. If you disagree with the findings, please outline the basis for your position. . . .” Consistent with that invitation, Irish Revenue twice referred to its position as a “proposed treatment” and, again, ended the Audit Findings Letter with a request that the Company inform Irish Revenue of any disagreement with Irish Revenue's findings. After further submissions and discussion took place, Irish Revenue subsequently issued an assessment notice, which Perrigo also disclosed to the public in a Form 8-K filed on December 20, 2018.

Plaintiffs' Complaint² contends that Perrigo's 10-K and 10-Q disclosures of the Audit and the Audit Findings Letter were false and misleading statements made in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5. Plaintiffs' claims are based solely on the theory that Perrigo's fully voluntary disclosures of the existence of the Audit and its receipt of an Audit Findings Letter were materially misleading because Perrigo's subsequent Form 8-K disclosure contained additional detail that Plaintiffs allege should have been known and disclosed earlier. These allegations amount to nothing more than classic “fraud by hindsight.” The Complaint, therefore, fails to state a securities fraud claim against Defendants under Federal Rule of Civil Procedure 12(b)(6) and falls far short of the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”).

First, Plaintiffs do not plead facts suggesting that any challenged statement in the 10-K and 10-Qs was false or misleading at the time it was made. Instead, the Complaint relies on speculative and conclusory allegations of falsity that boil down to the bald assertion that, because Perrigo disclosed more information in its later-filed December 2018 8-K, the earlier-filed 10-K and 10-Q disclosures were necessarily misleading. That is not the law.

Perrigo had no duty to disclose every possible detail about an ongoing tax audit, and the information Perrigo did disclose was accurate. Plaintiffs offer no basis for their speculation that the initial audit correspondence (which gave rise to the relevant statements in Perrigo's March 1, 2018 10-K and May 8 and August 9, 2018 10-Qs) contained information that would have led to a duty to disclose. And the contents of the Audit Findings Letter (the genesis of the relevant statements in Perrigo's November 8, 2018 10-Q), upon which Plaintiffs do rely, completely undermine Plaintiffs' claims that there was anything false or misleading in those disclosures.

Companies are not required to be clairvoyant, and the occurrence of a later negative event does not retroactively give rise to a claim for securities fraud arising out of previous statements. At the time Irish Revenue initiated the Audit, Irish Revenue certainly did not and could not take a position on its ultimate outcome. Even the provisional Audit Findings Letter, issued nearly a year later, was just that — provisional, or preliminary. As noted above, Irish Revenue itself invited Perrigo to disagree with what Irish Revenue called a “proposed treatment.” That letter was the first step on a long administrative path, including review before administrative bodies and courts, which will ultimately lead to a final determination on the tax liability and additional payment, if any, by Perrigo. Defendants have, from the start, believed and still believe that Perrigo's tax returns were correct. Indeed, Perrigo continues to state in its public filings that it intends to vigorously defend its tax position. When presented with a provisional position, defendants are, as a matter of law, entitled to wait to present investors with a more detailed picture.

Second, the Complaint fails to plead facts giving rise to any inference of fraudulent intent, much less a “strong inference” that is “at least as compelling as any opposing inference,” as required by the PSLRA and Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). Plaintiffs assert no motives beyond the insufficient general corporate motive to appear profitable, and they do not cite to a single internal document or source (unnamed or otherwise). In fact, Messrs. Kessler, Roehrhoff, and Winowiecki (the “Individual Defendants”) each increased their respective Perrigo holdings during the putative Class Period, conduct incompatible with a strong inference of scienter. Nor do Plaintiffs present any circumstantial evidence suggesting Defendants knowingly or recklessly made false or misleading statements. The Complaint should be dismissed with prejudice.

BACKGROUND³

The Company and Its Business. Perrigo is one of the world's largest manufacturers of over-the-counter healthcare products and suppliers of infant formulas for the store brand market. 11/8/18 10-Q at 6.⁴ Perrigo provides products across a wide variety of categories and geographies, primarily in North America and Europe. Id. at 6.

The Individual Defendants. Murray Kessler joined Perrigo on October 8, 2018 as President, Chief Executive Officer, and a member of the Board of Directors. ¶ 22; 11/8/18 10-Q at 51. Uwe Roehrhoff served as Perrigo's Chief Executive Officer and a member of the Board of Directors from January 8, 2018 until Mr. Kessler's appointment. ¶ 23; 11/8/18 10-Q at 51. Ronald L. Winowiecki held various treasury and senior finance positions at Perrigo starting in October 2008, and he served as the acting Chief Financial Officer beginning on February 27, 2017. Mr. Winowiecki then served as the Chief Financial Officer of Perrigo from February 20, 2018 until March 25, 2019, although he will remain with the Company through June 30, 2019 to assist with a smooth transition to a new Chief Financial Officer. ¶ 24; 3/1/18 10-K at 32; 3/20/19 8-K at 1.

Elan and the Tysabri^® Royalty Stream. Elan Corporation plc (“Elan”) was a biotechnology company headquartered in Dublin, Ireland that Perrigo acquired in 2013. ¶ 27; Elan 11/18/13 6-K, Ex. 99.1 at 1, 4. Before Perrigo acquired Elan, Elan and another pharmaceutical company, Biogen Idec, Inc. (“Biogen”), jointly owned the rights to Tysabri^®, a multiple sclerosis drug. ¶ 28; Elan 2/6/13 6-K, Ex. 99.1 at 1. On February 6, 2013, Elan announced that it had entered into an agreement with Biogen to transfer to Biogen all intellectual property and other assets related to Tysabri^®, in exchange for $3.25 billion and continuing royalties based on future sales of Tysabri^®. ¶ 30; Elan 2/6/13 6-K, Ex. 99.1 at 1.

The 2013 Perrigo-Elan Combination. A predecessor to Perrigo operated as a U.S. company until late 2013, when it combined with Elan and became Perrigo Company plc. 12/19/13 8-K, Ex. 99.1 at 1. In December 2013, as part of acquiring Elan, Perrigo obtained the rights to the Tysabri^® royalty stream. ¶ 33; 2/6/14 10-Q at 41. On March 27, 2017, Perrigo announced the completed divestment of its Tysabri^® financial asset. ¶ 38; 3/29/17 8-K at 2.

The Irish Revenue Audit in 2017-2018. On November 20, 2017, Irish Revenue notified a Perrigo subsidiary that it was auditing the Corporation Tax of the Company (which was formerly an Elan entity that Perrigo acquired) for the years 2012 and 2013. ¶ 39; 10/30/18 Letter at 1. Irish Revenue provided additional correspondence on November 29, 2017, and an initial audit meeting was held on January 29, 2018. ¶ 7; 10/30/18 Letter at 1.

Perrigo disclosed the Audit in its next regular filing with the SEC: “We have ongoing audits in multiple other jurisdictions the resolution of which remains uncertain. . . . The Ireland Tax Authority is currently auditing our years ended December 31, 2012 and December 31, 2013.” ¶ 45; 3/1/18 10-K at 157.⁵ Perrigo repeated this disclosure in its 10-Qs filed on May 8, 2018 and August 9, 2018. ¶ 89; 5/8/18 10-Q at 23; 8/9/18 10-Q at 23. In its March 1, 2018 10-K, Perrigo also cautioned:

Although we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audit and any related litigation could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results and/or cash flows in the periods for which that determination is made.

3/1/18 10-K at 156-57.

On October 31, 2018 — nearly a year after the Audit commenced — Perrigo received from Irish Revenue the Audit Findings Letter dated the previous day.¶ 48; 11/8/18 10-Q at 24; 12/20/18 8-K at 2.The Audit Findings Letter described for the first time Irish Revenue's preliminary position that the April 2013 sale of assets relating to Tysabri^® by Elan to Biogen was not part of Elan's “trade” (i.e., business) and therefore should have been treated as chargeable gains subject to an effective 33% tax rate, rather than the 12.5% tax rate applicable to “trading” income. 10/30/18 Letter at 3-4; 12/20/18 8-K at 1. The Audit Findings Letter also expressed Irish Revenue's preliminary position that all amounts received in respect of both the 2013 sale of Tysabri^® and the related transaction in 2017 by which Perrigo sold the Tysabri^® royalty stream should be taxed in Elan's 2013 tax year, even though that royalty stream was contingent and undefined. 10/30/18 Letter at 4-6; 12/20/18 8-K at 1.

Notably, Irish Revenue's October 30, 2018 Audit Findings Letter did not contain an assessment or a bill. Instead, the Letter presented a “proposed treatment” based on Irish Revenue's preliminary position, such that Elan's original 2013 return “would be revised” if the preliminary position were made final. 10/30/18 Letter at 6. In addition, the Audit Findings Letter expressly invited Perrigo to bring any areas of disagreement to Irish Revenue's attention:

We invite you now to inform us of your view on the findings. If you disagree with the findings, please outline the basis for your position by 20 November 2018. . . .

The proposed treatment will have an impact on the 2013 Case I profit. . . .

As noted above, the proposed treatment would revise EPIL's Case I profit to a Case I loss. . . .

As noted at the outset, please inform us if you disagree with the findings, please outline the basis for your position by 20 November 2018.

10/30/18 Letter at 1, 6, 7.

Despite its preliminary nature, Perrigo voluntarily disclosed the existence of the Audit Findings Letter in its 10-Q filed on November 8, 2018:

On October 31, 2018, we received an audit finding letter from the Irish Office of the Revenue Commissioners (“Irish Revenue”) for the years under audit 2012-2013. The audit finding letter relates to Elan's taxation of the 2013 sale of the Tysabri^® intellectual property and other assets related to Tysabri^® to Biogen Idec from Elan. The consideration paid by Biogen to Elan took the form of an upfront payment and future contingent royalty payments. We disagree with the Irish Revenue position as asserted in the audit finding letter and intend to contest it, and therefore the amount of adjustments, if any, that may ultimately be asserted by the Irish Revenue cannot be quantified at this stage. The amount of any future assessment could be material.

11/8/18 10-Q at 24.

That same month, Perrigo made two written submissions to Irish Revenue and met with Irish Revenue personnel to detail Perrigo's disagreement with Irish Revenue's preliminary position, precisely as the Audit Findings Letter invited Perrigo to do. 12/20/18 8-K at 1. Yet, less than one month after receipt of the Audit Findings Letter (on November 29, 2018) — at a time when Perrigo believed that discussions with Irish Revenue concerning the matter were still ongoing — Irish Revenue suddenly issued a Notice of Amended Assessment (“NoA”)⁶ for the 2013 tax year in the principal amount of €1.636 billion, not including interest or any applicable penalties. Id.

After receiving the NoA, Perrigo sought a meeting with Irish Revenue seeking clarification of the basis of the NoA. Id. Perrigo provided additional information and met with Irish Revenue personnel in mid-December 2018. Irish Revenue then stated that it would not provide any further information to clarify the assessment and that, as a matter of procedure, Perrigo should appeal if it wished to challenge the assessment. Id.

Having exhausted the negotiation and clarification process with Irish Revenue, Perrigo publicly disclosed the November 29, 2018 NoA, including the precise sum assessed by Irish Revenue in the NoA. Id. Perrigo did so in its December 20, 2018 8-K. Perrigo's 8-K also explained Perrigo's position that the NoA is without merit and that Irish Revenue's position is incorrect as a matter of law. Id.

In particular, in the December 20, 2018 8-K, Perrigo explained its unwavering belief that, based on applicable case law, Irish Revenue's published guidance on what constitutes a trade for Irish tax purposes, and related published precedents, Elan's return for the 2013 tax year was correct. Id. Moreover, for approximately twenty years, Elan had consistently filed its Irish corporation tax returns on the basis that Elan was carrying on a trade of “acquiring, developing, holding, exploiting, dealing in and disposing of intellectual property rights” and licenses for use in the pharmaceutical industry. Id. Perrigo also explained that it intended to timely appeal the NoA and to pursue all available administrative and judicial avenues as may be necessary or appropriate. Id.

On December 27, 2018, within thirty days of receiving the NoA, Perrigo timely filed its appeal of the NoA with the Irish Tax Appeals Commission. 2/27/19 10-K at 3. In addition, in a separate proceeding, on February 25, 2019, the Irish High Court granted leave for Perrigo to prosecute a judicial review proceeding regarding Irish Revenue's issuance of the NoA. Id. As Perrigo's February 27, 2019 10-K explained, this parallel Irish High Court judicial review process relates to Perrigo's position that its legitimate expectations as a taxpayer have been breached and that Irish Revenue's actions are so unfair as to amount to an abuse of process. Id. The Irish High Court has stayed the proceedings before the Tax Appeals Commission while the judicial review proceeding is pending. Id.

Perrigo continues to disagree strongly with the basis and the methodology on which Tysabri^®-related revenues have been assessed, and the €1.636 billion figure remains far from a certainty.⁷ An Irish taxpayer may defer payment, if any is ultimately required, until all applicable proceedings and appeals are completed. Id. at 3-4. If Perrigo's appeal or the Irish High Court proceeding is successful, Perrigo will not be liable for the €1.636 billion tax assessment.⁸

The Proceedings in This Action. On January 3, 2019, a Perrigo shareholder filed a complaint, alleging Defendants made material misstatements or omissions relating to the Audit on and after November 8, 2018, and purportedly corrected the alleged misstatements or omissions on December 20, 2018. ECF No. 1. On April 12, 2019, Plaintiffs filed the Amended Class Action Complaint. ECF No. 42. Following an initial motion to dismiss, Plaintiffs expanded the putative class period, added an individual defendant, and filed the Second Amended Class Action Complaint, ECF No. 59, the subject of this motion.

The Complaint charges that (i) after the initial audit meeting, “Defendants failed to disclose [in the March 3, 2018 10-K, the May 8, 2018 10-Q, or the August 9, 2018 10-Q] that the audit could result in the Company being found to owe a 33% capital gains tax on the over $6 billion Tysabri transactions,” and (ii) after receiving the Audit Findings Letter, “Defendants fraudulently claimed [in the November 8, 2018 10-Q] that any risk of a material adverse tax assessment could not be quantified and only 'could be material.'” ¶ 82 (emphasis in original). Plaintiffs are wrong. The Complaint should be dismissed.

ARGUMENT

To state a claim under Exchange Act § 10(b) and SEC Rule 10b-5(b), a plaintiff must “establish the existence of (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Martin v. Quartermain, 732 F. App'x 37, 39 (2d Cir. 2018) (internal quotation marks and citation omitted). At the motion to dismiss stage, claims of securities fraud are subject to both the heightened pleading requirements of Rule 9(b) and the “exacting” pleading requirements of the PSLRA, as explained by the Supreme Court in Tellabs. In addition, while a court on a motion to dismiss under Rule 12(b)(6) must accept factual allegations in the complaint as true, “[a]llegations that are conclusory or unsupported by factual assertions are insufficient.” In re AOL, Inc. Repurchase Offer Litig., 966 F. Supp. 2d 307, 311 (S.D.N.Y. 2013) (Cote, J.) (quoting ATSI Commc'ns v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007)).

A. The Complaint Fails to Plead an Actionable False or Misleading Statement

Under Rule 10b-5(b), it is unlawful to (1) “make any untrue statement of a material fact,” or (2) “omit to state a material fact necessary in order to make the statements made . . . not misleading.” 17 C.F.R. § 240.10b-5(b). Plaintiffs allege that Defendants' disclosures of the Audit in the March 1, 2018 10-K and the May 8 and August 9, 2018 10-Qs and of the Audit Findings Letter in the November 8, 2018 10-Q contained false statements and/or misleading omissions. Plaintiffs do not and cannot support these allegations with well-pleaded facts.⁹

1. Perrigo Had No Duty to Disclose All Details of the Audit

Perrigo was notified of an audit by Irish Revenue and disclosed to investors that it was being audited in its next regular filing, its 10-K. Perrigo then received an Audit Findings Letter and subsequently disclosed to investors that it had received the letter in its next 10-Q filing. There is certainly nothing false or misleading on the face of these completely voluntary disclosures.

Plaintiffs maintain that Perrigo's 10-K and 10-Q disclosures nevertheless were misleading because they lacked sufficient details on Irish Revenue's position and its significance. ¶¶ 88, 91. But “any purported 'lack of detail' in the disclosures cannot form the basis of an actionable securities fraud claim.” City of Taylor Gen. Emps. Ret. Sys. v. Magna Int'l, Inc., 967 F. Supp. 2d 771, 794 (S.D.N.Y. 2013) (citation omitted) (dismissing securities fraud claim based on argument that company's revelation of “some operating issues” downplayed the magnitude of the problems).

A company that chooses to speak about an ongoing investigation “has a duty to be both accurate and complete.” In re Lions Gate Entm't Corp. Sec. Litig., 165 F. Supp. 3d 1, 11 (S.D.N.Y. 2016) (internal quotation marks and citation omitted). Yet, completeness is a function of whether the challenged statements would tend to mislead a reasonable investor, not a function of Plaintiffs' desire for certain details. Cf. Rombach v. Chang, 355 F.3d 164, 172 n.7 (2d Cir. 2004). That is, a corporation has to reveal only such facts “that are needed so that what was revealed would not be so incomplete as to mislead.” In re Bristol Myers Squibb Co. Sec. Litig., 586 F. Supp. 2d 148, 160 (S.D.N.Y. 2008) (internal quotation marks and citation omitted).

Despite Plaintiffs' conclusory assertions to the contrary, starting on March 1, 2018, reasonable investors were appropriately put on notice that an Irish Revenue audit was ongoing and any eventual outcome was uncertain but potentially material. In particular, in its March 1, 2018 10-K (and in its two subsequent 10-Qs), Perrigo:

• disclosed that Irish Revenue was auditing the tax years 2012 and 2013; and

• noted that resolution of the Audit was “uncertain,” and the results “could have a material effect.”

3/1/18 10-K at 156-57. On November 8, 2018, after receipt of the Audit Findings Letter, reasonable investors were appropriately put on notice of the possibility that Irish Revenue might issue a material tax assessment against Perrigo related to the taxation of Elan's sale of Tysabri^®. In particular, in its November 8, 2018 10-Q, Perrigo:

• disclosed receipt of Irish Revenue's Audit Findings Letter and the possibility of a future material assessment; and

• provided significant details concerning the Audit, including (i) the tax years at issue (2012-2013), (ii) the transaction at issue (Elan's sale of Tysabri^® assets to Biogen), and (iii) the feature of that transaction at issue (“The consideration paid by Biogen to Elan took the form of an upfront payment and future contingent royalty payments.”).

11/8/18 10-Q at 24.

These disclosures provided ample information for the investing public. Although Plaintiffs assert that they would have liked to know more details about the Audit at the time the 10-K and 10-Qs were issued, “corporations are not required to disclose a fact merely because a reasonable investor would very much like to know that fact.” In re Lions Gate, 165 F. Supp. 3d at 11 (internal quotation marks and citation omitted). “Such a broad theory of omissions liability would paralyze corporate spokespersons and likely yield less, rather than more, information for investors.” In re Rockwell Med., Inc. Sec. Litig., 2018 WL 1725553, at *11 (S.D.N.Y. Mar. 30, 2018). In particular, Perrigo did not have a duty to repeat all of the details in the Audit Findings Letter of Irish Revenue's preliminary position with the supporting arguments challenging Elan's return for tax year 2013. See Smallen v. W. Union Co., 2019 WL 1382823, at *14 (D. Colo. Mar. 27, 2019) (“[N]othing . . . mandates that the company must fully lay out the opposing view's arguments and reasoning[.]”).¹⁰

(a) Perrigo Had No Duty to Disclose the Preliminary Position in the Audit Findings Letter

Perrigo's receipt of the Audit Findings Letter, which on its face is described as “proposed” and non-final, can be analogized to a company's receipt of a Wells Notice from the SEC. In Lions Gate, plaintiffs alleged that the company failed to disclose the details of an SEC investigation, the receipt of Wells Notices,¹¹ and the company's possible settlement with the SEC. 165 F. Supp. 3d at 6 (granting motion to dismiss §§ 10(b) and 20(a) claims). The court rejected a general duty to disclose the SEC investigation, the Wells Notices, or the SEC settlement prior to when the company entered into the settlement because “[t]he securities laws do not require a company to hypothesize the worst results of an investigation.” Id. at 14-15 (emphasis added). Ultimately, defendants' statements were not false or misleading because “at most,” plaintiffs pleaded “that the defendants disclosed an investigation was ongoing, but refused to provide details.” Id. at 16. That is not securities fraud.

As with a Wells Notice:

• the Audit Findings Letter set forth Irish Revenue's initial position as a result of an investigation (here, an audit);

• Irish Revenue's “proposed” findings were subject to further discussion and negotiation and were in no way final; and

• Perrigo was expressly invited by Irish Revenue to engage in a dialogue and persuade it that no assessment should be made.

Perrigo was not required to disclose Irish Revenue's initial positions because, “where the discussions were ongoing, Defendants did not have a duty to disclose more about the uncertain state of the negotiations.” In re Express Scripts Holdings Co. Sec. Litig., __ Fed. Appx. __, 2019 WL 2004302, at *3 (2d Cir. May 7, 2019) (summary order) (holding that plaintiff alleged no facts triggering a duty to disclose the company's ongoing negotiations because there is no requirement that defendants anticipate the outcome).

(b) Plaintiffs' Newly-Added Allegations Regarding the Existence of the Audit Are Speculative, Unsupported, and Fail to State a Claim

Plaintiffs attempt to overcome these obvious deficiencies by adding an individual defendant and expanding the putative class period to challenge Perrigo's disclosures about the ongoing Audit, prior to receipt of the Audit Findings Letter. Yet, as with an investigation or potential litigation, there is no duty to disclose the existence or details of an audit without any certainty as to its outcome. In re Lions Gate, 165 F. Supp. 3d at 12 (no obligation to disclose SEC investigation “because the securities laws do not impose an obligation on a company to predict the outcome of investigations”); In re Marsh & Mclennan Cos., Inc. Sec. Litig., 501 F. Supp. 2d 452, 471 (S.D.N.Y. 2006) (no obligation to disclose impending litigation unless the litigation is substantially likely to occur in the relevant period).

Plaintiffs nonetheless allege that the disclosure of the existence of the Audit and statements about the uncertainty of the Audit's outcome were misleading because “by January 2018, Defendants knew that Irish Revenue had, at a minimum, specifically identified Perrigo's incorrect tax treatment of Tysabri” and “had already determined — to the penny — certain deductions.” ¶¶ 41, 43. Plaintiffs claim one source for this allegation: the Audit Findings Letter, which they say “conclusively demonstrates that, at the January 29, 2018 meeting, Irish Revenue's audit was so far advanced that it had already determined, to the penny, certain deductions it would allow Perrigo to offset, or deduct, from the chargeable gain.” ¶ 7; see also ¶¶ 41, 83, 88.

The Audit Findings Letter demonstrates no such thing. Indeed, the Audit Findings Letter does not even imply that any calculations had been made at the January 29, 2018 meeting. Instead, there is only one mention of that meeting in the Audit Findings Letter: “As outlined by [Perrigo's Acting Tax Director] Niall Cogan at the initial audit meeting of 29 January 2018, [Elan] and Biogen shared development costs on Tysabri of $851m between 15 August 2000 to the end of 2006. As was noted; no significant work was carried out on Tysabri post 2006.” 10/30/18 Letter at 5. In other words, the Audit Findings Letter describes facts provided by a Perrigo employee at the January 29, 2018 meeting and is part of an explanation for the source of the calculation that later appears in the Audit Findings Letter. To be clear, the Audit Findings Letter does not indicate that any calculation had already been performed by Irish Revenue (much less a final one) as of January 2018.

Moreover, the October 30, 2018 Audit Findings Letter clearly refutes Plaintiffs' allegations. As noted, Irish Revenue twice referred to the findings as the “proposed treatment” and twice invited Perrigo to inform Irish Revenue if it disagreed with this preliminary position. If Irish Revenue had still not arrived at a final position by November 2018, it certainly had not arrived at a position by January 2018, contrary to Plaintiffs' baseless allegations.

Likewise, the Audit Findings Letter provides no support for Plaintiffs' allegations about what certain audit correspondence, dated November 20 and 29, 2017, says. Plaintiffs assert that “[a]s the Audit Findings Letter makes clear . . . [the November 20 and 29, 2017 correspondence] made immediately apparent that Irish Revenue was assessing whether the Tysabri transactions should have been taxed at the higher 33% capital gains rate—resulting in Perrigo owing nearly $2 billion in back taxes,” ¶ 83 (emphasis added), and “according to the Audit Findings Letter . . . on November 20 and 29, 2017, Irish Revenue had informed Perrigo by letter of the precise subject-matter of its audit,” ¶ 88 (emphasis added).

Again, the Audit Findings Letter directly contradicts these allegations. The Audit Findings Letter simply notes with respect to these two pieces of correspondence:

• “In my mail of 29 November 2017 and at the commencement of the audit I outlined how the scope of audit: 'Corporation Tax (Primary area of review: intellectual property; treatment and disposal)' was chosen.” [Describing that the Company had claimed a deduction for an intangible asset in its return for the 2012 tax year and that the Company's return for the 2013 tax year reflected a Case I receipt for gain from the Tysabri^® transaction.] 10/30/18 Letter at 1.

• “An audit letter was issued on 20 November 2017 primarily to review the treatment of the intellectual property outlined above.” Id.

These basic statements in the Audit Findings Letter are in no way contradictory to Perrigo's 10-Q statement that Irish Revenue “is currently auditing our years ended December 31, 2012 and December 31, 2013.” Nor do they support Plaintiffs' leap that “Defendants therefore knew, prior to the March 1, 2018 disclosure that Irish Revenue would issue an assessment for approximately $2 billion in back taxes owed. . . .” ¶ 101.

No other source is cited for Plaintiffs' speculations about the content of this initial audit correspondence. Indeed, in their list of the documents that they reviewed as part of their investigation, ¶ 1, Plaintiffs do not list the initial audit correspondence, nor do they profess to have spoken to anyone who has read it or to have reviewed any internal Perrigo document describing its contents.¹²

Instead, Plaintiffs pluck these implausible suppositions — that Irish Revenue already had definitively determined, as a foregone conclusion, a position in November 2017, but nevertheless spent an entire year conducting the Audit — out of thin air. In fact, Irish Revenue itself conceded in the Audit Findings Letter that an “extensive review” was necessary to arrive even at its preliminary position. 10/30/18 Letter at 2. Accordingly, Plaintiffs' allegations as to the content of the November 20 and 29, 2017 correspondence and what occurred at the January 29, 2018 meeting are not pled “with the requisite particularity.” Rombach, 355 F.3d at 174 (affirming dismissal where plaintiffs cited “no source” for the supposed facts that they alleged were inconsistent with the defendants' statements).

2. Perrigo's References to an “Ultimate[ ]” Assertion and “Any Future Assessment” Were Not False

Plaintiffs contend that Defendants' references in the November 8, 2018 10-Q to “adjustments, if any, that may ultimately be asserted by the Irish Revenue” and “any future assessment” were false and misleading because “Irish Revenue had conclusively determined” that the Tysabri^® sale was subject to a higher tax rate. ¶¶ 92-93. But, as described above, this was not the posture of the Audit at the time of the November 8, 2018 10-Q, no matter how many times Plaintiffs insert the words “conclusive” and “final” into the Complaint. Instead, consistent with its description of the “proposed treatment,” Irish Revenue had “expressly invited [the Company] to bring any areas of disagreement to Irish Revenue's attention,” leading to weeks of dialogue and submissions. 12/20/18 8-K at 1. See In re Lions Gate, 165 F. Supp. 3d at 15-16 (finding “nothing false or misleading” about statements that “the resolution of [certain claims and legal proceedings] cannot be predicted with certainty” because they “accurately describe that there were currently pending claims or legal proceedings”).

The language of the Audit Findings Letter unequivocally confirms the truth of Perrigo's statements. In contrast to the NoA disclosed on December 20, 2018, the Audit Findings Letter was not labeled as a bill or an assessment. 10/30/18 Letter at 1. Moreover, the language used by Irish Revenue in the Audit Findings Letter stressed that its positions were tentative and not ultimate or final.

First, Irish Revenue twice invited discussion and any expressions of disagreement from Perrigo:

We invite you now to inform us of your view on the findings. If you disagree with the findings, please outline the basis for your position by 20 November 2018. . . .

As noted at the outset, please inform us if you disagree with the findings, please outline the basis for your position by 20 November 2018.

Id. at 1, 7. Second, Irish Revenue did not refer to any final position, treatment, or assessment, but instead presented a “proposed treatment” and stated that Perrigo's tax liability “would be revised” if it were adopted. Id. at 6. Third, Irish Revenue did not indicate that Perrigo should or could at that point commence an appeal to challenge the Audit Findings Letter.¹³ Perrigo based its conditional statements in its November 8, 2018 10-Q — “may ultimately be asserted” and “any future assessments” — on equally conditional language in the Audit Findings Letter. There was nothing false or misleading about Perrigo's statements. See Fort Worth Employers' Ret. Fund v. Biovail Corp., 615 F. Supp. 2d 218, 227-28, 231 (S.D.N.Y. 2009) (holding that defendants “had no reason to know” FDA would reject an NDA and that statement about “expect[ing]” an FDA response did not contain actionable statements/omissions where letter on which complaint relied for assertion that defendants should have inferred a negative result used the words “preferred approach” and “recommendation” to describe its views).

Nor is the fact that the number ultimately disclosed in the December 20, 2018 8-K is the same as the computation that appears in the Audit Findings Letter sufficient to establish any false statement or misleading omission. See Acito v. IMCERA Grp., 47 F.3d 47, 53 (2d Cir. 1995) (rejecting argument that a company in possession of the results of two failed FDA inspections, and that also knew a third inspection was inevitable, should have disclosed the inspections earlier because it should have been on notice that another failed inspection and negative consequences were “foregone conclusion[s]” — “defendants' lack of clairvoyance simply does not constitute securities fraud”). As indicated in the Audit Findings Letter, beyond the larger tax rate issue, there were many individual inputs, including, but not limited to, upfront payment, royalties, and milestone payments, that were up for discussion and that could be changed. See 10/30/18 Letter at 5-8. Further, had Perrigo's negotiations with Irish Revenue succeeded, the parties might have reached agreement as to tax liability without either side having to adopt a final, definitive legal position.

3. Perrigo's Statements That the Audit Result Was “Uncertain” and That the Final Amount “Cannot Be Quantified at This Stage” Were True

Plaintiffs allege that Defendants' disclosure — that the outcome of the Audit was “uncertain” in the March 1, 2018 10-K and May 8 and August 9, 2018 10-Qs — was false and misleading because GAAP imposed a duty to disclose the “nature and estimated amount” of the “potential and highly material $2 billion tax liability that could result.” ¶ 88. Plaintiffs further assert that Defendants' statement on November 8, 2018 — that Irish Revenue's ultimate assessment “cannot be quantified at this stage” — was untrue. ¶ 93. Their support for this assertion is twofold: (1) that the number ultimately appearing in the NoA (and disclosed in the 8-K) was the same as the number appearing in the Audit Findings Letter, see ¶ 93; and (2) that GAAP imposed upon Perrigo “a duty to disclose and record” in the 10-Q “the $2 billion tax liability issued in the October 30, 2018 Audit Findings Letter,” ¶ 98. The actual language used in the disclosures and the content of the Audit Findings Letter eviscerate these arguments.

(a) Perrigo's Statements Were True

Perrigo's statement in the March 1, 2018 10-K and May 8 and August 9, 2018 10-Qs that the outcome of the Audit was “uncertain” was true. As discussed in Section A.1, supra, Plaintiffs offer nothing to the contrary but unfounded speculation; and that speculation is belied by the fact that Irish Revenue, eleven months later, issued only a proposed treatment.

Likewise, it was not false for Perrigo to state in the November 8, 2018 10-Q that the “amount of adjustments, if any, that may ultimately be asserted by the Irish Revenue cannot be quantified at this stage.” As described above, Perrigo had received only a preliminary Audit Findings Letter and had been expressly invited to bring any disagreements to Irish Revenue's attention. Indeed, it would have been impossible for Perrigo to quantify the amount of any adjustment at that point, when Irish Revenue had not yet decided what its ultimate position would be on myriad issues, let alone issued a final assessment. See 12/20/18 8-K at 1 (explaining that Perrigo met with and made submissions to Irish Revenue after the Audit Findings Letter “expressly invited [the Company] to bring any areas of disagreement to Irish Revenue's attention”). The language of the Audit Findings Letter confirms the truth of Perrigo's disclosure. Irish Revenue made clear that this was simply a “proposed treatment” that “would require that an adjustment be made” if it were ultimately adopted. 10/30/18 Letter at 1, 7.

(b) Perrigo Expressed Sincerely Held Opinions That Were Not Misleading

Each of the challenged statements in Perrigo's SEC filings reflects sincerely held opinions. When Perrigo disclosed the Audit in its March 1, 2018 10-K and its May 8 and August 9, 2018 10-Qs, it opined that the Audit's outcome was “uncertain.” Perrigo's later statement in the November 8, 2018 10-Q that the final amount could not be quantified also was attached to a statement of opinion: “We disagree with the Irish Revenue position as asserted in the audit finding letter and intend to contest it, and therefore the amount of adjustments, if any, that may ultimately be asserted by the Irish Revenue cannot be quantified at this stage.” 11/8/18 10-Q at 24 (emphases added). Indeed, this statement that Perrigo could not yet quantify any tax adjustment because “[w]e disagree” with Irish Revenue's tax position is akin to the quintessential statement of opinion used as an example by the Supreme Court in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund: “We believe our conduct is lawful.” 135 S. Ct. 1318, 1328 (2015).

In order for a statement of opinion to give rise to a claim for securities fraud, plaintiffs must plead facts that, if true, are sufficient to show either (1) that “'the speaker did not hold the belief she professed' or 'the supporting fact[s] she supplied were untrue,'” or (2) for “opinions, though sincerely held and otherwise true as a matter of fact, . . . [that] the speaker omit[ted] information whose omission ma[de] the statement misleading to a reasonable investor.” Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016) (quoting Omnicare, 135 S. Ct. at 1327). This is “no small task for an investor,” Omnicare, 135 S. Ct. at 1332, and Plaintiffs satisfy neither test.

The securities laws do “not allow investors to second-guess inherently subjective and uncertain assessments.” Id. at 1327. Thus, Perrigo's accurate descriptions of the Audit in its initial stages as “uncertain” are inactionable as a matter of law.

Moreover, Plaintiffs do not and cannot allege that Perrigo did not actually disagree with Irish Revenue once the regulator disclosed its preliminary position. Perrigo contested the Audit Findings Letter with Irish Revenue and then, after receiving the NoA, continued to contest Irish Revenue's position. 12/20/18 8-K at 1. Ultimately, Perrigo filed its appeal before the Irish Tax Appeals Commission and later filed a judicial review action in the Irish High Court.¹⁴ 2/27/19 10-K at 3.

Plaintiffs apparently contend that Perrigo's tax position with respect to the 2013 sale transaction is so “blatantly” contrary to Irish tax law that Perrigo's 10-Q statement fraudulently asserted that Perrigo disagreed with Irish Revenue's position and intended to contest it. ¶¶ 34-37, 91, 93. But Plaintiffs “cannot state a claim by alleging only that an opinion was wrong.” Omnicare, 135 S. Ct. at 1332.

Plaintiffs have pled nothing to indicate that Defendants' tax position was based on untrue facts, instead relying solely on the contrary position Irish Revenue has taken. Perrigo made clear in the December 20, 2018 8-K its view that Irish Revenue's position is a startling departure from published case law, guidance, and precedents and from approximately twenty years of consistent tax treatment of similar transactions by Perrigo. 12/20/18 8-K at 1. Perrigo thus explained its view that Perrigo's position is correct (though “there can be no assurance of an ultimate favorable outcome”). Id. at 2. Disagreement with Irish Revenue's interpretation of the tax law does not give rise to securities fraud. See Kleinman v. Elan Corp., plc, 706 F.3d 145, 154 (2d Cir. 2013) (“[W]here a defendant's competing analysis or interpretation of data is itself reasonable, there is no false statement.”); Padnes v. Scios Nova Inc., 1996 WL 539711, at *6 (N.D. Cal. Sept. 18, 1996) (“[F]acts showing reasonable people could have disagreed with defendants' beliefs . . . [do not] amount to allegations that there was no reasonable basis for the opinions which were expressed.”), cited with approval in Gillis v. QRX Pharma Ltd., 197 F. Supp. 3d 557, 599 n.31 (S.D.N.Y. 2016).

Nor did Perrigo omit any information that would render its statement of belief misleading, particularly because it disclosed that its own position was contrary to Irish Revenue's position and that the amount of any future assessment could be material. Perrigo's non-disclosure of the preliminary amount identified in the Audit Findings Letter is insufficient to support falsity, as “[a] reasonable investor does not expect that every fact known to an issuer supports its opinion statement.” Omnicare, 135 S. Ct. at 1329 (emphasis in original). An opinion “is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the other way. . . . [I]ndeed, the presence of [competing] facts is one reason why an issuer may frame a statement as an opinion, thus conveying uncertainty.” Id. (observing the omission of a dissenting opinion would not render a statement misleading “even if the minority position ultimately proved correct”).

Here, when viewed “in light of all its surrounding text,” id. at 1330, Perrigo's 10-Q was not misleading: It made clear to investors Perrigo's view that a non-final tax finding with which it disagrees could not “be quantified at this stage,” 11/8/18 10-Q at 24 (emphasis added). Plaintiffs' own disagreement with Perrigo does not state a claim. See Emps. Ret. Sys. of City of Providence v. Embraer S.A., 2018 WL 1725574, at *9 (S.D.N.Y. Mar. 30, 2018) (issuer's statement that “it lacked a reasonable basis for estimating reserves” is not actionable just because “Plaintiff disagrees with the opinion . . . and alleges that 'a reliable estimate . . . was available'”).

(c) Perrigo Had No Duty to Speculate as to the Amount of Any Future Adjustment

Furthermore, there was no requirement that Defendants prematurely speculate about the ultimate outcome of the Audit either upon receipt of the initial audit correspondence or of Irish Revenue's preliminary position as contained in the Audit Findings Letter. “Defendants are not required to predict the precise manner in which risks will manifest themselves.” In re TVIX Sec. Litig., 25 F. Supp. 3d 444, 457 (S.D.N.Y. 2014) (internal quotation marks and citation omitted), aff'd sub nom. Elite Aviation LLC v. Credit Suisse AG, 588 F. App'x 37 (2d Cir. 2014); see also In re Express Scripts, 2019 WL 2004302, at *3 (“[W]here the discussions were ongoing, Defendants did not have a duty to disclose more about the uncertain state of the negotiations.”). Instead, courts in this Circuit and elsewhere have made clear that “[t]aking the time necessary to get things right is both proper and lawful.” In re Agnico-Eagle Mines Ltd. Sec. Litig., 2013 WL 144041, at *21 (S.D.N.Y. Jan. 14, 2013) (quoting Higginbotham v. Baxter Int'l Inc., 495 F.3d 753, 761 (7th Cir. 2007)) (dismissing complaint because defendants “were entitled to devote a reasonable amount of time to investigation and remediation before disclosing an assessment . . . any gloomier than that contained in its [allegedly misleading] disclosures”), aff'd sub nom. Forsta AP-Fonden v. Agnico-Eagle Mines Ltd., 533 F. App'x 38 (2d Cir. 2013); see also In re Pretium Res. Inc. Sec. Litig., 256 F. Supp. 3d 459, 479 (S.D.N.Y. 2017) (“[A] party is . . . entitled to investigate potentially negative information before making statements to the market.”), aff'd sub nom. Martin v. Quartermain, 732 F. App'x 37 (2d Cir. 2018).

Indeed, any disclosure of a potential future assessment ahead of receipt of the NoA would plainly be speculative. The Audit was initiated for the years 2012 and 2013, but the assessment, over a year later, was only for 2013. Compare 10/30/18 Letter at 1 with 11/29/18 NoA at 1. And even at the time of Perrigo's November 8, 2018 10-Q disclosure, the Audit Findings Letter did not represent the final outcome of Perrigo's tax liability or Irish Revenue's final position on multiple issues. Perrigo was not obligated to disclose the details of the Audit or of its correspondence with Irish Revenue or to quantify the potential tax liability because “a corporation has no affirmative duty to speculate or disclose uncharged, unadjudicated” liability. In re UBS AG Sec. Litig., 2012 WL 4471265, at *31 (S.D.N.Y. Sept. 28, 2012) (internal quotation marks and citation omitted) (rejecting argument that partial disclosures of DOJ and SEC investigations created a duty to disclose the conduct underlying the investigations or the potential fines and penalties that could result from a finding of liability), aff'd sub nom. City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014).

(d) Perrigo's Disclosures Comply with GAAP

Plaintiffs allege that three different GAAP accounting provisions imposed on Perrigo a duty to disclose in the 10-K and 10-Qs the amount of Irish Revenue's future, unasserted assessment and preliminary, “proposed treatment” in the Audit Findings Letter. ¶¶ 98-110. These GAAP provisions, however, do not require that a company disclose every preliminary claim or demand amount received. Rather, the GAAP provisions impose specific, subjective criteria for when disclosure and recording is necessary, which Perrigo followed. Indeed, financial accounting “addresses many questions as to which the answers are uncertain and is a process [that] involves continuous judgments and estimates.” Shalala v. Guernsey Mem'l Hosp., 514 U.S. 87, 100 (1995) (internal quotation marks omitted; alteration in original).

Perrigo Did Not Violate ASC 450-20. Under ASC 450-20, disclosure of a loss contingency depends on the posture of the contingency. Thus, different considerations apply to (1) an unasserted claim where the potential claimant has not manifested an awareness of the claim (the state of affairs at the time of the March 1, 2018 10-K and the May 8 and August 9, 2018 10-Qs), and to (2) an asserted claim or an unasserted claim where the potential claimant has manifested an awareness of the unasserted claim (the state of affairs at the time of the November 8, 2018 10-Q, following receipt of the Audit Findings Letter).

First, “[w]ith respect to unasserted claims and assessments . . . [i]f the judgment is that assertion is not probable [i.e., not likely to occur], no accrual or disclosure would be required. On the other hand, if the judgment is that assertion is probable [i.e., likely to occur], then a second judgment must be made as to the degree of probability of an unfavorable outcome.” ASC 450-20-55-14, 450-20-55-15. Plaintiffs offer nothing beyond unsupported speculation to suggest that, at the time of the initial audit correspondence, Irish Revenue already had expressed that it would bring an assessment at the conclusion of the Audit. As discussed in Section A.1, supra, this speculation cannot be credited.

Putting that speculation aside, Perrigo expressed its opinion in its 10-K disclosure that “we believe that our tax estimates are reasonable and that we prepare our tax filings in accordance with all applicable tax laws,” rendering the future assertion of an assessment or a future unfavorable outcome not probable at that time.¹⁵ 3/1/18 10-K at 156. Thus, no disclosure was required.¹⁶See In re Lions Gate, 165 F. Supp. 3d at 21 (no requirement under ASC 450-20 to disclose because SEC “investigation was not pending or threatened litigation”).

Second, where a claimant has manifested an awareness of an unasserted claim, “a loss contingency must be disclosed if it is reasonably possible; that is, if the likelihood that it will occur is more than remote but less than likely.” Id. at 21 (citing ASC 450-20-25; 450-20-50-3; 450-20-20 Glossary). But “ASC 450 requires only either a loss estimate or a statement that an estimate cannot be made.” In re Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 584 (S.D.N.Y. 2013) (emphasis added); see also ASC 450-20-50-4. Perrigo complied with the disclosure requirement of ASC 450-20 when it disclosed the existence of the Audit Findings Letter in the November 8, 2018 10-Q.

ASC 450-20 requires disclosure only of the “nature” of the contingency, not all of the details regarding the contingency. Here, the “nature” of the contingency was the treatment of the taxation of the 2013 sale of Tysabri^®. Specifically, the Company disclosed that “[t]he audit finding letter relates to Elan's taxation of the 2013 sale of the Tysabri^® intellectual property and other assets related to Tysabri^® to Biogen Idec from Elan.” 11/8/18 10-Q at 24.

Perrigo also complied with ASC 450-20's estimation requirement. Where a possible loss or range of loss cannot be estimated, ASC 450-20 requires a statement that an estimate cannot be made and the reason why. Perrigo provided precisely such a statement and explanation. See 11/8/18 10-Q at 24 (“We disagree with the Irish Revenue position as asserted in the audit finding letter and intend to contest it, and therefore the amount of adjustments, if any, that may ultimately be asserted by the Irish Revenue cannot be quantified at this stage.”). There is no requirement under ASC 450-20 that Perrigo instead disclose the preliminary amount first asserted by Irish Revenue as an opening, “proposed” position in an audit investigation. See, e.g., In re Lions Gate, 165 F. Supp. 3d at 9, 21-22 (finding “no plausible allegation that the amount of the loss could have been estimated” under ASC 450-20 — even though an SEC investigation had been ongoing for over three years and the parties had been engaged in settlement discussions for a year and half — until five days before the SEC sent the “near-final version” of the settlement agreement, at which point defendant accrued an expense); In re Bank of Am., 980 F. Supp. 2d at 583-84 (finding “no plausible allegation” that defendant could have reasonably estimated the amount of loss where the loss range was between zero and the full amount asserted by the claimant because “[s]uch an expansive loss range is unreasonable and requiring that [defendant] disclose it would render [ASC 450-20] meaningless”).¹⁷

Perrigo Did Not Violate ASC 740-10. Plaintiffs' allegations that Perrigo's November 8, 2018 10-Q disclosure violated ASC 740-10 fail for similar reasons. ASC 740-10 provides the criteria for recording uncertain tax positions: “An entity shall initially recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. . . . [T]he terms examined and upon examination also include resolution of the related appeals or litigation processes, if any.” ASC 740-10-25-6 (emphasis added). If a tax position does not initially meet the “more likely than not” threshold in the period when the position is taken, then it shall be accounted for in the first period where “[t]he tax position is effectively settled through examination, negotiation or litigation.” ASC 740-10-25-8.

Contrary to Plaintiffs' assertion, ¶ 106, the mere fact that an Audit Findings Letter had been issued does not create an automatic requirement of recognition under ASC 740-10. Perrigo stated in the 10-Q that it disagreed with Irish Revenue's position and intended to contest it, and even today those appeals and litigation proceedings are outstanding. To the extent Plaintiffs are challenging Perrigo's opinion about the likelihood of success of these challenges, they do nothing to plead the requisite facts, as described supra in Section A.3(b). See Tongue, 816 F.3d at 210.

Instead, Plaintiffs only make conclusory allegations that the “more likely than not” threshold was met because there was an Audit Findings Letter. ¶ 106. But ASC 740-10 provides that “[t]he more-likely-than-not recognition threshold is a positive assertion that an entity believes it is entitled to the economic benefits associated with a tax position.” ASC 740-10-25-6 (emphasis added). The Complaint fails to support the conclusion that the Company did not believe that its tax position regarding liability would be sustained. The November 8, 2018 10-Q demonstrates quite the opposite — a firm disagreement with the “proposed treatment” in the Audit Findings Letter and an intention to contest it.

Perrigo Did Not Violate ASC 855-10. Plaintiffs also contend that Perrigo violated ASC 855-10, which provides guidance on when events that occur in the interim period after the balance sheet date but before the issuance of financial statements should be recognized in the financial statements. ASC 855-10, however, explains that “[i]f an event or transaction is within the scope of another Topic, then an entity shall follow the guidance in that Topic, rather than the guidance in this Topic” and specifically identifies ASC 740-10 (addressed above) as an example where subsequent events guidance within a specific topic may not be consistent with ASC 855-10. ASC 855-10-15-4, 5.

Moreover, like ASC 450-20 (addressed above), ASC 855-10 provides for a subsequent event that is of a nature that it must be disclosed to include “[a]n estimate of its financial effect, or a statement that such an estimate cannot be made.” ASC 855-10-50-2 (emphasis added). Thus, there can be no plausible allegation that ASC 855-10 was violated where Plaintiffs' allegations of ASC 450-20 and ASC 740-10 violations fail.¹⁸

4. Perrigo's Statement That the Final Amount “Could Be Material” Was True

Finally, Plaintiffs claim that Perrigo's statement in the November 8, 2018 10-Q — that the “amount of any future assessment could be material” — was false because the amount “had already been precisely quantified” and “was unquestionably highly material” and Perrigo instead should have said “would be” material. ¶¶ 59, 94. As explained above, the Audit Findings Letter contained only a “proposed treatment,” not an assessment or final bill, and discussion was expressly invited. Moreover, Perrigo's “could be material” language (a) is a forward-looking statement accompanied by cautionary language and thus protected by the PSLRA's safe harbor, and (b) in no way gives rise to a duty to disclose.

(a) “Could” Indicates a Forward-Looking Statement That Is Protected by the PSLRA Safe Harbor

Perrigo's “could be material” language is a squarely forward-looking statement as evidenced by its use of the conditional word “could.”¹⁹ The PSLRA safe harbor provision, 15 U.S.C. §§ 78u-5(c)(1)(A-B) & (i)(1), protects such statements when they are accompanied by “meaningful cautionary” language or are otherwise immaterial or where “plaintiff fails to prove that [the statements were] made with actual knowledge [that they were] false or misleading.” See Gregory v. ProNAi Therapeutics Inc., 297 F. Supp. 3d 372, 397 (S.D.N.Y. 2018) (“Because the statute is written in the disjunctive, statements are protected by the safe harbor if they satisfy any one of these three categories.” (citation omitted)). The safe harbor applies here.²⁰

In determining the adequacy of Defendants' cautionary language, this Court must “identify the allegedly undisclosed risk and then read the allegedly fraudulent materials — including the cautionary language — to determine if a reasonable investor could have been misled into thinking that the risk that materialized and resulted in his loss did not actually exist.” In re Focus Media Holding Ltd. Litig., 701 F. Supp. 2d 534, 540 (S.D.N.Y. 2010) (emphasis added) (internal quotation marks omitted). Courts must not “attribute to investors a child-like simplicity [or] an inability to grasp the probabilistic significance” of disclosures. Basic Inc. v. Levinson, 485 U.S. 224, 234 (1988) (internal quotation marks and citation omitted).

Here, Defendants cautioned that any future assessment could be “material.” There was no risk that a reasonable investor would mistake “could be material” as implying that there was no possibility of a material assessment. See In re Bank of Am., 980 F. Supp. 2d at 580 (“Because no investor could read these disclosures without understanding that indeterminate potential losses . . . could later materialize, the defendants had no duty to say more.” (emphasis added)).

Perrigo's November 8, 2018 10-Q did not stop there; it contained additional meaningful cautionary statements. Perrigo further warned that its tax rate is subject to adjustment for a variety of reasons including “changes in tax laws or the interpretation of such tax laws.” 11/8/18 10-Q at 24. The 10-Q then stated that “[t]he resolution of uncertain tax positions could be unfavorable” and such unfavorable resolutions of audit matters could “have a material impact on our consolidated financial statements in future periods.” Id. at 51 (emphasis in original).²¹ In this way, Perrigo “identifi[ed] important factors that could cause actual results to differ materially from those in the forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i); see also Société Générale Sec. Servs., GbmH v. Caterpillar, Inc., 2018 WL 4616356, at *5 (N.D. Ill. Sept. 26, 2018) (dismissing securities fraud claims where statements “relating to Caterpillar's belief about the outcome of the investigations and the disposition of the tax dispute express what Caterpillar 'believes' about their tax position and its implications in the future . . . are all accompanied by meaningful cautionary language”).²²

(b) Potential Magnitude Does Not Give Rise to a Duty to Disclose

Contrary to Plaintiffs' allegations, the size of the potential tax liability on its own does not render the information material such that it had to be disclosed. In City of Pontiac, the Second Circuit concluded that there was no material misstatement under § 10(b) and that the defendant company “complied with its disclosure obligations under our case law” when it “disclos[ed] its involvement in multiple legal proceedings and government investigations and indicat[ed] that its involvement could expose [it] 'to substantial monetary damages and legal defense costs,' as well as 'injunctive relief, criminal and civil penalties[,] and the potential for regulatory restrictions.'” 752 F.3d at 184 (final alteration in original). The court reached this conclusion even though the defendant company had not provided details on the “magnitude of . . . exposure to liability and reputational damage,” which later resulted in the company entering into a deferred prosecution agreement, admitting tax law violations, and paying a $780 million fine. Id. at 182; see also City of Sterling Heights Police & Fire Ret. Sys. v. Vodafone Grp. Pub. Ltd. Co., 655 F. Supp. 2d 262, 272-73 (S.D.N.Y. 2009) (dismissing securities fraud claim based on undisclosed $8.7 billion tax liability, where defendants had in previous year and a half acknowledged that company would owe a “modest increase in tax payments” but it was “very difficult to predict,” because “none [of the statements] can be construed as a fraudulent statement by the Company or a material . . . omission concerning tax liabilities as they later became apparent”). The same logic applies here.

B. The Complaint Fails to Adequately Allege Scienter

Even if Plaintiffs had adequately pleaded a material misstatement or omission — they have not — the Complaint still is subject to dismissal because it fails to adequately plead that any of the Defendants acted with the requisite scienter. Scienter, the “required state of mind” in a securities fraud case, encompasses “a mental state embracing intent to deceive, manipulate, or defraud.” Tellabs, 551 U.S. at 319 (citation omitted). Under § 10(b) and Rule 10b-5(b), in the Second Circuit, “[t]he requisite scienter can be established by alleging facts to show either (1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness.” ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009) (internal citation omitted).

Recklessness in this context means “highly unreasonable” conduct that “represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” Id. at 203 (quoting Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001)). Thus, recklessness “must, in fact, approximate an actual intent to aid in the fraud.” Chill v. Gen. Elec. Co., 101 F.3d 263, 267-69 (2d Cir. 1996) (internal quotation marks and citation omitted). Whether pled through “motive and opportunity” or “strong circumstantial evidence,” scienter allegations under the PSLRA's heightened pleading requirements must be stated with particularity and be “cogent and at least as compelling as any opposing inference[.]” Tellabs, 551 U.S. at 324 (emphasis added); see also 15 U.S.C. § 78u-4(b)(2)(A).

1. Plaintiffs Fail to Plead Motive and Opportunity with Particularity

To raise a strong inference of scienter through “motive and opportunity,” Plaintiffs must allege that Defendants “benefitted in some concrete and personal way from the purported fraud.” ECA, 553 F.3d at 198 (quoting Novak v. Kasaks, 216 F.3d 300, 307-08 (2d Cir. 2000)). Plaintiffs cannot satisfy this requirement by showing a motive that is “common to most corporate officers, such as the desire for the corporation to appear profitable and the desire to keep stock prices high to increase officer compensation.” Id. But that is exactly what Plaintiffs attempt in alleging that the amount of the potential tax liability compared to Perrigo's other financials “would have and did motivate Defendants to conceal this significant liability from the market.” ¶ 120. Instead, “the 'motive' showing is generally met when corporate insiders allegedly make a misrepresentation in order to sell their own shares at a profit.” ECA, 553 F.3d at 198. Plaintiffs do not, and cannot, offer such an allegation here.

The Stock Trading of the Individual Defendants Fatally Undermines All Attempts to Infer Scienter. Nowhere do Plaintiffs claim that Messrs. Roehrhoff, Kessler, or Winowiecki sold their own shares at a profit during the proposed class period. Indeed, they cannot because the opposite is true: The Individual Defendants increased their stock holdings during the putative class period. On March 5, 2018 — four days after the allegedly misleading 10-K — Mr. Roehrhoff purchased 7,500 Perrigo shares at a total cost of over $600,000. Roehrhoff 3/7/18 Form 4.²³ And on November 9, 2018 — the day after the alleged misrepresentation in the post-Audit Findings Letter 10-Q — Mr. Kessler purchased 15,683 Perrigo shares at a total cost exceeding $1 million.²⁴ Kessler 11/9/18 Form 4. Likewise, Mr. Winowiecki increased his overall holdings through the vesting of exercisable options. Winowiecki 3/5/18 Form 4; Winowiecki 7/3/18 Form 4; Winowiecki 7/24/18 Form 4. See In re Aratana Therapeutics Inc. Sec. Litig., 315 F. Supp. 3d 737, 763 (S.D.N.Y. 2018) (finding increase in stock holdings through vesting of exercisable options “undermine[d] an inference that defendants, through their sales, sought to capitalize on the necessarily time-limited artificial inflation of [the company]'s stock price”).

A defendant increasing “holdings during the Class Period,” as happened here, is “a fact wholly inconsistent with fraudulent intent.” In re Bristol-Myers Squibb Sec. Litig., 312 F. Supp. 2d 549, 561 (S.D.N.Y. 2004); see also Turner v. MagicJackVocalTec, Ltd., 2014 WL 406917, at *11 (S.D.N.Y. Feb. 3, 2014) (finding lack of sales by three of four defendants and purchases by two “rebuts an inference of scienter”). The alleged “artificial inflation” of the Company's stock price, ¶ 129, would have been a detriment to Messrs. Roehrhoff, Kessler, and Winowiecki, and these facts undermine any inference of scienter.

2. Plaintiffs Fail to Plead Circumstantial Evidence with Particularity

In the absence of any coherent allegations of motive and opportunity to commit securities fraud, plaintiffs must allege particularized facts that provide “circumstantial evidence” of conscious misbehavior or recklessness, “though the strength of the circumstantial allegations must be correspondingly greater.” Kalnit, 264 F.3d at 142 (internal quotation marks and citation omitted). Here, Plaintiffs fail to meet this heightened standard.

Plaintiffs Cite No Witnesses or Internal Documents. Plaintiffs present no witnesses, internal documents, or any other sources to support an inference of scienter. This alone should defeat any allegation of scienter. See Hutchinson v. Perez, 2012 WL 5451258, at *7 (S.D.N.Y. Nov. 8, 2012) (noting that plaintiff does not “refer to any confidential witnesses or the existence of any other report, and consequently, the complaint is also easily distinguishable from the complaints that survived a motion to dismiss on [scienter] grounds” (internal citation omitted)); see also Espinoza v. Whiting, 8 F. Supp. 3d 1142, 1153 (E.D. Mo. 2014) (no strong inference of scienter because plaintiffs provided “no confidential witness information” or other similar details), aff'd, 790 F.3d 828 (8th Cir. 2015).

Notification of the Audit and Access to the Audit Findings Letter Details Are Not Evidence of Scienter. Plaintiffs' allegations that senior management had knowledge of the ongoing Audit and access to the Audit Findings Letter, ¶¶ 112-113, do not support an inference of scienter. Plaintiffs in securities fraud cases might be able to demonstrate conscious misbehavior or recklessness by “specifically alleg[ing] defendants' knowledge of facts or access to information contradicting their public statements.” Kalnit, 264 F.3d at 142 (quoting Novak, 216 F.3d at 308). Yet, as detailed above, Plaintiffs have not and cannot make any such allegations here. Instead, Plaintiffs offer only speculative and implausible allegations that the initial audit correspondence contradicts the March 1, 2018 10-K and the May 8 and August 9, 2018 10-Qs. The Audit Findings Letter likewise contains nothing that is contradictory to the November 8, 2018 10-Q. The mere fact that Perrigo later provided more detail in the December 20, 2018 8-K after Irish Revenue had issued its assessment does not support an allegation of scienter. See In re Bristol-Myers Squibb, 312 F. Supp. 2d at 569 (“[T]he initial omission and subsequent Restatement of these [allegedly material] items[ ] is insufficient standing alone to show that Defendants intended to defraud.”).

Timing of Disclosure Is Not Evidence of Scienter. Plaintiffs argue that Perrigo's disclosure of the NoA three weeks after receipt is suspect,²⁵ ¶ 114, but mere passage of time is not strong circumstantial evidence of recklessness or conscious misbehavior. See Acito, 47 F.3d at 53-54 (finding that one-month delay in disclosing a negative FDA report did not support a finding of scienter). Once Irish Revenue indicated that it would provide no further explanation and Perrigo determined that it should move forward with its appeal, Perrigo made its next disclosure. See 12/20/18 8-K at 1. This short delay, during which Defendants were performing further negotiations and investigation, does not demonstrate fraudulent intent.²⁶In re Agnico-Eagle, 2013 WL 144041, at *21 (“Managers cannot tell lies but are entitled to investigate for a reasonable time, until they have a full story to reveal.” (internal quotation marks and citation omitted)).

Irish Revenue's Contrary Legal Position Is Not Evidence of Scienter. Plaintiffs assert that Irish Revenue's “rejection” in the Audit Findings Letter of Perrigo's arguments regarding the Tysabri^® tax treatment is indicative of scienter, ¶¶ 117-18, but differing opinions cannot support the requisite strong inference of scienter, especially where there is no plausible allegation that Perrigo did not actually hold the belief professed. See Epirus Capital Mgmt., LLC v. Citigroup Inc., 2010 WL 1779348, at *6 (S.D.N.Y. Apr. 29, 2010) (disagreement over valuation methods “does not equate to alleging fraud”).

Lack of “Voluntary Reporting” Is Not Evidence of Scienter. Plaintiffs' allegation that Perrigo's “fraud” in terms of tax treatment “was not voluntarily reported” but only disclosed as a result of the Audit, ¶ 119, also cannot support an inference of scienter. No tax authority has charged Perrigo with engaging in fraud. In any event, “companies do not have a duty to disclose uncharged, unadjudicated wrongdoing.” City of Pontiac, 752 F.3d at 184 (internal quotation marks omitted); see also In re Citigroup, Inc. Sec. Litig., 330 F. Supp. 2d 367, 377 (S.D.N.Y. 2004) (“[T]he federal securities laws do not require a company to accuse itself of wrongdoing.” (citation omitted)).

Neither the Amount of the Proposed Treatment nor the Amount of the Later Assessment Is Evidence of Scienter. Contrary to Plaintiffs' assertion that scienter can be inferred from the magnitude of the assessment, ¶ 120, the mere size of Perrigo's potential tax liability is not sufficient to plead scienter. See In re UBS, 2012 WL 4471265, at *19 (magnitude of alleged fraud alone is not enough to plead scienter); Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 596-97 (S.D.N.Y. 2011) (same).

Alleged GAAP Violations Do Not Create an Inference of Scienter. There are no well-pleaded allegations of GAAP violations. See Section A.3(d) supra. Moreover, contrary to Plaintiffs' assertion, ¶ 121, “alleged GAAP violations . . . do not suggest the requisite 'fraudulent intent.'” Wyche v. Advanced Drainage Sys., 710 F. App'x 471, 473-74 (2d Cir. 2017) (citation omitted); see also Chill, 101 F.3d at 270 (“Allegations of a violation of GAAP provisions or SEC regulations, without corresponding fraudulent intent, are not sufficient to state a securities fraud claim.”).

Neither the Nature nor the Duration of the Audit Creates an Inference of Scienter. Plaintiffs contend that Defendants' notice of the subject matter of the Audit and the Audit's “long duration” and “extensive nature” support an inference of scienter. ¶ 122. However, the existence, nature, and duration of the Audit do nothing to satisfy Plaintiffs' pleading burden because “regulators are obligated to examine the behavior of public corporations, and the fact that a regulator is fulfilling this role cannot be sufficient to allege scienter.” In re Manulife Fin. Corp. Sec. Litig., 276 F.R.D. 87, 102 (S.D.N.Y. 2011); cf. Total Equity Capital, LLC v. Flurry, Inc., 2016 WL 3093993, at *5 (S.D.N.Y. June 1, 2016) (rejecting argument that “the magnitude and duration of the misstatements” demonstrated scienter).

Mr. Kessler's Post-Class Period Statements Are Neither Relevant Nor Misleading. At times, post-class period data may be relevant to determining what a defendant knew or should have known during the class period. See In re Federated Dep't Stores, Inc. Sec. Litig., 2004 WL 444559, at *8 (S.D.N.Y. Mar. 11, 2004). Here, Plaintiffs do not allege that Mr. Kessler's May 14, 2019 statement — that, in his view, Irish Revenue “has not spelled out their rationale” for the potential tax liability in the Audit Findings Letter, ¶ 80 — shows what he knew or should have known during the putative class period, which had ended five months earlier. Instead, Plaintiffs assert that Defendants have “continued to mislead the public about [the] contents” of the Audit Findings Letter and NoA after the class period. ¶ 123 (emphasis added).

This argument is yet another unsuccessful attempt by Plaintiffs to convert mere disagreement with a tax authority into fraud. The consistency between Defendants' class period and post-class period statements undermines, rather than supports, any inference of scienter. See In re Incyte S'holder Litig., 2014 WL 707207, at *12 (D. Del. Feb. 21, 2014) (rejecting argument that post-class period statements demonstrate falsity of earlier statements because the post-class period statements were “generally consistent with what Plaintiff[ ] deem[s] were Defendants' false statements and disclosures” (quoting California Pub. Emps.' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 156 (3d Cir. 2004)) (alterations in original)).

Moreover, as Plaintiffs concede, ¶ 123, by the time Mr. Kessler made his May 14, 2019 statement describing the Audit Findings Letter and the NoA, those documents were publicly available (because Defendants had filed them as exhibits to their motion to dismiss the prior complaint in this action) and any investor could have read those documents for themselves and drawn their own conclusions. See Miller v. PCM, Inc., 2018 WL 5099722, at *11 (C.D. Cal. Jan. 3, 2018) (the efficient market theory “presumes that all public information is incorporated into the market price,” including information in court filings). Once again, Plaintiffs' attempt to spin the earlier disclosure decisions by relying on these post-class period disclosures is impermissible fraud by hindsight. In re Sanofi Sec. Litig., 87 F. Supp. 3d 510, 528, 545 (S.D.N.Y. 2015) (“The Second Circuit has firmly rejected th[e] 'fraud by hindsight' approach.”).

Subsequent Audit Results for Taxes in Other Jurisdictions Are Not Relevant. Plaintiffs assert that the outcome of a subsequent IRS audit regarding Perrigo's U.S. tax returns somehow indicates that Perrigo acted with scienter in its “incorrect tax treatment of its Tysabri transactions in Ireland.” ¶ 125; see also ¶ 78. But whether Perrigo's tax positions in any jurisdiction are ultimately subject to payment due to changes in legal interpretations or the outcomes of audits says nothing about whether Defendant made knowingly misleading statements in 2018 about the Audit or the Audit Findings Letter, and thus does nothing to raise an inference of scienter. See Teamsters Allied Benefit Funds v. McGraw, 2010 WL 882883, at *11 (S.D.N.Y. Mar. 11, 2010) (noting that “the government investigations cited in the Complaint are irrelevant to alleged misconduct that occurred before [the investigations began]”); Fidel v. Rampell, 2005 WL 5587454, at * 7 (S.D. Fla. Mar. 29, 2005) (rejecting as irrelevant allegations that a defendant was also named “in an unrelated securities case . . ., especially since Plaintiffs have not alleged there was a finding of wrongdoing in that unrelated case”).

The Legacy of the Tysabri^® Tax Treatment Cannot Be Used to Infer Scienter. Plaintiffs contend that the “tax treatment of Tysabri was not an Elan legacy issue,” which somehow gives rise to an inference of scienter. ¶ 126. Neither contention is true.

First, as Perrigo has explained to Irish Revenue, the tax treatment of the Tysabri^® sale was based on published case law, guidance, and practice. Thus, the Company's long-standing practice of treating disposals of IP as related to the Company's trade was a practice that began under Elan, following engagement with both Irish Revenue and the Irish Department of Finance in connection with the application and approval of a trading certificate (a “Shannon” certificate), and this practice was never before challenged by (and instead was tacitly approved by) Irish Revenue until 2018.²⁷See 12/20/18 8-K at 1; 10/30/18 Letter at 2. In fact, this point is the basis of Perrigo's pending challenge before the Irish High Court that its settled expectations as a taxpayer have been violated by Irish Revenue's actions in this Audit.

Second, Perrigo's decisions regarding the tax treatment of the Tysabri^® sale to Biogen in 2013, even though ultimately challenged by Irish Revenue, do not give rise, in and of themselves, to an inference of scienter. See In re Magnum Hunter Res. Corp. Sec. Litig., 26 F. Supp. 3d 278, 298 (S.D.N.Y. 2014) (“A failure to identify problems with the defendant-company's internal controls and accounting practices does not constitute reckless conduct sufficient for § 10(b) liability.” (internal quotations omitted)).

Resignation of an Individual Defendant Is Not Evidence of Scienter. Finally, Plaintiffs point to Mr. Winowiecki's departure from Perrigo as evidence of scienter, ¶ 127, but an employee departure alone is insufficient. To create the requisite “strong circumstantial evidence of scienter,” resignations must be accompanied by “highly unusual or suspicious circumstances.” Glaser, 772 F. Supp. 2d at 598. “Officials resign from public companies for many innocuous reasons. These include that better opportunities were available or that personal considerations favored change.” Gregory, 297 F. Supp. 3d at 415; see also In re Iconix Brand Grp., Inc., 2017 WL 4898228, at *19 (S.D.N.Y. Oct. 25, 2017) (finding no inference of scienter could be drawn where complaint lacked “particularized facts connecting the resigning executives to fraudulent conduct”).²⁸

3. Collectively, Plaintiffs' Allegations Fail to Raise an Inference of Scienter

As demonstrated above, none of Plaintiffs' allegations individually raises an inference of scienter. Plaintiffs cannot save their claims from dismissal by “combin[ing] inadequate allegations of motive with inadequate allegations of recklessness” in order to demonstrate scienter. Kalnit, 264 F.3d at 141; see also In re Carter-Wallace, Inc. Sec. Litig., 1999 WL 1029713, at *5 (S.D.N.Y. Nov. 10, 1999) (“Four cubic zirconias will never add up to one real diamond and neither will four generic motives add up to one or more specific motives.”), aff'd, 220 F.3d 36 (2d Cir. 2000).

Ultimately, Plaintiffs' theory — that Defendants attempted to defraud investors by waiting to disclose the quantification of a potential tax liability sought by Irish Revenue until there was more certainty less than two months later — is without merit. The more compelling, non-fraudulent inference is that Defendants had no reason to believe that Irish Revenue had reached a final decision at any point during the pendency of the Audit or when Defendants received the Audit Findings Letter.

The Audit Findings Letter explicitly invited Perrigo to give additional information and explain its disagreement with Irish Revenue's preliminary position. 10/30/18 Letter at 1. Later, once Perrigo received an actual assessment in the NoA and Irish Revenue indicated that its position would not change and that Perrigo should move forward with the appeal, Perrigo promptly disclosed Irish Revenue's assessment. 12/20/18 8-K at 1.

The securities laws permit companies to act prudently by waiting to present investors with a more complete picture before disclosure. That Defendants did promptly disclose (i) the commencement of the Audit, (ii) the receipt of the Audit Findings Letter, and (iii) that any ultimate assessment could be material further rebuts Plaintiffs' theory. See Lions Gate, 165 F. Supp. 3d at 24 (noting that factors including a general disclosure related to an SEC investigation and the uncertainty regarding whether the SEC would move forward with charges negate an inference of scienter).

C. The Claims Against the Individual Defendants Must Be Dismissed

For all these reasons, the claims against the Individual Defendants are without merit. In addition, “[s]cienter must be separately pled and individually supportable as to each defendant; scienter is not amenable to group pleading.” C.D.T.S. v. UBS AG, 2013 WL 6576031, at *6 43 (S.D.N.Y. Dec. 13, 2013), aff'd sub nom. Westchester Teamsters Pension Fund v. UBS AG, 604 F. App'x 5 (2d Cir. 2015). “[W]hen a defendant is an individual it is insufficient to allege that the corporation, as a whole, acted with the requisite scienter and impute that intent to an individual defendant. A showing of corporate scienter is inadequate to assign that scienter to individual defendants.” Lucescu v. Zafirovski, 2018 WL 1773134, at *9 (S.D.N.Y. Apr. 11, 2018) (Cote, J.).

Moreover, Plaintiffs cannot support claims against the Individual Defendants merely by alleging, ¶¶ 112-13, that they received the audit notification correspondence and the Audit Findings Letter and signed the 10-K and 10-Qs.²⁹See Lucescu, 2018 WL 1773134, at *9-11 (dismissing § 10(b) claims against CFO and CEO who allegedly signed company misstatements). “There are many reasons why each of the Individual Defendants could have made the certifications and statements that they did — most of which have nothing at all to do with fraud. Under the Supreme Court's decision in Tellabs, these competing inferences negate a strong inference of scienter.” C.D.T.S., 2013 WL 6576031, at *7 (citation omitted). In particular, the increase in the Individual Defendants' respective Perrigo stock holdings in close proximity to the alleged misleading statements belies any inference of scienter.

The Court should also dismiss the § 20(a) control person liability claim against the Individual Defendants because Plaintiffs fail to adequately plead a “primary violation” of § 10(b) and Rule 10b-5. ATSI Commc'ns, 493 F.3d at 108 (“To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person, (2) control of the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person's fraud.” (citation omitted)).³⁰

D. Dismissal with Prejudice Is Warranted

Because Plaintiffs already have re-pled in response to Defendants' prior motion to dismiss, it would be futile to allow for any further amendment, and the dismissal should be with prejudice. See Kalnit v. Eichler, 99 F. Supp. 2d 327, 344 (S.D.N.Y. 2000) (dismissing complaint with prejudice because plaintiff already amended complaint in response to prior motions to dismiss). In particular, in light of the content of the Audit Findings Letter, Plaintiffs cannot establish that Perrigo's November 8, 2018 8-K was in any way false or misleading. The actual content of the initial audit correspondence referenced in the Complaint³¹ likewise undermines any assertion that Perrigo's disclosures were in any way false or misleading.

CONCLUSION

For the foregoing reasons, the Complaint should be dismissed with prejudice in its entirety.

Dated: June 28, 2019

Respectfully submitted,

FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP

By: Samuel P. Groner
One New York Plaza
New York, NY 10004
Telephone: (212) 859-8000
Facsimile: (212) 859-4000
samuel.groner@friedfrank.com

James D. Wareham (admitted pro hac vice)
James E. Anklam (admitted pro hac vice)
801 17th Street, NW
Washington, DC 20006
Telephone: (202) 639-7000
Facsimile: (202) 639-7003
james.wareham@friedfrank.com
james.anklam@friedfrank.com

Counsel for Defendant Perrigo Company plc

SIMPSON THACHER & BARTLETT LLP

By: Joseph M. McLaughlin
Shannon K. McGovern
425 Lexington Avenue
New York, NY 10017
Telephone: (212) 455-2000
Facsimile: (212) 455-2502
jmclaughlin@stblaw.com
smcgovern@stblaw.com

Counsel for Defendant Murray S. Kessler

McDERMOTT WILL & EMERY LLP

By: Andrew B. Kratenstein
340 Madison Avenue
New York, NY 10173
Telephone: (212) 547-5400
Facsimile: (212) 547-5444
akratenstein@mwe.com

Counsel for Defendant Uwe Roehrhoff

DECHERT LLP

By: Hector Gonzalez
Three Bryant Park
1095 Avenue of the Americas
New York, NY 10036
Telephone: (212) 698-3500
Facsimile: (212) 698-3599
hector.gonzalez@dechert.com

Angela Liu (admitted pro hac vice)
35 West Wacker Drive
Suite 3400
Chicago, IL 60601
Telephone: (312) 646-5816
Facsimile: (312) 646-5858
angela.liu@dechert.com

Counsel for Defendant Ronald L. Winowiecki