May 31, 2023
On Wednesday, May 24, the firm scored a significant victory for CareDx and its current and former officers in a securities fraud class action filed in the United States District Court for the Northern District of California. Judge Trina Thompson granted Willkie’s motion to dismiss the complaint in its entirety with leave to amend as well as its motion to strike certain paragraphs that were directly sourced from a previously filed complaint by a purported “whistleblower.” In granting these motions, the court adopted a substantial portion of Willkie’s briefing and arguments on every element of plaintiffs’ 10(b) claims.
Plaintiffs alleged that defendants violated the federal securities laws by making dozens of false statements about CareDx’s mobile phlebotomy program, called “RemoTraC,” which was launched at the height of the pandemic to provide at-home blood draws for transplant patients unable to travel for doctor and lab appointments because of COVID-19. Relying heavily on the “whistleblower” allegations of a former company executive, Plaintiffs alleged that CareDx utilized this service to fraudulently bill Medicare for unnecessary tests, and that this allegedly fraudulent practice rendered false a number of statements made to investors about RemoTraC and its business more generally. In response CareDx filed two Rule 12 motions: a Rule 12(f) motion to strike and a Rule 12(b)(6) motion to dismiss.
As for the motion to strike, the court accepted Willkie’s arguments that the key allegations sourced from the whistleblower had to be stricken because plaintiffs failed to satisfy their obligation under Rule 11 to independently investigate and corroborate the borrowed allegations. As for the motion to dismiss, the court adopted Willkie’s arguments as to each element of plaintiffs’ securities fraud claim. The Court ruled that plaintiffs failed to allege scienter, falsity, or economic loss causation. The court also rejected plaintiffs’ attempt to plead a “scheme liability” claim under 10b-5(a) and (c)—an increasingly common tactic by securities fraud plaintiffs—on the ground that the allegedly deceptive acts were not disclosed to the public and therefore plaintiffs could not allege reliance.
The motion to dismiss was argued by New York-based partner Charles Cording and the motion to strike was argued by New York-based associate Brady Sullivan. Other members of the team includes New York-based partner Tariq Mundiya and associates Ajani Brown, Colin Lee, and Josh Pereira; and San Francisco-based partner Laura Geist and associate Yongbin Chang.
