Feuding sides in $54 million Puma class action agree: Judge erred in dismissal

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(Reuters) - For more than five years of exceptionally contentious securities fraud litigation against Puma Biotechnology Inc, the company’s lawyers and shareholders’ lead counsel have agreed on precisely nothing: not in the run-up to a rare securities class action trial in 2019, not in how to interpret the jury’s split verdict and absolutely not in a blistering post-trial war over damages.

Yet on Friday, defense lawyers from Latham & Watkins and plaintiffs' lead counsel from Robbins Geller Rudman & Dowd united in a joint motion asking U.S. District Judge David Carter of Santa Ana, California, to reconsider a pair of rulings last week that ostensibly disposed of the litigation.

That's right: The only thing that has brought these feuding squads together is their shared conviction that the judge made a mistake when he decided to enter a $54.2 million judgment for investors and to abruptly dismiss the case from his docket.

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The judge’s orders seem to have been in response to a one-paragraph Oct. 29 notice that because Puma and shareholders had reached a tentative settlement there was no need for Carter to hold a scheduled Nov. 1 hearing on Puma’s motion to exclude thousands of investors' claims.

Latham and Robbins Geller said in the Oct. 29 notice that they’d move for preliminary approval of the deal by Dec. 3. They did not disclose the deal's terms.

Instead of waiting for the proposed settlement to be filed, Carter entered judgment for the full amount investors sought, presumably signaling that he'd accept no less in the proposed deal. Two days later, citing the settlement, he dismissed the class action. Carter said he would retain jurisdiction for only 60 days, in case the proposed deal fell through.

In Friday's joint motion, Latham and Robbins Geller said Carter’s rulings had created two grave problems. First, they said, the order of judgment started the clock on additional post-trial and appellate motions, meaning that the firms will have to get busy on that briefing even as the two sides finalize settlement terms.

And second, the joint motion said, Carter hadn’t allowed enough time for a settlement to be approved under procedural class action rules. The judge’s dismissal order said he would retain jurisdiction for only 60 days, the brief said, but the Class Action Fairness Act requires a 90-day wait between preliminary approval of a proposed settlement and a final fairness hearing.

The carefully worded joint motion never says outright that Carter made a mistake, but it asks the judge to vacate the dismissal order and to direct the clerk not to enter any judgment.

Carter, whose chambers does not accept phone calls, did not respond to emails I sent to his chambers and to his courtroom deputy. Latham declined to provide a statement on the joint motion. Jason Forge of Robbins Geller said he was "pleased the judge agreed investor claimants are entitled to full recovery."

The judge inherited the class action in 2020 after the retirement of U.S. District Judge Andrew Guilford, who oversaw the 2019 trial of claims by the lead investor, Norfolk Pension Fund. Norfolk alleged that Puma and its CEO, Alan Auerbach, deceived investors in 2014 about clinical test results on its sole product, the anti-breast cancer drug Nerlynx. The jury found Puma liable for one of the four alleged misstatements, ruling that the fraud had inflated the company’s share price by $4.50 per share. (Puma nevertheless claimed victory because shareholders had asked for much more in damages.)

The claims process was under way when Carter got the case. The post-trial bickering heated up in late 2020 when the claims administrator reported that it had verified about 4,500 claims totaling about $51 million. Latham proposed conducting discovery on each claim to determine whether individual investor actually relied on the statement jurors had deemed to be fraudulent. Robbins Geller responded that Puma had no such right under the final pre-trial order (or, for that matter, under any existing case law).

Carter ordered Latham to narrow its demands by pinpointing which claims Puma was challenging and explaining why it needed additional information. Latham came back with a brief insisting that it intended to challenge every investor claim based on the inadequate records submitted to the claims administrator. (Latham said it spent hundreds of hours re-auditing those records.) The firm also said that post-trial discovery was the only fair way to guard against recovery for investors who weren’t actually defrauded.

Carter denied Puma’s request in June, ruling that the company had no post-trial right to sweeping discovery and that it had failed to tailor its demand to justify a narrower investigation of specific investors. The request, he said, would unjustifiably delay a judgment for investors.

Latham and Puma refused to take no for an answer. In August, Latham moved to exclude claims by clients of The Capital Group Companies Inc, an investment manager. The brief argued that Capital Group didn’t rely on the alleged misstatement in advising clients to trade Puma shares and proposed “a short trial” on the reliance issue.

Robbins Geller revived its accusations of delay, arguing that the jury already rejected the very arguments in Puma’s motion to exclude. Capital is the investment advisor for the Norfolk fund that is the lead shareholder in the case. Puma argued at trial that Capital, as Norfolk’s investment manager, didn’t rely on Puma’s allegedly fraudulent statements. The jury found otherwise, Robbins Geller told Carter. Capital’s lawyers at Wilmer Cutler Pickering Hale and Dorr also chimed in with a brief saying the same thing.

With the post-trial mess mushrooming, I’m sure the judge was thrilled to hear that the two sides had reached a deal. Who wouldn’t want to get this case off their docket?

The order of judgment appears to have been a signal that Carter wasn't buying Puma's damages arguments. But the rush to dismiss the case seems odd. The two sides haven't even filed the proposed deal, nor has Robbins Geller asked for fees, which must be approved by the court.

It’s all very confusing. Then again, that befits the entire litigation.

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In rare class action trial, jury finds Puma Biotech liable for fraud – but Puma claims victory

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.