Allergan Wins Rare Denial of Class Certification in Securities Class Action

September 29, 2020

Cleary Gottlieb represented Allergan plc (Allergan) and certain of its current and former executives in obtaining the denial of class certification in a putative securities class action.

On September 29, 2020, in response to a brief filed by defendants that Reuters has characterized as “a bombshell motion from Allergan’s lawyers at Cleary,” Chief Judge Colleen McMahon of the U.S. District Court for the Southern District of New York denied a motion for class certification brought by the lead plaintiff Boston Retirement System (BRS). The complaint in the action alleges that defendants made materially false and misleading statements concerning the incidence rates of a rare disease in Allergan’s textured breast implants. Earlier this year, BRS filed a motion to certify a class of all investors in Allergan common and preferred stock between January 30, 2017, and December 19, 2018. The defendants subsequently opposed BRS’s class certification motion on several grounds, including by arguing that BRS was an inadequate and atypical class representative.

In her decision, which has been described by the press as “scorching,” Chief Judge McMahon agreed and declined to certify the proposed class on that basis. In particular, the Court concluded that BRS had “placed the interests of counsel ahead of those of the class” by continuing to engage two law firms despite a previous order by the court containing an “explicit instruction that there was to be one and only one law firm serving as lead counsel” in order to avoid inflated fees. Although BRS responded to that order by selecting one firm to serve as “lead counsel,” it continued to use the other firm as “additional counsel.” Further, Cleary, on behalf of the defendants, uncovered in discovery that the second firm’s “responsibilities did not change at all in response to the [court’s] order” and that the two firms entered into an undisclosed fee-sharing arrangement under which they agreed to “split any fees earned from the prosecution of th[e] lawsuit almost down the middle.” The court viewed these revelations as “a secret workaround” to its prior ruling and “an effort to evade a court order,” and stated it was “not fooled by the rebranding of [the second firm] as ‘additional counsel.’” The court also characterized the “undisclosed arrangement between the two law firms” as “the quintessential example of the ‘lawyer driven’ agreement,” and noted that BRS’s attempt to downplay the involvement of the second firm was not only “a lie” but also “utterly disingenuous.”