Princeton Ophthalmic, LLC, v. Corinthian Ophthalmic, Inc.: Motions for Summary Judgment Denied Due to Conflicting Testimony of Material Facts
In Princeton Ophthalmic, LLC v. Corinthian Ophthalmic, Inc., No. 14-cv-05485 (PGS), 2017 BL 364534 (D.N.J. Oct. 10, 2017), the United States District Court for the District of New Jersey denied both Princeton Ophthalmic (“Plaintiff’s”) partial motion for summary judgment as to the first and third elements of section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10(b)(5) promulgated thereunder and Corinthian Ophthalmic, board members Drs. Ianchulev and Packer, and Corinthian CEO Mr. Ballou’s (“Defendant’s”) motion for summary judgment on Plaintiffs entire securities fraud complaint. The court denied the motions on the grounds there were genuine disputes of material facts concerning the Defendants’ misrepresentation of or lack of disclosure of the engineering capabilities of its ocular drug delivery device, the WHISPER.
According to the complaint, Defendants were developing the WHISPER, a proprietary fluid ejector that could dose ocular drugs in micron-sized droplets without discomfort. In an effort to obtain further funding, sold Plaintiff 19,900 shares for $1,990,000. Plaintiff claimed Defendants committed securities fraud by misrepresenting facts concerning the development of the WHISPER prior to purchasing stock in the company. Plaintiff argued offering documents and business plan statements regarding the device’s capabilities were misleading and invalid, implying the device was fully developed when Defendants were aware the WHISPER did not perform as stated. Defendants conceded some statements in the business plan, read alone, could infer the product was fully-developed, but not if read fully and in context. Defendants argued the Plaintiff should have been familiar with the language in the business plan and experienced in investing due to the members’ professions and educational backgrounds. Further, Defendant claimed the Plaintiff had the chance to research the device and see the facility but chose not to.
For a party to prove any violations under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, the party must prove materiality, scienter, and loss causation. To prove materiality, the misstatement must significantly alter how a reasonable investor views the information. Scienter can be established by either: (1) showing the defendant had both motive and opportunity to commit fraud, or (2) establishing facts constituting circumstantial evidence of recklessness or conscious behavior. Finally, to prove loss causation there must be evidence: (1) of a sufficient causal connection between the alleged loss and the alleged misrepresentation, and (2) that the stock price dropped in response to the disclosure of the alleged misrepresentation.
According to the court, Plaintiff failed to prove Defendants intentionally misrepresented or omitted material information in the offering documents and business plan that caused the Plaintiff an economic loss. The wording used in the offering documents could be interpreted in multiple ways and there was no proof that the Defendants did this in an attempt to mislead the Plaintiff’s judgment and portray that the device was at a more developed stage. Further, the Plaintiff could not establish an economic loss because the Defendants sold the company in an effort to save the value of the Plaintiff’s investment. The court found neither party presented strong enough evidence to show there was no issue as to the material facts of the case. Each party’s testimony differed concerning the Defendants’ statements during the offering period and no testimony presented clear intentions behind the misleading statements in question.
For the above reasons, the court denied the Plaintiff’s and Defendant’s motions for summary judgment.
The primary materials for this case may be found on the DU Corporate Governance website.