On March 29, 2023, United States District Judge Nina Gershon of the Eastern District of New York issued an opinion denying defendants’ motion to dismiss an Amended Complaint BR&B filed against Dentsply Sirona, Inc. and a number of its executives and directors. The Court’s decision upheld the Amended Complaint, filed for BR&B client Strathclyde Pension Fund, in virtually all respects. The decision represents an important milestone in the prosecution of federal securities claims that are asserted on behalf of a putative investor class described below.
Dentsply Sirona was formed through a merger of Dentsply Int’l and Sirona Dental Systems, Inc., which was completed on February 29, 2016. The merged company is the world’s largest manufacturer of professional dental products and technologies. The claims asserted in the case are based on alleged false and misleading statements by defendants to investors, which concealed the fact that the company’s financial condition and purported growth had been propped up by: (i) an undisclosed massive build-up of excess inventory at Patterson, the company’s exclusive distributor of certain dental imaging products, which build-up far exceeded end-user demand; and (ii) anticompetitive behavior by the three major U.S. distributors of Dentsply Sirona dental consumable supplies and equipment.
The initial complaint was filed in May 2019, and defendants sought to dismiss the complaint in November 2019. After briefing on defendants’ motion to dismiss was completed, but before the court ruled on the motion, Dentsply Sirona entered into a Cease and Desist Order with the U.S. Securities Exchange Commission on December 16, 2020, relating to the company’s failure to disclose the inventory glut at Patterson. Based on this new development, BR&B and Strathclyde filed a 162-page Amended Complaint that asserted claims on behalf of all persons who: (1) purchased or otherwise acquired the common stock of Dentsply Int’l and Dentsply Sirona between February 20, 2014 and August 7, 2018; (2) acquired shares of the common stock of Dentsply Sirona in exchange for their Sirona stock in the Merger; or (3) are former Dentsply Int’l shareholders who held shares as of December 2, 2015 and were entitled to vote with respect to the Merger; and were damaged by the alleged misconduct. Shortly thereafter, Defendants filed motions to dismiss the Amended Complaint, which were again fully briefed by the parties.
On March 29, 2023, Judge Gershon issued a detailed 50-page opinion that upheld the Amended Complaint in nearly all respects. As a result, the lawsuit will proceed against Dentsply Sirona, seven of its former officers, and the individuals who were on the Dentsply Sirona board of directors at the time of the Merger. The opinion is available at In re Dentsply Sirona, Inc. Securities Litigation, 18-cv-7253 (NG)(PK), 2023 WL 2682905 (E.D.N.Y. Mar. 29, 2023). In sustaining the Amended Complaint, Judge Gershon found that BR&B and Strathclyde reasonably relied upon findings made in the SEC Cease and Desist Order as a basis for factual allegations included in the Amended Complaint. Defendants had argued that references to the SEC Order should be stricken, but the Court held, among other things, that since the SEC Order overlapped with and supported Strathclyde’s separately stated allegations, reliance on it was “unproblematic.”
Second, the Court found that BR&B and Strathclyde had timely asserted all of the claims in the Amended Complaint, including claims relating to the Merger and on behalf of investors who purchased the Company’s stock during the Class Period on the open market.
Third, Judge Gershon’s ruling sustained nearly every alleged misstatement, including:
- Statements claiming that Dentsply’s products were being sold in a market with “strong demand,” when in fact Patterson was over-buying Dentsply products to meet minimum purchase requirements in the exclusive distribution agreements between the two companies. The Court sustained the claims based on these statements in large part because they were made repeatedly, in response to direct questions from analysts, and given their importance to shareholders.
- Statements regarding the source of Defendants’ success being “global dental market growth, innovations and new products launched by the Company, and continued investments in sales and marketing” and the “highly competitive” market for company products since – unknown to investors – the Company was benefiting from an anticompetitive conspiracy between its distributors that kept prices for products high by boycotting state dental associations in an effort to discourage the formation of dental buying groups. The Court held that Lead Plaintiff Strathclyde sufficiently alleged Defendants’ knowledge of and acquiescence in this anticompetitive conduct that benefitted Dentsply Sirona.
- Statements regarding Dentsply Sirona’s estimates of goodwill because these estimates were inflated by the Patterson excess inventory and distributor anticompetitive conspiracy.
In upholding the claims in the Amended Complaint against Dentsply Sirona and its executives, Judge Gershon also held that the complaint alleged a strong inference that the company and its executives made false or misleading statements either knowingly or with reckless disregard of the truth (i.e., with scienter). Among other rulings, the Court held that the statements were in contrast to information uniquely known by the executives and not known to the public, most particularly the detailed monthly reports by Patterson and emails with the distributors concerning their anticompetitive conduct. The Court also held that “the resignations of Dentsply Sirona’s four top executives; the fraud’s impact on core operations; and the magnitude of the company’s impairment charges,” all contributed to a finding of scienter.
BR&B looks forward to continuing the prosecution of this litigation on behalf of Strathclyde and above-identified putative Class. BR&B partners Jeff Golan (firstname.lastname@example.org), Rob Hoffman (email@example.com), Chad Carder (firstname.lastname@example.org) and Michael Toomey (email@example.com) are litigating the Dentsply Sirona case and are available to provide additional information upon request.