District Court Grants Preliminary Approval of $65.75 Million Settlement in Mallinckrodt plc Securities Class Action

4/7/2022 - On April 7, 2022, United States District Judge Dabney L. Friedrich of the District of Columbia granted preliminary approval of a $65.75 Million settlement of a securities class action lawsuit against drug maker Mallinckrodt plc, its CEO and former CFO, negotiated by Barrack, Rodos & Bacine, on behalf of its client, the State Teachers Retirement System of Ohio (“STRS Ohio”).  STRS Ohio and BR&B reached this settlement with defendants while Mallinckrodt was engaged in bankruptcy proceedings.  STRS Ohio is the sole lead plaintiff and BR&B is the sole lead counsel in the case. 

Background

BR&B and its co-counsel filed a complaint on STRS Ohio’s behalf in May 2018, asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.  The complaint alleged that investors who purchased or otherwise acquired common stock of Mallinckrodt were damaged as a result of false or misleading material misstatements and omissions that Mallinckrodt and certain senior officers made relating to the company’s blockbuster drug, H.P. Acthar Gel (“Acthar”).  Thereafter, the court substantially rejected defendants’ arguments in support of their motions to dismiss that complaint.  The court found that the complaint adequately alleged that: (1) on October 6, 2015, Mallinckrodt’s CEO, Mark Trudeau, misrepresented the portion of Acthar sales attributable to Medicare and Medicaid when he said it was roughly a quarter of sales (rather than nearly double that, as alleged in the complaint); (2) the company made false statements when it stated in November 2016 that there was no pending litigation in connection with a Federal Trade Commission investigation when, less than two months later, on January 18, 2017, the FTC filed a complaint and the company simultaneously entered into a Consent Decree with the FTC; and (3) Mallinckrodt made a series of false and misleading statements in 2017 claiming, among other things, that insurers were providing greater approval of Acthar when the reality was that many insurers were placing greater restrictions and limitations on approving Acthar for their insureds.  The court’s decision allowed STRS Ohio and BR&B to move forward with the prosecution of the case on behalf of a proposed class of investors in Mallinckrodt stock, beginning with Trudeau’s statement of October 6, 2015 and continuing through November 6, 2017.

Discovery and Other Actions Leading to Settlement

Following the court’s ruling on defendants’ motions to dismiss, the parties undertook extensive document productions pertaining to the merits of the case.  On July 29, 2020, BR&B filed a motion for class certification, supported by a memorandum of law and various exhibits, including an expert report of a financial economist.  In July and August 2020, the parties also undertook certain discussions and agreed to pursue mediation to explore reaching a global resolution of the action. 

Shortly thereafter, in October 2020, Mallinckrodt filed a Notice of Bankruptcy.  Even though Mallinckrodt had filed for bankruptcy, BR&B, on behalf of STRS Ohio, was able to keep the mediation on track.  We worked with defendants’ counsel to convince the bankruptcy court to modify the automatic stay and allow the parties to participate in the mediation.  In advance of the mediation, the parties exchanged additional documents, and prepared for and conducted two rounds of simultaneous submissions.  The mediation was conducted remotely by Zoom over two separate sessions.  The parties, their counsel, and relevant D&O Insurers and their counsel attended both sessions.  Between the mediation sessions, the parties and their counsel also engaged in numerous additional discussions with the mediator in an attempt to narrow the gap in advance of the second mediation session.

On January 12, 2021, toward the end of the second mediation session, the parties conditionally agreed to settle the case for a cash payment of $65.75 million for the benefit of the investor class contingent on an order of the bankruptcy court authorizing Mallinckrodt to enter into the settlement.  The bankruptcy court granted that authorization on February 3, 2022, after the bankruptcy court had considered the company’s proposed plan of reorganization.  With the bankruptcy court’s order in hand, BR&B asked the district court to lift the stay of the district court proceedings automatically imposed with Mallinckrodt’s bankruptcy and sought preliminary approval of the settlement.  On April 7, 2022, the district court granted the motion and set a final settlement approval hearing for late July 2022.  Notices and proof of claim forms will be distributed on and after April 27, 2022 to potential class members.

If you have any questions about the settlement or the litigation involving Mallinckrodt, please contact BR&B partners Jeff Golan or Jeff Gittleman, at 215-963-0600, or via email at jgolan@barrack.com or jgittleman@barrack.com.