Zak v. Chelsea Therapeutics Int’l, No. 13-2370 (4th Cir. 2015)Annotate this Case
Plaintiffs, a class of investors, filed this suit claiming that Chelsea Therapeutics International, LTD. and several of its corporate officers violated the Securities Exchange Act by making misleading statements and material omissions about the development and likelihood of regulatory approval for a new drug. The district court dismissed the claim under Fed. R. Civ. P. 12(b)(6), concluding that Plaintiffs’ securities fraud claims failed because their allegations were insufficient to establish that Defendants acted with the required scienter. The Fourth Circuit vacated the district court’s judgment dismissing Plaintiffs’ complaint, holding that the district court erred in (1) taking judicial notice of three documents filed with the Securities and Exchange Commission because those documents were not explicitly referenced in, or an integral part of, Plaintiffs’ complaint, and the error was not harmless; and (2) concluding that Plaintiffs’ allegations of scienter were insufficient as a matter of law, as, based on Defendants’ failure to disclose critical information about the weaknesses of the new drug application, Plaintiffs’ allegations were sufficient to support the required inference of scienter. Remanded.