|  | | 2009 News and Press Releases | | |
DISMISSAL NEWS:
Securities Litigation Against NutriSystem Is Thrown Out
Shannon P. Duffy
The Legal Intelligencer. October 28, 2009
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EXCERPT: The team of lawyers from Morgan Lewis who defended NutriSystem Inc. in a spate of securities fraud suits can claim a complete victory now that a federal judge has dismissed a pair of derivative suits. U.S. District Judge Mary A. McLaughlin's 56-page opinion in In re NutriSystem Inc. Derivative Litigation comes less than two months after the same judge tossed out a class action shareholders suit against the company. McLaughlin's 41-page opinion in In re NutriSystem Inc. Securities Litigation rejected allegations that top executives made false and misleading statements about the company's financial health. The suit alleged that NutriSystem was aware that its sales were threatened by the competition from Alli, an over-the-counter anti-obesity drug produced by GlaxoSmithKline, but that the company continued to tout its future earnings prospects. But Nutrisystem's lawyers -- Marc J. Sonnenfeld and Karen Pieslak Pohlmann of Morgan Lewis & Bockius -- argued that the case should be dismissed because the plaintiffs had failed to establish "scienter," meaning there was insufficient evidence that any public statements were knowingly false. McLaughlin agreed, saying in her August opinion that "the most plausible inference from the facts as alleged is that the defendants were aware of the threat posed by an over-the-counter weight loss pill, and by Alli specifically, but genuinely believed any effect on NutriSystem sales would be short-lived." The theory of the suit was fatally flawed, McLaughlin found, because the plaintiffs failed to allege how the NutriSystem executives would have been aware of Alli's sales figures in any way other than GSK's press releases. Lead plaintiffs attorney […] urged McLaughlin to green-light the case on the "core business" theory, which allows for scienter to be pleaded through the combination of an officer's position with the company and fraud allegations related to the company's core business. |
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