Compass Lexecon Client AbbVie, Inc. Prevails on Summary Judgment in Securities Class Action

Plaintiffs alleged that AbbVie, its chief executive officer, and former chief financial officer fraudulently misled investors by concealing that the company had violated the federal Anti-Kickback Statute by offering healthcare providers free administrative services and other benefits in exchange for prescribing the drug Humira. Plaintiffs further alleged that a class of purchasers of AbbVie common stock incurred losses attributable to the allegations when the price dropped following a disclosure that purportedly revealed the alleged violations.

Compass Lexecon affiliate Professor Kenneth M. Lehn was retained by Kirkland & Ellis, LLP, counsel for AbbVie, to opine on materiality, loss causation, and damages, and to respond to the opinions of Plaintiffs’ expert regarding the same. Professor Lehn filed an expert report and provided deposition testimony in which he opined that Plaintiffs’ damages expert’s opinions were flawed, unscientific, and unreliable because, among other things, the purported truth had been disclosed earlier than Plaintiffs and their expert claimed, and the cause of the price decline following the purported revelatory information was new information about potential regulatory action. Consistent with Professor Lehn’s opinions, U.S. District Judge John J. Tharp Jr. ruled that the purported truth had been disclosed earlier, and that the new regulatory information caused the decline. Consequently, Judge Tharp found that Plaintiffs could not establish loss causation.

Kirkland & Ellis also retained Compass Lexecon supported expert Professor Wayne R. Guay to respond to the opinions of Plaintiffs’ executive compensation expert, who claimed that Defendants were incentivized to engage in fraud through the nature of their compensation, that their trading was suspicious and unusual, and that the structure and use of individual Defendants’ 10b5-1 trading plans was highly abnormal. Professor Guay filed an expert report and provided deposition testimony in which he opined, among other things, that the expert’s opinions were misleading, speculative, and conceptually flawed because AbbVie’s executive compensation plan provided economic incentives consistent with corporate governance best practices. He further opined that Defendants’ sales were not unusual or suspicious with regard to timing or size, the features and structure of Defendants’ 10b5-1 trading plans were typical when properly contextualized, and Defendants’ holdings increased substantially over the period.

In granting Defendants’ motion for summary judgment, Judge Tharp agreed with Professor Guay’s findings that economic incentives to increase the sales of Humira as AbbVie’s top-selling product are functionally equivalent to economic incentives to increase revenues in general, the timing and size of Defendants’ stock sales were not unusual or suspicious when examined in their proper context, the structure of Defendants’ 10b5-1 trading plans was immaterial to Defendants’ state of mind, and adopted Professor Guay’s finding that the substantial increase in the Defendants’ holdings cuts against an inference of deceptive intent.

AbbVie and the executive Defendants were successfully represented by Robert Kopecky, Josh Rabinowitz, K. Ross Powell, Brenton Rogers, and Chris Hinojosa at Kirkland & Ellis LLP. Professors Lehn and Guay were supported by a Compass Lexecon team led by Ralph Scholten that included Michael Keable, Samuel Hollander, Shawn Chen, Anne Marie Yale, and Eugia Yao.