Affirmation of the PSLRA Safe Harbor and Rigorous Scienter Standards in Securities Litigation

Introduction

In Mangrove Partners Fund, Ltd. v. Bristol-Myers Squibb Co., 24-826 (2d Cir. May 16, 2025), the Second Circuit confronted a securities class action arising from contingent value rights (“CVRs”) issued in connection with the 2019 BMS–Celgene merger. Plaintiffs, holders of CVRs that paid out only if three Celgene drug candidates obtained timely FDA approval, alleged that BMS and certain executives and directors made materially false statements about the prospects and value of those CVRs. The district court dismissed for failure to state a claim under Sections 11 and 12(a)(2) of the Securities Act, Sections 10(b) and 14(a) of the Exchange Act (and accompanying SEC rules), and control-person liability provisions, invoking the Private Securities Litigation Reform Act (“PSLRA”) safe harbor for forward-looking statements and concluding that Plaintiffs had not adequately pleaded scienter. The Second Circuit affirmed, clarifying the application of the PSLRA safe harbor to forward-looking statements accompanied by meaningful cautionary language, reiterating the high bar for scienter under Section 10(b)/Rule 10b-5, and upholding the denial of leave to amend.

Summary of the Judgment

The court affirmed the dismissal of Plaintiffs’ Second Amended Complaint under Federal Rule 12(b)(6).
Claims under Sections 11 and 12(a)(2) of the Securities Act and Section 14(a)/Rule 14a-9 of the Exchange Act were barred by the PSLRA safe harbor for forward-looking statements and, as to non-forward-looking statements, were not false as a matter of law.
Claims under Section 10(b)/Rule 10b-5 were dismissed for failure to plead scienter with the particularity and cogency required by the PSLRA and Tellabs.
Control-person claims under Sections 15 and 20(a) failed for lack of any underlying primary violation.
The district court’s denial of leave to amend was affirmed because Plaintiffs failed to explain how additional discovery (e.g., via FOIA requests) would cure the pleading deficiencies.

Analysis

Precedents Cited

PSLRA Safe Harbor Cases
- 15 U.S.C. § 77z-2 (Securities Act) & § 78u-5 (Exchange Act): shield forward-looking statements when accompanied by meaningful cautionary language, are immaterial, or plaintiffs fail to prove actual knowledge of falsity.
- Slayton v. Am. Express Co., 604 F.3d 758 (2d Cir. 2010): forward-looking statements require non-boilerplate, substantive cautionary language.
- In re Vivendi, S.A. Sec. Litig., 838 F.3d 223 (2d Cir. 2016): cautionary language must describe specific, realistic risk factors.
Pleading Standards
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) & Ashcroft v. Iqbal, 556 U.S. 662 (2009): plausibility standard.
- Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007): scienter must be “cogent” and at least as compelling as non-culpable inferences.
Scienter and Motive/Opportunity Cases
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000): scienter can be shown by conscious recklessness or actual intent.
- S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009): motive must be concrete and personal—generic profit motives insufficient.
- ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JPMorgan Chase Co., 553 F.3d 187 (2d Cir. 2009): generic corporate targets to appear profitable do not support scienter.
- Ark. Pub. Emps. Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343 (2d Cir. 2022): only “unusual” insider trading gives rise to an inference of scienter.
Control Person Liability
- In re Lehman Bros. Mortgage-Backed Sec. Litig., 650 F.3d 167 (2d Cir. 2011): requires an underlying primary violation.

Legal Reasoning

1. PSLRA Safe Harbor Application: The court held that statements in the Joint Proxy estimating launch dates, approval probabilities, CVR value, and management’s “diligent efforts” were forward-looking and accompanied by detailed cautionary disclosures as to FDA uncertainties. Because the warnings were more than boilerplate—identifying specific factors (FDA decisions, manufacturing approvals, development risks)—they fit squarely within the PSLRA safe harbor. Plaintiffs’ allegations of a secret intent to delay approval failed to show actual knowledge of falsity, a further prerequisite to defeat safe harbor protection.

2. Section 10(b)/Rule 10b-5 Scienter: Under Tellabs and the PSLRA, plaintiffs must plead facts giving rise to a strong inference of intent to defraud. Plaintiffs offered no concrete motive (courts reject generic corporate profitability motives and mere desire to keep a CEO’s job), no “unusual” insider trading, and no strong circumstantial evidence that executives knew of any deliberate slowdown rather than ordinary manufacturing or regulatory setbacks. The competing, innocuous inference—that integration challenges, COVID-19 disruptions, and manufacturing glitches delayed the process—was at least as compelling, negating scienter.

3. Control-Person Claims: Because there was no viable primary violation, liability under Sections 15 and 20(a) could not stand.

4. Denial of Leave to Amend: Plaintiffs’ proffered FDA and CBER FOIA requests lacked any explanation as to what additional facts might be unearthed or how those facts would cure the deficiencies. Futility justified refusal to grant a third amendment.

Impact

Confirms robust protection for forward-looking statements under the PSLRA when accompanied by non-boilerplate cautionary language.
Reinforces the stringent scienter-pleading standard of Tellabs and the PSLRA—generic motives and ordinary operational setbacks will not support a fraud claim.
Signals to securities plaintiffs the difficulty of alleging secret corporate schemes without clear documentary or insider evidence.
Guides drafting of merger proxies and cautionary disclosures—specific, fact-based risk factors remain the best hedge against later challenge.

Complex Concepts Simplified

PSLRA Safe Harbor: A legal shield that protects defendants from liability for forward-looking statements—such as projections, plans, or risk assessments—if those statements are identified as forward-looking, accompanied by meaningful warnings about real risks, or plaintiffs cannot prove the speaker knew they were false.
Forward-Looking Statements: Predictions or plans about future events—e.g., projected drug approvals, estimated revenues, anticipated launch dates—that inherently involve uncertainty and therefore require cautionary language to avoid misleading investors.
Scienter: The mental state required for securities fraud: either actual intent to deceive/manipulate or conscious recklessness (highly unreasonable omissions or misstatements). Plaintiffs must plead facts making such intent at least as plausible as innocent explanations.
Motive and Opportunity: A way to show scienter by identifying a concrete personal gain—financial or reputational—that defendants sought from the alleged fraud. General corporate benefits like maintaining profitability are insufficient.
Control Person Liability: Sections 15 and 20(a) allow claims against individuals or entities that indirectly controlled the primary violator. Liability only attaches if there is an underlying primary violation and the controlling person had the power to direct or influence the wrongdoing.

Conclusion

Mangrove Partners Fund, Ltd. v. Bristol-Myers Squibb Co. reaffirms that the PSLRA safe harbor robustly shields forward-looking statements when accompanied by specific, meaningful cautionary disclosures, and that plaintiffs face a formidable burden in pleading scienter under Tellabs and the PSLRA. It underscores the essential role of detailed risk factors in merger proxies and highlights the high bar for alleging secret corporate manipulation of regulatory processes. As securities litigation continues to evolve, this decision will serve as a touchstone for courts assessing the interplay of forward-looking disclosures, cautionary language, and the rigorous scienter requirements of federal securities law.