In re Orthofix Medical, Inc. Securities Litigation

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
In re Orthofix Medical Inc. Sec. Litig.
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CIVIL ACTION NO. 2:24-CV-00690-JRG
MEMORANDUM OPINION AND ORDER
Before the Court are: (1) Orthofix, SeaSpine, and Certain Individual Defendants’ Motion
to Dismiss the First Amended Consolidated Complaint, and (2) Defendants Bostjancic, Keran, and
Valentine’s Motion to Dismiss the First Amended Consolidated Complaint (the “Motions to
Dismiss”). (Dkt. Nos. 50, 51.) The Court takes up the Motions to Dismiss together due to the
overlapping subject matter and arguments, as well as the fact that the lead plaintiff and proposed
class (“Plaintiffs”) responded to the Motions to Dismiss in a single omnibus response. (Dkt. No.
58.) Having considered the Motions, the Court finds that they should be and hereby are
GRANTED-IN-PART and DENIED-IN-PART.
I. 	BACKGROUND
The initial complaint in this suit was filed by Mr. Matthew Bernal against Orthofix Medical
Inc. (“Orthofix”), Mr. Jon C. Serbousek, Mr. Keith Valentine, Mr. John Bostjancic, and Mr. Patrick
Keran on August 21, 2024. (Dkt. No. 1.) The Court consolidated another case with a similar pool
of defendants (Civil Action No. 2:24-cv-00979-JRG) into the above-captioned case on December
11, 2024. (Dkt. No. 35.) The current Plaintiffs filed the First Amended Complaint (the “FAC”) on
April 17, 2025. (Dkt. No. 49.) The Motions to Dismiss both followed on May 19, 2025. (Dkt. Nos.
50, 51.) The Court held a hearing on the Motions to Dismiss on February 18, 2026. (Dkt. No. 77.)
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A. The Parties
Plaintiffs bring this suit against many groups of defendants. The Court adopts the categories
of defendants defined by Plaintiffs in the FAC and set out below. All together, the parties
summarized below are referred to as “Defendants.”
The FAC defines the “Exchange Act Defendants” as Defendants Orthofix, SeaSpine
Holdings Corp. (“SeaSpine”), and the Individual Exchange Act Defendants. The “Individual
Exchange Act Defendants” are in turn comprised of the Legacy Orthofix Officer and Director
Defendants, the Orthofix Post-Merger Director Defendants, and the Terminated Executive
Defendants. The FAC clarifies that the “Legacy Orthofix Officer and Director Defendants” are Mr.
Jon C. Serbousek, Mr. Douglas C. Rice, Ms. Catherine M. Burzik, Mr. Wayne Burris, Mr. Jason
M. Hannon, Mr. James F. Hinrichs, Ms. Lilly Marks, Mr. Michael E. Paolucci, Mr. John E. Sicard,
Mr. Thomas A. West, and Ms. Kimberley A. Elting. The “Orthofix Post-Merger Director
Defendants” are Ms. Burzik, Mr. Hannon, Mr. Hinrichs, Mr. Paolucci, Mr. Serbousek, and the
SeaSpine-Orthofix Director Defendants. The “SeaSpine-Orthofix Director Defendants” are
comprised of Mr. Stuart Essig, Mr. John Henneman, III, and Ms. Shweta Singh Maniar. The
“Securities Act Defendants” are Orthofix, SeaSpine, and the Signer Defendants. The “Signer
Defendants” are the individuals who signed the offering documents in connection with the
Orthofix-SeaSpine merger—the Legacy Orthofix Officer and Director Defendants, Mr. Keith
Valentine, and Mr. Patrick Keran. Finally, the “Terminated Executive Defendants” are Mr.
Valentine, Mr. Keran, and Mr. John Bostjancic.
The Motion to Dismiss at Dkt. No. 50 (the “First Motion to Dismiss”) was filed by
Orthofix, SeaSpine, the Legacy Orthofix Officer and Director Defendants, and the SeaSpine-
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Orthofix Director Defendants. The Motion to Dismiss at Dkt. No. 51 (the “Second Motion to
Dismiss”) was filed by the Terminated Executives.
B. The Merger
Orthofix is a Texas-based spine and orthopedics company. (Dkt. No. 49 at 2.) On October
11, 2022, Orthofix announced that it had entered into an agreement to merge with SeaSpine, a
California-based medical technology company. (Id.) On January 5, 2023, the merger—with
Orthofix as the surviving company—became effective. (Id. at 3.) The (soon to be) Terminated
Executives came over from SeaSpine to serve as the President and Chief Executive Officer
(“CEO”), Chief Financial Officer (“CFO”), and Chief Legal Officer (“CLO”) of the new Orthofix
board. (Id. at 2.)
C. Pre-Merger Johnson Action and Subsequent Activity at SeaSpine
Prior to the merger, SeaSpine was involved in a discrimination class action lawsuit filed in
2017 (the “Johnson Action”), involving a class of 276 current and former female employees who
worked for SeaSpine in California from July 1, 2015 to December 31, 2019. (Dkt. No. 49 at 17-
19; see Johnson v. SeaSpine Holdings Corp., Case No. 30-2017-00949804-CU-OE-CXC (Cal.
Super. Ct. Orange Cnty.).) The court approved a settlement in the Johnson Action on July 26, 2021.
(Id.) As part of the settlement, SeaSpine was required to pay $919,500.87 in settlement funds. (Dkt.
No. 49 at 19.) The settlement also included “targeted programmatic relief under which SeaSpine
agreed to hire an outside vendor to review their work departments with an emphasis on high pay
gaps.” (Id.)
The FAC includes allegations that Orthofix “disregard[ed] the mountain of evidence that
the Terminated Executive[s] fostered a hostile and discriminatory environment at SeaSpine” after
the Johnson Action and leading up to the merger. (Id. at 17.) Among Plaintiffs’ support for this
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contention is: a discrimination-based complaint filed post-merger in California state court by Ms.
Catherine O’Connor, a former SeaSpine attorney, alleging that Ms. O’Connor’s bonus target was
below market (id. at 20); an anonymous post on Glassdoor.com from September 14, 2022 stating
that there was “drinking at all hours of the day at cubicles” and “favoritism when promotions came
around,” among other anonymous online posts (id. at 22); a confidential witness (“CW”) who
worked at SeaSpine from July 2022 to July 2024 who “witnessed a complaint—this one relating
to harassment [of a female employee by a male colleague]—go unaddressed” (id. at 40); and text
messages between the Terminated Executives making sexist and other offensive comments about
employees (id. at 25-28, 64-66).
D. Post-Merger Firing of the Terminated Executives
Roughly six months after the merger, Orthofix’s board “received a complaint from then-
President of Orthofix Global Spine, Kevin Kenny, detailing multiple workplace issues and
inappropriate conduct by the Terminated Executive Defendants.” (Id. at 74-75.) This complaint
prompted the board to “take action and commence an investigation, spending millions of dollars
in the process.” (Id. at 75.) This investigation involved other members of the Orthofix board as
well as outside counsel from DLA Piper and Lathan & Watkins. (Id.) Around August 17, 2023, the
Terminated Executives were required to provide their personal phones to be searched as part of
this investigation, which is how the Orthofix board became aware of their inappropriate text
messages. (Id. at 76.)
On September 12, 2023, Orthofix issued a press release which announced the “unanimous
decision 	by 	the 	Board’s 	independent 	directors 	to 	terminate 	for 	cause 	[the 	Terminated
Executives]… and requested that Mr. Valentine resign from the Board” following an internal
investigation conducted by outside counsel and overseen by Orthofix’s independent directors. (Id.
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at 77-78.) The Terminated Executives have since sued for defamation to challenge Orthofix’s
public-facing statements about their termination. (Id. at 8.) The day after Orthofix made these
announcements, Orthofix’s “stock declined $5.62 per share, or over 30%, to close at $13.01 per
share on September 13, 2023, on unusually heavy volume, wiping out $206.5 million of market
capitalization.” (Id. at 79.)
E. The Challenged Statements
Defendants divide the statements Plaintiffs challenge in the FAC into six (6) categories,
with the full text of each set out in Exhibit 1 to the First Motion to Dismiss alongside Defendants’
objections to each. (See Dkt. No. 50-2.) These statement type categories were referenced by all
parties at the hearing on the Motions to Dismiss as well. For ease of discussion, the Court adopts
these statement type categories as summarized below.
Statement Type 1. The merger prospectus identified thirty-two (32) separate factors that
Orthofix’s board considered in recommending Orthofix stockholders vote their shares in favor of
a merger. (Dkt. No. 50 at 8.) Plaintiffs assert Orthofix’s board lied when it stated that the fifteenth
factor it considered was “[t]he complementary cultures of Orthofix and SeaSpine, including a
strong performance-based culture focused on integrity, collaboration, innovation, diversity and
corporate responsibility.” (Id., citing Dkt. No. 49 at 135.)
Statement Type 2. The merger prospectus included as an appendix the merger agreement
between Orthofix and SeaSpine. (Dkt. No. 50 at 8-9.) Plaintiffs challenge representations and
warranties about employment matters that SeaSpine made to Orthofix in the merger agreement,
including that “[w]ithin the past four (4) years, SeaSpine has not entered into any settlement
agreement” pertaining to misconduct allegations. (Id. at 9, citing Dkt. No. 49 at 88.) Defendants
note that the merger agreement “stated that the representations and warranties were qualified by
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materiality thresholds and a ‘confidential disclosure letter delivered by SeaSpine.’” (Dkt. No. 50
at 9, citing Dkt. No. 50-8 at A-20.)
Statement Type 3. In a November 18, 2022 SEC Form 425 statement, Orthofix proffered
that the merged company’s executive leadership team was “selected based not only on their
individual merit but also with consideration” for the leadership team to include “leaders from both
legacy organizations.” (Dkt. No. 50 at 9, citing Dkt. No. 49 at 93.)
Statement Type 4. Also on November 18, 2022, a Form 8-K press release statement
included a claim that Mr. Bostjancic was a “cultural influence” and “well positioned to help lead
us through the successful integration of the two companies, ensuring accountability across all
levels of the organization.” (Dkt. No. 50 at 9, citing Dkt. No. 49 at 94-95.)
Statement Type 5. Orthofix filed its Form 10-K annual report for 2022 with the SEC on
March 6, 2023. (Dkt. No. 50 at 10.) Plaintiffs challenge many statements from the 2022 Form 10-
K, such as statements that “[i]t is our fundamental policy to conduct business in accordance with
the highest ethical and legal standards. We have a comprehensive compliance and ethics program,”
and that “[o]ur key human capital objectives in managing our business include attracting,
developing, and retaining top talent while integrating diversity, equity, and inclusion principles
and practices into our core values.” (Dkt. No. 49 at 102-03.) In these statements, Orthofix identified
at a high level the “key elements” of its compliance program, such as “investigation and
remediation 	measures,” 	and 	“disciplinary 	guidelines 	to 	enforce 	compliance 	and 	address
violations.” (Dkt. No. 50 at 10, citing Dkt. No. 50-10 at 17-18.) Defendants note as well that the
2022 Form 10-K discussion of its compliance program expressly warns that “these [internal]
controls may not always be effective” because “[t]here are inherent limitations on the effectiveness
of internal controls.” (Dkt. No. 50 at 11, citing Dkt. No. 50-10 at 31.)
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Statement Type 6. In its April 27, 2023 proxy statement filed with the SEC, Orthofix stated
that “Corporate codes of conduct [are] enforced at all levels of the Company” to “promote[] honest
and ethical conduct.” (Dkt. No. 50 at 11, citing Dkt. No. 49 at 107.)
F. 	Plaintiffs’ Claims
The FAC includes seven counts, four under the Exchange Act and three under the Securities
Act. Counts I and II allege violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5
against Orthofix, the Legacy Orthofix Officer and Director Defendants, the Orthofix Post-Merger
Director Defendants, SeaSpine, and the Terminated Executive Defendants. Counts III and IV
allege violations of Section 20(a) of the Exchange Act against the Legacy Orthofix Officer and
Director Defendants, the Orthofix Post-Merger Director Defendants, and the Terminated Executive
Defendants. Count V alleges violations of Section 11 of the Securities Act against Orthofix and
the Signer Defendants. Count VI alleges violations of Section 12(a)(2) of the Securities Act against
the Securities Act Defendants. Finally, Count VII alleges violations of Section 15 of the Securities
Act against the Securities Act Defendants.
II. 	LEGAL AUTHORITY
A complaint will survive a Rule 12(b)(6) motion if, “accepting its factual allegations as
true, the complaint plausibly states a claim for relief.” Okla. Firefighters Pension & Ret. Sys. v. Six
Flags Ent. Corp., 58 F.4th 195, 206 (5th Cir. 2023) (internal citation omitted).
Plaintiffs allege primary violations of Section 10(b) of the Exchange Act, SEC Rule 10b-
5, and Sections 11 and 12(a)(2) of the Securities Act. Plaintiffs also allege secondary control person
liability claims under Section 20(a) of the Exchange Act and Section 15 of the Securities Act. See
citing Ak. Elec. Pension Fund v. Flotek Indus., Inc., 915 F.3d 975, 986 (5th Cir. 2019) (“[c]ontrol
person liability is secondary only and cannot exist in the absence of a primary violation”).
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“To state a claim under § 10(b) of the Securities Exchange Act and SEC Rule 10b-5, a
plaintiff must allege: (1) a material misrepresentation or omission; (2) scienter (a ‘wrongful state
of mind’); (3) a connection with the purchase or sale of a security; (4) reliance; (5) economic loss;
and (6) a ‘causal connection between the material misrepresentation and the loss.’” Mun. Emps.’
Ret. Sys. of Mich. v. Pier 1 Imports, Inc., 935 F.3d 424, 429 (5th Cir. 2019) (quoting Dura Pharm.,
Inc. v. Broudo, 544 U.S. 336, 341-42 (2005)). A complaint alleging a violation of Section 10(b)
must also meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b),
requiring that the complaint “state all allegations of fraud with particularity.” Fed. R. Civ. P. 9(b).
It must also meet the heighted pleading requirements of the Private Securities Litigation Reform
Act (“PSLRA”), under which plaintiffs must allege with particularity (1) why each one of
defendants’ representations or omissions was “misleading,” and (2) those facts giving rise to a
“strong inference” that the defendant acted with scienter. See Six Flags, 58 F.4th at 206-07 (internal
citations omitted).
In contrast, Sections 11 and 12(a)(2) of the Securities Act require only a material
misstatement, made in a registration statement or a prospectus, respectively. 15 U.S.C. §§ 77k(a),
77/(a)(2). Where a prospectus is included as part of the registration statement, a statement in a
prospectus can be subject to both Sections 11 and 12(a)(2).
Since falsity and materiality are analyzed the same way under Section 10(b) and Sections
11 and 12(a)(2), the actionability of statements which Plaintiffs challenge under both the Exchange
Act and the Securities Act can be addressed by the Court together as to whether they are material
misstatements or omissions. See, e.g., Police & Fire Ret. Sys. v. Plains All Am. Pipeline, LP, 777
Fed. Appx. 726, 733 (5th Cir. 2019) (“[t]he analysis for falsity does not differ from the similar
analysis under the Exchange Act”).
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III. 	ANALYSIS
In the Motions to Dismiss, Defendants seek to dismiss the entirety of the FAC. First, they
assert that Plaintiffs have failed to plead a material misrepresentation or omission as required by
Section 10(b) of the Exchange Act, SEC Rule 10b-5, and Sections 11 and 12(a)(2) of the Securities
Act. Next, they assert that Plaintiffs have failed to plead both loss causation and a strong inference
of scienter as required by Section 10(b) and Rule 10b-5. Finally, they assert that Plaintiffs have
failed to establish control person liability under both Section 20(a) of the Exchange Act and Section
15 of the Securities Act. The Court now takes up each of these arguments in turn.
A. Material Misrepresentation or Omission
A statement is material “if there is a substantial likelihood that a reasonable shareholder
would consider it important” in making an investment decision. Kapps v. Torch Offshore, Inc., 379
F.3d 207, 213 (5th Cir. 2004) (citing Basic Inc. v. Levinson, 485 U.S. 224 (2004)). In assessing
whether a material misrepresentation has been made, the Court must read each statement “in its
full context, … in light of all its surrounding text, including hedges, disclaimers, and apparently
conflicting information.” Omnicare, Inc. v. Laborers Dist. Council, 575 U.S. 175, 190 (2015). To
plead a misrepresentation under Rule 9(b)’s requirements, “plaintiffs must ‘specify the statements
contended to be fraudulent, identify the speaker, state when and where the statements were made,
and explain why the statements were fraudulent.’” Barrie v. Intervoice-Brite, Inc., 397 F.3d 249,
256 (5th Cir. 2005) (quoting Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 362
(5th Cir. 2004)).
Defendants separate the statement types into two categories for their analysis: they assert
that Statement Types 1, 3, 4, 5, and 6 are both immaterial as a matter of law and are not false or
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misleading, and that Statement Type 2 is not actionable because of the representations and
warranties in the merger agreement. (Dkt. No. 50 at 14-20.1)
i. 	Statement Types 1, 3, 4, 5, and 6 are Immaterial as a Matter of Law
The Court finds that Statement Types 1, 3, 4, 5, and 6 are immaterial as a matter of law.
While materiality can present a “mixed question of law and fact,” see Kapps, 379 F.3d at 216, the
Fifth Circuit makes clear that a company’s “generalized positive characterization[]” are “not
actionable under the securities laws.” Rosenzweig v. Azurix Corp., 332 F.3d 854, 870 (5th Cir.
2003).
In Emp.’s Ret. Sys. v. Whole Foods Mkt., Inc., the Fifth Circuit held that “comments about
Whole Foods’ commitments to transparency and quality—even if false—are immaterial,” because
these “generalized statements about Whole Foods’ transparency, quality, and responsibility are the
sort of puffery that a reasonable investor would not rely on.” 905 F.3d 892, 901-02 (5th Cir. 2018).
Similarly, here, Statement Types 1, 3, 4, 5, and 6 are the sort of generalized positive statements
that reasonable investors would not rely on—statements from Orthofix itself about “[t]he
complementary cultures of Orthofix and SeaSpine,” the “individual merit” of those selected to
carry over onto the post-merger board, and the company’s commitments to “integrating diversity,
equity and inclusion principles” and “promoting honest and ethical conduct” (see Section I.E,
supra) are immaterial corporate puffery.
Tellingly, Plaintiffs do not respond to Defendants’ reliance on Whole Foods—the case is
cited only a once in their responsive brief, in a footnote, responding to entirely different arguments.
(See Dkt. No. 58 at 43 n.36.) In their supplemental briefing on the matter, Plaintiffs argue only that
1 The Second Motion to Dismiss makes some additional arguments, which are addressed where relevant below. The
Court generally considers the arguments in the First Motion to Dismiss where the Motions to Dismiss overlap, given
both the order of filing and that Defendants elected to argue the Motions to Dismiss in that manner at the hearing.
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the pre- and post-merger statements at issue here “were sufficiently specific considering the
context in which they were made” to distinguish this case from Whole Foods. (Dkt. No. 80 at 3
(internal citation omitted).)
The Court finds this distinction unavailing on these facts. As in Whole Foods, Statement
Types 1, 3, 4, 5, and 6 are immaterial as a matter of law and thus cannot form the basis of Plaintiffs’
material misstatements for their Section 10(b), SEC Rule 10b-5, Section 11, or Section 12(a)(2)
claims.
ii. 	Plaintiffs Have Successfully Pled Statement Type 2 is a Material
Misrepresentation
The Court finds that Plaintiffs have successfully pled that Statement Type 2 is a material
misrepresentation which can support its Section 10(b), SEC Rule 10b-5, Section 11, or Section
12(a)(2) claims at this stage of the litigation.
Orthofix, SeaSpine, and certain Individual Defendants assert primarily that Statement Type
2 is not actionable because “the merger prospectus expressly warned that Plaintiffs ‘should not
rely on the representations and warranties [in the merger agreement] or any descriptions thereof as
characterizations of the actual state of facts or the condition of the parties thereto,’” and reasonable
shareholders would not read this disclaimer and then rely on the representations and warranties in
the merger agreement. (Dkt. No. 50 at 21, citing Dkt. No. 50-8 at 117; Dkt. No. 50-4; Jarslawicz
v. M&T Bank Corp., 2017 WL 1197716, at *5 (D. Del. Mar. 30, 2017).)
The Terminated Executives further assert that “[a] misrepresentation cannot be imputed
from the Johnson Action settlement,” because “[c]ourts have repeatedly rejected the proposition
that the existence of a past settlement—including one related to employment discrimination—can
be used to infer wrongdoing or material misstatements.” (Dkt. No. 51 at 15, citing Fed. R. Evid.
408.)
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Plaintiffs respond that Defendants read Jaroslawicz far too broadly in attempting to assert
that 	non-reliance 	disclaimers 	automatically 	render 	merger 	agreement 	representations 	not
actionable as a matter of law, and that such a holding is counter to both the holdings of other
circuits and the Fifth Circuit’s “longstanding rejection of the notion that cautionary language can
serve as per se bars to liability.” (Dkt. No. 58 at 15-19, citing Glazer Cap. Mgmt., LP v. Magistri,
549 F.3d 736 (9th Cir. 2008); Twin Master Fund, Ltd. v. Akorn, Inc., 2020 WL 564222 (N.D. Ill.
Feb. 5, 2020); Rubinstein v. Collins, 20 F.3d 160 (5th Cir. 1994).) Plaintiffs assert that the Court
should consider the non-reliance disclaimer and the rest of Statement Type 2 under all
circumstances to determine whether a reasonable investor may consider these statements
significant in deciding whether to invest. (Dkt. No. 58 at 18.) At the hearing, Plaintiffs further
pointed to language in the prospectus “encourage[ing]” shareholders “to read the merger
agreement carefully and in its entirety.” (See Dkt. No. 58-4 at 57.)
Plaintiffs additionally respond that Rule 408 is not a bar to their using the Johnson Action
to support allegations that a disclosure was materially false or misleading, as Rule 408 only states
that the acceptance of a settlement of a claim is typically inadmissible to prove liability for that
claim. The Court finds Plaintiffs’ appraisal of Rule 408 is correct. Despite the Terminated
Executives’ reliance upon it, Rule 408 is inapplicable and does not bar Plaintiffs’ reliance on the
Johnson Action to demonstrate a material misstatement in this context.
The Court further finds that Statement Type 2 is not inactionable as a matter of law, as the
non-reliance disclaimer does not create a per se bar to liability. When assessing the statement “in
its full context, … in light of all its surrounding text, including hedges, disclaimers, and apparently
conflicting information,” see Omnicare, 575 U.S. at 190, the Court finds that reasonable investors
could certainly have found the representation that “[w]ithin the past four (4) years, SeaSpine has
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not entered into any settlement agreement” pertaining to misconduct allegations significant to their
investment decisions, even in light of the disclaimers made by Orthofix and SeaSpine. While a
reasonable jury could certainly find that such a disclaimer does not render Statement Type 2 to be
material, the Court determines that on these facts a reasonable jury could also find that Statement
Type 2 would have been material to investors. This issue is therefore inappropriate for resolution
at the motion to dismiss stage.
Additionally, this statement is clearly a misrepresentation, as it was made less than four
years from the 2021 settlement of the Johnson Action.2 Accordingly, Plaintiffs have adequately
pled that Statement Type 2 is a material misrepresentation which can support its Section 10(b),
SEC Rule 10b-5, Section 11, or Section 12(a)(2) claims at this stage of the litigation.
B. Loss Causation
To plead loss causation, a plaintiff must allege “a facially ‘plausible’ causal relationship
between the [material misrepresentation] and plaintiff’s economic loss… followed by the leaking
out of a relevant or related truth about the fraud that caused a significant part of the depreciation
of the stock and plaintiff’s economic loss.” Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 258 (5th
Cir. 2009.) In other words, the pleadings must plausibly allege that the corrective disclosure itself
was what caused the negative market reaction. See, e.g., Catogas v. Cyberonics, Inc., 292 Fed.
Appx. 311, 314 (5th Cir. 2008). “[I]t is insufficient to simply allege that the misrepresentation
‘touches upon’ a later economic loss.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 343 (2005).
2 Defendants assert in supplemental briefing that since “[t]he first sentence of the [representations and warranties]
states that a separate side letter qualifies everything that follows… investors readings the [representations and
warranties] knew that [they] did not disclose all facts relating to employment matters.” (Dkt. No. 82 at 3.) They thus
argue that Statement Type 2 was not a misstatement, because the merger documents alerted Plaintiffs to the fact that
SeaSpine was not disclosing certain information. (Id.) The Court finds this argument unavailing. Despite any
qualification that the information may not be entirely complete, to say that “[w]ithin the past four (4) years, SeaSpine
has not entered into any settlement agreement” pertaining to allegations of employment discrimination was clearly a
misstatement in light of the Johnson Action settlement in 2021.
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Regarding loss causation, Plaintiffs state in the FAC that “[i]n response to the September
12, 2023 disclosures, Orthofix shares declined $5.62 per share, or over 30%, to close at $13.01 per
share on September 13, 2023, on unusually heavy volume, wiping out $206.5 million of market
capitalization.” (Dkt. No. 49 at 114.) Plaintiffs go on to state that “[a]nalysts were shocked by the
news about the termination, viewing the sudden departure of the Terminated Executive Defendants
as the cause for the price drop and expecting that Orthofix shares would feel the impact for some
time.” (Id.) Plaintiffs then provide input from analysts, all of whom focus on the relationship
between “the stock decline [and] the sudden announcement,” and concerns about the future, like
“the lack of permanent leadership… and the longer-term potential business impacts from the lost
leadership.” (Id. at 115.) Plaintiffs finally state that “Orthofix’s September 12, 2023 and September
14, 2023 disclosures corrected Defendants’ prior materially misleading statements and omissions
concerning the leadership team and culture of ethics and compliance at the Company,” and that
such a correction is what caused the decline in stock price. (Id. at 117.)
However, the Court does not find that Plaintiffs’ claim that the stock price declined due to
Orthofix’s corrective disclosures is supported by its allegations. Both Plaintiffs’ own statements
and the quoted language it provides from analysts clearly assert that the sudden departure of the
Terminated Executives, who were established professionals in the field, and forward-looking
concerns about the future of the company without the Terminated Executives at the helm are what
caused the drop in stock price. Further, the only disclosures which occurred on September 12 and
September 14, 2023 pertained to the firing of the Terminated Executives “for cause” as a result of
the board “determin[ing] that each of these executives engaged in repeated inappropriate and
offensive conduct that violated multiple code of conduct requirements and was inconsistent with
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the Company’s values and culture.” (Id. at 83-84.) These disclosures therefore do not even directly
touch upon the material misstatement in the merger agreement regarding the Johnson Action.
Plaintiff insists that under Lormand, they are “only required to plead a plausible inference
of loss causation that is equally or more plausible than competing inferences.” (Dkt. No. 80 at 4,
citing 565 F.3d at 266-67.) Given that it is their own representations and citations to analyst reports
in the FAC that lead to the overwhelming inference that the loss was caused by the sudden
departure of the well-established Terminated Executives, rather than the corrective disclosures,
Plaintiffs have not met this standard either.
Plaintiffs “would have suffered the exact same harm” regardless of whether it had made
these disclosures regarding the Terminated Executives, and “[n]othing in the plaintiffs’ complaint
suggests otherwise.” See Whole Foods, 905 F.3d at 905. Accordingly, Plaintiffs have not pled loss
causation as required for its Section 10(b) and SEC Rule 10b-5 claims.
C. Strong Inference of Scienter
Since the Court finds that Plaintiffs have failed to plead loss causation, no analysis of
scienter is necessary. Any determination of whether Plaintiffs have pled a strong inference of
scienter, as required by Section 10(b), is irrelevant given that the Court has already determined the
loss causation requirement of Section 10(b) is not met.3
3 In their briefing, the Terminated Executives assert that the scienter requirement should also apply to the Section 11
and 12(a)(2) claims because “Rule 9(b)’s heightened requirements apply when such claims ‘are grounded in fraud
rather than negligence.’” (Dkt. No. 51 at 13, citing Melder v. Morris, 27 F.3d 1097, 1100 n.6 (5th Cir. 1994).) Plaintiffs
respond that they “specifically pled their Securities Act claims separately, disavowed fraud allegations, and expressly
alleged strict liability and negligence for those claims,” and further, that the application of Rule 9(b)’s heightened
pleading standard still does not and cannot alter the statutory elements of Securities Act claims, which do not require
pleading scienter. (Dkt. No. 58 at 43-44 (internal citations omitted).) The Court finds that Plaintiffs’ position is correct
regarding the imposition of a scienter requirement—while it is true that “[i]f the claim is based on the same underlying
facts and allegations as a securities fraud claim under the Exchange Act, then the pleading standard is the pleading
standard contained in Rule 9(b),” this heightened requirement is only imposed such that “the Securities Act claims
must be pled with particularity.” All Am. Pipeline, 777 F. App’x at 733 (5th Cir. 2019). Additionally, Plaintiffs have
indeed explicitly disavowed a fraud theory for their Securities Act claims—the FAC expressly states “[f]or the
purposes of this Section [11/12(a)] claim, the Securities Act Plaintiffs do not allege that any Securities Act Defendant
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D. Control Person Liability
Defendants’ sole argument regarding the control person liability claims is that “[c]ontrol
person liability is secondary only and cannot exist in the absence of a primary violation.” (Dkt.
No. 50 at 30, citing Flotek, 915 F.3d at 986; Dkt. No. 51 at 29, citing the same.) Plaintiffs agree
that they have “adequately allege[d] control liability as to all Defendants for any primary claim
that the Court finds to be adequately alleged.” (Dkt. No. 58 at 45.)
Since the Court finds that Plaintiffs have not adequately alleged violation of Section 10(b)
of the Exchange Act, the related claims for control person liability under Section 20(a) of the
Exchange Act must also fail. By the same token, since the Court finds that Plaintiffs have
adequately alleged violations of Sections 11 and 12(a)(2) of Securities Act, the related claims for
control person liability under Section 15 of the Securities Act survive as well.
E. Leave to Amend
Plaintiffs request leave to amend if the Court finds that the FAC fails to state a claim in a
footnote on the final page of their briefing. (See Dkt. No. 58 at 45 n.40.) The Fifth Circuit examines
five considerations to determine whether to grant a party leave to amend a complaint: (1) undue
delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by previous
amendments, (4) undue prejudice to the opposing party, and (5) futility of the amendment. Smith
v. EMC Corp., 393 F.3d 590, 595 (5th Cir. 2004).
Regarding the determination that Statement Types 1, 3, 4, 5, and 6 are immaterial as a
matter of law, the Court finds that granting leave to amend would be futile. Any edits to the FAC
would not change the content of these statements themselves, which the Court has determined are
inactionable corporate puffery.
acted with scienter or fraudulent intent, which are not elements of a claim under Section [11/12(a)].” (Dkt. No. 49 at
148, 149.) Accordingly, the Court does not consider scienter with respect to the Section 11 and 12(a)(2) claims.
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However, regarding the determination that Plaintiffs have failed to plead loss causation for
the corrective disclosure, the Court finds that justice requires providing leave to amend these
contentions in the FAC. See Fed. R. Civ. P. 15. The Court has no reason to suspect that such
amendments will cause an undue delay or prejudice, that granting leave to amend will be futile, or
that Plaintiffs have acted in bad faith. Also, there has not yet been a repeated failure to cure any
deficiency.
Accordingly, leave to amend is DENIED with respect to Plaintiffs’ pleadings on material
misstatements, and GRANTED with respect to the pleadings on loss causation.
IV. 	CONCLUSION
For the reasons stated herein, Defendants’ Motions to Dismiss (Dkt. Nos. 50, 51) are
GRANTED-IN-PART and DENIED-IN-PART.
Since the Court finds that Plaintiffs have not adequately pled loss causation, Counts I and
II alleging violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 are DISMISSED
WITHOUT PREJUDICE. Additionally, Counts III and IV alleging violations of Section 20(a)
of the Exchange Act are DISMISSED WITHOUT PREJUDICE as they rise or fall with the
10(b) and 10b-5 claims. The Motions to Dismiss are GRANTED with respect to these claims, but
Plaintiffs have leave to amend its FAC to address the deficiencies the Court has identified regarding
loss causation. It is ORDERED that Plaintiffs file any such amendments they wish to make
regarding its allegations of loss causation in a Second Amended Complaint within thirty (30) days
of this Order.
Counts V, VI, and VII allege violations of Sections 11, 12(a)(2), and 15 of the Securities
Act. The Motions to Dismiss are DENIED with respect to these claims, given that the Court finds
that Plaintiffs have successfully pled that Statement Type 2 was a material misrepresentation.
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____________________________________
RODNEY GILSTRAP
UNITED STATES DISTRICT JUDGE
So ORDERED and SIGNED this 9th day of March, 2026.
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