Lack Of Scienter Dooms Class Action Against Charles River Laboratories

A&O Shearman reports on a United States District Court for the District of Massachusetts decision dismissing a putative class action against Charles River Laboratories International and its officers, mainly for lack of scienter (scienter is a legal term that refers to a defendant’s knowledge of wrongdoing and their intent to act despite that knowledge).

In State Teachers Ret. Sys. v. Charles River Lab. Int’l, Inc., the plaintiff alleged that the defendants lied when investors were told that they complied with all applicable laws when endangered non-human primates (NHPs) were imported for testing of biologic pharmaceuticals.

Charles River imports animals, including NHPs, to sell for drug-safety assessment studies or to use itself in conducting assessments for pharmaceutical clients. The NHP most frequently used for pharmaceutical testing is the long-tailed macaque, but federal and international law prohibits the possession, sale, or receipt of any macaque that is captured from the wild rather than captive-bred.

Vaccine testing for COVID-19 created a surge in demand for macaques. Charles River sourced most of its macaques from China, but when that country imposed strict restrictions on their export, it obtained more than 15,000 of them from Cambodia-based suppliers between 2020 and 2022.

In 2021, the DOJ indicted executives at macaque breeding farms in Cambodia for conspiring to introduce wild macaques into the supply chain of US customers. Charles River’s suppliers allegedly obtained macaques from those farms, and the company’s stock fell when the news broke.

The suit, filed in 2023, alleged that the company made false and misleading statements in its public filings concerning dealings with “non-preferred suppliers” and other misrepresentations about compliance with import laws regarding NHPs.

The Court found that the plaintiff failed to identify any actionable statement and never actually alleged that the company had violated any pertinent law or actually obtained macaques from the indicted supplier.

With respect to scienter, the plaintiff’s theory referenced individual defendants’ stock sales during the DOJ’s investigation before it was publicized. The Court found that the allegations failed to raise a strong inference of scienter because trading data showed that the officers increased their financial exposure during the DOJ’s investigation and leading up to the indictment.