The opinion of the court was delivered by: Judge Joan H. Lefkow
MEMORANDUM OPINION AND ORDER
The lead plaintiff in this class action lawsuit, Operating Engineers Construction Industry and Miscellaneous Pension Fund (Local 66 - Pittsburgh) ("plaintiffs"), is suing NeoPharm, Inc. ("NeoPharm") and two individual defendants for securities fraud (collectively, "defendants" or "NeoPharm"), specifically, for violation of Section 10(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78(j), and Rule 10(b)-5 promulgated thereunder, codified at 17 C.F.R. § 240.10b-5. Plaintiffs have also sued the individual defendants as alleged "control persons" for violation of Section 20(a) of the 1934 Act, codified at 15 U.S.C. § 78(t).
Currently before the court is plaintiffs' motion for "Summary Adjudication of Issues Based on Collateral Estoppel." Dkt No. 106 (Jan. 26, 2005). Invoking Rule 56, plaintiffs ask the court to preclude NeoPharm from relitigating various "factual issues" that they contend were resolved in an arbitration between NeoPharm and a third party, Pharmacia & Upjohn Company ("Pharmacia"). Plaintiffs have also moved for leave to amend their complaint. Dkt. No. 106 (Jan. 26, 2005). They seek to add Dr. John Kapoor, who was dismissed from this case without prejudice in this court's order of February 7, 2003, Dkt. No. 45, as an individual defendant, and to reallege that certain statements that the company made before the class period, which were dismissed with prejudice in that same order of February 7, 2003, were false or misleading at the time that they were made. Finally, plaintiffs want to add allegations based on the factual findings from the arbitration decision as well as information from NeoPharm's internal documents produced in discovery. For the following reasons, plaintiffs' motions are denied.
NeoPharm is a publicly owned biopharmaceutical company that researches and develops experimental drugs for the treatment of cancer. NeoPharm's Response to Plaintiffs' Motion for Summary Adjudication of Issues Based on Collateral Estoppel, Dkt. No 119 (March 9, 2005) ("NeoPharm's Response"), at 2. Liposome Encapsulated Paclitaxel ("LEP") is one of its star prospects. NeoPharm's Response, at 2; http://www.neopharm.com (last visited Feb. 15, 2007). NeoPharm licensed the rights to develop and market LEP to Pharmacia pursuant to an agreement reached in February of 1999 (the "License Agreement"). NeoPharm's Statement of Add'l Facts ("NeoPharm's Statement"), at ¶ 13. Pharmacia was obligated under the License Agreement to use "reasonable efforts" to bring LEP to market. NeoPharm's Statement, at ¶ 14. During the class period (between October 31, 2001 and April 19, 2002), NeoPharm made various statements to the public in which it discussed the potential benefits of LEP and some positive results from early testing. Plaintiffs' complaint alleges that these statements were false or misleading because NeoPharm concealed serious problems in the LEP development process.
On April 19, 2002, NeoPharm announced that it had concerns over Pharmacia's work on LEP, and that it had commenced arbitration against Pharmacia for breach of the License Agreement. NeoPharm's Answer to Plaintiff's Consolidated Amended Class Action Complaint ("NeoPharm's Answer"), at ¶ 49; NeoPharm's Statement, at ¶ 40; Lead Plaintiff's Motion for Summary Adjudication of Issues Based on Collateral Estoppel, Dkt. No. 106 ("Plaintiffs' Motion"), Ex. 2, at 1 (arbitration decision). After this announcement, the price of NeoPharm's stock dropped significantly. Plaintiffs filed their complaint on April 25, 2002. Complaint, Dkt. No. 1 (April 25, 2002).
In the arbitration, NeoPharm alleged, inter alia, that Pharmacia did not use reasonable efforts to develop LEP and that it misrepresented and concealed facts from NeoPharm concerning the status of the development. Plaintiffs' Motion, Ex. 2, at 2. For example, NeoPharm alleged that Pharmacia unreasonably abandoned NeoPharm's formulation of LEP ("LEP-s") in favor of a reformulation ("LEP-ns"), entered Phase II trials with LEP-ns instead of LEP-s, used the "maximum tolerated dose" determined in Phase I trials for LEP-s on LEP-ns, and ran the LEP-ns Phase II trial at the same time as the LEP-ns Phase I trial. Id. at 20-21; cf. Defendants' Response, at 6 n.4.*fn1 Pharmacia counter-claimed for rescission, arguing that NeoPharm induced it to enter into the Agreement by misrepresenting and concealing material facts about LEP. Id. at 2.
After a lengthy proceeding involving 46 days of sworn testimony and hundreds of exhibits, the arbitrators denied both parties' claims in a 34-page decision. The alleged "facts" that plaintiffs seek to preclude defendants from relitigating and the additional allegations that they seek leave to add to their complaint are taken from that decision. Id. at 33; Plaintiffs' Statement of Material Facts in Support of Motion ("Plaintiffs' Statement"), at ¶¶ 6-9.
II. Motion for Summary Adjudication of Issues Based on Collateral Estoppel
A. Summary Judgment Standards
Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The party seeking summary judgment bears the initial burden of proving that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed. 2d 265 (1986). In plaintiffs' motion for summary adjudication of issues based on collateral estoppel, they are not asking the court for judgment on their securities fraud claims. Instead, they are requesting that the court enter an order precluding defendants from contesting or relitigating factual issues that they argue were resolved in the context of NeoPharm's arbitration with Pharmacia. Plaintiff's Memorandum in Support of its Motion, at 1.
Rule 56 does not provide a mechanism for a court to enter summary judgment on facts that are not dispositive of an entire claim, count, or affirmative defense.*fn2 Fed. R. Civ. P. 56; Petroff Trucking Co., Inc. v. Envirocon, Inc., 2006 WL 2938666, at *3 (S.D. Ill. Oct. 13, 2006); Rubin v. Islamic Republic of Iran, 408 F. Supp. 2d 549, 552 (N.D. Ill. 2005) (citations omitted) ("A motion for partial summary judgment that partitions a single claim for relief into constituent parts and then seeks partial summary judgment on some but not all of the constituent parts is not permitted."); O'Phelan v. Fed. Express Corp., 2005 WL 2387647, at *8 (N.D. Ill. Sept. 27, 2005); Ting v. Chicago Mercantile Exchange, Inc., 2005 WL 2335584, at *7 (N.D. Ill. Sept. 21, 2005); Allen v. Chicago Transit Authority, 2000 WL 1139898, at *3 (N.D. Ill. Aug. 10, 2000); Softa Group, Inc. v. Taylor, No. 92 C 2420, 1992 U.S. Dist. Lexis 8713, at *1-*2 (N.D. Ill. June 24, 1993) (Lefkow, Exec. Mag. J.); Quintana v. Byrd, 669 F. Supp. 849, 850 (N.D. Ill. 1987) (Ann C. Williams, J.); Arado v. General Fire Extinguisher Corp., 626 F. Supp. 506, 508-09 (N.D. Ill. 1985); Capital Records, Inc. v. Progress Record Distributing, Inc., 106 F.R.D. 25, 28-29 (N.D. Ill. 1985). This principle is grounded in the need to conserve judicial resources. If parties could bring piecemeal motions for summary judgment, the courts would be overwhelmed with constant requests to resolve factual issues. Capitol Records, 106 F.R.D. at 29. "Such adjudications would not dispose of a claim or even become final until trial, and would waste judicial resources in almost every case." Id.
Federal Rule of Civil Procedure 56(d) also does not typically provide a vehicle for the relief that plaintiffs seek. It provides the following:
Case Not Fully Adjudicated Upon Motion. If on motion under this rule judgment is not rendered upon the whole case or for all the relief asked and a trial is necessary, the court at the hearing of the motion, by examining the pleadings and the evidence before it and by interrogating counsel, shall if practicable ascertain what material facts exist without substantial controversy and what material facts are actually and in good faith controverted. It shall thereupon make an order specifying the facts that appear without substantial controversy, including the extent to which the amount of damages or other relief is not in controversy, and directing such further proceedings in the action as are just. Upon the trial of the action the facts so specified shall be deemed established, and the trial shall be conducted accordingly.
Fed. R. Civ. P. 56(d). This provision is usually understood to come into play only after a proper motion for summary judgment under Rule 56(a) or (c) as to an entire count or claim is denied on its merits, with a purpose of salvaging some of the judicial resources that are expended in considering such a motion. Lovejoy Elec., Inc. v. O'Berto, 616 F. Supp. 1464, 1473 (N.D. Ill. 1985); Rubin, 408 F. Supp. 2d at 552; Capitol Records, 106 F.R.D. at 29-30 ("A fair reading of Rule 56(d) ... is that it does not allow a party to bring a motion for a mere factual adjudication. Rather, it allows a court, on a proper motion for summary judgment, to frame and narrow the triable issues if the court finds that such an order would be helpful to the progress of the ligitation."); Mendenhall v. Barber-Greene Co., 531 F. Supp. 947, 948 (N.D. Ill. 1981).
Some judges in this circuit have taken the position that in certain situations, Rule 56(d) may be independently invoked to request an interlocutory order finding certain facts to be conclusively established for the remainder of a case. Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co., Inc., 313 F.3d 385, 391 (7th Cir. 2003); Northeast Ill. Regional Commuter RR Corp. v. Kiewit Western Co., 396 F. Supp. 2d 913, 921 (N.D. Ill. 2005); In re Doctors Hospital of Hyde Park, 330 B.R. 689, 698 (N.D. Ill. 2005). In each of these cases, however, the courts explained that the merits of the parties' motions could be considered and ruled on because doing so would promote judicial economy. Zapata, 313 F.3d at 391; Kiewit Western Co., 396 F. Supp. at 922; Doctors Hospital of Hyde Park, 330 B.R. at 698.
Similarly, in Oberweis Dairy, Inc. v. Assoc. Milk Producers, Inc., 553 F. Supp. 962, 965 (N.D. Ill. 1982), the court received a motion for summary judgment seeking to use collateral estoppel to preclude the other party from relitigating certain specific facts and issues from a prior action, even though those issues did not resolve an entire claim. Although the court held that Rule 56 was the wrong procedural vehicle to use, it interpreted the request as one under Rule 16 and considered it on the merits. Id. Significantly, the previously litigated claims and the claims at issue were both for violations of the antitrust laws. Id. at 964-65. After considering whether offensive collateral estopped was appropriate, the court found that the previous litigation's specific findings on several of the common elements of the antitrust claims would be given preclusive effect. Id. at 970.
Here, the court will examine the proposed facts that plaintiffs seek to preclude defendants from relitigating and determine whether those facts establish the elements of their securities fraud claims, entitling them to summary judgment. If plaintiffs are not entitled to summary judgment, the court will go on to consider the possibility of an order under Rule 56(d) or Rule 16.
To establish liability under Section 10(b) and Rule 10b-5, a plaintiff must prove "(1) the defendant made a false statement or omission (2) of material fact (3) with scienter (4) in connection with the purchase or sale or securities (5) upon which the plaintiff justifiably relied (6) and that the false statement proximately caused the plaintiff's damages." Mem. Op. And Order, Dkt. No. 45, at 17 (February 7, 2003) (citing Caremark, Inc. v. Coram HealthCare Corp., 113 F.3d 645, 648 (7th Cir. 1997); Searls v. Glasser, 64 F.3d 1061, 1066-67 (7th Cir. 1995)); see also Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 595 (7th Cir. 2006), cert. granted, 127 S.Ct. 853, 75 USLW 3207, 75 USLW 3340, 75 USLW 3349 (U.S. Jan 5, 2007) (NO. 06-484).
Plaintiffs ask this court to find that excerpted quotes from the arbitration decision are "facts" that are "conclusively established in this litigation and defendants are precluded from relitigating these matters here." Plaintiffs' Proposed Order, at 1-3. Included among 16 proposed paragraphs of "facts" are the following (citations to the arbitration award are omitted):
* The sonicated version of LEP (LEP-s) was problematic from the beginning. In May 1999, Pharmacia received 100 vials of LEP from NeoPharm so that it could begin to design a development plan and conduct pre-clinical tests on the material. In one test that was done in May 1999, 10 out of 20 rats died after being injected with LEP-s. In a second test conducted that same month, one of two dogs that were injected with LEP-s died.
* Between July and August 1999, Pharmacia conducted numerous experiments designed to test the encapsulation efficiency of LEP-s. As a result of these tests, Pharmacia determined that encapsulation efficiency for LEP-s was inconsistent from sample to sample, even for those samples reconstituted using the same procedure at the same site. Many of these tests demonstrated that free paclitaxel, in crystalline form, was present in the LEP-s samples.
* Recorded variability of the level of free paclitaxel in reconstituted formulations of LEP-s ranged from zero to 33% free paclitaxel. NeoPharm, and later Pharmacia, specified that the level of free paclitaxel in LEP-s must be no greater than 20%. In another test Pharmacia dosed three dogs with LEP-s and two of ...