US court proceeds with Grifols defamation case against Gotham City, but narrows scope

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MADRID (Reuters) -A New York court has found enough evidence to proceed with a defamation lawsuit filed by Grifols against short seller Gotham City Research, though it dismissed many of the Spanish pharmaceutical company’s claims.

The Federal District Court for the Southern District of New York rejected a request filed by Gotham City to dismiss the lawsuit, according to a ruling filed on Thursday.

The court found that there was enough evidence to support Gotham’s allegations that Grifols failed to disclose a $95 million loan to Scranton Enterprises, an entity tied to the drugmaker’s founding family, were defamatory.

However, it dismissed the company’s claim of unjust enrichment and illegal interference and said many comments made by Gotham City were expressing no more than non-actionable opinions.

“The company continues defending its interests against what it considers a speculative attack based on misleading information,” Grifols said in a statement on Friday.

In January 2024, Gotham City, which had previously shorted Grifols shares, released a report accusing the company of overstating earnings and understating debt. Grifols denied the allegations but lost around a third of its market value following the report.

Short selling involves borrowing a stock to sell it in the expectation the price will fall, then buying it back at the lower price and pocketing the difference.

Gotham City welcomed the ruling.

“We are pleased that the court has dismissed the vast majority of Grifols’ claims, reaffirming that our report is largely protected opinion and falls within the bounds of free expression,” it said in an emailed statement.

“We remain confident in the integrity of our research and stand by our work,” it added.

In its judgement, the court said that even though short sellers have an economic interest in driving down a company’s stock price, they have “the same right to express opinions and analysis as any other market participant”.

Grifols has previously said it was seeking “injunctive and monetary relief” via its lawsuit and would seek compensation at least equivalent to its share price loss.

(Reporting by Javi West Larrañaga in Madrid; Additional reporting by Jonathan Stempel in New YorkEditing by Inti Landauro, Mark Potter, Tomasz Janowski and Joe Bavier)