A Northern District of California judge denied the motion to dismiss a class action complaint against Bayer on Tuesday in which investors claim the pharmaceutical company failed to conduct due diligence concerning the financial risks of litigation surrounding the weed killer Roundup during its acquisition of Monsanto in 2018.
Chief U.S. District Judge Richard Seeborg ruled that while the plaintiffs failed to support all their claims, they adequately pleaded violations under Sections 10(b) and 20(a) of the Exchange Act. Judge Seeborg stated unsupported theories would need to be addressed in an amended complaint, or they would be discarded as the case moves forward.
The City of Grand Rapids General Retirement System and Police and Fire Retirement System filed the lawsuit against Bayer in 2020, claiming the company downplayed liability risks related to Monsanto’s Roundup product during its acquisition of the agrochemical company in 2018, resulting in artificially inflated stock prices.
“Defendants willfully or recklessly made and/or caused the Company to make false and misleading statements that failed to disclose that the Acquisition would burden Bayer with significant exposure to the risk of suffering billions of dollars in judgments and reputational damage, among other things, if lawsuits brought against Monsanto alleging that exposure to its glyphosate-based Roundup product caused cancer, were successful,” the lawsuit states. “As a result, Defendants’ positive statements about the prospects of the Acquisition and the benefits it would create for Bayer’s business as well as statements downplaying the risk of potential liability and damages in the Roundup cancer lawsuits were materially false and/or misleading and/or lacked a reasonable basis.”
Roundup, the most widely used weed killer in the world, contains glyphosate, a toxic chemical long suspected of causing cancer, including non-Hodgkin’s lymphoma. During the acquisition period of Monsanto by Bayer from 2016 to 2018, a wave of Roundup cancer lawsuits were filed against Monsanto. The first case went to trial in 2018, and resulted in Monsanto paying nearly $80 million in damages, court documents state.
The defendants argued the case should be dismissed for failure to plead falsity, scienter and loss causation. Judge Seeborg disagreed, ruling that investors adequately pleaded falsity and scienter in concern to Bayer’s due diligence efforts. However, he also stated they failed to do so for statements concerning the safety of glyphosate and the accounting for legal risks related to Roundup, and only some of their pleaded corrective disclosures qualify for loss causation.