SAN FRANCISCO (CN) — Bayer urged a federal judge on Friday to scuttle a class action from investors claiming the German pharma giant didn’t conduct adequate due diligence before making a multibillion-dollar deal to acquire Monsanto.
Shareholders say Bayer misled them about the litigation risk of purchasing the agrochemical company, whose signature weed killer product Roundup was found to have caused people to develop cancer in three bellwether jury trials.
The $63 billion deal was struck in 2016 but was not made final until June 2018. Two months later, a San Francisco jury found Monsanto liable for $250 million in punitive damages in the case brought by a school groundskeeper with non-Hodgkin lymphoma.
By then, shareholders claim, Monsanto had racked up thousands of additional personal injury lawsuits, and Bayer’s post-merger American depositary receipts plunged significantly.
Bayer’s stock price continued to plummet after another jury awarded a Sonoma man $75 million in punitive damages in the first federal Roundup case to go to trial. Bayer announced a $10 billion mass settlement in June 2020, but was forced to retract a part that proposed to settle future claims for $2 billion after a federal judge refused to approve it.
The proposed class action filed by the city of Grand Rapids pension fund says Bayer forged ahead with the Monsanto acquisition while downplaying the litigation risk to investors and representing that glyphosate, the active ingredient in Roundup, is non-carcinogenic.
At a hearing on a motion to dismiss the case Friday, Bayer attorney John Lynch said an executive’s statements about the deal’s merits and touting Bayer’s due diligence as “exhaustive,” “appropriate” and “thorough” were statements of opinion — or puffery, in legal speak.
"Those kinds of qualitative statements are protected opinion statements,” Lynch said.
U.S. District Judge Richard Seeborg said he doubted the comparison.
“It seems to me that there's a bit of a difference,” he said. “It’s just different than statements about general activities and how things are going to go and qualitative statements about your products. Don't you think there's a difference? Due diligence is quite a specific thing. Did you do robust due diligence or not? If you represent that you did, and the argument is that you didn't, saying that's puffery is really tough, I think.”
Lynch said the plaintiffs hadn't adequately pleaded that anyone doubted Bayer's statements about the due diligence, adding that the investors’ claim “highlights the pure hindsight nature of the plaintiffs case.”
“It was reported that the juries acted unfavorably to internal documents that were produced at trial. So in the wake of that, plaintiffs go back and try to interpret defendants’ statements as communicating to the market that Bayer folks had followed best practices in due diligence, which the Bayer folks didn't say, and that those best practices would be understood by the market to include a review of Monsanto's internal correspondence on glyphosate. Defendants did not say that either,” Lynch said.
But Seeborg didn’t think the jury verdicts were material. “I don't think the fact that we have the jury determination makes it a hindsight case,” he said. “The plaintiffs are going to rise or fall based on whether or not the representations that they identified at the time they were made were misrepresentations.”
Joel Laitman, an attorney representing the pension fund investors, said shareholders were right to have assumed that due diligence included a review of Monsanto’s internal documents
“The main distinguishing characteristic of Monsanto over the prior 90 years was massive toxic tort liability,” he said. He called Bayer’s failure to examine Monsanto’s documents an “embedded fact” that makes Bayer liable for its representations to investors.
He said that following the release of the so-called Monsanto papers, Bayer executives continued to reassure shareholders in annual meetings about their due diligence efforts. “They say we’ve done this exhaustive due diligence,” Laitman said, “They’re making affirmative statements to assure the market that 'we have done everything.’ And we know that there’s an embedded fact which is not disclosed to investors, which is they never looked at the internal documents that all the juries ultimately saw that discussed the high-risk nature of the Roundup litigation.”
Seeborg asked Laitman if it’s possible that Bayer’s statements turned out to be deeply wrong rather than knowingly false, given the time and resources they poured into vigorously defending Roundup.
Laitman said Bayer went against its own accounting policy to disclose billions in litigation provisions for glyphosate litigation. “There’s affirmative actions in addition to just the accounting error. I think that’s what makes this a very unusual case.”
Seeborg took the arguments under submission, but not before hinting that he may issue an order that both grants and denies the motion to dismiss depending on whether the investors adequately pleaded falsity for Bayer’s statements on due diligence and glyphosate safety.
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