(CN) – The 6th Circuit largely upheld dismissal of a shareholder class action against pharmaceutical company Omnicare. “Seizing on a few vague statements from management, the plaintiffs try to turn bad corporate news into a securities class action,” U.S. District Judge Richard Mills wrote.
Because securities law “forbids such alchemy,” the ruling states, the court affirmed the lower court’s dismissal on all claims but an accounting claim.
A class of investors, led by a state pension fund, accused Omnicare of publishing overly positive outlooks while the company was in a contract dispute and was unprepared to transfer to a prescription drug benefit program called Medicare Part D.
But the Cincinnati-based appellate panel affirmed the lower court’s dismissal, saying the plaintiffs’ proof of loss causation was “thoroughly lacking.”
The plaintiffs had claimed that Omnicare hid a contract loss with a major drug plan supplier by continuing to say that the company was doing well.
Omnicare CEO Joel Gemunder’s positive, forward-looking statements were protected by safe-harbor laws, the three-judge panel ruled.
Gemunder’s optimistic comments “fall squarely within the realm of corporate puffery, as they do nothing more than vaguely predict positive future results, a claim so banal and ubiquitous that it cannot engender reliance by reasonable investors,” Mills wrote.
The appellate panel also dismissed a claim that the company misled investors by stating that it was ready to transfer to the new Medicare Part D drug coverage program in late 2005. When Part D launched in January 2006, Omnicare experienced a “rocky transition” that cost the company $9.8 million, the plaintiffs claimed.
The court similarly tossed a claim based on Omnicare’s assurances that it had complied with the law. Investors said Omnicare knew about drug recycling and other illegal practices, but hid them.
“[N]o allegations establish when the defendants were aware of the wrongdoing or, for that matter, when the wrongdoing was occurring,” Mills wrote.
The court mostly dismissed the case, but remanded a claim for abuses of generally accepted accounting principles to re-establish loss causation.
Mills, a federal judge, participated in and wrote the appellate decision.