SAN FRANCISCO (Legal Newsline) - Bayer AG can be sued for allegedly misleading investors about its risk from litigation over the weedkiller Roundup, a federal judge ruled, despite Bayer’s arguments the product doesn’t cause cancer – a claim supported by the U.S. government and regulatory agencies around the world – and it couldn’t be expected to anticipate juries would believe plaintiff claims otherwise.
The German chemicals giant may have failed to properly investigate Roundup claims before agreeing to buy Monsanto in 2016, said U.S. District Judge Richard Seeborg. Plaintiffs had enough evidence to proceed with claims Bayer Chief Executive Werner Baumann had a history of recklessly pursuing acquisitions and his company may have deliberately chosen not to examine internal Monsanto documents suggesting Roundup was in danger of becoming a litigation bomb, the judge wrote.
Grand Rapids, Mich., retirement systems sued Bayer in July 2020, later joined by pension funds for the Sheet Metal Workers and the Teamsters. They accused Bayer of hiding the true magnitude of its Roundup liability until events in 2020, including a proposed $10.9 billion global settlement, revealed how much money it would cost to resolve the litigation. Bayer shares fell about 38% between July and October 2020, although they have since recovered about 24%.
Bayer agreed to buy Monsanto in 2016 and closed the deal in 2018. Soon after completing the acquisition, juries returned more than $150 million in damages in two Roundup trials in California, which stimulated lawyers to file thousands of similar cases. Bayer offered to settle the litigation for $10.9 billion in June 2020. Its shares fell the following month, after U.S. District Judge Vince Chhabria said it was unlikely he would approve the deal.
The plaintiffs immediately sued, claiming Bayer misled investors about lapses in its due diligence, failing to disclose the cancer risk of glyphosate and failing to properly account for its legal liability.
Bayer moved to dismiss under Rule 12(b)6 for failure to state a claim. It argued, among other things, that glyphosate is safe and that the plaintiffs were accusing it of fraud in hindsight. The company said the claims boiled down to failing to anticipate lawyers would file meritless claims that Roundup causes cancer, and juries would believe them.
Accepting plaintiff claims as true, the judge ruled that they had adequately made the case that Bayer had failed to review Monsanto’s internal documents to ascertain the true litigation risk over Roundup.
The plaintiffs also accused Bayer of lying when it characterized 800 scientific studies as proving Roundup is safe. The judge rejected that claim, but allowed the plaintiffs to proceed with the claim Bayer shouldn’t have said glyphosate and Roundup were equally safe, given internal Monsanto documents suggesting it was possible other ingredients in Roundup made it more dangerous.
The judge also rejected claims Bayer failed to make the proper accounting entries for the risk of Roundup litigation, saying “it is unclear whether a reliable estimate could be made” until the $10.9 billion settlement was negotiated.
The plaintiffs fared better with claims Bayer executives, in particular Baumann, had acted with scienter, or intent to deceive investors, which includes deliberate recklessness. The plaintiffs pointed to reports Baumann had a history of reckless due diligence practices including a failed attempt to acquire Merck and a stubborn goal of acquiring Monsanto despite the Roundup lawsuits pending against it. The judge rejected Bayer’s argument it made no sense to mislead investors about the risks of the purchase, instead of making an informed judgment.
On loss causation, the plaintiffs cited six “corrective disclosures,” or releases of facts that revealed the company’s alleged deception and caused the stock to fall. Those started with a June 2018 CBS News report highlighting plaintiff claims, the jury verdicts, the announcement of the $10.9 billion settlement and when Judge Chhabria voiced skepticism about the deal.
The judge rejected the CBS news report as a corrective disclosure, since the information in it had been publicly available for weeks. But he allowed the other five.
“Until a verdict in one of the cases, investors would have viewed the links between Roundup and cancer as `unproven, untested allegations,’” the judge wrote. While a jury verdict doesn’t prove Roundup is in fact carcinogenic, the judge wrote, it did reveal “that Monsanto faced a serious risk in litigation.” The $10.9 billion settlement also revealed the true cost of the litigation and contradicted earlier statements that it didn’t expect significant liability.