On August 7, 2024, a Chicago federal judge rejected the defendants’ arguments that tossing the lawsuit accusing Abbott Laboratories leaders of concealing known safety issues related to recalled infant formula was in shareholders’ “best interest.”
U.S. District Judge Sunil R. Harjani wrote that current and former directors and senior officers seemingly misunderstood the complaint and”potentially the purpose of derivative litigation more broadly.” According to Judge Harjani, the leaders had essentially argued that the case should be dismissed because going forward with the suit could uncover evidence that could harm the company in future lawsuits. But such an argument “could be made in any derivative suit,” Judge Harjani wrote.
He said tossing the suit for the suggested reason would “in effect nullify all derivative ligation because the directors could always argue that allowing shareholders to bring a derivative litigation that could uncover illicit conduct is not in the best interest of the company.”
“Defendants’ assertion is akin to an academic argument about the true value of derivative litigation, but that is certainly not grounds to dismiss this case under governing law,” Judge Harjani wrote.
In July 2023, the Southeastern Pennsylvania Transportation Authority (SEPTA) and the International Brotherhood of Teamsters Local No. 710 Pension Fund moved to consolidate related derivative cases. U.S. District Judge Manish S. Shah granted the motion, as well as their request to appoint them as co-lead plaintiffs. Kehoe Law Firm represents SEPTA in this action.
SEPTA and Local No. 710 had alleged that the directors repeatedly failed to implement and monitor a compliance and safety program related to Abbott’s infant formula, disregarded their duty to investigate red flags and remedy misconduct, and covered up safety and compliance risks related to the manufacturing and selling of the formula products. “Here, plaintiffs allege that the director defendants failed to exercise their oversight function over acritical safety compliance function which allegedly led to the death of several customers,” JudgeHarjani wrote.
The case is In re Abbott Laboratories Infant Formula Shareholder Derivative Litigation, case number 1:22-cv-05513, in the U.S. District Court for the Northern District of Illinois.
