By Jonathan Stempel
July 24 (Reuters) – A federal judge on Friday dismissed a lawsuit accusing Abbott Laboratories of defrauding shareholders by downplaying and trying to evade its responsibility for a 2022 recall of powdered infant formula, and lying about its commitment to quality and product safety.
U.S. District Judge Steven Seeger in Chicago said shareholders led by two European asset managers failed to show that Abbott intended to deceive them and inflated its share price in connection with the February 2022 recall of Similac, Alimentum and EleCare produced at its plant in Sturgis, Michigan.
Abbott closed the plant following reports of severe bacterial infections in infants, and after investigators found traces of potentially deadly bacteria.
The recall and plant closure worsened a national shortage of baby formula that began during the COVID-19 pandemic.
Lawyers for the shareholders did not immediately respond to requests for comment. Abbott and its lawyers did not immediately respond to similar requests.
Shareholders said the Abbott Park, Illinois-based pharmaceutical company waited too long to disclose the contamination, including to the U.S. Food and Drug Administration, and concealed poor conditions at the plant.
They also challenged Abbott’s public statements about its regulatory compliance and commitment to providing safe products.
But in a 141-page decision, Seeger said the complaint “at best” alleged that Abbott mishandled the Sturgis plant and the FDA inspection.
“Mismanaging a plant that makes infant formula is bad,” Seeger wrote. “But it’s not securities fraud.”
The judge also found many Abbott statements too general to warrant liability.
“If you asked Corporate America for a show of hands, and asked CEOs whether they make safe and high-quality products, not a lot of executives would sit still,” he wrote.
Abbott’s U.S. market share for infant formula exceeded 40% before the recall, court papers show.
Seeger said the shareholders could try to amend their 217-page complaint, but it was “hard to imagine that plaintiffs withheld anything that could change the outcome.”
(Reporting by Jonathan Stempel in New York; Editing by Chris Reese and David Gregorio)
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