Plaintiff Marta Bryceland filed a shareholder derivative lawsuit in the U.S. District Court for Massachusetts, accusing chairman, president & CEO Michael Minogue and the rest of the company’s directors of issuing falsely rosy statements to artificially inflate its share price, despite knowing of a U.S. Justice Dept. investigation and a pair of warning letters from the FDA.
Judge Dennis Saylor IV dismissed the case a year ago, ruling that the plaintiff failed to prove that the medical device company’s board and its management deliberately concealed allegedly illegal marketing practices for its Impella 2.5 heart pump.
Yesterday the U.S Court of Appeals for the 1st Circuit, in an opinion written by former U.S. Supreme Court Justice David Souter, upheld the dismissal on the grounds that Bryceland failed to prove the futility of bringing her demands to Abiomed’s board.
“Bryceland’s overarching theory, running through the multiple counts of the complaint, is that the defendants breached their fiduciary duties to Abiomed because, with them at the helm, the company both unlawfully marketed the Impella 2.5 and issued public statements that were overly sunny in the face of the corporation’s potential liability. Bryceland takes particular exception to the fact that, in the intervals between the unfavorable disclosures, the directors approved the issuance of press releases of positive financials without reiterating cautions about the potential liability associated with the FDA inquiry," Souter wrote. "Because Bryceland’s complaint does not claim that she made a demand for action by the defendants, and it is undisputed that she made none, this appeal turns on the requirement that she plead with particularity the futility of a demand."
Citing 2 cases, Aronson v. Lewis and Rales v. Blasband, as precedent, the appeals court found that Bryceland failed to meet that requirement.
"Bryceland’s complaint fails to plead particular facts that cast doubt on either the board’s disinterest or independence at any point (precluding success under Rales or Aronson’s 1st prong), or the board’s business judgment at the time of any specific decision (precluding success under Aronson’s 2nd prong)," Souter wrote. "To the contrary, to the extent that the complaint reveals anything about the directors’ mental states or conduct, it portrays a company that disclosed its exposure to liability as it responded to a charge of unlawful behavior."