Boston Scientific Corp. (NYSE:BSX) slipped another shareholder’s lawsuit that accused the company of concealing problems stemming from its ill-fated 2006 buyout of Guidant Corp.
Judge William Young of the U.S. District Court for Massachusetts accepted Magistrate Judge Leo Sorokin’s recommendation to dismiss the case in a terse, one-sentence ruling. The lawsuit alleged that the Natick, Mass.-based medical device giant and its management breached their fiduciary duties “by approving (or acquiescing in) a course of misconduct which includes: illegal and unethical business practices; the manufacturing, marketing and selling of defective products; and, concealment of these wrongful actions from investors,” according to court documents.
The shareholders, led by plaintiff Rick Barrington, accused Boston Scientific, several directors and current and former executives of hiding Guidant’s problems between April 20, 2009, and March 12, 2010. Citing filings with the federal Securities & Exchange Commission and statements the executives made in press releases and during conference calls with analysts, the suit alleged that the men and the company made calculated, falsely rosy statements about the division designed to artificially boost Boston Scientific’s share prices.
It also cited the November 2009 departure of the CRM division’s senior sales and marketing executive, William McConnell Jr., and Elliott’s move to cashier several BoSci sales staff and managers from its CRM division in Minnesota.
But Sorokin found, and Young agreed, that the company’s actions were above board in dealing with the disaster it inherited when it acquired Guidant for more than $26 billion.
“With regard to the misconduct of the CRM sales force, for example, there are no particularized allegations that any of the directors were aware of the misconduct prior to the investigation described. Rather, the company appears to have made reasonable efforts to eliminate those engaging in misconduct and to limit the financial impact to the company, meanwhile making the required disclosures to regulators and investors,” Sorokin wrote, according to court documents. “Similarly, the actions alleged with regard to the handling of defective products are reasonable responses to the situations presented. The press release concerning the [HeartRhythm] journal article takes a position apparently designed to limit the financial impact of the required disclosures and remediation, and none of the statements attributed to the company in the amended complaint are demonstrably knowing misrepresentations. Finally, the allegations concerning the Company’s handling of issues arising from Guidant’s pre-acquisition misconduct similarly reveal not a pervasive course of misconduct in the face of regulatory action, but rather a reasonable response to such action.”
Last week another federal judge in Boston dismissed a similar lawsuit, along similar grounds, finding that the company acted reasonably given the hand it was dealt.
Boston Scientific is still struggling with the Guidant deal, commonly referred to as one of corporate the most misguided in history. Yesterday the company agreed to pay $9.25 million to settle allegations that the med-tech goliath’s Guidant subsidiary overcharged federal health care programs for medical devices.
Last year the DOJ officially charged Guidant with a failure to report safety issues with its implantable defibrillators. BSX promised to pay nearly $300 million to settle that case, even though the alleged infractions occurred prior to the Guidant buyout.