Boston Scientific Corp. (NYSE:BSX) got some rare good news in connection with its infamous acquisition of Guidant Corp. when a federal judge denied a bid by Johnson & Johnson (NYSE:JNJ) to revive a $5.5 billion lawsuit against BSX and Abbott (NYSE:ABT) over the Guidant buyout.
Johnson & Johnson sued the Natick, Mass.-based devices giant, its new subsidiary and its rival Abbott in September 2006, accusing the trio of anti-competitive conduct and breach of contract. Guidant originally inked a deal to be acquired by J&J in late 2005, but after a bidding war Boston Scientific took the prioze. Part of that deal required BSX to divest Guidant’s vascular intervention and endovascular businesses to Abbott and to share Guidant’s stent business, according to court documents.
According to the original deal with J&J, however, Guidant could only entertain unsolicited counter-offers and was barred from releasing confidential due-diligence information to any parties except the bona-fide second suitor.
Johnson & Johnson’s suspicions of foul play seemed to be confirmed shortly after the Boston Scientific/Guidant deal was announced, when then-CFO Larry Best told analysts on a conference call that Boston Scientific "had the opportunity to do a certain level of due diligence [on Guidant’s drug-eluting stents business]. Abbott had the opportunity to do a much deeper dive on due diligence.”
Abbott not being a bone-fide second suitor, J&J reasoned, meant Guidant violated the terms of its original deal with Johnson & Johnson by releasing confidential information to Abbott. J&J sued, alleging breach of contract and tortious interference on the part of Abbott and Boston Scientific. Judge Gerald Lynch of the U.S. District Court for Southern New York, who heard the case originally, dismissed the latter charges but allowed the case to go forward on the breach of contract claim. Fast-forward to October 2009, when the case was assigned to Judge Richard Sullivan after Lynch was confirmed for the Second Circuit Court of Appeals, and Johnson & Johnson’s bid to amend its complaint to re-assert the charges against BSX and Abbott and to add allegations to the breach of contract charge.
"Plaintiff argues that during discovery it uncovered documents revealing that ‘Boston Scientific and Abbott employed wrongful, deceptive and malicious acts that induced Guidant to breach the Merger Agreement.’ Additionally, Plaintiff argues that these documents provide further support for its claim that Guidant’s breach was willful and material,” according to court documents.
Sullivan disagreed, citing Lynch’s finding that J&J “allege[d] no facts that would make it plausible that Abbott or BSC did anything more underhanded than simply asking Guidant for the due diligence in the course of proposing to Guidant a transaction more advantageous to its shareholders than the deal offered by J&J.”
“Fundamentally, the new allegations in the Amended Complaint do little to cure the defects cited in Judge Lynch’s prior opinion,” Sullivan wrote. “While the Amended Complaint alleges that the agreements related to BSC’s takeover proposal supply the missing underhanded conduct needed to trigger liability, Plaintiff’s theory of the case has evolved little from the theory advanced in the original complaint. Plaintiff’s claim for recovery remains based on the premise that Abbott and BSC wrongfully induced Guidant to provide due diligence to Abbott and then wrongfully concealed such provision from J&J. The documents that form the basis of the new allegations, however, are unexceptional
agreements designed to protect Defendants from each other during the exchange of confidential business information. It is simply not plausible to suggest that the documents themselves, even if misrepresenting Abbott’s status, elevate BSC’s and Abbott’s conduct to a tortious level.”
As for the bid to expand the breach of contract charge against Guidant, Sullivan ruled that J&J did not meet the legal requirements for such an expansion and that granting it would unnecessarily delay the case.
“Plaintiff’s original complaint was filed over three years ago. The interest in closing the pleadings and continuing the discovery process outweighs any benefit in allowing Plaintiff to add unnecessary allegations to its existing cause of action,” he wrote. “Accordingly, Plaintiff’s motion to amend the complaint so as to add new factual allegations against Guidant is denied.”