Sheet Metal Workers National Pension Fund v. Bayer Aktiengesellschaft

Background

This proposed class action alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 in connection with Bayer’s acquisition of Monsanto. The plaintiffs’ earlier complaint asserted alleged misrepresentations about Bayer’s due diligence in acquiring Monsanto, the safety of glyphosate, and Bayer’s accounting for legal risks related to Roundup. In an earlier order, the court denied a motion to dismiss but concluded that plaintiffs had adequately pleaded falsity and intent to deceive as to Bayer’s due-diligence efforts, while finding deficiencies in the other theories.

The parties later stipulated to allow a Second Amended Class Complaint. Plaintiffs reframed their glyphosate-safety theory as an allegation that defendants misrepresented the evidentiary basis for Monsanto’s science-based defenses in Roundup litigation. Plaintiffs removed their accounting-related theory. Bayer then moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Analysis

The court considered five categories of alleged misstatements: statements that Monsanto’s defenses were supported by more than 800 studies; statements about the Agricultural Health Study; statements about whether scientific evidence showed that Roundup causes cancer; statements about whether Roundup was more dangerous than glyphosate alone; and statements about regulators’ views of glyphosate safety.

The court held that plaintiffs had not pleaded with the required particularity—that is, with enough specific facts—the alleged misrepresentations concerning the more-than-800 studies, the Agricultural Health Study, the weight of scientific evidence, or regulators’ views. The court reasoned that criticisms of the Agricultural Health Study were ordinary litigation criticisms of scientific research, that opinions about the weight of scientific evidence are generally not actionable securities-fraud misstatements, and that plaintiffs had not adequately explained why the statements about regulatory approval were misleading.

The court also addressed allegations that defendants misrepresented the safety risks of Roundup compared with glyphosate. Although an internal Monsanto email supported the allegation that Roundup and glyphosate were not the same in terms of safety risks, the court found that plaintiffs had provided too little support for a strong inference that Bayer executives made the later statements intentionally or recklessly. The court therefore stated that scienter—the required intent to deceive, manipulate, defraud, or act with deliberate recklessness—was not established for those alleged misrepresentations.

Disposition

The court concluded that plaintiffs had not pleaded the elements of a securities-fraud violation based on statements about the evidentiary basis for Monsanto’s science-based trial defenses. But because the court had previously determined that plaintiffs adequately pleaded a Securities Exchange Act violation under another theory, the court denied the motion to dismiss. The plaintiffs could not proceed on the theories concerning statements about the evidentiary basis for those defenses. The court also vacated the hearing set for May 26, 2022. Chief United States District Judge Richard Seeborg signed the order.