Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Bronstein v. Austin

May 30, 2008

LEONARD BRONSTEIN, ON BEHALF OF HIMSELF AND DERIVATIVELY ON BEHALF OF ABBOTT LABORATORIES, PLAINTIFF,
v.
ROXANNE S. AUSTIN, WILLIAM M. DALEY, W. JAMES FARRELL, H. LAURENCE FULLER, RICHARD A. GONZALEZ, THE RT. HON. LORD OWEN CH, BOONE POWELL, JR., W. ANN REYNOLDS, PH.D., ROY S. ROBERTS, SAMUEL C. SCOTT, III, WILLIAM D. SMITHBURG, GLENN F. TILTON AND MILES D. WHITE, DEFENDANTS, AND ABBOTT LABORATORIES, NOMINAL DEFENDANT.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Leonard Bronstein ("Bronstein") brings this shareholder derivative action on behalf of nominal defendant, Abbott Laboratories ("Abbott" or the "Company"), against the individual defendant directors of Abbott ("Board" or "Directors," and together with Abbott, "Defendants") to remedy alleged breaches of their fiduciary duties. Plaintiff asserts that the breaches arise from Directors' knowing failure, over a period of time, to exercise their oversight responsibility over Abbott's Diagnostic Division to assure compliance with the Quality Service Regulations ("QSRs") of the Food and Drug Administration ("FDA"). Defendants moved to dismiss for failure to adequately plead demand futility. This Court grants Defendants' Motion to Dismiss and dismisses Bronstein's Complaint without prejudice.

STATEMENT OF FACTS

I. The Parties

Bronstein is a current shareholder of Abbott stock. Compl. ¶ 4. Miles D. White ("White'), Roanne S. Austin ("Austin"), William M. Daley ("Daley"), W. James Farrell ("Farrell"), H. Laurance Fuller ("Fuller"), David Owen ("Owen"), Boone Powell, Jr. ("Powell"), W. Anne Reynolds ("Reynolds"), Roy S. Roberts, Ph.D. ("Roberts"), Samuel L. Scott ("Scott"), William D. Smithburg ("Smithburg"), and Glenn F. Tilton ("Tilton") are Directors of Abbott. Compl. ¶¶ 17. As Directors, Bronstein alleges that the Defendants owed Abbott's stockholders fiduciary duties such as candor, fidelity, trust and loyalty, and were required to use their ability to oversee and control Abbott's operations and business in a fair, just, and equitable manner. Compl. ¶ 18. Defendants were further obligated to act in the best interest of Abbott and its stockholders. Compl. ¶ 18. Defendants were required to exercise reasonable and prudent supervision over management and the Company itself. Compt. ¶¶ 19-20. This included overseeing Abbott's compliance with FDA regulations. Id.

II. The FDA Regulatory Scheme

Because Abbott is in the business of manufacturing and selling healthcare products, it is subject to FDA regulation. The FDA has issued QSRs that define Current Good Manufacturing Practices ("CGMPs"), see 21 C.F.R. § 820.1-820.250 (2007), and periodically inspects facilities to assure compliance. Following these inspections, the FDA may provide the company with a Form 483 detailing QSR non-compliance and asking the company to formulate a remedial plan. See Fujisawa Pharm. Co. V. Kapoor, 16 F. Supp. 2d 941, 943 (N.D. Ill. 1998). Subsequently, the FDA may choose to take no further action or to issue a "warning letter" detailing QSR violations and demanding they be remedied promptly. Id.

III. Prior Non-Compliance

At the end of 1999, the FDA brought a suit against Abbott for QSR violations at its Illinois facilities. (Compl. Ex. C.) The suit resulted in a $100 million fine and led to a subsequent shareholder's derivative suit. See In Re Abbott Lab. S'holder Derivative Litig., 325 F.3d 795 (7th Cir. 2003). As part of the settlement of the latter suit, Abbott agreed to make changes in its corporate governance structure, amending the Charter of the Public Policy Committee of the Board of Directors ("Public Policy Charter') to specifically address the Board's oversight responsibility with respect to FDA compliance. (Compl. Ex. A.) The resulting Public Policy Committee today reviews and evaluates Abbott's regulatory compliance through investigation and reporting from management. Id. The Public Policy Committee has been functioning as intended. (Compl. ¶ 35); (Defs.' Mem. Supp. Mot. Dismiss 4.)

IV. Abbott and General Electric

On January 18, 2007, Abbott issued a press release announcing the sale of its Diagnostics Division to General Electric ("GE") for $8.13 billion. (Compl. ¶ 23.) The pressrelease stated that the deal was subject to customary closing conditions, including regulatory approval. Id. Bronstein alleges that Defendants knew of the serious long-standing FDA regulatory problems that were plaguing the Irving, Texas facility of the Diagnostic Division's operation at the time that Abbott entered into the contract with GE. Compl. ¶ 24.

IV. March 13 Warning Letter

On March 13, 2007, the FDA sent Abbott a warning letter (the "March 13 Letter") about QSR non-compliance at its Irving, Texas facility. (Compl. Ex. B.) The letter stated the FDA had conducted an investigation there in late 2006 and had found several QSR violations. Id. Some were repeat violations, incomplete corrections stemming from observed violations as far back as 2003. (Compl Ex. B at 2.) The letter further stated that the FDA had issued Forms 483 in response to the violations and that Abbott had responded. Id. It detailed ongoing communications between the FDA and Abbott, acknowledging Abbott's commitment to improve product quality and compliance through a comprehensive corrective action plan. Id. Despite this commitment, the letter expressed dissatisfaction with the pace of the progress and demanded Abbott comply in a timely manner. Id. The letter also provided for further follow-up inspections to assure compliance.Id.Finally, the letter warned Abbott that failure to bring the facility into compliance could result in FDA regulatory action including seizure, injunction, and/or civil penalties and could affect awards of contracts and pre-market approval application for certain devices. Compl. ΒΆ 25. Defendants did not publicly disclose the Warning Letter or the adverse impact it would ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.