First Circuit Court of Appeals Affirms Dismissal of Shareholder Derivative Action against Abiomed, Inc.
On June 10, the First Circuit Court of Appeals affirmed the dismissal of Bryceland v. Minogue, a shareholder derivative action alleging that Abiomed, Inc., and its directors breached their fiduciary duties to Abiomed and its shareholders by allowing the company to unlawfully market its chief product, a heart pump, and issue public statements that were overly optimistic in the face of the corporation’s potential liability. The case, originally brought in the United States District Court for the District of Massachusetts, was decided on the grounds that the plaintiffs had failed to adequately plead that a pre-suit demand to the directors for remedial action would have been futile.
Abiomed, based in Massachusetts, manufactures heart pumps that provide partial circulatory support during cardiac procedures. Between 2011 and 2012, the FDA informed Abiomed that it was concerned with certain allegedly “off-label” promotional materials regarding the company’s medical devices. Abiomed promptly disclosed those FDA inquiries to investors and stated in its SEC filings that the company “hope[d] to be able to resolve this matter without incurring penalties.”
In November 2012, the U.S. Attorney’s Office for the District of Columbia served a separate administrative subpoena regarding Abiomed’s alleged off-label marketing practices. Abiomed promptly disclosed this to investors. The plaintiffs alleged that upon announcement of the USAO subpoena, the company’s stock price dropped $6.31 per share, or 31.33%. The plaintiffs alleged that various statements regarding the FDA inquiry, as well as statements regarding Abiomed’s revenues and marketing practices, were materially false and misleading because the company had not disclosed it was improperly marketing and/or labeling the Impella 2.5 system, that the company’s results would be affected if forced to stop, and that the company lacked adequate internal and financial controls.
In June 2013, Ropes & Gray won dismissal of the derivative complaint. On June 10, 2014, the First Circuit affirmed the district court’s decision dismissing the case in an opinion by Justice Souter, sitting by designation. The First Circuit agreed that Bryceland’s complaint failed to plead with the requisite particularity that a demand to the directors would have been futile.
The team was led by business & securities litigation partner John Donovan and included business & securities litigation associate Dan Ward, both of Boston.