Gallagher v. Abbott Laboratories

269 F.3d 806 (7th Cir. 2001)


The FDA and Abbott (D) were involved in quality control issues and remedial steps about production. By September 1999 the FDA was insisting on substantial penalties plus changes in D's methods of doing business. On September 29, 1999, after the markets had closed, D issued a press release describing the FDA's position, asserting that D was in 'substantial' compliance with federal regulations, and revealing that the parties were engaged in settlement talks. D's stock fell more than 6%, from $40 to $37.50, the next business day. On November 2, 1999, D and the FDA resolved their differences, and a court entered a consent decree requiring D to remove 125 diagnostic products from the market until it had improved its quality control and to pay a $100 million civil fine. D took an accounting charge of $168 million to cover the fine and worthless inventory. The next business day D's stock slumped $3.50, which together with the earlier drop implied that shareholders saw the episode as costing D (in cash plus future compliance costs and lost sales) more than $5 billion. Gallagher (P) started this class action under Section 10(b) and Rule 10b-5. P claimed that D had committed fraud by deferring the public revelation of information. The district court dismissed the complaint, and P appealed.