Overview
Cohen Milstein represents the International Brotherhood of Teamsters Local No. 710 Pension Fund (Teamsters Local No. 710 Pension Fund) and Southeastern Pennsylvania Transportation Authority (SEPTA) in a shareholder derivative lawsuit against members of Abbott Laboratories’ Board of Directors for their roles in the 2022 contaminated infant formula crisis.
Abbott is one of the primary manufacturers of infant formula in the United States, and a leading provider of formula to low-income families through the SNAP program. Abbott shareholders allege that members of the board breached their fiduciary duties by failing to oversee the safety of infant formula manufactured and sold by Abbott, resulting in a major recall and nationwide infant formula shortage. The consequences were devastating for families, and caused tremendous harm to Abbott, which became the subject of regulatory, criminal, and Congressional scrutiny and numerous lawsuits including wrongful death, personal injury, whistleblower, consumer, and investor class actions. In total, the crisis caused billions of dollars of damage to Abbott and its reputation.
Shareholders also allege that the board violated the federal securities laws by making or allowing the Abbott to make false and misleading statements regarding safety and regulatory compliance at Abbott, which caused the company to repurchase Abbott stock at artificially inflated prices.
Important Decisions
- On February 14, 2025, the Honorable Sunil R. Harjani of the United States District Court for the Northern District of Illinois largely denied a motion to stay by a Special Litigation Committee of Abbott’s Board, allowing written discovery to continue.
- On November 12, 2024, the court denied Abbott’s motion to reconsider its August 7, 2024 motion to dismiss.
- On August 7, 2024, the court denied Abbott’s motion to dismiss, ruling that Count II: Violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 and Count III: Breach of Fiduciary Duty Against the Director Defendants can move forward.
- On September 18, 2023, the court appointed Cohen Milstein and Scott & Scott as Lead Counsel and Teamsters Local No. 710 Pension Fund and SEPTA as Lead Plaintiffs.
Case Background
Abbott, an Illinois corporation, is one of the primary manufacturers of infant formula products in the U.S., previously producing 40% of all infant formula products consumed in the U.S. It is also the nation’s leading provider of infant formula to low-income families WIC: USDA’s Special Supplemental Nutrition Program for Women, Infants, and Children.
Infant formula production and sale is highly regulated. In September 2019, FDA inspectors found violations of federal food safety laws at Abbott’s Sturgis Plant, but those violations were not fully corrected, and other more serious violations were uncovered in September 2021. In both 2019 and 2021, the FDA found Cronobacter sakazakii (Cronobacter), a bacteria that can contaminate infant formula products and be potentially deadly, at the Sturgis Plant. During this same period, whistleblowers raised concerns about lax cleaning practices and leaks presenting contamination risks. In late January and early February 2022, the FDA conducted a “for-cause” inspection at the Sturgis Plant, where it detected Cronobacter in multiple environmental sites, and found the plant to be unsanitary. The FDA urged Abbott to conduct a voluntary recall of certain infant formula products manufactured at the Sturgis Plant. Finally, Abbott ceased production at the Sturgis Plant on February 15, 2022, and issued a recall on February 17, 2022.
On February 28, 2022, Abbott expanded its recall, and the FDA announced, “one additional illness of Cronobacter sakazakii with exposure to powdered infant formula produced at Abbott Nutrition’s Sturgis, Michigan facility.” On May 25, 2022, the FDA Commissioner testified at a Congressional hearing about the “egregiously unsanitary” conditions at the Sturgis Plant, that Abbott’s “inspection results were shocking,” and that the FDA had “lost confidence that Abbott Nutrition had the appropriate safety and quality culture and commitment to fix these problems quickly.”
A nationwide shortage of baby formula ensued as the facility remained shut down for several months and tragically, several infant deaths were linked to the formula produced at the Sturgis Plant. While Abbott has disputed any linkage, former FDA Deputy Commissioner, Food Policy & Response in testimony before the U.S. House of Representatives Oversight Committee’s Subcommittee on Health Care and Financial Services pushed back against claims that the Sturgis Plant was not the source of the reported illnesses.
In addition to the harm to the infants and families that rely on Abbott formula, these events caused significant harm to Abbott itself. The company reported a 60% decrease in operating earnings for its Nutritional Products segment and recorded $176 million in charges related to the 2022 infant formula recall. Abbott also suffered a 31.75% decline in net earnings in its third quarter 2022 financial results which in the October 19, 2022 Form 8-K filed by Abbott were attributed in part to the Sturgis Plant shutdown, entry into a DOJ Consent Decree requiring significant remediation efforts, and numerous related lawsuits. Additionally, Abbott’s business suffered hundreds of millions in lost sales and profits and costs to remediate the facility and upgrade food safety compliance, risk management systems, and internal controls. The company’s business and reputation were badly tarnished as it came under widespread scrutiny. The company is now exposed to numerous lawsuits, including wrongful death personal injury, and whistleblower actions, as well as consumer and investor class actions.
In light of these events and the attendant harms to Abbott, Shareholders allege that certain directors and officers breached their fiduciary duties by failing to oversee infant formula safety at Abbott and violated Section 10(b) of the Securities and Exchange Act of 1934, by authorizing the company to engage in billions of dollars in stock repurchases while Abbott’s stock was artificially inflated due to false and misleading statements regarding Abbott’s production and manufacture of infant formula products in the US…
Case name: In re Abbott Laboratories Infant Formula Shareholder Derivative Litigation, Case No. 22 CV 5513, United States District Court for Northern District of Illinois