Asher v. Baxter International Inc.

Medical manufacturer Baxter International Inc. (Baxter) (defendant) released second-quarter financial results on July 18, 2002. The reported sales and profits were significantly below analysts’ expectations, and Baxter’s shares dropped from $43 to $32. The analysts’ expectations were based on projections repeatedly made by Baxter in Securities and Exchange Commission documents, press releases, and oral statements between November 5, 2001, and July 18, 2002. Baxter projected revenue growth in the low teens. Brian Asher and other investors (plaintiffs) sued Baxter, seeking to represent a class of all investors who had either purchased Baxter shares on the market or acquired them in a stock-for-stock exchange when Baxter acquired another company. They alleged that Baxter’s projections were materially misleading and therefore violated the Securities Act of 1933 (1933 act) and the Securities and Exchange Act of 1934 (1934 act). Specifically, they contended that the projections failed to note that: (1) Baxter’s renal division consistently failed to meet internal budgets, (2) Baxter had closed multiple plants, and (3) Baxter’s bio-science division had experienced a costly sterility failure. Baxter had not changed its projections or cautions to investors after the plant closures or the sterility failure. The district court dismissed the complaint on the grounds that Baxter’s projections fell within the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. §§ 77z-2, 78u-5. The investors appealed.