Rogers v. Baxter Intern. Inc.

• Decision Date: 03 May 2010
• Docket Number: No. 04 C 6476,04 C 6476
• Citation: 710 F.Supp.2d 722
• Parties: David E. ROGERS, on behalf of Himself and a Class of Persons Similarly Situated, and on behalf of the Baxter International Inc. and Subsidiaries Incentive Investment Plan, Plaintiff, v. BAXTER INTERNATIONAL INC., the Administrative Committee, the Investment Committee, Brian P. Anderson, and Harry M. Jansen Kraemer, Jr., Defendants.
• Court: U.S. District Court — Northern District of Illinois

710 F.Supp.2d 722

David E. ROGERS, on behalf of Himself and a Class of Persons Similarly Situated, and on behalf of the Baxter International Inc. and Subsidiaries Incentive Investment Plan, Plaintiff,

v.BAXTER INTERNATIONAL INC., the Administrative Committee, the Investment Committee, Brian P. Anderson, and Harry M. Jansen Kraemer, Jr., Defendants.

No. 04 C 6476.

United States District Court,

N.D. Illinois,

Eastern Division.

May 3, 2010.

Michael M. Mulder, Jamie S. Franklin, Thomas R. Meites Meites, Mulder, Mollica & Glink, Robert D. Allison, Bruce C. Howard, Robert D. Allison & Associates, Johanna J. Raimond, Law Offices Of Johanna J. Raimond Ltd., Steven Paul Schneck, Robert D. Allison & Associates, Chicago, IL, for Plaintiff.

Matthew Robert Kipp, Andrew J. Fuchs, Dhananjai Shivakumar, Donna L. McDevitt, Francis Neil MacDonald, Skadden Arps Slate Meagher & Flom, LLP, Arthur James Rooney, Seyfarth Shaw LLP, Charles Clark Jackson, Jeremy P. Blumenfeld, Christopher Joseph Boran, Heather L. McDermott, Julia Y. Trankiem, Theodore Michaelson Becker, Morgan

Lewis & Bockius, LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

JOAN B. GOTTSCHALL, District Judge.

Plaintiff David E. Rogers represents a class of participants in and beneficiaries of the Baxter International Inc. and Subsidiaries Incentive Investment Plan (the "Plan"). Rogers brings suit against Baxter International Inc. ("Baxter") and several related defendants for alleged breaches of fiduciary duties owed to the class under the Employee Retirement Income Security Act of 1974 ("ERISA"), Pub.L. No. 93-406, 88 Stat. 829 (codified as amended in scattered sections of 5 U.S.C., 18 U.S.C., 26 U.S.C., 29 U.S.C., and 42 U.S.C.). This case is presently before the court on defendants' motion for summary judgment and Rogers's motion for partial summary judgment.

I. Facts ¹

A. Background ²

Since 1985, Baxter, a seller of pharmaceuticals and other healthcare-related products, has maintained the Plan for its employees' 401(k) contributions. ( See Defs.' Resp. ¶ 1; see also Pl.'s Resp. ¶ 3.) At the time of the events in question, the 1997 version of the Plan was in effect. (Defs.' Resp. ¶ 2.) Baxter was the Plan's sponsor and had responsibility for investment matters relating to the Plan. (Pl.'s Resp. ¶ 3; see also Defs.' Resp. ¶ 6.) Two Baxter committees, the defendant Investment Committee and the defendant Administrative Committee, were responsible for administering and managing the Plan,and therefore were fiduciaries. (Defs.' Resp. ¶¶ 3, 5.) Defendant Brian Anderson was Baxter's Chief Financial Officer, a member of the Administrative and Investment Committees, and a Plan fiduciary at all relevant times. ( Id. ¶ 5; Pl.'s Resp. ¶¶ 3-4.) Defendant Harry M. Jansen Kraemer, Jr. was Baxter's Chief Executive Officer and Chairman of the Board of Directors at relevant times.

Plaintiff Rogers is a participant in the Plan who elected to invest a portion of his contributions to the Plan in the Baxter Common Stock Fund. (Pl.'s Resp. ¶ 3.) He represents a class of investors who held stock in Baxter through their individual Plan accounts at any time between January 1, 2001 and the present. ( Id. ¶ 2; see also Doc. Nos. 78-79.)

B. The Plan

The Plan was a defined-contribution plan, meaning each Plan participant had an individual account, the benefits of which were based solely on the amount contributed thereto. (Pl.'s Resp. ¶ 7.) Plan participants could make tax-deferred contributions to their respective accounts under § 401(k) of the Internal Revenue Code, 26 U.S.C. § 401(k), and Baxter matched those contributions up to a certain limit. ( Id. ¶ 8.)

In addition to determining how much was invested in their individual accounts, Plan participants directed what investments to make. (Defs.' Resp. ¶¶ 11-13.) The Investment Committee offered Plan participants the opportunity to invest in seven different investment "funds," including five diversified funds, and offered a self-managed brokerage window through which Plan participants could invest in several thousand mutual funds. ( See Pl.'s Resp. ¶ 42; see also Defs.' Ex. D-3, at 8-9.) Each fund was described in a Summary Plan Description ("SPD") ³ provided to Plan participants, see Pl.'s Resp. ¶ 42, Defs.' Ex. D-5, at 12, and Plan participants could obtain more detailed information regarding any fund on request. (Pl.'s Resp. ¶¶ 46, 54; see also Defs.' Resp. Ex. D ¶¶ 18, 27; Defs.' Ex. D-6, at BAXR 001977.) Plan participants would then direct the investment of their account assets in the funds of their choice. ( See Pl.'s Resp. ¶¶ 57-63.)

During the relevant period, the Baxter Common Stock Fund was among the seven funds that the Investment Committee selected to be investment options for participants in the Plan. (Defs.' Resp. ¶ 21; see also Pl.'s Resp. ¶ 16.) SPDs provided Plan participants with information regarding voting and tender rights in Baxter common stock, and regarding confidentiality procedures related to transactions in Baxter common stock. (Defs.' Resp. Ex. D-3, at 13-14.) The Plan also had procedures to ensure that participants could exercise voting, tender, and similar rights in a confidential manner. (Pl.'s Resp. ¶ 68.)

C. Baxter's Commitments and Stock Price Decline

Each year, Baxter issued periodic financial guidance, which it termed "commitments," to the public. (Defs.' Add'l Resp. ¶¶ 4, 26.) These "commitments" forecasted financial information not just for Baxter generally, but also for each of Baxter's specific divisions. ( Id. ¶ 25.) In October 2001, Baxter announced its commitments for 2002, which included commitments to "[a]ccelerate sales growth to the low-teens" and "[g]row earnings-per-share in the mid-teens." ( Id. ¶ 34; see also Pl.'s Resp. ¶ 20.) As of its October 2001 announcement, Baxter had met its annual earnings and cash flow commitments for the seven previous years. (Pl.'s Resp. ¶ 21.)

In Baxter's Annual Report to shareholders, Kraemer indicated that the commitment, if realized, would be "our highest sales-growth rate in almost 20 years." (Pl.'s Resp. Ex. 66, at 6.) While the commitments for 2002 exceeded Baxter's historical sales growth rate, Defs.' Add'l Resp. ¶¶ 45-46, they were consistent with internally projected sales growth. (Pl.'s Resp. Ex. 52, at 10.) Internally, Baxter noted that its commitments were "reasonable and realistic." ( Id. at 20.) Also internally, Baxter set a goal of increasing the value of Baxter common stock from $62.81 per share to over $200 per share. ( See Pl.'s Resp. Ex. 45, at 8.)

Baxter's growth continued through 2001, and on January 24, 2002, Baxter announced that it had met its commitments for the previous year, its eighth consecutive such year. (Pl.'s Resp. ¶ 22.) On the same day, however, Kraemer held a conference call with analysts in which he revised downward the expected growth of Baxter's renal and bioscience divisions. ( See Pl.'s Resp. Ex. 22, at 18; see also Defs.' Add'l Resp. ¶ 63.) Throughout the first quarter of 2002, Baxter's renal division internally reported sales, sales growth, income, and cash flow that were short of previous estimates. (Defs.' Add'l Resp. ¶¶ 65, 67.)

On July 18, 2002, Baxter released its second quarter earnings results; in a conference call with analysts that day, Kraemer called Baxter's quarterly sales increase of eight percent "clearly disappointing." ( Id. ¶ 68.) The specific reason for the lagging increase in sales appears to have been the renal division, which contemporaneously announced that its sales growth would be revised downward for the second time that year. ( Id. ¶ 69.) In the same conference call, Kraemer reaffirmed that he expected that Baxter would meet its 2002 commitments. ( Id. ¶¶ 70-71; see also Pl.'s Resp. ¶ 24.) That day, Baxter common stock dropped 26.3% in value. (Defs.' Add'l Resp. ¶ 72; see also Pl.'s Resp. ¶ 25.)

In late September 2002, an internal Baxter forecast projected sales growth for 2002 in the range of ten to twelve percent, slightly below the 2002 commitment of sales growth in the low teens, and earnings-per-share growth of thirteen to fourteen percent. (Defs.' Add'l Resp. ¶ 75.) On October 3, 2002, the company publicly announced revised 2002 commitments to reflect these lower expectations. ( Id. ¶ 76.) On October 17, 2002 Baxter reiterated its revised 2002 commitments and also lowered its projections for its bioscience division; on the same day, the price of Baxter common stock dropped 8.6%. ( Id. ¶¶ 78-79.) On January 22, 2003, Baxter announced that its sales increased ten percent in 2002 (short of the low-teens October 2001 commitment) and that its earnings per share increased thirteen percent (short of its mid-teens October 2001 commitment). (Pl.'s Resp. ¶ 27.)

From the beginning of 2002 to the end of 2003, Baxter had to revise its quarterly guidance downward seven times. ( Id. ¶ 41.) During that time, Baxter's stock ranged from a high on March 27, 2002 of $59.60 to a low on April 1, 2003 of $18.56. ( Id. ¶ 42.) In May 2003, Anderson, Baxter's chief financial officer, made a presentation in which, looking backward, he characterized previous commitments as "too optimistic." ( See Pl.'s Resp. Ex. 51, at 6.) In July 2003, Kraemer informed the Board that Baxter's investor relations strategy was "shifting from a growth message to a value message." (Defs.' Add'l Resp. ¶ 89.)The Board minutes noting this proposed shift do not reflect the meaning of either term, or the history of Baxter's "growth message."

As the value of Baxter's common stock declined between 2002 and 2003, the assets of the Plan likewise declined in value. (Defs.' Resp. ¶¶ 34-36, 76-78.) While the value of Baxter common stock was declining, members of the Investment Committee did not discuss discontinuing the Baxter Common Stock Fund as an investment, although they did monitor the performance of each fund offered under the Plan, including the Baxter Common Stock Fund. ( Id. ¶ 99.)

Despite the 2002-2003 stock decline, Baxter common...