From the very beginning of the COVID-19 outbreak in March 2020, one related phenomena that immediately became apparent was the emergence of coronavirus-related securities class action lawsuits and other corporate and securities litigation. I have been tracking the COVID-related securities litigation since the very beginning, and now, even though we are now well into the pandemic’s fourth year, the COVID-related securities suits are continuing to be filed. In the latest example of a COVID-related securities suit filing, a plaintiff shareholder this week sued Danaher Corporation for the company’s disclosures related to the impact of the pandemic on the company’s sales. This latest filing suggests that the COVID-19-related securities litigation phenomenon may have further to go yet. A copy of the complaint in the new lawsuit against Danaher can be found here.
Danaher designs and manufactures a wide variety of medical, industrial, and commercial products. According to the complaint, in 2020 and 2021, Danaher’s diagnostic tests and life sciences research tools were “widely used to combat the COVID-19 virus.” As a result, Danaher experienced a significant upswing in revenue growth during 2020 and 2021. The gist of the complaint is that as the pandemic, Danaher failed to disclose that as the pandemic evolved, the company’s pandemic-related revenue growth was declining and that the company overstated its ability to continue the growth the company had experienced in 2020 and 2021.
On April 28, 2023, Danaher announced its financial results for the first quarter of 2023. The company reported a revenue decline of 7% on a year-over-year basis “due to the impact of lower COVID-19 revenue,” among other things. The company also reduced its revenue growth projections for the year. The complaint alleges that this announcement “appeared to be at odds with Danaher’s prior reassurances that revenues associated with the Company’s non-COVID-19-related businesses would compensate for the COVID-related trends.” According to the complaint, the company’s share price declined nearly 9% on the news.
On July 17, 2023, a plaintiff shareholder filed a securities class action lawsuit in the District of Columbia, against Danaher and certain of its executives. The complaint purports to be filed on behalf of a class of investors who purchased Danaher securities between April 21, 2022, and April 24, 2023.
The complaint alleges that during the class period, the defendants failed to disclose that “(i) as the severity of the COVID-19 pandemic subsided, revenue growth associated with Danaher’s COVID-19-related business was declining; (ii)contrary to the Company’s prior representations to investors, revenues associated with Danaher’s non-COVID-19-related businesses were insufficient to compensate for the foregoing negative trend; (iii) accordingly, Danaher overstated the Company’s ability to sustain the growth it had experienced in 2020 and 2021; (iv) as a result, it was unlikely that Danaher would be able to meet its 2023 revenue forecasts; and (v) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.
By my count, this new lawsuit is the 69th COVID-related lawsuit to be filed since the outset of the COVID-19 pandemic in the U.S. in March 2020. The complaint is also the seventh COVID-related lawsuit to be filed so far in 2023.
Early on, I noted that the COVID lawsuits seemed to fall into one of three categories: first, lawsuits involving companies that had experienced COVID-related outbreaks in their facilities (cruise ship lines, private prison systems); second, lawsuits against companies that said they might profit from the outbreak (diagnostic testing companies, vaccine development companies); and third, companies whose operations or financial results were impaired by the outbreak (hospital systems, real estate development firms). As the pandemic progressed, a fourth category of COVID-related lawsuits emerged, involving companies whose fortunes prospered at the outset of the pandemic but whose fortunes flagged as the outbreak progressed and as government stay-at-home orders lapsed. An example of a company in this fourth category is the sports equipment firm Peloton.
This new lawsuit against Danaher falls squarely into the fourth category, as it appears to be a classic example of a company that prospered at the outset of the pandemic but whose fortunes declined as the pandemic-effect waned.
It is an extraordinary thing that now well into the fourth year of the pandemic, pandemic-related lawsuits continue to be filed. To be sure, the pace of COVID-related lawsuits clearly has diminished since the earliest days of the pandemic. Nevertheless, it appears at this point that pandemic-related securities suit filings will be a factor in the total overall number of securities suits to be filed this year.