Eric Mortenson/Capital Press Monsanto is selling its high-speed planter division to AGCO, a machinery manufacturer, after a previous deal with Deere & Company fell through.

A federal judge has refused to dismiss allegations that the Bayer chemical company misled investors about its merger with agribusiness rival Monsanto.

Chief U.S. District Judge Richard Seeborg has ruled that several pension funds have met the legal standards to proceed with their lawsuit accusing Bayer of violating securities law.

The two multinational companies combined in 2018 in a transaction valued at $66 billion even as Monsanto came under legal fire for the alleged cancer-causing properties of its Roundup brand of glyphosate herbicides.

Last year, Bayer agreed to a nearly $11 billion settlement but the judge overseeing the case said the deal wasn’t likely to cover future claims that the product caused non-Hodgkins lymphoma.

Several pension funds for Teamsters, sheet metal workers, police officers, firefighters and others filed a complaint seeking class action status last year, alleging that Bayer underestimated Monsanto’s litigation risks and overstated the merger’s benefits — resulting in steep losses when its stock price dropped.

Bayer urged the judge to dismiss the lawsuit because the pension funds’ claims were based on “fraud-by-hindsight.” The plaintiffs did not “adequately plead” legal claims under the Securities Exchange Act, according to Bayer.

While the judge said some of the plaintiffs’ legal theories “are not viable,” he said their allegations are legally sufficient under that statute for the case to move forward.

Bayer’s alleged lack of due diligence in buying Monsanto would not by itself be an “actionable securities fraud claim,” but the plaintiffs went further by claiming the company actually misled investors about the level of due diligence, the judge said.

“Plaintiffs, though, do more than just aver that defendants did not fully conduct due diligence; instead, they aver that defendants assured investors about their due diligence, even though their diligence was less than an investor would believe their statement meant,” Seeborg said.

Specifically, Bayer could have given the impression that it still considered the merger attractive despite reviewing “non-public information” about Monsanto’s litigation risks, even though such an analysis hadn’t occurred, he said.

Bayer claimed the plaintiffs didn’t “adequately plead” that the company acted with an intent to deceive or with a “deliberate recklessness” toward the truth, but the judge disagreed.

According to the plaintiffs, Bayer wanted to “remain competitive in the agrochemical business” and so its executives pursued the merger even though it presented serious dangers, the judge said.

“The complaint alleges more than that the Monsanto deal was bad in hindsight; instead, it alleges that the defendants advanced in pursuit of the merger despite being aware that acquiring Monsanto brought significant risks, all the while assuring investors they had fully assessed those risks themselves,” Seeborg said.

The judge determined the plaintiffs “adequately pled” that events arising from litigation — including two jury verdicts against Monsanto — were directly responsible for Bayer’s decreased share prices.

“These developments provided new information to investors concerning Bayer’s litigation exposure related to its acquisition of Monsanto,” he said.

However, Seeborg ruled against the plaintiffs regarding their claims that Bayer misled investors about glyphosate safety and about its accounting practices.

For that reason, the pension funds can no longer pursue those legal theories without changing their complaint, he said.

A spokesperson for Bayer said the company respectfully disagrees with the judge’s ruling but plans to “continue to defend its conduct related to the transaction as the case moves ahead.”

Bayer believes it conducted the appropriate due diligence when it bought Monsanto, which has been confirmed by independent experts, the spokesperson said. “We believe the complaint failed to allege conduct and related losses necessary to support this action under the law.”