A Brooklyn federal judge will not reverse a finding that a former CEO of health technology company Koninklijke Philips NV misled shareholders about the safety and compliance of a subsidiary's sleep and respiratory care products.

In an unpublished opinion Monday, U.S. District Judge Edward R. Korman held that Philips and its former CEO, François "Frans" van Houten, had not met the strict standards for granting a motion for reconsideration of part of Judge Korman's September 2024 ruling on the company's bid to dismiss a proposed shareholder class action.

Philips and Van Houten had asked the judge to reconsider his finding that Van Houten must face liability for acting with reckless disregard of the truth regarding customer reports of polyurethane foam breaking down in certain Philips respiratory devices such as CPAP, or continuous positive airway pressure, machines.

In their reconsideration bid, the defendants argued, among other things, that the court had "overlooked" certain factual matters in finding that Van Houten had acted with scienter.

For example, the company asserted that certain statements Van Houten made about how the company became aware of the foam issues did not pinpoint when, how, or from whom Van Houten himself had learned about the foam problem.

Judge Korman said Monday that those specifics did not matter because it was "implausible, based on the facts alleged, that knowledge of such a severe product defect was kept from Van Houten for years, despite his attendance at a multitude of meetings designed to discuss this sort of issue."

In his 2024 order responding to the company's dismissal bid, Judge Korman tossed investor claims against Philips' chief financial officer and a different former CEO of a Philips subsidiary, finding that the suit did not show that the CFO knew about the relevant product defects and that statements by the subsidiary CEO, who was not involved in the management of Philips, could not be imputed to Philips.

But the judge left the fraud claims against Van Houten in place, and because those claims could be imputed to the company, both Van Houten and the company remain parties to the suit.

Reconsideration of the scienter finding against Van Houten "would result in dismissal of all remaining claims against all remaining defendants," Philips said in its October 2024 motion for reconsideration.

In the latest version of the suit, from October 2022, investors Richard Sun and Subhash Patel claimed that trading prices for the company's shares were artificially inflated while the company hid the foam degradation issues.

According to Sun and Patel, investors were hurt by trading price declines following revelations about the extent of the foam degradation issues, such as the company's April 2021 announcement that would take a $250 million reserve to repair units it sold that used the foam.

Representatives for the parties did not immediately respond to requests for comment on Tuesday.

Philips and Van Houten are represented by Sharon L. Nelles and William B. Monahan of Sullivan & Cromwell LLP.

The investors are represented by Jeremy A. Lieberman, Emma Gilmore, Dolgora Dorzhieva and Villi Shteyn of Pomerantz LLP and Peretz Bronstein of Bronstein Gewirtz & Grossman LLC.

The case is Patel v. Koninklijke Philips NV et al., case number 1:21-cv-04606, in the U.S. District Court for the Eastern District of New York.