Appeals Court Decision a Step Back for Medtronic

Posted in Medical Device Business by MarieThibault on December 29, 2016

The Eighth Circuit Court of Appeals has vacated a district court summary judgment granted to Medtronic in 2015, putting a securities fraud class action suit related to the company's INFUSE product back on the table.

Marie Thibault

An appeals court has vacated a district court summary judgment for Medtronic in a securities fraud class action suit involving the company’s INFUSE product.

In a December 28 judgment, the Eighth Circuit Court of Appeals in St. Louis vacated a September 2015 summary judgment granted to Medtronic in the U.S. District Court for Minnesota.

That district court summary judgment was a win for Medtronic, as it dismissed all securities fraud claims regarding its INFUSE Bone Graft brought by a group of investment and retirement funds. The INFUSE product is a bone morphogenetic protein that originally received FDA approval for use in lumbar spinal fusions. Controversy around off-label use led to multiple INFUSE-related lawsuits for Medtronic.

The original lawsuit against Medtronic, company officers, and senior managers, was filed on June 27, 2013. In that case, the district court summary judgment was granted on the basis that the plaintiffs had not filed their suit soon enough, because of a two-year statute of limitations after discovery of the alleged violation. The funds behind that original suit—West Virginia Pipe Trades Health and Welfare Fund, Employees’ Retirement System of the State of Hawaii, and Union Asset Management Holding AG—appealed the district court’s summary judgment on a scheme liability claim.

Citing legal precedent, the appeals court documents note that “discovery” of an alleged violation also includes “those facts a reasonably diligent plaintiff would have known.” The Circuit Court determined, “While Appellants may have had reason to be suspicious of Medtronic’s conduct concerning INFUSE prior to June 27, 2011, we conclude that a reasonably diligent plaintiff would not have discovered facts sufficient to plead scienter based on public information existing prior to June 27, 2011.”

That determination means that the plaintiffs were deemed to have brought their original lawsuit within the two-year limit. The appeals court decision remands the case back to the Minnesota district court.

Eric Epperson, senior public relations and communications director at Medtronic, said in an email statement, “We’re disappointed with the decision, but continue to believe the claims in this case are without merit. The plaintiffs are still a long way from proving liability in this case, and we are prepared to defend ourselves in court.”

Shawn Williams, JD, partner at Robbins Geller Rudman & Dowd LLP, a firm representing the plaintiffs, said in a news release, “We are pleased that the Eighth Circuit Court of Appeals reversed the dismissal of the action and affirmed that the statute of limitations did not run until the lead plaintiffs Employees’ Retirement System of the State of Hawaii and Union Asset Management Holding AG could discover facts sufficient to constitute a violation of law.”

Marie Thibault is the managing editor at MD+DI. Reach her at marie.thibault@ubm.com and on Twitter @MedTechMarie.

[Image courtesy of GRAPHICS MOUSE/FREEDIGITALPHOTOS.NET]