A federal judge will not block $63 million in payments to Medtronic executives tied to the Fridley-based devicemaker’s plans to move legal headquarters to Ireland.

But the company’s shareholders will get their own opportunity to pass judgment on the payments, including $24.8 million to chief executive Omar Ishrak. The money is intended to offset the special federal excise taxes imposed on executives and directors that relocate their companies overseas through complex acquisitions known as corporate inversions.

U.S. District Judge Susan Richard Nelson ruled on Monday that a three-month-old lawsuit to block the payments was unlikely to succeed, and therefore she denied a request to impose a preliminary injunction ahead of the Jan. 6 shareholders’ vote to approve the deal. But she noted that company officials plan to hold a second vote that day to approve the excise-tax payments.

Medtronic spokesman Fernando Vivanco declined to say whether the “advisory” vote will be legally binding, but he said the company was pleased with the court’s ruling. The litigants were not.

“We are very disappointed in the court’s ruling,” plaintiff’s attorney Robert Weiser wrote in an e-mail, asserting that the judge had chosen “to rewrite Minnesota law.”

Fridley’s medical device giant is in the process of acquiring the Dublin-based health care supplier Covidien PLC. The $43 billion deal has sparked controversy because it is structured as a corporate “inversion” that will leave the combined company with legal headquarters in Ireland, where corporate taxes are about a third of the domestic rate of 35 percent.

The combined company, to be called Medtronic PLC, will have a much wider product catalog, combining Medtronic’s $17 billion in annual revenue with Covidien’s $10 billion. Since Covidien already gets the benefits of Ireland’s tax code, Medtronic executives have argued that it wouldn’t be fair to bring that company back to the U.S. and expose it to the higher taxes here.

Although the deal is supposed to benefit shareholders by making the overall company more valuable, many longtime holders of the stock were upset over the personal tax implications.

Some shareholders will face large capital gains taxes, because all shares in the old Medtronic must be liquidated, and exchanged for stock in the new Medtronic. The Internal Revenue Services interprets the issuance of new shares as a taxable event, even though shareholders are receiving a one-to-one exchange of ­equities. Since Medtronic’s stock price has risen tenfold in 20 years, capital gains for longtime owners could be large.

While lawsuits have been filed to try to upend the deal, the case that Nelson ruled on this week in Minnesota federal court sought only to block the company’s decision to cover executives’ excise taxes.

The executives will face the same capital-gains taxes as any shareholder. But the company’s officers and board of directors are recommending that Medtronic cover the special 15 percent excise tax on stock options for executives like Ishrak. The company would also cover the tax on the income that will be used to pay the tax in what’s known as a “gross-up” payment.

Two shareholders filed a lawsuit against the plan in September, saying the recommendation amounted to a conflict of interest that subverted the purpose of the tax, which was to force executives to think about the personal consequences of inversions.

Shareholders William Houston and Marilyn Clark alleged, on behalf of a larger group of shareholders, that the board’s recommendation breached their fiduciary duty to act in shareholders’ best interests, unjustly enriched the executives, and wasted shareholder money. In a fourth count, they alleged the company made misleading statements by not immediately disclosing the ­gross-ups.

The judge didn’t rule directly on those allegations. Rather, she said Houston and Clark had failed to exhaust their administrative remedies before filing their lawsuit, and therefore it was impossible for their case to succeed if it went to a trial.

Nelson said that the plaintiffs should have made a ­formal “demand” to the board to withdraw their recommendation on the gross-up payments, which they didn’t do. Under Minnesota corporate law, a case like this cannot be filed until such a request is made. “The court finds that Minnesota law governs the demand issue as Medtronic is, at least for now, a Minnesota corporation,” Nelson wrote.

Her ruling rejected the litigants’ request to impose a preliminary injunction before the Jan. 6 shareholder vote, though technically the case is still active. However, Weiser said his clients haven’t decided whether to proceed.

 

Twitter: @_JoeCarlson