A federal judge in Minnesota has granted a group of investors permission to pursue a class-action lawsuit against Medtronic over allegations that the med-tech company inflated its stock value by secretly paying doctors millions of dollars to conceal adverse events associated with its bone-growth product Infuse.
The last time a federal judge in Minnesota granted class-action status to an Infuse-related shareholder lawsuit, Medtronic and the plaintiffs quickly moved into settlement talks in 2012 that resulted in Medtronic agreeing to pay $85 million to the investors to resolve that litigation.
On Thursday a Medtronic spokesman noted the ruling in the latest case, West Virginia Pipe Trades Health and Welfare Fund vs. Medtronic, limits the scope of the lawsuit, and the company continues to believe the litigants' claims are without merit. "We intend to pursue a vigorous defense in this matter and will continue efforts to obtain a complete dismissal of the case," Medtronic spokesman Eric Epperson said in an e-mailed statement.
University of Minnesota Law School Prof. Brett McDonnell said the judge's decision to certify class-action status in a securities-law case like this one was an important step for the plaintiffs. "If you don't get a class certification, you're done," McDonnell said, "because it is not financially feasible to sue individually."
In his 31-page ruling Jan. 30, U.S. District Chief Judge John Tunheim ruled that the West Virginia Pipe Trades class-action suit is limited to shareholders who bought stock between Sept. 8, 2010, and June 28, 2011. About 6.5 million shares of Medtronic stock were traded daily during that period, and nearly 1,200 major institutions owned Medtronic stock in that time.
The only plaintiffs in the suit today are the West Virginia Pipe Trades Health and Welfare Fund, the state of Hawaii's retirement system and a German investment group called Union Asset Management Holding AG. Mitchell Hamline School of Law professor emeritus Dan Kleinberger said Thursday that the order to expand the pool of potential plaintiffs could fundamentally change the legal calculus behind a potential settlement.
Class certification paves the way for a discovery process in which Medtronic might have to reveal internal company records on its handling of Infuse to legal adversaries, and eventually to the public, which company executives might want to avoid.
"Even in situations where allegations are not as juicy as they are here," Kleinberger said, the prospects for disclosing company documents can be "fraught with bad publicity" and "are sometimes enough to induce reasonable corporate decisionmakers to start thinking about settling."