Boston Scientific (NYSE:BSX) can’t dodge a false claims lawsuit filed against its Guidant pacemaker division after a federal judge shot down its move to have the case dismissed.
James Allen sued Guidant and Boston Scientific in July 2008 under the False Claims Act, alleging that the company knew of problems with its Ventak Prizm device but failed to disclose them.
The lawsuit came amid a flurry of litigation against Guidant and Boston Scientific over the Ventak Prizm. The companies settled a U.S. Justice Dept. case for nearly $300 million in November 2009 and pled guilty to criminal charges in April 2010.
After initially declining to join Allen’s qui tam suit, the federal government signed on in December 2010.
In September 2011, Boston Scientific asked Judge Donovan Frank of the U.S. District Court for Minnesota to dismiss the lawsuit, arguing that the case was founded on "parasitic claims" based on media reports.
Yesterday Frank shot down the bid, ruling that Allen has standing under the False Claims Act to bring the suit, but dismissing his claims of unjust enrichment and payment by mistake of fact, according to court documents.
Guidant discovered a design flaw in one of its implantable cardiac defibrillators, the Ventak Prizm, after receiving reports of device failures in February 2002. By April, according to court documents, it had fixed the flaws and begun producing a corrected version of the device – but didn’t recall the defective products. Boston Scientific spent $26 billion acquiring Guidant Corp. in 2006.
The lawsuit accuses Guidant of making false claims about the defibrillators. Allen was implanted with a Ventak Prizm model 1861 in August 2002. The defibrillator allegedly failed twice, first in December 2002, delivering seven unnecessary, 750-volt shocks that knocked Allen unconscious. The second alleged failure, resulting in a “storm-shocking,” caused Allen to fall down a flight of stairs.
Seeking to have the allegedly defective device replaced, Allen scheduled a surgery to be implanted with a competing device made by St. Jude Medical (NYSE:STJ), according to court documents. But a Guidant salesman allegedly persuaded the surgeon to cancel the procedure, saying Allen’s Ventak Prizm was not defective and that his insurance would not cover the operation (the salesman also allegedly contacted the insurance company, seeking to convince it not to cover explantations of the devices).
Allen allegedly found another surgeon to perform the explantation of the Guidant device and implant the St. Jude defibrillator, which was covered by his insurance policy, according to court documents.
Boston Scientific settled a DOJ lawsuit in November 2009, agreeing to pay penalties of $296 million and pleading guilty to two misdemeanor counts of failing to supply certain information to U.S. regulators.
The DOJ settlement followed a federal appeals court upholding the dismissal of a shareholders lawsuit against Guidant, accusing it and former management of malfeasance in failing to disclose the problems with the defibrillators.