A former Zimmer Biomet (NYSE:ZBH) employee can’t pursue defamation charges against the company related to his alleged involvement in a Brazilian bribery case, a federal appeals court ruled yesterday.
In 2008 Biomet discovered that a distributor in Brazil, Sergio Galindo, had bribed healthcare providers to use its products. The company severed its relationship with Galindo and trained employees, including then-South America business manager Alejandro Yeatts, about its proscription against bribing doctors, according to court documents.
Galindo’s firm still owned the Brazilian government registrations for Biomet’s products, requiring the company to ink a new deal with him allowing it to cooperate as necessary to establish new distributors and acquire new registrations. That agreement, however, barred Galindo from handling Biomet products in any capacity, according to the documents.
After one of the new distributors hired Galindo as a consultant, Yeatts continued to communicate with him about the registrations, Biomet products, the Brazilian market and pricing. Yeatts alleged that the company told him to maintain the relationship with Galindo because he still owned the product registrations and that Biomet’s lawyers cleared his interactions.
But in 2012 Biomet paid more than $22 million in fines and penalties to settle alleged violations of the Foreign Corrupt Practices Act, agreeing to pay nearly $17.3 million to resolve charges brought by the U.S. Justice Dept. and settling civil claims with the SEC for another $5.6 million (Biomet merged with Zimmer in June 2015). The settlement was part of a larger industry probe in which the DoJ asked medical device makers to comb through their overseas practices for signs of bribery.
In October 2013, an anonymous whistleblower alleged that Biomet was still working with Galindo, prompting a new probe that eventually led to another settlement, this time for $30 million. Biomet suspended Yeatts in 2014 and fired him in September 2015, after adding his name to a “restricted parties list” of entities “that pose significant and unacceptable compliance risks,” barring all Biomet employees from doing business with entities named on the list.
Yeatts sued Biomet in October 2016, alleging that the company defamed him by including his name on the restricted parties list (claims of intentional infliction of emotional distress and negligent infliction of emotional distress were later dismissed, according to the filings). The defamation claim was ultimately dismissed as well, leading Yeatts to appeal the ruling to the U.S. Court of Appeals for the 7th Circuit.
That court ruled yesterday to uphold the lower court’s filing that placing Yeatts on the restricted parties list as a person likely to create compliance issues was a statement of opinion rather than fact.
“There is no provably false factual connotation,” according to the ruling. “Even if Yeatts proved to a jury that he did not violate the specific limits Biomet imposed on his interactions with Galindo, that does not mean Biomet was incorrect or unreasonable in considering Yeatts a compliance risk. As the district court noted, for a company twice investigated by the DOJ for FCPA violations, it is reasonable to ‘take a hypersensitive view’ of potential compliance risks.
“Yeatts’s focus on the alleged lack of evidence that he engaged in criminal conduct misses the point. Even if there were zero evidence he engaged in criminal conduct, that would not prove false Biomet’s concern that Yeatts posed a compliance risk. The inability to prove the statement false demonstrates that it is a statement of opinion, beyond the reach of defamation law,” the 7th Circuit appeals court found.
