The U.S. Appeals Court for the Eighth District shot down the appeal of a ruling dismissing a shareholders lawsuit against Medtronic Inc. (NYSE:MDT), saying the plaintiffs failed to prove the company deliberately concealed problems with its Sprint Fidelis leads.
Medtronic pulled the leads from shelves worldwide in October 2007, but not before they were implanted in an estimated 268,000 patients. Because of fractures in the wires, defibrillators could either fail to deliver the shock needed to regulate a haywire heartbeat or send unneeded shocks. The defective leads are implicated in more than 100 deaths, although Medtronic has said that only 13 fatalities had the leads as a “possible or likely contributing factor.”
The Detroit General Retirement System sued Medtronic following the recall, alleging that the company misled stockholders about the problems. After the U.S. District Court for Minnesota dismissed the case, DGRS appealed to the Eighth Circuit.
Writing for a three-judge panel, Judge Kermit Bye upheld the lower court’s ruling, writing that DGRS failed to prove its accusation that a Medtronic letter to physicians "falsely reassured" investors, according to court documents.
"DGRS alleges the letter ‘falsely reassured’ investors that the damage was due to doctor error and that the Fidelis model failure rate was in line with that of other leads. It is difficult to see how a letter disclosing a possible problem and an investigation into that problem was materially misleading," Bye wrote. "DGRS lists a number of pieces of information which it asserts Medtronic failed to divulge. The problem with most of the information is that DGRS fails to allege facts showing Medtronic possessed the information at the time the supposedly inconsistent statements were made. The remaining allegations fail to meet the standard for pleading under the Reform Act because, even if Medtronic was aware of the information, the information itself is not inconsistent with Medtronic’s statements to the public and to investors.”
Furthermore, Bye wrote, DGRS "cherry-picked" alleged "admissions" of the problem by Medtronic.
"DGRS points to a number of ‘admissions’ on the part of Medtronic at the time of the recall to show that Medtronic knew the Fidelis leads were failing at unacceptable rates at the time it reassured investors," according to court documents. "First, Medtronic’s ‘reassurance’ was qualified at best. Second, the district court is correct that these statements were all cherry-picked and taken out of context. Most of them are snippets of larger conversations and, when placed in context, it is clear the ‘admissions’ refer to the fact Medtronic was aware of reports of a problem and was investigating during the class period, not that Medtronic knew the Fidelis leads would have to be recalled at that time.”
Lawsuits against Medtronic over the Sprint Fidelis leads have not fared well since the 2008 preemption rule enshrined by the Supreme Court in Riegel vs. Medtronic (PDF). In that case, the Supremes held that once a medical device has been approved by the Food & Drug Administration, product liability lawsuits based on state tort laws have no standing — in other words, the federal approval preempts state law. In October 2009, a Minnesota state judge dismissed 600 personal injury lawsuits against the Fridley, Minn.-based medical device monolith.