West Virginia Pipe Trades Health & Welfare Fund v. Medtronic, Inc., 2016 U.S. App. LEXIS 23353

Background

Plaintiffs are institutional investors who sued Medtronic and others over allegedly fraudulent promotion and publication practices surrounding Medtronic’s INFUSE (rhBMP-2) product, asserting a Rule 10b-5 scheme liability claim.
INFUSE was FDA-approved for limited uses but was widely used off-label; independent studies and press reports raised safety and disclosure concerns (e.g., retrograde ejaculation, off-label harms).
In 2010–2011 investigative articles and academic critiques highlighted Medtronic’s financial ties to physician-authors and questioned study methodologies; a Senate Finance Committee investigation began in 2011.
The Committee’s October 2012 report found that Medtronic edited and helped draft articles, downplayed adverse events, and paid physician-authors, supporting intentional manipulation.
Plaintiffs filed suit June 27, 2013 asserting scheme liability under Rule 10b-5(a)/(c); district court granted summary judgment holding claims time-barred under the 2-year discovery provision.
The Eighth Circuit vacated summary judgment, holding plaintiffs timely under the two-year rule because scienter (and thus the facts constituting the violation) was not discoverable with reasonable diligence until the 2012 Committee report; the Court also rejected Medtronic’s argument that Janus or Stoneridge barred the scheme claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the 2-year statute of limitations began before June 27, 2011 (discovery of facts constituting violation, particularly scienter)	Plaintiffs argued they did not and could not, with reasonable diligence, discover facts showing Medtronic’s scienter until the 2012 Senate Committee report	Medtronic argued public reports and articles by 2010–2011 gave inquiry notice sufficient to start the limitations clock	Court: Plaintiffs could not have pleaded scienter with the requisite particularity before the 2012 report; complaint filed within two years of discoverable scienter, so claims are timely
Whether Janus and Central Bank bars plaintiffs from asserting scheme liability based on Medtronic’s role (paying/editing) without being the direct speaker	Plaintiffs argued the alleged conduct (paying and inducing physicians to conceal adverse events) is deceptive conduct beyond mere misstatements and supports scheme liability	Medtronic argued Janus and Central Bank preclude private secondary liability for others’ statements; plaintiffs merely repackaged misstatements as a scheme	Court: Janus does not bar the claim because alleged conduct goes beyond mere misstatements (payment/inducement is separate deceptive act)
Whether Stoneridge precludes finding market reliance when defendant’s deceptive acts were not the direct public statements	Plaintiffs argued Medtronic’s conduct directly caused the biased clinical-trial publications on which the market relied	Medtronic argued the causal link is too remote (like suppliers in Stoneridge) so market reliance cannot be shown	Court: Medtronic’s alleged paying/editing directly produced the misleading information relied on by investors; Stoneridge’s remoteness concern is inapplicable

Key Cases Cited

Janus Capital Grp. v. First Derivative Traders, 564 U.S. 135 (2011) (private liability limited to the person with ultimate authority over a statement’s content and communication)
Stoneridge Inv. Partners v. Scientific-Atlanta, 552 U.S. 148 (2008) (scheme liability requires a causal connection between defendant’s deceptive acts and the information on which investors relied)
Central Bank of Denver v. First Interstate Bank, 511 U.S. 164 (1994) (no private cause of action for aiding and abetting a §10b violation)
Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308 (2007) (scienter pleading requires a strong inference of intent that is cogent and at least as compelling as any opposing inference)
Merck & Co. v. Reynolds, 559 U.S. 633 (2010) (interpretation of §1658 discovery rule; discovery includes what reasonably diligent plaintiffs would know)
Public Pension Fund Grp. v. KV Pharm. Co., 679 F.3d 972 (8th Cir. 2012) (scheme liability must allege deceptive conduct beyond misrepresentations actionable under Rule 10b-5(b))