2014 U.S. Dist. LEXIS 136851
D. Minn.2014Background
- consolidated class action against Medtronic, officers, and physician consultants alleging false and misleading INFUSE-related statements and a scheme to inflate stock during the Class Period
- claims under Exchange Act §§10(b) and 20(a) and Rule 10b-5; counts include false statements, scheme liability, and control person liability
- key episodes include May 25, 2011 Spine Journal article; June 28, 2011 Spine Journal issue and Medtronic responses; FDA non-approval letter for AMPLIFY disclosed in 3Q11 10-Q; Yale-INFUSE data release in 2013; Senate Finance Committee investigations and reports
- Plaintiffs allege early studies were manipulated to conceal adverse INFUSE effects and that defenders defended those studies after unfavorable data emerged
- Defendants move to dismiss; court partially grants and partially denies, dismissing some statements as immaterial puffery and some claims as time-barred or inadequately pleaded; allows Count II against Medtronic and Count III to proceed
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality and falsity of statements under 10b-5(b) | Plaintiffs contend statements about well-planned studies were misleading given edits/ omissions | Defendants argue statements were puffery or non-actionable opinions | Dismissal granted for those statements as immaterial puffery |
| Omission regarding FDA non-approval letter for AMPLIFY | Hawkins' February 2011 remarks omitted the FDA non-approval letter; material to investors | Omission analysis depends on whether a duty to disclose exists and timing; the letter's materiality is disputed | Plaintiffs plausibly alleged material omission; omission deemed actionable against Hawkins |
| Statements denying INFUSE-retrograde ejaculation link (Spine Journal concerns) | Defendants knew of statistically significant link; statements were false/misleading | Disagreements over study design/ interpretation not inherently false; statements not clearly false | Zdeblick's statements dismissed; Medtronic spokesperson's statements dismissed without prejudice due to pleading gaps |
| Statute of limitations and repose as to consultant defendants | Discovery occurred with Spine Journal June 28, 2011; last alleged act 2010; timely for two-year limit | Five-year statute of repose runs from last fraudulent misrepresentation; consultants' acts after 2008 may be time-barred | Consultant claims time-barred under §1658(b) for last acts; Count II dismissed as to consultant defendants without prejudice; Count II against Medtronic survives |
| Scheme liability viability (Rule 10b-5(a)/(c)) against Medtronic and consultants | Defendants allegedly manipulated studies to inflate stock; conduct reaches market independent of statements | Stoneridge/ KVPharm limit scheme liability; conduct must be separate from misrepresentations | Medtronic Counts II survives; consultant defendants dismissed; scheme liability viable against Medtronic |
Key Cases Cited
- KV Pharm. Co. v. Hospira, Inc., 679 F.3d 972 (8th Cir. 2012) (heightened pleading and strong inference of scienter required)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference of scienter must be cogent and at least as compelling as opposing inferences)
- In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881 (8th Cir. 2002) (context matters for materiality; vague statements can be immaterial)
- In re St. Jude Med., Inc. Sec. Litig., 629 F.Supp.2d 915 (D.Minn. 2009) (puffery vs. material misrepresentation analysis; responses to questions can be material)
- Detroίt Gen. Ret. Sys. v. Medtronic, Inc., 621 F.3d 800 (8th Cir. 2010) (materiality standard for misrepresentations/ omissions)
- Stoneridge Investment Partners, LLC v. Scientific-Atlanta, 552 U.S. 148 (U.S. 2008) (limits to scheme liability where conduct is only revealed through public statements)
- Merck & Co. v. Reynolds, 559 U.S. 633 (U.S. 2010) (discovery and discovery rule for statute of limitations in securities fraud)
- Adolor Corp. Sec. Litig., 616 F.Supp.2d 551 (E.D. Pa. 2009) (disagreements over study design not actionable within 10b-5)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (U.S. 2014) ( Supreme Court on reliance requirements (note: referenced as context; decision issued after))