United States District Court, D. Minnesota
WEST VIRGINIA PIPE TRADES HEALTH & WELFARE FUND, EMPLOYEES' RETIREMENT SYSTEM OF THE STATE OF HAWAII, and UNION ASSET MANAGEMENT HOLDING AG, Plaintiffs,
MEDTRONIC, INC., WILLIAM A. HAWKINS, GARY L. ELLIS, RICHARD E. KUNTZ, JULIE BEARCROFT, RICHARD W. TREHARNE, and MARTIN YAHIRO, Defendants.
Christopher M. Wood and Shawn A. Williams, ROBBINS GELLER
RUDMAN & DOWD LLP, Carolyn G. Anderson, ZIMMERMAN REED,
PLLP, William H. Narwold, MOTLEY RICE LLC, for plaintiffs.
M. Farina, WILLIAMS & CONNOLLY LLP, Theresa M.
Bevilacqua, DORSEY & WHITNEY LLP, for defendants.
ORDER CERTIFYING CLASS
R. TUNHEIM CHIEF JUDGE UNITED STATES DISTRICT COURT.
West Virginia Pipe Trades Health & Welfare Fund,
Employees' Retirement System of the State of Hawaii, and
Union Asset Management Holding AG (collectively,
“Plaintiffs”) bring this consolidated class
action against Medtronic and several of its officers and
employees (collectively, “Medtronic”), alleging
that Medtronic engaged in a scheme to defraud investors in
violation of federal securities laws.
have moved to certify class. The proposed class is defined
All persons or entities who purchased or otherwise acquired
the publicly traded common stock of Medtronic between
September 8, 2010 and August 3, 2011 (the “Class
Period”), and who were damaged by defendants'
alleged violations of §§10(b) and 20(a) of the
Securities Exchange Act of 1934 (the “Class”).
Excluded from the Class are defendants and their families,
the officers and directors of the Company, at all relevant
times, members of their immediate families and their legal
representatives, heirs, successors or assigns, and any entity
in which defendants have or had a controlling interest.
opposes class certification and also argues that, if the
Court grants Plaintiffs' motion to certify class, the end
of the class period should be shortened from August 3, 2011,
to June 28, 2011.
Court will grant Plaintiffs' motion to certify class but
will modify the class period to end on June 28, 2011.
INFUSE AND THIS ACTION
case centers on Medtronic's INFUSE product. INFUSE is the
“trade name of rhBMP-2, ” which is a bone
morphogenetic protein (“BMP”) that induces the
body to develop new bone tissue. (Consolidated Class Action
Compl. (“Compl.”) ¶ 7, Nov. 4, 2013, Docket
No. 28.) INFUSE is an alternative to replacement bone-tissue
grafts and was the first BMP to reach the market.
(Id.) The FDA approved INFUSE for what the
plaintiffs allege are somewhat limited treatment purposes:
certain treatment of degenerative disc disease, dental
surgery, and certain shin fractures. (Id. ¶ 8.)
INFUSE was never approved, however, “for any spinal
fusion indication other than [the disc] surgeries.”
(Id.) INFUSE is a key part of Medtronic's
“spinal segment” of business, which generated
more than $3.5 billion in revenue in 2008, 2009, and 2010.
(Id. ¶ 20.) Relevant to this case, Medtronic
also sought FDA approval for AMPLIFY, a second-generation
BMP. (Id. ¶¶ 22, 24.)
lead plaintiffs in this case are several institutional
investors: West Virginia Pipe Trades Health & Welfare
Fund, Union Asset Management Holding AG, and Employees'
Retirement System of the State of Hawaii, all of which allege
that they purchased Medtronic common stock during the Class
Period and were damaged by the conduct alleged in the
complaint. (Id. ¶¶ 43-45.) They bring this
action against Medtronic and several of its officers and
employees. (Id. ¶¶ 47-52.)
only remaining allegation is that before and during the Class
Period, Medtronic engaged in a scheme or course of conduct to
manipulate the early clinical studies, which propelled INFUSE
to success despite omitting many of INFUSE's adverse
effects. (Id. ¶¶ 162-65.) Plaintiffs
allege that early INFUSE clinical studies revealed safety
risks that threatened Medtronic's goals for the product
and, as a result, Medtronic “embarked on a scheme with
physician investigators and authors to conceal the
significant safety risks from the public and physician
community.” (Id. ¶¶ 15, 163.) They
allege that Medtronic did so by “forg[ing]
relationships, including financial relationships, with
physician authors who published research articles in
respected medical journals and knowingly concealed in those
original articles, or omitted altogether, known facts
regarding INFUSE's adverse side effects observed in
clinical trials, ” and that these research articles
“overstated apparent disadvantages of alternate bone
graft procedures . . . as opposed to treatment with
INFUSE.” (Id. ¶ 16.) Plaintiffs also
allege that Medtronic and the consulting physicians
“knew but failed to disclose that Medtronic had paid
millions of dollars to the same physician authors and that
during the drafting process[ ] Medtronic employees heavily
edited the articles and specifically excised true facts
learned during clinical trials about the efficacy and side
effects of INFUSE, which would have alerted the public and
physicians using INFUSE about its harmful side effects and
lack of clinical benefit.” (Id. ¶ 17.)
POSSIBLE CORRECTIVE DISCLOSURES
critical dispute is which public disclosures made the market
aware of Medtronic's alleged wrongdoing - especially the
alleged scheme to manipulate early clinical studies. The
parties cite three possible dates for the corrective
28, 2011, The Spine Journal devoted an entire issue
to critical studies of INFUSE, disclosing the financial
conflicts of interest by the researchers who had published
initial studies finding that the product was safe.
(Id. ¶ 4.) The Spine Journal reported
that for twelve of the studies, “the median-known
financial association between the authors and Medtronic Inc.
was found be approximately $12, 000, 000-$16, 000, 000 per
study (range, $560, 000-$23, 500, 000).” (Id.
¶ 30.) Moreover, The Spine Journal reported
that the incidence of adverse events experienced in
connection with INFUSE's use was between 10 and 50 times
the rates published in industry-supported studies.
(Id. ¶¶ 18, 30.) Medtronic argues that the
June 28, 2011, issue of The Spine Journal
constitutes the corrective disclosure.
5, 2011, Wells Fargo and J.P. Morgan published analyst
reports detailing the potential market effects of the
disclosures in The Spine Journal. (Decl. of Shawn A.
Williams (“Williams Decl.”) ¶ 2, Ex. 7, Mar.
24, 2017, Docket No. 197; Decl. of Christopher M. Wood
(“Wood Decl.”) ¶ 2, Ex. 3, June 27, 2017,
Docket No. 331.) The Wells Fargo report began, “We
believe the InFuse papers published in The Spine Journal on
June 28 will have broader implications for [Medtronic] and
its spine business than the Street currently expects.”
(Williams Decl. ¶ 2, Ex. 7 at 283.) Wells Fargo
predicted that “The Spine Journal papers will reduce
InFuse sales by 30-50%” and would likely lead the FDA
to “announce a formal review of InFuse.”
(Id., Ex. 7 at 284.) Similarly, the J.P. Morgan
report focused on the “scathing criticism of
Medtronic's Infuse” contained in The Spine
Journal. (Wood Decl. ¶ 2, Ex. 3 at 33.) J.P. Morgan
reported that “in the wake of the June issue of The
Spine Journal, ” surgeons reported that they were
less likely to use INFUSE. (Id., Ex. 3 at 35.) Both
reports focused almost exclusively on the disclosures
contained within The Spine Journal.
on August 3, 2011, Medtronic announced that it hired Yale for
$2.5 million and released the INFUSE data for Yale
researchers to conduct a review. (Compl. ¶ 117.)
Plaintiffs argue that the August 3, 2011, announcement about
the decision to hire Yale constitutes the corrective
STANDARD OF REVIEW
district court is “accorded broad discretion to decide
whether [class] certification is appropriate.”
Prof'l Firefighters Ass'n of Omaha, Local 385 v.
Zalewski, 678 F.3d 640, 645 (8th Cir. 2012)
(quotation omitted). To certify a class, a plaintiff must
show that the numerosity, commonality, typicality, and
adequacy of representation requirements of Federal Rule of
Civil Procedure 23(a) are met and that the class comports
with one of the three types of classes identified in Rule
23(b). Mathers v. Northshore Mining Co., 217 F.R.D.
474, 483 (D. Minn. 2003). The Court accepts the substantive
allegations in the plaintiff's complaint as true when
determining if the proposed class is acceptable. Id.
In determining the propriety of a class action, the focus is
on whether the class satisfies Rule 23 and not whether the
proposed action will prevail. Id. The Court must
undertake a “rigorous analysis” to assure that
these requirements are met. Gen. Tel. Co. v. Falcon,
457 U.S. 147, 161 (1982).
Rule 23(a)(1) Requirements
certify a class, a plaintiff must meet the four requirements
in Rule 23(a). First, the class must be so numerous that
joinder of all members is impracticable
(“numerosity”). Fed.R.Civ.P. 23(a)(1). Second,
there must be questions of law or fact common to the class
(“commonality”). Id. at 23(a)(2). Third,
the claims or defenses of the representative parties must be
typical of the claims or defenses of the class
(“typicality”). Id. at 23(a)(3). Fourth,
the representative parties must fairly and adequately protect
the interests of the class (“adequacy of
representation”). Id. at 23(a)(4).
Court must determine whether the proposed class “is so
numerous that joinder of all members is impracticable.”
Fed.R.Civ.P. 23(a)(1). The numerosity requirement is
generally satisfied in class actions involving nationally
traded securities. See City of Pontiac Gen. Emps.'
Ret. Sys. v. Wal-Mart Stores, Inc., No. 5:12-cv-5162,
2016 WL 5400373 at *4 (W.D. Ark. Sept. 20, 2016). Medtronic
has stipulated that Plaintiffs' proposed class satisfies
the numerosity requirement. (Wood Decl. ¶ 2, Ex. 1 at
2.) During the class period, an average of 6.5 million shares
of Medtronic stock were traded daily and 1, 187 major
institutions owned Medtronic stock. (Williams Decl. ¶ 1,
Ex. 1 ¶¶ 45, 53.) The Court will conclude that
Plaintiffs' proposed class, therefore, satisfies the
Court must determine whether “there are questions of
law or fact common to the class.” Fed.R.Civ.P.
23(a)(2). “While not every question of law and fact
must be common to the entire class, Plaintiffs must show that
the course of action giving rise to their cause of action
affects all putative class members, or that at least one of
the elements of that cause of action is shared by all of the
putative class members.” In re
GenesisIntermedia, Inc. Sec. Litig., 232 F.R.D. 321,
328 (D. Minn. 2005). Commonality is easily satisfied in
securities cases. See Id. (“This case links a
common legal theory- securities law violations-to a common
group-purchasers of [the defendant's] shares.”)
Medtronic does not challenge whether Plaintiffs meet the
commonality requirement. The Court will conclude that
Plaintiffs' proposed class satisfies the commonality
Court must determine whether “the claims or defenses of
the representative parties are typical of the claims or
defenses of the class.” Fed.R.Civ.P. 23(a)(3).
Typicality suggests that “there are other members of
the class who have the same or similar grievances as the
[representative] plaintiff.” Chaffin v. Rheem Mfg.
Co., 904 F.2d 1269, 1275 (8th Cir. 1990)
(quotation omitted). “Factual variations in the
individual claims will not normally preclude class
certification if the claim arises from the same event or
course of conduct as the class claims, and gives rise to the
same legal or remedial theory.” Alpern v. UtiliCorp
United, Inc., 84 F.3d 1525, 1540 (8th Cir.
1996). Medtronic challenges whether Plaintiffs meet the
typicality requirement with respect to the length of the
class period, which is discussed at length in Part III.
Plaintiffs, like all members of the proposed class, purchased
Medtronic stock during the class period. According to
Plaintiffs' allegations, all class members suffered
damages as a result of Medtronic's fraudulent scheme. The
Court will conclude that Plaintiff's claims are typical
of the claims and defenses of the class.
Adequacy of Representation
Court must determine whether “the representative
parties will fairly and adequately protect the interests of
the class.” Fed.R.Civ.P. 23(a)(4). Rule 23(a)(4)
involves two questions: (1) whether the class representatives
have common interests with the members of the class, and (2)
whether the class representatives will vigorously prosecute
the interests of ...