$4.4M set­tles fed­eral law­suit

Asian im­ports al­legedly la­beled ‘made in Mem­phis’

The Commercial Appeal - - Front Page - By Sara K. Clarke and Kevin McKen­zie The Com­mer­cial Ap­peal

Medtronic Plc has agreed to pay $4.4 mil­lion to set­tle a fed­eral law­suit ac­cus­ing the com­pany of pass­ing off Asian med­i­cal de­vices to the Amer­i­can mil­i­tary as made in Mem­phis.

Three Mem­phis whis­tle-blow­ers filed the law­suit al­leg­ing Medtronic fun­neled de­vices made in China, In­dia and Malaysia into its Mem­phis dis­tri­bu­tion cen­ter for re­la­bel­ing.

Work­ers in the cen­ter repack­aged the de­vices us­ing “made in Mem­phis” la­bels, the law­suit says. That let the com­pany flaunt a fed­eral law that re­quires the Pen­tagon pro­cure de­vices man­u­fac­tured in the United States or by spec­i­fied trad­ing part­ners.

The law­suit, filed in fed­eral dis-

trict court in Min­nesota, said the prod­ucts were sold to the U.S. Depart­ment of Vet­er­ans Af­fairs and the U.S. Depart­ment of De­fense.

Medtronic, a for­mer Min­nesota com­pany that rein­cor­po­rated last year in Dublin, Ire­land, op­er­ates a spinal di­vi­sion based in Mem­phis and em­ploy­ing 5,600 world­wide. Medtronic is­sued a state­ment Fri­day ac­knowl­edg­ing the set­tle­ment and deny­ing any wrong­do­ing.

“This res­o­lu­tion fo­cused on a limited num­ber of ac­ces­sories and sur­gi­cal in­stru­ments used in spinal surg­eries that were pro­vided to Medtronic by third­party sup­pli­ers and were man­u­fac­tured in China or Malaysia,” the com­pany’s state­ment says. “The over­whelm­ing ma­jor­ity of Medtronic’s prod­ucts are man­u­fac­tured in the United States or its trad­ing part­ners, such as Mex­ico or Ire­land.”

The law­suit al­leges thou­sands of trans­ac­tions in which the com­pany shipped to Mem­phis for re­la­bel­ing prod­ucts man­u­fac­tured in China, In­dia and Malaysia.

“To­day’s set­tle­ment demon­strates our com­mit­ment to en­sure that our ser­vice mem­bers and our vet­er­ans re­ceive med­i­cal prod­ucts that are man­u­fac­tured in the United States and other coun­tries that trade fairly with us,” act­ing U.S. Asst. Atty. Gen. Benjamin C. Mizer said in a state­ment. “The Jus­tice Depart­ment will take ac­tion to hold med­i­cal de­vice com­pa­nies to the terms of their gov­ern­ment con­tracts.”

Act­ing un­der the False Claims Act, three Mem­phis-area res­i­dents brought the is­sue to court. The act per­mits cit­i­zens to file law­suits on be­half of the U.S. gov­ern­ment and re­ceive a por­tion of pro­ceeds of any set­tle­ment or judg­ment. The Medtronic whis­tle-blow­ers will re­ceive a to­tal of $749,700 of the re­cov­ered funds, the U.S. Depart­ment of Jus­tice said.

One fig­ure in the Medtronic law­suit is Sa­muel Adam Cox III of Mem­phis, who ear­lier brought a sim­i­lar claim against his for­mer em­ployer, Smith & Nephew Plc. The U.K.-based med­i­cal de­vice maker, which op­er­ates a 1,700-em­ployee or­tho­pe­dic re­con­struc­tion busi­ness in Mem­phis, set­tled that case for $8.3 mil­lion in Septem­ber.

Cox, an in­for­ma­tion tech­nol­ogy ex­ec­u­tive, was awarded $2.3 mil­lion in the Smith & Nephew case. The law­suit says that af­ter bring­ing the case against Smith & Nephew, he be­gan in­ves­ti­gat­ing coun­try-of-ori­gin vi­o­la­tions by med­i­cal and sur­gi­cal sup­ply com­pa­nies op­er­at­ing in the Mem­phis area.

Reached by phone Fri­day, Cox de­clined to com­ment. Also in­stru­men­tal in the Medtronic case were Meayna Phan­thavong and So­nia Adams. Phan­thavong worked as a ship­ping and re­ceiv­ing clerk in Medtronic’s Mem­phis dis­tri­bu­tion cen­ter. Adams worked in the fa­cil­ity’s hu­man re­sources unit. They could not be reached for com­ment Fri­day.

The law­suit says Phan­thavong ac­quired doc­u­ments sup­port­ing the al­le­ga­tions in the com­plaint, and that Adams walked the dis­tri­bu­tion floor at the fa­cil­ity as part of her job and heard con­cerns from sev­eral em­ploy­ees that the com­pany was dis­guis­ing the coun­try of ori­gin of its prod­ucts.

The Wash­ing­ton-based law firm San­ford Heisler Kim­pel, which rep­re­sented Cox in both cases, is­sued a state­ment say­ing the Medtronic de­ci­sion “reaf­firms the vi­tal role that whistle­blow­ers play in un­cov­er­ing fraud against the gov­ern­ment.”

San­ford Heisler spe­cial­izes in cases brought un­der the False Claims Act, and says it has rep­re­sented whis­tle-blow­ers in a $124 mil­lion set­tle­ment with Om­ni­care Inc., a $762 mil­lion set­tle­ment with Am­gen Inc., and an ear­lier $23.5 mil­lion set­tle­ment in 2011 with Medtronic.

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