The Commercial Appeal
$4.4M settles federal lawsuit
Asian imports allegedly labeled ‘made in Memphis’
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.