The Commercial Appeal

$4.4M settles federal lawsuit

Asian imports allegedly labeled ‘made in Memphis’

- 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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