W. Va. Pipe Trades Health & Welfare Fund v. Medtronic, Inc.

• Decision Date: 28 December 2016
• Docket Number: No. 15-3468,15-3468
• Citation: 845 F.3d 384
• Parties: WEST VIRGINIA PIPE TRADES HEALTH & WELFARE FUND ; Employees' Retirement System of the State of Hawaii ; Union Asset Management Holding AG, Plaintiffs–Appellants v. MEDTRONIC, INC.; William A. Hawkins ; Gary L. Ellis ; Richard E, Kuntz; Julie Bearcroft; Richard W. Treharne; Martin Yahiro, Defendants–Appellees Thomas A. Zdeblick ; J. Kenneth Burkus ; Scott D. Boden, Defendants
• Court: U.S. Court of Appeals — Eighth Circuit

845 F.3d 384

WEST VIRGINIA PIPE TRADES HEALTH & WELFARE FUND ; Employees' Retirement System of the State of Hawaii ; Union Asset Management Holding AG, Plaintiffs–Appellants

v. MEDTRONIC, INC.; William A. Hawkins ; Gary L. Ellis ; Richard E, Kuntz; Julie Bearcroft; Richard W. Treharne; Martin Yahiro, Defendants–AppelleesThomas A. Zdeblick ; J. Kenneth Burkus ; Scott D. Boden, Defendants

No. 15-3468

United States Court of Appeals, Eighth Circuit.

Submitted: October 19, 2016

Filed: December 28, 2016

Counsel who presented argument on behalf of the appellant was Susan Katina Alexander, of San Francisco, CA. The following attorneys also appeared on the appellant brief; Andrew Love, of San Francisco, CA, Carolyn Glass Anderson, of Minneapolis, MN, Shawn A. Williams, of San Francisco, CA, Arthur C. Leahy, of San Diego, CA, Anne T. Regan, of Minneapolis, MN, Brian C. Gudmundson, of Minneapolis, MN, Danielle S. Myers, of San Diego, CA, Christopher M. Wood, of Nashville, TN, Christopher F. Moriarty, of Mount Pleasant, SC, David P. Abel, of Mount Pleasant, SC, James M. Hughes, of Mount Pleasant, SC, Susannah R. Conn, of San Diego, CA.

Counsel who presented argument on behalf of the appellee was Linda T. Coberly, of Chicago, IL. The following attorneys also appeared on the appellee brief; James Kevin Langdon, II, of Minneapolis, MN, Theresa Marie Bevilacqua, of Minneapolis, MN, Kristin Kate Zinsmaster, of Minneapolis, MN, Benjamin L. Ellison, of Minneapolis, MN, Alexandra J. Schaller of Chicago, IL, and Andrew C Nichols of Washington, DC.

Before GRUENDER, BEAM, and SHEPHERD, Circuit Judges.

GRUENDER, Circuit Judge.

West Virginia Pipe Trades Health and Welfare Fund, Employees' Retirement System of the State of Hawaii, and Union Asset Management Holding AG (collectively, "Appellants") appeal the grant of summary judgment to Medtronic, Inc. in their securities fraud class action. The district court granted summary judgment to Medtronic after determining that Appellants' claims are time-barred. For the reasons discussed below, we vacate the summary judgment order and remand for further proceedings.

I.

Appellants are retirement and investment funds who brought a consolidated class action for securities fraud against Medtronic and several of its officers and senior managers for actions related to Medtronic's INFUSE product. INFUSE is the trade name of rhBMP-2, a bone morphogenetic protein that causes the body to develop new bone tissue. Medtronic developed INFUSE as an alternative to bone grafting procedures, and the FDA approved it for use in lower back spinal fusion surgeries in 2002. In a traditional autograftspinal fusion procedure, the vertebrae are fused using a bone graft taken from the patient's hip bone. In the INFUSE procedure, the vertebrae are fused using a thimble-shaped titanium cage containing an INFUSE-soaked collagen sponge. INFUSE is a key component of Medtronic's multi-billion dollar spinal segment.

Medtronic sponsored the FDA clinical trials, and all thirteen of the resulting articles included authoring physicians who had financial interests in INFUSE. Pharmaceutical companies frequently sponsor the medical research of their products. However, the FDA specifically considered conflicts of interest during the INFUSE approval process. The FDA approved INFUSE only for use in lumbar spinal fusion surgeries, some dental surgeries, and for treating certain shin fractures. However, up to eighty-five percent of INFUSE use was off-label. In 2008, the FDA issued a public health notification associating off-label uses of INFUSE with life-threatening throat and neck swelling. In 2008, an unrelated party brought a class action against Medtronic alleging that it violated securities laws by promoting off-label use of INFUSE. See Minneapolis Firefighters' Relief Ass'n v. Medtronic, Inc. , 278 F.R.D. 454, 456 (D. Minn. Dec. 12, 2011). In 2011, the FDA refused to approve AMPLIFY, a high-strength version of INFUSE, because of concerns it may cause cancer.

In 2010, articles in the Milwaukee Journal Sentinel expressed concern that the doctors authoring the Medtronic-sponsored INFUSE clinical studies had significant financial ties to Medtronic and reported test results twice as favorable as those of independent studies. Letters to the editor of the Journal of Bone and Joint Surgery raised questions about the link between INFUSE and retrograde ejaculation (a condition that causes male sterility). One of the physicians who authored the INFUSE clinical studies, Dr. Kenneth Burkus, penned a response denying any link. On May 25, 2011, the Milwaukee Journal Sentinel published an article stating that Medtronic and doctors with financial ties to Medtronic were aware of the risk of retrograde ejaculation but did not disclose it.

On the same day, Dr. Eugene Carragee, an independent doctor from the Stanford University School of Medicine, published a clinical study in The Spine Journal linking INFUSE with a risk of sterility in men. A commentary on Dr. Carragee's study by Dr. James Kang of the University of Pittsburgh School of Medicine noted that the original Medtronic-sponsored publications did not report any adverse events despite the incidence of retrograde ejaculation, and Dr. Kang concluded that the conflict of interest was the only explanation for the difference between the studies. The New York Times summarized Dr. Carragee's study and incorporated a response from one of the authors of a Medtronic-sponsored study, Dr. Thomas Zdeblick, who implied that the Carragee study was misleading.

On June 22, 2011, the Senate Finance Committee issued a press release announcing an investigation into Medtronic and INFUSE. The press release expressed concern over Medtronic's undisclosed financial ties with doctors. The next day, the Wall Street Journal summarized the Committee press release and reported the amount of royalties Dr. Burkus and Dr. Zdeblick had received. On June 28, 2011, The Spine Journal devoted its entire issue to articles concerning INFUSE and included an article authored by Dr. Carragee that extensively analyzed the Medtronic-sponsored clinical studies. Dr. Carragee explained that the studies employed significantly flawed methodologies and failed to report adverse events. However, Dr. Carragee specifically refrained from drawing any conclusion about the doctors' motives.

In October 2012, the Senate Finance Committee released its investigation report on INFUSE. The Committee found that Medtronic "was heavily involved in drafting, editing, and shaping the content of medical journal articles authored by its physician consultants who received significant amounts of money through royalties and consulting fees from Medtronic." The Committee also found that Medtronic employees added language designed to exaggerate the disadvantages of standard spinal fusion techniques and recommended against publishing a complete list of adverse events associated with INFUSE. Finally, the committee found that Medtronic had attempted to adopt weaker safety rules for its clinical trials.

Appellants filed suit on June 27, 2013 against Medtronic, its officers and senior managers, and the doctors who authored the Medtronic-sponsored clinical studies. Appellants alleged a number of securities laws violations, including making false statements and employing a scheme to defraud the market. The district court initially dismissed Appellants' scheme liability claims against the physician-authors and dismissed some of the false statement claims against Medtronic. However, the district court did not dismiss one false statement claim, the scheme liability claim, or the control liability claim against Medtronic. The litigation proceeded, and Medtronic eventually moved for summary judgment on all claims. The district court granted the motion, holding that the two-year statute of limitations barred all claims. Appellants only appeal the grant of summary judgment on their scheme liability claim. In addition to the statute of limitations, Medtronic argues alternatively that Janus Capital Group, Inc. v. First Derivative Traders , 564 U.S. 135, 131 S.Ct. 2296, 180 L.Ed.2d 166 (2011), and Stoneridge Investment Partners, LLC v. Scientific – Atlanta, Inc. , 552 U.S. 148, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008), bar Appellants' scheme liability claim as a matter of law because it attempts to hold Medtronic secondarily liable for the fraudulent statements of others.

II.

A. Statute of Limitations

The court reviews a grant of summary judgment de novo , viewing the facts in the light most favorable to the nonmovant. Harris v. Mortg. Prof'ls, Inc. , 781 F.3d 946, 948 (8th Cir. 2015). Summary judgment is appropriate when "the movant is entitled to judgment as a matter of law." Id. (quoting Fed. R. Civ. P. 56(a) ). "We review the district court's determination of statute-of-limitations de novo." In re ADC Telecomms., Inc. Sec. Litig. , 409 F.3d 974, 976 (8th Cir. 2005).

Section 10b of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), makes illegal the use of a manipulative or deceptive device in connection with the sale or purchase of a security by any instrumentality of interstate commerce. 17 C.F.R. § 240.10b–5 implements § 10b, see Pub. Pension Fund Grp. v. KV Pharm. Co. , 679 F.3d 972, 980 (8th Cir. 2012), and establishes two kinds of liability: false statement liability (17 C.F.R. § 240.10b–5(b) ) and scheme liability (17 C.F.R. § 240.10b–5(a), (c) ). Scheme liability concerns the use of "any device, scheme, or artifice to defraud" and "any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b–5(a), (c). 28 U.S.C. § 1658(b) establishes the relevant statute of limitations:

[A] private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in

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