IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CHANNEL MEDSYSTEMS, INC., 

a Delaware corporation,

Plaintiff and

Counterclaim Defendant,

v.

BOSTON SCIENTIFIC CORPORATION, 

a Delaware corporation, and NXT 

MERGER CORP., a Delaware corporation,

Defendants and 

Counterclaim Plaintiffs.

)

)

)

)

)

)

)

)

)

)

)

)

)

)

C.A. No. 2018-0673-AGB

MEMORANDUM OPINION

Date Submitted: September 6, 2019 

Date Decided: December 18, 2019 

Daniel A. Mason, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, 

Wilmington, Delaware; William M. Lafferty, Thomas W. Briggs, Jr., and Richard 

Li, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; 

Andrew G. Gordon, Jaren Janghorbani, Paul A. Paterson, and Andrew J. Markquart, 

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New 

York; Attorneys for Plaintiff Channel Medsystems, Inc.

Karen L. Pascale, James M. Yoch, Jr., and Paul J. Loughman, YOUNG CONAWAY 

STARGATT & TAYLOR LLP, Wilmington, Delaware; Matthew M. Wolf, Edward 

Han, Amy DeWitt, Tara Williamson, William Louden, and William Young, Jr., 

ARNOLD & PORTER KAYE SCHOLER LLP, Washington, DC; Attorneys for 

Defendants Boston Scientific Corporation and NXT Merger Corp.

BOUCHARD, C.
1

This post-trial opinion resolves claims arising from Boston Scientific 

Corporation’s decision to terminate a merger agreement it entered into on November 

1, 2017 (the “Agreement”) to acquire Channel Medsystems, Inc., an early stage 

medical device company with one product—a global endometrial ablation device 

named Cerene. Under the Agreement, Boston Scientific could only be required to 

close the transaction if Cerene received FDA approval by September 30, 2019.

In late December 2017, Channel discovered that its Vice President of Quality, 

Dinesh Shankar, had falsified expense reports and other documents as part of a 

fraudulent scheme by which he stole approximately $2.6 million from the company.

Unbeknownst to Channel, some of the documents Shankar falsified were contained 

in Channel’s submissions to the FDA seeking approval of the Cerene device. 

Promptly after discovering Shankar’s fraud, Channel notified Boston 

Scientific and the FDA. Channel interacted with both of them in a fully transparent 

manner over the next few months as it thoroughly investigated and took actions to 

remediate the effects of Shankar’s fraud. On April 18, 2018, the FDA accepted 

Channel’s remediation plan, which strongly signaled that Shankar’s fraud would not 

be the cause of any failure of the FDA to approve the Cerene device and which made 

the FDA’s approval a distinct possibility. Despite this positive development, Boston 

Scientific terminated the Agreement on May 11, 2018. 
2

On March 28, 2019, consistent with the timeframe for receiving FDA 

approval the parties expected when they entered into the Agreement, the FDA 

approved the Cerene device. Trial of this action commenced the next month. 

The primary issue in this case is whether Boston Scientific was entitled to 

terminate the Agreement because (i) certain representations in the Agreement were 

inaccurate as of the date it entered into the Agreement and (ii) the failure of such 

representations to be true and correct has or reasonably would be expected to have a 

“Material Adverse Effect” on Channel. For the reasons discussed below, the court 

finds that although Shankar’s fraud caused a number of representations to be 

inaccurate as of the date of the Agreement, Boston Scientific failed to prove that the 

failure of such representations to be true and accurate reasonably would be expected 

to have a Material Adverse Effect. The court thus concludes that Boston Scientific 

was not entitled to terminate the Agreement and that Channel is entitled to an order 

of specific performance requiring Boston Scientific to close the merger.

This decision reaches two other conclusions of note: first, that Boston 

Scientific breached its obligation under the Agreement to use commercially 

reasonable efforts to consummate the merger and, second, that Boston Scientific was

not fraudulently induced to invest approximately $11 million in Channel in making 

a series of investments from 2015 to 2017. 
3

I. BACKGROUND

The facts recited in this opinion are the court’s findings based on the testimony 

and documentary evidence presented during a four-day trial held in April 2019. The 

record includes stipulations of fact in the Pre-Trial Stipulation and Order, over 900 

trial exhibits, twenty-five depositions, and live testimony from seven fact and five 

expert witnesses.

A. The Parties

Plaintiff Channel MedSystems (“Channel” or the “Company”) is a Delaware 

corporation headquartered in Emeryville, California.1 It is a privately held medical 

technology company and the developer of the Cerene device.

2

Defendant Boston Scientific Corporation (“Boston Scientific” or “BSC”) is a 

Delaware corporation headquartered in Marlborough, Massachusetts.3 It is a 

publicly traded medical technology company.4 Defendant NXT Merger Corp., a 

wholly owned subsidiary of Boston Scientific, also is a Delaware corporation 

headquartered in Marlborough, Massachusetts.5

 

1 Pre-Trial Stipulation and Order (“PTO”) ¶ II.B.1 (Dkt. 170).

2

Id.

3

Id. ¶ II.B.2.

4

Id.

5

Id. ¶ II.B.3.
4

B. Channel Develops the Cerene Device

In 2011, Channel began to develop Cerene, a device used for global 

endometrial ablation, which is a procedure to treat heavy menstrual bleeding by 

ablating the uterine lining. Most technologies for this procedure require general 

anesthesia and must be performed using large pieces of equipment in a hospital 

operating room or ambulatory surgery center.6 

The procedure using Cerene is less painful because it uses cryotherapy (cold 

temperature) rather than heat-based (burning) techniques.7 Channel designed 

Cerene for use in an office setting without general anesthesia. Because Cerene is a 

handheld, disposable device, physicians do not need to invest capital to purchase 

equipment in order to use the device.

8

 

C. The FDA Approval Process

As Boston Scientific has acknowledged, the FDA “stringently regulates 

medical devices by means of a comprehensive regulatory system” that is “designed 

to ensure the safety and effectiveness of medical devices.”9 Under this system—

established through the Federal Food, Drug, and Cosmetic Act (“FDCA”) and the 

 

6

JX 403.006.

7 Tr. 6-7 (Coté). All citations to “Tr.” refer to the Trial Transcript Volumes I-IV from April 

15-18, 2019 (Dkt. 186; Dkt. 187; Dkt. 188; Dkt. 189).

8

JX 180.006; Tr. 7 (Coté).

9

JX 21.020.
5

1976 Medical Device Amendments, 21 U.S.C. §§ 360c-360k—the FDA is charged 

with “regulating the safety and effectiveness of medical devices, and the conditions 

for their design, manufacture, performance, labeling, and use.”10 

The FDCA divides medical devices into three classes—Class I, II, and III.11 

Class III devices, such as Cerene, “are subject to the most stringent regulatory 

controls of all device classes.”12 According to Boston Scientific, these devices must 

undergo an “indisputably thorough, rigorous, and costly pre-market review (some 

1,200 FDA man hours at hundreds of thousands of dollars in cost) by the FDA.”13 

Before a company can market a Class III device, the FDA must review and 

provide a premarket approval (“PMA”) of the device. In order to conduct a clinical 

study on humans to collect data for a PMA, an applicant may obtain an 

Investigational Device Exemption (“IDE”). After conducting such a study, an 

applicant must submit detailed information about its device to the FDA in a PMA

 

10 United States/FDA Amicus Brief, Horn v. Thoratec, 2004 WL 1143720, at *2 (“FDA 

Brief”).

11 21 U.S.C. § 360c. 

12 FDA Brief at *6. 

13 JX 21.021; see FDA Brief at *8, *20; Sullivan Dep. 38-39; Pierce Dep. 221-23.
6

application.

14

 An applicant can apply for a PMA in a single submission or in 

multiple submissions known as modules.15 

The review process for a PMA is a “massive undertaking” that is “thorough 

and scientifically rigorous.”16 “In reviewing a PMA, FDA scientists carefully 

evaluate all of the data and information submitted by the manufacturer” and will 

often request that the manufacturer provide additional information.17 

As part of the FDA’s review, multiple experts scrutinize the applicant’s 

compliance with the FDA’s Quality System Regulation (“QSR”).18 For example, 

the Center for Devices and Radiological Health’s Office of Compliance conducts a 

two-tiered evaluation. It first evaluates the information in the PMA and then 

conducts a thorough in-person inspection, called a “pre-approval inspection”:

Inspection will include an assessment of the firm’s capability to design 

and manufacture the device as claimed in the PMA and confirm that the 

firm’s quality system is in compliance with 21 C.F.R. 820, Quality 

System Regulation. The inspectional process considers the extent to

which the firm has established a formal [quality system] program and 

has assured that the approved design is properly translated into 

specifications via process validation.19

 

14 21 C.F.R. § 814; JX 755.007 (Ulatowski Expert Report).

15 JX 755.007.

16 FDA Brief at *8; see also Tr. 413 (Ulatowski). 

17 FDA Brief at *8 (citing 21 C.F.R. § 814.37); Tr. 413 (Ulatowski); 21 C.F.R. 

§ 814.20(b)(14).

18 JX 755.007-008. 

19 Id. .010. 
7

As part of this process, the FDA also may conduct bioresearch monitoring 

inspections to ensure the quality and integrity of clinical trial data submitted in 

support of an application for a PMA.20 

After completing its review, the FDA will provide a PMA only if the agency 

finds, among other things, that there is a reasonable assurance of safety and 

effectiveness of the device and that the applicant complies with the QSR.21 The 

FDA’s finding of a reasonable assurance of safety and effectiveness must be based 

on “valid scientific evidence.”22 

D. Cerene’s Initial FDA Approval and Clinical Study Results

On September 13, 2016, the FDA approved an IDE for CLARITY, Channel’s 

clinical study for Cerene.23 CLARITY involved 242 patients and satisfied its 

primary safety and effectiveness endpoints, as there were no serious adverse events 

and patients experienced successful reduction in bleeding.24 

On July 31, 2017, Channel submitted a “shell” to the FDA setting forth the 

proposed contents of its four PMA modules, as well as a rough timeline for 

 

20 See id.; Tr. 140 (Yu); Tr. 414-15 (Ulatowski).

21 Tr. 411, 415-16 (Ulatowski), Tr. 555-56 (Pierce), Tr. 683 (Carr). 

22 21 C.F.R. § 860.7(c)(1).

23 JX 85.

24 JX 774.006-009; Tr. 112-13 (Yu).
8

submitting the modules.25 Channel submitted Modules 1 and 2 on August 16, 2017 

and November 21, 2017, respectively.26 

E. Boston Scientific and Channel’s Relationship 

1. Boston Scientific’s Initial Investments in Channel

Between 2013 and 2015, Boston Scientific invested approximately $8 million 

in Channel, acquiring approximately 15% of Channel’s equity.27 Before making 

these investments, Boston Scientific obtained information about Channel’s 

operations and finances.28

Boston Scientific’s initial 2013 investment entitled it to have an observer on 

Channel’s Board of Directors.29 This right gave Boston Scientific “access to 

anything that was presented to the board,” such as information about CLARITY, 

regulatory submissions, operations, and financial projections.30 

Christopher Kaster, Boston Scientific’s Vice President of Business 

Development and Venture Capital, held the observer position until he became a full 

 

25 JX 150; JX 168. 

26 JX 171; JX 214.

27 PTO ¶¶ II.E.2; JX 58; JX 49.002; JX 922.001.

28 See, e.g., JX 26 (BSC Presentation dated February 5, 2013 on Channel’s clinical program 

timeline and estimated costs).

29 JX 27.004.

30 Tr. 12 (Coté).
9

Board member in late 2017.31 As a Board observer, Kaster provided Boston 

Scientific senior executives, including David Pierce, Executive Vice President and 

President of Medical/Surgery for Boston Scientific, with updates about Channel.32 

2. Channel Provides Boston Scientific with Periodic Updates

After Boston Scientific made its initial investment in Channel, it provided 

Boston Scientific with periodic updates on the “status of [Channel’s] business.”33 

These presentations covered a variety of topics, including CLARITY, Cerene’s 

performance, and Channel’s quality system.34 According to Ulric Coté, Channel’s 

CEO, Channel provided these presentations to update Boston Scientific on its 

existing investment, not to solicit additional investments.35 These updates included 

references to Shankar as part of Channel’s team and as Director of Quality 

Assurance.36 

 

31 Kaster Dep. 12-13, 46.

32 Id. at 73; Pierce Dep. 40-43; JX 107.

33 Tr. 13-16 (Coté).

34 See, e.g., JX 901 (Presentation titled ‘Boston Scientific Update,” dated March 25, 2016), 

JX 941 (same, dated Dec. 14, 2016).

35 Tr. 13-16 (Coté).

36 JX 36.004; JX 49.042; JX 901.043.
10

In June 2014, Channel stated that it would seek ISO 13485 certification, which 

would allow Cerene to be marketed in the European Union.37 On March 13, 2017, 

Channel received its ISO 13485 certification.

38

 

3. Boston Scientific Looks to Acquire Channel

Until early 2017, Boston Scientific focused on “monitoring” its investment in 

Channel, and did not pursue an acquisition of Channel’s remaining equity.39 In 

spring 2017, Boston Scientific learned that “other suitors” might seek to purchase 

Channel.40 Boston Scientific then began “to think about buying the company.”41 

On June 22, 2017, Boston Scientific and Channel entered into a non-binding 

Letter of Intent, which contemplated Boston Scientific purchasing the remaining 

equity of the company that it did not already own for up to $275 million, conditioned

on FDA approval of Cerene.42 Although Boston Scientific had “already completed 

certain functional due diligence,” the transaction was “subject to satisfactory 

completion by [Boston Scientific] of additional diligence.”43 

 

37 JX 1101.026; Tr. 190-91 (Patel).

38 PTO ¶ II.D.2.

39 Tr. 969-71 (Morrison); Tr. 493-95 (Pierce).

40 JX 106; JX 108. 

41 Tr. 900, 971, 972-73 (Morrison).

42 JX 135 ¶ 1.

43 Id.¶ 2.
11

4. Boston Scientific Engages in Due Diligence

Before and after signing the Letter of Intent, Boston Scientific conducted 

detailed due diligence of Channel. During this diligence, “everything that was 

within the company [was] made available” to Boston Scientific, including all 

regulatory, financial, and quality documents.44 Boston Scientific had access to 

Channel’s “data room” containing, among other records, extensive clinical, 

regulatory, quality, and financial information.

45 Channel also provided Boston 

Scientific with additional information as requested.46 Terence Carr, Boston 

Scientific’s Multisite Vice President of Quality,47 acknowledged that Channel 

“placed no limitations on Boston Scientific’s access to its quality systems or 

materials.”48 

On June 5, 2017 and August 24, 2017, Boston Scientific conducted on-site 

visits to Channel as part of its due diligence.

49 Carr, who was Boston Scientific’s 

corporate representative concerning its diligence and interactions with Shankar,50

 

44 Tr. 17 (Coté). 

45 Coté Dep. 90; Bracey Dep. 76-77, 225.

46 Tr. 17 (Coté); Tr. 652-53 (Carr).

47 Tr. 577 (Carr).

48 Id. 653.

49 See JX 121; JX 123; JX 179; JX 180. 

50 JX 722.006-007, 009-010.
12

attended the second on-site visit.51 Doug Bachert, a quality manager at Boston 

Scientific responsible for the quality-related diligence of Channel, attended the first 

on-site visit and met with Shankar for approximately 45 minutes.52 

Bachert was satisfied after his June 5 meeting that Channel was “representing 

compliance” to certain quality standards, but he “had not made a determination as to 

whether [Channel] complied sufficiently or not.”53 On June 13, Bachert told his 

colleagues that Channel’s system was “stated as [ISO] 14971 [risk management] 

compliant; needs to be confirmed.”54 Boston Scientific thereafter conducted its own 

diligence into Channel’s quality system.55 

5. The Merger Agreement

On November 1, 2017, Channel and Boston Scientific entered into an 

Agreement and Plan of Merger (as defined above, the “Agreement”).56 Under the 

Agreement, Boston Scientific agreed, subject to certain conditions, (i) to purchase 

immediately Series C-1 preferred stock in Channel for approximately $5.6 million, 

increasing its ownership to approximately 20% of the Company’s equity; and (ii) to 

 

51 Tr. 586 (Carr).

52 Tr. 588-90 (Carr); see Bachert Dep. 55, 65, 75; Tr. 974 (Morrison).

53 Bachert Dep. 70.

54 JX 130.001.

55 See Tr. 971 (Morrison); Bachert Dep. 73-74.

56 JX 1 (the “Agreement”).
13

acquire Channel’s remaining equity for up to $275 million pursuant to a put-call 

structure.

57

 Under the put-call provision, Boston Scientific could exercise a “call” 

option at any time to acquire Channel and, after obtaining a PMA for Cerene from 

the FDA, Channel could exercise a “put” option to close the deal.58 

The Agreement also permitted Boston Scientific to designate a director to 

Channel’s Board. Boston Scientific named Kaster as its Board designee.

59

 Tom 

Robinson, General Manager of the Boston Scientific Women’s Health Division, 

assumed Kaster’s former position as Board observer.60 

F. Channel Discovers That Shankar Defrauded the Company

On December 29, 2017, Coté and Rhonda Bracey, Channel’s Vice President 

of Finance, discovered certain expense reports from Shankar bearing Coté’s 

signature that Coté had never seen before.61 Coté and Bracey looked into the reports 

and discovered they were illegitimate.62 Over the course of the New Year’s 

weekend, Coté, Bracey, and William Malecki, Channel’s Chief Operating Officer, 

 

57 Agreement §§ 1.1, 1.5(a), 1.6(g); PTO ¶ I.A. 

58 Agreement § 1.1. 

59 PTO ¶ II.E.4; Kaster Dep. 46.

60 Tr. 18 (Coté); Robinson Dep. 40-41.

61 Tr. 21-22 (Coté). 

62 Id. 22-23. 
14

conducted an initial investigation into purchase orders, invoices, and expense reports 

submitted by Shankar.63 

Through this investigation, Channel discovered that six of the vendors for 

which Shankar had been submitting purchase orders and invoices were shell 

companies registered to Shankar himself.64 Most of these companies were named to 

imitate certain legitimate vendors, e.g., Nelson Scientific Research (shell company) 

versus Nelson Labs (legitimate company).65 Shankar’s scheme involved paying the 

legitimate vendors with his personal credit card and then issuing invoices to Channel 

from his shell companies.66 In some cases, Shankar submitted invoices for work that 

was never performed; in other cases, he submitted invoices for amounts exceeding 

the cost of work that was performed and pocketed the difference.67 

Shankar laid the groundwork for his submission of fraudulent invoices during 

the regular budgeting process by socializing the names of his shell companies. For 

example, Shankar referred to just “BSI” rather than BSI Group (legitimate company) 

or BSI America (shell company).68 Shankar also provided inflated estimates for the 

 

63 Id. 22-23; Bracey Dep. 152-56; Malecki Dep. 138-45, 148-51, 156-61.

64 Coté Dep. 123-24; Bracey Dep. 154-56; Malecki Dep. 157-60. 

65 Tr. 30 (Coté); Malecki Dep. 160; JX 400.009; JX 576.004.

66 JX 430.004.

67 Tr. 23-24 (Coté); JX 355.008.

68 Tr. 30 (Coté). 
15

costs of services during the budget process so that, when he later issued purchase 

orders from his shell companies seeking approval for those services, the amounts 

already appeared in Channel’s budget and did not arouse suspicion.69 The 

subsequent invoices for payment of those same amounts thus did not arouse 

suspicion either.70 

Through this part of his scheme, Shankar stole just over $2 million from 

Channel.71 Separately, Shankar stole approximately $577,000 from Channel by 

submitting fraudulent expense reports that purported to be from various vendors, 

both authentic and fake.72 Most of Shankar’s fraudulent invoices and expense

reports—which account for “about 4 or 5%” of the total number submitted during 

his employment—were for amounts below $10,000 such that, under Channel’s 

policy at the time, CEO approval was not required for payment.73 Shankar’s deceit 

stunned Channel’s management team. As Coté testified: “To say I was shocked 

would be an understatement. I’m still shocked.”74 

 

69 Id. 28. 

70 Id.

71 JX 415.005; JX 922.002. 

72 JX 415.005; JX 922.002. 

73 Tr. 29-30 (Coté); JX 415.014-021. 

74 Tr. 26 (Coté).
16

An executive of Greenleaf Health, Inc. (“Greenleaf”), a healthcare regulatory 

and quality consulting firm that Channel retained to conduct an independent review, 

testified credibly that Shankar was “quite adept at [his] falsifications,” which “were 

not apparent on the surface” of Channel’s records.75 During diligence, Boston 

Scientific itself requested and received purchase orders from certain entities (BSI 

America, Western Packaging, and ETC Engineering Services) that Channel later 

discovered were shell companies that Shankar created.76 Neither the names, the 

amounts, nor anything else in those documents triggered any concerns at Boston 

Scientific, just as they had not at Channel.77 

On January 2, 2018, Channel confronted Shankar with the initial evidence of 

his wrongdoing, which Shankar eventually admitted.78 Channel immediately placed 

Shankar on leave and terminated his employment shortly thereafter.79 

G. Channel’s Investigation and Remediation Efforts

1. Channel’s Internal Investigation

After placing Shankar on leave, Channel continued to assess the scope and 

effects of his fraud. Channel retained Fenwick & West LLP to help with the 

 

75 Tr. 314-15 (Elder).

76 JX 159.006. 

77 Tr. 977-78 (Morrison). 

78 Bracey Dep. 158; JX 239.003. 

79 Tr. 20-21 (Coté); JX 355.005.
17

investigative process.80 In carrying out its investigation, Fenwick & West retained 

forensic accountants, Hemming Morse LLP, “to conduct an audit of all of the 

financials and the expenses and invoices of the company.”81 Hemming Morse 

confirmed that Shankar stole approximately $2.57 million.82 

Channel also contacted the legitimate vendors to obtain their original invoices 

and reports.

83 It then conducted line-by-line reviews of those documents and other 

records to identify information that Shankar falsified in whole or in part.84 

Through its investigation, Channel discovered that, out of approximately 138

test reports that Channel submitted to the FDA in connection with its IDE and first 

two PMA modules, six reports contained information that Shankar falsified.85 

Channel also submitted four of these six reports to BSI, from which Channel was 

seeking a European Conformity (“EC”) certificate for Cerene.

86

 The EC certificate 

allows Channel to place a “CE Mark” on Cerene and to market the device in the 

 

80 JX 403.002.

81 Tr. 44 (Coté); JX 430.005; JX 403.002; JX 279.005. 

82 JX 430.012; JX 403.002.

83 See, e.g., JX 251; JX 241.

84 Tr. 37-38 (Coté); Tr. 136 (Yu); Tr. 187 (Patel); see, e.g., JX 533.004 (listing discrete 

discrepancies).

85 Tr. 38, 50 (Coté); Tr. 119-21 (Yu); JX 658.004-007. 

86 JX 581.004-005.
18

European Union. Channel has yet to market Cerene in Europe and has no plans to 

do so.87 

In addition to finding that Shankar falsified some records it submitted to the 

FDA, Channel discovered that Shankar falsified other records that were not 

submitted to the FDA involving (i) measurements of component parts and (ii)

calibration certificates for equipment used in inspecting, manufacturing, and testing 

Cerene.88 An April 2018 Board presentation, prepared while Channel was working 

to remediate the effects of Shankar’s fraud, noted that certain other records, such as 

corrective and preventative action records (“CAPAs”) and Management Reviews,

also needed additional work to become compliant with FDA regulations.89

On January 17, 2018, Channel referred Shankar’s fraud to the Department of 

Justice for potential prosecution.90 The Department of Justice pursued criminal 

charges against Shankar, who pled guilty and is now in prison.91 Shankar has since 

repaid almost all of the $2.57 million he stole from Channel.92 

 

87 Tr. 60 (Coté). 

88 Id. 38-40; Tr. 178-79, 188 (Patel); JX 580; JX 652.

89 JX 427.011; Tr. 247-48 (Patel).

90 Tr. 44-45 (Coté); JX 269; JX 271; JX 279. 

91 Tr. 45-46 (Coté); JX 915; JX 916; JX 917.

92 JX 917.007; Tr. 45 (Coté).
19

2. Greenleaf’s Initial Assessment

As previously mentioned, Channel retained Greenleaf to conduct an 

independent assessment of (i) Channel’s investigation of Shankar’s fraud, and (ii) 

“Channel’s quality system related to past operations and plans for future 

operations.”93 Two Greenleaf executives—former FDA officials David Elder and 

Michael Chappell—visited Channel’s offices from February 5-8, 2018, to review 

Channel’s processes, procedures, regulatory submissions, and records, and to 

interview Channel management.94 

According to Elder, the purpose of Greenleaf’s independent assessment was 

“[t]o bring an outside set of eyes to the work that Channel had done internally, to 

see if [Greenleaf] observed anything that perhaps [Channel] didn’t notice, to verify 

that [Channel’s] assessment was complete or, if [Greenleaf] found any gaps, to 

identify those gaps with the idea that [Channel] would review the gaps and take 

additional action, if needed.”95 Greenleaf documented its assessment in a report 

dated March 6, 2018 (the “Greenleaf Report”).

The Greenleaf Report concluded that (i) Channel officials were “thorough” 

and “earnest[]” in their investigation, “open and forthcoming with information[,] and 

 

93 JX 355.006. 

94 Tr. 258-59 (Elder); JX 355; JX 356.

95 Tr. 260-61 (Elder).
20

placed no restrictions” on Greenleaf’s access to information; (ii) Shankar “act[ed] in 

isolation”; and (iii) Shankar “was not directly involved in the collecting and 

reporting of clinical data.”

96 Critically, Greenleaf did not find evidence that 

Shankar’s conduct “affected the outcome of the clinical study or impacted safety and 

efficacy data from the study.”97

The Greenleaf Report commented, however, “that each and every action, 

decision, and record with which [Shankar] was involved is suspect, particularly 

those with which he was solely involved,”98 such that they should be “further 

investigated.”99 Greenleaf similarly noted that it “has no confidence in [Shankar] 

performing his routine responsibilities as VP of Quality Assurance (QA).”100 

Greenleaf recommended ways for Channel to improve its quality system in light of 

deficiencies it observed in order to bring the system up to compliance with FDA 

regulations required for the PMA.

101

 For example, “Greenleaf concluded that 

effective internal audits were not actually conducted” because they had been 

 

96 JX 355.006-007; Tr. 262-65 (Elder).

97 JX 355.007.

98 Id. .009.

99 Tr. 271 (Elder).

100 JX 355.009.

101 Tr. 55 (Coté); JX 355.021-028.
21

Shankar’s responsibility and that Shankar, on behalf of Channel, “failed to review 

cleanroom monitoring reports,” which was required under the QSR.102

3. Channel’s Fraud Implication Assessment Quality Plan 

After conducting its initial investigation and receiving the Greenleaf Report, 

Channel prepared a comprehensive Fraud Implication Assessment Quality Plan to 

identify and remediate the effect of Shankar’s misconduct on Channel’s quality 

system, which Channel implemented over much of 2018.103 Channel’s work 

consisted of both “top-down” and “bottom-up” assessments.

104

 

a. Top-Down Assessment

To address the potential impacts of Shankar’s fraud that were identified during 

Channel’s initial investigation, Channel opened fourteen internal audit reports 

(“IARs”), each of which addressed a distinct area, including falsified supplier test 

reports and regulatory submissions, calibration records, and component inspection 

records.105 Channel performed a risk assessment in connection with each IAR and 

 

102 JX 356.009. As discussed below, the parties dispute whether all of the regulations in 

the QSR applied to Channel as of the Agreement Date. The court concludes that they did 

not and that only the QSR’s design control requirements applied to Channel at that time. 

See infra Part IV.A.1.a.

103 JX 382; JX 576.

104 Tr. 161 (Patel); JX 382; JX 576.

105 Tr. 48-49 (Coté); Tr. 130-31 (Yu); Tr. 159, 174-75 (Patel); JX 380; JX 383; JX 576.
22

identified necessary corrective actions,106 which included re-performing certain tests 

affected by Shankar’s fraud.107 

Greenleaf had identified two potential concerns involving the CLARITY 

study. The first was that unsterile devices could have caused patient infections 

during the study because Shankar fabricated certain sterility records. The second 

was that using torque wrenches that were in an unconfirmed state of calibration could 

have caused some devices in the study to suffer “out-of-box” failures because 

Shankar had fabricated calibration records.108 Channel’s subsequent investigation 

into these potential concerns found that Shankar’s actions did not affect the 

CLARITY study.

Sterility. To address potential sterility concerns, Channel had Tim Achuff, 

an expert in microbiology, review the original, authentic, sterilization test report data 

from Nelson Laboratories.109 Achuff determined that Cerene met sterilization 

requirements and his analysis confirmed that “[t]he sterility of the Cerene device 

was still intact.”110 In addition, Dr. Andrew Brill, Channel’s medical liaison, 

 

106 See, e.g., JX 652.005 (listing corrective actions related to Henry Servin & Sons); JX 

533.005 (listing corrective actions related to sterilization); JX 580.004 (listing corrective

actions related to equipment calibration).

107 Tr. 40 (Coté).

108 JX 355.008.

109 JX 533.028-034; Tr. 58 (Coté). 

110 Tr. 126 (Yu); Tr. 376 (Woodard). 
23

reviewed infections of CLARITY patients and “corroborate[d] that there is no 

evidence that the integrity of the Cerene device packaging nor the sterility of the 

Cerene device was compromised.”111 

Boston Scientific’s own quality expert, Richard Reeves, observed that “if you 

[use Cerene on] 200 patients and there’s no traceable infection, that’s pretty good 

evidence that there isn’t a problem.”112 Reeves further testified that Brill’s study 

“looked pretty good” and he had no reason to doubt Brill’s conclusion.113 

Out-Of-Box Failures. To address potential calibration issues, Channel sent 

the potentially affected equipment (e.g., torque wrenches) back to the manufacturers 

for recalibration. The manufacturers found that the equipment “measured in 

calibration upon arrival” and satisfied their specifications.114 Channel also obtained 

documentation from its suppliers confirming that the equipment does not go in and 

out of calibration.

115

 This was important because if the equipment was properly 

 

111 JX 389; Tr. 57-58 (Coté); Tr. 376 (Woodard). 

112 Reeves Dep. 206. 

113 Tr. 829-31 (Reeves).

114 Tr. 40-41 (Coté); Tr. 188-89 (Patel).

115 Tr. 41 (Coté); Tr. 189 (Patel); Tr. 373 (Woodard); JX 580.007-008, 066-077. Contrary 

to Boston Scientific’s assertion, Malecki did not admit “that there is no way to confirm that 

the tools used to make the devices used in the CLARITY trial were in calibration when 

they were being used to make the devices.” Defs.’ Br. 53. Malecki simply acknowledged 

the obvious point that it is not possible to go back in time as a general matter. See Malecki 

Dep. 261 (Q: “We can’t go back in time and test the tools when they were actually used 
24

calibrated when it was retested by the suppliers, the equipment would have 

functioned properly when used on the CLARITY devices. Channel further 

determined that it already had addressed any risks posed by out-of-calibration tools 

satisfactorily through its risk management process.116 Channel therefore confirmed 

that falsified calibration records did not affect any CLARITY devices.117 

In addition to addressing the two issues just discussed, Channel thoroughly 

investigated, among other issues, falsified component inspection records from one 

of its suppliers.118 Specifically, Channel re-inspected components it had on hand 

from the same lots used in devices manufactured for CLARITY.119 Channel then 

conducted a risk assessment of its manufacturing process, which included numerous 

inspections and functional performance tests of every device, and evaluated the risk 

of nonconforming components not fitting together.

120

 The re-inspection and risk 

assessment found that “no new risks [were] introduced.”121

 

to make . . . the product, right?” A: “We can’t go back in time, period”); see also Malecki 

Dep. 260.

116 Tr. 373 (Woodard).

117 JX 580.005.

118 JX 652.004-005. 

119 Tr. 180 (Patel). 

120 Id. 180-81; Tr. 374 (Woodard); JX 652.005, 015-068; JX 751 ¶ 131.

121 Tr. 181 (Patel).
25

b. Bottom-Up Assessment

Channel also conducted a bottom-up assessment to address Greenleaf’s 

concern that every area with which Shankar was involved was suspect. The bottomup assessment entailed assessing all aspects of Channel’s quality system, and 

particularly those under Shankar’s control.122 

Channel classified its various types of quality system records into fifteen 

categories.123 For thirteen of these categories, which ranged in number from four to 

515 records, Channel reviewed every one of its records.124 Included within this 

review, Channel reviewed all of the 515 lot history records documenting Channel’s 

manufacturing processes for the devices used in the CLARITY study, and 

determined that Shankar’s fraud did not impact manufacturing.125

The remaining two categories (document change orders and incoming 

inspection records) contained over 1,500 records, which made it impracticable to 

review every record.126 For these two categories, Channel (i) reviewed all of the 

records generated by Shankar and (ii) conducted a random sampling of the remaining 

 

122 Tr. 49 (Coté); JX 576.003. 

123 JX 732.010-011.

124 Id. .014. 

125 Tr. 374-75 (Woodard); JX 732.012.

126 See JX 732.014.
26

records,

127 using a “nationally recognized” sample plan similar to one that the FDA 

uses.

128 Ultimately, although Channel identified certain issues with its quality 

system unrelated to Shankar’s fraud, which it fully remediated, the bottom-up 

assessment revealed no additional issues relating to Shankar’s fraud that could affect 

Cerene’s safety and efficacy.129 

4. Greenleaf’s Follow-up Assessment

In June 2018, Greenleaf conducted a follow-up, in-person assessment to 

review Channel’s progress in addressing Greenleaf’s prior recommendations.130 

Greenleaf’s follow-up assessment is documented in a July 2018 report, which found 

that Channel had made an “appropriate level of progress” and “many recommended 

actions were completed and others were progressing appropriately.”131 

Greenleaf also analyzed the two potential connections between Shankar’s 

conduct and the CLARITY issues it had previously identified concerning sterility 

and “out-of-box” failures. Greenleaf provided an update describing the work 

Channel had done to ensure that Shankar’s actions had no impact on either issue.132 

 

127 Tr. 168-70, 205-11 (Patel); JX 732.010-011, 014. 

128 Tr. 170, 208-11 (Patel); JX 576.003.

129 Tr. 51-52 (Coté); Tr. 170-71 (Patel); Tr. 369 (Woodard); JX 732.012.

130 Tr. 279 (Elder). 

131 JX 634.007, 010; Tr. 282-83 (Elder).

132 JX 634.007-008.
27

In addition, Greenleaf and Channel discussed Channel’s classification of the 

IARs Channel had prepared as part of its top-down assessment.133 Channel had 

classified the IARs as “minor” based on the definitions in its internal audit process 

at the time.134 Greenleaf disagreed. It believed that Channel should have classified 

certain IARs as “major.”

135

 Greenleaf also found that “the impact of the questionable 

classifications may be minimal since in the current environment all issues have 

received the appropriate visibility and prioritization within the company.”136 

Channel later updated its definitions of “major” and “minor” based on Greenleaf’s 

feedback.137 

Boston Scientific contends that Channel classified issues as “minor” and used 

IARs instead of CAPAs to reduce “the likelihood that FDA would review them.”138 

As noted below, however, Channel decided to provide all of the IARs (however 

classified) to the FDA.139 Boston Scientific’s quality expert (Reeves) acknowledged 

that the FDA did not raise any issues with Channel’s classifications or its use of 

 

133 JX 592. 

134 Tr. 175-77 (Patel); JX 592. 

135 JX 592. 

136 JX 634.011; Tr. 287-88, 342-43 (Elder).

137 Tr. 253-54 (Patel).

138 Defs.’ Br. 15.

139 Tr. 253 (Patel); Tr. 803 (Reeves); JX 380. 
28

IARs and that “the FDA is not shy when it believes that people should be doing 

things by way of CAPA.”

140 He testified further “that the classification of minor or 

major was not intended to prevent the FDA from learning about the issues.”141

H. Channel Promptly Discloses Shankar’s Fraud to the FDA and BSI 

As Channel was investigating and remediating Shankar’s misconduct, it also 

was communicating transparently with regulators about these issues.

1. Disclosure to the FDA

On January 11, 2018, Channel retained Greenleaf to advise it on its 

communications with the FDA, and in particular how best to provide the FDA with 

all relevant information about Shankar’s misconduct.142 

On January 22, 2018, Channel emailed the FDA’s lead reviewer of its 

application for a PMA to request a call, which took place on January 25.143 During 

that call, Channel informed the FDA of the basic facts about Shankar’s fraud, and 

what steps Channel intended to take to remediate that fraud.144 Channel told the 

FDA that Shankar falsified certain testing and other records, some of which it had 

 

140 Tr. 805 (Reeves).

141 Id. 804.

142 JX 262.015-024.

143 Tr. 126-27 (Yu); JX 270. 

144 Tr. 127-28 (Yu); JX 279.
29

submitted to the FDA.145 On February 1, the FDA asked Channel to withdraw and 

re-submit PMA Module 2 with corrected records, which Channel did.146 

On March 16, 2018, Channel management, accompanied by Brill and Elder

of Greenleaf, met with the FDA.147 Before the meeting, Channel provided the FDA 

with more than 250 pages of information about Shankar’s fraud, including the 

Greenleaf Report, Channel’s Fraud Implication Assessment Quality Plan, the 14 

IARs addressing Shankar’s fraud, and Brill’s adverse event review.148 At the 

meeting, Channel delivered a presentation on Shankar’s misconduct, its scope and 

effects, and Channel’s remediation plan.149 The FDA asked a number of questions 

about these and other issues, which Channel answered.150 

At the end of the March 16 meeting, the “FDA thanked the company for their 

transparency and for coming forward with the information quickly.”151 Elder asked 

the FDA if it “would be interested in subsequent discussions regarding the issues 

 

145 Tr. 128 (Yu).

146 Id. 129; JX 294; JX 494.

147 Tr. 64 (Coté); Tr. 129, 132-33 (Yu); JX 401.

148 JX 380; see Tr. 64-65 (Coté); Tr. 130-31 (Yu).

149 Tr. 66 (Coté); Tr. 129-30 (Yu); JX 401.

150 JX 401.002-004.

151 Id. .004; Tr. 67 (Coté).
30

and the status and progress of the company’s remediation,” to which the FDA 

responded: “follow-up would take place through the inspection process.”152 

On April 18, 2018, Channel had a follow-up call with the FDA.153 The FDA 

told Channel that it “ha[d] addressed all of FDA’s concerns and that the agency 

appreciate[d] the company’s transparency and timeliness.”154 Since that date, the 

FDA has not sought any more information about Shankar’s fraud.155

2. Disclosure to BSI

Channel also disclosed Shankar’s misconduct to BSI.156 Channel told BSI 

that the fraud affected some documentation Channel had submitted to it.

157

 BSI told 

Channel that it would address the issue during its upcoming assessments.158 

In the fall of 2018, BSI conducted two assessments—one relating to 

Channel’s ISO 13485 quality certification and the other relating to Cerene’s 

technical file.159 The BSI representative who conducted the two assessments were 

 

152 JX 401.004; Tr. 133-34 (Yu).

153 Tr. 138 (Yu); JX 436. 

154 JX 436. 

155 Tr. 139 (Yu).

156 Tr. 61 (Coté); Tr. 191-93 (Patel); JX 581.

157 JX 581.014. 

158 Tr. 61-62 (Coté); Tr. 193-95 (Patel); JX 581.037.

159 Tr. 195-97 (Patel); JX 709; JX 685.
31

the same individuals whom Channel had informed of Shankar’s fraud.160 During the 

assessments, BSI reviewed corrected reports for tests affected by Shankar’s fraud.161 

BSI’s own microbiologist also reviewed the corrected sterility test reports.162 

BSI concluded that all ISO 13485 requirements “continue to be effectively 

implemented,” that “[c]ontinued certification is confirmed,” and that Channel’s “EC 

certificate remains valid.”163 This meant, as Boston Scientific’s quality expert 

(Reeves) acknowledged, that Channel at all times possessed a valid ISO 13485 and 

EC certificate.164 At no point did BSI ever indicate that these certificates or 

Channel’s CE Mark were invalid.165 

After these assessments were completed, Channel was certified under the 

2016 version of the ISO 13485 standard, which has “additional [quality system] 

requirements” and is “more rigorous” than the 2003 version under which Channel 

was previously certified.166 

 

160 Tr. 820-21 (Reeves).

161 Tr. 196-97 (Patel); Tr. 821-23 (Reeves); JX 685.009-010.

162 Tr. 823-24 (Reeves); JX 685.003.

163 Tr. 62-63 (Coté); Tr. 197-99 (Patel); JX 685.003; JX 709.004. 

164 Tr. 817-18, 825 (Reeves); see JX 751 ¶¶ 109-10.

165 Tr. 63 (Coté).

166 Tr. 197-99 (Patel); Tr. 816 (Reeves); JX 725.
32

I. Channel Keeps Boston Scientific Informed of Developments

The trial evidence demonstrates that Channel also was transparent with 

Boston Scientific. Since discovering Shankar’s fraud, Channel provided Boston 

Scientific with frequent and thorough updates about its investigatory and 

remediation work, often via Kaster and Robinson.167 

In January 2018, Coté regularly called Kaster and Robinson to update them 

on Channel’s investigation.168 During this period, Kaster remained “very supportive 

and reiterated Boston’s interest in Channel.”169 Robinson thanked Coté for his 

“continued transparency,”170 and relayed the updates to senior executives of Boston 

Scientific, including Pierce.171 

Robinson reported in early January, for example, that Shankar had been 

“invoicing for new [calibration] tests that did not take place,” that numerous reports 

were “in question,” that “they will obviously have to redo the calibration tests (which 

likely would have to happen in manufacturing move and [manufacturing] module 

 

167 Tr. 70-71 (Coté); see, e.g., JX 238; JX 247; JX 258; JX 261; JX 271; JX 275; JX 279; 

JX 282; JX 288; JX 295; JX 321; JX 353.

168 Tr. 42-43, 70-71 (Coté); JX 239; Kaster Dep. 188-89.

169 JX 271. 

170 JX 261.

171 JX 259; JX 264; Robinson Dep. 206.
33

submission anyway),” and that Channel was taking remedial actions.172 Kaster 

commented: “Bottom line is that to the best of my knowledge this will not have a 

material impact on the FDA timelines,” an assessment with which Robinson 

agreed.173 A few days later, Robinson provided another update, which noted that 

Channel “will have to redo some tests—e.g., residual sterilization bioburden.”174 

On January 25, 2018, Coté, Malecki, and Yu met with Robinson and Pierce.175 

Coté updated them on Channel’s work and shared Channel’s plans to meet with the 

FDA to discuss the Greenleaf Report, which occurred in March 2018.

176

 Pierce did 

not express any concerns about the effects of Shankar’s conduct on Channel’s 

quality system, clinical trial data, or Cerene during this meeting.177 

After the January 25 meeting, Coté repeatedly told Pierce and others at Boston 

Scientific: “Please do not hesitate to call me with any questions.”178 During the next 

three months, Boston Scientific never asked for any additional information relating 

 

172 JX 259.

173 JX 264.

174 Id.

175 Tr. 75 (Coté); Tr. 468 (Pierce); JX 275.

176 Tr. 468-69 (Pierce); JX 456.

177 Pierce Dep. 85-87, 100-01; see also Pierce Dep. 82 (agreeing that “[n]o one is 

suggesting [in January 2018] . . . that Mr. Shankar’s fraud could impact the acquisition 

even if the FDA approves the product”).

178 See JX 275.
34

to Shankar’s conduct, Channel’s remediation, or its communications with the 

FDA.179 Instead, teams of Boston Scientific personnel pressed forward with their 

work on the integration of Channel without apparent regard for Shankar’s fraud.180 

On February 21 and 22, 2018, a Boston Scientific team visited Channel’s 

headquarters as part of its integration work.181 At the meeting, Coté updated Boston 

Scientific on the results from Greenleaf’s assessment.182 Nobody from Boston 

Scientific expressed any potential concerns about its acquisition of Channel.183 

On March 6, 2018, the same day Channel received the Greenleaf Report, Coté

provided a copy of the report to Boston Scientific and “suggest[ed] we schedule a 

call with the appropriate [subject matter experts] the week of the 19th to discuss the 

meeting with the FDA and to share updates as may be appropriate.”184 No one from 

Boston Scientific responded to Coté’s suggestion.

185

 

 

179 Tr. 517, 520-24, 529 (Pierce). 

180 Id. 469, 517-19. 

181 JX 456.002; JX 302. 

182 Tr. 71 (Coté); JX 456; JX 366. 

183 Tr. 74 (Coté); Tr. 526-27 (Pierce).

184 JX 353; JX 456.002; Tr. 72-73 (Coté).

185 Tr. 516, 526-27 (Pierce).
35

On March 16, after meeting with the FDA, Coté “reached out [to Boston 

Scientific] several more times offering to provide an update on our dialogue with the 

FDA.”186 Again, no one from Boston Scientific responded.187 

Boston Scientific employees uniformly testified that Channel was fully 

transparent with Boston Scientific in the aftermath of discovering Shankar’s fraud. 

Kaster testified that Coté kept him “regularly updated as to what was going on with 

the company’s investigation”188 and he thanked Coté for the “thorough update[s]” 

and reassured him “[t]his will al[l] get resolved.”189 Robinson similarly testified he 

“always found Mr. Coté to be transparent in [his] interactions with him,”190 and 

that Coté was “timely, forthcoming, transparent.”191 Pierce testified he had “no 

reason to doubt” that Channel was fully transparent with Boston Scientific at all 

times.192

 

186 JX 456.002. 

187 Id. 

188 Kaster Dep. 191. 

189 JX 257.

190 Robinson Dep. 99. 

191 Id. 219.

192 Tr. 533 (Pierce); see also Tr. 474-75 (Pierce).
36

J. The FDA Accepts Channel’s Remediation Plan

On April 18, 2018, the FDA accepted Channel’s remediation plan for its PMA

application. This action strongly signaled that Shankar’s fraud would not impede 

the FDA from approving the Cerene device and made premarket approval of the 

device a distinct possibility. Coté emailed Pierce the next day to report the good 

news.193 

Three days later, on April 22, Pierce replied and raised with Channel for the 

first time concerns about Shankar’s fraud.194 Pierce claimed that Boston Scientific 

found the “Greenleaf report to be extremely troubling,” requested Channel’s 

communications with the FDA and BSI, and explained that:

Candidly, we don’t have confidence that, if all of the details set forth in 

the Greenleaf report (not to mention its obvious gaps) were fully 

disclosed to the FDA, the FDA would be acquiescing of the underlying 

facts or optimistic of a PMA submission based on existing study data.195

Despite suggesting in his April 22 email that Channel had not made full 

disclosure to the FDA, Pierce testified that he never meant to suggest that Channel 

had not been forthcoming with FDA.196 Pierce and no one else at Boston Scientific 

ever identified the purported “obvious gaps” in the Greenleaf Report referenced in 

 

193 JX 456.002.

194 Tr. 73 (Coté); Tr. 526-27 (Pierce). 

195 JX 456.004.

196 Tr. 530 (Pierce).
37

his email.

197 Pierce acknowledged that the FDA had the Greenleaf Report and thus 

could draw its own conclusions about any such gaps.198 

Surprised by Pierce’s April 22 email, Coté asked for an in-person meeting as 

soon as possible.199 Pierce did not respond.200 Coté reached out to Boston Scientific 

five times trying to schedule a call or meeting.201 No one responded.202

K. Boston Scientific Terminates the Agreement

On May 11, 2018, Boston Scientific sent Channel a notice of termination. It 

stated in relevant part that:

BSC hereby terminates [the Agreement] pursuant to Section 8.1(f), in 

light of multiple breaches of Channel’s representations and warranties 

in Article III of the Agreement, and Section 8.1(i). The representations 

and warranties breached by Channel include, but are not limited to, 

those set forth in Sections 3.18(c), 3.22(a), 3.22(c), 3.22(f) of the 

Agreement. These representations and warranties were breached as of 

the date of the Agreement and are not curable.203

 

197 Id. 531.

198 Id. 

199 Tr. 76 (Coté); JX 440; JX 456.002-003. 

200 Tr. 76 (Coté); Tr. 532-35 (Pierce).

201 Tr. 536 (Pierce). 

202 Tr. 78-79 (Coté); Tr. 536 (Pierce).

203 JX 475. 
38

Pierce made the decision on behalf of Boston Scientific to terminate the Agreement. 

In doing so, the sole documentary evidence he relied on was the Greenleaf Report.204 

Pierce decided to terminate the Agreement after receiving feedback about the 

Greenleaf Report in a March 29 meeting with Carr, Donna Gardner, Boston 

Scientific’s Vice President of Regulatory Affairs, the Vice President of Research 

and Development, and Pierce’s legal counsel, Mark Myhra.

205

 At this meeting, no 

one discussed any steps Boston Scientific could take to remediate Channel’s quality 

system.206 

L. The FDA Reviews Channel’s PMA

On August 10, 2018, Channel submitted its final PMA module to the FDA.

207

 

By that time, Channel had finished resubmitting the reports in earlier modules that 

Shankar’s fraud had affected.

208

 

On August 28, 2018, the FDA accepted Channel’s PMA application, which 

the FDA formally filed on September 6, 2018.209 The filing took place about three 

 

204 Tr. 484, 522-23, 537 (Pierce). 

205 Tr. 471-74 (Pierce); Tr. 620 (Carr noting Mr. Sukthankar, the Vice President of 

Research and Development, was also in attendance). 

206 Carr Dep. 148-49; see also Tr. 640 (Carr).

207 Tr. 139 (Yu). 

208 Id. 138-39. 

209 Id. 140. 
39

months later than planned based on Channel’s initial timeline for its PMA, which 

was prepared before discovery of Shankar’s fraud.210 

The FDA proceeded to review Channel’s PMA substantively.

211

 Boston 

Scientific’s quality expert (Reeves) testified that, because of Shankar’s fraud, the 

FDA would review Channel’s PMA application “with more laser-like focus than 

they would if they were just reviewing this PMA as they normally do.”212 The FDA 

made numerous, detailed requests for additional information, none of which 

appeared to concern Shankar’s fraud, to which Channel responded promptly.213 

The FDA also completed four separate bioresearch monitoring inspections,

one at Channel and three at separate CLARITY trial sites to evaluate, among other 

things, the quality and integrity of Channel’s clinical trial data.214 At the end of an 

FDA inspection, if inspectors observe regulatory violations, they identify them on a 

“Notice of Inspectional Observations” known as a “Form 483.”

215

 The FDA’s 

 

210 JX 169 (estimating date of final PMA module to be June 1, 2018).

211 Tr. 413 (Ulatowski); Tr. 683 (Carr); JX 755.007-011, 015-017. 

212 Reeves Dep. 211.

213 Tr. 413 (Ulatowski); JX 755.015-017.

214 Tr. 140 (Yu); Tr. 413-14 (Ulatowski); JX 711; JX 720; JX 755.016. 

215 Tr. 141 (Yu); JX 755.016. 
40

inspectors did not issue any Form 483’s after conducting their bioresearch 

monitoring inspections.216 

From January 22 through February 1, 2019, the FDA conducted a

pre-approval inspection of Channel, which lasted seven business days and included 

a detailed inspection of Channel’s quality system.217 The FDA inspector made two 

relatively minor observations (unrelated to Shankar’s fraud) on a Form 483, to which 

Channel responded on February 22, 2019.218

M. The FDA Approves Channel’s PMA

On March 28, 2019, the FDA approved Channel’s application for premarket 

approval of the Cerene device.

219

 Cerene therefore received FDA approval during 

the first quarter of 2019, as Boston Scientific originally contemplated before signing 

the Agreement,220 and six months ahead of the September 30, 2019 contractual 

deadline in the Agreement.221 The FDA explicitly found that there is a “reasonable 

 

216 Tr. 141 (Yu); Tr. 414-15 (Ulatowski); JX 711; JX 720; JX 755.016.

217 Tr. 141 (Yu); Tr. 199-201 (Patel); JX 723.002-003; JX 755.016.

218 Tr. 141-43 (Yu); Tr. 201 (Patel); JX 740; see also Tr. 369-70 (Woodard).

219 JX 2. 

220 JX 187.006.

221 Agreement § 10.2 (definition of “FDA Approval”).
41

assurance of the safety and effectiveness of [the Cerene] device.”222 The FDA also 

found that Channel and its contract manufacturer comply with the FDA’s QSR.223

Reeves confirmed that the FDA’s approval necessarily reflects its conclusion 

that Cerene is safe and effective, that Channel’s quality system is compliant with the 

QSR, and that its clinical data is reliable, describing FDA approval as “the proof in 

the pudding.”224 As a “former FDAer,” Elder of Greenleaf was “pleased to see that 

Channel was transparent and provided FDA with information,” particularly the 

Greenleaf Report that he worked on, before the FDA approved Cerene.225 To Elder, 

this meant that the FDA “had all of the information [it] needed to make an informed 

decision” when approving Cerene.226 Due to the FDA’s approval, Channel can 

market Cerene in the United States immediately.227

II. PROCEDURAL HISTORY

On September 12, 2018, Channel filed a verified complaint asserting two 

claims. Its first claim asserts that Boston Scientific breached Section 6.3(b) of the 

Agreement “by declaring its intention to cease performing its obligations thereunder 

 

222 JX 757.029. 

223 Id. .030.

224 Tr. 831, 844-49 (Reeves); Reeves Dep. 208.

225 Tr. 290-91 (Elder). 

226 Id. 291.

227 Tr. 560 (Pierce).
42

and to terminate the [Agreement] without a valid basis,” and seeks the remedy of 

specific performance under Section 10.6 of the Agreement.228 Its second claim seeks 

a declaratory judgment that (i) Boston Scientific breached its obligations under the 

Agreement, (ii) no Material Adverse Effect (“MAE”) occurred, (iii) Channel did not 

breach any representations or warranties that would reasonably be expected to have 

an MAE, and (iv) Boston Scientific had no right to terminate the Agreement.229 

On October 3, 2018, Boston Scientific filed three counterclaims. Its first 

claim is for fraud in the inducement based on alleged misrepresentations and 

omissions about Channel’s quality systems. Its second claim seeks rescission of the 

Agreement based on breaches of various representations and warranties. Its third 

claim seeks a declaratory judgment that Boston Scientific had the right to—and 

did—terminate the Agreement under Sections 8.1(f) and 8.1(i) of the Agreement.230

The court held a four-day trial in April 2019 and heard post-trial argument on 

July 26, 2019. At that hearing, the court requested supplemental briefing on an issue 

of contractual interpretation concerning Section 8.1(f) of the Agreement, which the 

parties completed on September 6, 2019. 

 

228 Dkt. 1 ¶¶ 89-90.

229 Id. ¶ 101.

230 Dkt. 25 ¶¶ 41-60.
43

III. FRAMEWORK OF THE ANALYSIS 

The parties’ disputes are primarily contractual. Boston Scientific contends 

that it terminated the Agreement in accordance with its terms. Channel contends 

that Boston Scientific did not validly terminate the Agreement and seeks an order of 

specific performance to compel Boston Scientific to close the merger. 

The analysis of the parties’ claims focuses primarily on the following three 

provisions in the Agreement:

 Under Section 7.2(b), Boston Scientific’s obligation to consummate 

the merger is subject to satisfaction of the condition that each of 

Channel’s representations and warranties in the Agreement “shall 

have been true and correct at the time originally made . . . except to 

the extent that the failure of any such representations and warranties 

to be true and correct does not have and would not reasonably be 

expected to have a Material Adverse Effect” on Channel (the 

“Representations Condition”).

 Under Section 8.1(f)(i), Boston Scientific can terminate the 

Agreement at any time if any of Channel’s representations and 

warranties in the Agreement “shall be inaccurate or shall have been 

breached as of the Agreement Date . . . such that the condition set 

forth in Section 7.2(b) would not be satisfied.”

 Under Section 6.3(b), from the “Agreement Date until the Effective 

Time,” Boston Scientific “will take all further action that is 

necessary or desirable to carry out the purposes of this Agreement” 

and “shall use its commercially reasonable efforts to take all such 

action and refrain from taking any actions which would be 

reasonably expected to frustrate the essential purposes of the 

transactions contemplated by the Agreement.” 

Section 7.2(b) also contains a “bring-down condition” that requires that each 

of Channel’s representations and warranties in the Agreement “shall be true and 
44

correct as of the Effective Time,” i.e., when the merger closes.231 That aspect of 

Section 7.2 is not at issue here. In this case, Boston Scientific relies on Section 

7.2(b) solely for alleged inaccuracies in or breaches of Channel’s representations and 

warranties as of the “Agreement Date,” i.e., November 1, 2017.

The termination right in Section 8.1(f) does not contain a cure provision for 

any inaccuracy in or breach of a representation and warranty as of the Agreement 

Date.232 Section 8.1(f), however, incorporates the closing condition in Section 

7.2(b), which has a built-in MAE requirement. Specifically, the closing condition 

in Section 7.2(b) “shall be deemed to be satisfied unless any failures of the 

representations and warranties . . . to be true and correct has or would reasonably be 

expected to have a Material Adverse Effect on [Channel].” Thus, the 

Representations Condition “examines the inaccuracy of specific representations and 

uses as its measuring stick whether the deviation between the as-represented 

condition and the actual condition would reasonably be expected to constitute a 

 

231 See generally Lou R. Kling & Eileen T. Nugent, Negotiated Acquisitions of Companies, 

Subsidiaries and Divisions § 1.05[2], at 1-41 (2019 ed.) (describing “the critical 

‘bringdown’ condition”).

232 Section 8.1(f) does contain a cure provision for “an inaccuracy in or breach of any 

representation or warranty of [Channel] as of a date subsequent to the date of this 

Agreement,” but that provision is irrelevant to this case. Agreement § 8.1(f).
45

Material Adverse Effect.”233 The “reasonably be expected” standard is an objective 

standard.234 

In its termination notice, Boston Scientific also relied on Section 8.1(i) of the 

Agreement as a second ground for termination. Under Section 8.1(i), Boston 

Scientific can terminate the Agreement at any time if “there shall have occurred any 

Material Adverse Effect with respect to [Channel].” The termination right in Section 

8.1(i) does not depend on the existence of an inaccuracy in or breach of any 

representation or warranty in the Agreement but is subject to a cure provision. By 

the time of trial, which occurred after the FDA approved the Cerene device, Boston 

Scientific’s reliance on Section 8.1(i) was an afterthought that depended entirely on 

whether or not Boston Scientific could prove an MAE for purposes of Section 8.1(f).

The analysis of the claims that follows proceeds in five parts. Section IV 

analyzes whether Boston Scientific was entitled to terminate the Agreement under 

Section 8.1(f).235 Section V addresses Boston Scientific’s reliance on Section 8.1(i). 

 

233 Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *46 (Del. Ch. Oct. 1, 2018), 

aff’d, 198 A.3d 724 (Del. 2018).

234 See id. at *65 (citation omitted); Frontier Oil v. Holly Corp., 2005 WL 1039027, at *33 

(Del. Ch. Apr. 29, 2005) (“The test—‘would have’ or ‘would reasonably be expected to 

have’—is an objective one.”). 

235 When this decision refers to Boston Scientific’s exercise of a right to terminate under 

Section 8.1(f), the court is referring to the first subsection of that provision, i.e., Section 

8.1(f)(i). In a footnote in its opening brief, Boston Scientific argued that the Agreement 

was properly terminated under Section 8.1(f)(ii) as well because Channel breached a 

covenant in Section 5.2 of the Agreement by manufacturing non-compliant devices that 
46

Section VI analyzes whether Boston Scientific breached Section 6.3(b). Section VII 

analyzes whether Channel is entitled to the remedy of specific performance. Section 

VIII analyzes whether Boston Scientific is entitled to damages based on its 

fraudulent inducement claim. 

IV. BOSTON SCIENTIFIC’S TERMINATION UNDER SECTION 8.1(f)

Boston Scientific’s lead argument is that it properly terminated the Agreement 

under Section 8.1(f) based on certain representations in the Agreement that were 

inaccurate as of the date of the Agreement.

236

 As just discussed, Section 8.1(f) 

permits Boston Scientific to terminate the Agreement at any time if any of Channel’s 

representations in the Agreement “shall be inaccurate. . . such that the condition set 

forth in Section 7.2(b) would not be satisfied.”237 The Representations Condition in 

 

were used in the CLARITY study. Defs.’ Br. 42-43 & n.3. A covenant is a promise of 

future performance. Akorn, 2018 WL 4719347, at *8. Channel finished manufacturing the 

CLARITY devices more than six months before entering into the Agreement. Tr. 331-33 

(Elder). Thus, Channel could not have breached the covenant in question based on this 

conduct. 

236 The parties frame their arguments in terms of “breaches” of representations. The court 

finds it more helpful to frame the alleged “breaches” of representations as “inaccuracies” 

because they are statements of fact. See Kenneth A. Adams, A Manual of Style for Contract 

Drafting 116 (4th ed. 2017) (“One breaches an obligation, but not a statement of fact 

(whether you call it that or a representation). Instead, a statement of fact is accurate or 

inaccurate. If Abigail says that it’s Monday but in fact it’s Tuesday, Abigail hasn’t 

‘breached’ anything. Instead, she’s made an inaccurate statement.”). 

237 Agreement § 8.1(f). 
47

Section 7.2(b) in turn provides that Boston Scientific must consummate the merger, 

subject to various other conditions, if: 

Each of the representations and warranties of the Company contained 

in this agreement . . . shall have been true and correct at the time 

originally made, . . . except to the extent the failure of any such 

representations and warranties to be true and correct does not have and 

would not reasonably be expected to have a Material Adverse Effect.238

Boston Scientific bears the burden of “proving by a preponderance of the 

evidence the facts supporting the exercise of its termination rights.”239 Thus, to 

validate its termination of the Agreement under Section 8.1(f), Boston Scientific 

must prove that: (i) one or more of the representations in the Agreement was 

inaccurate as of the Agreement Date and (ii) the failure of such representation(s) to 

be true and correct “has or reasonably would be expected to have a Material Adverse 

Effect” on Channel.240 The court analyzes these two issues next.

A. Whether Any of Channel’s Representations Was Inaccurate

Boston Scientific argues that Shankar’s fraud rendered a number of 

representations in the Agreement inaccurate as of the date of the Agreement. Each 

of the representations Boston Scientific contends was inaccurate contains a 

materiality qualifier. The parties did not analyze the meaning of the term “material” 

 

238 Id. § 7.2(b) (emphasis added).

239 Akorn, 2018 WL 4719347, at *4.

240 Agreement § 7.2(b).
48

or its variations (e.g., “in all material respects”) for purposes of assessing the 

accuracy of the representations in the Agreement in their own right. 

In Frontier Oil v. Holly Corp.,

241 this court considered the meaning of the term 

“material” as used in a warranty in a merger agreement. The court explained that, 

“[i]n the context of the Merger Agreement, the concept of ‘Material Adverse Effect’

and ‘material’ are analytically distinct, even though their application may be 

influenced by the same factors.”242 The court then applied a disclosure-based 

standard of materiality for purposes of interpreting the warranty.243

Last year, in Akorn, Inc. v. Fresenius Kabi AG, Vice Chancellor Laster 

carefully studied the meaning of the term “in all material respects” in a covenant in 

a merger agreement.244 There, the acquirer (Fresenius) argued, based on Frontier 

Oil, “that the phrase ‘in all material respects’ requires only a ‘substantial likelihood 

that the . . . fact [of breach] would have been viewed by the reasonable investor as 

having significantly altered the ‘total mix’ of information.’”245 Although noting the 

 

241 2005 WL 1039027.

242 Id. at *38.

243 Id. (“A fact is generally thought to be ‘material’ if [there] is ‘a substantial likelihood 

that the ... fact would have been viewed by the reasonable investor as having significantly 

altered the ‘total mix’ of information made available.’”) (quoting TSC Indus. v. Northway, 

Inc., 426 U.S. 438, 449 (1976)). 

244 Akorn, 2018 WL 4719347, at *86. 

245 Id. 
49

“oddity of relying on a disclosure-based standard to evaluate contractual 

compliance,” the court endorsed using the “the Frontier Oil test (as conceived by 

Fresenius).”246 The court explained that the test “strives to limit the operation [of 

the covenants in question] to issues that are significant in the context of the parties’ 

contract, even if the breaches are not severe enough to excuse a counterparty’s 

performance under a common law analysis.”247 Based on the analysis in Akorn, the 

court will apply here the disclosure-based standard that Akorn endorses in evaluating 

the alleged inaccuracies of representations in the Agreement.

Boston Scientific argues that Shankar’s fraud rendered three categories of 

representations inaccurate at signing. The court considers each of these categories 

in the three sections that follow.

1. Compliance with Applicable Healthcare Laws

Boston Scientific’s primary argument is that Channel’s representation in 

Section 3.22(a) of the Agreement was inaccurate as of the Agreement Date because 

 

246 Id. Vice Chancellor Laster did not apply this test when analyzing the alleged 

inaccuracies of various regulatory compliance representations because the merger 

agreement in Akorn included a “materiality scrape” provision that “scrape[d] away those 

specific qualifiers [in the representations themselves] in favor of an aggregate MAE 

qualifier.” Id. at *64. The Agreement here does not contain such a provision. 

247 Id. at *86.
50

Channel failed to design, manufacture, and test Cerene in material compliance with 

applicable “Healthcare Laws.” In Section 3.22(a), Channel represented that: 

The Company and its Subsidiaries are in material compliance with all 

Healthcare Laws applicable to the Company and is Subsidiaries, or the 

Company Business. The design, manufacture, testing, and distribution 

of the Products by or on behalf of the Company and its Subsidiaries is 

being conducted in compliance with all applicable Healthcare Laws, 

including, without limitation, the FDA’s current good manufacturing 

practice regulations at 21 C.F.R. Part 820 for medical device products 

. . . .

248

The “good manufacturing practice regulations” referenced at the end of this 

provision are known as the “Quality System Regulation” or “QSR.” The QSR is a 

system of quality regulations “for medical devices that are commercially distributed 

[to] ensure that the product is reliable and developed correctly.”249 The QSR 

contains many subparts, one of which is 21 CFR § 820.30, entitled “Design 

Controls.”250 

As of the date of the Agreement, the FDA had not approved Channel to sell 

and distribute products in the United States but it had approved Channel to conduct 

its CLARITY clinical trial under an approved investigational device exemption 

 

248 Agreement § 3.22(a).

249 Tr. 358-59 (Woodard).

250 See 21 CFR § 820.
51

(IDE).251 As a general matter, an approved IDE exempts a company “from all of the 

quality system regulations, with the exception of design controls.”252 

The exemption afforded to an approved IDE, however, contains an important 

qualification. Specifically, under 21 CFR § 812.1(a), an approved IDE “exempts a 

device from the . . . good manufacturing practice requirements under section 520(f) 

[of the Federal Food, Drug, and Cosmetic Act] except for the requirements found in 

§ 820.30, if applicable (unless the sponsor states an intention to comply with these 

requirements under § 812.20(b)(3) or § 812.140(b)(4)(v)).”253 In other words, a 

sponsor who has obtained an approved IDE is only required to comply with the 

design control requirements of the QSR (Section 820.30) unless it elects to comply 

with other requirements of the QSR by stating an intention to do so. 

Channel does not dispute that it did not comply with the entirety of the QSR 

as of the date of the Agreement.254 Rather, Channel argues that it complied with the 

only subpart of the QSR that applied to the Cerene device when it entered into the 

Agreement (i.e., the subpart for device controls) and that the rest of the QSR was 

inapplicable because Channel never stated an intention to comply with those other 

 

251 Tr. 359 (Woodard); see also JX 171 (referencing Cerene’s IDE exemption # G160101). 

252 Tr. 359 (Woodard).

253 21 CFR § 812.1(a) (JX 782) (emphasis added). 

254 See Defs.’ Reply Br. 10-12 (listing nine sections within six subparts of the QSR that 

Channel did not contest it did not comply with as of the date of the Agreement) (Dkt. 196).
52

requirements and thus was exempt from them. Boston Scientific counters that the 

entire QSR did apply to the Cerene device because Channel stated an intention to 

comply with those requirements and that, even if Channel did not, Channel 

materially failed to comply with the design control requirements in any event. The 

preponderance of the evidence supports Channel on the first point but supports 

Boston Scientific on the second. The court addresses those two issues next. 

a. Channel Had to Comply Only with the QSR’s Design 

Control Requirements as of the Agreement Date 

In support of its position that Channel expressed an intention to comply with 

all of the requirements of the QSR, Boston Scientific relies on certain statements in 

Channel’s application for an IDE and in its quality manual. Boston Scientific first 

points to the following statements in Channel’s IDE application:

 “All products are manufactured to Channel Medsystems quality 

system requirements”

 “All components in the Cerene device and the collection bag are 

purchased to approved specifications using standard operating 

procedures”

 “Critical material and component specifications are . . . inspected at 

Incoming Inspection”

 “Suppliers of these components/materials are monitored by use of 

an Approved Supplier List”

 “sterilization of the Cerene device is performed by ProTech”255

 

255 Defs.’ Br. 36 (quoting JX 810 at CHANNEL-0016099).
53

Significantly, the statements quoted above appear to be ones that the FDA 

requires a sponsor to include in an IDE application. Specifically, 

21 C.F.R. § 812.20(b)(3) provides, in relevant part, that an IDE application “shall 

include”:

A description of the methods, facilities, and controls used for the 

manufacture, processing, packing, storage, and, where appropriate, 

installation of the device, in sufficient detail so that a person generally 

familiar with good manufacturing practices can make a knowledgeable 

judgment about the quality control used in the manufacture of the 

device. 256

It would be illogical that statements made in an application for an IDE that the FDA 

requires a company to include in the application would preclude the company from 

obtaining the benefit of an IDE, i.e., the benefit of developing a product before 

commercialization free of certain regulations. If that were the case, the IDE 

application process would preclude every company from receiving the benefit of an 

IDE. For this reason, the court concludes that the “states an intention” qualification 

to the exemption in Section 812.1(a) requires the sponsor to expressly state its 

intention to comply with the full QSR (or parts of it) for the exemption from the 

QSR (other than design controls) to not apply. 

 

256 21 CFR § 812.20(b)(3) (JX 783). 
54

Channel’s FDA expert credibly testified that Channel’s IDE application does 

not contain “any affirmative statements” that it intends to comply with all of the 

QSR,257 and Boston Scientific has identified no such statement. Boston Scientific 

instead asks the court to look to the contents of Channel’s quality manual for an 

expression of such an intention.

Specifically, Boston Scientific contends that Channel expressed an intention 

to comply with the entire QSR because Channel’s “quality system requirements”—

which is referenced in the IDE application—are defined in its quality system manual 

to require compliance with the entire QSR. For support, Boston Scientific points to 

the following statement in the quality manual: “The Quality Department has full 

responsibility and authority for establishing, implementing and maintaining the 

Quality Management System in accordance with the requirements of . . . 21 CFR 

Part 820 Quality System Regulation.”258 

 

257 Tr. 420 (Ulatowski). 

258 Defs.’ Br. 36-37 (quoting JX 45.003). Boston Scientific also contends that the reference 

in the quality manual to 21 C.F.R. Part 820 must have been intended to refer to the entire 

QSR because the quality manual lists as “not applicable to [Channel’s] products and 

processes” one section of the QSR (21 C.F.R. § 820.170) pertaining to “installation 

activities.” Id. at 37-38. As the quality manual itself makes clear, this regulation would 

never apply to Channel because there “are no installation activities” for the Cerene device. 

See JX 45.004. Thus, one cannot infer from the reference to Section 820.170 in the quality 

manual that Channel was attempting to make an affirmative statement of a present intention 

to comply with all of the other requirements of the QSR.
55

The statement in the quality manual quoted above, however, does not reflect 

a present intention to comply with all of the QSR requirements. Rather the statement 

implies that the full QSR was not in effect at the time, thus the reason the Quality 

Department was responsible for “establishing” and “implementing” such a system. 

Lori-Ann Woodard, Channel’s quality expert, testified knowledgeably and credibly 

that a single-device start-up company like Channel would begin by complying with 

the design control requirements in Section 820.30 and then ramp up to full 

compliance by the time it applies for premarket approval (PMA) and begins 

marketing its product.259 The statement of the Quality Department’s responsibility 

and authority in the manual is consistent with this approach. 

Apart from the lack of any affirmative statement of a present intention to 

comply with the QSR in Channel’s quality manual, Boston Scientific’s reliance on 

the manual fails for a separate reason. Inherent in the “states an intention” exception 

to the exemption in Section 812.1(a), the sponsor must make the statement to the 

FDA. Boston Scientific concedes that Channel did not submit its quality manual to 

the FDA in its IDE application but maintains that the manual was still subject to 

 

259 Tr. 360-61 (Woodard).
56

inspection by the FDA.260 The FDA, however, only engages in such inspections for 

the PMA application process, not the IDE application process.261 

Finally, Boston Scientific elicited expert testimony that Section 812.1 only 

exempts the device receiving the IDE from the QSR and not the company, and 

therefore, Channel was still required to comply with the rest of the QSR.262 FDA 

guidance, however, specifically and clearly states the contrary: “Sponsors of IDE’s 

are also exempt from the Quality System (QS) Regulation except for the 

requirements for design controls.”263 The court credits the agency’s guidance over 

the proffered testimony.264 For this and the other reasons discussed above, the court 

concludes that Channel only needed to comply with the design controls section of 

the QSR (21 C.F.R. § 820.30) when it entered into the Agreement.

b. Channel’s Representation in Section 3.22(a) was 

Inaccurate as of the Agreement Date 

The court turns next to whether Channel’s representation under Section 

3.22(a) of the Agreement was inaccurate because it was not in material compliance 

with 21 C.F.R. § 820.30, the design control requirements. Under those requirements, 

 

260 Defs.’ Reply Br. 15.

261 JX 736 ¶ 25; compare 21 C.F.R. § 814 (PMA), with 21 C.F.R. § 812 (IDE).

262 Tr. 706-07 (Reeves).

263 JX 791.001.

264 Tr. 700 (Reeves).
57

Channel must “establish and maintain procedures to control the design of the device 

in order to ensure that specified design requirements are met.”265 Specifically, 

Channel was required to establish and maintain procedures for, among other things, 

design verification, design validation, and the documentation and approval of design 

changes before their implementation.266 The results of design verification and 

validation had to be included in a design history file, which “each manufacturer shall 

establish and maintain . . . for each type of device.”267 

Boston Scientific focuses on two issues:

 According to the Greenleaf Report, “the rationale and the internal 

discussions that resulted in the decision to institute [changes to 

Cerene] in the design history file were not always detailed,”268

despite such detail being required under Section 820.30.269

 Shankar’s falsified test records impacted verification and validation 

testing, which is done under the design control requirements of 

Section 820.30.270

 

265 21 C.F.R. § 820.30(a)(1).

266 21 C.F.R. § 820.30(f)-(g), (i).

267 21 C.F.R. § 820.30(f)-(g), (j).

268 JX 356.010; see JX 356.024 (noting “there were only a few incidents where there was 

a record of the elements of the findings that resulted in the decision to make changes in the 

device” and “documentation of the reason for the change was commonly not available”).

269 JX 736.030 (Reeves Expert Report); JX 356.023.

270 Tr. 396 (Woodard); Tr. 306 (Elder).
58

As to the first issue, Boston Scientific argues that the lack of documentation 

on the reasons for implementing changes to the device is contrary to Section 

820.30’s requirement that manufacturers adhere to procedures for “identification, 

documentation, validation, . . . review, and approval of design changes before their 

implementation.”271 Channel counters that even if that is the case, it is not material 

because the Greenleaf Report further states that “Channel maintains a robust design 

control program with detailed device evolutional changes well documented in 

change control documentation and detailed engineering drawings.”272 Considered 

alone, the lack of detail in the design history file noted in the Greenleaf Report would 

not be significant to the parties in the context of the Agreement. Combined with the 

presence of falsified records in the design history file, however, the court finds that 

Channel’s noncompliance with the design control requirements was material. 

The parties focus on the fact that Shankar falsified seven records on 

sterilization validation and package seal integrity that appeared in six reports.273 As 

Elder explained and as documented in the Greenleaf Report, these falsified 

 

271 21 C.F.R. § 820.30(i).

272 JX 356.010.

273 See JX 356.014-016 (documenting “false records submitted in regulatory filings to 

FDA”); JX 658.004-007 (listing “altered . . . reports that were submitted to FDA”). The 

record also reflects that Shankar falsified records concerning (i) measurements of at least 

four component parts and (ii) instrument and equipment calibration, which Channel did not 

submit to the FDA. JX 356.016-019. 
59

documents were used in verification and validation testing274 and, by Channel’s own 

admission six of these documents were included in the design history file as of the 

date the Agreement was signed.275 Elder further testified that Channel’s quality 

system had “significant issues” that “resulted in fraudulent documents being 

created,”276 and Channel’s own quality expert acknowledged that a design history 

file that contains false test reports cannot comply with Section 820.30.277

Channel counters that because the design history file included numerous other 

records, the presence of only six test reports containing falsified documents was not 

material.278 For materiality purposes, however, the small percentage of affected test 

reports is not determinative. Depending on the circumstances, a single test report 

generated from falsified content may be significant enough to establish material noncompliance with Section 820.30. 

 

274 Tr. 305-06 (Elder) (confirming that Shankar had “falsified records of dimensional 

inspections conducted [of] components used in the production of medical devices . . . used 

in verification and validation testing.”); see also JX 356.016-017.

275 Pl.’s Resp. Br. 73 (“Of the numerous records contained in the [design history file] as of 

November 1, 2017, six were inauthentic.”) (Dkt. 193).

276 Tr. 320 (Elder); JX 637.001-002.

277 Tr. 396 (Woodard).

278 Tr. 50 (Coté); Tr. 119-20 (Yu). In January 2018, Channel had approximately 170 

quality records in its quality system, 138 of which were submitted to the FDA in connection 

with Channel’s IDE and first two PMA modules. Tr. 119-20 (Yu). The second PMA 

module was filed with the FDA after the Agreement was entered into on November 1, 

2017, and thus it is unclear how many of these records were in the design history file as of 

the Agreement Date.
60

Focusing on the contents of the reports, Channel asks the court to consider as

part of the total mix of information the results of its internal investigation, which 

validated the conclusions in the six affected test reports and found after “a really 

deep dive” that “Shankar had no impact.”279 The fact that Channel’s investigation 

determined that the falsified documents did not alter the conclusions of the affected 

test reports, however, does not mean that the presence of falsified quality records 

could not be significant to a reasonable acquirer for other reasons—for example, as 

presenting a potential obstacle to obtaining FDA approval for the Cerene device. 

Although a close call, having carefully considered the evidence of record, the 

preponderance of the evidence demonstrates that a reasonable investor/acquirer 

would view the manner in which Channel failed to comply with the design control 

requirements of Section 820.30 “as having significantly altered the ‘total mix’ of 

information.”280 In particular, the lack of compliance with a portion of the quality 

system regulation due to the creation of false records concerning equipment 

calibration, sterility, and device packaging used in verification and validation testing 

of the device likely would be significant to a reasonable acquirer. Even if the 

falsified records did not impact the integrity of the design history file, the very fact 

that there were falsified records in the design history file would call into question

 

279 Tr. 405-06 (Woodard).

280 Akorn, 2018 WL 4719347, at *86.
61

Channel’s ability to secure FDA approval. Accordingly, the court finds that the 

representation in Section 3.22(a) was inaccurate as of the date of the Agreement.

2. Clinical Study Device Compliance

In its second category, Boston Scientific argues that Channel breached 

Sections 3.22(f), 3.32(b), and 3.32(c) as of the date of the Agreement, because “all 

of the devices used in the CLARITY clinical trial were manufactured under a 

noncompliant quality system, when Shankar was the sole quality assurance 

employee.”281 In Section 3.22(f), Channel represented and warranted that all of its 

clinical trials complied in all material respects with applicable healthcare laws:

All preclinical and clinical trials . . . that have been or are being 

conducted by or on behalf of, or sponsored by, [Channel] . . . have been 

conducted in compliance in all material respects with standard medical 

and scientific research procedures and the experimental protocols, 

procedures, and controls pursuant to applicable Healthcare Laws . . . .

282

In Section 3.32(b), Channel represented and warranted that the goods and services 

Channel supplied complied in all material respects with applicable laws:

The goods and services supplied by [Channel] have complied, in all 

material respects, with all Laws and with all government, trade 

association and other mandatory and voluntary requirements, 

specifications and other forms of guidance.283

 

281 Defs.’ Br. 42-43.

282 Agreement § 3.22(f).

283 Id. § 3.32(b).
62

In Section 3.32(c), Channel represented and warranted that its products did not 

contain any material defect:

None of the Products developed, used, manufactured or sold by 

[Channel] prior to the Closing contained any material quality, design, 

engineering, manufacturing or safety defect.284

With respect to Sections 3.22(f) and 3.32(b), Boston Scientific has not 

identified any applicable laws or requirements that Channel failed to comply with, 

other than design control requirements of the QSR. Boston Scientific also has not 

identified any evidence relevant to these representations other than the records 

Shankar falsified concerning “components used in the production of medical devices

used in the human clinical study.”285 In other words, Boston Scientific’s argument 

concerning the inaccuracy of Sections 3.22(f) and 3.32(b) duplicates the argument it 

made concerning Section 3.22(a), discussed in the previous section. Thus, for the 

same reasons that the representation in Section 3.22(a) was inaccurate, Boston 

Scientific has proven by a preponderance of the evidence that Sections 3.22(f) and 

3.32(b) also were inaccurate as of the date of the Agreement.

With respect to Section 3.32(c), which focuses on whether device itself was 

defective, Boston Scientific argues in essence that because the Greenleaf Report 

 

284 Id. § 3.32(c). 

285 Tr. 305-06, 309 (Elder); JX 356.016-018.
63

said, “all of the devices in the [CLARITY clinical] study had been manufactured 

under a noncompliant quality system,” those devices must have been materially 

defective.286 Noncompliance with certain validation and verification testing 

requirements, however, does not mean that the Cerene device necessarily was 

defective and, critically, Boston Scientific has failed to identify any evidence of an 

actual material defect. For this reason, the court finds that Boston Scientific failed 

to prove by a preponderance of the evidence that the representation in Section 

3.32(c) was inaccurate as of the date of the Agreement. 

3. Statements to the FDA

Boston Scientific’s final category of alleged inaccurate representations 

focuses on the veracity of Channel’s communications with and submissions to the 

FDA, which implicates Sections 3.18(c), 3.22(c), and 3.22(h) of the Agreement. 

Section 3.22(c) provides that Channel’s regulatory filings were true and correct:

All applications, notifications, submissions, information, . . . and 

filings . . . , when submitted to the FDA or any other Governmental 

Authority, were true, accurate and complete in all material respects as 

of the date of submission.287

In Section 3.22(h), Channel represented and warranted that Channel had not “made 

an untrue statement of material fact to the FDA or any other Governmental 

 

286 Defs.’ Br. 19; see also id. 42-46.

287 Agreement § 3.22(c).
64

Authority” or done anything that “would reasonably be expected to provide a basis” 

for the FDA to invoke its “Fraud Policy.”288 Section 3.18(c) addresses more 

generally applications and submissions in support of “Permits” and requires them to 

be “true, complete and correct in all material respects.”289 The term “permits” is

defined as “permits, licenses, franchises, approvals, authorizations, registrations, 

clearances, and exemptions . . . necessary for [Channel] to . . . carry on its 

business.”290

As of the date of the Agreement, Channel had made submissions to the FDA 

for its IDE and Module 1 of its PMA application, which included three of the six test 

reports that contained information that Shankar falsified.291 These three test reports 

included the sterilization validation and package seal integrity records discussed 

above.292 Boston Scientific argues that the false records in Channel’s IDE and 

Module 1 submissions were material because, as Channel’s own expert (Timothy 

Ulatowski) testified, “[w]hen submitted, [Channel’s submissions] were significant 

 

288 Id. § 3.22(h).

289 Id. § 3.18(c).

290 Id. § 3.18(b)(i).

291 Tr. 114, 119-21 (Yu); Tr. 38 (Coté); JX 356.014 (Greenleaf report confirming that 

Shankar “caused false information to be submitted in regulatory filings to FDA”). Channel 

submitted Module 2 for the PMA to the FDA on November 21, 2017, after signing the 

Agreement, and withdrew it later. Tr. 129 (Yu). 

292 JX 658.004-006.
65

in regard to, for example, approval of the IDE.”293 Boston Scientific also contends 

that the severe consequences for filing any false statement with the government such 

as criminal liability under 18 U.S.C. § 1001, an injunction, or invocation of the 

FDA’s Fraud Policy undermines any contention that filing false information with 

the FDA would be insignificant to a reasonable acquirer.294 

Channel counters, once again, that the results of its investigation negate the 

materiality of these test reports. As discussed above, however, a reasonable acquirer 

would find the fact that falsified reports were submitted to the FDA to alter the total 

mix of information for other purposes, namely to call into question Channel’s ability 

to secure FDA Approval. For this reason, Boston Scientific has proven by a 

preponderance of the evidence that the false information submitted to the FDA 

before the Agreement Date was “material.” Thus, Sections 3.18(c), 3.22(c), and 

3.22(h) were inaccurate as of the date of the Agreement.295 

 

293 Tr. 437-38 (Ulatowski).

294 Defs.’ Br. 48.

295 With respect to Sections 3.22(c) and 3.22(h), Boston Scientific asserts that Channel also 

provided falsified information to BSI because the “technical information submitted by 

[Shankar] through upload . . . to BSI’s website portal for review included some of the same 

false information that had been submitted to FDA.” Defs.’ Br. 41-42 (quoting JX 356.019). 

In making this argument, Boston Scientific did not identify which specific laws or legal 

requirements govern submissions to BSI, which is necessary to determine if Channel 

committed a violation. Regardless, for the reasons explained above, Boston Scientific has 

proven that the representations in Sections 3.22(c) and 3.22(h) were inaccurate based on 

Channel’s submissions to the FDA, making any further violations of those provisions based 

on its submissions to BSI cumulative.
66

* * * * *

In sum, for the reasons discussed above, Boston Scientific has proven by a 

preponderance of the evidence that Channel’s representations in Sections 3.18(c), 

3.22(a), (c), (f), (h), and 3.32(b) of the Agreement were inaccurate at signing but 

failed to prove the inaccuracy of Section 3.32(c).

B. Whether Channel’s Inaccurate Representations in the Agreement

Would Reasonably Be Expected to Result in an MAE

Having determined that a number of the representations in the Agreement 

were inaccurate as of the Agreement Date, the next question is whether Boston 

Scientific has proven that the failure of those representations “to be true and correct 

has or would reasonably be expected to have a Material Adverse Effect” on 

Channel.296 Before turning to consider the evidence on this question, the court 

addresses several legal issues relevant to how the termination provision in Section 

8.1(f) operates.

 

296 Agreement § 7.2(b).
67

1. Legal Framework of Section 8.1(f)

The Agreement defines “Material Adverse Effect” in relevant part, as follows:

“Material Adverse Effect” means with respect to [Channel], any change 

or effect occurring after the Agreement Date that, when taken 

individually or together with all other adverse changes or effects 

occurring after the Agreement Date, is materially adverse to the 

business, results of operations, assets or financial condition of 

[Channel].297

The definition in the Agreement goes on to enumerate a series of carve-outs, but 

none of them are relevant to this case.

As is typical with MAE clauses, the Agreement does not define what 

“material” means for purposes of an MAE.298 In the absence of such a definition, 

Delaware courts applying MAE clauses—including, most recently, in Akorn—have 

held that the “effect should ‘substantially threaten the overall earnings potential of 

the target in a durationally-significant manner.’”299 

Seizing on a different part of the Akorn decision, discussed above, where the 

court considered the standard for a covenant that used “in all material respects” 

language, Boston Scientific suggests that the court should apply a disclosure-based 

standard of materiality in determining whether there has been a Material Adverse 

 

297 Id. § 10.2.

298 See Akorn, 2018 WL 4719347, at *48 (citations omitted).

299 Id. at *53 (quoting In re IBP, Inc. S’holders Litig., 789 A.2d 14, 68 (Del. Ch. 2001));

see also Hexion, 965 A.2d at 738; Frontier Oil, 2005 WL 1039027, at *34.
68

Effect.300 According to Boston Scientific, the operative question should be whether 

“the fraud would have been important to BSC’s decision to enter into the 

Agreement.”301 This position is devoid of merit. The “concept of ‘Material Adverse 

Effect’ and ‘material’ are analytically distinct.”

302 And, as just mentioned, Akorn

itself applied the significantly higher standard of materiality that Delaware courts 

have used in the past in the absence of a contractual definition of materiality when 

applying MAE clauses.

In Akorn, based on a thorough review, Vice Chancellor Laster summarized 

other teachings from our law relevant to applying an MAE clause, as follows:

A buyer faces a heavy burden when it attempts to invoke a material 

adverse effect clause in order to avoid its obligation to close. A shortterm hiccup in earnings should not suffice; rather the Material Adverse 

Effect should be material when viewed from the longer-term 

perspective of a reasonable acquirer. In the absence of evidence to the 

contrary, a corporate acquirer may be assumed to be purchasing the 

target as part of a long-term strategy. The important consideration 

therefore is whether there has been an adverse change in the target’s 

business that is consequential to the company’s long-term earnings 

power over a reasonable period, which one would expect to be 

measured in years rather than months.303

 

300 Defs.’ Br. 83-84.

301 Id. 83.

302 Frontier Oil, 2005 WL 1039027, at *38.

303 Akorn, 2018 WL 4719347, at *53 (citations omitted).
69

“The ‘reasonably be expected to’ standard is an objective one.”

304

 “Future 

occurrences qualify as material adverse effects” and “an MAE can have occurred 

without the effect on the target’s business being felt yet.”305 But “a mere risk of an 

MAE cannot be enough.”306 “There must be some showing that there is a basis in 

law and in fact for the serious adverse consequences prophesied by the party 

claiming the MAE.”307 When determining if something would reasonably be 

expected to result in an MAE, the court considers “quantitative and qualitative 

aspects.”308

During post-trial argument, the parties disagreed on how the termination 

provision in Section 8.1(f) interacts with the Representations Condition in Section 

7.2(b), which contains the forward-looking “would reasonably be expected” MAE 

requirement. The court requested supplemental briefing on that dispute, which 

 

304 Id. at *46 (internal quotation marks omitted).

305 Id. 

306 Id. at *65; see also Kling & Nugent, supra note 231, § 11.04[9], at 11-60 n.102 

(discussing the “reasonably be expected to” standard).

307 Akorn, 2018 WL 4719347, at *65 (quoting Frontier Oil, 2005 WL 1039027, at *36 

n.224). Vice Chancellor Laster noted that one commentator “argues that the ‘would 

reasonably be expected’ formulation is best thought of as meaning ‘likely to happen,’ with 

the likely, in turn, meaning a ‘degree of probably greater than five on a scale of ten,’” which 

the Vice Chancellor equated to “more likely than not.” Id. at *65 n.646 (citations omitted).

308 Id. at *65 (citing Frontier Oil, 2005 WL 1039027, at *37).
70

highlighted two temporal issues concerning the interplay of those provisions. The 

court addresses these temporal issues next. 

To repeat, under Section 8.1(f), Boston Scientific may terminate the 

Agreement “at any time prior to the Effective Time” if “any representation or 

warranty of [Channel] contained in this Agreement shall be inaccurate or shall have 

been breached as of the Agreement Date . . . such that the [Representations 

Condition] would not be satisfied.”309 The Representations Condition in Section 

7.2(b), including the preface, states in relevant part:

7.2 Conditions to the Obligation of [Boston Scientific] and Merger 

Sub. The obligations of [Boston Scientific] to consummate the Merger 

after delivery of . . . a Put Option Election Notice by [Channel] are 

subject to the satisfaction of the following further conditions . . . :

* * *

(b)(i) Each of the representations and warranties of [Channel] 

contained in this Agreement . . . shall have been true and correct at the 

time originally made . . . except to the extent the failure of any such 

representations and warranties to be true and correct does not have and 

would not reasonably be expected to have a Material Adverse Effect on 

[Channel]. . . . For clarity, it is agreed that the condition set forth in 

clause (b)(i) of this paragraph shall be deemed to be satisfied unless any 

failures of the representations and warranties identified in clause (b)(i) 

to be true and correct has or would reasonably be expected to have a 

Material Adverse Effect on Channel.310

 

309 Agreement § 8.1(f).

310 Id. § 7.2.
71

The first temporal issue arising from reading these two provisions together is 

determining what date the court should look to in assessing whether there was a 

reasonable expectation that an MAE would occur at some point in the future. The 

second issue is at what point in time, as of that date, an MAE “would reasonably be 

expected” to occur. 

With respect to the first issue, Channel contends that Section 8.1(f) requires 

the court to evaluate whether there was a reasonable expectation of an MAE as of 

the date Boston Scientific provided its notice of termination, i.e., on May 11, 2018.311 

Boston Scientific agreed during post-trial argument that the termination date was the 

relevant date,

312 but then changed its position. It now asserts that the relevant date 

is “shortly after March 6, 2018” because that is when Boston Scientific read the 

Greenleaf Report and “formed the expectations that led to termination.”313 This flip

of position is odd given Boston Scientific’s stance at post-trial argument that the 

two-month difference between March and May of 2018 is immaterial to whether it 

was entitled to terminate the Agreement under Section 8.1(f).314 In any event, the 

court finds that the appropriate date to use is the termination date. 

 

311 Pl.’s Supp. Answering Br. 1, 18 (Dkt. 207).

312 See Post-Trial Tr. 25, 43 (July 26, 2019) (Dkt. 203). 

313 Defs.’ Supp. Opening Br. 13 (Dkt. 206).

314 Post-Trial Tr. 43 (“So what – the logical way to read the contract is at the time you 

terminate – because you can terminate at any time – was there a reasonable expectation of 
72

The critical language of the MAE provision in Section 7.2(b) is that an MAE 

must “reasonably be expected”—an objective standard. As a matter of common 

sense, the logical time to test whether a party had an objective right to terminate 

under Section 8.1(f) is to examine the facts and circumstances when the party

actually took action to terminate. This approach is not only logical, it provides 

precision by fixing a specific date to apply the terms of the contract, whereas using 

an earlier date invites guesswork and imprecision on what date to use. Boston 

Scientific advances no persuasive reason for using an earlier date and the court can 

conceive of none. To the contrary, Boston Scientific’s change of position appears 

to be a pretext to try to elide evidence unhelpful to its case (i.e., the FDA’s approval 

of Channel remediation plan in April 2018) even though Boston Scientific did not 

have the strength of its convictions to terminate the Agreement before Channel 

received that approval. Based on the foregoing, the court finds that the most sensible 

way to read the Agreement is to consider, as of the termination date, whether there 

was a reasonable expectation of an MAE. 

With respect to the second issue, Channel contends that Section 8.1(f) requires 

Boston Scientific to prove, as of termination, that any inaccuracies in Channel’s 

representations were such that an MAE would reasonably be expected as of the time 

 

an MAE. So May-March, I mean, it doesn’t matter because there was – nothing happened 

materially between – ”). 
73

of the anticipated closing.315 Boston Scientific agrees that the “reasonably be 

expected” language in Section 7.2(b) is “an inherently forward-looking concept,”316

but it is silent on what time frame the court should consider in applying Section 

8.1(f), which means the inquiry would be open-ended.317 For the reasons explained 

below, the court agrees with and adopts Channel’s interpretation.

A key difference between the parties’ interpretations is their treatment of the 

preface to Section 7.2(b), quoted above, as it relates to Section 8.1(f). Before 

considering where the parties disagree about the preface, it is useful to review what 

is not in dispute. The Agreement makes clear that: (i) Channel could only exercise 

its put-right if Cerene received FDA approval on or before September 30, 2019; (ii) 

upon receipt of FDA approval, Channel had twenty-one days to deliver a Put Option 

Election Notice; and (iii) upon delivery of the Put Option Election Notice, Boston 

Scientific would be obligated to close within 15 days.318 The record also shows that, 

when the parties entered into the Agreement, they expected that FDA would approve 

Cerene in the first quarter of 2019.

319 All of this means that the parties expected the 

transaction to close in April or May of 2019. 

 

315 Pl.’s Supp. Answering Br. 1.

316 Defs.’ Supp. Reply Br. 9 (Dkt. 209).

317 Id. 6.

318 Agreement §§ 1.1(b), (d), 10.2 (definitions of “FDA Approval” and “Put Period”).

319 JX 437; JX 438; JX 297.004-005, 011-012.
74

Turning to the parties’ areas of disagreement, Channel contends that because 

“Section 7.2(b) is a closing condition . . . whether it ‘would not be satisfied’ . . . 

therefore must be assessed at the expected time of closing.”320 For the reasons just 

explained, the way the preface operates supports this timing. 

As an interpretative matter, Channel argues that the preface “is a necessary 

and indispensable part of the section” both “grammatically and logically” because 

they are “both part of the same sentence” and “without the preface, Section 7.2(b) 

contains nothing more than an abstract statement.”321 The court agrees. Indeed, the 

ability to terminate “at any time prior to the Effective Time”—language upon which 

Boston Scientific relies heavily—itself appears in the preface of Section 8.1(f).322 It 

would be illogical to construe one of the two provisions at issue (Section 8.1(f)) in 

tandem with its preface while disregarding the preface for the other (Section 7.2(b)). 

Boston Scientific makes essentially two other arguments opposing Channel’s 

interpretation. Both are without merit.

First, Boston Scientific argues that Channel’s interpretation would require it 

“to delay the exercise of its termination rights until the issuance of a Put Option 

Election Notice” and thus render meaningless the language in the preamble of 

 

320 Pl.’s Supp. Answering Br. 1.

321 Id. 6.

322 The preface of Section 8.1 is quoted in full in Part V below.
75

Section 8.1 allowing it to terminate “at any time.”323 This is incorrect. Requiring 

Boston Scientific to prove, as of termination, that any inaccuracies in Channel’s 

representations would reasonably be expected to have a Material Adverse Effect as 

of an anticipated closing date, does not mean that Boston Scientific would have to 

wait to terminate until after the issuance of a Put Election Option. Boston Scientific 

can terminate “at any time prior to the Effective Time”—whether or not Channel 

has delivered a Put Option Election Notice. To do so under Section 8.1(f) without 

violating the other terms of the Agreement simply means that Boston Scientific must 

show there was an inaccurate representation that, as of termination, would 

reasonably be expected to have a Material Adverse Effect as of when the parties 

anticipated the merger would close. Interpreting the Agreement in this manner gives 

meaning to all parts of Sections 7.2(b) and 8.1(f).

Second, Boston Scientific argues that Channel’s interpretation would “render 

meaningless the cure provision in Section 8.1(f),”324 which is limited to “an 

inaccuracy in or breach of any representation . . . of [Channel] as of a date subsequent 

to the date of this Agreement.”325 This is a non sequitur. The fact that Boston 

Scientific could not validly terminate the Agreement under Section 8.1(f) unless the 

 

323 Defs.’ Br. 1-5; Defs.’ Supp. Reply Br. 9.

324 Defs.’ Supp. Reply Br. 10.

325 Agreement § 8.1(f). 
76

alleged breach of representation reasonably would be expected to have a Material 

Adverse Effect has nothing to do with the cure provision in Section 8.1(f). Indeed, 

Channel does not dispute that it has no contractual right to cure a representation that 

was inaccurate as of the Agreement Date, which is logical because one cannot go 

back in time to fix a representation made as of a date in the past.326 But that does 

not mean that Boston Scientific is exempted from having to establish that such an 

inaccuracy would reasonably be expected to have a Material Adverse Effect in order 

to terminate under Section 8.1(f). Nor does it mean that Boston Scientific may not 

have other recourse, such as indemnification rights, for inaccurate representations 

that would not reasonably be expected to rise to the level of a Material Adverse 

Effect.327

* * * * *

For the reasons explained above, the court concludes that Boston Scientific 

has the burden to prove that, as of the termination date, the inaccurate representations 

in the Agreement would reasonably be expected to have a Material Adverse Effect 

 

326 Post-Trial Tr. 77 (“[Y]ou can’t cure a breach of rep at signing because you can’t go 

back and make it true at signing”).

327 See Agreement § 9.2(a) (Channel “shall . . . indemnify, defend and hold harmless 

[Boston Scientific] . . . from and against . . . any breach by [Channel] of any representation 

[or] warranty . . . made by [Channel] in this Agreement.”); see also Kling & Nugent supra

note 231, § 1.05[2] at 1-41 (“If a representation is false when made, that is, when the 

agreement is executed, the representing party may be liable for damages whether or not the 

transaction closes.”).
77

on Channel around the time the parties’ expected the merger to close. As it turns 

out, the precise timeframe in the future for examining whether an MAE would 

reasonably be expected ends up being of little consequence in this case. That is 

because, as discussed in the next section, the court finds that Boston Scientific has 

not proven that, as of the termination date, the inaccurate representations would 

reasonably be expected to have a Material Adverse Effect at any future point in time. 

2. Boston Scientific’s Evidence of an MAE 

On June 19, 2018, about one month after terminating the Agreement, Boston 

Scientific asserted in a letter to Channel that its “submission of false information to 

regulators has placed the approval of Cerene in jeopardy, thereby substantially 

threatening Channel’s overall earnings potential.”328 This assertion flew in the face 

of many facts known to Boston Scientific when it terminated the Agreement several 

weeks earlier, on May 11, 2018—most significantly, the FDA’s acceptance of 

Channel’s remediation plan for premarket approval on April 18, 2018.329 That action 

was the culmination of the following series of events: 

 In late January 2018, Channel met with the FDA and made it aware 

of Shankar’s fraud, including the six falsified reports submitted to 

the FDA.330 

 

328 JX 514.006.

329 JX 456.005.

330 Tr. 126-28 (Yu); JX 270; JX 279.
78

 In February 1, 2018, the FDA asked Channel to withdraw and 

re-submit PMA Module 2 with corrected records, which Channel 

did.331 

 In March 16, 2018, Channel and representatives of Greenleaf met 

with the FDA.

332

 One week before that meeting, Channel provided 

the FDA with more than 250 pages of information about Shankar’s 

fraud, including: (i) the Greenleaf Report, (ii) Channel’s Fraud 

Implication Assessment Quality Plan, (iii) the fourteen IARs 

addressing Shankar’s fraud, (iv) Brill’s adverse event review, and 

(v) a lengthy report summarizing Channel’s investigation and 

remediation efforts related to its IDE and PMA Module 1.

333

 

 After receiving this information, “the FDA thanked the company for 

their transparency and for coming forward with the information 

quickly.”334 When asked if the FDA “would be interested in 

subsequent discussions regarding the issues and the status and 

progress of the company’s remediation,” the FDA responded that 

“follow-up would take place through the inspection process.”335 

 On April 18, 2018, the FDA told Channel that it “ha[d] addressed 

all of FDA’s concerns and that the agency appreciate[d] the 

company’s transparency and timeliness.”336 Since that date, the 

FDA did not seek any more information about Shankar’s fraud.337

 Also on April 18, 2018, the FDA and Channel discussed the 

schedule for continuing to submit the remaining modules of the 

PMA and to complete the process by July—only one month later 

than the originally forecasted submission date of June.338

 

331 Tr. 129 (Yu); JX 294; JX 494.

332 Tr. 64 (Coté), 129, 132-33 (Yu); JX 401.

333 JX 380; see Tr. 64-65 (Coté); Tr. 130-31 (Yu).

334 JX 401.004; Tr. 67 (Coté).

335 JX 401.004; Tr. 133-34 (Yu).

336 JX 436.001. 

337 Tr. 139 (Yu).

338 Id. 138; JX 436.
79

The FDA’s acceptance of Channel’s remediation plan on April 18, 2018

strongly signaled that Shankar’s fraud would not be the cause of any failure of the 

FDA to provide premarket approval of the Cerene device and made receipt of 

premarket approval—the triggering event for Channel to exercise its put-right under 

the Agreement to close the merger—a distinct possibility. Indeed, the FDA

approved Channel’s PMA application on March 28, 2019, consistent with the 

timeframe Boston Scientific expected before it signed the Agreement. That approval 

occurred a few weeks before trial. The court considers next the qualitative and 

quantitative aspects of the evidence of an MAE that Boston Scientific offered at trial.

a. Qualitative Significance

Presumably because Channel received FDA approval for Cerene, Boston 

Scientific did not press at trial its initial explanation for a reasonably expected MAE, 

i.e., that Shankar’s fraud substantially threatened Channel’s overall earnings 

potential by jeopardizing its chances of obtaining FDA approval. Rather, Boston 

Scientific shifted its strategy to argue that Shankar’s fraud was reasonably expected 

to have a Material Adverse Effect notwithstanding Channel’s receipt of FDA

approval on the theory that Boston Scientific would still need to remediate and retest 

the product before placing Cerene on the market. 

Pierce, who read the Greenleaf Report in early March 2018, testified he made 

the decision on behalf of Boston Scientific to terminate the Agreement after 
80

receiving feedback about the Greenleaf Report from several Boston Scientific 

executives during a March 29 meeting.

339

 The Greenleaf Report was the sole 

documentary evidence Pierce relied on in deciding to terminate the Agreement.

340

 

According to Pierce, the report made it clear to him that Boston Scientific “could 

only market [Cerene] in good faith by going all the way back to the beginning and 

redoing the entire design history file, redoing the IDE submission, reconducting the 

clinical trial, and ultimately resubmitting the PMA.”341 This stated belief is not 

credible, however, given the circumstances surrounding Pierce’s decision to 

terminate the Agreement.

To start, Pierce already had received the information contained in the 

Greenleaf Report through the periodic updates Channel was providing Kaster and 

Robinson.

342 Pierce also oddly purported to rely on the Greenleaf Report in deciding 

to terminate the Agreement while ignoring Greenleaf’s fundamental conclusion—

 

339 Tr. 471-73, 478-79 (Pierce).

340 Id. 537.

341 Id. 472-73, 537; see also id. 485-86. Carr testified that he and other executives at the 

meeting shared Pierce’s view, but Pierce was the one who made the decision and the other 

executives to which Carr referred (Gardner and Sukthankar) did not testify at trial. Tr. 

620-21 (Carr). 

342 See supra Part I.I.
81

that it did not find evidence that Shankar’s activities had any impact on Channel’s 

clinical data.

343

 

Significantly, Pierce decided to terminate the Agreement without taking any 

number of actions one reasonably would have expected him to take before making 

such a consequential decision. For example, before Pierce terminated the 

Agreement, no one at Boston Scientific: (i) spoke with Greenleaf or Channel about 

the findings in the Greenleaf Report;344 (ii) used an outside consultant to examine 

the effect of Shankar’s fraud;

345 (iii) quantified the costs of remediating Channel’s 

quality systems;

346 or (iv) made any effort to understand what Channel had done to 

improve its quality systems since discovering Shankar’s fraud.

347

Pierce also did not confer with a number of executives whose perspectives on 

Channel and terminating the Agreement would seem highly relevant. Pierce did not 

consult with Boston Scientific’s Head of Quality or its Chief Medical Officer, whose 

“major responsibility is the clinical work associated with Boston Scientific’s 

products and also understanding the clinical risks and benefits of Boston Scientific’s 

 

343 JX 355.006-007.

344 Tr. 516 (Pierce).

345 Id. 522-23.

346 Tr. 640 (Carr).

347 Id. 642.
82

products.”348 He also did not consult with Kaster, Boston Scientific’s designee to 

Channel’s Board and long-time Board observer, whom Pierce acknowledged knew 

more about Channel than he did.349 At the time, Kaster believed, based on the regular 

Board updates he was receiving, that Shankar’s fraud was “more or less” a 

“non-issue”:

Q. So your reaction initially upon learning this was you thought this 

was all a non-issue unless any of his actions impacted the data, 

and by “data,” in your mind, when you conveyed that you were 

talking about human patient data?

A. Yes.

Q. Okay. And you know today, or at least based on what you know 

today, none of his actions impacted human patient data?

A. Correct.

Q. And I think it’s fair to say based on this you still feel this is all a 

non-issue; correct?

A. More or less, yeah.350

Nor did Pierce consult with Robinson, Channel’s Board observer.351

Boston Scientific has no written record of the March 29 meeting and, 

incredibly, it did not generate a “single scrap of paper” assessing the impact of 

Shankar’s fraud on Channel’s quality system after it received the Greenleaf 

 

348 Pierce Dep. 46; Tr. 541 (Pierce).

349 Tr. 538-39 (Pierce).

350 Kaster Dep. 214 (objections omitted); Tr. 539-40 (video of Kaster deposition 

testimony); see also Kaster Dep. 85 (Kaster “did not have doubts” that Channel “fix[ed] 

whatever problems there were” arising from “Shankar’s fraudulent activities on Channel 

and its quality systems.”).

351 Tr. 516 (Pierce).
83

Report.

352

 The lack of any such documentation not only casts doubt on the bona 

fides of the termination decision, it belies Pierce’s representation to Coté in an April 

22 email that Boston Scientific was “thoroughly assessing the entire impact of 

Dinesh Shankar’s actions on your quality systems, pre-clinical and clinical data as 

well as the putative product.”353 

When asked how he could justify scrapping all the work Channel had done on 

the Cerene device and essentially starting from scratch even after the FDA approved 

the device, Pierce testified that it was “based upon Boston Scientific’s expectations 

of quality” and not an action another company necessarily would take under the same 

circumstances.

354 The weight of the evidence before the court, however, shows that

Pierce’s explanation is inconsistent with how Boston Scientific itself has acted in the 

past and that Boston Scientific’s litigation position of the need to start from scratch 

to remediate Cerene is not objectively reasonable. 

The record demonstrates, and the court finds, that FDA approval of Cerene, 

which appeared likely when Boston Scientific terminated the Agreement, undercuts 

Boston Scientific’s assertion that it would need to keep Cerene off the market while 

it engages in its own remediation efforts and potentially conducts an additional 

 

352 Id. 528.

353 JX 456.004.

354 Tr. 476-77, 478 (Pierce).
84

clinical trial. Channel’s receipt of FDA approval meant that the FDA—a highly 

respected neutral third party—had meticulously examined Channel’s PMA 

submission and found that there is “reasonable assurance” that Cerene is “safe and 

effective.”355 

Testimony from Boston Scientific’s own employees confirm the importance 

of FDA approval. For example, Carr, a senior member of Boston Scientific’s quality 

staff who participated in the March 29 meeting with Pierce,

356 testified:

Q. The PMA approval progress is rigorous. Correct?

A. That’s correct.

Q. And approval of a PMA indicates that FDA believes a product is 

safe and effective. Correct?

A. Correct.

Q. FDA would not approve a product that doesn’t meet its high 

standards. Correct?

A. I would believe that to be true, yes.357 

Boston Scientific’s corporate representative Lisa Sullivan similarly endorsed 

the significance of FDA approval. She testified that Boston Scientific has repeatedly 

contended in “thousands of product liability cases” that FDA approval demonstrates 

that products are safe and effective and that Boston Scientific has always been 

willing to rely on the FDA’s statements.358 In 2018, for example, in response to a 

 

355 JX 757.029-030.

356 Tr. 578-79, 620-21 (Carr).

357 Id. 683.

358 Sullivan Dep. 46.
85

60 Minutes investigatory piece about Boston Scientific’s transvaginal mesh 

products, Boston Scientific stated that “[a]ny allegations [that] continu[e] to question 

the integrity or legitimacy of [the] resin [used in these products] are false and 

irresponsible” because the FDA had determined that a change in the resin supplier 

“did not raise any new safety or effectiveness concerns.”359

Boston Scientific’s quality expert (Reeves) could not identify any instance 

where Boston Scientific—or any other company—voluntarily rebuilt a quality 

system for a device from scratch and redid its clinical testing after receiving FDA 

approval.360 To the contrary, Reeves acknowledged that even after one of his clients 

had received multiple warning letters from the FDA and had been advised to rebuild 

its quality system, the client continued to market the product during remediation.361 

Boston Scientific offered no fact testimony of any instance where it 

voluntarily rebuilt a quality system from scratch and/or redid clinical testing for an 

FDA-approved device without prompting from the FDA, and evidence of its own 

past practices belies that this would be necessary before marketing Cerene. In 2015, 

Boston Scientific acquired American Medical Systems (“AMS”), a men’s health 

products company, which had recently received a warning letter from the FDA 

 

359 JX 327.004.

360 Tr. 837-38 (Reeves).

361 Id. 836-37.
86

concerning validation issues.362 As discussed below, Boston Scientific identifies 

AMS as its best comparable to Channel for the cost of remediation. Yet Boston 

Scientific kept AMS’s products on the market throughout the AMS remediation 

process, despite having received an FDA warning letter—something Channel has 

never received.

363

 

Boston Scientific argues that even with FDA approval, Shankar’s fraud would 

reasonably be expected to have a Material Adverse Effect because completion of the 

merger would expose Boston Scientific to products liability litigation, competitive 

harm, and future regulatory action.364 Each of these concerns is a risk that a 

businessperson legitimately would consider, although—to repeat—there is not a 

“single scrap of paper” that Boston Scientific actually analyzed any of these risks 

when Pierce made the termination decision.

365

 Rather, the evidence about these 

concerns consists of seemingly after-the-fact rationalizations, is highly speculative 

and does not come close to proving that, as of the termination, Boston Scientific 

reasonably expected that these concerns would rise to the level of a Material Adverse 

Effect. 

 

362 Tr. 611 (Carr); JX 738.013.

363 Tr. 675-78 (Carr).

364 Defs.’ Br. 58-62.

365 Tr. 528-29 (Pierce).
87

With respect to product liability claims, Boston Scientific elicited testimony 

that details about Shankar’s fraud and Channel’s remediation likely would be 

“significant fodder” for plaintiff’s attorneys in a hypothetical product liability 

case.

366

 Boston Scientific, however, failed to identify any defect or substantive 

problem with Cerene that could form the basis of a products liability claim and it 

made no effort to quantify the increased risk of such hypothetical claims. 

In Frontier Oil, this court declined to find that a pending toxic tort litigation 

that “could be catastrophic” for the company caused an MAE where the buyer had 

not “demonstrated (or even seriously tried to demonstrate) the likelihood” of an 

MAE resulting from the litigation or to give the court “the basis to make a reasonable 

and an informed judgment of the probability of an outcome on the merits.”367 The 

court noted that “the mere existence of a lawsuit cannot be determinative” of an 

MAE but rather “[t]here must be some showing that there is a basis in law and in 

fact for the serious adverse consequences prophesied by the party claiming the 

MAE.”368 

Here, Boston Scientific’s product liability concerns are far weaker than the 

concerns that were found deficient in Frontier Oil because there is no pending 

 

366 Tr. 434-35 (Ulatowski); Tr. 480-81 (Pierce).

367 Frontier Oil, 2005 WL 1039027, at *12, *36.

368 Id. at *36 n.224.
88

litigation, there is no identified product defect or articulated basis for a product 

liability claim, and no showing has been made about the likelihood of any exposure 

or the costs involved. In short, there is no basis here “in law and in fact” for the 

serious consequences about which Boston Scientific is now professing concern. 

With respect to competitive harm, Pierce testified that “the idea of fraud could 

and would be used by competitors to try to establish doubt around” Cerene.369

Competitors undoubtedly will seize upon whatever debating points they think will 

help them gain market share but it is not self-evident that focusing on Shankar’s 

fraud would have a material impact on Cerene sales given the imprimatur of FDA 

approval. Apart from simply identifying the risk of competitive harm, Boston 

Scientific did not present any evidence showing how Cerene’s projected sales would 

be reduced because of Shankar’s fraud if it proceeded to sell the product upon 

receiving FDA approval, let alone reduced so significantly as to cause a Material 

Adverse Effect.370 

Finally, Boston Scientific argues that if the deal closes, Boston Scientific 

would be “susceptible to future regulatory action” on Cerene because Channel failed 

 

369 Tr. 481 (Pierce).

370 The only impact on sales for which Boston Scientific provided evidence was an analysis 

by its valuation expert. He analyzed the projected impact of delaying sales of Cerene for 

two to four years to re-remediate the product and, potentially, to conduct a new clinical 

trial. This analysis is discussed in Part IV.B.2.b. 
89

to submit two documents to the FDA that were created after the FDA accepted 

Channel’s remediation plan: the second Greenleaf report, prepared in June 2018,

and an internal audit of Channel’s quality management system conducted by a 

consultant (Linda Lovett) in September 2018.

371

 It stands to reason that the 

introduction of any new healthcare product inherently carries a risk of future

regulatory action, thus Boston Scientific must show that Shankar’s fraud would 

reasonably be expected to significantly increase this risk. It has not done so. 

Channel’s FDA expert (Ulatowski) credibly testified that the FDA would not 

have expected Channel to produce either of these documents unsolicited.372 

Ulatowski explained (and the record confirms) that the FDA stated at its March 2018 

meeting with Channel that the FDA inspector would follow up at the premarket 

approval inspection about anything the inspector thought was important to review, 

which is the FDA’s usual procedure.373 The contents of the two documents in 

question also do not raise any red flags concerning Shankar’s fraud.

As to the second Greenleaf report, Boston Scientific focuses on its reference 

to a “new data integrity issue” concerning a vendor, Henry Servin & Sons, which 

inspected certain components. The cited data integrity issue, however, concerned 

 

371 Defs.’ Br. 15, 61.

372 Tr. 423-24 (Ulatowski).

373 Id. 423-25; JX 401.004.
90

the vendor’s own computer server and was completely unrelated to Shankar’s 

fraud.374 Boston Scientific also draws attention to Greenleaf’s recommendation in 

its second report that Channel ensure that its classification of the IARs it opened to 

investigate Shankar’s fraud as “minor” is supportable. Each of these IARs was

provided to the FDA and, importantly, the second Greenleaf report specifically 

found that “the impact of the questionable classifications may be minimal since in 

the current environment, all issues have received the appropriate visibility and 

prioritization within the company.”375 

As to the Lovett audit, which was a regularly scheduled internal audit that the 

FDA normally would not receive,

376 Boston Scientific does not contend that any of 

its observations or concerns pertained to Shankar’s fraud. The audit, furthermore, 

provided an overall positive assessment of Channel’s quality system: “continued 

 

374 When investigating Shankar’s fraud, Channel discovered that Henry Servin & Sons had 

sold its server, which “housed all of the raw data for not only Channel, but for some other 

clients as well.” Tr. 179 (Patel). In response, Channel (i) informed the FDA about the 

issue in an IAR it provided to the FDA, (ii) opened a CAPA, (iii) terminated the vendor, 

(iv) re-inspected components that the vendor inspected, and (v) conducted a risk 

assessment that did not identify any additional risks. Id. 179-85; JX 380.073; JX 652.004-

005. 

375 JX 634.011. 

376 See JX 595.076 (“The audit was completed to identify gaps and/ or opportunities in the 

company’s quality management system according to the internal audit schedule[].”); 

Tr. 281-82 (Elder) (explaining that the FDA normally permits a company to maintain 

confidentiality of internal audits “to make sure it’s done well so the company can identify 

their deficiencies and take corrective action to address them outside of an FDA 

inspection.”).
91

enhancement and implementation is encouraged to assure the associated [Quality 

System] controls and procedures continue to demonstrate full compliance to 

applicable regulations [and] standards.”377 

In sum, the weight of the evidence demonstrates convincingly that Boston 

Scientific’s professed need—notwithstanding FDA approval of the Cerene device—

to remediate and retest Cerene before placing it on the market is not objectively 

reasonable, and that Boston Scientific’s concerns about potential products liability 

litigation, competitive harm, and future regulatory action are based on little more 

than unsubstantiated speculation. The court next turns to the quantitative aspects of 

the evidence of an MAE that Boston Scientific presented at trial. 

b. Quantitative Significance

Boston Scientific asserts that Shankar’s fraud and the related inaccurate

representations in the Agreement made it “reasonable to expect that the value of 

Channel had been substantially impaired.”378 There is no bright-line test for 

determining an MAE based on quantitative considerations. As discussed in Akorn, 

one influential treatise observes “that most courts which have considered decreases 

in the 40% or higher range found a material adverse effect to have occurred.”

379 The 

 

377 JX 595.077 (emphasis added).

378 Defs.’ Br. 13.

379 Akorn, 2018 WL 4719347, at *53 (citing Kling & Nugent, supra note 231, §11.04[9], 

at 11-66).
92

Akorn decision itself found that remediation costs that equated to approximately 

21% of the target’s standalone equity value implied by the merger agreement “would 

be ‘material when viewed from the longer-term perspective of a reasonable 

acquiror.’”

380 For the reasons explained below, Boston Scientific failed to 

demonstrate any material decline in Channel’s value.

Boston Scientific based its quantitative case for proving an MAE on testimony 

from its expert, Tim Cummins, a managing director of Stout Risius Ross, LLC.

381

 

Cummins assessed the impact of Shankar’s fraudulent activities “on the value to 

[Boston Scientific] of Channel . . . as of November 1, 2017.”382 To do so, Cummins 

estimated the value of Channel to Boston Scientific based on the information 

available at signing. He then compared this value to his estimate of “the value of 

Channel to [Boston Scientific] had [Boston Scientific] been aware of Mr. Shankar’s 

actions and been able to incorporate the expected costs and time delays necessary to 

remediate Channel’s quality assurance system and perform new clinical trials for 

Channel’s only product, the Cerene Cryotherapy Device.”383 

 

380 Id. at *74 (quoting IBP, 789 A.2d at 68).

381 Tr. 994 (Cummins).

382 JX 738.004; Tr. 998 (Cummins).

383 JX 738.006.
93

Starting with Boston Scientific’s pre-agreement deal model, Cummins 

adjusted (i) the time and cost required to remediate Channel’s quality system and,

potentially, to conduct a new clinical trial and (ii) the discount rate.384 Cummins 

analyzed three potential scenarios, which forecasted delays in realizing cash flows

of two, three, four years, respectively: (i) a two-year remediation process with no 

new clinical trial, (ii) one year of remediation followed by a new two-year clinical 

trial, and (iii) two years of remediation followed by a new two-year clinical trial.385 

He applied two different discount rates to these three scenarios: the 13% discount 

rate used by Boston Scientific in its pre-Agreement deal model and a 15% discount 

rate “to incorporate a scenario that included . . . some additional assumption of risk 

in those cash flows.”386 As depicted below, Cummins estimated that Channel’s 

value to Boston Scientific decreased by 24% to 54% under these six scenarios from 

the value of $488 million that Boston Scientific’s initial deal model placed on 

Channel:

387

 

384 Tr. 998-99 (Cummins).

385 Id. 1019, 1030.

386 Id. 1025-26.

387 Id. 1001, 1010, 1029-30.
94

13% Discount Rate 15% Discount Rate

2-Year Delay -24% ($115 million decline) -37% ($180 million decline)

3-Year Delay -33% ($163 million decline) -46% ($225 million decline)

4-Year Delay -42% ($203 million decline) -54% ($262 million decline)

The court does not credit this analysis for numerous reasons discussed next.

First, and foremost, Cummins premised his analysis on the assumption that 

Boston Scientific would need to shelve Cerene for two to four years while it rebuilt

Channel’s quality systems and possibly undertakes a new clinical trial. This 

assumption came from “perspectives” that Boston Scientific employees provided in 

the midst of litigation that Cummins did not attempt to validate independently.

388

 As 

discussed above, Boston Scientific failed to offer any persuasive evidence to 

establish that this assumption is objectively reasonable. Indeed, as discussed above, 

Boston Scientific’s own track record and the testimony of its own witnesses belie 

the contention that it was necessary to remediate and retest Cerene before placing it 

on the market given the FDA’s approval of the device.389 

The valuation impact of shelving Cerene for two to four years is massive. 

Channel’s valuation expert, Kenneth Lehn, a finance professor at the University of 

 

388 Id. 1042-43.

389 See Part IV.B.2.a.
95

Pittsburgh, testified credibly and without contradiction that, depending on the 

scenario, between 91% and 95% of the reduction in Channel’s value modeled by 

Cummins’ analysis is attributable to delaying Channel’s cash flows into the future 

by two to four years.390 Cummins’ failure to provide a reliable basis for putting these 

cash flow delays into his model undermines the soundness of the key driver of his 

model.

391

Second, Cummins’ model analyzed the putative change in Channel’s value to 

Boston Scientific, which incorporated merger synergies,392 instead of analyzing any 

reduction in the standalone value of Channel. This decision flies in the face of this 

court’s uniform approach to valuing a target on a standalone basis in determining 

whether an MAE has occurred.

393 Boston Scientific also has not argued—nor could 

 

390 Tr. 1075, 1090-93, 1097 (Lehn); JX 749 ¶¶ 40-42, 47. 

391 See Tr. 1096 (Lehn) (stating that “to say that in perpetuity all those free cash flows get 

pushed out, to me, requires some reliable basis. And Mr. Cummins has provided none.”).

392 Tr. 1064 (Cummins); see also Morrison Dep., February 26, 2019, 66-69 (discussing 

synergies included in BSC’s pre-agreement deal model); Morrison Dep., March 13, 2019, 

39-40, 45-46, 48, 53, 62 (same).

393 Akorn, 2018 WL 4719347, at *56 (“[E]very prior decision has looked at changes in 

value relative to the seller as a standalone company.”). Boston Scientific argues that using 

synergies would be beneficial to Channel because, as the court in Akorn noted, “it increases 

the denominator for purposes of any percentage-based comparison.” Defs.’ Reply Br. 24 

(quoting Akorn, 2018 WL 4719347, at *56). The point here, however, is that the refusal to 

use a standard methodology again calls in to question the reliability of Cummins’ work. 

See Akorn, 2018 WL 4719347, at *56 (“Akorn’s desire to include synergies is 

understandable . . . but it is not supported by the Merger Agreement or the law.”).
96

it—that the text of the Agreement compels use of a different approach here.

394

 More 

broadly, Cummins adopted the rest of Boston Scientific’s model without considering 

whether the inputs were appropriate and did not alter its base model even when he 

believed it made assumptions that “didn’t seem likely.”395

Third, Cummins uncritically accepted an assumption for remediation costs 

that Boston Scientific provided to him. Specifically, Cummins used a $17 million 

estimate for remediation costs he received from Carr based on Boston Scientific’s 

purchase of AMS.

396

 But Cummins made no effort to consider if this comparison 

was valid. He just “took the word of Boston Scientific employees about AMS being 

an appropriate example without attempting to independently validate that.”397

Had Cummins inquired, he might (and should) have questioned whether AMS 

was a relevant comparable. Carr testified that he “didn’t do any specific research” 

 

394 See Agreement §10.2 (defining “Material Adverse Effect” to refer, in relevant part, to 

“any change or effect occurring after the Agreement Date that . . . is materially adverse to 

the business, results or operations, or assets or financial condition of the Company,” i.e., 

Channel.). 

395 Cummins Dep. 108 (“Q: So even if the BSC’s model was incorrect, you were still going 

to use that? A: As the baseline, yes.”), 112-13 (“A: [T]hey had no working capital 

investment assumption in year 1 of their model, which didn’t seem likely. Q: And did you 

go back and ask why they had no working capital and investment assumption? A: I did. 

Q: What was the response? A: They didn’t have a great answer to that.”); Tr. 1082-89 

(Lehn); Tr. 1051-52 (Cummins); JX 749 ¶¶ 44-46 (Lehn Expert Report).

396 JX 766; Tr. 610-13 (Carr); Tr. 1014-17 (Cummins).

397 Tr. 1051 (Cummins); see also Tr. 1050 (Cummins) (“Q: So aside from what BSC 

employees told you, you have no reason to think Channel’s quality system remediation 

work would be similar to AMS’s quality system remediation. Correct? A: Correct.”).
97

as to what comparable would be the best for Cummins to use and he admitted that 

AMS—which had four product families with multiple products in each—was the 

most expensive remediation he ever oversaw at Boston Scientific.398 On the eve of 

trial, Boston Scientific was compelled to produce remediation costs for four recent 

remediation efforts of single-device start-up companies, which ranged from $1.88 

million to $3.52 million.

399 Yet Cummins never reviewed any of them in performing 

his analysis to see if they were more suitable for making a comparison.

400

 

Fourth, in three of the six scenarios in his model, Cummins increased the 

discount rate by two percentage points to account for increased competition once 

Boston Scientific introduced the product after performing two to four years of 

remediation and, potentially, a new clinical trial.401 Cummins testified he would 

have preferred another approach to address the “increased risk profile,” essentially

admitting that the increase to the discount rate was little more than a non-rigorous 

“fudge factor.”402 

 

398 Tr. 673, 675 (Carr).

399 JX 925; JX 926.

400 Tr. 1054-55 (Cummins).

401 Id. 1034-35.

402 Id.; see also Tr. 1086 (Lehn testifying that this discount rate manipulation “becomes a 

fudge factor. There’s no empirical basis for increasing the base discount rate of 13 percent 

by 2 percentage points”).
98

Boston Scientific takes Channel’s valuation expert (Lehn) to task for 

criticizing Cummins’ analysis without providing his own opinion on valuation. It is 

Boston Scientific, however, not Channel, who bears the burden to prove an MAE. 

Boston Scientific also relies on Lehn’s testimony that “it is reasonable to believe, at 

least directionally” that the fraud reduced Channel’s value compared to its value as

represented in the Agreement.

403

 Lehn testified, credibly, that this belief was 

reasonable but he did not opine on “how significant” any reduction would be.404 

Lehn’s acknowledgement of a “directional” reduction in value of unknown 

significance does not satisfy Boston Scientific’s significant burden to prove an 

MAE. 

The only expert who provided an opinion that an MAE would reasonably be 

expected was Cummins. For the reasons explained above, the court finds that 

Cummins’ analysis is not reliable and does not credit it. As such, Boston Scientific 

failed to provide any quantitative evidence of a reasonably expected MAE.

* * * * *

For the reasons explained above, Boston Scientific failed to prove based on 

both qualitative and quantitative factors that it was entitled to terminate the 

Agreement under Section 8.1(f).

 

403 Tr. 1107-08 (Lehn).

404 Id.
99

V. BOSTON SCIENTIFIC’S TERMINATION UNDER SECTION 8.1(i) 

Boston Scientific’s notice of termination invoked Section 8.1(i) as a second 

ground for terminating the Agreement in addition to Section 8.1(f).

405

 Under Section 

8.1(i), Boston Scientific can terminate the Agreement at any time, subject to a cure 

provision, if an MAE with respect to Channel shall have occurred:

8.1 Termination of Agreement. This Agreement may be terminated 

and the Merger may be abandoned at any time prior to the Effective 

Time, notwithstanding the delivery of a Put Option Election Notice or 

Call Option Election Notice or any requisite approval and adoption of 

this Agreement and the transactions contemplated hereby by the 

Company Stockholders:

(i) by [Boston Scientific], if there shall have occurred any 

Material Adverse Effect with respect to [Channel] . . . provided, 

however, that if the circumstances giving rise to such Material Adverse 

Event are capable of being ameliorated or cured prior to the 

Termination Date, then for so long as the party that has experienced a 

Material Adverse Event continues to exercise commercially reasonable 

efforts to ameliorate or cure the circumstances giving rise to such 

Material Adverse Event, this Agreement may not be terminated 

pursuant to this Section 8.1(i) prior to the Termination Date . . . .406 

The termination right in Section 8.1(i) does not depend on the existence of any 

inaccuracy in or breach of any representation in the Agreement.

 

405 JX 475.

406 Agreement § 8.1(i) (emphasis added). The Termination Date is 90 calendar days after 

the date of delivery of an option election notice, which may be extended up to 30 days if 

the parties are still seeking “any other governmental approvals or authorizations as may be 

reasonably necessary in connection with the closing of the merger.” Id. § 8.1(b).
100

By the time of trial, which occurred after FDA approval of Cerene, Boston 

Scientific’s reliance on Section 8.1(i) became an afterthought. Apart from quoting 

the provision, Boston Scientific devoted literally one sentence of its opening posttrial brief to the issue, which simply refers back to its argument for proving an MAE 

under Section 8.1(f).407 Accordingly, for all the reasons discussed previously for 

why Boston Scientific failed to prove an MAE for purposes of terminating the 

Agreement under Section 8.1(f), it also failed to do so under Section 8.1(i).

VI. CHANNEL’S CLAIM FOR BREACH OF SECTION 6.3 

Channel asserts that, apart from failing to prove an MAE under Sections 8.1(f) 

or 8.1(i), Boston Scientific could not terminate the Agreement for the independent 

reason that it breached its obligation to use “commercially reasonable efforts”’ to 

consummate the merger. In Section 6.3(b) of the Agreement, Boston Scientific 

covenanted to:

Take all further action that is necessary or desirable to carry out the 

purposes of this Agreement, and . . . use its commercially reasonable 

efforts to take all such actions and . . . refrain from taking any actions 

which would be reasonably expected to frustrate the essential purposes 

of the transactions contemplated by this Agreement, if [Boston 

Scientific] were to deliver a Call Option Election Notice or [Channel] 

were to deliver a Put Option Election Notice.408 

 

407 Defs.’ Br. 87. 

408 Agreement § 6.3(b).
101

Our Supreme Court interpreted a similar covenant to “impose obligations to 

take all reasonable steps to solve problems and consummate the transaction.”409 

“When evaluating whether a merger partner has used reasonable best efforts, this 

court has looked to whether the party subject to the clause (i) had reasonable grounds 

to take the action it did and (ii) sought to address problems with its counter party.”410 

Channel bears the burden of proving by the preponderance of the evidence that 

Boston Scientific breached Section 6.3(b) of the Agreement.411

Channel asserts that Boston Scientific violated the obligations it owed under 

Section 6.3(b) “through its cursory, careless and unreasonable actions in purporting 

to terminate the Agreement for no valid basis with no meaningful consideration.”412 

The court agrees. For the reasons discussed above, Boston Scientific did not have 

reasonable grounds to terminate the Agreement when it did, particularly given that 

 

409 Williams Cos. v. Energy Transfer Equity, L.P., 159 A3d 264, 272 (Del. 2017).

410 Akorn, 2018 WL 4719347, at *91. Although the Agreement here refers to the use of 

“commercially reasonable efforts” while the provision in Akorn referred to the use of 

“reasonable best efforts,” Delaware “case law [contains] little support for . . . distinctions” 

between these two clauses. Id. at *87 & n.796. 

411 See id. at *4 (the party alleging improper exercise of termination by a counterparty

because that party was in material breach of its own obligations bears the burden of proving 

by a preponderance of the evidence the facts necessary to establish its claim that the 

exercising party could not exercise those rights). 

412 Pl.’s Resp. Br. 88.
102

the FDA already had accepted Channel’s remediation plan, which made it likely

Channel would receive premarket approval for the Cerene device.413

Boston Scientific claims its receipt of the Greenleaf Report in early March 

was the pivotal moment that made it realize the need to terminate the Agreement, 

but the record shows that Boston Scientific made no reasonable efforts to engage 

with Channel or to take other appropriate actions to attempt to keep the deal on track 

after that point. Specifically:

 After receiving the Greenleaf Report on March 6, Boston Scientific

did not exercise its right under the Agreement to obtain additional 

information from Channel and did not raise any concerns with 

Channel for six weeks.414

 On April 22—after learning three days earlier that the FDA had 

accepted Channel’s remediation plan—Boston Scientific emailed 

Channel claiming there were “obvious gaps” in the Greenleaf

Report but Boston Scientific did not identify what they were.415

 After receiving Pierce’s April 22 email, Channel provided the 

information Boston Scientific had requested in the email, and Coté

reached out to Pierce or other Boston Scientific representatives five 

times trying to schedule a call or meeting—but no one from Boston 

Scientific responded to his requests.

416

 On May 11, Boston Scientific terminated the Agreement without 

ever (i) raising any concerns, or seeking to communicate with 

 

413 See supra Part IV.B.2.

414 Tr. 516-17, 526-27 (Pierce).

415 JX 456.004.

416 Tr. 74 (Coté); Tr. 531-37 (Pierce).
103

Greenleaf or (ii) engaging any outside experts to analyze Channel’s 

clinical data, its quality system, or Cerene.417

To borrow the words of a similar case, Boston Scientific’s “utter failure to 

make any [meaningful] attempt to confer with [Channel] when [Boston Scientific] 

first became concerned with [the Greenleaf Report], both constitutes a failure to use 

reasonable best efforts to consummate the merger and shows a lack of good faith.”418 

The lack of good faith here is corroborated by contemporaneous evidence that 

Boston Scientific was looking for a way out of its deal with Channel due to growing 

concerns that Cerene would be difficult to market and that the proposed transaction 

was complicating a potential divestment of part of Boston Scientific’s business. 

In December 2017, for example, Boston Scientific’s Director of Marketing, 

Jenny Lee, and Vice President of Sales, Scott Sanders, were openly discussing how 

to terminate the transaction because of Cerene’s low rates of amenorrhea (the 

complete cessation of menstrual bleeding). In one email, Sanders posited: “[W]hy 

would we want to sell a technology with the worst [amenorrhea] data.”419 Lee 

replied: “Only way to get out of deal is if FDA doesn’t approve the device.”420

 

417 Tr. 516, 522-23 (Pierce).

418 Hexion, 965 A.2d at 755-56 (finding breach of provision requiring reasonable best 

efforts to obtain financing where Hexion failed to confer with its counterparty when it first 

became concerned about the potential issue of insolvency).

419 JX 231. 

420 Id. .002.
104

On January 26, 2018, Sanders brought his concerns to his manager, Kristin 

LaRocca, Boston Scientific’s Vice President of Sales for Urology and Pelvic 

Health.421 Three days later, LaRocca emailed Pierce with a summary of the “Pro’s” 

and “Con’s” of the Channel deal.422 The “Con’s” included low amenorrhea rates 

and a crowded competitive landscape, but did not mention Shankar’s fraud.423 

LaRocca concluded that Cerene “will be a very heavy lift to commercialize” and 

urged Pierce to “not move forward [with the deal] based on the material adverse 

changes in the business due to the degradation in the data [on amenorrhea rates] 

reported.”424 

Also in early 2018, Boston Scientific was considering a sale of its entire 

“Surg-Gyn” business, which covered products like Cerene.425 But Boston Scientific 

 

421 JX 276.

422 JX 280. 

423 Id. 

424 Id. Boston Scientific asserts that it knew of Channel’s amenorrhea rates before entering 

into the Agreement, and that the rates were only one factor in evaluating the benefits of the 

device. Defs.’ Br. 68; see Tr. 453-54, 547 (Pierce). As discussed above, however, the 

evidence of record shows that even if Boston Scientific was aware of the amenorrhea rates 

before entering into the Agreement, there was growing concern among Boston Scientific 

employees about the data. In an apparent attempt to distance these concerns from 

termination of the Agreement, Pierce testified that LaRocca was not involved in the 

decision to terminate. Tr. 575 (Pierce). This testimony flies in the face of Boston 

Scientific’s designation of LaRocca as a Court of Chancery Rule 30(b)(6) representative 

on its “decision to terminate the Merger Agreement.” JX 722.008.

425 JX 323; JX 338; JX 395. 
105

recognized that the Channel deal was “complicating” it from coming to an 

agreement.426 Charlie Attlan, Boston Scientific’s Senior Vice President for 

Corporate Strategy and Business Development, warned Pierce at the end of February 

2018 that it was “too complicated to be discussing sale of Surg Gyn . . . while at the 

same time . . . finalizing option exercise on Channel.”427 By March 13, 2018, Pierce 

indicated that he wanted to “sell it all,” leading Attlan to ask: “Dealing with the 

Channel put would not be trivial here . . . you’d want to divest that as well?”428 

Pierce replied: “Yes. Realize the complexity of this.”429 

Boston Scientific argues that “motive to avoid a deal does not demonstrate the 

lack of a contractual right to do so.”430 That is true but beside the point. The 

evidence of Boston Scientific’s motives simply adds credence to and corroborates 

other robust facts demonstrating that Boston Scientific did not fulfill its obligations 

to engage with Channel in a commercially reasonable manner to vet any concerns it 

may have had about the findings in the Greenleaf Report and to keep the transaction 

on track thereafter. To the contrary, Boston Scientific simply pulled the ripcord. 

 

426 JX 323; Pierce Dep. 184. 

427 JX 338. 

428 JX 395. 

429 Id.

430 Defs.’ Br. 86 (citing William Cos., Inc. v. Energy Transfer Equity, L.P., 2016 WL 

3576682, at *2 (Del. Ch. June 24, 2016), aff’d, 159 A.3d 164 (Del. 2017)).
106

VII. CHANNEL’S REQUEST FOR SPECIFIC PERFORMANCE

Channel requests that the court grant the remedy of specific performance to 

require Boston Scientific to close the merger in light of its wrongful termination of 

the Agreement. As a general matter, specific performance is appropriate if the 

requesting party establishes “that (1) a valid contract exits, (2) it is ready, willing, 

and able to perform, and (3) that the balance of equities tips in favor of the party 

seeking performance.”431 Channel bears the burden of proving that it is entitled to 

specific performance by clear and convincing evidence.432 The only one of the three 

elements in dispute is the balance of the equities, which clearly weighs in Channel’s 

favor for two reasons.

433

 

First, the parties expressly agreed that a failure to perform under the 

Agreement would cause irreparable harm for which the remedy of specific 

performance would be available: “The parties hereto agree that irreparable damage 

may occur in the event that any provision of this Agreement was not performed in 

 

431 CC Fin. LLC v. Wireless Prop,’s, LLC, 2012 WL 4862337, at *8 (Del. Ch. Oct. 1, 2012).

432 Akorn, 2018 WL 4719347, at *4.

433 Boston Scientific contends in a footnote that Channel waived the right to seek specific 

performance because its response brief omitted “any serious or substantive argument.” 

Defs.’ Reply Br. 42 n.7. This argument fails. Boston Scientific has been on notice since 

the outset of the case that the primary relief Channel was seeking is an order of specific 

performance. Channel’s verified complaint expressly sought specific performance (Dkt. 1 

¶ 90, Prayer for Relief ¶ b) and its initial brief did address the issue, albeit briefly. See Pl.’s 

Resp. Br. 91-92. 
107

accordance with the terms hereof and that the parties may be entitled to seek specific 

performance of the terms hereof.”434 Although this provision does not tie the court’s 

hands in fashioning appropriate equitable relief, it reflects the parties’ understanding 

that specific performance would be available in this circumstance, which is entirely 

consistent with past Delaware cases granting specific performance for failure to 

perform under a merger agreement.435

Second, clear and convincing evidence demonstrates that the equities weigh 

in Channel’s favor. Channel itself was a victim of Shankar’s fraud. Promptly upon 

discovering the fraud, Channel acted in good faith by fully investigating and 

remediating the fraud with the assistance of expert advisors and doing so while being 

fully transparent with its regulators (FDA and BSI) and its counterparty (Boston 

Scientific). Boston Scientific, on the other hand, will obtain the essence of what it 

bargained for by closing the transaction—an FDA-approved Cerene device. 

Although several of Channel’s representations were inaccurate as of the date of the 

Agreement, Shankar’s fraud did not compromise Channel’s quality system or its 

clinical study in such a manner that would warrant termination of the Agreement

under the bargain the parties struck in the Agreement. Finally, Boston Scientific

 

434 Agreement § 10.6.

435 See IBP, 789 A.2d at 84 (granting specific performance of the merger agreement after 

finding party improperly terminated the merger agreement); Hexion, 965 A.2d at 762 

(requiring Hexion to specifically perform its obligations consistent with the merger 

agreement after finding it breached certain provisions of the agreement).
108

breached its obligation to use commercially reasonable efforts to consummate the 

transaction.

VIII. BOSTON SCIENTIFIC’S FRAUDULENT INDUCEMENT CLAIM

Apart from its claims arising under the Agreement, Boston Scientific asserts 

that Channel fraudulently induced it to invest approximately $11 million in Channel 

from 2015 to 2017, for which Boston Scientific seeks damages.436 The elements of 

a fraudulent inducement claim, for which Boston Scientific bears the burden of 

proof,437 are as follows:

1) a false representation, usually one of fact, made by the defendant; 

2) the defendant’s knowledge or belief that the representation was false, 

or was made with reckless indifference to the truth; 3) an intent to 

induce the plaintiff to act or to refrain from acting; 4) the plaintiff’s 

action or inaction taken in justifiable reliance upon the representation; 

and 5) damage to the plaintiff as a result of such reliance.438 

For the reasons discussed next, Boston Scientific failed to carry its burden of proof 

on its fraud claim. The court focuses on the evidence concerning the first two 

elements, which is dispositive.

 

436 Defs.’ Br. 70. As initially pled, Boston Scientific’s fraud claim also sought rescission 

of the Agreement. See Counterclaim ¶ 46 (Dkt. 25). Boston Scientific did not address this 

request for relief during post-trial briefing and thus waived the issue. 

437 See Ross Hldg. & Mgmt. Co. v. Advance Realty Gp., 2014 WL 4374261, at *37 (Del. 

Ch. Sept. 4, 2014) (placing the burden of proof on the plaintiff to prove its fraudulent 

inducement claim against the defendants).

438 Stephenson v. Capano Dev. Inc., 462 A.2d 1069, 1074 (Del. 1983).
109

A. Boston Scientific Failed to Prove that Channel Made a False 

Representation

Boston Scientific contends that Channel made essentially two false 

representations to induce it to invest in Channel: “[i] that Shankar was a bona fide 

Director of Quality and [ii] that Channel would, and did receive, certification for the 

ISO 13485 quality standard.”439 For support, Boston Scientific points to written 

statements from documents Channel provided to Boston Scientific during the 2013 

to 2017 period.440 

With respect to Shankar’s role at Channel, Boston Scientific points to 

statements in the following documents: (i) an April 2013 email from Coté describing 

Shankar as Channel’s “Director of Quality”441 and (ii) two presentations in February 

2014 and May 2016 identifying Shankar as part of Channel’s “Highly Experienced 

Team” and describing his qualifications as follows:

 

439 Defs.’ Br. 70.

440 Boston Scientific attempted to elicit testimony from each of its own fact witnesses 

concerning oral statements Channel made that allegedly were false, but their testimony 

strained credibility and collapsed into admissions that they were relying only on written 

documents. See Tr. 493 (Pierce); Tr. 651 (Carr); Tr. 953-54, 967-68 (Morrison). Boston 

Scientific thereafter abandoned its reliance on purported oral statements for its fraud claim. 

See Defs.’ Reply Br. 36 (“BSC made clear that the false statements on which it relies were 

made in documents.”). 

441 JX 33.
110

15 years experience in the areas of operational management, quality 

assurance and regulatory affairs. Prior leadership roles at Intrapace, C8 

Medisensors and Flextronics. MSEE from Drexel.442

A fundamental problem with Boston Scientific’s fraud claim is that these statements 

were true. Indeed, Boston Scientific concedes that Shankar held the title of “Director 

of Quality,” and it does not challenge the factual accuracy of any specific statement 

in the description of his qualifications.443

Instead of challenging the literal truth of any of these statements, Boston 

Scientific argues they show that Channel held out Shankar “as a Director of Quality 

who would adequately perform his duties.”444 According to Boston Scientific, “[t]he 

omission of the fact that Shankar failed to discharge those duties is sufficiently 

misleading to support a claim of fraud.”445 For support, Boston Scientific cites 

Metro Communication Corp. BVI v. Advanced Mobilecomm Technologies Inc.446

In Metro, a telecommunications venture provided to a prospective investor 

management reports that “included specific statements regarding ‘applications for 

digging permits [that] were submitted to . . . municipality authorities,’ and reported 

that ‘[w]e are making efforts to obtain the permit [in Sao Paolo] by the end of 

 

442 JX 36.004 (February 2014 presentation); JX 49.042 (May 2016 presentation). 

443 See Defs.’ Reply Br. 35.

444 Defs.’ Br. 88 (emphasis added). 

445 Defs.’ Reply Br. 35.

446 854 A.2d 121, 144-46 (Del. Ch. 2004).
111

July.’”

447

 In the context of deciding a motion to dismiss under Court of Chancery 

Rule 9(b) for failure to plead fraud with particularity, the court found that 

“[a]ssuming the truth of the allegations in the complaint, those statements were 

misleading because they described the permitting process without indicating that 

some of the permits were obtained through bribery.”

448

 Unlike in Metro, the 

statements Boston Scientific identifies here consist of straightforward biographical 

facts and do not speak to how Shankar performed his job at Channel in any 

qualitative sense such that omitting his asserted failure to do so “adequately” would 

render the statements that Channel actually made misleading. 

With respect to Channel’s ISO 13485 certification, Boston Scientific points 

to statements in the following documents: (i) a 2014 presentation stating that 

Channel would seek ISO 13485 certification;449 (ii) a November 2016 email from 

Coté stating that Channel had “passed the 13485 certification audit,”450 and (iii) a 

May 2017 board presentation stating that Channel “[r]eceived certificate for ISO 

13485.”451 Once again, each of these statements was true. Channel did seek an ISO 

 

447 Metro, 854 A.2d at 145. 

448 Id. at 146.

449 JX 1101.026.

450 JX 99.

451 JX 117.023; see also Bachert Dep. 73 (recalling that Shankar stated “Channel is 13485-

certified by BSI.”).
112

13485 certification; BSI issued a report in November 2016 “stating that Channel met 

the requirements of ISO 13485:2003”; and Channel “received its ISO 13485 

certification” in March 2017.452

Relying again on Metro, Boston Scientific argues that these statements were 

misleading because Channel failed to disclose that it had submitted some fraudulent 

documents to obtain the certification from BSI. Boston Scientific, however, failed 

to prove that the documents in question were necessary to obtain the certification or 

that Channel was in possession of an unlawful certification. In fact, after Channel 

disclosed Shankar’s fraud to BSI, BSI reported that Channel’s “[c]ontinued

certification is confirmed and the EC certificate remains valid.”453 Given the 

absence of any evidence that Channel violated a legal requirement in connection 

with obtaining its ISO 13485 certification from BSI, the statements in Channel’s 

documents referenced above were not false or misleading. 

B. Boston Scientific Failed to Prove Channel’s Knowledge of Falsity 

or Recklessness

Even if any of the statements discussed above constituted a misrepresentation, 

Boston Scientific’s fraud claim would still fail because it has not proven (i) that 

 

452 PTO ¶ II.D.1-2. 

453 JX 684.003 (October 2018 BSI report) (emphasis added); Tr. 62-63 (Coté); see also JX 

709 (September 2018 BSI report stating that Channel continued to effectively implement 

ISO 13485:2003 and had fully implemented the new ISO 13485:2016 standards).
113

Channel knew that any of the statements discussed above were false or (ii) that it 

acted with reckless indifference to the truth. The court addresses these issues, in 

turn, next. 

Beginning with the issue of knowledge, the general rule under Delaware law 

is that “a corporation is liable for the acts and knowledge of its agents—even when 

the agent acts fraudulently or causes injury to third persons through illegal 

conduct.”454 There is an important exception to this rule where the employee 

“abandons the [employer’s] interests” and “act[s] solely to advance his own personal 

financial interest, rather than that of the corporation itself.”455 This exception is 

limited, but it covers the “unusual” case where the employee’s actions show “the 

type of total abandonment of the corporation’s interests that is characteristic of, for 

example, outright stealing from the corporation.”456 Even stealing may not be 

enough to trigger this exception if the company still receives a benefit from its 

employee’s actions.457

 

454 Stewart v. Wilmington Tr. SP Servs., Inc., 112 A.3d 271, 303 (Del. Ch. 2015).

455 Id.

456 Id.

457 Id. at 310 (declining to apply the adverse interest exception to an employees’ alleged 

theft where a complaint was “replete with allegations” that the employees’ fraud allowed 

the company to be authorized as Delaware-domiciled captive insurers); see also In re Am. 

Int’l Grp. Inc., Consol. Deriv. Litig., 976 A.2d 872 (Del. Ch. 2009), aff’d sub nom. 

Teachers’ Ret. Sys. of La. v. Gen. Re Corp., 11 A.3d 228 (Del. 2010) (declining to extend 

the adverse interest exception where the “Complaint plainly pleads that AIG’s participation 
114

This case provides a classic example for when the adverse interest exception 

should apply. The evidence shows that Shankar’s fraud was for his own benefit, and 

to the detriment of Channel. He stole a large sum of money from Channel and 

falsified its records, which put Channel at risk of not receiving FDA approval and 

jeopardized its merger with Boston Scientific. Shankar’s theft, pure and simple, 

represented a “total abandonment of [Channel’s] interests.”458

Boston Scientific argues that “Shankar’s fraud was not solely intended to 

advance his personal interest [because] it also advanced the company in that he 

helped Channel obtain IDE approval, ISO 13485 certification, and CE mark based 

on documents he falsified to conceal Channel’s quality system deficiencies.”459 This 

assertion lacks factual support. Boston Scientific provided no evidence that Shankar 

intended to help Channel obtain any of these approvals through his fraudulent 

actions. Indeed, his fraud and the falsified documents he submitted to regulators had 

the potential to endanger these approvals, and there is no evidence that Channel 

would not have received these approvals absent Shankar’s fraud. 

 

in each of the schemes resulted in tangible (if eventually short-lived) benefits to the 

corporation”).

458 Stewart, 112 A.3d at 303.

459 Defs.’ Reply Br. 37.
115

This case is markedly different from In re American International Group, 

Inc., Consolidated Derivative Litigation,

460 on which Boston Scientific relies. In 

that case, the court imputed knowledge to a corporation at the motion to dismiss 

stage where it was clear, on the face of the complaint, that the top-ranking employees 

engaging in fraud benefitted both the company (by increasing its stock price) and 

themselves (by increasing their own compensation and chances for promotion).461 

Here, Shankar’s fraud provided no benefit to Channel, only detriment. For this 

reason, the court will not impute his knowledge of the fraud to Channel. Thus, even 

if any of the representations discussed previously were false, Boston Scientific has 

failed to prove that Channel knew they were false.

Nor did Boston Scientific prove that Channel was “reckless” in making any 

of the allegedly false representations. To establish recklessness, Boston Scientific 

must prove that Channel, through its employees, “consciously ignored specific 

warning signs that illicit activities were occurring.”462 “[O]rdinary negligence is 

insufficient to support a claim of common law fraud,” and it is not sufficient for the 

facts to show “that the managers should have known about” the fraud.463 

 

460 976 A.3d 872.

461 Id. at 892.

462 Metro, 854 A.2d at 147.

463 Id. at 148.
116

Boston Scientific asserts that evidence of the following warning signs is 

sufficient to prove that Channel acted with reckless indifference to the truth: 

 failure to perform due diligence in hiring Shankar;

 failure to enact sufficient “checks and balances necessary for 

strong cash control” despite warnings from its financial auditor;

 discovery of the fraud only by happenstance;

 failure to properly verify, monitor, or audit its vendors;

 failure to keep minutes of Management Review meetings or 

review internal audit reports, some of which had no findings;

 failure to detect Shankar’s theft of more than $2.5 million, 

despite Channel’s cash reserves rarely being over $10 million in 

any quarter.464

This evidence demonstrates, at most, negligence on the part of Channel and its 

employees and is not sufficient to prove recklessness because the evidence does not 

establish that anyone at Channel consciously ignored any warning signs of Shankar’s 

fraud. 

Contrary to Boston Scientific’s assertions, for example, William Malecki, 

Channel’s Chief Operating Officer, vetted Shankar by speaking to someone Malecki 

knew at a previous employer identified on Shankar’s resume and confirming that 

Shankar had worked there for eight years.465 Although one could argue it was 

 

464 Defs.’ Reply Br. 38-39. 

465 Malecki Dep. 85-86.
117

negligent not to do more, there is no evidence that any warning signs (e.g., a previous 

termination due to theft or fraud, or poor performance reviews) materialized from 

Malecki’s vetting that Channel consciously disregarded. 

The cited evidence concerning Channel’s financial auditor concerned a 

recommendation for handling cash disbursements.466 Coté credibly testified without 

contradiction, that the auditor never identified anything related to Shankar’s fraud 

and that the fraud “had nothing to do with” the auditor’s recommendation.467 

Boston Scientific does not explain how the fraud’s accidental discovery shows 

recklessness—if anything that fact cuts against the notion that Channel consciously 

disregarded warning signs. Boston Scientific also does not cite evidence that anyone 

at Channel knew that it was failing to audit its suppliers or that its internal audit 

reports were being forged. 

As to the amount of Shankar’s fraud, although $2.57 million represented a 

significant percentage of Channel’s cash reserves in any given quarter, $2.57 million 

was the total amount that Shankar stole over almost five years and not at one time.468 

In total, Shankar’s fraudulent invoices and expense reports accounted for “about 4 

or 5%” of the total number of invoices and expense reports submitted during his 

 

466 JX 80; Tr. 32 (Coté).

467 Tr. 32-33 (Coté).

468 See JX 916 (Shankar’s Plea Agreement).
118

employment at Channel,469 most of which were for amounts below the threshold that 

required Coté’s approval to avoid detection.470

Boston Scientific suggests Channel was reckless because “[i]t was in 

Channel’s best interest for its management to turn a blind eye” before an agreement 

to sell the company was signed.471 This is speculation—not evidence. What the 

record shows is that Channel was transparent with the FDA and Boston Scientific 

upon discovering Shankar’s fraud, and acted with dispatch to address it.472 This type 

of responsible conduct is hardly what one would expect from someone intent on 

turning a blind eye. 

In sum, the court finds based on the preponderance of evidence that there is 

no legal basis to impute Shankar’s knowledge to Channel and that Channel did not 

act with reckless indifference to the truth. This conclusion provides an independent 

basis for entry of judgment in Channel’s favor on Boston Scientific’s fraud claim 

apart from the failure to prove the existence of a false statement.473

 

469 Tr. 29-30 (Coté).

470 See id. 29.

471 Defs.’ Reply Br. 39.

472 See supra Part I.F-I.

473 Channel advances several other arguments for why the fraud claim should fail. The 

court need not address these issues in view of its findings on the lack of a false statement 

and the failure to prove Channel’s knowledge of falsity or recklessness. 
119

IX. CONCLUSION

For the reasons explained above, Boston Scientific was not entitled to 

terminate the Agreement and breached its obligation to use commercially reasonable 

efforts to consummate the merger; Channel is entitled to an order of specific 

performance requiring Boston Scientific to close the merger; and Boston Scientific

failed to prove its claim for fraudulent inducement. The parties are directed to confer 

and to submit an implementing order consistent with this decision within five 

business days.