Source: http://mn.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180110_0000034.DMN.htm/qx
Timestamp: 2019-04-20 18:32:01+00:00

Document:
FindACase | Shoemaker v. Cardiovascular Systems, Inc.
Shoemaker v. Cardiovascular Systems, Inc.
Cardiovascular Systems, Inc., and Laurence L. Betterley, Defendants.
Bryan L. Bleichner, Esq., and Jeffrey D. Bores, Esq., Chestnut Cambronne, PA; and Naumon A. Amjed, Esq., and Ryan T. Degnan, Esq., Kessler Topaz Meltzer & Check LLP, counsel for Plaintiff Sandra K. Shoemaker.
Angus Ni, Esq., and Jeremy Robinson, Esq., Bernstein Litowitz Berger & Grossmann LLP; Gregg M. Fishbein, Esq., Kate M. Baxter-Kauf, Esq., and Richard A. Lockridge, Esq., Lockridge Grindal Nauen PLLP; Alfred L. Fatale, III, Esq., and Ross M. Kamhi, Esq., Labaton Sucharow LLP; and David A. Goodwin, Esq., Gustafson Gluek PLLC, counsel for City of Miami Fire Fighters' & Police Officers' Retirement Trust.
David R. Marshall, Esq., and Leah C. Janus, Esq., Fredrikson & Byron, PA; and Michael C. Tu, Esq., Daniel Streim, Esq., and Robert M. Stern, Esq., Orrick, Herrington & Sutcliffe LLP, counsel for Defendants.
The plaintiffs in this case are shareholders of a publicly traded, medical-device company that allegedly violated securities laws by making material misstatements regarding illegal kickbacks paid to doctors. This matter is before the Court on the defendants' motion to dismiss. For the reasons discussed below, the Court grants the defendants' motion.
Cardiovascular Systems, Inc. (“CSI”) is a publicly traded company that primarily develops and manufactures medical devices for the treatment of peripheral arterial disease and coronary artery disease. Defendant Laurence Betterley has been CSI's Chief Financial Officer since April 2008. David L. Martin, recently deceased, was CSI's CEO and one of its directors during the relevant time period. Plaintiffs are shareholders of CSI who allege that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). Plaintiffs seek to represent a class of shareholders who “purchased or otherwise acquired” CSI's common stock between September 12, 2011 and January 21, 2016.
Medical devices are heavily regulated, including under the federal Anti-Kickback Statute (“AKS”). The AKS is a criminal statute that prohibits, among other things, “knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person” either to refer an individual to the person for medical services or to purchase any good that that will be repaid in whole or in part by a federal health care program. 42 U.S.C. § 1320a-7b(b)(2)(B). In short, a violation of the AKS requires: (1) a remuneration to a person or entity in a position either to purchase goods subject to reimbursement by a federal health care program or to refer a patient whose care will be reimbursed by a federal health care program; and (2) that the remuneration could reasonably induce such referral or such purchase. See Jones-McNamara v. Holzer Health Sys., 630 F. App'x 394, 401 (6th Cir. 2015) (citing OIG Supplemental Compliance Program Guidance for Hospitals, 70 Fed. Reg. 4858, 4864 (Jan. 31, 2005)). Courts and the OIG have concluded that a “remuneration” is “virtually anything of value.” Id. (quoting OIG Compliance Program Guidance for Ambulance Suppliers, 68 Fed. Reg. 14245, 14252 (Mar. 24, 2003)). A person guilty of violating the AKS faces up to five years in prison and a fine up to $25, 000. 42 U.S.C. § 1320a-7b(b). A violation of the AKS may also be a violation of the federal False Claims Act (“FCA”) where a claim submitted to the government includes items or services resulting from a violation of the AKS. Id. § 1320a-7b(g).
In Plaintiffs' consolidated complaint, they claimed that in early 2012, Kevin Kenny (Executive Vice President of Sales and Marketing) and Jim Breidenstein (Vice President of Sales) implemented a scheme whereby CSI began violating the AKS and the FCA by: (1) providing kickbacks to physicians for using PAD devices, which took the form of either referrals, discounted products, or assistance in establishing office-based laboratories; (2) encouraging physicians to use PAD devices when they were not medically necessary; (3) hiding products so they would be reordered or channel stuffing; and (4) promoting the product for off-label uses. The scheme was allegedly in place from when Breidenstein joined CSI in 2012 until May 9, 2014, when CSI received notice of the Qui Tam Complaint. The consolidated complaint included statements from fourteen confidential witnesses allegedly corroborating Plaintiffs' complaint. On August 29, 2016, Defendants filed a motion to dismiss, which the Court granted with leave to amend.
In Plaintiffs' First Amended Complaint (“FAC”) (Doc. No. 86), they adopt an entirely new theory of misconduct: CSI provided marketing services for doctors in exchange for referring others who will purchase CSI devices. Plaintiffs draw their new theory from an employee whistleblower case in California (“Babyak Action”). In the Babyak Action, the employee was allegedly retaliated against for complaining of illegal and unsafe conduct, including illegal kickbacks for referrals.

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