Opinion ID: 175410
Heading Depth: 1
Heading Rank: 3

Heading: False or materially misleading statements

Text: In order to satisfy the Reform Act's falsity pleading standard, a complaint may not rest on mere allegations that fraud has occurred. Instead the complaint must indicate why the alleged misstatements would have been false or misleading at the several points in time in which it is alleged they were made. In other words, the complaint's facts must necessarily show that the defendant's statements were misleading. Id. [T]o fulfill the materiality requirement there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available. Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (internal quotation marks omitted). DGRS argues Medtronic materially misled investors when it released the March dear doctor letter. The text of the letter is as follows: Dear Doctor, Medtronic has received reports from a limited number of implanting physicians indicating they have experienced higher than expected conductor fracture rates in their centers with Sprint Fidelis leads. While current overall Sprint Fidelis performance is consistent with other leads, Medtronic is actively investigating these reports, has reviewed them with our Independent Physician Quality Panel, and would like to share what we know at this time. Through detailed assessment of reported fractures, we have identified two primary locations where conductor fractures have occurred: 1) distal portion of the lead and 2) near the anchoring sleeve tie down. The distal conductor fractures affect the anode (ring electrode) and fractures that occur around the anchoring sleeve affect the cathode (helix tip electrode). Fractures at both locations appear to present clinically as over-sensing, increased interval counts and inappropriate shocks. Medtronic has worked closely with physicians who have experienced fractures and conducted significant bench testing in an attempt to reproduce the fractures and identify a root cause. At this point, our investigation suggests that variables within the implant procedure may contribute significantly to these fractures. For distal conductor fractures, our investigation has identified severe bending or kinking of the distal end of the lead over the lead body while passing through tortuous vasculature as a significant contributing factor . . . Medtronic recommends avoiding severe bending or kinking of the lead during implantation. If you encounter excessive resistance resulting in severe bending or kinking while advancing the lead, please remove the lead and return it to Medtronic. For conductor fractures that occur around the suture sleeve, our preliminary investigation suggests that under certain implant techniques, the lead appears to be exposed to severe bending or kinking in the pectoral area . . . Medtronic recommends the lead be re-sutured and/or pocket reassembled per guidelines in the Medtronic lead implant manual. In addition, positioning the anchoring sleeve against or near the vein may be helpful. Sprint Fidelis lead model 6949, 6948, 6931, and 6930 were market released in the U.S. and internationally in September and October 2004. Performance of model 6949, the Sprint Fidelis lead currently followed in our System Longevity Study, indicated survival is 98.9% at two years. Sprint Fidelis 6949 performance based upon return products analysis shows 99.86% chronic fracture-free survival at two years. Both evaluation methods suggest performance is in line with other Medtronic leads and consistent with lead performance publicly reported by other manufacturers. DGRS alleges the letter falsely reassured investors that the damage was due to doctor error and that the Fidelis model failure rate was in line with that of other leads. It is difficult to see how a letter disclosing a possible problem and an investigation into that problem was materially misleading. The letter refers to the ongoing investigation, couches the information contained in the letter itself as preliminary, and states the early investigation suggests that implant procedure may contribute significantly to the fracture reports. At no point does the letter make any unequivocal statements about the safety of the device and the language clearly indicates that doctor error is a preliminary and partial explanation for the reported fracture rates at specific clinics. Nonetheless, DGRS alleges Medtronic had a duty to disclose other information on the Fidelis fracture rates, the exclusion of which rendered the statements in the letter materially misleading. DGRS lists a number of pieces of information which it asserts Medtronic failed to divulge. The problem with most of the information is that DGRS fails to allege facts showing Medtronic possessed the information at the time the supposedly inconsistent statements were made. The remaining allegations fail to meet the standard for pleading under the Reform Act because, even if Medtronic was aware of the information, the information itself is not inconsistent with Medtronic's statements to the public and to investors. DGRS alleges Medtronic's statement that a limited number of doctors had reported higher than expected fracture rates was misleading because at least five hospitals or clinics besides Hauser's had stopped using Fidelis leads. The complaint fails to allege that those clinics ever cited excessive fracture rates as the reason for discontinuing use of the Fidelis leads, let alone that the clinics informed Medtronic of a problem with the device at the time they discontinued use. The complaint also does not allege facts that would allow us to discern how many Fidelis leads those clinics would ordinarily have ordered or whether those leads constituted a significant enough percentage of the Fidelis business market that referring to six clinics or hospitals as a limited number would be materially misleading. DGRS argues Medtronic should have disclosed the fact that the returned product analysis cited in the letter is a notoriously unreliable source of data. Even if it is true that returned product analysis is unreliable, Medtronic did not materially mislead investors because it disclosed that the data came from returned product analysis. DGRS also claims Medtronic had a duty to disclose the fact that the study sample sizes were too small to make the conclusions reliable. That argument might hold water if Medtronic had couched the results of the studies as conclusive. However, Medtronic's dear doctor letter indicated an investigation was ongoing because, at that point, there was no data available with a large enough data set to be conclusive. In fact, even when Medtronic pulled Fidelis from the market, both Medtronic and the FDA indicated that the statistics did not require such action, and the FDA did not require removal of the devices already implanted in patients.