Appeals court upholds denial of Medtronic motions in lawsuit

By Kerry Goff | Dec 26, 2016

IRVINE – The U.S. Court of Appeals for the 9th Circuit upheld a federal-court denial of Medtronic’s motions for judgment as a matter of law and a new trial in the company's lawsuit with Pabban Development.

The three-judge panel also upheld the district court’s decision to deny Medtronic’s claim that it improperly instructed the jury and improperly awarded legal fees to Pabban, an Irvine-based company that had developed a bone-cement delivery system that Medtronic claimed was faulty.

Joe Thomas of Thomas Whitelaw and Kolegraff LLP, an attorney who represented Pabban, told Law360 in a Nov. 16 interview that Pabban was happy with the verdict.

“We’re delighted that the court affirmed the judgment in its entirety,” he said. “We believe there was no evidence to support the finding in any other way, and the court of appeal reviewed the record and affirmed it.”

The panel affirmed the 2014 jury verdict in favor of Pabban, ignoring the argument made by Medtronic and its subsidiary, Kyphon SARL, that an asset-purchase agreement for Pabban's Natrix System included certain language that made the deal null and void.

Medtronic argued the verdict should be overturned in light of evidence that more than a third of the devices Pabban delivered to Kyphon had leaks that rendered them unmarketable, the Law360 article said.

The appeals panel found that a new trial was not needed, as the trial court had properly interpreted the terms of the parties' purchase agreement and properly instructed the jury.

“When the evidence is viewed in the light most favorable to Pabban, the jury was presented with sufficient evidence from which it could conclude that Pabban’s key personnel had no actual knowledge that the saline bags were leaking due to an inherent defect in the Natrix System — as opposed to a packaging issue — such that the Natrix System was not fit for sale by Pabban to Kyphon,” the 9th Circuit panel said in its opinion.

Mass Device magazine further quoted the court’s agreement with Judge Beverly Reid O’Connell’s determination of the difference between Natrix being good enough to be acquired in the deal and being good enough to go to market.

“Because the district court properly interpreted ‘of good enough quality to be sold’ to mean ‘of good enough quality to be sold by Pabban to Kyphon,’ Kyphon is without any argument that the evidence compelled a different verdict,” the court opinion said. “Similarly, Kyphon has failed to demonstrate that the district court’s denial of Kyphon’s alternative motion for a new trial was an abuse of discretion. The jury’s verdict was not against the clear weight of the evidence such that the district court should have granted a new trial.”

In August 2008, Medtronic agreed to acquire Natrix assets from Pabban for $18.8 million, as well as other milestone payments up to $15 million, according to the Mass Device article.

Medtronic paid the $18.8 million, but refused further payments. Medtronic also ended its supply deal with a Pabban subsidiary, claiming that Pabban concealed problems with the Natrix system. Pabban then sued Medtronic in March 2010 for the additional payments Medtronic refused to pay.

According to the Law360 article, Medtronic argued at trial that it had sought to purchase the device in order to get to market quickly, and that Pabban had committed fraud in representing that the Natrix system was ready to go to market when it was not.

“Pabban countered that Medtronic had extensive opportunities to conduct due diligence and did so to its satisfaction before signing the purchase agreement,” the article said.

In May 2014, the jury sided with Pabban, finding no breach in the agreement. The appeals court upheld the jury's decision.

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