Shareholders who revived a purported class-action kickbacks lawsuit against Cardiovascular Systems (NSDQ:CSII) saw their case dismissed with prejudice yesterday by a federal judge in Minnesota.
St. Paul, Minn.-based CSI paid $8 million to settle a federal False Claims Act suit in July 2016 accusing it of running a kickbacks scheme by offering free, all-expense-paid training programs, product giveaways, 3rd-party referral channel marketing and sham speaker bureau payments to doctors. The qui tam whistleblower complaint was filed by former sales manager Travis Thams, who also accused the company of running an off-label promotion scheme to push sales of its unapproved 4 French catheter.
After the Tham suit was unsealed, shareholders leveled another lawsuit against CSI, alleging that the company and its management misled investors about the alleged schemes, leading to a sharp drop in the company’s share price when the alleged ruse was exposed. But Judge Donovan Frank of the U.S. District Court for Minnesota dismissed that suit with leave to amend in March 2017, ruling that the plaintiffs failed to prove their allegations in part because of their reliance on confidential witnesses in the Tham case.
A month later, CSI was found liable for approximately $25.1 million in a separate, third whistleblower and wrongful termination suit involving another former sales manager. That suit, filed by Steven Babyak in November 2015, alleged that the company retaliated and eventually fired Babyak in response to his concerns about patient safety and violations of state and federal laws.
That prompted shareholders to amend their complaint in June, seeking class action status for owners of CSII stock between Sept. 12, 2011, and Jan. 21, 2016.
Yesterday Frank granted CSI’s motion to dismiss, with prejudice, ruling that the plaintiffs failed to show that the company knew or should have known about the alleged Anti-Kickbacks statute violations.
“In sum, plaintiffs’ allegations amount to a patchwork of alleged misconduct,” Frank wrote. “The competing inferences are either that these were isolated incidents or part of more widespread misconduct. The court concludes that the more plausible explanation is that the conduct was isolated. Plaintiffs have therefore failed to state a claim because they cannot show that defendants knew about the AKS violations or were severely reckless in not discovering them.”
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