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Scott + Scott Challenges Dismissal of Action Against Medical Device Maker

In June 2008, Scott + Scott LLP filed an appeal on behalf of an investor class that purchased Guidant Corporation securities to the United States Court of Appeals for the Seventh Circuit. The appeal was filed with the Seventh Circuit on August 21, 2008 and challenges the US District Court for the Southern District of Indiana’s dismissal of the class action In re Guidant Securities Litigation.

The case concerns defective heart defibrillator devices that were manufactured by Guidant Corporation. The complaint filed on behalf of the investor class in 2005 alleges that despite knowing the material defects as early as 2002, Defendants continued to sell defective heart defibrillator devices to the market, while also concealing the problems with the devices from the investing public as well as the Food and Drug Administration and the Securities and Exchange Commission. The complaint claims that Defendants concealed the defects in order to maintain a high company stock price and to consummate a merger with Johnson & Johnson. Regrettably, the death of a 21-year old from a defective heart defibrillator device manufactured by Guidant forced the company to disclose the truth about its defective devices. As a result, the merger with Johnson & Johnson was jeopardized and the stock price plummeted, causing investors to lose billions of dollars because of the company’s fraudulent conduct. All the while, however, as the complaint details, Guidant executives and directors suspiciously sold over $100 million in Guidant shares before the news of the defective devices was revealed.

Despite these strong and glaring facts, investors never had an opportunity to litigate the case because the District Court judge dismissed the case with prejudice, which means that investors were not afforded an opportunity to file an amended complaint that would have fleshed out the allegations even further. This is a rare outcome and was especially unfortunate in this case because newlyreleased information helped confirm the fact that Defendants knew about the flaws in the devices as early as 2002. Based on this information, as well as the extraordinary nature of the judge’s decision, Plaintiffs opted to file the appeal.

The appeal concerns several interesting and novel legal arguments including: whether a dismissal with prejudice was an abuse of the court’s discretion, whether the class of investors should have been afforded an opportunity to file an amended complaint that incorporated the newly-revealed information that further clarified and demonstrated misrepresentations by the Defendants, their knowledge of the falsity of those statements, and that it was simply an injustice to allow investors — who lost billions of dollars — to remain uncompensated. 

Scott + Scott will pursue the appeal aggressively before a panel of Seventh Circuit judges. Copies of the briefs can be obtained by visiting the web page for the Seventh Circuit Court of Appeals or by contacting Scott + Scott directly.

 

The complaint filed on behalf of the investor class in 2005 alleges that despite knowing the material defects as early as 2002, Defendants continued to sell defective heart defibrillator devices to the market, while also concealing the problems with the devices from the investing public as well as the Food and Drug Administration and the Securities and Exchange Commission.

 

newsletter_aug2008.jpg Source : Scott+Scott September 2008 Newsletter

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