Abbott escapes payer’s lawsuit over St. Jude Medical CRM batteries

Abbott (NYSE:ABT) this week escaped a purported class action lawsuit brought by a third-party payer over defective batteries used in subsidiary St. Jude Medical‘s cardiac rhythm management devices.

Plaintiff ASEA/AFSCME Local 52 Health Benefits Trust brought the suit last September on behalf of third-party payers, alleging in the U.S. District Court for Northern Illinois that Abbott and St. Jude concealed the battery problems from the public and the FDA.

Little Canada, Minn.-based St. Jude warned about a premature depletion issue with the batteries in October 2016, five years after its battery supplier first reported the issue, according to court documents. The company said the cause of the problem could not be determined, despite receiving 42 product reports between 2011 and 2014, according to the documents. After a patient’s death was linked to battery depletion in 2014,

It was only after Abbott and St. Jude entered the due-diligence phase of their eventual merger and consummated the deal that the issue was investigated in earnest, discovering that the lithium-based batteries could form “lithium clusters” during high-voltage charging that could cause a short-circuit and deplete the battery within a day to a few weeks.

The company said it received reports of 841 premature battery depletions out of the 398,470 Fortify, Fortify Assura, Quadra Assura, Quadra Assura MP, Unify, Unify Assura and Unify Quadra devices it’s sold worldwide (roughly 0.21%) – including two deaths “associated with the loss of defibrillation therapy as a result of premature battery depletion.”

ASEA alleged in the lawsuit that the companies breached express and implied warranties in selling a defective product and asserted product liability and manufacturing defect claims, plus negligence, failure-to-warn, misrepresentation, omission and the violation of consumer protection acts.

Deerfield Park, Ill.-based Abbott moved to have the case dismissed for lack of jurisdiction, with ASEA countering that because St. Jude operated as Abbott’s corporate alter ego, St. Jude should be treated as an extension of Abbott.

To win that argument, wrote Judge Sharon Johnson Coleman in a June 18 decision, ASEA had to show that “Abbott, through St. Jude, has created a sham entity designed to defraud investors and creditors.”

“These allegations do not call into question St. Jude’s capitalization, solvency, or recognition of corporate formalities. Nor do they suggest that Abbott was siphoning or diverting funds from St. Jude. At most, the allegations in the complaint suggest that Abbott sometimes spoke on behalf of St. Jude or sometimes represented that it had succeeded St. Jude. Absent more, however, the allegations do not suggest that unfairness or injustice has resulted from the relationship between St. Jude and Abbott, as would be necessary to justify piercing the corporate veil under Delaware law,” Johnson Coleman wrote.

The plaintiff argued that the Northern Illinois district has jurisdiction because some of the defective St. Jude devices were sold in the Prairie State, but the judge wasn’t buying it.

“ASEA, however, does not allege that it paid for any of the defective devices in Illinois or that any of its beneficiaries had one of the devices implanted in Illinois. Accordingly, ASEA cannot establish that any actions occurring in Illinois gave rise to its claims against the defendants,” she wrote in granting Abbott’s motion to dismiss without prejudice. “Abbott’s involvement in this case came only at the tail end of the alleged period of wrongdoing and after all of the defective devices had already entered the market. Accordingly, it cannot be said that the central events to this case occurred in Illinois.”

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