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Suing Business Entrepreneurs For Fraudulently Inducing Medical Treatment

By James M. Beck and Mark Herrmann

We're not surprised that physicians invest in medical devices companies.

Legendary investor Peter Lynch said, "Buy what you know." Surgeons who implant medical devices know . . . medical devices.

Sometimes those surgeons invent the devices. Sometimes the surgeons simply learn about the devices and believe they're good products.

Not surprisingly, surgeons sometimes choose to invest in companies that manufacture medical devices that the surgeons like and use.

The recent case of Timberlake v. Synthes Spine Co., No. V-08-4, 2009 U.S. Dist. LEXIS 29074 (S.D. Tex. Mar. 31, 2009), grows out of just such a situation -- although it's one step removed from the facts you'd expect. There, the Viscogliosi brothers apparently formed a company, Spine Solutions, to design and ultimately sell a medical device. The Viscogliosis allegedly solicited physicians who had invested in Spine Solutions to conduct clinical trials of the device, and the trials would later be used to seek FDA approval to market the device.

Two plaintiffs underwent surgeries to implant Spine Solutions' artificial spinal disk. Both devices failed, and both plaintiffs underwent second surgeries and allegedly suffered permanent injuries. Plaintiffs sued several defendants, including the Viscogliosis. The Viscogliosis allegedly failed to disclose that doctors and clinics participating in the clinical trials would benefit financially if the FDA approved the device and provided misleading information about the clinical trials.

As to these defendants, this is a funky lawsuit: These guys didn't manufacture or sell the product, so they weren't (and couldn't be) named in traditional product liability claims. And these guys were not the treating physicians, so there's no informed consent issue. Rather, these defendants appear to be only entrepreneurs who started a company to bring a device to market.

The trial court granted the Viscogliosis motion to dismiss the claims brought against them, but the court allowed plaintiffs to amend their pleadings to try to state a claim.

The court first dismissed, for two reasons, the allegations of fraud by nondisclosure. First, the plaintiffs didn't plead where the Viscogliosis allegedly should have disclosed the omitted facts. Second, plaintiffs didn't identify the duty owed by the Viscogliosis to disclose to the plaintiffs the omitted facts. Id. at *10. Although either of those flaws can be fatal to plaintiffs' claims, the second flaw is arguably stronger: If, as seems likely, business entrepreneurs owe no duty to disclose facts to patients undergoing surgery, then, as a matter of law, no patients similarly situated to the Timberlake plaintiffs would ever be able to pursue this type of claim.

The court also dismissed the claim of fraud by affirmative misrepresentation. The court found that plaintiffs adequately pled what misrepresentations had been made to them and plaintiffs' reliance on the misrepresentations. But the plaintiffs had not pled with the requisite specificity (1) where each misrepresentation was made, (2) when each was made, and (3) how each was false. Id. at *16-18. The plaintiffs also failed to distinguish which statement was made by which defendant, pleading only that "Defendants [as a group] made . . . intentional, material misrepresentations." Id. at *21.

We assume that the plaintiffs will try to re-plead their complaint, and we'll watch those later proceedings with interest. We don't know anything about the actual facts of this case, but, as ignorant outsiders, we'd guess that patients aren't usually reading corporate documents to decide whether to undergo surgery. Most of the information about operative risks is presumably provided through treating physicians following the law of informed consent, and the business entrepreneurs are pretty far removed from that process.

The separate question -- what, if any, financial information physicians must disclose to patients as part of the informed consent process -- we'll save for another day.

Full post as published by Drug and Device Law on April 21, 2009 (boomark / email).