Claims that Zimmer Committed Fraud Dismissed in Appeals Court
Two pension funds that own shares of Zimmer Holdings, Inc., charged the company with defrauding its investors, claiming that Zimmer downplayed the high failure rate reported by orthopedic surgeon Dr. Dorr in regard to the Zimmer Durom Cup. The funds also charged Zimmer with trying to hide the difficulties it was having manufacturing some of its products.
The U.S. District Court for the Southern District of Indiana dismissed the case in 2011. The plaintiffs appealed. In a recent order signed May 21, 2012, the 7th Circuit Court of Appeals affirmed the dismissal, stating the plaintiffs did not have enough evidence to prove that Zimmer knowingly mislead investors in either case.
Claims Against Zimmer
Investor funds, including the Plumbers and Pipefitters Local Union 719 Pension Fund, and the Carpenters Pension Fund of West Virginia, charged Zimmer with defrauding its investors. The charges were based on the following two assertions:
- Zimmer hid device defect: When Zimmer temporarily halted sales of the Durom Cup in 2008, they investigated problems reported with the device, including those noted by orthopedic surgeon Dr. Lawrence Dorr. They re-released the device a month later, attributing the problems to surgical error. Plaintiffs asserted that Zimmer’s statements upon re-introducing the Durom Cup were false, and that the problem stemmed from poor design or quality control rather than surgeon technique. They further asserted that Zimmer pretended otherwise to avoid a decline in the price of its stock.
- Zimmer hid production problems: In January 2008, Zimmer projected 10–11 percent revenue growth for the year. On April 3, 2008, Zimmer announced a suspension of production on some of its orthopaedic products. In July, it cut its projection of revenue growth to 8.5–9 percent. Plaintiffs asserted that Zimmer learned of their production problems in late 2007, but delayed revealing them until April 2008, and further committed fraud by not using these lower estimates in January.
The U.S. District Court for the Southern District of Indiana dismissed the investor funds’ complaint, stating that plaintiffs had failed to show that the defendants were lying or knew they were lying.
The Court held that Zimmer didn’t try to hide the complications Dr. Dorr had encountered, which have been the subject of subsequent Zimmer hip implant lawsuit filings. Zimmer had acknowledged that the Durom Cup was challenging to implant prior to Dr. Dorr’s public statement in April 2008. “No one could predict how serious the problem would turn out to be,” the Court stated.
Plaintiffs stated that Zimmer knew of quality-control problems prior to announcing them in 2008, but the Court concluded that none of the plaintiff’s evidence confirmed this.
In the end, the 7th Circuit Court of Appeals upheld the dismissal. Meanwhile, Zimmer continues to defend itself against plaintiffs who, through a Zimmer hip lawyer, have filed a Zimmer hip implant lawsuit, claiming premature loosening and metal poisoning.