ZBH Zimmer Biomet Holdings Inc

By Dylan Tokar 

Designating someone a compliance risk doesn't constitute defamation, a federal appeals court in Chicago has ruled.

The ruling, issued this week, is a victory for medical device manufacturer Zimmer Biomet Holdings Inc., which was sued by a former employee after it placed him on a list of entities that the company said posed a risk to its compliance with antibribery laws.

The lawsuit was filed in 2016 by Alejandro Yeatts, a former employee of a Biomet Inc. subsidiary in Argentina, who came under scrutiny by Biomet after it reached a series of foreign bribery settlements with U.S. authorities in 2012. Mr. Yeatts had accused the company of defaming him by placing him on the list, which restricted Biomet employees and agents from doing business with him.

A district court in January threw out Mr. Yeatts's lawsuit on legal grounds. By calling him a compliance risk, the company was stating an opinion that couldn't be proven false, the district court said.

It was reasonable for Biomet to take a "hypersensitive view" of potential compliance risks in light of the U.S. Foreign Corrupt Practices Act investigations it had faced, the district court added.

The U.S. Court of Appeals for the Seventh Circuit on Wednesday upheld the decision. "Even if there were zero evidence he engaged in criminal conduct, that would not prove false Biomet's concern that Yeatts posed a compliance risk," the Seventh Circuit said.

A representative of Biomet and lawyers for Mr. Yeatts didn't respond to requests for comment.

Mr. Yeatts's lawsuit offered a behind-the-scenes look at a turbulent series of years for Warsaw, Ind.-based Biomet, which merged with Zimmer Holdings Inc. in 2015.

The dispute centered on a Brazilian distributor, Prosintese, which Biomet terminated in 2008 after learning it had bribed health-care providers to promote Biomet products, according to the Seventh Circuit's ruling.

Soon after moving to cut ties with Prosintese, Biomet began doing business with another distributor, Bio2, which hired the owner of Prosintese as a consultant, the court said. Mr. Yeatts, who was a business manager for Biomet's South American operations, continued to communicate with Prosintese's owner -- who was now Bio2's consultant.

Meanwhile, Biomet came under investigation by U.S. authorities for making improper payments to public health-care providers in Argentina, Brazil and China.

The company in 2012 agreed to pay more than $22 million to resolve violations of the FCPA in joint settlements with the U.S. Justice Department and the Securities and Exchange Commission. The misconduct stretched from roughly 2000 to 2008, authorities said.

As part of its settlement with the Justice Department, Biomet also agreed to hire an independent monitor to oversee the company's compliance program for an 18-month period.

Biomet's respite from legal scrutiny didn't last long. In 2013, it received an anonymous whistleblower email about the Prosintese owner's ongoing work for the company, according to the Seventh Circuit ruling.

Under the terms of the company's 2012 settlements, Biomet was forced to alert the Justice Department and its compliance monitor to the allegations, which caused prosecutors to launch another investigation, the court said.

Biomet eventually concluded that Mr. Yeatts had continued to market and sell Biomet products in Brazil with the Prosintese owner, despite the prohibition against doing so, it said.

Biomet suspended Mr. Yeatts in April 2014 and terminated him in September 2015. Meanwhile, in response to a recommendation by its monitor, it issued a restricted parties list, which included Mr. Yeatts. A statement included with the list said that the entities on it posed "significant and unacceptable compliance risks." The list was sent to employees and business partners in Latin America, the court said.

The Justice Department finished its second investigation of Biomet in 2017 and concluded that the medical device manufacturer hadn't complied with its 2012 agreement.

Biomet entered into a second agreement with the department and the SEC in 2017, when it agreed to pay another $30 million in penalties.

Write to Dylan Tokar at dylan.tokar@wsj.com

(END) Dow Jones Newswires

October 10, 2019 19:30 ET (23:30 GMT)

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