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Defamation Claim Advances By Former Biomet Argentina Employee Against Zimmer Biomet Holdings

Foreign Corrupt Practices Act enforcement actions rarely tell the whole story about the facts and circumstances relevant to the underlying action. Thus, it is nice (from the perspective of getting a more complete alleged picture including specific names relevant to an FCPA enforcement action) when civil litigation is filed in connection with an FCPA enforcement action.

Such is the case regarding a recent civil action filed by Alejandro Yeatts, who from 2005 to September 2015 was employed by Biomet Argentina, in which he alleges various tort claims against Zimmer Biomet Holdings. Although the court recently dismissed Yeatts’s intentional infliction of emotional distress and negligent infliction of emotional distress claims, the court denied Zimmer’s motion to dismiss Yeatts’s defamation claim meaning the claim will advance to the next stage in litigation.

This post summarizes Yeatts’s defamation claim and the court’s recent decision (Yeatts v. Zimmer Biomet Holdings, 2017 WL 1375117 (N.D. Ind., Apr. 17, 2017).

In terms of relevant background, as highlighted in this prior post [1] in March 2012 Biomet resolved an FCPA enforcement action involving alleged conduct in Brazil, Argentina, and China by agreeing to pay approximately $22.8 million ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint).

As highlighted in this prior post [2], in January 2017 Biomet became a repeat offender as the DOJ determined that Biomet had breached its prior DPA and in the second FCPA enforcement action against Zimmer Biomet Holdings (in 2015 Zimmer Holdings acquired Biomet) and Biomet a portion of the improper conduct involved the same distributor in Brazil that gave rise to the 2012 FCPA enforcement action. The overall settlement amount in the 2017 FCPA enforcement action was approximately $30.4 million ($17.4 million paid in connection with the DOJ enforcement action and approximately $13 million paid in connection with the related SEC enforcement action).

It is against this backdrop that in October 2016, Yeatts filed his claims against Zimmer Biomet. As stated in the court’s opinion:

“According to his complaint, Alejandro Yeatts is a resident of Argentina, who from 2005 to September 4, 2015 was employed by Biomet Argentina, SA, a subsidiary of the Defendant, Zimmer Biomet. In July 2007, Yeatts attended a presentation by Biomet’s Compliance Officer regarding the Foreign Corrupt Practices Act (“FCPA”).

Yeatts alleges that after witnessing this presentation, he reported to the Compliance Officer that Biomet Argentina employees had paid commissions to induce government employed doctors to use Biomet products. After hearing nothing further from the Compliance Officer, Yeatts approached an in-house attorney for Biomet International at a meeting of the American Academy of Orthopedic surgeons and reported the alleged payments to her.

Until 2008, Zimmer Biomet was a party to a distribution agreement between Biomet International and Prosintese, a Brazilian company owned by Sergio Galindo. Prosintese made payments to doctors employed by the government who used Biomet products. In May 2008, Zimmer Biomet General Counsel Bradley Tandy wrote Galindo a termination letter, which stated that Biomet has learned of Prosintese’s business practices and that Zimmer Biomet was terminating its relationship to Prosintese.

On March 26, 2012, Zimmer Biomet and the United States Department of Justice (“DOJ”) entered into a deferred prosecution agreement (“DPA”), pursuant to which the DOJ agreed to defer prosecution of a criminal information charging the company with five felonies, which include violations of the FCPA based on payments made by the company to government doctors. Zimmer Biomet agreed to pay a penalty of $17,280,000. In the DPA, Zimmer Biomet admitted to having knowledge of Prosintese’s payments to doctors in Brazil since at least 2001.

In his complaint, Yeatts alleges that Zimmer Biomet breached the 2012 DPA by continuing to maintain a relationship with Galindo and Prosintese. Yeatts further alleges that when Zimmer Biomet became aware that he knew about the breach of the DPA, a company attorney met with him and accused him of continuing to deal with Galindo and Prosintese and concealing this to his superiors. In April 2014, Biomet Argentina suspended Yeatts’s employment and ultimately terminated him on September 4, 2015.

Zimmer Biomet asserts in its memorandum in support of its instant motion to dismiss that on the same day Yeatts was terminated, he entered a settlement agreement with Zimmer Biomet. Zimmer Biomet states that both parties were represented by counsel during negotiations, which concluded with Zimmer Biomet paying Yeatts approximately $350,000 in exchange for his release of “’any and all claims’ against Biomet Argentina, SA, and any ‘associated or continuing companies’— without limitation.” Zimmer Biomet attached a copy of the settlement agreement to its memorandum filed on November 7, 2016.

Yeatts’s complaint also alleges that on October 24, 2014, while he was suspended but before he was terminated, Antje Petersen-Schmalnauer, Chief Compliance Officer, Vice President and General Counsel of Zimmer Biomet, sent an email, addressed to “CPWAR DueDiligence (Mailbox)” that informed its readers that Yeatts engaged in criminal activity. Yeatts quoted the email as follows:

Biomet Inc. and its worldwide subsidiaries (“Biomet” or the “Company”) are committed to complying with the anti-corruption and anti-bribery laws in all countries in which Biomet operates. In furtherance of that commitment, Biomet has identified several entities that pose significant and unacceptable compliance risks. The Company has placed these entities on a Restricted Parties List. All Biomet employees, agents, third parties, and any individual or entity performing services for or on behalf of Biomet, anywhere in the world may not do business with any entity on the Restricted Parties List.

Yeatts further alleges in his complaint that the “Restricted Parties List” that was attached to the email included Yeatts’s name and stated that he had been suspended in connection with a corruption-related investigation involving Brazil.

Yeatts’s defamation claim (Count I) alleges that the message in the October 24, 2014, email—that Yeats had engaged in this criminal activity—was false and constituted defamation per se. Further, Yeatts alleges that Zimmer Biomet published the email with malice, knowing that the statements regarding Yeatts were false, or with reckless disregard of their falsity. Also, Yeatts alleges that the publication of the defamatory material damaged his reputation for honesty, integrity, morality and law abidingness; exposed him to harassment, public contempt and ridicule; caused him to lose professional stature; impaired his employment and earnings opportunities for the rest of his life; and caused him to suffer great pain and mental anguish.

In his intentional infliction of emotional distress claim (Count II), Yeatts alleges that Zimmer Biomet engaged in extreme and outrageous conduct by knowingly publishing false information in the October 24, 2014, email. Furthermore, Yeatts alleges that he suffered severe emotional distress as a result of Zimmer Biomet’s extreme and outrageous conduct. Lastly, Yeatts’s negligent infliction of emotional distress claim (Count III) alleges that he suffered severe emotional distress as result of Zimmer Biomet’s negligence in publishing the email containing false information.

In the instant motion to dismiss, Zimmer Biomet argues that Yeatts has failed to state any claim for which relief can be granted. Specifically, Zimmer Biomet contends that (1) on September 4, 2015, Yeatts entered into a binding settlement and release agreement (“settlement agreement” pursuant to which he released “any and all claims” he had against Zimmer Biomet; (2) Count I is inadequately pleaded because Yeatts did not sufficiently plead either a false statement or actual malice; (3) Count II fails to state a claim because Yeatts did not allege either outrageous conduct or that Zimmer Biomet acted intentionally to harm him; and (4) Count III fails to state a claim because Yeatts did not plead physical impact sufficiently.”

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After setting forth the required elements of defamation, the court concluded:

“In support of its claim that Yeatts has not alleged any false statement in the Schmalnauer email, Zimmer Biomet relies upon the alleged opinion nature and truth of the exact words in the email as evidence that there is no false statement in the email and therefore no allegation of a false statement in Yeatts’s complaint.

In his complaint, Yeatts alleges that the Schmalnauer email “informed its readers— falsely—that [he] had engaged in criminal activity.” Yeatts then quotes the email, part of which allegedly stated, Biomet has identified several entities that pose significant and unacceptable risks.

The Company has placed these entities on the Restricted Parties List. Yeatts further alleges that his name was included in the “Biomet, Inc. Restricted Parties List” attached to the email with a statement that Yeatts had been “suspended in connection with a corruption-related investigation involving Brazil.”

Zimmer Biomet contends that the statement that “Biomet [had] identified several entities that pose significant and unacceptable risks” was neither defamatory nor false because it was merely the speaker’s opinion, which is not actionable for defamation. Indeed, subjective statements of opinion that merely express a speaker’s subjective view, interpretation, or theory is not untrue. Meyer v. Beta Tau House Corp., 31 N.E.3d 501, 515 (Ind. Ct. App. 2015). However, opinions are only shielded from liability for defamation if “a reasonable listener would take [the speaker] to be basing his ‘opinion’ on knowledge of facts of the sort that can be evaluated in a defamation suit.” Sullivan v. Conway, 157 F.3d 1092, 1097 (7th Cir. 1998). Moreover, a speaker implies knowledge of facts that would support the conclusion when expressing an opinion. See Milkovich v. Lorain Journal Co., 497 U.S. 1, 18–23 (1990). Therefore, the Court must consider the circumstances of the “utterance” of the opinion to determine whether a statement of opinion is actionable.

Yeatts argues that by attaching his name to the Restricted Parties List described in the email and referencing the “corruption-related investigation in Brazil,” Zimmer Biomet implicitly implicated Yeatts in its FCPA violations when it identified him as posing a “significant and unacceptable compliance risk [ ].” Accordingly, a reasonable recipient of the Schmalnauer email would connect Yeatts to Zimmer Biomet’s criminal activities, especially if Yeatts is correct that the recipients all had knowledge of the investigation, deferred prosecution agreement, and criminal penalty paid by Zimmer Biomet. Yeatts also alleges that he was not involved in the corruption at Zimmer Biomet and that his contacts and relationship with Galindo were approved by his superiors at Zimmer Biomet. Therefore, Zimmer Biomet’s focus on the exact words of Yeatts’s allegations regarding the Schmalnauer email fails to capture the effect of the circumstances surrounding the email even assuming that the email explicitly presented facts that are undisputedly true. Consequently, Yeatts’s complaint has plausibly pleaded that the statements in the email were false.

b. Actual Malice Zimmer Biomet also argues that Yeatts failed to allege actual malice by Zimmer Biomet. “Actual malice, as an element of the tort of defamation, exists when the defendant publishes a defamatory statement ‘with knowledge that it was false or with reckless disregard of whether it was false or not.” ’ Shrine v. Loomis, 836 N.E.2d 952, 958 (Ind. Ct. App. 2005) (citing New York Times Co. v. Sullivan, 376 U.S. 254, 279-80 (1964)). Zimmer Biomet argues that Yeatts’s complaint makes a conclusory allegation against Zimmer Biomet, failing to allege any actual malice. However, Yeatts’s complaint explicitly alleges that he was unaware that Zimmer Biomet did not want him to engage with Galindo or Prosintese; that Zimmer Biomet knew about and approved of his engagement with Galindo; and that when Zimmer Biomet’s counsel interviewed him regarding the alleged violations of the DPA, he explained that he was acting with approval of Zimmer Biomet. Taking Yeatts’s allegations as true, it is reasonable to infer that Zimmer Biomet was aware that Yeatts was acting with its approval when it published the October 24, 2014, email implicating Yeatts as a compliance risk. Accordingly, Yeatts has plausibly pleaded that Zimmer Biomet knew the email was false, or acted with reckless disregard of its falsity when it published it. Therefore, Yeatts has pleaded actual malice and his defamation claim survives Zimmer Biomet’s Rule 12(b)(6) challenge.”

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