Class Action Suit Against Medtronic Remanded to District Court
The Minnesota Supreme Court sent a class-action lawsuit against Medtronic back to district court on Wednesday that alleged shareholders were hit with millions of dollars in capital gains taxes when the medical device maker purchased Irish-based Covidien in 2014 and used the transaction to move its legal headquarters out of the U.S.
The tactic of relocating a company’s headquarters to a foreign country, known as an “inversion” deal, is considered a taxable event for the shareholders of the U.S. company. In an opinion written by Minnesota Chief Justice Lorie Skjerven Gildea, she wrote, “Medtronic shareholders incurred a capital-gains tax on Medtronic shares held in taxable accounts but received no compensation from the company for this tax liability. On the other hand… Medtronic officers and directors who incurred an excise-tax on their stock-based compensation as a result of the transaction were reimbursed by Medtronic for that expense.”
The class action lawsuit, led by shareholder Kenneth Steiner, had been dismissed in a lower court by a ruling that shareholders did not have the ability to sue.
As pointed out by the Star Tribune, “Minnesota law give corporate boards — not shareholders — the exclusive right to file litigation against a company to recover alleged damages, or to decide that a lawsuit is not in the company’s best interest.”
The particularity of this case, however, played to Steiner’s benefit as shareholders were allegedly impacted while the company benefited from the tax benefits and financial gains of moving to Ireland.
The decision by the Minnesota Supreme Court remands the case back to Hennepin County District Court where, after more pretrial hearings, a trial may proceed.
Medtronic told the Star Tribune that it was still analyzing the judge’s opinion on Wednesday and didn’t have an immediate comment.
Steiner’s attorney, Vernon Vander Weide, told the newspaper that his party was “pleased” with the court’s decision and was “looking forward to resuming the litigation in the District Court.”