Overview
On August 8, 2017, one day before trial in this derivative action, Cohen Milstein successfully negotiated a $15 million monetary package consisting of cash and options (which together have a present value of $20.2 million) to be paid by the individual defendants back to Intuitive. The settlement also requires the company to adopt extensive corporate governance, insider trading, and product safety measures designed to prevent the reoccurrence of the alleged wrongdoing. In plaintiff’s expert’s opinion, a reduction in the risk of recurrence of events similar to the ones experienced here (which resulted in a 30% drop in stock value and the establishment of a $100 million product liability reserve), translates into a benefit of $117 million to Intuitive and its shareholders. The proposed settlement resolves multiple shareholder derivative actions pending in California state court, California federal court, and Delaware state court, as explained below.
Case Background
On February 21, 2014, Public School Teachers’ Pension and Retirement Fund of Chicago, a shareholder of Intuitive Surgical, Inc., filed a state action against the company’s directors and officers, alleging they covered-up safety defects in the company’s flagship product, the da Vinci robotic surgery system. Federal and Delaware derivative lawsuits were also filed, but stayed while the state action proceeded to discovery and trial.
On March 26, 2015, after more than a year of defendant’s multiple failed attempts to stay and dismiss the lawsuit, Judge Gerald J. Buchwald of the Superior Court for the State of California, San Mateo County, categorically denied the defendants’ motion to dismiss and ordered the defendants to finally answer Chicago Teachers’ allegations.
The Court noted that “[g]iven the entirety of the allegations, it defies reason that Intuitive’s nine directors could be blind to widespread regulatory violations being committed with respect to the Company’s sole product.” As such, the court found that Chicago Teachers had “shown that all nine directors faced a substantial likelihood of personal liability for failure of oversight.” Finally, among other things, the court found that the allegations showed that five of the company’s nine directors, constituting a majority of the board, sold company stock “motivated by inside information” about the undisclosed safety defects and regulatory violations, exposing them to a “substantial personal liability risk for insider trading.”
The case involved extensive discovery, with 24 depositions, including of directors, officers, and key Intuitive personnel and third party consultants, taken in the span of a few months. Further, six experts were deposed on FDA regulatory compliance, corporate governance and damages. On August 8, 2016, one day before trial in the state action was to begin, the settling parties agreed on the terms of a settlement. An arbitration panel consisting of three prominent arbitrators subsequently adjudicated the attorneys’ fees and expenses to be paid by Intuitive Surgical to plaintiffs’ counsel based on the results and value of the settlement achieved, issuing an award of $15.78 million in attorneys’ fees and $944,084 in expenses. On August 9, 2017 the California state court issued an Order Setting Settlement Hearing and Approving Notice of Proposed Derivative Settlement, and setting the matter for final approval on October 20, 2017. The court granted final approval of the settlement and attorneys’ fees and expenses on October 20, 2017.