July 1, 2001 - Sulzer Orthopedics In Trouble Over Defective Hip Implant

Sulzer Medica Ltd. offered to settle lawsuits stemming from faulty hip and knee implants for $750 million on Wednesday. The settlement offer consists of a mix of two-thirds cash and one-third stock compensation. While many lawyers and patients are skeptical, implant maker's stock soared on Wall Street.

Sulzer Medica's shares rose 63 percent, or $3.30 per share, on the New York Stock Exchange Wednesday to close at $8.50 a share. Before the implant troubles, the company's stock traded closer to $30 a share; afterward, it hit a low of $4.05 a share.

Shares rose 35 percent in Switzerland, where the company is based, and analysts hailed the novel settlement, which includes cash payments and stock, as a great deal for Sulzer. "It's very good news, especially the fact that compensation payments for operations could turn out, if successful, much lower than feared," said Roland Leutenegger, an analyst at Bank Sal. Oppenheim. "This could have led the company to bankruptcy."

More than 1,200 lawsuits have now been filed against Sulzer and its Austin-based Sulzer Orthopedics division, which employs 600 people. Although the company originally said that no other products were affected, Sulzer quietly withdrew knee implants from the market in May after discovering a similar problem.

Sulzer recalled 40,000 hip implants in December, nearly four months after the company began investigating complaints that its porous-coated hip shells were failing. Sulzer discovered a change in the implant's manufacturing process left a small amount of oil on the implants, preventing them from bonding to some patients' bones.

But even as Sulzer stock rallied, lawyers for patients who received the faulty hip and knee implants were busy preparing arguments against the proposed class-action settlement, which must be approved by a judge and Sulzer shareholders. Patients can opt out of the settlement and pursue their own lawsuits.

Lawyers from around the country are already booking flights to Cleveland to protest Sulzer's motion. The first state case against Sulzer is scheduled to begin Monday in Corpus Christi. On Friday, Cleveland federal Judge Kathleen O'Malley is expected to give preliminary approval to the settlement deal and suspend all state lawsuits while she considers it.

Houston lawyer Denman Heard, who represents three people who received faulty hip implants in a case that may or may not be going to court Monday, is sending an associate to Cleveland. "The settlement proposal I read is ridiculous for the clients I represent," Heard said.

An estimated 1,650 patients received those implants, and Sulzer now says that around 31,000 people got the faulty hips. The company has since changed its manufacturing process to more thoroughly clean the implants. So far, Sulzer says, 2,353 faulty hips and 280 knees have been surgically replaced.

On Tuesday night, the company announced it had reached a settlement with a group of lawyers who have filed class-action lawsuits. The settlement would keep the company solvent and prevent it from filing for bankruptcy protection, Sulzer spokesman Bill Miller said.

Sulzer agreed to pay patients who underwent surgery to replace one implant $57,500 in cash and stock. Patients who had more than one implant replaced would receive $97,500 in cash and stock. Patients who did not need surgery would get $2,750. Their spouses would also be compensated.

The amounts are on top of the company's pledge to pay for patients' medical expenses not covered by insurance. The average hip and knee operations cost around $26,000.

Sulzer called the offer of stock to patients a "landmark" deal that has not been seen in other class-action cases. "It's got this upside that's spectacular," Miller said, noting that as stock goes up in value, so does the value of the settlement.

This isn't the first time, however, a company has offered its own stock in a class-action settlement. Diet drug manufacturer Interneuron Pharmaceuticals Inc. offered a similar cash-equity mix in a settlement agreement in 1999, although the federal judge nixed the offer on other grounds. And Johns Manville, a building materials manufacturer, used cash and stock to settle an asbestos-related class-action lawsuit.

While legal experts said such offers are interesting, albeit rare, they cautioned Sulzer faces significant hurdles in getting the deal approved. "I would call it a shrewd and much more respectable and reasonable settlement offer than we've seen in comparable cases in the past," Georgetown University law professor Heidi Li Feldman said. "There is something commendable about what this company is trying to do. . . . Landmark is a little hyperbolic for my tastes."

The Mississippi trial lawyers brought in to negotiate the deal said that it is the only way to keep the company from filing for bankruptcy protection, an argument echoed by Sulzer Orthopedics president David Floyd.

"(The settlement) really meets the two concerns that we had," Floyd said Tuesday. "How do we adequately address the problems of the patients that have been affected by this situation in a fair and equitable manner and in a way that allows us to continue to operate and do business and serve surgeons and customers in the future?"

Other companies that have been the target of massive class-action lawsuits have eventually filed for bankruptcy protection, although many of them still exist. Dow Corning Corp. filed for bankruptcy protection in 1995 after more than 170,000 women brought breast implant suits against the company.

Most companies wait until a verdict has actually been reached before they start seriously considering a bankruptcy filing, said Roger Trangsrud, an associate dean at George Washington University's law school. "Most corporate defendants view the bankruptcy option as the last resort," Trangsrud said.

Corporations increasingly are seeking bankruptcy protection as a tactic when facing such litigation, said Feldman, terming it a stalling tactic. "When Congress enacted current bankruptcy law, no one anticipated companies would decide to seek shelter in bankruptcy protection in order to hide from having to pay tort plaintiffs," Feldman said.

Since August 2001, 2,380 patients have undergone new surgery to replace defective Sulzer hips, and there a presently over 1,000 cases pending against Sulzer. If you or someone you know has had a hip replacement involving a defective Sulzer implant, it is important to seek medical and legal assistance as soon as possible. In all medical product liability cases it is essential that measures be taken promptly to preserve evidence, investigate the procedure in question, and to enable physicians or other expert witnesses to thoroughly evaluate any injuries. If you believe that you may be a victim of a defective hip implant, call now at or CLICK HERE TO SUBMIT A CASE FORM. The initial consultation is free of charge, and if we agree to accept your case, we will work on a contingent fee basis, which means we get paid for our services only if there is a monetary award or recovery of funds. Don't delay! You may have a valid claim and be entitled to compensation for your injuries, but a lawsuit must be filed before the statute of limitations expires.

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