The meeting was unprecedented.
On February 11, 2011, a senior Wright Medical Technology, Inc. executive was warning members of the company’s Board of Directors’ Corporate Governance Committee that the company’s compliance program had “serious continuing problems and deficiencies.”
Those problems eventually resulted in a 12-month extension of the company’s Deferred Prosecution Agreement (DPA) with the Justice Department (DOJ).
That executive was Cary Hagan, head of the company’s operations in Europe, Africa and the Middle East. Hagan however, was not the only Wright executive who had warned senior company leaders of serious problems with the DPA.
Wrongful termination lawsuits filed in early January 2012 by Hagan and two other former Wright executives, Frank Bono and Alicia Napoli, allege that they were terminated for raising those warnings.
Last week we reported on certain allegations from Hagan’s lawsuit against the company’s Board of Directors. This week we look at the Bono and Napoli lawsuits and specific problems identified by Hagan, Bono and Napoli over the performance of Lisa Michels, the company’s chief compliance officer.
Frank Bono
Frank Bono began his career with Wright in 2007 as the company’s senior vice president, research and development. According to his lawsuit, he received “sterling” performance reviews during his tenure.
On April 1, 2009, Bono and Wright executed a Separation Pay Agreement (SPA) and on January 8, 2010 the title of senior vice president and chief technology officer was added to his name.
According to Bono’s lawsuit, Wright gave Bono an unsigned letter of termination on April 4, 2011, purporting, says Bono, to terminate his employment “for cause.” Pursuant to the letter, Bono claims that the Board decided to terminate him for three reasons:
First, that he allegedly “engaged in actions that were directly inconsistent with the requirements of the Company’s compliance program;”
Second, that Bono allegedly was “less than candid and forthcoming with the Board and its committee about facts related to compliance;”
Third, that Bono allegedly “created a backdated memo intended to mislead certain surgeon customers about facts related to the company’s compliance efforts.”
Bono disputes the allegations and claims he did nothing to give “cause” for his termination. In fact, he claims he was terminated for raising warnings about the ability of Michels to ensure the company’s compliance with the DPA. He said he even raised the concerns with the federal Monitor.
He claims raising those concerns were a “substantial” factor in the decision to terminate him.
Defamation
After his termination, he says the company published numerous statements that are injurious to his reputation and ability to secure future employment. The statements included that he was “fired” or “terminated” because he “failed to exhibit appropriate regard for Wright’s ongoing compliance program.”
He says Wright knew these allegations were false and as a result of the defamatory statements, impaired his reputation and standing in the community and has caused him personal humiliation, mental anguish, and suffering.
Alicia Napoli
Napoli began her career at Wright in April 2008 as vice president, clinical and regulatory and claims in her suit that she regularly received excellent performance reviews. On April 1, 2010 she also executed a Separation Pay Agreement with the company.
On March 10, 2011, Napoli said she received a reprimand letter “purporting to ‘document the implications related to [an] investigation of reported compliance violations by Napoli.’”
The noted violations related to the company’s compliance hotline. She says the letter stated that it was not believed that she committed any violations of law. She claims the letter was rife with factual errors and misstatements as to Wright’s policies and devoid of anything that Napoli did wrong. She was however, stripped of certain job responsibilities.
She claims every action that she took was sanctioned by Lisa Michels and Ray Coles, another Wright official, or was in strict compliance with the existing processes, policies, practices and procedures in place at Wright at the time.
Threats of Professional Ruin
On May 3, she claims she was given an unsigned letter of resignation. She said she was told her that if she didn’t sign it she would risk termination and “professional ruin through negative media.” She characterized Wright’s actions as “extortionist and outrageous conduct.”
Like Bono, Napoli claims she also raised concerns to Wright’s Board of Directors about the quality of Wright’s compliance program and about Michels’ ability to ensure Wright’s compliance. Raising those concerns were, according to Napoli, a “substantial” factor in Wright’s decision to terminate her.
Complaints Against Michels
What were some of those specific concerns noted in the lawsuits?
Hagan says in his suit that he was responsible to help structure and implement “much needed” regulatory compliance improvements and safeguards that were required by the DOJ. He had to work through and with Michels.
On December 2 and 3, 2010, Hagan and his key colleagues in Compliance travelled from Amsterdam to Wright’s main office in Tennessee for the sole reason of meeting with Michels about “serious compliance issues he had identified and about which he was concerned.”
Hagan says he had previously attempted to bring these issues to Wright through Michels and others and on May 5, 2010 began documenting those attempts in serial meeting minutes.
Those minutes, claims Hagan, show who was or was not present at meetings and meetings cancelled by Michels. He says the meetings were scheduled by Eric Stookey, Wright’s VP of commercial operations or Gary Henly, the CEO. “Despite her poor record of attendance, Ms. Michels later asked that she appear on Wright’s corporate records as the scheduler of these discussions because it ‘looked better’ to the Monitor, ” alleges Hagan. He says the meetings then stopped.
Hagan says that a specific series of meetings between himself and Michels which were intended to take place over that time were “carefully, specifically and well-in-advance calendared. Michels failed to attend all but one of these meetings and arrived at that meeting significantly late and left early.” He says Michels “generally ignored” existing concerns regarding compliance issues and his requests for her assistance.
Hagan said he was concerned about Michels’ failure to attend the meetings and her “overall lack of response and concern” to compliance matters he was presenting. Those matter included clarification of general unresolved compliance issues in his territory—general clarifications such as when would meetings resume? Which national codes were to be followed? Questions about “Medical Education and Training Event Policy”
One of the education and training event policy questions identified in Hagan’s lawsuit involved, he claims, one “absurd” reason given for his termination by the company. And that was that Hagan had improperly “allowed” European employers or distributors to pay the travel and lodging expenses for orthopedic surgeons to attend [an] AAOS meeting in the U.S. But, says Hagen, the decision to do so was made “after full disclosure to, and with the concurrence” of, not only Michels, but also Stookey. This “well documented” decision had been made in a series of multiple conference calls claims Hagan. Neither Michels nor Stookey were disciplined. In fact, he says Michels remained at the company for months after his discharge and Stookey remains at Wright in his senior leadership position.
One former Wright employee tells OTW that he was present when Hagan and his team arrived from Amsterdam and Michels allegedly cancelled a meeting.
“Cary [Hagan] was absolutely furious, because he and a few of his VPs had flown over just for the purposes of meeting with her. I overheard him venting to another one of our SVPs (Bill Griffin) about what had happened. I believe she had cancelled the day of the meeting, ” says the former employee. He added that Michels “did things like that quite frequently” and that it was well known in all levels of the company.
Hagan Takes Concerns to Board
When Michels failed to address his concerns, Hagan said he took his concerns to the Board of Directors. He also notified, in writing, Henley and Ed Steiger, Wright’s senior VP of human resources.
Hagan said he personally requested and obtained a direct meeting with Board’s Corporate Governance Committee on February 11, 2011.
His lawsuit states that he laid out examples of Michels’ “lack of management” of his group’s compliance program, who reported to Michels, for the preceding year. The lawsuit lists at least nine examples of Michels’ lack of management.
Hagan says he described other “key incompetencies” in a document reviewed by the Board’s Governance Committee (which included David Stevens, John Miclot and Amy Paul) on February 11, 2011.
Hagan says the entire European compliance process moved forward “without a single communication” from Michels who did not participate in “any” of the execution of their plan. He also said Michels failed to reply to “multiple” requests to review, edit, and comment on their efforts for which they had been assisted by the law firm of Hogan Lovells.
The Boards Actions
Hagan said Wright’s Board had “clear knowledge” of his report. He says the Board’s “belief that the DPA process with Wright’s Compliance Program was being properly managed was directly called into question.”
Hagan said he was encouraged at first by the Governance Committee’s initial reaction to his report as the committee “seemed to recognize the repeated and dangerous neglect” by Michels. Yet, Hagan says, the Board failed to notify the Monitor of his concerns.
“Incredibly, ” says Hagan, instead of intervening positively to his “in-person” report, the Board “orchestrated a plan and scheme to deflect attention from itself and its compliance-related failure.”
The Board may have been successful.
After the executives were terminated, one analyst, BMO Capital Market’s Joanne Wuensch, wrote that it seems the company has taken a “zero-tolerance, take-no-hostages approach” to whatever it is that went wrong…we continue to recommend the stock and rate it OUTPERFORM.”
The lawsuits of Hagan, Bono and Napoli will now work their way through the courts to a possible jury trial. Such a trial will likely uncover additional details of Wright’s DPA troubles. We know that the allegations made by the three former executives are only one side of the story and would expect Wright to launch a vigorous defense.
