At 4:00 a.m. on the morning of May 4, 2011, David Stevens, chairman of the board of Wright Medical Technologies, Inc. picked up his phone and called Cary Hagan, the company’s top executive for Europe, the Middle East and Asia. Stevens told Hagan he would be terminated if he did not resign immediately.
“Humiliating and Contrived Termination”
Hagan claims that Stevens made it clear that the only option in lieu of a humiliating and contrived termination was to sign a resignation letter.
The letter stated: “This letter shall serve as confirmation that my resignation…is not because of a disagreement with the company on any matter relating to the company’s operations, practices or policies.”
Hagan signed the letter but now says it wasn’t true.
And so began the public disclosures of Wright’s private struggles to comply with a deferred prosecution agreement (DPA) imposed by the U.S. Department of Justice (DOJ). Eight months later Hagan would blow the lid off Wright’s struggles by filing a Breach of Contract and Retaliatory Discharge lawsuit against the company.
OTW has obtained and read a copy of Hagan’s Complaint.
According to documents filed by Hagan’s attorney in court, Stevens forced him to “resign” with no prior warning, notice or hint of suggestion that Hagan had failed to perform his duties. Stevens told Hagan the reason for the termination was “compliance issues.”
“Retaliation” and “Scapegoat” Allegations
Hagan fires back that the charge was “bogus” and says his wrongful and forced resignation was in retaliation for his documented criticism of Wright’s compliance failures and to placate the Department of Justice during its ongoing investigation of Wright for the very type of compliance issues that Hagan had reported to the company’s Board five months earlier.
In fact Hagan claims that Stevens had previously sent him an “unsolicited” personal note congratulating him on his “outstanding accomplishments”. Stevens, according to the suit, “acknowledged Mr. Hagan’s success at a level that ‘historically did not appear achievable.’”.
Hagan alleges that the early morning phone call was made to allow the company to file SEC papers later in the day and offer him up as a “scapegoat” to protect the board’s reputation with prosecutors and investors for mishandling the monitoring program.
Hagan further alleges that Ed Steiger, Wright’s senior vice president of human resources, who was also on the early morning call, told Hagan that if he didn’t sign the letter, Hagan would be publicly mentioned “in what was clearly to be a negative, derogatory and defamatory manner” in an upcoming press release from Wright “in an identical manner as had been a case with the recent firing of another Wright senior executive, Frank Bono.” Hagan signed the letter, but handwrote a note across the letter that stated, “By signing this letter I do not waive any recourse against Wright Medical, including rights to severance and bonus.”
Hagan says he was told in a cell phone call by another corporate officer on the same day that if he filed a lawsuit against Wright, its Board of Directors, or its Monitor under the DOJ proceeding, Wright would recommend Hagan for exclusion from participating in the U.S. Medicare and Medicaid programs. A death sentence for anyone trying to work in orthopedics.
Other Terminations
Hagan wasn’t the only executive terminated on May 5. The company also accepted the resignations of Senior Vice President, General Counsel and Secretary Raymond Kolls as well as Vice President of Clinical & Regulatory Affairs Alicia Napoli.
All three executives were said according to a company statement to have resigned without “good reason.”. Such a designation prevented the employees from collecting severance benefits. These terminations followed the resignation of former CEO Gary Henley and the termination of the company’s Chief Scientist Frank Bono just one month earlier.
DPA Breaches
The terminations and SEC filings weren’t all that happened on May 5. Later in the day the U.S. Attorney in New Jersey warned the company that it was out of compliance with their DPA. The feds, according to a company SEC filing, said Wright “knowingly and willfully committed at least two breaches of material provisions of the DPA.”
The warning followed the company’s disclosure to the feds on May 4 that it had discovered “credible evidence of serious wrongdoing.”
Over the ensuing months, the company hired a new CEO, removed the chief compliance officer and extended their federal monitoring program for 12 more months. The company did its best to put this disruption behind it and get back to business.
Hagan, Bono, Napoli File Suits
But then came January 5 and 6, 2012, when Hagan and Bono filed separate wrongful termination lawsuits against the company in the Chancery Court at Memphis, Tennessee. We have learned that a third executive, Alicia Napoli, has also filed suit.
Hagan wants to be awarded compensatory damages for non-economic harm (humiliation and embarrassment) and economic harm (including loss of salary, bonus, stock options and grants and all forms of compensation or remuneration) and punitive damages sufficient to compensate for his common law retaliatory discharge from Wright.
This week we review the history of Wright’s DPA and monitoring program with the feds and look specifically at some of the allegations made by Hagan in his lawsuit. Next week we’ll look at Hagan’s action in trying to warn the Board of severe problems with the company’s compliance program and allegations made by Bono and Napoli in their lawsuits.
Wright’s Compliance Gambit
According to Hagan’s lawsuit, Wright had a history of “major” regulatory and legal compliance issues, resulting in civil and criminal claims made against them by the government after a major investigation by the DOJ beginning in 2008.
Wright entered into a DPA with the New Jersey U.S. Attorney on September 29, 2010, agreeing to a $7.9 million fine and accepted a federal monitor to oversee the company’s compliance with the DPA for one year.
Wright picked James Tucker of Butler, Snow, O’Mara, Stevens & Cannada with offices in Memphis as the monitor and the U.S. Attorney agreed with choice.
Sources tell us that the agreement to complete a monitoring program in 12 months instead of the 18 months agreed upon by Wright’s larger competitors the previous year, laid at the heart of the unraveling of Wright’s DPA. The sources tell us that the company believed that it could complete a shorter monitoring period because of lessons from their competitors’ programs.
Wright’s Board of Directors went to “great and unreasonable” lengths to “placate” the Monitor and demonstrate their cooperation, states Hagan’s suit.
The Board, at the “insistence” of the federal monitor, identified Lisa Michels, the company’s chief compliance officer, as being “instrumental and critical” in appearing to be in compliance with the DPA. The result was the she was “shielded” from criticism.
Internal Criticism Over Michels
And criticism, lots of it, occurred.
According to Hagan, he and other Wright employees raised “documented” concerns about Michels’ “inability” to manage the company’s compliance program. The complaints cited “clerical errors, process communication errors, missed deadlines, and repeated failures to attend critical meetings, ” even when those meetings were scheduled to suit Michels’ calendar.
Employees took a trans-Atlantic flight to attend meetings for which Michels “would” not appear. But the Board “repeatedly” ignored the concerns.
In fact, claims Hagan, the Board “wrongfully terminated” Hagan and others who raised concerns about Michels in order to “demonstrate its commitment” and “prove” to the Monitor that the company supported its compliance program.
“By blindly supporting Ms. Michels, in lip service to the dictates of the Monitor, and by dismissing the valid concerns raised regarding Ms. Michels and Wright’s compliance program, Wright’s Board of Directors demonstrated that it was far more concerned with the appearance of compliance than it was with actually complying with applicable laws and regulations, as well as the specific terms of the DPA.”
“Inappropriate” Monitor Behavior
Hagan also claims the Board “abdicated” its responsibilities by permitting the Monitor to “increasingly, and inappropriately, inject itself into areas of corporate governance.
The Monitor, according to Hagan, appeared to have influenced the Board to mandate that no terminated employees with “issues” could receive severance. Hagan says this was done despite the “compelling and direct protestations” by former CEO Gary Henley.
Hagan alleges that Monitor reports consistently described “dissatisfaction” with Wright’s management’s “tone at the top.” Sources tell OTW that Henley’s “resignation” occurred just before an unfavorable Monitor report to the U.S. Attorney in New Jersey.
DPA Extension-Michels Terminated
But despite the “hastily conceived efforts” to terminate officers of Wright in order to obtain the dismissal of the DPA, the DPA was extended for at least one year in September 2011.
The DPA was extended because of Wright’s “serious continuing problems and deficiencies with its Compliance Program, exposing the tremendous irony of Wright’s wrongful termination of Mr. Hagan due to ‘compliance issues, ’” states Hagan’s suit.
Yet, despite two years of “repeated documentation of Ms. Michels’ failure to perform, ” Michels remained in her job. Prior to the extension of the DPA, Wright knew that its “gambit of blindly supporting Ms. Michels in an effort to avoid extension of the DPA had failed, ” says Hagan.
Accordingly, says Hagan, on August 16, 2011, Wright finally terminated Michels presumably based on the company’s “unreasonably delayed conclusion that she was not capable of performing her assigned tasks.”
All this caused embarrassment to the Board and senior leadership (other than Gary Henley) and it then attempted to distance itself by directing “blame” onto others.
Next Installment: Board Warnings and Compliance Program Lessons
In the next installment of the Wright lawsuits, we’ll look into the “serious continuing problems and deficiencies” with the company’s compliance program described in the lawsuits and what the terminated employees said they did to warn the Board. We’ll also look at the common threads of the multiple suits for lessons on running a corporate compliance program.
