STATE OF MINNESOTA DISTRICT COURT

COUNTY OF HENNEPIN FOURTH JUDICIAL DISTRICT

Lewis Merenstein, on behalf of himself and all Court File No. 27-CV-14-11452
others similarly situated, Consolidated Case No. 27-CV-14-11420

Plaintiffs,
vs. ORDER GRANTING IN PART
AND DENYING IN PART
Medtronic Inc, Richard H Anderson, Scott C DEFENDANTS’ MOTION TO
Donnelly, Victor J Dzau, Omar Ishrak et. al., DISMISS

Defendants.

The above entitled matter came before the Honorable Francis J. Magill on May 31, 2018,

on Defendants’ Motion to Dismiss. Linda T. Coberly and David R. Marshall, Esq.’s appeared on

behalf of Defendants. Vernon J. Vanderweide, James S. Notis, Emily C. Komlossy, and Gregg M.

Fishbein, Esq.’s appeared on behalf of Plaintiff.

Based on all the files, records, and proceedings herein, the Court now makes the following:

ORDER

1. Defendant’s Motion to Dismiss is GRANTED in part and DENIED in part as

follows:

2. Defendant’s Motion to Dismiss is DENIED with respect to:

Count I Breach of Fiduciary Duties (Individual Defendants)

Count II Conspiracy, Aiding and Abetting the Director Defendants Breach of
Fiduciary Duties (Management and Corporate Defendants)
Count III Violation of Minn. Stat. § 302A.251 – Standard of Conduct (Director
Defendants)
Count IV Violation of Minn. Stat. § 302A.362 – Standard of Conduct
(Management Defendants)
Count V Equitable Relief Pursuant to Minn. Stat. § 302A.467
 Count VI Violation of Minn. Stat. § 80A.68 (Civil Remedies - § 80A.76 – Director
and Corporate Defendants)
3. Defendant’s Motion to Dismiss is GRANTED with respect to:

Count VII Unjust Enrichment and Restitution (All Defendants)

Count VIII Conspiracy and Aiding and Abetting Unjust Enrichment (All
Defendants)
Count IX Conversion (All Defendants)

4. The attached Memorandum is incorporated as if fully set forth herein.

Dated: BY THE COURT:

Magill, Frank
2018.08.29
14:50:27 -05'00'
__________________________________
The Honorable Francis J. Magill
Judge of District Court

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 MEMORANDUM
BACKGROUND

This matter is before the Court on Defendants’ second motion to dismiss. In March of 2015,

the Court dismissed all counts in Plaintiffs’ July 30, 2014, Amended Class Action Complaint.

Plaintiffs appealed, and the matter eventually returned on remand from the Minnesota Supreme

Court, where some of Plaintiffs’ original claims were revived. However, on January 18, 2019,

Plaintiffs replaced their Amended Class Action Complaint, with a rewritten and detailed Second

Amended Class Action Complaint (the “Complaint”.) Defendants now move, once again, to

dismiss Plaintiffs’ claims, this time from the newly revised Complaint, advancing arguments that,

for the most part, had not been raised in their previous motions.

The events giving rise to this action are well covered in the Court’s previous orders and in

the appellate courts’ decisions and thus they need not be repeated in detail here. Briefly stated, on

June 15, 2014, Medtronic announced that it had entered into an agreement to purchase Covidien,

an Irish public limited company. The merger was ultimately structured as an inversion (the

“Inversion”), whereby Medtronic, a Minnesota corporation, essentially re-domiciled in Ireland to

improve its tax position both generally, and with regard to foreign (outside of the U.S.) cash

reserves. Through an intricate series of transactions, Medtronic, Inc. (the U.S. Company) and

Covidien became subsidiaries of a newly formed Irish entity, Medtronic plc. Plaintiffs do not take

issue with the decisions to merge with Covidien, but rather, their criticism goes to the structure of

the transaction, specifically the resulting income tax burden visited upon the proposed class of

minority shareholders and the alleged wrongful dilution of the proposed class members’ ownership

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interests in the post-inversion company. 1

Plaintiff’s Second Amended Class Action Complaint adds detail, reframes allegations, and

advances alternative legal theories, but the predicate facts, and the events allegedly giving rise to

Plaintiff’s claims remain the same.

STANDARD OF REVIEW

On a motion to dismiss for failure to state a claim upon which relief can be granted, the

court considers “only the facts alleged in the complaint, accepting those facts as true and . . .

constru[ing] all reasonable inferences in favor of the non-moving party.” Herbert v. City of Fifty

Lakes, 744 N.W.2d 226, 229 (Minn. 2008) (quoting Bodah v. Lakeville Motor Express, Inc., 663

N.W.2d 550, 553 (Minn. 2003)). Under Minnesota’s liberal notice pleading standard, to survive

a motion to dismiss a plaintiff’s claim need only be pled such that it is possible that some evidence

could be produced, consistent with the pleader’s theory which would entitle them to relief. Walsh

v. U.S. Bank, N.A., 851 N.W.2d 598, 605 (Minn. 2014) (citing Hansen v. Robert Half Int'l, Inc.,

813 N.W.2d 906, 917–18 (Minn.2012)). In other words, a claim survives “unless it appears beyond

doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to

relief.” Id at 602.

When ruling on a motion to dismiss for failure to state a claim, the district court may rely

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In the Second Amended Complaint, Plaintiffs re-allege that the Directors of Medtronic were
wrongfully reimbursed for the Excise Tax liability imposed upon them as a result of the Inversions.
However, as they apparently did before the supreme court, Plaintiffs insist that they now advance
those allegations not as an independent claim but as “evidence of the corporation's breach of the
fiduciary duty owed to its shareholders.” In re Medtronic, Inc. S'holder Litig., 900 N.W.2d 401,
410, n.6 (Minn. 2017). To be clear, the Minnesota Supreme Court confirmed that claims by
Medtronic shareholders for the Excise Tax-reimbursement are derivative, held by Medtronic, and
thus unavailable without complying with Minn. R. Civ. P. 23.09.

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on documents that are referenced in the complaint itself. N. States Power Co. v. Minnesota Metro.

Council, 684 N.W.2d 485, 490 (Minn. 2004). The court must accept as true all factual allegations

made in the Complaint. In re Individual 35W Bridge Litig., 787 N.W.2d 643, 647 (Minn. Ct. App.

2010), aff'd, 806 N.W.2d 820 (Minn. 2011).

DISCUSSION

Counts I – V, Breach of Common Law Fiduciary Duties, Statutory Duties of Directors and
Officer and Related Counts

The thrust of Defendants’ argument in support of their motion to dismiss Counts I – V, is

that under Minnesota law corporate officers and directors are under no duty to “serve the personal

financial interests of shareholders.” 2 Defendants thus insist that dismissal is warranted because

Plaintiffs’ breach of fiduciary duty claims rest largely on their allegation that Medtronic’s Board

failed to consider the capital gains tax burden imposed on shareholders by the Inversion or, that

the Board failed to select a merger structure that would minimize Medtronic’s shareholders’

personal financial burden arising out of the transaction. However, Defendants largely ignore

Plaintiff’s dilution claim. And, the supreme court, on appeal from Defendants’ last motion to

dismiss, made clear that Plaintiffs’ can state a claim for relief by alleging, as they do in their Second

Amended Complaint, that “class members’ ownership interest and voting power were diluted by

Medtronic to provide adequate protection for the tax benefits it sought in the transaction with

2
Defendants also allege that their decisions in connection with the Inversion are shielded by the
Business Judgment Rule. The Business Judgement Rule is an affirmative defense and its
application is often fact-intensive making it generally, although not always, an inappropriate basis
for pre-discovery dismissal. See e.g. Shamrock Holdings, Inc. v. Arenson, 456 F. Supp. 2d 599,
609 (D. Del. 2006). Because the inquiry here is fact-intensive, the Court declines to address
Defendants’’ Business Judgment Rule defense at this stage.

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Covidien.” In re Medtronic, Inc. S'holder Litig., 900 N.W.2d 401, 411 (Minn. 2017). Any such

claim, based on an allegedly wrongful taking “of certain rightful incidents of . . . ownership” in

Medtronic necessarily derives from a personal duty owed by Medtronic’s Directors to the

Company’s shareholders. While the limits of any such duty are likely quite narrow, the supreme

court’s decision implies that, at the very least, some elementary duty exists. Further, there is

nothing in the supreme court’s opinion that precludes such a duty from extending, in particular

circumstances, to a board’s alleged failure to properly consider certain personal financial

consequences of a merger’s structure. And, if the Medtronic shareholders were wrongly deprived

of “lawful incidents of ownership,” by an unfair diminution in their voting power in the post-

merger entity, it is also conceivable that their damages might include tax losses, or other personal

financial losses. Cf. Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34, 44 (Del.

1994) (in the sale of control context, the directors must focus on one primary objective—to secure

the transaction offering the best value reasonably available for the stockholders—and they must

exercise their fiduciary duties to further that end).

Finally, to be clear, like the supreme court, this Court “express[es] no opinion on

[Plaintiff’s ultimate] ability to prevail on [their] claims,” only that the allegations in the Complaint

are sufficiently pled to survive the minimally demanding Walsh standard. In re Medtronic, Inc.

S'holder Litig., 900 N.W.2d at 411; Walsh, 851 N.W.2d at 605.

Count VI, Violation of Minn. Stat. § 80A.68 and Remedies Under Minn. Stat § 80A.76
(Minnesota Securities Act Claims)

Defendants’ advance two arguments is support of their motion to have Count VI of the

Complaint—Plaintiff’s Minnesota Securities Act claim—dismissed. The first argument advanced

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is that the merger was not a sale subject to the Act’s fraud and misrepresentation provisions, and

their second argument is that Plaintiffs failed to allege “any…omissions of material fact beyond

what they already knew about at the time of the January 2015 exchange.” The Court addresses

each argument in turn.

Defendants assert that “[a]s a matter of law, the purchase and sale of shares by New

Medtronic [eventually Medtronic, plc] cannot give rise to liability for securities fraud” because

Plaintiffs did not make their “‘own decisions’ to purchase or sell securities” but rather were

required to exchange their shares as a result of the merger. (Def’s Mem. 24.) Defendants rely on

Davis v. Midwest Discount Securities, Inc., in support of their argument. Davis v. Midwest

Discount Securities, Inc., 439 N.W.2d 383, 388 (Minn. Ct. App. 1989). But Davis was a case about

brokers and margin call accounts, wherein the court of appeals held that a “promise[ of] protection

from margin calls,” and related representations by a broker, did not amount to a representation

regarding the purchase or sale of a securities under Minn. Stat. §80A. Davis, 439 N.W.2d at 388.

Davis’s holding was clearly limited to the type of advice given in that case, specifically that a

broker’s general advice to their client, which is unrelated to “specific securities,” does not amount

to a misstatement or omission under Minn. Stat. § 80A. Id. at 388-89. As such, Davis is inapposite.

Whether or not a merger—and the associated involuntary transfer of stock—qualifies as a

sale for purposes of Minn. Stat. § 80A.68 is a question of statutory interpretation. The Minnesota

Securities Act, which derives from the Uniform Securities Act of 2002, defines a “sale” as “[e]very

contract of sale, contract to sell, or disposition of, a security or interest in a security for value…”

Minn. Stat. § 80A.41 (emphasis added). Section 80A.68, the section under which Plaintiffs’ bring

their statutory fraud claim—also known as Section 501 of the Uniform Act—declares that its

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provisions apply to “the offer, sale, or purchase of a security, directly or indirectly.” Minn. Stat. §

80A.68 (emphasis added). The Act also contains explicit exclusions for merger transactions, which

apply to limit the applicability of several sections of the Act, mostly with respect to registration,

but none of those exclusions apply to section 501 (§80A.68)—the anti-fraud provisions. Cf. Minn.

Stat. § 80A.46 (18) (“exclusion for transactions involving the distribution of the securities of an

issuer to the security holders of another person in connection with a merger, consolidation,

exchange of securities, sale of assets, or other reorganization”). The inclusion of certain express

exclusions for merger transactions, along with the conspicuous absence of any language excluding

mergers from the Act’s fraud and misrepresentation provisions, supports the conclusion that the

anti-fraud provision do in fact apply to merger transactions. See City of Moorhead v. Red River

Valley Co-op. Power Ass'n, 811 N.W.2d 151, 159 (Minn. Ct. App. 2012), aff'd, 830 N.W.2d 32

(Minn. 2013) (citing State v. Caldwell, 803 N.W.2d 373, 383 (Minn.2011)) (“the expression of

one thing is the exclusion of another… [this rule of statutory construction] reflects an inference

that any omissions in a statute are intentional.”). Minn. Stat. § 645.19 also specifically directs that

exceptions in Minnesota statutes are to be construed to exclude all others exceptions. Minn. Stat.

§ 645.19 (2010) (“Exceptions expressed in a law shall be construed to exclude all others.”); See

also United States v. City Nat. Bank of Duluth, 31 F. Supp. 530, 535 (D. Minn. 1939) (quoting

Street v. Chicago, M. & St. P.R. Co., 145 N.W. 746, 749 (Minn. 1914) (“Where express exceptions

are made the inference is a strong one that no other exceptions were intended.”) Finally, the

Official Comments to the Uniform Securities Act, 2002, make it clear that the Act’s previsions

generally apply to merger transactions. See e.g. Uniform Securities Act of 2002 (U.L.C.), Official

Comments 19; See also Minn. Stat. § 645.22 (“Laws uniform with those of other states shall be

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interpreted and construed to effect their general purpose.”)

The Court is also unable to accept Defendants’ argument that Plaintiffs’ § 80A claims

should be dismissed because they failed to allege “any…omissions of material fact beyond what

they already knew about at the time of the January 2015 exchange.” First, the court of appeals has

already determined that the Amended Complaint (the previous complaint) alleged facts that, if

accepted as true, “and constru[ing] all reasonable inferences in favor of the nonmoving party” were

sufficient to state a claim for relief. In re Medtronic, Inc., A15-0858, 2016 WL 281237, at *7

(Minn. Ct. App. Jan. 25, 2016) (citing Walsh, 851 N.W.2d at 606). While adding detail, the Second

Amended Complaint alleges, essentially, the same facts. Defendants seek to distinguish their

argument on this motion from the court of appeals’ holding by pointing out that the Medtronic

shareholders were notified of the pendency of this litigation in the November 2014 proxy

statement—and therefore to all of Medtronic’s alleged misstatements—months before the January

2015 vote that approved the Inversion. Defendants also point out that the omissions specifically

referred to by the court of appeals were addressed in the November 2014 proxy statement.

Defendants then insist that the only “new” allegation in the Second Amended Complaint relates to

an alleged failure to disclose that the financial metrics of a non-inversion structure were more

favorable that the Inversion structure. (Def’s Mem. 27.) Defendants argument continues, that

failure to disclose the financial benefits of an alternative merger structure could not have been

material because no alternative merger structure was being offered.

Even if the Court were to accept Defendant’s argument that the court of appeals holding is

no longer applicable because of the November 2014 proxy statement, it cannot accept—in light of

the court of appeals’ direction—that it is appropriate to determine, on this motion to dismiss, the

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materiality of any new allegations of material omissions brought in the Second Amended

Complaint. The court of appeals was clear in its opinion, that “materiality” is a “mixed question

of law and fact” and thus generally “not appropriate to resolve as a matter of law.” In re Medtronic,

2016 WL 281237, at *6 (internal citations omitted). While, as Defendants’ point out, alternative

forms for the merger may not have been ‘on the table,’ it is at least conceivable that a reasonable

investor could consider alternative merger structures—alternatives that were considered by the

Board of Directors—to be material information, important to have when making their own

decision to vote in support of the proposed transaction or not. At the very least, at this stage, where

the factual record is not yet fully developed, the Court cannot rule out the possibility that Plaintiffs

could produce evidence in support of their claim of material misstatement.

Defendants also point to Minn. Stat. § 80.76, arguing that civil liability under the

Minnesota Securities Act is circumscribed if Plaintiffs knew of the “untruth or omission” that they

allege were contained in Defendants’ merger related disclosures. Defendants’ argument is

unavailing. Courts analyzing fraud and misrepresentation liability under the Minnesota Securities

Act, have found a private right of action, analogous to a Federal 12b-2 action, directly in Minn.

Stat. § 80A.68. See Merry v. Prestige Capital Markets, Ltd., 944 F. Supp. 2d 702, 709 (D. Minn.

2013); See also Robert Allen Taylor Co. v. United Credit Recovery, LLC, A15-1902, 2016 WL

5640670, at *8 (Minn. Ct. App. Oct. 3, 2016), review denied (Dec. 27, 2016). Minn. Stat. § 80A.76

thus does not necessarily appear to limit the viability of all claims that can be brought under §

80A.68. Because “it is possible on any evidence which might be produced, consistent with the

[Plaintiffs’] theory, to grant the relief demanded,” Defendants’ arguments in support of dismissal

must fail. N. States Power Co., 122 N.W.2d at 29.

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Count VII Unjust Enrichment and Restitution

“[T]o prevail on a claim of unjust enrichment, a claimant must establish an implied-in-law

or quasi-contract in which the defendant received a benefit of value that unjustly enriched the

defendant in a manner that is illegal or unlawful.” Caldas v. Affordable Granite & Stone, Inc., 820

N.W.2d 826, 838 (Minn. 2012) (citing First Nat. Bank of St. Paul v. Ramier, 311 N.W.2d 502, 504

(Minn. 1981)); See also Hommerding v. Peterson, 376 N.W.2d 456, 459 (Minn.App.1985). An

action for unjust enrichment does not arise simply because a defendant unjustly benefited at

plaintiff’s expense, rather, there must exits as between the parties, an “agreement implied by law.”

Id.

Unjust enrichment is an equitable remedy. Lundstrom Constr. Co. v. Dygert, 94 N.W.2d

527, 533 (Minn. 1959) “A party may not have equitable relief where there is an adequate [statutory]

remedy available.” ServiceMaster, 544 N.W.2d at 305; See also Southtown Plumbing, Inc. v. Har-

Ned Lumber Co., Inc. 493 N.W.2d 137, 140 (Minn. Ct. App. 1992). The Minnesota Court of

Appeals has rejected unjust enrichment as a basis for recovery when minority shareholders claimed

that the terms of a merger were unfair. See Houseman v. Whittington, A12-0602, 2012 WL

4052896, at *6 (Minn. Ct. App. Sept. 17, 2012).

Here, the allegations advanced under Plaintiff’s unjust enrichment count are, in substance,

the same allegations that underpin their breach of fiduciary duty claims (Counts I – V). Both

claims—or set of claims—therefore, in the end, will stand or fall together. See e.g. Monroe County

Employees' Retire. Sys. v. Carlson, CIV.A. 4587-CC, 2010 WL 2376890, at *2 (Del. Ch. June 7,

2010). That is, if Plaintiff, or the proposed class, are able to establish that Defendants breached

any fiduciary duty in the context of the inversion merger then they will have a remedy available

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for those breaches under the Minnesota Business Corporations Act or under the common law of

corporations. If they cannot establish a breach of those same duties then they will be unable to

make out a claim for unjust enrichment; a claim for unjust enrichment requires that the

“defendant[s acted] in a manner that is illegal or unlawful.” Caldas, 820 N.W.2d at 838. If

Defendants did not breach any fiduciary duties—owed to Plaintiffs—in connection with the

merger, then they did not act “illegally or unlawfully” and Plaintiff will be unable to recover in

restitution. Thus, since it is clear that Plaintiff’s unjust enrichment claims can only succeed if their

breach of fiduciary duty claims succeed, their unjust enrichment count is an impermissible attempt

to seek equitable relief where “there is an adequate remedy at law available.” ServiceMaster, 544

N.W.2d at 305; See also Whittington, A12-0602, 2012 WL 4052896 at *6 (citing Harry G. Henn

& John R. Alexander, Laws of Corporations 997–99 (3d ed.1983)).

Finally, as to the unjust enrichment allegations brought against the Individual Defendants

(the directors and officers of Medtronic) in particular, the only allegation advanced in support of

that claim is that the Individual Defendants were unjustly enriched when they received

indemnification payments, by Medtronic, for their excise tax obligations imposed under the

Inversion. Since the supreme court was clear that any such claims are derivative, and thus held by

Medtronic, those claims clearly cannot be pursued by Plaintiffs as direct claims for restitution.

Count VIII Conspiracy and Aiding and Abetting Unjust Enrichment

A claim for civil relief for common law conspiracy must be based on an underlying tort.

D.A.B. v. Brown, 570 N.W.2d 168, 172 (Minn. Ct. App. 1997) (citing Harding v. Ohio Cas. Ins.

Co., 230 Minn. 327, 337, 41 N.W.2d 818, 824 (1950)). Unjust enrichment is an equitable remedy

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and a theory of restitution based in qusi-contract; it is not a tort. ServiceMaster of St. Cloud v. GAB

Bus. Servs., Inc., 544 N.W.2d 302, 305 (Minn.1996).

Plaintiffs’ Count VIII, brought alleging “conspiracy and aiding and abetting unjust

enrichment” is therefore facially defective—there is no such claim available under Minnesota

common law. Further, because the unjust enrichment claim against Defendants fails, they cannot

be held liable for aiding and abetting unjust enrichment. Thus, Count VIII must be dismissed for

failure to state a claim upon which relief can be granted.

Count IX Conversion

Plaintiff’s common law conversion claim fails for the simple reason that Minnesota does not

recognized a cause of action for conversion of intangibles. TCI Bus. Capital, Inc. v. Five Star Am.

Die Casting, LLC, 890 N.W.2d 423, 429 (Minn. Ct. App. 2017). Minnesota, like many jurisdictions,

grounds the tort of conversion in “interferences with the right to control…[a] chattel.” Id (citing

Bates v. Armstrong, 603 N.W.2d 679, 682 (Minn. App. 2000), review denied (Minn. Mar. 14,

2000)) (emphasis added).

Plaintiffs allege the Defendants converted and interfered with their equity in Medtronic by

diluting their equity ownership via the Inversion. They also allege Defendants engaged in

conversion by shifting Medtronic’s tax liability to the minority shareholders who were required to

pay capital gains tax. (Complaint ¶ 421.)

There is no authority in this state for a common law conversion claim based on alleged

misappropriation of a plaintiff’s ownership interest in a corporation or other legal entity. See e.g.

TCI Bus. Capital, 890 N.W.2d at 429. And, the traditional common law rule, still accepted in

Minnesota, is that “electronic financial transaction[s]” and other transfers of intangible property

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cannot form the basis of a conversion claim. Id (citing Dan B. Dobbs et al., Hornbook on Torts §

6.5, at 111 (2d ed. 2000)). A payment of funds by the minority shareholders to taxing authorities

allegedly shifting Medtronic’s tax liability to them cannot be a conversion because funds can only

be converted if “the money is in a tangible form (such as a particular roll of coins or a particular

stack of bills) and is kept separate from other money.” Id. There are no such allegations in this case.

Plaintiff’s conversion claim is based on the dilution or transfer of ownership interests in

Medtronic, or a ‘transfer’ of tax benefits between the company and its shareholders. Both ownership

interests in a company and tax benefits are clearly intangible property—assuming a tax benefit is

property at all—and thus Plaintiffs’ fail to state a claim for common law conversion.

CONCLUSION

For the reasons stated, the Court GRANTS in part and DENIES in part Defendants’ Motion

to Dismiss as outlined in the attached Order.

FJM

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