All allegations and statements contained in the feature below are from official court documents associated with various lawsuits. The cases have been settled. — Editor
After a month-long trial this past January in Los Angeles, Alphatec Holdings, Inc. announced on February 11, 2014 that a jury in the OrthoTec, LLC vs. Surgiview S.A.S. case, reached a verdict. Surgiview, a subsidiary of Scient’x S.A.S., which was acquired by Alphatec in 2010, was found to have transferred assets for less than fair market value in connection with Surgiview’s purchase of certain assets of Eurosurgical S.A. in May 2006, and to have interfered with certain contractual rights of OrthoTec.
The jury awarded damages in the amount of $47.9 million to OrthoTec.
Before a second trial was scheduled to determine if Alphatec could be held responsible for the damages assessed against Surgeview, the plaintiff contacted Alphatec about a settlement. Orthotec, Surgiview, Scient’x, Alphatec and HealthpointCapital LLC, made the decision to settle the case.
The characters are right out of central casting.
From Paris to Hollywood
In fact, the main character lives in Beverly Hills, has a French medical pedigree and once owned the rights to make and sell Playboy condoms. But that’s another story.
This story begins in France in 2006 when a French company by the name of Eurosurgical, S.A. sold some of its assets to another French firm called, Surgiview S.A.S. for $2 million. How did this transaction end up in a California court and how did Mortimer Berkowitz III and John Foster, the managing partners of Healthpoint and Alphatec end up paying $49 million for that $2 million transaction? It’s a long and winding road. We dug into the lawsuit documents that provide the roadmap.
Eurosurgical and Bertranou’s OrthoTec
We’ll begin with a French doctor named Patrick Bertranou living in Beverly Hills in 1998. He started a company called OrthoTec to sell medical devices made by Eurosurgical in the U.S.
Eurosurgical, a spine device company, was founded in France in 1992. Alain Tournier was the principal owner of the company. The managing partner, Guy Viart, was interested in having Bertranou find a U.S. distributor for their products. Bertranou agreed to give it a try, but after approaching 20 companies was basically striking out.
Exclusive Licensing Agreement
Eurosurgical and Bertranou then decided to enter into a licensing agreement in November 1997. The agreement granted Bertranou exclusive rights to market certain Eurosurgical products, as well as the right to use patent and trademark rights.
Bertranou went to StelKast Medical, Inc., where he met a sales executive named Brad Harris. The two sides tried to negotiate a deal, but never got it done.
Bertranou and REO’s Harris
Harris left StelKast and formed his own company, REO SpineLine, LLC.
In March 1999 Bertranou and Harris tried again and this time successfully entered into a licensing agreement to distribute Eurosurgical’s products. In addition to the purchase price paid to OrthoTec by REO, Bertranou could buy 25% of REO for $1, 000 and receive a royalty of 5% of the retail sales price of all products sold to any retailer.
Bertranou had finally secured distribution for Eurosurgical’s products outside of Europe.
Under the deal, Bertranou would buy products from Eurosurgical and resell to REO after, of course, marking it up. For the remainder of 1999, OrthoTec sold approximately $1.3 million of Eurosurgical products to REO. That increased to $2 million in 2000 and $3 million in 2001. Bertranou, according to Eurosurgical’s CFO, had become the largest and most profitable client for the company. By the end of 2000, the company had made almost $2 million in profits from OrthoTec’s purchased.
So far, so good.
Unfortunately, the OrthoTec/Eurosurgical exclusivity agreement was due to end in March 2000. So Eurosurgical asked Bertranou to sign another contract.
Bertranou agreed on the condition Eurosurgical pay him $15, 000 per month to improve his cash flow and help with operating expenses. So, effective April 1, 2001 Eurosurgical and OrthoTec entered into a partnership agreement under which OrthoTec granted Eurosurgical a further period of manufacturing exclusivity for the two-year term, plus an additional 36 months, and agreed to expand its marketing of the SCS and Claris spine systems to increase distribution of the products in North America. Eurosurgical, in turn, agreed to pay OrthoTec $15, 000 per month for one year.
The agreement also said that it could be terminated if a proposed merger between Eurosurgical, OrthoTec and REO did not happen by April 2002.
An Expensive Middle Man
In early December 2001 Guy Viart, Eurosurgical’s managing partner, came to Los Angeles to meet with Bertranou. During that meeting, Viart told Bertranou he wanted to create a new company with Eurosurgical’s and OrthoTec’s assets and obtain the licensing agreement OrthoTec had with REO and the rights to all the products in the territory.
Viart said he would give Bertranou a 12.3% interest in the newly formed company. Bertranou told Viart the proposal was inadequate given that he had become Eurosurgical’s biggest and most profitable client and Eurosurgical had made $2 million in profits from his sales to REO.
The middle man apparently became too expensive.
Eurosurgical Tries to Dump Bertranou
Eurosurgical, according to the court documents, wanted to get out from under the exclusivity of the agreement and wanted to make REO and Brad Harris understand that this was not the time to sign anything new with OrthoTec.
A business adviser named Maassen was hired by Eurosurgical. He proposed that the company rescind the April 2001 partnership agreement and inform Bertranou that Eurosurgical intends to enforce the assignment agreement’s requirement that invoices be paid within 30 days. If he failed, Eurosurgical would repurchase the rights it transferred under the assignment agreement.
Maassen testified he did not believe Bertranou had the ability to settle all outstanding invoices in that time frame and thus Eurosurgical would be able to terminate the assignment agreement.
But Bertranou paid his outstanding invoices.
A Deal With Harris
Viart and Maassen then went to see Harris.
On February 7, 2002, Harris and Maassen signed a nondisclosure agreement about negotiations concerning a possible merger between the two entities and agreed not to disclose any information discussed during the negotiations. Maassen understood the agreement as preventing Eurosurgical from disclosing to OrthoTec any information it learned about REO and did not inform OrthoTec that Eurosurgical had entered this agreement with REO.
On April 22, 2002, Viart sent Bertranou a letter stating he was terminating the partnership agreement because Eurosurgical, OrthoTec and REO had failed to enter into a three-party arrangement by April 1, 2002. A month later, he sent Bertranou a bill for alleged unpaid 1999 invoices.
Bertranou disputed the bill, so in June 2002, Viart sent him a letter exercising the company’s option to repurchase for $100 the rights defined in the assignment agreement on the ground that Bertranou had refused to pay. Bertranou, under protest, paid up and returned Viart his $100 check.
By July, Bertranou signed a manufacturing agreement with Specialized Medical Devices, Inc.
Eurosurgical then stopped manufacturing any additional products for OrthoTec and REO cancelled all open purchase orders with Bertranou.
In October 2002, Eurosurgical signed a distribution agreement with REO and Harris. Bertranou demanded that REO cease using the rights that Eurosurgical had given to OrthoTec.
Bertranou Sues Eurosurgical and Wins
Bertranou also sued Eurosurgical. Eurosurgical countersued and it all went to a jury.
The jury found for Bertranou and awarded damages totaling about $9 million. The court also found that OrthoTec owned all rights conveyed under the assignment agreement and Eurosurgical’s attempt to reacquire those rights was invalid. The court then ordered Eurosurgical to assign all intellectual property rights in the products and prohibited it from selling or marketing any of the products in the territory covered by the assignment agreement. The court also required Eurosurgical to turn over all product plans and specifications.
In January 2007, OrthoTec won a default judgment on the trademark and copyright issues and was awarded and additional $30.4 million.
So to recap. Bertranou (OrthoTec) sued Eurosurgical and won almost $40 million.
From Eurosurgical to Surgiview to Scient’X to Alphatec to Healthpoint
Enter the folks from Scient’X, Alphatec and Healthpoint.
Eurosurgical, after losing its case to Bertranou, entered into an agreement to sell some of its assets to a company called, Surgiview. The parent company of Surgiview was Scient’X at the time of the $2 million asset transfer from Eurosurgical in 2006.
Eurosurgical created Surgiview as a subsidiary in 2000, and then sold its interest to a Swiss company named Indev in September 2004. Indev sold its interest to Scienti’X in 2005.
Olivier Carli, a French citizen, was the CEO and two-thirds owner of Scient’X at the time Surgiview acquired Eurosurgical’s assets. Healthpoint owned the other third of Scient’X.
Eurosurgical’s Disputed Asset Transfer to Surgiview
On May 17, 2006 Eurosurgical entered into a written agreement with Surgiview entitled “Partial Sale Agreement.” The partial sale agreement said that Eurosurgical would sell all of the assets listed in a lease agreement to Surgiview. And Surgiview would deposit $2 million in an escrow account to be used by Eurosurgical to pay its creditors.
Alphatec acquired Scient’X in September 2006.
Bertranou alleged the $2 million dollars paid for Eurosurgical’s assets was far less than their $47 million value and asked the court to add Surgiview to the judgment because he claims Eurosurgical created Surgiview for the sole purpose of transferring its assets to defraud OrthoTec. The court denied the motion.
Bertranou Goes Where the Money Is
Rather than simply pursuing Surgiview as a judgment debtor, OrthoTec added Alphatec and Healthpoint to the suit in 2011, alleging claims for fraudulent transfer against all the people and entities it claims participated in the transfer of Eurosurgical’s assets. Eurosurgical, which had initiated bankruptcy proceedings in France on July 6, 2007, was not named as a party in the complaint.
Bertranou then won the case and Alphatec decided to settle.
“While we continue to believe strongly in our position with respect to this litigation, this settlement removes a future uncertainty in our business and eliminates further distraction and extensive investment of human and financial resources associated with continuing with a lengthy legal process, ” said Les Cross, Alphatec’s CEO.
On to New York
OrthoTec’s attorneys stated that the case will now move to New York. Ebun S. Garner, General Counsel and SVP of Alphatec Spine, Inc., told us that the settlement included the matter in New York against Healthpoint and Messrs. Forster and Berkowitz.
