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PBM Capital Investments, LLC v. General Electric Co.

United States District Court, W.D. Virginia, Charlottesville Division

July 22, 2016

PBM Capital Investments, LLC, ET AL., Plaintiffs,
v.
General Electric Company, Defendant.

          MEMORANDUM OPINION

          Norman K. Moon Judge.

         The Court now considers Defendant General Electric Company’s (“GE”) motion to dismiss for lack of personal jurisdiction (docket no. 4), motion to stay litigation and compel arbitration (docket no. 5), and motion to dismiss for failure to state a claim (docket no. 11).

         Plaintiffs are PBM Technologies AB (“PBM Technologies”) and PBM Capital Investments, LLC (“PBM Capital”) (collectively, “PBM” or “Plaintiffs”). PBM Technologies is a private limited liability company registered in Sweden with its principal place of business in Mölnlycke, Sweden. PBM Capital is a Delaware limited liability company with its principal place of business in Charlottesville, Virginia. Plaintiffs filed this suit after they purchased a life-support ventilator company from one of GE’s subsidiaries, and they allege that GE defrauded them in connection with the sale.

         Because the Court lacks personal jurisdiction over GE, its motion to dismiss will be granted.

         I. Facts as Alleged

         This case arises from the purchase of Breas Medical AB (“Breas”) by PBM from one of GE’s subsidiaries. Breas is a Swedish company that manufactures home respiratory ventilators and sleep apnea products for the global home healthcare market.

         Breas’ flagship product is the Vivo 50 Life-Support Ventilator (“Vivo 50”). The Vivo 50 is operated by actions performed on a front panel where buttons and a screen are located. On August 6, 2013, while Breas was still owned and operated by GE or GE’s subsidiaries, a Vivo 50 being used by a patient in Germany unexpectedly stopped working and shut down without triggering a warning alarm.

         Breas investigators determined that the incident was caused by silver migration- “essentially corrosion that bleeds from one printed circuit channel to another in the product’s circuit board.” Docket No. 26, at 3. They concluded that silver migration took place at the on/off button and created a short circuit that mimicked an intentional user-inputted shutdown sequence. Breas presented this initial report to GE, along with the initial assessment that the Vivo 50’s risk level was not as low as reasonably possible (“ALARP”). The investigators found that a recall would, therefore, likely be necessary.

         The prospect of a recall alarmed GE. At the time, GE was considering whether to sell Breas, and it believed that a recall of the Vivo 50 would make the company unsellable. Moreover, it determined that, should it fail to sell Breas, it would have to close the company. GE executive Neal Sandy resolved to “use this new complaint to articulate the real risk and why we must sell [Breas].” Compl. ¶ 58. Sandy nevertheless urged Breas’ executives to tell potential buyers about “how great your business is ☺.” Id. at ¶ 3.

         In order to make Breas as marketable as possible, GE allegedly censored and distorted the August 6th incident’s investigation report. GE removed references to silver migration as the cause of the incident, attributing the shutdown instead to user error through use of excessive cleaning fluid. GE ordered the incident report to find that the Vivo 50 was, contrary to the initial report, at ALARP, and thus that a recall would not be necessary. GE also ordered Breas engineers to scrub any mention of “additional mitigation(s)” that might be necessary to fix the Vivo 50. Id. at ¶ 72.

         Soon thereafter, GE employees began meeting with PBM about the possibility of purchasing Breas. GE made various representations to PBM about Breas, but downplayed the significance of the August 6th incident. GE did not disclose that the malfunction had been caused by silver migration, or that silver migration could cause Vivo 50s to unexpectedly shut down without alarm. GE allegedly mischaracterized the incident in a desperate attempt to sell Breas. As GE executive Akel Akel allegedly stated to the Breas CEO, “[I]f we do not get this done nothing else matters.” Id. at ¶ 77.

         After these meetings ended and PBM reviewed the due diligence, PBM signed an irrevocable offer letter in Charlottesville, Virginia, on November 22, 2013. An Agreement closing the transaction was, finalizing the sale of Breas to PBM.

         In October 2014, silver migration caused two more unexpected shutdowns of the Vivo 50. Breas, now owned by PBM, took corrective action through a recall. To PBM’s surprise, Breas engineers informed them that the same problem occurred under GE’s ownership. Moreover, PBM learned that GE had identified a solution to the problem, but that no field action had been implemented. The fix-which PBM implemented to the tune of several million dollars-changed the Vivo 50’s firmware to require two buttons to turn off the device instead of one.

         II. ...


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