Item 3. Legal Proceedings
Item 3. Legal Proceedings.
On April 14, 2017, representatives for the estate of a deceased individual filed a civil lawsuit in the Suffolk Superior Court, in Boston, Massachusetts, against the Company, Harvard Bioscience and other defendants. The complaint alleges that the decedent’s injury and death were caused by two tracheal implants that incorporated synthetic trachea scaffolds and a biologic component combined by the implanting surgeon with a bioreactor, and surgically implanted in the decedent in two surgeries performed in 2012 and 2013. The civil complaint seeks a non-specific sum of damages. This lawsuit relates to our first-generation trachea scaffold technology for which we discontinued development in 2014, and not to our current Biostage Esophageal Implant.
On October 1, 2019, the Court entered an order granting plaintiffs’ motion to compel the defendants to produce discovery. Subsequently, the plaintiff filed a motion for sanctions against us on January 6, 2020 claiming failure to produce the required discovery. Our counsel at the time, which had been selected for the case by our liability insurance carrier, never notified us of plaintiffs’ motion and never responded to plaintiff’s motion. As a result of the failure of our former counsel to respond, on January 29, 2020, the Court entered an order allowing plaintiffs’ sanctions against us and the other defendants, which establishes a sanction of admitted liability. In June 2021, we were informed of these 2019 and 2020 court actions by new defense counsel appointed by our liability insurance carrier. On June 9, 2021, we, together with the other defendants, filed a motion to vacate the Court’s order allowing plaintiff’s motion for sanctions, and following a hearing on such motion, on August 6, 2021 the Court issued a ruling in our favor, vacating the sanctions. This case will now proceed on the merits, which we will continue to oppose vigorously.
On September 15, 2021, one of our product liability insurance carriers which had been providing a defense to us and Harvard Bioscience, notified each party that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense to each such company with respect thereto, or covering related legal expenses incurred after September 30, 2021. The insurance carrier also filed a corresponding complaint for declaratory judgment with the Court asking the Court to declare that said insurance carrier is not required to defend, indemnify, or provide coverage to us and Harvard Bioscience with respect to the lawsuit described above.
We responded by filing claims against our insurance carrier for insurance coverage, and we also brought a motion seeking the Court to order Medmarc to continue paying for our reasonable defense costs in the underlying litigation while the coverage dispute is pending. During the fourth quarter of 2021, we incurred legal costs of approximately $1.4 million in connection with these claims.
On January 25, 2022, the Court granted our motion for preliminary injunction and held that Medmarc breached its duty to defend the Company when it unilaterally stopped paying for the defense. Although the coverage dispute remains pending between the parties, the Court ordered Medmarc to pay for the cost of the defense until the coverage dispute is resolved, and our attorneys’ fees incurred in connection with the preliminary injunction motion. We submitted a request for immediate reimbursement of approximately $1.0 million of legal costs from Medmarc. On March 3, 2022, we received a cash payment of approximately $0.1 million from Medmarc and are actively pursuing all amounts owed the Company under the Court’s order.
Additionally, plaintiffs in the wrongful death action filed suit in the Superior Court of Suffolk County, Massachusetts, against the Company, Harvard Bioscience, and their insurance carriers on November 18, 2021 alleging violations of Massachusetts’ General Laws 175 §112C, 93A, and 176D §3. That matter is at a preliminary stage and no schedule has been set in that case.
While there can be no assurance of prevailing in any of the matters described above, we intend to defend the claims against us vigorously, and to recover all available amounts under our insurance coverage. We have retained new defense counsel for the wrongful death lawsuit and a trial date has been set for October 2022. If we lose on the merits and a jury awards damages, we do not know the exact amount of compensatory and, potentially, punitive damages that could be awarded, but the amounts could be substantial. We cannot determine such amount in relation to trial. However, based on our review of the circumstances surrounding the case, we have recorded an accrual for the contingency matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.
We cannot provide any assurance that any further disposition of these matters would not result in a change in such estimate. We are also evaluating possible malpractice claims as one source of recovery but have not asserted such a claim and cannot provide assurance that such a claim would provide a recovery.
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From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that we expect to be material in relation to its business, financial condition, and results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
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