Surprising Twist Leads To Huge $5.4 Million Judgment Against A California Medical Company

Two sales people formerly employed by Masimo just won a huge multimillion-dollar judgement against the company, according to their lawyer, Scott Bonagofsky.

A California arbitrator awarded them the $5.4 million, "of which $5 million was punitive damages, which is one of the largest punitive damages awards ever issued against an employer in arbitration. It may even be the largest," Bonagofsky told Business Insider.

But it's been a wild ride for them, and even with this judgement, the ride isn't over.

Masimo is known in the tech industry for its connections to Apple. Apple recently hired the company's former chief medical officer, Michael O'Reilly, reports HealthWatch News. Before leaving Masimo, O'Reilly developed several blood-measuring devices for the iPhone, including one called iSpO2 Pulse Oximeter, which measures blood oxygen, pulse rate and so on.

Masimo is better known, however, for its medical blood-testing equipment. It created a first-of-its kind needle-less blood hemoglobin device that has the potential to be revolutionary and lucrative, the company says. Hemoglobin tests are a very common blood test ordered by doctors.

The two sales people, Michael Ruhe and Vicente Catala, were hired to sell the device to doctors' offices. But when they used the devices to learn about them, they felt the devices were "doing weird stuff," Bonagofsky said, like showing inconsistent results and not performing as advertised.

They refused to sell them believing them to be unsafe. They then quit their jobs and sent their evidence to the U.S. Attorney as part of a whistleblower lawsuit. They also filed a separate employment lawsuit against Masimo.

One suit went to court, the other to arbitration, which is where two parties settle out of court, and agree to abide by the ruling.

The company won the lawsuit that went to court, the whistleblower suit, with the judge declaring there was no evidence to support a charge of fraud. "No evidence suggests Masimo knowingly made a false statement in marketing its devices," the judge ruled.

These devices have been cleared by the FDA, and Masimo is still selling one of them, the Pronto-­7.

At almost the same time, the arbritrator, a retired U.S. appeals judge, ruled the exact opposite. In a 41-page document explaining why the punitive damage award was so high, he said:

The company "persisted in selling the devices long after it was clear that they did not perform according to the specification .... Further they were unrepentant ... All the senior executives continued to assert that the devices always confirmed to specification, in the face of a wealth of contrary evidence."

Masimo says it plans to fight the arbitration ruling. With the federal case in its favor, it hopes to get the arbitration ruling vacated.

"In short, the federal court got it right, and the arbitrator got it wrong," Tom McClenahan told Business Insider.

Bonagofsky says he believes it it's unlikely that the arbitration ruling will be overturned. He thinks the $5.4 million award will stick.

In the meantime, the FDA is reviewing the evidence about these devices, Bonagofsky told us, the implication being it may change its mind about them.

Here's the full arbitration ruling that awarded $5.4 million.

Here's the ruling in Masimo's favor.