Politan Reveals Masimo Lawsuit To All Investors; Says It’s Desperate & Defamatory

Masimo: ‘Confidential Informants’ Allege Koffey Has Breached His Fiduciary Duties as a Director

Almost exactly one week ago, Masimo and its Board of Directors filed a lawsuit against Politan Capital Management in which it alleged Politan’s proxy materials contained material misrepresentations and asked the court to order the activist investor to correct them. The company also delayed its upcoming annual stockholders meeting from July to September. Two days after that, Politan responded with a countersuit in which it asked the court to order Masimo to hold its 2024 Annual Meeting of Stockholders as soon as possible.

Now Politan has taken the unusual step of publishing Masimo’s lawsuit against them and providing it to all Masimo stockholders. The Masimo suit, which has some outrageous claims against Politan and particularly CIO Quentin Koffey, is being provided by a confident Koffey who believes investors will see it for what he says it is…a desperate attempt to stop the investor vote for independent directors.

See more on Politan publishing the Masimo lawsuit against it

When Masimo filed its lawsuit against Politan last week, they publicized the fact it had been filed but simply chose to lightly characterize what the issues were in a prepared press release and public filings. Masimo did not publish its lawsuit for all to see. But in the Politan countersuit, there were a couple of interesting and unexplained provisions that were a little perplexing. Now that I’ve seen the text of the Masimo lawsuit, I understand why Politan chose to include these items.

Masimo Lawsuit – A 70+ Page Long Recitation of Tedious Claims

In what looks suspiciously like a desperate last-ditch attempt to derail a stockholder vote likely to give Politan a controlling share of its Board of Directors, Masimo’s lawsuit is a 70+ pages long recitation of tedious claims about Politan, Koffey, and of Kiani’s version of how events have transpired. Most of these have already been published by Masimo in its proxy filings – most of which you can find on its proxy battle website: protectmasimosfuture.com (see the ‘Appendix’ section of its Investor Presentation).

This move by Politan is bold. It is deliberately making sure all investors see the claims Masimo is making against Politan and Koffey…some of which are outrageous, ridiculous, and even defamatory. It is probably for this reason that Koffey, clearly confident in his position, chose to take this path. Masimo’s lawsuit smells of desperation.

Politan Denies The Allegations and Questions the Timing of This Lawsuit

Here’s what Politan says about this effort by Joe Kiani and his friends on the Board at Masimo…

Politan denies all allegations in the Complaint. In particular, Politan has never had any contact with the law firm representing the plaintiff in the derivative action against Masimo’s Board…(more on this later). Politan views this allegation as a continuation of a pattern of Masimo making unsubstantiated and conspiratorial claims about Mr. Koffey and Politan. Politan is confident that these frivolous claims will be successfully defeated.

Politan believes that the Complaint is completely without merit and is nothing more than an eleventh-hour attempt to interfere with stockholder voting rights. Much of the purported conduct in the Complaint is alleged to have taken place months ago, and it is more than conspicuous that the Company decided to file the Complaint shortly after Institutional Shareholder Services and Glass, Lewis & Co. recommended that shareholders vote for Mr. Jellison and Dr. Solomon [Politan’s new candidates for the two open Board seats].

Politan statement, Schedule 14A filed July 19, 2024

I’ve Never Seen a Lawsuit Quite Like This One Before

So before I detail the shocking allegation about Quentin Koffey made by Masimo, let me give some general perspective about the overall document. I am not a lawyer, but I’ve followed a lot of lawsuits and proxy battles over the years…and I’ve never seen anything quite like this before.

The first thing I noticed is silly added drama, not the kind of approach most legitimate law firms take in matters like this. Perhaps they should be writing a screenplay for TV or a script for a movie or play. Let me give you one example. On Page 1 paragraph 1, we get this…

Perhaps A Script for a Made-For-TV Melodrama?

This case arises out of a battle for control of Southern California-based, multi-billion-dollar health technology company Masimo. On one side is Masimo and its management, led by the Company’s inspirational founder, Chairman, and CEO, Joe Kiani [cue the applause]. On the other side is Politan, [cue the ominous music] a New York hedge fund led by Quentin Koffey, its avaricious founder and activist investor, who has been ‘waging war’ for the last two years against Masimo in an attempt to improperly gain control of the Company through lies and deceit [cue the boos]. [Emphasis added]

From Masimo v. Politan et.al. Verified Complaint for Violations of the Federal Securities Laws…

I guess if Kiani is Masimo’s “inspirational founder,” he must be the good guy. And if Quentin Koffey is the “avaricious founder and activist investor,” he must be the bad guy. Come on guys, this is a Federal lawsuit, not a steamy paperback novel for summer reading on the beach.

Silly Slanted Writing

And that is far from the ONLY example of this silly slanted writing. Expressions like, “Koffey is desperate to take control of Masimo at any cost, for personal gain and to the ultimate detriment of the Company and long-term stockholder value – using lies, misrepresentations, mischaracterizations, and deceit, as well as misusing confidential Company information he gained from inside the Masimo boardroom itself.”

This kind of overly heated language is unprofessional, of no legal significance, and will not impress a judge. Masimo’s lawsuit is full of it. This reminds me of a famous quote:

If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell!

Carl Sandburg

Almost Comical

It is almost comical looking at the wording Masimo lawyers chose. For example: “Koffey set his sights on Masimo”…”Politan surreptitiously acquired a stake”…”Masimo was rightfully concerned“… and on and on.

Most of this is he said/she said kind of stuff. For example, Masimo notes that initially, Koffey “claimed he wanted to work with Mr. Kiani.” Politan eventually won two seats on the Board, yet “while Koffey represented to Masimo and its stockholders that he would stop there, he did not.” I’m pretty sure that Koffey would tell you he tried to work with Kiani and the Masimo Board, but resistance existed from day one.

Still, in the parlance of this lawsuit, Masimo says Koffey lied. And they say that over and over and over again. Many of these clauses sound really whiny.

Most of The Claims are ‘Conclusory’

Much, if not most, of the lawsuit is what lawyers (and judges) call “conclusory.” According to Black’s Law Dictionary, 2nd Edition, “conclusory” is defined as, “An inference that has no proof but is stated none the less.”

Here is an example of a conclusory statement, “Little did Mr. Kiani and the others know, Koffey and Brennan had no intention of fulfilling their duties as directors.” That is not a fact, but rather a conclusion drawn by Kiani and stated as though it were a fact. Throughout this entire lawsuit, you see this kind of comment repeated over and over as though Kiani knows what Koffey is thinking…or what Koffey “really means.”

Politan Continually Saw Examples of Broken Corporate Oversight

As you might suspect, Koffey has a different interpretation of events. I have reported about this elsewhere in my Masimo series, but there is, as they say, two sides to every story. And so, I’m afraid to say, much of this lawsuit doesn’t appear to carry any legal or factual basis. It is mostly argumentative, complaining, and conclusory.

From Politan’s perspective, every day they saw example after example of broken corporate oversight by a Board clearly in the pocket of a powerful CEO. There was no legitimate assessment of opportunities, analysis of process, or insightful business planning.

Perhaps this is how Masimo ended up in this mess with an ill-conceived, poorly planned, ineffectively executed acquisition of Sound United in the first place. Childish games – like how Kiani likes to call his legacy directors Craig Reynolds and Bob Chapek the real “independent” directors, while calling Koffey and Michelle Brennan, who were both elected to the Board as independent directors by investors at the last annual meeting, as “Politan” directors. Say what he will, it is clear that Koffey and Brennan are independent of the CEO.

Separation Details Included in Text of Lawsuit

Interestingly, the lawsuit waxes poetically about all the good things the proposed separation of Sound United would have done for the company – if only Koffey had not put the brakes on the deal.

The separation proposal was highly favorable for both Masimo and its stockholders. It would have given Masimo the ability to sell 70-85% of its Consumer Product Business at an attractive price, while paying down debt and providing stockholders with some residual ownership in the consumer business.

Masimo Corporation v. Politan, et. al.

A little later, the lawsuit added this detail: “The Potential Joint Venture also presented a valuation of the Consumer Products Business that was three times higher than the valuation Koffey assigned to it just two months earlier.” Nowhere did it identify just how much the Potential Joint Venture Partner offered or how much value Koffey had assigned.

The JV Partnership Deal is Delayed…Not Dead

However, the text goes on to allege that this successful deal “would undermine Koffey’s efforts to take control of the Company, so he refused to support the Potential Joint Venture and demanded to delay any decision on the Potential Joint Venture until after the annual stockholder meeting and election.”

It’s important to note that this deal, if it ever truly existed, is not dead…just delayed. Yet Masimo’s lawsuit suggests that “Koffey sabotages the spin-off deal he himself proposed,” as though it were now dead.

So why is this petty argumentative clause part of this lawsuit? I show it to you because it illustrates how this lawsuit is written – lots of unnecessary verbiage, mostly designed to portray Quentin Koffey in a bad light. So much of this lawsuit goes to great lengths to complain about Koffey’s actions and activities that are not illegal – but apparently annoying to Kiani and crew. There are painfully few facts and crushing amounts of conjecture.

Politan: Give Sound United Away for Nothing

There are multiple examples where the lawsuit denigrates the “Politan directors” saying things like “they have consistently declined to offer constructive ideas and strategies for the Company.” But then, just three sentences later, admits that Koffey did offer an idea for the Board to consider, telling them that “a major stockholder would like to see Masimo get rid of the Consumer Products Business.”

The lawsuit goes on to add, “When asked what price Masimo should be willing to take for that business, Koffey replied that the stockholders would be happy if Masimo gave the Consumer Products Business away for nothing.”

While that answer may sound shocking, it may be true, as Sound United’s declining results are negatively impacting the company’s overall performance…and depressing its stock price.

The Court of Public Opinion

Almost all of the allegations in this lawsuit have already been litigated in the court of public opinion. Kiani has shared his counternarrative – his view of Koffey, Politan, and how he says that events have transpired – with investors multiple times. And all of Masimo’s and Kiani’s efforts have diligently attempted to cast Koffey and Politan in a negative light in letters to investors and even during interviews with various print and TV media outlets.

But I believe that Kiani knows he’s losing this battle…that investors are still favoring Politan and Koffey over management and Kiani. That point was really driven home when news emerged that major investor advisory firms like ISS and Glass Lewis, were advising shareholders to vote for Politan’s nominated candidates for the Masimo Board.

Kiani needs something more…something big…something really damning.

A Confusing Point is Clarified

Remember when I mentioned in my previous post on Politan’s response that there was a confusing point made that I did not fully understand the importance of? I didn’t understand the importance of it, that is, until I saw the full text of the original Masimo lawsuit. In Politan’s response, one of the major remedies that it was requesting from the court is reproduced below…

“4) ‘a declaration that the Defendants are estopped from rejecting the nominations of Politan’s nominees to the 2024 Annual Meeting'”

It seems that Masimo was seeking to reject or nullify Politan’s nominees for the Masimo Board. Clearly, Politan wants the court to block such a move. But how could Masimo possibly do that? Under what authority could they seek such a nullification?

A Surprising Accusation About Quentin Koffey Appears Out of Nowhere

We learned that Masimo is fighting a securities class action lawsuit called Vasquez v. Masimo Corporation. Furthermore, it is also fighting a separately filed lawsuit by Masimo stockholder Linda McClellan that is based on essentially the same issues as in Vasquez, and which Masimo refers to as a “Derivative Action.” McClellan is represented by law firm Wolf Haldenstein Adler Freeman & Herz LLP (“Wolf Haldenstein”).

In this latest Masimo v. Politan lawsuit, Section G of the Factual Background includes this heading: “G. Koffey Betrays His Fiduciary Duties to Serve Masimo and Its Stockholders by Secretly Collaborating With Lawyers Who Are Pursing [sic] Litigation Against the Board”

Masimo Alleges Koffey is in a Conspiracy

The first paragraph below that heading asserts as follows, “Unfortunately, Koffey’s obstructionist behavior did not stop at his interference with the Potential Joint Venture – in fact, Koffey is conspiring with plaintiffs in a lawsuit Masimo and the Board are defending.” [Emphasis in original]

Further text went on to explain how it would be damaging to the company for both the Derivative Action as well as the underlying original securities class action suit if these litigants benefitted from “any effort to support the bogus claims.” Then it adds: “Koffey nevertheless is believed to have conspired with Wolf Haldenstein against Masimo’s interests” [emphasis added].

Masimo Says It Launched an Investigation

Masimo says that through its own investigation, with the help of some investigatory work done “through its advisors” it has uncovered two confidential witnesses. These witnesses, the lawsuit claims, told Masimo “That Koffey has been ‘working closely’ with lawyers at Wolf Haldenstein.”

Not only that, but Masimo’s lawsuit goes on to say that “one of the confidential witnesses reported that Koffey is ‘actually named as a defendant [in the Derivative Action], but he doesn’t care. He will use whoever will get him to where he needs to go.”

Nowhere does the Masimo lawsuit explain why Koffey would want to assist an outside litigant against the Board he sits on. These suspicious allegations emerged out of nowhere and seem aimed to further sully Koffey’s reputation.

Did Koffey Share Confidential Information? Or Is It Just an Innuendo?

The text goes on to note that as a Director, “Koffey has confidential and privileged information about Masimo.” Here is where the writing gets a little clever, as the suit says, “Sharing that information with Wolf Haldenstein assists plaintiff in the Derivative Action against the other members of the Board and jeopardizes Masimo’s defense in the Securities Class Action – a blatant violation of Koffey’s fiduciary duties to Masimo and all of its stockholders.”

That last statement is true, sharing confidential information would assist the law firm in suing Masimo. But note that it doesn’t actually say Koffey shared confidential information with Wolf Haldenstein.

It is all innuendo… Again, Koffey denies all of these allegations.

The Sudden Appearance of This Allegation is Convenient

Well, the timing of the airing of this allegation turns out to be a convenient tool. Why? Because Masimo then uses this “fact” that Koffey is conspiring with a plaintiffs’ law firm to attack Masimo in violation of his fiduciary duties as a Masimo Board member to nullify both of his nominees to the Board.

You see, Masimo claims that Koffey should have disclosed this fact as part of his filed notice of nomination for Dr. Darlene Solomon and William Jellison. Kiani and Masimo also claim that Politan’s failure to disclose “Koffey’s secret relationship with plaintiffs’ counsel in an action proceeding against Masimo’s Board” violates certain SEC rules and regulations – and should have been revealed in its proxy materials to Masimo investors.

This new allegation is introduced on page 28 of the Masimo litigation against Politan, and is continually referred to for the next several dozen pages, in multiple different contexts. Kiani uses this accusation as a club with which to pummel Koffey’s reputation.

What I Find ‘Telling’

Here’s what I find fascinating about this mess. Masimo has only now leveled this dramatic accusation which it seems to have pulled out of nowhere. The filing of Politan’s nominations for the Board was months ago – now Masimo wants to nullify them. Is that because they realized they were going to lose this battle for the Board?

To me, what is really telling about all of this is that we’ve learned the details of this damning allegation NOT from Masimo…but from Politan. It was Politan who published the Masimo litigation for all investors to see.

That tells me Quentin Koffey and Politan are supremely confident that investors will read this document much the same way as I did…as a desperate last-ditch attempt to deprive investors of their choice for independent directors on the Masimo Board.

And I’d guess that the Court will read it that way as well.

Politan Gets the Last Word

I’ll give the last word to Politan, who in widely publishing this document finished its preamble with the following:

Politan denies all allegations in the Complaint, including, without limitation, the false and defamatory allegation that Mr. Koffey is in any way involved with Wolf Haldenstein, and intends to defend against them vigorously.

Politan Schedule 14A

Learn more about Masimo at masimo.com and see its proxy materials at protectmasimosfuture.com.

See more on Politan Capital Management at politanmgmnt.com and all of its proxy materials at advancemasimo.com.