Masimo Strikes Back: Judge Finds Politan & Koffey in Contempt of Court

Will Politan Snatch Defeat from the Jaws of Victory?

Last Friday, just hours after I reported to you on what appeared to be a significant “win” for Politan Capital Management L.P. et. al. in its proxy battle with Masimo Corporation, a new ruling is handed down from U.S. District Court Judge James V. Selna in which he holds Politan and its Chief Investment Officer Quentin Koffey in Contempt of Court based on a Masimo Ex Parte motion. Judge Selna’s ruling showed some real anger at Koffey and Politan and he has scheduled a new hearing on the sanctions to be administered in the matter, although at this moment, Masimo’s Annual Stockholders Meeting is scheduled to go ahead with its proxy vote this Thursday.

See the latest on this continuing heated battle

OK, I’ll admit it…I should have seen this coming. But perhaps more importantly, Quentin Koffey and Politan – and their attorneys – should have seen it coming. As well as Koffey has presented his case, both in and out of court, in his desire to get this news out quickly, Koffey and his legal team really stepped in it this time by getting out ahead of the judge. And there is some real danger in this moment for Team Politan now.

So in this post, I will summarize the steps that have brought us to this point. But first, let me remind the reader that as we all contemplate the continuing proxy war between Masimo and Politan…Joe Kiani and Quentin Koffey…Sound United, the consumer audio division of Masimo, continues to twist in the wind with an uncertain future as its parent company and an activist investor continue to duke it out…in front of an at times pugnacious judge.

So what follows, in order of date and day, are the most recent events that have transpired, leaving us in a different place than where we were last week…

September 11, 2024 – Wednesday – Court Ruling on Masimo Motion for a Preliminary Injunction

Masimo and its CEO Joe Kiani had gone to court to sue Politan and Quentin Koffey to try and prevent them from counting proxy votes that were obtained through the use of what Masimo claims is “incomplete and misleading proxy materials.” They asked the Court for a preliminary injunction, seeking an order “enjoining Defendants [Politan] from voting any proxies solicited in violation of Section 14(a) or Rule 14a-9 until corrective disclosures are made.”

Politan denied the allegations and had strong rebuttals for each of the specific points that Masimo brought to the court to make its case. On September 11, 2024, Judge Selna issued his ruling on the preliminary injunction. Importantly, this was an “under seal ruling” which means it is not being made public.

As I mentioned in my article last Friday, the fact that the ruling was sealed was frustrating for those of us watching the Court, as it meant we could not see what was decided. The reason the judge sealed the ruling is that he wanted to give each side time to read his findings and determine if there was any text in the ruling that was confidential or non-public and therefore needed to be redacted.

September 12, 2024 – Thursday – Politan Issues Press Release Announcing the Judge’s Decision

Then the next day, Politan released a press release announcing to the world that the judge had issued a ruling denying the Masimo motion for a preliminary injunction. This announcement seemed pretty official, although it omitted a lot of details that we would just have to wait for the judge’s ruling.

And that’s the rub… The judge’s ruling was under seal – not to be publicized. The attorneys for both sides were provided copies of this sealed ruling solely for the purpose of determining which redactions they required from what would go on to be the final draft of the ruling that would be unsealed and released publicly.

Politan Gets Out Ahead of the Judge

Politan jumped the gun and got out ahead of the judge’s published ruling. And it is pretty easy to tell that the judge did not like this development – not. one. bit.

Late in the day, Masimo filed an application for an order to declare Politan in Contempt of Court and for the issuance of sanctions – both monetary and non-monetary. Masimo’s filing argued that this was a clear and “flagrant violation of this Court’s sealing order, a violation which has directly prejudiced Masimo in the ongoing proxy fight…”

Not only that, but the company noted that it can do nothing about this, as it must honor the court’s sealing order – rendering it unable to put out its own release with its own spin. Masimo seeks court intervention and asks the Court to order Politan to retract the press release, find them in Contempt of Court, and issue sanctions.

The court immediately ordered a hearing scheduled the first thing the next day.

September 13, 2024 – Friday – Contempt Hearing and Order

On Friday, Strata-gee’s story on Politan’s reporting of the dismissal of Masimo’s preliminary injunction was published.

More importantly, the parties gathered first thing in the morning for the hearing on Masimo’s contempt motion. Both sides argued their position and the court rendered its decision on the spot – Politan and Quentin Koffey were held in Contempt of Court.

Court Holds Politan and Quentin Koffey in Contempt

Acting quickly, later that same day, the Court published its decision which, as far as court orders go, was pretty short and to the point. The published order had three main points (note that these are the Court’s actual words)…

1. Politan had violated the Court’s sealing order. Any reasonable person would understand that no portion of the sealed document could be disclosed without the permission of the Court.
2. Politan’s disclosure did not substantially comply with the Court’s Order by only disclosing the result, but not the particulars, of the Court’s ruling.
3. Notwithstanding the advice of counsel, relying on the distinction between the result and the particulars of the Order was not reasonable and not credible. No reasonably competent lawyer would provide such advice. Reliance on such advice was not credible. Politan’s press release exhibits knowledge of the sealing order and its restrictive effect. [Emphasis added]

The order continues…

The parties agreed at the hearing that the Court’s ruling itself would be material to an investor’s vote decision in the proxy fight. Politan’s disclosure gave it an unfair advantage in the proxy fight because, so long as Masimo was bound by the sealing order, it could not meaningfully reply to Politan’s press release. Therefore, the Court finds, by clear and convincing evidence, see In re Dual-Deck Video, 10 F.3d at 695, that it is highly probable Politan and Koffey violated the Court’s Order when they issued the disclosure. Accordingly, the Court finds there is no “fair ground of doubt as to the wrongfulness of” Politan and Koffey’s conduct. See Taggart, 587 U.S. at 561 (citation omitted). [Emphasis added]

The Honorable James V. Selna, U.S. District Judge, from [IN CHAMBERS] Order Regarding Contempt Proceeding

Court Sets Hearing to Decide Politan Sanctions

Judge Selna went on to schedule another hearing on October 9, 2024, to determine the imposition of monetary or other sanctions against Politan and Koffey. These sanctions could also include penalties against Politan’s attorneys.

Later in the day, Politan released a statement from its attorneys issuing a bit of a mea culpa for advising Politan it would be okay for them to release the judge’s ruling as long as it withheld the “particulars” or potential confidential information. Below is the text of that statement…

Politan Lawyers Issue a (Sort of) Mea Culpa

We respectfully disagree with the Court’s ruling that Politan violated a sealing order. It was our understanding that while the contents of the order were under seal, the outcome of the motion was not. Both of our firms understood that Politan could announce the outcome of the motion, and both of our firms reviewed and approved Politan’s September 12 press release before it was issued. While we do not agree with the Court’s ruling, we appreciate that the Court denied Masimo’s efforts today to prevent Politan from voting, and denied without prejudice Masimo’s attempt today to further delay the upcoming 2024 Annual Meeting of Stockholders.

Michael Swartz of Schulte Roth & Zabel and Bethany Kristovich of Munger, Tolles & Olson, Politan attorneys

So while Politan and Koffey were found in Contempt of Court and subject to potential monetary or other sanctions, the court did not decide to delay the annual meeting or invalidate Politan’s board candidates or proxy votes.

September 14, 2024 – Saturday – Masimo Files Supplemental Brief in Support of Contempt Sanctions

On Saturday, Masimo filed a new document, Plaintiff’s Supplemental Brief in Support of Ex Parte Application for an Order Finding Defendants In Contempt of Court and For Sanctions. The purpose of this document was to propose to the Court sanctions against Politan and Koffey. Remember, Masimo lost its motion for a preliminary injunction, but in the wake of winning a contempt citation of Politan and Koffey, Masimo wants to propose other sanctions for the judge to consider.

Here are Masimo’s new ideas for sanctions the Court could consider ordering…

• Politan should be ordered not to vote proxies received after its press release – or at least until it discloses it has been found in Contempt of Court. [NOTE: Politan has already disclosed it has been found in Contempt of Court.]
• Prohibit Politan from voting its own shares and those it collected on its proxy
• Politan should be ordered not to vote the proxies it obtained since the contemptuous press release [This is referencing the press release containing Politan attorneys statement above]
• Politan should be ordered to disclose all communications regarding the sealed order
• “The Court Should Postpone The Annual Meeting Only If It Finds It Necessary”

Masimo Seems to Drop Demand for a Delay of the Annual Meeting, Unless the Judge Wants To

I thought that the wording on the last point was kind of interesting. Up to now, one of the things the company was seeking was an additional delay of the annual meeting. Now, they seemed to be backing off of that request. Why? I found the answer in a footnote of the Masimo filing…

“Based on discussions with certain stockholders, Masimo believes that the stockholders are fatigued of this proxy fight and would prefer the vote to occur as presently scheduled.”

The filing closes by suggesting that it is aware of some of its largest stockholders who are meeting on Monday to decide how to cast their votes. So, dear judge, “…a ruling by Monday would at least provide some stockholders with accurate and complete information.”

September 15, 2024 – Sunday – Masimo & Politan Press Releases

Both Masimo and Politan circulated new press releases with some updates based on the litigation outcome. Both sides shade the results of the lawsuit to their respective purposes, but the results still favor Politan as Masimo was denied a preliminary injunction. (Masimo suggests that they lost that motion over a technicality, but that’s not the case.) But neither side is exactly Mr. Clean, Masimo failed in its lawsuit and Politan was found in Contempt of Court.

Masimo release: Masimo Shares Final Thoughts Ahead of September 19 Annual Meeting Where Everything is at Stake

Politan release: Politan Comments on Masimo’s Latest Attempt to Block a Fair Shareholder Vote

September 16, 2024 – Monday – Court Order, Politan Press Release

Court Order – The Court has responded to Masimo’s supplemental filing in which it suggested additional forms of relief the Court could order for Politan’s misdeeds. In two short paragraphs, the judge responded, saying in part, “…the Court declines to grant further relief.” So that, it seems, is that.

Politan release – Politan Highlights Need for Further Change in Masimo’s Boardroom Ahead of Thursday’s Annual Meeting

Masimo Corporation’s 2024 Annual Stockholder’s Meeting is set for Thursday, September 19, 2024. This proxy battle should end then.

Learn more about Masimo by visiting masimo.com.

See all about Politan at politanmgmt.com.