In the last days of its financial decline, Maxxim Medical had a secret moneysaving policy of misleading its customers by substituting cheaper instruments that were not approved by the customer into custom procedure trays that it prepared for hospitals and surgical facilities. In company memos, the scheme used in 2002 and 2003 was called "Project Stanley," according to federal court documents.

The deception was revealed this spring in court documents in U.S. Bankruptcy Court in Tampa, Fla., during a legal dispute over former Maxxim sales rep Karen McCauley's violation of a non-compete agreement that she signed with the now-defunct company.

As time went on during Project Stanley, hospital customers who ordered the custom trays through group purchasing organizations became aware of the inferior products and service from Maxxim, according to court documents. "We had a poor quality product coming in here on an on-going basis," Sandy Whitney, a materials manager at Penobscot Bay Medical Center in Rockport, Maine, testified in court documents.

As business became worse for Maxxim, which was based in Waltham, Mass., Ms. McCauley left the company in June 2003 and went to work for Professional Hospital Supply, based in Temecula, Calif. In March this year, a federal judge ruled that Ms. McCauley did violate the non-compete clause. However, the judge also said that Maxxim didn't suffer any damage from Ms. McCauley's job switch. In the end, the judge ruled for Ms. McCauley, saying that she was not responsible for any loss of business. "The loss of [business] by Maxxim was due to the poor quality of Maxxim's services and goods," wrote Judge Michael Williamson. Ms. McCauley did not respond to a request for comment for this article.

On July 8, Medline appealed the court decision. Maxxim went bankrupt in 2003 and Medline purchased Maxxim's surgical division at auction in October of that year. Since the purchase, Medline has been dealing with a handful of legal issues related to Maxxim and its bankruptcy. A spokesman for Medline said the company had no comment on the lawsuit or Project Stanley.

Besides having inferior, unapproved contents, the procedure trays were often delivered late. So many customers complained to the VHA purchasing group that the GPO did not renew Maxxim's contract. "There was an outcry from the membership about the quality of service that Maxxim was providing," said Ms. Whitney in court documents.

Kent Steinriede

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