Medical device maker Guidant has sued Johnson & Johnson to push through a $25.4bn (£14.6bn) takeover deal.
Guidant has been hit by a number of product recalls in recent months
The suit followed days of speculation that Johnson & Johnson would walk away from the acquisition after it warned talks between the two had stalled.
Guidant, which has recently been hit by a number of product recalls, confirmed the case as it unveiled a 57% drop in third quarter profits to $65.4m.
Johnson & Johnson has vowed to "vigorously oppose" the lawsuit.
Guidant filed the suit at the US district court for the Southern District of New York after a deadline agreed by the two firms for the completion of the buyout passed on Friday.
The Indianapolis-based firm claims that Johnson & Johnson is legally obligated to complete the transaction, under an agreement reached in December last year.
However, New Jersey-based Johnson & Johnson says that it is no longer required to complete the deal as a number of developments in recent months have had a "material adverse effect" on Guidant.
Reported malfunctions have forced Guidant to recall a total of 288,000 defibrillators and pacemakers - which regulate heartbeats - since June.
"Johnson & Johnson will vigorously oppose the lawsuit and take all necessary action to enforce its rights under the merger agreement," it said in a statement.
Meanwhile, on Thursday, New York Attorney General Elliot Spitzer sued Guidant for fraud accusing it of failing to tell doctors about a potential fatal flaw in its defibrillators.
The company is also reported to be facing federal action in Massachusetts and Minnesota over two recalled products.
Johnson & Johnson had agreed to buy the firm in December for a proposed $76 a share - which would have made it the health industry's biggest takeover deal - in an effort to offset its reliance on a slowing drug business.
Change of focus
A number of Johnson & Johnson's products are facing patent expirations, while the company is also battling fierce competition from generic products.
Meanwhile, demand for defibrillators, which give the heart a small electric shock when an irregular heartbeat or rhythm is detected, is expected to increase, analysts said.
However, Johnson & Johnson recently revealed that it had been in talks with Guidant to renegotiate the deal.
Analysts claim that following revelations about Guidant's products and legal woes, Johnson & Johnson had been hoping to slash its offer price claiming Guidant's recent troubles would hit its share price and earnings.
In its results for the three months to 30 September, Guidant said sales during the period fell 14% to $795m as a result of the recalls.
The figures also included costs of $28m which were related to regulatory actions on its devices.