Just days after losing an initial bid to block Kentucky attorney general Jack Conway from using contingency fee lawyers to press the state’s claims over the marketing of Vioxx, Merck and its lawyers at Skadden, Arps, Slate, Meagher & Flom have won a ruling allowing their case over the arrangement to move forward.

On Monday Frankfort, Ky., federal district court judge Danny Reeves denied Conway’s motion to dismiss Merck’s suit, which accuses the Kentucky AG of violating the company’s due process rights by allowing contingency lawyers to pursue a “quasi-criminal enforcement proceeding” against the company. Merck has claimed that the contingency fee arrangement could bias the case in favor of increased potential civil penalties, which range from $2,000 to $10,000 per violation of the state’s consumer protection laws.

“Merck has pleaded sufficient factual allegations to state a plausible claim that the AG’s use of contingency fee attorneys in the Vioxx litigation violates its due process right to an impartial tribunal,” Judge Reeves wrote.

Merck counsel John Beisner of Skadden said Judge Reeves’s decision was the first he was aware of addressing a due process challenge to an AG’s use of contingency fee lawyers in suits seeking penalties. “It really does affirm in this context a due process right,” Beisner said.

In December, a state court judge in South Carolina allowed a similar suit brought by AstraZeneca Pharmaceuticals to move forward against South Carolina attorney general Alan Wilson. That ruling didn’t hinge on the constitutional issues addressed by Judge Reeves on Monday.

Monday’s decision follows Judge Reeves’s order last Wednesday denying Merck’s motion for a preliminary injunction. Judge Reeves ruled then that Merck “has failed to establish a likelihood that the contingency fee counsel have actually assumed control over the Vioxx litigation.” Merck moved for the injunction without the benefit of discovery, however, as Judge Reeves noted in his opinion Monday.

Conway argued in his motion to dismiss that he was allowed by state law to hire plaintiffs firms (in this case Garmer & Prather and Hare, Wynn, Newell & Newton). Judge Reeves agreed in principle but concluded that the law “does not necessitate a finding that the use of that power in this case was constitutional.” State attorneys general may hire outside counsel as long as they retain control over their cases, he wrote, but if the lawyers take control “then the door is opened to a conclusion that the contingency fee arrangement violated the defendant’s rights.”

A spokeswoman for Conway declined to comment. The underlying Vioxx suit against Merck, filed by Conway in 2009, was recently remanded from federal court back to Kentucky state court.