For years corporate lawyers have tried to make the case that companies can turn over once-privileged documents to regulators without waiving the privilege when confronted by shareholder lawsuits. Court rulings have been inconsistent, but in December, Merck & Co. Inc. was slapped down hard when it tried to make that argument.
Even though the pharma giant got the U.S. Department of Justice to sign an agreement that Merck had not waived privilege when it turned over documents involving Vioxx, a federal district court ordered the company to produce those documents in the Vioxx multidistrict securities litigation.
Vioxx was once Merck's blockbuster painkiller. The company pulled the drug from the market in 2004, after a clinical trial showed that it caused heart attacks. A slew of shareholder class actions followed and were consolidated before U.S. District Judge Stanley Chesler in New Jersey in 2005.
Chesler dismissed the shareholders' action in 2007, ruling that the plaintiffs had waited too long to bring suit. According to the judge, the investors knew in 2001 that Merck was understating Vioxx's risk. That year, a study came out that raised red flags about Vioxx and prompted the Food and Drug Administration to send a warning letter to Merck. But Chesler's dismissal of the shareholders' suit was appealed all the way up to the U.S. Supreme Court, which ruled in 2010 that the case could go forward.
In November 2011 Merck pled guilty to criminal charges involving Vioxx that were brought by the Justice Department. It agreed to pay a $321 million criminal fine and another $628 million to resolve the department's civil allegations. (It also plunked down $4.85 billion to resolve more than 27,000 personal injury claims over Vioxx.)
As part of its deal with the Justice Department, Merck agreed to turn over communications that were protected by attorney-client privilege. A 1989 decision by the U.S. Court of Appeals for the Third Circuit held that when a company turns over documents to government investigators, attorney-client privilege is waived for the documents in all future civil litigation.
In an effort to get around that ruling, Merck and its lawyers insisted that Justice Department officials sign a confidentiality and nonwaiver agreement.
As lawyers from LeClairRyan (which isn't involved in the Vioxx securities MDL) pointed out in a blog post, courts have split over whether to enforce such nonwaiver agreements, which are known as "selective waivers."
U.S. Magistrate Judge Cathy Waldor left no doubt about her position. "Documents produced to the [Justice Department] pursuant to a confidentiality and nonwaiver agreement must be turned over to plaintiffs," she ruled in October.
In his opinion two months later, Chesler concurred. "Applying selective waiver in the context of voluntary disclosure to government agencies would amount to an unjustified expansion of the attorney-client privilege," he wrote in a seven-page decision that ordered Merck to produce the documents to the MDL plaintiffs.
