Merck Shareholders Can See Documents Company Gave to Government

Jan Wolfe

The Litigation Daily

12-14-2012

Merck & Co. Inc. has already paid nearly $1 billion to the federal government to resolve claims that it misbranded its painkiller Vioxx. To make matters worse, the drug giant has now lost a bid to keep Merck's shareholders from seeing potentially damaging documents that the company turned over to the U.S. Department of Justice.

In a 7-page decision issued on Wednesday, U.S. District Judge Stanley Chesler ordered Merck to produce the documents in multidistrict securities litigation involving Vioxx. He ruled that Merck waived the attorney-client privilege for the documents by turning them over to the Justice Department, even though the department signed an agreement promising to keep the documents confidential.

Merck pulled Vioxx, one of its bestsellers, from the market in 2004 after a clinical trial showed that the drug caused heart attacks. Even before the recall, concerns over Vioxx's safety started to depress Merck's stock price. A slew of shareholder class actions followed and were consolidated before Chesler in 2005. Firms representing the plaintiffs include Bernstein Litowitz Berger & Grossman; Brower Piven; and Carella Byrne Cecchi Olstein Brody & Agnello.

Chesler dismissed the shareholders' action in 2007, ruling that they waited too long to bring suit. According to the judge, the investors knew way back in 2001 that Merck was understating Vioxx's risk. That year, a study came out that raised red flags about Vioxx and that prompted the Food and Drug Administration to send a warning letter to Merck. Chesler's dismissal of the shareholders' suit was appealed all the way up to the U.S. Supreme Court, which ruled in 2009 that the case could go forward. The plaintiffs survived a motion to dismiss in August 2011.

In November 2011, Merck pled guilty to criminal charges brought by the Justice Department and agreed to pay a $321 million criminal fine. It also agreed to pay $628 million to resolve the Justice Department's additional civil allegations. (In 2007, after years of bellwether trials, Merck also paid $4.85 billion to resolve more than 27,000 personal injury claims over Vioxx.)

As part of its 2011 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 follow-up civil litigation. In an effort to get around that ruling, Merck and its lawyers insisted that Justice officials sign a confidentiality and non-waiver agreement. As lawyers from LeClair Ryan (which isn't involved in the Vioxx securities MDL) pointed out in this this blog post, courts have split over whether to enforce such non-waiver agreements, which are known as "selective waivers."

U.S. Magistrate Judge Cathy Waldor left no doubt over her position, ruling in October that "documents produced to the [Justice Department] pursuant to a confidentiality and non-waiver agreement must be turned over to plaintiffs." Sibling publication New Jersey Law Journal reported on Waldor's ruling in this story.

In his Wednesday ruling, Chesler adopted Waldor's recommendation. "[A]pplying selective waiver in the context of voluntary disclosure to government agencies would amount to an unjustified expansion of the attorney-client privilege," he wrote, adding, "Judge Waldor correctly applied Third Circuit precedent in concluding that Merck must produce the documents."

James Cecchi of Carella Byrne, who serves as liaison counsel for the shareholder plaintiffs in the MDL, did not immediately return a call seeking comment. We also didn't immediately hear back from Cravath partner Robert Baron, who represents Merck.