Monday, December 31, 2012

Chief Justice Boasts of Budget Cuts, Urges Filling Lower Court Vacancies

In his annual report on the state of the federal judiciary, Chief Justice John Roberts Jr. today said the third branch of government is doing more than its share to reduce expenditures at a time of fiscal crisis. He also called on both the executive and legislative branches to "act diligently in nominating and confirming highly qualified candidates" to fill long-lingering judicial vacancies in the lower courts.

As he boasted about the judiciary's thriftiness, Roberts took note of the fiscal cliff negotiations consuming the nation's capital, and the "longer term problem of a truly extravagant and burgeoning national debt. No one seriously doubts that the country's fiscal ledger has gone awry." Roberts hastened to add that "the public properly looks to its elected officials to craft a solution. We in the judiciary stand outside the political arena, but we can continue to do our part to address the financial challenges within our sphere."

The Supreme Court itself continues to trim its budget, requesting ever-lower levels of appropriation. For fiscal year 2014, Roberts said, the court will submit a $74.89 million budget request -- a 3.7 percent decrease from the fiscal 2011 level, with cuts coming "primarily in the areas of financial and human resources management."

Overall in 2012, Roberts said the entire judiciary received a total of $6.97 billion in appropriations, which works out to two-tenths of a percent of the total federal budget of $3.7 trillion. "Yes, for each citizen's tax dollar, only two-tenths of one penny go toward funding the entire third branch of government!" Roberts exclaimed, "Those fractions of a penny are what Americans pay for a judiciary that is second to none."

Roberts paid tribute to the "loyal and selfless service" of judges and other employees of the judicial branch. He singled out U.S. District Judge Mark Kravitz of the District of Connecticut, who died September 30 of Lou Gehrig's disease. "We in the judiciary remember Mark not only as a superlative trial judge, but as an extraordinary teacher, scholar, husband, father and friend." Kravitz chaired a key Judicial Conference committee on federal rules of procedure, and carried a full caseload until the final days of his life. Said Roberts, "We shall miss Mark, but his inspiring example remains with us as a model of patriotism and public service."

As he often does, Roberts began his annual report with a historical reference, this time recalling the role of the frigate the USS Constitution in the War of 1812, 200 years ago. "Through two centuries, she has remained a symbol of American courage, skill and tenacity," wrote Roberts.

Posted by Tony Mauro at 06:44 PM.

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Thursday, December 20, 2012

Kentucky AG Can't Dodge Merck's Due Process Suit over Vioxx Contingency Counsel

Kentucky Attorney General Jack Conway can't seem to shake Merck's constitutional challenge to his use of contingency fee lawyers in litigation over Vioxx. U.S. District Judge Danny Reeves in Frankfort, Ky., first rejected the AG's bid to dismiss the case back in March, sustaining Merck's claims that the use of contingency fee attorneys violates its due process right to an impartial tribunal under the Fourteenth Amendment. On Wednesday, Judge Reeves refused to toss the case yet again, handing another early-round victory to the company and its counsel at Skadden, Arps, Slate, Meagher & Flom and Frost Brown Todd. 

The story of Merck's transition from defense to offense in this little slice of the massive Vioxx docket is a little bit complicated, but the procedural details were key to Wednesday's ruling. Conway filed suit against Merck in state court in September 2009, alleging that the company violated the Kentucky Consumer Protection Act by marketing and distributing Vioxx, the popular pain drug that was pulled from shelves in 2004 over risks of heart damage. Merck removed the case to federal court in October 2009, and it was transferred to the Vioxx multidistrict litigation in Louisiana in April 2010. In January of this year, the judge overseeing the MDL ruled that the case was improperly removed and granted the Kentucky AG's motion to remand it back to state court. Merck sought to appeal that decision, but the U.S. Court of Appeals for the Fifth Circuit denied the company's motion in February, and the case finally landed back in state court in Kentucky on March 20.

The AG's contingency fee counsel at Garmer & Prather and Hare, Wynn, Newell & Newton came into the case midstream. In September 2010, with the case pending on the MDL docket, Conway retained outside counsel to assist with the Vioxx litigation. Merck responded by suing the AG in federal court in August 2011, claiming the AG's contingency arrangement allowed the plaintiffs lawyers to pursue a "quasi-criminal enforcement proceeding" in violation of its due process rights. Merck sought a preliminary injunction barring the private lawyers from handling the case. But in March--just one day after the MDL had remanded the underlying dispute to state court--Judge Reeves ruled that the company "failed to establish a likelihood that the contingency fee counsel have actually assumed control over the Vioxx litigation" and denied the company's motion. Two days later, Reeves nevertheless denied the AG's motion to dismiss the case, finding that Merck had stated a plausible claim that its due process rights had been violated.

In light of the MDL's remand of the underlying case, the attorney general filed a renewed motion to dismissin April, arguing that the court should abstain from adjudicating the case. The motion cited the U.S. Supreme Court's decision in Younger v. Harris, which bars federal courts from interfering with ongoing state judicial proceedings. Merck's lawyers at Skadden, led by John Beisner, countered that the federal case posed no threat to the state court proceeding, that the Kentucky state court didn't provide an adequate opportunity for the company to raise its due-process claims, and that Younger doesn't permit abstention where cases have progressed significantly prior to remand. 

Reeves concluded in Wednesday's ruling that the federal case involves an important state interest, and that Merck failed to show that the state court lacks a procedure for raising its due process claims. Still, he ultimately sided with Merck and denied the AG's motion to dismiss. The judge pointed to the progress in the federal case while the state was dormant at the MDL. "Because the state proceeding in Merck I was not 'ongoing,' abstention is not appropriate under the principles of Younger," he wrote. 

 In a statement, a spokesperson for the AG said the state disagrees with the ruling "and will continue to defend the position of the Office of the Kentucky Attorney General as this case continues."

We reached out Skadden's Beisner for comment, but a firm spokesperson said he was tied up in court on Thursday.

Posted by Ross Todd at 02:00 PM.

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Friday, December 14, 2012

Merck Shareholders Can See Documents Company Gave to Government

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.

Posted by Jan Wolfe at 02:00 PM.

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