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Still smarting from a $13.5 million New Jersey verdict over its painkiller Vioxx � and a judge’s referral of the case to state prosecutors for possible criminal action � Merck & Co. got some welcome good news from a federal court. U.S. District Judge Stanley Chesler in Newark dismissed shareholder derivative suits against the company, finding the plaintiffs failed to comply with a federal court rule requiring shareholders to demand, prior to filing suit, that the board of directors take corrective action. The plaintiffs had claimed that a prior demand would have been futile, but Chesler said the futility of making the demand “must be gauged at the time the derivative action is commenced, not afterward with the benefit of hindsight.” The suit, In re: Merck & Co. Inc. Derivative & ERISA Litigation, 05-1151 and -2368, alleged that Merck scientists were aware as early as 1996 that Vioxx might have cardiovascular risks but that Merck marketed it for years without mentioning the problem. Merck did not withdraw the drug from the market until September 2004, after a study linked it to heart attacks and strokes. As a result, the plaintiffs alleged, the corporate officers and directors were unjustly enriched, breached their fiduciary duties, committed acts of gross mismanagement and corporate waste and misappropriated corporate information. The plaintiffs claimed that because the directors approved Merck’s marketing plans for Vioxx, they would have been averse to any corrective actions. But Chesler said that Federal Rule of Civil Procedure 23.1, adopted to curb concerns over excessive shareholder-derivative litigation, required the plaintiffs to claim “demand futility” at the onset of the action � not, as they did, in an amended complaint after discovery began. Chesler denied the plaintiffs’ request for leave to amend their complaint. The May 5 ruling came a month after an Atlantic County jury awarded $4.5 million in compensatory damages and $9 million in punitive damages to a man who claimed the Vioxx caused his heart attack. The jury found that Merck deliberately misled regulators about the health risks posed by Vioxx. By state law, the award of punitive damages required the trial judge, Carol Higbee, to refer the case for a possible criminal probe to the state attorney general’s office and county prosecutor. There are still 11,500 product liability cases by Vioxx users pending around the country. Merck has won three and lost three of the cases that have gone to trial. The federal court plaintiffs were represented by Travis Downs III, of Lerach Coughlin Stoia Geller Rudman & Robbins in Los Angeles, and local counsel Peter Pearlman of Cohn Lifland Pearlman & Herrmann of Saddle Brook. Merck’s lawyers were William Stein and Roberta Koss of Hughes Hubbard & Reed in Washington, D.C., and Robert Baron of Cravath, Swaine & Moore in New York City.

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