Merck Lawyers: Plaintiffs Should Have Known Merck Was Lying about Vioxx

On Monday, Merck & Co., and the investors who filed securities suits against it, had their day in court. Investors in Merck are suing the company over the misrepresentation of the safety of Vioxx (or lack thereof) which allegedly caused them to pay an inflated market price for company stocks.

(To begin with, the risks associated with Vioxx are not at issue in this Vioxx suit. Vioxx has already paid out billions to settle claims by the people physically harmed by the drug. This case is simply about whether Merck also screwed its shareholders in its handling of the Vioxx debacle.)

The Supreme Court heard arguments from the parties centering around the question of whether the shareholders had waited too long to file their lawsuit. In federal court, the securities fraud statute of limitations deems that any lawsuits suit must be brought within two years of the time investors knew about or should have suspected fraud.

Here, Merck made a novel argument. Merck lawyers claimed that the shareholders' suit should be dismissed because they knew or should have known about the possible fraud committed by Merck as early as 2001, but instead, waited until 2003 to file suit. In September of 2001, the FDA sent a warning letter to the company, alleging misrepresentations regarding the drug's potential to increase a patients' risk of heart attack. On the other hand, Merck said, the investors don't have a enough evidence against the company to prove securities fraud.

Simply put, the shareholders should have known about the fraud that did not occur, and filed the suit earlier. This would mean that the plaintiffs should have known that Merck was lying as it denied the risks associated with Vioxx for years, but at the same time that the plaintiffs could not make a case that the company lied.

A tough sell, no doubt. 

Some of the judges were justifiably skeptical about this line of reasoning. Justice Anthony Kennedy told the Merck attorneys, "Companies can't have it both ways."  Justices Scalia and Ginsburg considered another distinction that might assist the shareholders, asking Merck lawyers whether the FDA letter demonstrated only "misrepresentations" on the part of Merck, not the out and out fraud that would start the securities fraud statute of limitations clock ticking.

Attorneys for the investors faced slightly less difficult questions. However, Justice Sotomayor asked why investors filed their suit a whole year before the Wall Street Journal article supposedly central to their case was even published. Mr. David Frederick, for the investors, replied that the initial suit was prompted by a Harvard study regarding increased heart attacks in Vioxx users and was actually amended later to include information from the WSJ article when it was available.

A decision is expected early next summer.

Related Resources:

• Some Justices Voice Skepticism of Merck in Vioxx Case (Wall Street Journal)
• Vioxx Info (FindLaw)
• Court Reinstates Shareholder Suit Over Vioxx (FindLaw's Common Law)
• $4.85 Billion Settlement for Vioxx Claims (FindLaw's Common Law, 2007)
• Vioxx Recall and Lawsuit Information (provided by Hollis & Wright, P.C.)
• White Collar Crime News and Cases (provided by Law Office of Ramon de la Cabada, P.A.)