(Updating and bumping Feb. 4 post about to roll off bottom of page because of new comment activity)
- Judge Fallon denied the motion of Florida plaintiffs to expedite a hearing on their inclusion into a settlement when they did not even bring suit (Jan. 30). Merck and the PSC are required to respond Feb. 15, and the hearing will be Feb. 21, where one can expect the motion to be denied.
- At Point of Law, I comment on the recent grand jury investigation into Merck marketing of Vioxx.
Update, Feb. 8: separately, Merck yesterday settles for $650 million different Medicaid fraud allegations over the marketing of Vioxx and other drugs. The qui tam relator will get a jackpot award of $68 million. [WaPo; DOJ; Merck] The pricing theories at the center of these lawsuits—which hold Merck liable for purportedly charging too little—definitely deserve longer discussion another time.
- The Manhattan Institute’s Marie Gryphon has a well-written and interesting piece in City Journal on the Vioxx settlement. (Unnecessary disclosure: I am friends with Ms. Gryphon, and critiqued an early draft of her article. Also, she didn’t show up for my Super Bowl party, despite a positive response to the Evite.) Ms. Gryphon’s argument suffers, however, from a major error in the premise: she values the fourteen tried cases at $7 million each. This is a gross overestimate. First, the correct denominator is not fourteen cases, because many more cases than fourteen were scheduled for trial. Plaintiffs dismissed another fourteen cases that were scheduled rather than try them; the fourteen cases that reached verdict (of which Merck won ten) include the stronger cases plaintiffs brought (though they also include some weak cases that Merck nominated for scheduling first). So cut the $7 million figure in half. Second, Gryphon’s figures assume that all cases will be affirmed on appeal. That’s not so. The two Texas verdicts and the New Jersey punitive damages verdict in McDarby all contradict the Supreme Court’s decision in Buckman v. Plaintiffs’ Legal Committee and, unless there is a severe surprise in the Warner-Lambert v. Kent argument later this month (for which, see Beck/Herrmann), those cases will be reversed as a matter of law. (Merck has other excellent arguments for reversal that should knock out the Humeston verdict entirely and could well knock out all or most of the McDarby verdict.) Plus there is some chance that the Wyeth v. Levine appeal to be heard in the Supreme Court early next term would preempt all failure-to-warn litigation nationwide. So the $3.5 million/case figure needs to be discounted still further, perhaps as much as 95-99%. Add in present-value calculations, and the Vioxx settlement actually provides more for plaintiffs than they could expect to obtain in trial. (Notwithstanding the availability of judicial hellholes through forum shopping, plaintiffs have yet to win a case in Madison County, and such cases would still be subject to review in the Illinois Supreme Court down the road.) Gryphon’s argument that the attorneys are selling out their clients depends on the premise that the Plaintiffs’ Steering Committee actually believes their cases are worth millions each, yet is agreeing to settle for nuisance value rather than hold out for more money by continuing to litigate to put more pressure on Merck. What is the PSC’s economic incentive to leave billions of dollars on the table? It is not risk aversion: the PSC has a diversified inventory of cases and plenty of financing available to it, and the PSC as a group should be considerably more risk-neutral than their individual clients. It is no longer the case, if it ever was, that a mass-tort defendant can hope to win a litigation through attrition: lengthy litigation hurts a defendant’s access to capital markets far more than the organized mass-tort trial bar’s access to capital. If trial lawyers end up deciding to agree to settle their cases for nuisance value, it is because they recognize that the settlement fairly values the cases at nuisance value. One can certainly argue that the plaintiffs’ attorneys are acting unethically, but the ethical problem comes from the original decision to bring thousands of meritless cases in the first place. (That said, I certainly agree with Gryphon that a loser-pays rule would better structure incentives. In that alternative universe, however, there would not have been 60,000 cases brought, and Merck could have plausibly chosen to defend itself rather than settle.)
Previous update: Jan. 17.