July 17, 2006 at 12:43:59

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Merck Not Losing Sleep Over Vioxx Disaster

By Evelyn Pringle (about the author)     Page 6 of 7 page(s)

opednews.com     Permalink

Christopher Seeger, the lead lawyer in the class action filed by HMOs, insurers, and unions, says that Judge Higbee, who is overseeing about 5,000 Vioxx cases, should apply the findings of this jury to the class action, which he said could be worth $10 billion.

Mr Seeger told Bloomberg News on April 5, 2006, that this was devastating for Merck: "This jury just said 'Yes' to consumer fraud, so I think we go right to damages."

Mr Seeger is referring to collateral estoppel, a situation in which the judgment in one case prevents, or estops, a party from litigating the same issue in future cases. Because of the consumer fraud verdict, Mr Seeger contends that Merck may now be permanently bound by the jury's ruling.

Indeed, Bloomberg says, a judge could decide that the ruling that Merck failed to warn of Vioxx's risks could be applied to thousands of future trials in New Jersey, leaving the jury to decide only whether Vioxx caused specific heart attacks.

Barry Turner is an academic lawyer in the UK who has taught medical ethics, and for a number of years has been involved in litigation activities related to the pharmaceutical industry

He has been advocating the use of federal and state false claims statutes against Big Pharma for years. "I take the view that because of the harsh penalties imposed when these actions are successful," he explains, "that this is the legal strategy that will work against these people."

"PI suits," he says, "may very well be morally righteous but they will never make this industry change its ways."

"What is at issue," he continues, "is that companies factor litigation costs into 'research and development' and other costs of sales, so it does not hurt them to pay out in damages what they already budgeted for."

"The Federal and State False Claims Act actions are different," he notes, "a drug company hit by a big one of these will have to pay out colossal amounts in fines and damages, hundreds of millions in most cases," he says, "and these come out of profits."

"Then the stock will go down," he explains, "and they can be hit again under the Sarbanes Oxley Act."

"And if anyone thinks that Sarbanes Oxley is feeble legislation," he says, "they can always ask the Enron executives."

"As well as defrauding the taxpayer," Mr Turners notes, "the consequences of these deliberate and deceitful acts hurts shareholders when the litigation causes serious downturns in stock value."

"This is a violation of Sarbanes Oxley," he says, "and sooner of later there will be a major action here."

In each of the cases Merck has lost, the juries have ordered the drug giant to pay large punitive damage awards, creating additional problems for the company. Punitive damages are awarded to punish a defendant and deter future misconduct. They are not covered by insurance because the conduct is an intentional act on the part of the insured; and the intent of punitive damages would be lost if a defendant could avoid payment simply by buying more insurance.

In the state of New Jersey, punitive damages are allowed to be as much as 5 times the amount of compensatory damages. The Texas $229 million punitive damage award against Merck, even when reduced, will still be about $26 million and legal analysts say no company could avoid financial ruin if ordered to pay tens of thousands of $26 million punitive damage awards.

Punitive damages provide a basis for a derivative lawsuits seeking damages for conduct that compromised the value of the investments of shareholders. These types of lawsuits are being filed for much less than what Merck pulled with Vioxx.

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