In my recent review of the past year’s top D&O stories, I noted the current trend toward increased numbers of securities class action lawsuits involving smaller companies, and also towards smaller securities suit settlements. In the midst of this era of generally smaller cases and settlements has now come a huge settlement reminiscent of earlier time – perhaps because it involves a lawsuit that is itself a vestige of another era. On January 15, 2016, Merck announced that it had reached an $830 million settlement of the long-running Vioxx-related securities class action lawsuit. This case, whose extended procedural history included a trip all the way to the U.S. Supreme Court to address statute of limitations issues, has been pending since November 2003. The proposed settlement is subject to court approval. Merck’s January 15, 2016 press release about the settlement can be found here.
As discussed in detail here, in November 2003, plaintiff shareholders filed a securities class action against Merck and certain of its directors and officers alleging that the defendants made false and misleading statements about safety of the company’s pain medication, Vioxx. Merck launched its Vioxx pain relief product in May 1999 and withdrew it from the market in September 2004. The plaintiffs alleged that Merck knew of Vioxx’s cardiovascular safety risks from studies conducted before the product launch, and that Merck tried to minimize the risks as the safety concerns began to emerge after the drug reached the market.
The defendants moved to dismiss the complaint on statute of limitations grounds. The district court granted the motion to dismiss. The dismissal eventually made its way all the way to the U.S. Supreme Court. As discussed here, in April 2010, the Supreme Court unanimously ruled that the plaintiffs’ action was not time-barred. The case returned to the district court, where the parties have been litigating since. In May 2015, the district court granted in part and denied in part the defendants’ motion for summary judgement. The court had previously certified a plaintiff class consisting of shareholders who purchased Merck securities during the period May 21, 1999 through October 29, 2004.
The announced value of the settlement is $830 million, but in its press release Merck also said that the settlement includes the company’s agreement to pay “an additional amount for approved attorneys’ fees and expenses.” Given that the plaintiffs’ attorneys’ fees are likely to be sizeable, the actual dollar value of the settlement is likely significantly greater that the announced $830 million value. Also, the company’s press release also notes that the settlement does not resolve various individual securities class action lawsuits, which remain pending.
In its press release, Merck said that after application of insurance proceeds, its cash portion of the settlement and fees would be $680 million, suggesting that the company’s insurers will contribute at least $150 million to the settlement, presumably with additional amounts toward the fee portion of the settlement. Of course, the insurers’ settlement contribution comes on top of their payment of nearly thirteen years of defense expenses.
Merck’s agreement to contribute $680 million out of its own resources to settle this case is merely the latest huge payment the company has had to make in connection with the Vioxx debacle. According to the Wall Street Journal’s January 16, 2016 article about the settlement (here), this latest settlement amount brings the company’s total payouts to settle Vioxx-related litigation to at least $6 billion, not counting additional amounts the company paid for its legal expenses. According to the Journal, the bulk of these expenses came from the company’s 2007 agreement to pay $4.85 billion to settle thousands of product-liability lawsuits. In 2011, the company agreed to pay $950 million to 43 states, the District of Columbia and the U.S. Department of Justice to resolve criminal and civil charges that the company deceived the government about the safety of Vioxx. In connection with the 2011 settlement, the company pled guilty to a misdemeanor criminal violation of a federal drug law.
Because the $830 million announced value of the settlement does not reflect the amount to be paid for the plaintiffs’ attorneys’ fees, it is hard to know exactly how this settlement measures up on the list of all-time largest securities class action settlements.
If the announced $830 million value of the settlement is used as the basis of comparison, this settlement, if approved, would be the 15th largest securities class action settlement. Even if we were to extrapolate a very large figure for the unspecified plaintiffs’ attorneys’ fees – say, 20% of the announced settlement amount – the settlement likely represents the 14th or 13th largest settlements. (These comparisons are all based on ISS’s September 28, 2015 list of the 100 largest securities class action settlements, which can be found here.)
It is probably worth noting the remaining unresolved individual Vioxx-related securities lawsuits could also be costly for the company to resolve as well, adding further to the total amounts the company will have had to have paid in order to resolve all of the Vioxx-related legal woes. Moreover, the class action settlement will exhaust the company’s remaining insurance, so the costs to resolve the remaining individual actions will come out of the company’s resources. In addition, the company’s press release does not say anything, one way or the other, about the parallel Vioxx-related ERISA stock-drop lawsuit. As far as I could tell from a review of online resources and the court’s electronic docket, the ERISA lawsuit remains pending. The cost of resolving the ERISA lawsuit will add further to the company’s costs to the extent it is not covered by insurance.
It is hard be believe that, as massive as it is, a more than $830 million settlement does not even crack the list of the top ten largest securities class action lawsuit settlements. A settlement of this magnitude likely will have a significant impact on annual settlement averages, though. But even though this outsized settlement will skew some of the aggregate and comparative settlement measures, it is in this day and age something of an outlier. It is, as I noted at the outset, a vestige of another time. As a general matter, the vast majority of cases that have been filed in recent years are smaller – they involve smaller companies and the amounts at stake are smaller as well. Absent another era of big corporate scandals, we may not be seeing as many of the mega-settlements like this one, or like the ones that were in fact large enough the crack top ten list.
If anyone knows anything more about the parallel Vioxx-related ERISA lawsuit, and in particular whether the ERISA case has been settled or otherwise resolved, I would be grateful if you would please let me know.