Legal Village

When a $5bn settlement is really a victory

Posted 22/11/2007 by Bar Talk

It's a sign of the times that a company can express relief after agreeing to settle a massive set of lawsuits for $4.85bn. But Merck & Co's decision to end the Vioxx wars last week appears to be a victory for a company facing $20bn in liability - and a validation of its courthouse strategy to fight each case.

The settlement, negotiated over about a year, was announced on Friday (16 November) in New Orleans just before a status conference was scheduled in front of US District Judge Eldon Fallon, who had been supervising the federal multi-district litigation docket.

The Vioxx litigation against Merck began in 2001, but exploded after the company took the prescription pain-killer off the market in 2004. Since then, Merck has been hit with approximately 26,600 lawsuits, according to company documents. Defending the litigation has been expensive: Merck filings report costs of roughly $1bn. At the peak of the litigation frenzy, some analysts estimated the company's liability to be around $20bn.

In the past, pharmaceutical companies faced with a large set of claims frequently moved for a fast and expensive settlement. Merck chose a different path, one similar to Bayer's strategy in the so-called Baycol litigation. Merck vowed not to settle. Instead, it would fight each case in front of a jury.

Twenty-one cases went to trial. Merck started badly in Texas, where plaintiffs lawyer W Mark Lanier of the Lanier Law Firm won a $234.4m verdict in 2005 representing a widow of a man who died after taking Vioxx. (The verdict is expected to be reduced.)

But Merck continued to fight. Of the 20 cases tried since Lanier's victory, 15 ended in defense verdicts or hung juries. Merck's success in the courtroom was a stick that it used in negotiations with the plaintiffs.

Andy Birchfield of Beasley Allen Crow Methvin Portis & Miles, a key negotiator for the plaintiffs, admitted that plaintiffs have had a tough time in court showing that Vioxx caused heart attacks and strokes. "We've seen that proving causation is challenging," he says.

Preparing the cases have been expensive for the plaintiffs Bar too. Last week's settlement honors the contingency fee arrangements plaintiffs lawyers have with their individual clients. These can be as much as 40% of any award. In addition, a small group of lawyers who worked on preparing discovery and taking depositions common to all the cases has asked Fallon for a maximum of 8% of all attorney fees awarded.

Merck defense lawyer Theodore Mayer, a Hughes Hubbard & Reed partner in New York, called the deal the "right agreement at the right time". According to Mayer, both sides knew how many cases they had to settle. Fallon had entered an order that found the statute of limitations closed in several states and the number of new cases had been falling in the last year, according to Mayer.

The deal will be triggered once 85% of those who have filed claims agree to the terms. The individual awards will be determined by a three-step process - called 'gates' - that will attempt to assess the severity of their injuries.

The agreement also requires that the plaintiffs lawyers recommend the deal to all their Vioxx clients. In Texas, Lanier told ALM weekly Texas Lawyer that he would recommend that his 1,003 clients take the offer. "We are going to be able to get some clients some money," he says.

He estimates the average payout as between $150,000 and $200,000. Another Texas plaintiffs lawyer, Edward Blizzard, said the awards for heart-attack victims might be a bit higher. "I think this is a good settlement for plaintiffs; it offers generous compensation for people who have suffered real injuries and a fair process to objectively evaluate those cases," he says.

Settlement negotiations began last December and have proceeded fitfully since, reportedly spurred on by Fallon and other judges. The final stretch began Thursday morning at the New Orleans offices of Russ Herman, liaison counsel for the plaintiffs, and wrapped up Friday morning around 5am.

Herman says the primary lawyers for the plaintiffs included Chris Seeger of Seeger Weiss, Birchfield of Beasley Allen and Arnold Levin of Levin Fishbein Sedrad & Berma. Merck was represented by Doug Marvin of Williams & Connolly, John Beisner of O'Melveny & Myers and Adam Hoeflich of Bartlitt Beck.

"It was a true, hard-fought, rough and tough negotiation on a very high, professional plane," Herman told Legal Times, ALM's Washington weekly.

Herman says a general deal was struck 10 days ago. "But the devil's in the details and they can break down at any point," says Herman. "Nobody raised their voice or made threats but people's positions were very hard. It was like each lawyer had a greased football and was running like a wild monkey."

ALM staff reporters Nathan Carlile, Mark Donald and Brenda Sapino Jeffreys contributed to this story. For more commentary on the world's biggest legal market, click here.