The Star-Ledger

Court Rejects Vioxx Class Suit

Ruling: Plaintiffs can't join forces in fraud act

The Star-Ledger — Friday, September 7, 2007

BY KATE COSCARELLI AND SUSAN TODD
STAR-LEDGER STAFF

In a victory for drugmaker Merck, the New Jersey Supreme Court yesterday turned back a massive class-action case over the once-popular arthritis treatment Vioxx.

The case involves an Essex County union whose healthcare plan spent $200,000 on Vioxx prescriptions for its members and now seeks reimbursement from Merck following the withdrawal of the medicine three years ago because of safety concerns. Two lower courts had ruled the union could join forces in a class action with other health-care plans and insurers seeking similar reimbursement.

But in a 5-0 ruling, the state's highest court found the plaintiffs are not entitled to a class action under New Jersey's Consumer Fraud Act, meant to protect individuals who might be at a disadvantage unless they act together. The class potentially included thousands of health plans and insurance companies seeking as much as $15 billion in reimbursement from Merck, according to plaintiff lawyers.

"We find no ground on which to conclude that this proposed nationwide class meets the test... that we have traditionally required," the court said in an unsigned opinion.

The justices did not rule on the validity of the claim by the International Union of Operating Engineers Local 68 Welfare Fund that health-care plans and insurers that bought Vioxx had been duped by Merck. Instead, they sent the case back to a lower court for reconsideration.

Merck, based in Whitehouse Station, applauded the ruling, which lets the company sidestep a critical court battle and potentially crushing liability.

"It's a positive result," said John Beisner, who argued the case for Merck.

Vioxx was a huge source of revenue for Merck, ringing up sales of $2.5 billion a year, before the company abruptly pulled it off the market in September 2004 because of mounting evidence it caused heart attacks and strokes.

Yesterday's ruling bolstered Merck's view that each Vioxx lawsuit contains a different set of facts and must be considered separately.

"The Supreme Court recognized a class action was improper because each insurance company and HMO considered different types of information in deciding whether to reimburse patients for Vioxx," said Ted Mayer, who is spearheading Merck's Vioxx defense.

Lawyers representing Local 68's Welfare Fund said they and attorneys for other health-care plans would continue to press their cases against the big drugmaker.

"Merck clearly dodged the bullet here," said David Buchanan. "Now, the question is death by how many cuts. ... The claims are going to go forward, just in a different form."

Buchanan said he already is in talks with dozens of health-care plans and insurers about filing individual claims.

The case represents only a portion of the Vioxx litigation Merck faces. The company is embroiled in more than 27,000 product liability lawsuits in state and federal courts around the country, including 13,800 in New Jersey. So far, juries have sided with the company about 10 times and with individuals about five times.

Yesterday's ruling has no immediate impact on the product liability cases, but a lawyer for the company said it could influence other litigation. A federal judge in Louisiana had said he was waiting to see the New Jersey court's view before preceding with several cases before him, according to Beisner.

Investors may have felt some relief from the ruling. Merck's stock rose $1.07, or more than 2 percent, to $50.47.

But the increase could have been the result of "an accumulation of things," said pharmaceutical industry analyst Anthony Butler of Lehman Bros. In the past week, Merck has gained critical support for the approval of an HIV drug and filed an application for a new cholesterol-fighting medicine.

"Wall Street's grown tired of the liability issue," Butler said. "The general population of investors only reacts to negative news."

The New Jersey case goes back to a 2003 lawsuit filed by the union local, claiming the drug company hid the risks of Vioxx from health plans and insurers that would have chosen other drugs had they known. In July 2005, state Superior Court Judge Carol Higbee, who sits in Atlantic City, granted class-action status to the union's suit, and a state appeals court later upheld her decision.

In reversing the two lower courts, the Supreme Court found the fraud act was intended to support individuals who might not have equal access to the court system without the resources of a class.

"Unlike those hourly wage earners, (the union) and other third-party payors are well-organized institutional entities with considerable resources," the justices wrote in a 30-page opinion.

The court's interpretation was cheered by business leaders who said it would help deter some lawsuits.

"It is very good news for New Jersey corporations," said John Brenner, who participated in the case as a "friend of the court" on behalf of the Commerce and Industry Association of New Jersey.

But consumer rights advocates said that while some plaintiffs in the case may continue pressing their claims, the ruling likely spells the end for many smaller groups.

"The court really seems to be turning its back on the defense of consumers," said Theodore Lieverman, who filed papers behalf of various groups including the American Association of Retired Persons and New Jersey Citizen Action. "There are thousands of small labor management health and welfare funds that could represent a few hundred to a couple thousand people."

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