Merck & Co Inc. struck out last week in a constitutional challenge to the controversial practice of state prosecutors outsourcing enforcement duties to contingency-fee lawyers. But litigation over the practice is far from settled, as appellate courts in at least two other states continue to weigh the issue.
In a summary judgment ruling issued on May 24, U.S. District Judge Danny Reeves in Frankfort, Ky., allowed the law firm Garmer & Prather to represent the state of Kentucky on a contingent fee basis in a civil case relating to Merck’s marketing of Vioxx. Siding with lawyers from Kentucky Attorney General’s office, Reeves ruled that the state’s arrangement with the outside law firm didn’t violate Merck’s due process rights. The ruling is a blow to Merck’s lawyers at Skadden Arps Slate Meagher & Flom, led by John Beisner, as well as tort reform groups that enthusiastically supported Merck’s disqualification efforts.
The Kentucky AG sued Merck in state court in 2009, alleging its marketing of Vioxx violated civil consumer protection laws. In 2010, Garmer & Prather agreed to take a lead role in prosecuting the case in exchange for a share of any recovery.
Merck responded by suing Kentucky AG Jack Conway in federal court. The company sought a declaratory judgment that the contingency fee arrangement violated its due process right to an impartial proceeding. In similar cases, judges have typically held that state prosecutors can retain outside lawyers on contingent fee basis, so long as the private attorneys serve in a "subordinate" co-counsel role. Merck’s lawyers at Skadden arguedwith notable success at firstthat Kentucky’s arrangement fell short of that standard, because Garmer & Prather appeared to be calling all the shots.
On summary judgment, Skadden hoped to bolster its argument with deposition testimony from the the assistant attorney general assigned to the case, Elizabeth Natter. She was unable to identify all of the potential witnesses and admitted that she hadn’t reviewed some documents central to the state’s claims against Merck.
In last week’s ruling, Judge Reeves called aspects of Natter’s testimony "disconcerting" and "proof of complacency or laziness." But he ultimately rejected Merck’s due process arguments. "[D]espite performing poorly on a few pop quizzes during her deposition, Natter demonstrated her general familiarity" with the case, he ruled. "Lack of involvement in the legwork of a case does not prove or even imply a lack of control."
Skadden’s Beisner referred us to a Merck spokesperson. The company said it was disappointed with the decision and reviewing its options.
"Judge Reeves’ decision reaffirms the long-standing practice of state attorneys general utilizing outside counsel to assist with consumer protection litigation," Attorney General Conway said in a statement. "It allows the Commonwealth to level the playing field when enforcing Kentucky law against an entity whose yearly revenue exceeds the annual budget for the entire state."
As we’ve reported, AstraZeneca and its lawyers at Morgan, Lewis & Bockius filed a similar suit three years ago against South Carolina’s attorney general, who had hired contingency fee counsel to pursue claims related to AZ’s marketing of Seroquel. That case survived a motion to dismiss in December 2011, but the parties settled the underlying off-label marketing litigation for $26 million last year. (Ken Bailey of Bailey Perrin Bailey, one of the plaintiffs firms contracting with the AG, wasn’t immediately available to comment.)
GlaxoSmithKline, meanwhile, is pursuing parallel cases in Louisiana and West Virginia, which have both targeted the company over its marketing of Avandia. According to Nina Gussack of Pepper Hamilton, who represents GSK, the Louisiana case is now before an intermediate state appeals court after a lower court judge declined to rule on the company’s bid for an injunction. In West Virginia, the state’s highest court heard arguments earlier this month after a judge refused last year to disqualify the attorney general’s private counsel.
