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Vioxx settlement provides windfall for plaintiffs who brought legally frivolous suits



Under a law passed in Michigan in 1996, product-liability suits against pharmaceutical manufacturers are barred if the product was approved by the FDA and there was no FDA finding of fraud. Thus, no Michigan resident claiming to be injured by Vioxx had a valid claim against Merck.

The Vioxx settlement (Nov. 13; etc.) applies only to eligible claimants with pending suits. Those who have not filed suit as of the date of the settlement are ineligible to latch on; those who had their suits dismissed with prejudice and do not have a pending appeal are ineligible. (See Section 17.1.22.2.) Michigan residents who did not file suit—and many with ethical lawyers did not file suit—do not get to participate in the settlement.

Other Michigan residents had more brash attorneys who made frivolous arguments that the suits should be brought under New Jersey, rather than Michigan, law, notwithstanding the standard conflict-of-laws practice that the law of a tort suit is the place of the alleged injury. An unknown number of these cases are pending in the federal and New Jersey MDLs, and perhaps even in some other state courts.

The settlement has several dozen factors modifying the settlement amount: age, severity of alleged injury, type of alleged injury, time and amount of Vioxx taken, other contributing risk factors, all of which either augment or discount the eventual settlement amount. See Exhibit 3.2.1; cf. also the plaintiffs' steering committee mock calculator of settlement value (via Sebok/Zipursky). But nowhere in the calculation is there a discount for being a Michigan resident. Thus, a Michigan resident with a pending suit will get the same settlement as if he or she lived in New Jersey—the catch being that he or she had to have a pending suit.

There are two ways to look at this. One is that the settlement unfortunately rewards Michigan residents with unethical attorneys who filed meritless lawsuits and managed by the luck of the draw to keep them alive while settlement negotiations were pending. The other is that the settlement doesn't treat Michigan residents differently than the residents of any other state because all of the lawsuits are equally meritless, and the settlement is purely one to get out from under the nuisance of litigation and the random lottery award.

Note, incidentally, how the Michigan law demonstrates the need for federal preemption. Limiting product-liability lawsuits against FDA-approved drugs reduces the expense of drugs to all consumers, and encourages the sale of drugs that the FDA has found to be safe and effective, but cannot be profitably sold because of the risk of litigation. But this is not something that can be done on the state level: the Michigan law benefits the residents of all fifty United States (and the rest of the world) ex ante, but the ex post cost of that law is borne entirely by Michigan residents who don't get to participate in the litigation lottery that the residents of the other forty-nine states do. There is thus great political pressure on Michigan legislators (e.g.) to undo the law in the one state where the law is most reasonable. As in the classic collective action problem, the residents of the state have the incentive to accrue litigation benefits to themselves at the expense of out-of-state patients and investors, even though everyone would be better off if they agreed to a universal preemption rule.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.