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"Vioxx and Corporate Apologies"

Professor Elizabeth Nowicki wonders (via Childs) whether a corporate apology (and agreements to settle) are something that is part of a fiduciary duty of a director.

Nowicki's analysis presupposes that Merck has done something wrong other than to be wrong in hindsight, and there doesn't appear to be a case that that is true. (Nor is it the job of the corporate litigator to "'clear' the corporate name" unless that is the primary goal of the corporate client.) But, unfortunately, under the current legal status quo, even if Merck had done something wrong, and was inclined to settle the cases, the scope of corruption in the plaintiffs' bar makes that impossible. In every extra-large scale mass tort settlement to date, the amount of plaintiff fraud has been tremendous, often constituting a majority of the claims. Early indications are that Vioxx is no different. In the Garza, Cona, Rogers, Humeston, and recently voluntarily dismissed federal cases, there were credible allegations that the plaintiff exaggerated (or even faked) Vioxx usage; each of the other plaintiffs in concluded cases to date exaggerated the claims of causation through impermissibly speculative and conclusory expert testimony. If that sort of trend holds up, that means that a majority of the lawsuits filed have severe factual problems even before one gets to the question of whether Merck did anything wrong. Imagine what would happen if Merck replaced the lawsuit process with a settlement process. See also my Apr. 20 post and John Simons, "Merck's got to keep fighting", Fortune, Apr. 25. If there's any corporate fiduciary duty to its shareholders here, it's to fight the lawsuits until the legal system provides a mechanism for policing fraud and punishing, rather than rewarding, the plaintiffs' attorneys who engage in it.

This is bad enough, but the status quo punishes apologies in another way. One could say that Merck's voluntary withdrawal of Vioxx was an apology of sorts, an admission that they were wrong in hindsight. Out of an excess of caution and concern for its patients, it removed the drug from the market. I originally thought that this was a good idea, but now I'm not so sure. At the same time Merck has made its withdrawal from COX-2 sales, Pfizer, facing similar cardiovascular data for Celebrex (celecoxib), a COX-2 inhibitor that works much like Vioxx, has kept its drug on the market, and even resumed marketing it in April, plausibly arguing that the benefits outweigh the costs. (There are second-hand reports of Merck employees continuing to use a secret stash of Vioxx, which suggests the same cost-benefit analysis is true for rofecoxib.) Merck has been sued by over 20,000 groups of plaintiffs, with thousands more likely to sue in the next three months as the statutes of limitations start to expire. Pfizer faces a small fraction of that amount (under 2000 suits to date), and hasn't had its name dragged through the mud the way Merck has. All Merck's overcautious safety has done is prompt the media to single it out and provide free advertising to the plaintiffs' bar. As Merck gets buried by a massive amount of litigation, and gets perversely punished for its commitment to safety, one wonders: will future officers and directors follow the Merck model or Pfizer model of risk aversion? Keep this in mind the next time you hear ATLA argue that lawsuits make consumers safer.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.