On May 13, 2015, Judge Chesler addressed the last major procedural hurdle before trial by denying, in large part, the motions for summary judgment filed by Merck and two of its top executives. The court’s decision follows nearly twelve years of litigation and extensive motion practice, including appeals to the Third Circuit and the United States Supreme Court. Kessler Topaz represents twelve European institutional investors in a consolidated direct action in which nearly identical summary judgment motions remain pending.
In denying summary judgment in the class action, Judge Chesler found that the plaintiffs had amassed sufficient evidence to allow a jury to decide whether the defendants acted knowingly or recklessly (i.e., with scienter) in publicly espousing: (i) Merck’s support of the so-called “naproxen hypothesis,” which posited that the increased number of heart attacks associated with Vioxx as compared to naproxen (commonly branded as Aleve) in the pivotal VIGOR clinical trial of the drug reflected the supposedly “cardio-protective” properties of naproxen, rather than any increased cardiovascular risk for Vioxx; (ii) the purported lack of evidence indicating that Vioxx posed heightened cardiovascular risks; and (iii) the purported cardiovascular safety of Vioxx, as demonstrated by available data. For example, the court found that the plaintiffs identified evidence that defendants were aware of the lack of scientific support for the naproxen hypothesis, disregarded contrary information, and manipulated data to defend the cardiovascular safety of Vioxx.
In deciding the defendants’ motions, Judge Chesler also interpreted the Supreme Court’s recent decision in Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, in which the Court outlined the circumstances under which an otherwise immaterial statement of opinion may become an actionable misrepresentation under the federal securities laws. Specifically, Omnicare held that opinions may be actionable where a defendant: (i) subjectively disbelieves the opinion expressed; (ii) lacks a reasonable basis for the purported belief; or (iii) expresses an opinion that implicitly or explicitly conveys facts that are contradicted by existing evidence. Following a discussion of the Supreme Court’s Omnicare decision, Judge Chesler found that the plaintiffs had presented ample evidence to create a genuine issue of fact for the jury as to the defendants’ state of mind in expressing their belief in the naproxen hypothesis. Moreover, the court held that even if defendants sincerely believed, as they contended, that the “likeliest” explanation for the cardiovascular results observed in the VIGOR trial was that naproxen was cardio-protective (and not that Vioxx posed an increased cardiovascular risk), a reasonable investor could understand such an opinion to convey certain facts about the basis for defendants’ belief. These facts, however, “did not align” with the facts contemporaneously known or recklessly disregarded by defendants, including: (i) internal Merck discussions that revealed a different assessment of the VIGOR data than that expressed publicly; (ii) contrary advice from consultants as to the proper interpretation of the VIGOR data; (iii) data discrediting the notion that naproxen had cardio-protective properties (and, therefore, undermining the naproxen hypothesis); and (iv) the FDA’s warning to Merck about its public espousal of the naproxen hypothesis.
In determining that defendants’ opinion statements may serve as the basis for plaintiffs’ securities fraud claims, the court also implicitly resolved a question arguably left open under Omnicare — whether proof of a defendant’s subjective belief in the opinion expressed precludes a finding of scienter even if the opinion lacks a reasonable basis or conveys facts that are contradicted by existing evidence. As Judge Chesler observed, Omnicare concerned alleged violations of Section 11 of the Securities Act of 1933, which do not require proof of intent to defraud (scienter), whereas the plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934 at issue in Merck do require such proof. Thus, the defendants argued that although proof undermining their belief in an expressed opinion may render such an opinion misleading under Section 11, it does not relieve a plaintiffs’ burden of proving scienter and, in fact, precludes such a finding for Section 10(b) claims. The court rejected this argument as irrelevant to the summary judgment motion at hand given the “mixed” evidence in the record bearing on defendants’ scienter, which created a factual dispute to be resolved by a jury. Moreover, in holding that there was evidence in the record that would allow a reasonable jury to find that defendants knowingly or recklessly deceived investors when stating their belief in the naproxen hypothesis, the court effectively adopted the view that scienter may be established for an opinion statement where the factual premises underlying the opinion are contradicted by facts known to or recklessly disregarded by the defendants, notwithstanding a defendant’s claimed belief in the opinion expressed.
While largely denying the defendants’ motion, the court did grant summary judgment with respect to certain statements made prior to the release of the VIGOR clinical trial results based on the lack of evidence that defendants knowingly or recklessly misrepresented the cardiovascular risks associated with Vioxx at that time, viewing the VIGOR trial as the event that first revealed such risks to the defendants.
Nevertheless, the court refused the defendants’ request that it grant summary judgment based on the purported lack of evidence supporting plaintiffs’ proposed damages model. The plaintiffs’ expert quantified the artificial inflation in Merck’s stock price attributable to the alleged misstatements by tying the drop in Merck’s stock price when the truth about Vioxx’s cardiovascular risks became known publicly, to the impact that such a disclosure would have had on Vioxx sales had it been made earlier. Under the plaintiff’s model, the artificially inflated price reflected the market’s view that Vioxx was 100% commercially viable and the uninflated price reflected a complete loss of sales. The defendants argued this model was unsupported by the record because it required the jury to conclude, e.g., that Vioxx should never have been marketed which, defendants contended, the jury could not reasonably find based on the factual record. Indeed, the court itself found that the evidence did not demonstrate that defendants knew of Vioxx’s true cardiovascular risks until the VIGOR study concluded — which was almost a year after Merck commercially launched the drug. While acknowledging that a finding that Vioxx should never have come to market no longer fit the facts of the case given the court’s dismissal of the pre-VIGOR statements, the court found that the plaintiffs’ expert’s model also provided for “other scenarios” in which Vioxx would have remained on the market, but with lower sales (e.g., had there been a black-box warning on the product label). This “flexible” approach, the court found, precluded it from granting summary judgment on this issue. A trial date has not yet been set.