Monday, May 9, 2011

California Chromium 6 Groundwater Case Update: Merck's Just-Filed SEC Form 10-Q

After some out of state family time (off the grid), here is one substantive update: Merck has filed its first quarter 2011 Form 10-Q with the SEC this morning.

Do read the litigation note to the financials closely (especially page 22 and following), as Merck discloses that it will likely need to add to its legal reserves for the remaining Vioxx® matters, and runs down an update on the Fosamax® jaw death, and femur fracture suits (each of which I'll cover separately tonight, if time permits) -- but I found the Chromium 6 suit recap most interesting (background on the initial verdict against Merck, here), thus:

. . . .approximately 2,200 plaintiffs have filed an amended complaint against Old Merck and 12 other defendants in U.S. District Court, Eastern District of California asserting claims under the Clean Water Act, the Resource Conservation and Recovery Act, as well as negligence and nuisance. The suit seeks damages for personal injury, diminution of property value, medical monitoring and other alleged real and personal property damage associated with groundwater and soil contamination found at the site of a former Old Merck subsidiary in Merced, California. Certain of the other defendants in this suit have settled with plaintiffs regarding some or all aspects of plaintiffs’ claims. This lawsuit is proceeding in a phased manner.

A jury trial commenced in February 2011 during which a jury was asked to make certain factual findings regarding whether contamination moved off-site to any areas where plaintiffs could have been exposed to such contamination and, if so, when, where and in what amounts. Defendants in this “Phase 1” trial include Old Merck and three of the other original 12 defendants. On March 31, 2011, the Phase 1 jury returned a mixed verdict, finding in favor of Old Merck and the other defendants as to some, but not all, of plaintiffs’ claims. . . . The jury found. . . that plaintiffs could have been exposed to contamination via air emissions prior to 1994, as well as via surface water in the form of storm drainage channeled into an adjacent irrigation canal, including during a flood in April 2006. Old Merck will file motions requesting that the court set aside those portions of the jury’s verdict that are adverse to Old Merck on the basis that those portions of the verdict are unsupported by the evidence and contrary to established legal principles. If necessary, Old Merck will seek to appeal, prior to commencement of any later phases of the litigation, those portions of the jury’s verdict adverse to Old Merck that are not set aside by the trial court. In the event the Phase 1 jury’s findings in favor of plaintiffs are not set aside by the trial court or on appeal, it is anticipated that later phases of the litigation would be required to address issues related to liability, causation and damages related to specific plaintiffs. . . .

The bolded bit is a highly unusual bit of public posturing -- bordering on public bullying (in my opinion), when one is the world's second largest public drugmaker. Merck is openly warning the very-able federal trial judge that it will seek to reverse any ruling entered against it -- without even so much as a nod to the idea that the court might actually "get parts of it right" -- on the law, and facts, as found by the jury. Astonishing.

Yes, this is very, very brassy -- and almost never seen in SEC-filed documents by well-seasoned issuers. Do stay tuned.

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