Friday, January 8, 2016

UPDATE: Legacy Schering-Plough's "Controlling Question" Of Law (In ENHANCE Securities Class Action Opt Outs) Certified To The Third Circuit, Yesterday

We have long been tracking the very capable Judge Freda L. Wolfson's opinions in the US District Court in New Jersey, on the issue of whether several large institutional investors in legacy Schering-Plough shares, during the ENHANCE study debacle may sue in their own names. Large investors like GIC, North Sound Capital and Colonial First State -- each of which opted out of the $668 million class settlement, had sued on their own behalf, and were waiting for a US Supreme Court ruling on whether the claims were time-barred, in a separate securities case before the Supremes. Then, in November 2014, that reference case (IndyMac, on so-called American Pipe tolling) was largely settled, by an agreement of the parties (more background, there). So the Supremes removed that reference case from the docket. And this opt out case went. . . quiet. In the year since then, though, the very able federal District Court Judge Freda L. Wolfson has been busy -- reviewing whether the relevant law would allow these investors' individual opt-out cases to proceed. She has (as of last evening) certified that question, by a published order (PDF here), to the immediately above appellate court -- the Third Circuit, in this case -- as a "controlling question of law". [And she has initially held that they may proceed.]

Now that Third Circuit appeal will be briefed -- and argued -- and likely decided by this time next year. So again the opting out institutional investors will have to wait for their recovery. I still expect settlement, here -- when the Third Circuit holds that these claims are not time barred.

. . . .The parties do not appear to dispute that the questions presented for certification represent "controlling question[s] of law" in these matters.

There is "substantial ground for difference of opinion" concerning the questions presented for certification because there is no controlling case law from the Third Circuit, and sister Courts of Appeal have split on the issues.

Finally, an immediate appeal from this Court’s Order "may materially advance the ultimate termination of the litigation" because a reversal by the Third Circuit would render moot Plaintiffs’ federal securities claims; there would be no other basis for federal jurisdiction and the Court would likely elect not to exercise jurisdiction over the remaining pendent state law claims. . . .

And so, I'll predict this will involve Merck paying more money to these large opt out investors. Do recall here that the $668 million earlier settlement exhausted all of Merck's insurance related to these claims -- and Kenilworth keeps no reserve, for these legacy matters, as the SEC filings have long stated. So this will be a hit to quarterly earnings, when/if the settlement is announced -- in my estimation. However, the amount won't likely be material to Mother Merck (as she's just too. . . big). Onward -- to a fun-filled, but likely snowy weekend -- with collegiate scions in tow. . . Art Institute, rustic dining, and such!

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