August 10, 2009 5:29 PM

Merck Passes Landmark Securities Case from Cravath to Williams & Connolly

Posted by Zach Lowe

Months away from arguing a landmark securities fraud case before the U.S. Supreme Court, Merck has passed lead counsel duties from Cravath, Swaine & Moore's Evan Chesler to Williams & Connolly, court records show. 

Williams & Connolly partner Kannon Shanmugam, who argued eight cases before the high court during his four years with the U.S. solicitor's office, will present Merck's case to the justices this fall. Shanmugam--W&C's first lateral hire in 22 years when he joined the firm last year--won six of those eight cases. 

In this case, Shanmugam will argue to overturn an appellate ruling that allowed a securities fraud class action brought by Merck's shareholders to proceed.

Like most Merck matters, the case concerns Vioxx, the painkiller the company pulled in 2004, four years after an initial study showed patients taking the drug suffered more heart problems than those taking a competing painkiller, according to the Legal Times, Bloomberg and the Merck brief in the case, which you can download below. 

A flood of product liability lawsuits were filed as early as 2001, after medical journals and the mainstream media reported the Food and Drug Administration had issued a warning letter stating that Merck "had engaged in a promotional campaign for Vioxx that minimizes the potentially serious cardiovascular findings that were observed" in its 2000 study. 

But the first securities fraud case against Merck wasn't filed until Nov. 6, 2003, shortly after Merck released a statement revealing that its earnings would be lower than expected, in part because Vioxx sales were plummeting.

Chesler argued at the district level that investors filed the claim too late. They should have known that Merck might have committed securities fraud--via public misstatements about Vioxx--more than two years before they filed suit, he said.

Chesler won that round. But a three-judge panel of the U.S. Court of Appeals for the Third Circuit reversed, claiming that the two-year statute of limitations clock doesn't start ticking until the plaintiffs can show the defendant acted with "scienter"--that Merck officials knew their statements regarding Vioxx's health risks were false. (Chesler argued at the Third Circuit as well.)

Throughout the case, Merck's attorneys have claimed that standard allows plaintiffs to wait until their case is made for them--and stall until a company's share price drops to the point at which they can claim larger damages. They asked the high court to hear the case, and the Supremes agreed in May.

Chesler did not immediately respond to a request for comment, but Shanmugam says his firm and Cravath continue to work closely together.

"Evan is, quite simply, one of the finest lawyers in the country," Shanmugam says. "It's been a great pleasure working with Evan and his outstanding colleagues on the case."

A Merck in-house attorney supervising the litigation declined to comment on the change. 

The choice of Williams & Connolly is no surprise. As our colleague Alison Frankel wrote last year, Merck turned to W&C partner Douglas Marvin to head the talks that led to the landmark $4.85 billion settlement in the Vioxx consumer class action case. 

Download Merck brief

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