More Of The “Back Story” — On How The ENHANCE $688 Million Settlement Emerged — In Late February 2013

As we all wait nervously for a resolution (or, for absolution) in Boston (something which may never come). . . I am put generally in mind of how little is ever clear. Of what is never-to-be clear — of what is now only luminous; and what — like the dawn — will forever be luminous, but clear. So I’ll take a look back, this mid-morning. . . .

What is clear about this federal securities class action is that this was going to be one of the largest, most complex private securities fraud cases ever mounted — had it gone to trial on March 14, 2013. What is not clear — and may never be — is whether Judge Cavanaugh would have admitted most of the plaintiffs’ evidence of alleged misconduct.

We do know the settlement exhausted all of legacy Schering-Plough’s D&O insurance coverage — and we do know that, as a lawyer, now Merck Chairman Kenneth C. Frazier had a bias toward fighting it out at trial. A bias against settling cases, if he thought he had a fighting chance. So we may infer that discretioon won the better part of valor, here.

Reading the below, from the plaintiffs’ pre-trial brief, we think it was a wise move to settle — “Fast Fred” and his GC had just (allegedly) put New Merck (as the holder of Schering-Plough’s bag of faux-pixie dust) too far behind the 8-Ball, here. So, from the recently unsealed portions of the February 2013 filings, then:

. . . .In light of the fact that the parties that already filed (or will soon file) numerous briefs (as of February 2013) on a number of critical evidentiary issues, as well as a pre trial order (“PTO”) with numerous competing exhibits, this brief addresses only a few pivotal legal and evidentiary issues that, ultimately, will require action by the Court. Specifically, the parties have filed (or will soon file) the following:

▲ sixty-one pages of briefing with competing proposals on how to bifurcate the trial (with further briefing yet to come);

▲ a combined total of thirty-two in limine motions (214 pages of briefing so far, with responses and replies yet to come);

▲ five Daubert motions (and responses) relating to eight experts (260 pages of briefing so far, with replies yet to come);

▲ a PTO including: (1) competing sets of jury instructions and verdict forms offering in critical respects fundamentally divergent views of the applicable law; (2) three exhibit lists containing over 2000 exhibits as to which a party has interposed one or more objections (this in addition to the over 500 exhibits the parties agree are admissible); (4) deposition designations and objections to 38 deposition transcripts; and (5) a combined list of eighty-seven legal issues.

While the Court’s decisions on all pending and future motions and objections will obviously influence the course of the trial, the impact of Court’s decisions as to the issues discussed herein will be particularly substantial. . . .

Briefly, [the key legal issues, still undecided] relate to:

(a) the overall structure of the trial, which of necessity impacts its length (e.g., an initial liability “phase” that runs for weeks per Plaintiffs’ proposal, or potentially lasts for months per Defendants’ proposal);

(b) whether inadmissible hearsay evidence concerning the ENHANCE trial’s principal investigator, Dr. John Kastelein, will nevertheless be heard by the jury over Plaintiffs’ objection and despite the fact that Defendants had the opportunity to question Dr. Kastelein directly on the hearsay topics but elected not to do so;

(c) whether, over Defendants’ Daubert challenge, Plaintiffs’ statistical and medical experts will be given the opportunity to assist the jury in understanding the complex scientific evidence concerning, inter alia, the manner in which Defendants are accused of “functionally unblinding” the ENHANCE trial;

(d) Defendants’ continuing effort (already considered and rejected by this Court in the context of class certification and summary judgment) to narrowly frame the element of loss causation such that Defendants’ January 14, 2008 press release of “top-line” ENHANCE results constitutes the sole event that could be considered by the jury to be a corrective disclosure; and

(e) with respect to the Schering action only, a brief discussion on Defendants’ inability to meet their affirmative burden of proof to demonstrate reasonable due diligence in connection with misstatements and omissions made in the registration statement and prospectuses concerning Schering’s August 2007 stock offering. . . .

So, there you have it. Probably a very wise settlement decision — even at $688 million — given the potentially-geometric multiples possible, on these facts, at trial before a jury.

Remember — March 31, 2008 was afterall — the largest one day drop in Schering-Plough’s storied history as a public company, and the second largest, in Merck’s NYSE trading history. Combined, that covers nearly 135 years of uninterrupted NYSE trading.

My goodness. Nice work, there Fast Fred.

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