Litigation Team Secures Summary Judgment in Pfizer - Pharmacia and Settlement for Bear Stearns

January 14, 2008 Cadwalader’s Litigation Department recently secured summary judgment for Pfizer and Pharmacia and a settlement for Bear, Stearns & Co. that entailed a positive result for the client.

Pfizer and Pharmacia Case

The firm’s litigation team of partners Jonathan Hoff and Jason Halper, special counsel Joshua Weiss, and associates Katherine Ritchie and Erika Engelson successfully obtained summary judgment dismissing a securities class action lawsuit brought against the firm’s clients Pharmacia Corp., Pfizer, Inc., and certain former Pharmacia senior officers. In this action, brought in the U.S. District Court for the District of New Jersey, plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by issuing materially false and misleading statements about the gastro-intestinal results of the Celebrex Long Term Arthritis Safety Study (“CLASS”), a clinical trial involving the non-steroidal anti-inflammatory drug, Celebrex.

In opposition to plaintiffs’ motion for class certification, Cadwalader successfully argued that the class period ended in February 2001, rather than June 2002 as proposed by plaintiffs. The court agreed that the so-called “truth” concerning the alleged misrepresentations were in the public domain by February 2001 and, accordingly, the class period could not extend beyond that date. Following the court’s class certification decision, defendants moved for summary judgment on the ground that the complaint was time-barred under the two-year statute of limitations set forth in the Exchange Act. In that regard, we argued that plaintiffs and the class were placed on “inquiry notice” of their claims no later than February 2001 -- more than two years before the complaint was filed. At this stage of the litigation, extensive document production had occurred, but only a limited number of depositions had been taken.

In connection with the motion for summary judgment, Cadwalader presented an extensive record to demonstrate the existence of “storm warnings” that put plaintiffs on “inquiry notice” of their claims by no later than February 6, 2001. This evidence included newspaper articles, analyst reports, and materials published by the U.S. Food and Drug Administration. Cadwalader also successfully refuted plaintiffs’ various arguments that they were not on “inquiry notice,” including the arguments that the information that constituted “storm warnings” was too difficult for investors to understand and did not indicate that defendants had acted with scienter, and, further, that the “storm warnings” were negated by supposedly “reassuring” public statements made by defendants.

On October 30, 2007, the District Court granted defendants’ motion for summary judgments and dismissed the complaint with prejudice. Plaintiffs have filed a notice of appeal to the U.S. Court of Appeals for the Third Circuit.

Bear, Stearns & Co. Case

In the Bear Stearns matter, Cadwalader’s litigation team of partner Jonathan Hoff and associates Gregory Zimmer, Albert Soler, Mitchell Hochberg, and David Scupp successfully concluded longstanding multiple jurisdiction litigations on behalf of the company in several actions arising from the 1999 merger of McKesson Corp. and HBOC. These actions included a securities class action pending in the U.S. District Court for the Northern District of California (the “Securities Action”), three consolidated actions in California Superior Court for the County of San Francisco (the “California State Actions”) brought by major public pension funds and two private funds, a shareholder derivative action in the Delaware Court of Chancery (the “Derivative Action”), and an action pending in the New York State Supreme Court for the County of New York (the “New York Action”). The litigations were commenced following the disclosure by McKesson, several months after the merger closed, of a massive accounting fraud at HBOC both before and after the merger. Following the disclosure, the market price for McKesson declined by approximately $9 billion.

The Derivative Action complaint, filed by McKesson shareholders, asserted claims against certain of McKesson’s and HBOC’s officers and directors for breach of fiduciary duty; claims against Bear Stearns for professional negligence, breach of contract, and aiding and abetting the McKesson’s officers’ and directors’ alleged breaches of fiduciary duties; and claims against McKesson’s and HBOC’s independent auditors. We successfully moved to dismiss in the Delaware court all claims asserted against Bear Stearns on the ground that plaintiffs failed to make a demand on McKesson’s board of directors to pursue the claims prior to instituting the Derivative Action.

The Securities Action involved, among other things, claims for violations of Sections 10(b), 20(a), and 14(a) of the Securities Exchange Act of 1934 against McKesson, HBOC, and certain of their officers and directors; claims for violations of Sections 10(b) and 14(a) against McKesson’s independent auditors, Arthur Andersen, LLP; and claims for violations of Sections 10(b) and 14(a) against Bear Stearns. The plaintiffs in the Securities Action alleged that (i) HBOC violated the securities laws by issuing materially misleading financial statements and other statements regarding HBOC’s financial performance prior to the merger, (ii) Arthur Andersen issued false audit opinions regarding HBOC’s financial statements, (iii) McKesson concealed improper accounting at HBOC after the merger and issued a false proxy statement in connection with the shareholder vote on the merger, and (iv) Bear Stearns issued to McKesson a false fairness opinion stating that the consideration McKesson was paying in the merger was fair, from a financial point of view, to McKesson’s shareholders.

Cadwalader successfully argued that the Section 10(b) claim against Bear Stearns should be dismissed, leaving only the Section 14(a) claim in the case. In its defense to the Section 14(a) claim, Bear Stearns argued that it was unaware of any misconduct by HBOC or McKesson at the time it issued its opinion, and that its opinion was accurate and truthful based on the information that was provided to it by McKesson and HBOC. Bear Stearns also contended, among other things, that it made no false statements and that plaintiffs could not establish loss causation or damages.

The California State Actions asserted claims against McKesson, HBOC, certain of their officers and directors, Arthur Andersen, and Bear Stearns under California state law based on factual allegations similar to those in the Securities Action. Cadwalader engaged in extensive consolidated discovery in the Securities Action and the California State Actions, including the production and review of millions of pages of documents and participation in over one hundred depositions.

In 2005, McKesson entered into agreements that settled all claims against McKesson, HBOC, and Bear Stearns in the California Actions. Bear Stearns did not make any payments in connection with these settlements and received full releases of all claims against it in the California State Actions. In January 2005, McKesson announced that it had settled the claims in the Securities Action against McKesson and HBOC. The McKesson settlement did not include the claims brought against Bear Stearns. The Securities Action settlement required court approval. Bear Stearns objected to the settlement on the grounds that McKesson breached its engagement contract with Bear Stearns by, among other things, entering into a settlement of the claims against McKesson without also obtaining a release of the claims against Bear Stearns. We persuaded the court to sustain certain of Bear Stearns’s objections and require McKesson and plaintiffs to modify their settlement to exclude from the bar order Bear Stearns’s contractual claims against McKesson and to permit Bear Stearns to commence litigation to vindicate its contractual rights against McKesson. After the court approved the settlement over Bear Stearns’s remaining objections, we filed an appeal of the court’s order to the U.S. Court of Appeals for the Ninth Circuit on behalf of Bear Stearns, thus precluding the settlement from being finalized.

In December 2005, we filed, on behalf of Bear Stearns, a complaint in the New York Action against McKesson. The complaint asserted, among others, claims for breach of contract and breach of the implied duty of good faith and fair dealing on the grounds that McKesson’s failure to obtain a release of claims brought against Bear Stearns as part of the settlement of the Securities Action, as well as other aspects of the settlement, was a breach of the engagement contract between McKesson and Bear Stearns.

Following the court’s approval of McKesson’s partial settlement in the Securities Action, and while Bear Stearns’s appeal of that decision was pending, Cadwalader continued to litigate the Securities Action on behalf of Bear Stearns. The Securities Action was scheduled for trial in September 2007. At the same time, we persuaded the court in the New York Action to conduct expedited proceedings with respect to certain of Bear Stearns’s claims.

In August 2007, only weeks before the Securities Action was scheduled for trial, and after summary judgment motions had been presented to the courts in both the Securities Action and the New York Action, Bear Stearns, McKesson and the plaintiffs in the Securities Action reached an agreement to settle both the Securities Action and the New York Action. The settlement is subject to approval by the court in the Securities Action. Under the settlement, Bear Stearns will not make any payments in connection with the settlement and will receive a full and complete release of the claims against it in the Securities Action. In addition, following final approval of the Securities Action settlement, the New York Action will be dismissed and Bear Stearns and McKesson will exchange releases.