Background
Decision


Background

On October 16 2008 a representative proceeding was commenced in the Federal Court of Australia against Merck Sharp & Dohme (Aust) Pty Ltd (MSDA) and Merck & Co, Inc. The applicant, Joan Reeves, claimed compensation for herself and on behalf of 86 individually named group members, for loss and damage allegedly arising from injuries suffered as a result of consumption of the anti-inflammatory medicine VIOXX.(1)

Similar allegations were made against MSDA and Merck in a separate representative action commenced in the Federal Court by Graeme Robert Peterson.(2) The Reeves proceedings were adjourned pending conclusion of the Peterson proceedings. The former differed from the latter in that the group members were all personal representatives of the estates of persons who took VIOXX.

A composite settlement agreement in respect of both proceedings was recently put before the Federal Court for approval.

Decision

On May 17 2013 Justice Jessup delivered his judgment,(3) rejecting the settlement agreement under which group members who suffered one or more of the pleaded cardiovascular conditions (eg, a myocardial infarction) after ingesting VIOXX would receive compensation from MSDA. Under the proposed settlement, group members would be entitled to compensation if they were able to pass through two criteria gates:

"The 'Event Gate Criteria' - the group member must have a final discharge diagnosis in contemporaneous medical records of a myocardial infarction, or a diagnosis from a treating cardiologist of a myocardial infarction (either contemporaneously or within 14 days of the event), or a sudden cardiac death… [and]

The 'Usage Gate Criteria' - the group member must have VIOXX listed as a current medication in the medical records on the date of their relevant injury and have documentary evidence of having received a supply of at least 30 VIOXX tablets within 60 days of the injury, or otherwise have documentary evidence of having received at least 30 VIOXX tablets within 40 days of the injury."(4)

The court found that the settlement agreement failed to discriminate between the circumstances of different group members and ignored the varying strengths of members' claims.

The settlement had been reached following the failure of the lead applicant's 2011 case in Merck Sharp & Dohme (Australia) Pty Ltd v Peterson.(5) The Full Court held that the impossibility of the applicant suffering a heart attack but for his ingestion of VIOXX was "a matter of conjecture rather than reasonable inference on the balance of probabilities".(6) The applicant had several pre-existing risk factors for myocardial infarction (including hypertension, hyperlipidemia, obesity and left ventricular hypertrophy), which afforded "a ready explanation for the occurrence of his injury independent of the possible effects of VIOXX".(7) Given the existence of "other strong candidates as causes of his injury", the Full Court could not conclude "that it is more probable than not that VIOXX… was a necessary condition of the occurrence of his heart attack".(8)

Notwithstanding the Full Court's decision, the settlement agreement put before the judge made no discrimination between group members who had pre-existing risk factors resembling those of the applicant and those who had no risk factors. The settlement simply offered compensation of A$2,000 for living members or A$1,500 for deceased members (and approved eligible group members in the Reeves proceedings) who had ingested VIOXX within 60 or 40 days of receiving a certain cardiac diagnosis or a sudden cardiac death. The agreement's failure to distinguish between members with and without pre-existing risk factors was a substantial reason for its rejection. The judge opined that the proposed settlement:

"makes no discrimination between group members who have other risk factors which were decisive in the rejection of the applicant's case by the Full Court and group members who have no other risk factors. Not only is this an important discrimination, it is, as it seems to me, the very basis upon which the applicant's case on causation failed on appeal."(9)

The judge also criticised the failure to discriminate based on the strength of group members' claims. The applicant's case in negligence had failed at first instance due to the probability that the applicant would have ingested VIOXX even if his medical practitioner had been given the appropriate warning and this warning had been communicated to the applicant. As the settlement agreement ignored this aspect of the group members' claims, the judge "could not assume that there may not be group members whose circumstances differed materially from those of the applicant in this respect".(10)

The judge held that the failure of the settlement agreement to discriminate between group members on both grounds (the existence of pre-existing risk factors and the probability of ingesting VIOXX despite being warned) meant that the settlement would be a "windfall" for group members whose circumstances were similar to those of the applicant, but would be an "injustice" for members who might, consistently with the reasons of the Full Court, anticipate a more favourable judgment.(11) He further held that an agreement which settled different claims in such an undiscriminating manner should not be approved under Section 33V of the Federal Court Act 1976 (Cth).(12)

The judge offered two final areas of concern, the first of which was the conflict of interest faced by the applicant's solicitors in admitting more members to the class of accepted beneficiaries after the A$497,500 compensation cap had been reached. Accepting more members after this point would mean diluting the amount received by previously admitted members.(13) The second cause for concern was the absence of any independent advice from counsel that the settlement was fair and reasonable in the interests of all group members as a whole.(14) It is usual for the applicant to file such evidence (on a confidential basis) in class action settlement approval applications.

The judge also rejected the proposed settlement in the Reeves proceedings, noting that "the settlement to which the respondents have agreed is a composite one [and] does not contemplate the settlement of the Reeves proceeding without the Peterson proceeding being settled at the same time".(15) Accordingly, the judge refused to approve the settlement agreement, noting that a further application could be made when the areas of concern had been addressed.

For further information on this topic please contact Moira Saville, Mandi Jacobson or Katrina Geddes at King & Wood Mallesons by telephone (+61 2 9296 2000), fax (+61 2 9296 3999) or email (moira.saville@au.kwm.com, mandi.jacobson@au.kwm.com or katrina.geddes@au.kwm.com).

Endnotes

(1) Reeves v Merck Sharp and Dohme (Aust) Pty Ltd, VID 859/2008.

(2) For further commentary on these proceedings, please see "VIOXX class action judgment - a bitter pill for Merck to swallow" (March 2010), "Federal Court prescribes hard medicine for VIOXX class action" (March 2012), "Special leave to appeal refused in the VIOXX class action" (July 2012) and "Federal Court considers DePuy and VIOXX product liability class settlements" (May 2013).

(3) Peterson v Merck Sharp & Dohme (Aust) Pty Ltd (No 6), [2013] FCA 447.

(4) Id at [13].

(5) 196 FCR 145.

(6) Id at [124].

(7) Id at [113].

(8) Id at [120].

(9) [2013] FCA 447 at [17].

(10) Id at [18].

(11) Id at [20].

(12) Id at [20].

(13) Id at [22].

(14) Id at [23].

(15) Id at [25].

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