The Third Circuit Court of Appeals recently ruled that the New Jersey federal district court improperly dismissed derivative claims against certain of Merck & Co.'s officers and directors. In re Merck & Co., Inc. Securities, Derivative & ERISA Litigation, No. 06-2911 (3d Cir. Jul. 18, 2007). The Third Circuit's decision revives a major D&O lawsuit over Merck's alleged failure to disclose safety risks associated with the pain medication Vioxx.
The lower court dismissed the action against the Merck directors and officers, which was brought without making a demand on Merck's board, for failure to show demand futility. Further, when the shareholders sought to amend their derivative complaint to add demand futility evidence obtained through a voluntary discovery agreement with the defendants after the complaint was filed, the lower court refused to grant leave to amend. The Third Circuit overturned that refusal, ruling that, although plaintiffs typically cannot amend demand futility allegations using evidence obtained through court-ordered discovery, an exception exists where the evidence is provided through a voluntary discovery agreement. The matter was remanded back to the lower court.
A copy of the Third Circuit's opinion can be found here.