Drug Maker Defeats AG Motion to Dismiss Action Challenging Private Contingency Counsel

We have warned readers before about the dangerous and growing practice of governmental agencies delegating state police powers to private (plaintiff) attorneys on a contingency fee basis.  The latest round in this nationwide battle comes from Kentucky, where the court recently ruled that Merck can continue its suit alleging violation of its due process rights after the state hired such outside counsel.  See Merck Sharp & Dohme Corp. v. Conway, No. 3:11-cv-51 (E.D. Ky., 12/19/12).

The matter underlying this action arose from Merck’s marketing and distribution of the prescription medication Vioxx. The AG filed suit against Merck in the Franklin County Circuit Court in 2009, alleging a violation of the Kentucky Consumer Protection Act (“KCPA”). Merck removed the case to federal court, and the action was then transferred to the Eastern District of Louisiana on April 15, 2010, as part of the multidistrict litigation, In re Vioxx Product Liability Litigation, MDL No. 1657.  But on January 3, 2012, the District Court for the Eastern District of Louisiana granted the AG’s motion to remand, concluding that the case was improperly removed from state court. In re Vioxx Prods. Liab. Litig., MDL No. 1657, 2012 WL 10552, at *14 (E.D. La. Jan. 3, 2012).

Now, approximately one year into the proceeding, the AG had retained outside counsel to take over the Vioxx KCPA litigation.  Under the contract executed, private counsel agreed to be compensated by a contingency fee “to be withheld from any settlement award resulting from the litigation.” Merck filed suit against the AG in federal court in August, 2011, seeking a declaratory judgment and injunctive relief. In its complaint,  Merck alleged that the AG had “delegated his coercive powers to private lawyers having a clear, direct and substantial financial stake in the outcome...."  The case was "a punitive enforcement action that must be prosecuted in the public interest or not at all.”  As a result, Merck asserted, its “right to due process under the Fourteenth Amendment had been infringed.” 

The AG moved to dismiss, and the issue in this decision focused on the abstention doctrine announced in Younger v. Harris, 401 U.S. 37 (1971); it provides that when a state proceeding is pending, principles of federalism dictate that any federal constitutional claims should be raised and decided in state court without interference by the federal courts. See Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 17 (1987).  If a federal district court concludes that its resolution of the case before it would directly interfere with ongoing state proceedings, then it must determine whether to abstain from hearing the case altogether, under the following: (1) there must be an ongoing state
judicial proceeding; (2) the proceeding must implicate important state interests; and (3) there
must be an adequate opportunity in the state proceeding to raise constitutional challenges.

Merck argued that the AG’s active litigation in federal court — through the filing of answers, motions to dismiss, and motions for summary judgment — was sufficient to establish that proceedings of substance had taken place before the remand, i.e., before an action had been pending in state court.  The court agreed that the abstention doctrine did not require a strict view of the federal action timeline nor a formalistic approach to the abstention analysis. Using a "common sense approach," several factors weighed in favor of a conclusion that proceedings of substance had taken place: (1) the federal action had been pending for over seven months when the state court proceeding was remanded on March 20, 2012; (2) on the date of the remand, there were two important motions that were fully briefed and ripe for adjudication; and (3) the court had held a scheduling conference during which the parties advised the court about their positions on those two motions. Based on these facts, the court concluded that the federal action was well beyond an “embryonic stage.” Because the state proceeding was not “ongoing” in a meaningful sense, abstention was not appropriate under the principles of Younger.

Your humble blogger notes that the legal policy of many states strongly favors open, competitive bidding for contracts involving state funds. Such requirements, included in some state Constitutions and various statutes, are designed to prevent fraud, eliminate bias and favoritism, and thus protect vital public interests. Those same goals of open and good government reside in the requirement that state officials give their undivided loyalty to the people of a state. Many of the contingent fee contracts used by state officials to bring mass tort actions violate the core principle that attorneys pursuing actions on behalf of the state represent a sovereign whose obligation to govern impartially is essential to its right to govern. Government attorneys must exercise independent judgment as a ministers of justice and not act simply as advocates. The impartiality required of government lawyers cannot be met where the private pecuniary interest inherent in the contingent fee is the primary motive force behind the bringing of the action. By turning over sovereign prosecutorial-like power to contingency counsel, a state effectively creates a new branch of government – motivated by the prospect of private gain rather than the pursuit of justice or the public welfare. This subversion of neutrality does more than implicate the due process rights of those confronting such tainted prosecutions. Direction of state prosecutions by financially interested surrogates also damages the very public interest that such litigation is supposed to advance. 
 

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