Merck, Kentucky AG debating outside counsel issue

John O'Brien Nov. 15, 2011, 2:33pm


FRANKFORT, Ky. (Legal Newsline) - A federal judge is deciding what to do with another challenge made by a company that claims it is unfair for a state attorney general to hire private attorneys on a contingency fee basis.

U.S. District Judge Danny Reeves, of Kentucky's eastern district, is weighing a motion for preliminary injunction filed by prescription drug maker Merck Sharp & Dohme Corp. while also deciding on a motion to dismiss submitted by Kentucky Attorney General Jack Conway.

Merck sued Conway in August, almost two years after Conway, who won re-election earlier this month, sued Merck over the anti-inflammatory drug Vioxx. The suit seeks penalties as opposed to compensatory relief, the company says.

"Such suits can only be prosecuted by the Kentucky Attorney General and only when penalties 'would be in the public interest,'" Merck's attorneys wrote in August.

"Nonetheless... Conway has effectively transferred his enforcement authority to private outside counsel. And unlike the Kentucky AG, whose compensation is fixed and independent of success or failure in litigation, the arrangement with the private outside counsel in this case gives them a significant stake in the outcome: the more penalties they pursue, the bigger their potential take."

Other companies have unsuccessfully made similar arguments. They've argued that public officials need to be motivated by justice, not money, and that a contingency fee agreement violates that.

-In August 2010, the Pennsylvania Supreme Court ruled that Janssen Pharmaceutica did not have standing to challenge such an agreement. Then-Gov. Ed Rendell had hired Bailey Perrin Bailey, which had donated $91,000 to his campaign, to sue a trio of drug makers.

No party to an action other than the state's agency involved in the action may challenge the authority of the agency's legal representation, the court ruled. Justice Thomas Saylor dissented.

"(N)ot only does Janssen aver that the Commonwealth's strategic litigation decisions are likely to be distorted to Janssen's detriment by Bailey Perrin's pecuniary interest in the outcome, but its allegations include a suggestion that this particular litigation might not have occurred at all but for the aggressive efforts of Bailey Perrin in seeking to convince state officials to initiate it under a contingent-fee arrangement..." Saylor wrote;

-A month earlier, the California Supreme Court ruled against a group of paint companies that tried to use a previous ruling in a similar, albeit criminal, case from 1985. The case involved the City of Corona hiring a private attorney to bring public nuisance cases against alleged violators of a city ordinance, and the attorney was paid more for successful than actions than unsuccessful ones.

Initially, the companies' argument was successful, but an appellate court reversed the lower court decision and encouraged the Supreme Court to take a look at the issue.

The Supreme Court's opinion drew a difference between the paint suit and the Corona suit. The Corona suit was more of a criminal prosecution, it wrote, adding that private attorneys in civil cases need not be held to the "more stringent disqualification rules applicable to criminal prosecutors.";

-In turning away the state of Rhode Island's public nuisance lawsuit against three paint companies, the state Supreme Court also addressed the issue.

That court ruled that the agreement between the Attorney General's Office and outside counsel -- in this case the plaintiffs firm Motley Rice - was appropriate, as long as the AG held final decision-making power; and

-The West Virginia Supreme Court twice decided not to hear appeals by companies that argued state Attorney General Darrell McGraw unfairly hired private attorneys. The first occurred in 2005 in a case involving Capital One, Chief Deputy Attorney General Fran Hughes said in 2007 as the court was refusing to hear the similar appeal of Janssen.

"Merck has offered no case law that supports the notion that litigation by outside counsel, directed by a state attorney general, violates a civil defendant's constitutional rights," Conway's motion to dismiss says.

"In fact, such a finding would upend centuries of precedent permitting such arrangements between states and outside counsel."

Conway filed the case in Kentucky state court, but it was transferred to a multidistrict litigation proceeding in Louisiana federal court. In Sept. 2010, Conway hired Garmer & Prather, a personal injury firm in Lexington, Ky., to pursue the case.

The agreement between the two does not specify the firm's percentage of any recovery. Merck says Conway's decision to hire outside counsel is tantamount to ceding control of the litigation.

"The case law is clear: state attorneys general can properly engage outside counsel pursuant to contingency fee agreements so long as the respective attorneys general retain complete control over the litigation," Conway's motion to dismiss says. "In this instance, the attorney general has satisfied this standard."

Briefing has been completed on both the motion for preliminary injunction and motion to dismiss, as of Oct. 27.

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