U.S. District Judge Katherine S. Hayden of the U.S. District Court for the District of New Jersey approved the settlement for “all persons (excluding defendants) who were participants in or beneficiaries (including alternate payees) of the [Schering-Plough Employees’ Savings Plan] at any time between July 29, 1998, and April 18, 2007, and whose accounts included investment in the company stock fund at any point during that time period.” The case was finally set to go to trial after another judge found that the plaintiffs alleged “dire circumstances” sufficient to overcome the presumption of prudence, including a precipitous decline in the value of company stock, defendants’ knowledge of the anticipated harm to the company, and the conflicted status of fiduciaries (see New Allegations Move Forward Schering-Plough Stock Drop Suit).
The plaintiffs’ case got off to a rough start when, in 2004, the district court dismissed the suit saying it sought relief for individual participant losses and not the plan as a whole, contrary to Employee Retirement Income Security Act (ERISA) allowed protections. However, in August 2005, the U.S. 3rd Circuit Court of Appeals reversed that ruling, pointing out that Section 1109 of ERISA allows recovery of “any losses” to the plan and doesn’t just allow recovery of losses that will be distributed to all participants (see Recovering Losses For Individual Participants Is Recovery For The Plan).
In September 2009, it seemed Schering-Plough would win again when U.S. District Judge Dennis M. Cavanaugh of the U.S. District Court for the District of New Jersey dismissed the suit because participants’ initial attempt to levy fiduciary breach allegations fell short of proving the company had advance knowledge of clinical trial results for the drug Vytorin (see Judge Tosses Schering-Plough Stock Drop Suit). The retirement plan participants alleged the drugmaker deliberately suppressed the results to inflate Schering-Plough stock and that eventual disclosure of the findings caused the share price to drop and participants with retirement investments in company stock to lose assets.
However, in his opinion, Cavanaugh allowed the participants to refile their complaint.The suit also charged that Schering-Plough and its board of directors hurt the firm financially by, among other things, going after regulatory approval from the Food and Drug Administration of a new allergy drug, Clarinex, to replace the company’s already successful allergy drug, Claritin, whose patent was set to expire. According to the suit, company’s efforts to get approval of Clarinex were hamstrung because of Schering-Plough’s failure to comply with FDA regulations regarding good manufacturing practices – a failure that led to the imposition of a $500-million fine, capital expenditures of $50 million for new equipment, and the additional hiring of new quality control employees. During this time, Schering-Plough stock dropped from approximately $60 per share to below $20 per share.