Schering-Plough Stock-Drop Case Gets Class Action Status

A federal judge in New Jersey said a participant lawsuit against Schering-Plough Corp. over employee company stock investments can be pursued as a class action.

U.S. District Judge Katharine S. Hayden of the U.S. District Court for the District of New Jersey said the employees can move forward with their suit based on three of the four allegations in their suit filed under the Employee Retirement Income Security Act (ERISA).

The three claims certified to move forward as a class action are that the defendants failed:

to prudently and loyally manage the plan’s investment in Schering-Plough stock;
to ensure that the plan’s investment committee had complete and accurate information regarding the company;
to retain independent fiduciaries, provide federal agencies with information necessary to determine the prudence of Schering-Plough’s securities, and take steps necessary to ensure that the participants’ interests were loyally and prudently served.

Hayden turned aside Schering-Plough’s argument that the named plaintiff would not make a good enough representative for other class members because the woman told the lawyers during a pre-trial deposition that she had “affection and confidence” for the drugmaker.

In addition, Hayden rejected the Schering-Plough defendants’ argument that the named plaintiff was an inadequate representative because she had signed a release waiving any claim she had against Schering-Plough.

The suit charges 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, according to the lawsuit.

The case is Zho v. Schering-Plough Corp., D.N.J., No. 03-1204 (KSH), unpublished 9/30/08.