A court has ruled that Merck’s production of documents to the government under a confidentiality agreement during the Vioxx investigation waived any confidentiality or privilege; documents that Merck had previously disclosed to the government under a confidentiality agreement must now be produced to private party plaintiffs in pending securities litigation.   In a December 12, 2012 unpublished ruling, U.S. District Court Judge Stanley Chesler held that Merck’s prior disclosure of the documents to the government under a confidentiality agreement waived any attorney client privilege or work product protection that may have been applicable to the documents.   Merck asserted that its agreement with the government explicitly preserved both confidentiality and privileges as to third party production of the documents.  But the court found that Third Circuit precedent essentially abrogated the plain language of the agreement, and Merck should have known that it waived any confidentiality or privilege issues when it produced the documents to the government.   This ruling must make any attorney think twice about the potential consequences of document production under a confidentiality agreement.

During the prolonged government investigation into Merck’s marketing of its painkiller Vioxx, which ended last year in a $950 million criminal and civil false claims settlement, Merck provided the government with documents related to its marketing of Vioxx.   Merck provided the documents only after the government executed an agreement written to cover both confidentiality and privilege issues:  agreeing that the government would maintain the confidentiality of the potentially privileged materials received under the agreement, and acknowledging that Merck’s “limited waiver” of attorney client or work product privilege through the production would not extend to any third party or private entity.

In the present matter, private party plaintiffs in a consolidated securities and ERISA action involving Vioxx moved to compel disclosure of the documents Merck had previously provided to the government.  In granting the motion, Judge Chesler stated that since the 1991 ruling in Westinghouse v. Republic of the Philippines, the doctrine of selective waiver had not been valid law in the Third Circuit.  In light of the Westinghouse ruling, Judge Chesler found that Merck’s assertion that that it reasonably relied on its confidentiality agreement with the government was in fact unreasonable:  “Westinghouse clearly instructs that applying selective waiver in the context of voluntary disclosure to government agencies would amount to an unjustified expansion of the attorney-client privilege.”     Merck was thus compelled to provide the previously disclosed Vioxx-related documents to the securities and ERISA plaintiffs.

Production of documents and records under confidentiality agreements has become part of standard operating procedure in government health care false claims cases, allowing the parties to avoid extended litigation over privilege issues while sharing information over disputed facts and exploring the potential for settlement.  But there is now a risk that courts may annul the provisions of any confidentiality agreement, at least in the Third Circuit.  All parties to any confidentiality agreement, including government attorneys, must realistically address the practicalities of adherence to confidentiality agreement terms before turning over or receiving any potentially privileged documents under such agreements.