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Court Allows Derivative Shareholder Suit Against Pfizer to Move Forward

A federal district court judge has denied Pfizer’s motion to dismiss a derivative shareholder suit against the company which alleges that directors and executives at Pfizer are liable for actions that led to a historic $2.3 billion settlement with the U.S. government in 2009.  Pfizer entered into this enormous settlement to resolve allegations under the federal False Claims Act and Anti-kickback Statute for alleged “off-label promotion” of various drugs, including Bextra and Celebrex. The $2.3 billion settlement included a $1.195 billion criminal fine (largest ever in U.S. history), $105 million in criminal forfeitures, and a $1billion civil settlement (largest ever against a pharmaceutical company).

Shareholders filed a suit in November of 2009 in a district court of New York alleging that certain directors and executives were responsible to the shareholders due to the $2.3 billion settlement’s impact on shareholder profits.  The judge denied Pfizer’s motion to dismiss the case and stated that directors and executives “breached a fiduciary duty to Pfizer by causing or conscientiously disregarding the illegal marketing activity.”  While courts have long recognized that directors may be liable for a lack of oversight in theory, it usually requires something as egregious as outright embezzlement to break the fiduciary duty.  This court’s willingness to allow a derivative shareholder suit to progress based on a lack of compliance with federal regulations demonstrates that this court believes Pfizer’s lack of regulatory oversight far exceeded that of other companies who had these types of lawsuits dismissed.