Legal News

On Vioxx, Storm Warnings and the Supreme Court

By Ashby Jones

In the midst of Tuesday’s madness, we were only able to barely mention the fact that the Supreme Court on Tuesday granted cert to a case that could prove to be one of the bigger securities cases for next term. Let’s explore it a bit more now.

With the ruling, the Justices will presumably provide more guidance to investors on how much time they have before going to court to make a securities-fraud claim.

The issue concerns “storm warnings” — determining the point at which the two-year statute-of-limitations for federal securities fraud claims starts to run. The federal appeals courts largely agree that the clock starts ticking once an investor becomes aware that fraud may have occurred. But those courts are widely split on how to apply that standard. Click for reports from Scotusblog, the Blog of Legal Times, the WSJ and the Philadelphia Inquirer. Click here for the Third Circuit opinion on appeal; here for Merck’s cert petition, filed by Cravath’s Evan Chesler; here for the investors’ opposition, filed by Max Berger at Bernstein Litowitz.

The case has little to do with the mass of product-liability suits filed after the 2004 recall of Vioxx, after a clinical trial showed that the painkiller increased the risk of heart attacks and strokes. In November 2007, Merck set aside $4.85 billion to settle thousands of those cases.

Rather, this case alleges securities-fraud claims on behalf of investors. A federal district court judge in New Jersey initially dismissed the suit on grounds that it was filed too late. The Third Circuit in 2008 reinstated the case, ruling that an investor has no duty to investigate suspicion of fraud, and the two-year filing period does not even begin to run until the investor comes upon evidence that the fraud was intentional.

In a statement, Merck said it was pleased the high court had agreed to hear its appeal and resolve a split among federal circuit courts around the country “on the important issue of what constitutes inquiry notice to would-be investors under the securities laws.”

Full post as published by Law Blog - WSJ.com on May 27, 2009 (boomark / email).