MERCK & CO. INC. SECURITIES LITIGATION IN RE: MDL1658
Filing
452
OPINION. Signed by Judge Stanley R. Chesler on 12/20/12. (jd, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
IN RE MERCK & CO., INC. SECURITIES,
DERIVATIVE & “ERISA” LITIGATION
___________________________________
THIS DOCUMENT RELATES TO: THE KBC
ASSET MANAGEMENT NV ACTION
CIVIL ACTION NO. 11-6259 (SRC)
:
:
:
:
:
:
:
:
:
:
:
MDL No. 1658 (SRC)
Civil Action No. 05-1151 (SRC)
Civil Action No. 05-2367 (SRC)
OPINION
CHESLER, District Judge
This matter comes before the Court upon the motion by Defendants Merck & Co, Inc.
(“Merck”), Alise S. Reicin and Dr. Edward M. Scolnick (collectively, “Defendants”) to dismiss
the Complaint filed by Plaintiffs KBC Asset Management NV, Pioneer Investment Management
Ltd., Pioneer Investment Management SGRpa and Pioneer Investments Austria GmbH
(collectively, “KBC”) pursuant to Federal Rule of Civil Procedure 12(b)(6). (The Court will
hereinafter refer to the Complaint challenged on this Rule 12(b)(6) motion as the “KBC
Complaint.”) KBC has opposed the motion. The Court has considered the papers filed by the
parties and proceeds to rule on the motion without oral argument, pursuant to Federal Rule of
Civil Procedure 78. For the reasons that follow, Defendants’ motion will be denied.
I.
BACKGROUND
The KBC Complaint, filed on October 26, 2011, initiated an individual securities fraud
action by foreign investor KBC seeking to recover for losses sustained allegedly as a result of
Merck’s misrepresentations and omissions of material fact with regard to the cardiovascular
safety profile of its once-blockbuster drug Vioxx (the “KBC Action”). The KBC action is one of
several Vioxx-related securities fraud actions pending before this Court as part of multidistrict
litigation 1658. The lead case in MDL 1658 is a consolidated securities fraud action brought on
behalf of a putative class of investors who purchased Merck stock between May 21, 1999 and
September 30, 2004 (the “Class Action”). A motion for certification of the class has been filed
in Class Action but has not yet been adjudicated. The first class action complaint on behalf of
investors asserting claims against Defendants under the Securities Exchange Act of 1934 (the
“Exchange Act”) had been filed on November 6, 2003.
Defendants and the named Plaintiffs in the eight individual Vioxx-related securities
actions, including the KBC Action, that are encompassed within MDL 1658 have acknowledged
the substantial similarity among the claims and allegations at issue in the Class Action and the
various actions. They have stipulated that all individual actions would be bound by rulings made
by the Court in its August 8, 2011 Opinion & Order adjudicating a motion to dismiss in the Class
Action, as well as rulings made in its August 1, 2012 Opinion & Order regarding another
individual action, generally referred to as the “ABP Action.” As such, the claims remaining in
the KBC Action are a Rule 10b-5(b) claim under § 10(b) of the Exchange Act against Defendants
Merck, Reicin and Scolnick, and a claim under § 20(a) of the Exchange Act against Reicin and
Scolnick.
2
Merck moves to dismiss KBC’s § 10(b) claim as barred by the applicable five-year statute
of repose, as set forth in 28 U.S.C. § 1658. In turn, Merck argues, the lack of an actionable §
10(b) violation deprives the § 20(a) control person claim of its necessary predicate, requiring
dismissal of that claim also.
II.
ANALYSIS
Given the numerous Rule 12(b)(6) and Rule 12(c) motions this Court has thus far handled
in the MDL 1658 cases, the parties are certainly familiar with the standard of review the Court
applies on motions to dismiss for failure to state a claim. Briefly, a complaint will survive a
motion under Rule 12(b)(6) only if it states “sufficient factual allegations, accepted as true, to
‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quoting Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). The complaint must contain
sufficient factual allegations to raise a right to relief above the speculative level, and mere legal
conclusions will not suffice. Twombly, 550 U.S. at 555; Phillips v. County of Allegheny, 515
F.3d 224, 234 (3d Cir. 2008); see also Iqbal, 556 U.S. at 679 (“While legal conclusions can
provide the framework of a complaint, they must be supported by factual allegations.”).
A.
Securities Fraud Class Actions and the Statute of Repose
The parties do not dispute some basic facts and points of law relevant to the instant
motion. First, they agree that § 10(b) claims are subject to a five-year statute of repose, pursuant
to 28 U.S.C. § 1658(b). That provision, which sets forth both a limitations period and a repose
period, provides that
3
a private right of action that involves a claim of fraud, deceit,
manipulation, or contrivance in contravention of a regulatory requirement
concerning the securities laws, as defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought
not later than the earlier of-(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
28 U.S.C. § 1658(b). Second, KBC and Defendants recognize that the statute of repose begins to
run upon the occurrence of specific event, which in the case of a § 10(b) claim based on a
violation of Rule 10b-5(b), consists of the occurrence of last alleged fraudulent statement and/or
omission. See In re Exxon Mobil Corp. Sec. Litig., 500 F.3d 189, 200 (3d Cir. 2007) Third,
there is no dispute that the KBC Complaint was not filed until October 26, 2011.
Defendants argue that because the last allegedly false and misleading statement,
according to the KBC Complaint, was made on September 8, 2004, the repose period applicable
to KBC’s § 10(b) claim expired five years later, on September 8, 2009. Thus, they maintain that
KBC’s claim is time-barred. KBC, in response, takes the position that the filing of the first class
action complaint, on November 6, 2003, tolled the statute of repose by operation of the tolling
doctrine articulated by the Supreme Court in American Pipe & Construction Co. v. Utah, 414
U.S. 538, 552-53 (1974). Under American Pipe, the filing of a Rule 23 class action tolls the
applicable statute of limitations for all members of the putative class until such time as a motion
for class certification is decided. Id. Merck argues that the American Pipe rule cannot save
KBC’s expired § 10(b) claim because it is a judicially created, equitable tolling rule, which
cannot apply to statutory periods of repose according to the Supreme Court’s post-American Pipe
decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991).
4
Lampf, however, did not address American Pipe, nor did it concern a factual scenario in
which the tolling was sought on the grounds that the plaintiffs had been absent members of a
putative Rule 23 class that had previously filed a timely claim. Thus, the applicability of the
American Pipe tolling doctrine on periods of repose for claims filed through the class action
vehicle has remained uncertain. This issue is one of first impression in the Third Circuit, and
thus this Court must look to the decisions of other jurisdictions for guidance. Complicating
matters, however, is the split in authority among courts which have addressed the issue. Two
approaches have emerged.
One approach, in favor of tolling periods of repose under American Pipe, is expressed by
the Tenth Circuit’s opinion in Joseph v. Q.T. Wiles, 223 F.3d 1155 (10th Cir. 2000). In that case,
plaintiff Joseph, a purchaser of debentures issued by a company known as MiniScribe
Corporation, had filed his own lawsuit asserting a securities fraud claim under § 11 of the
Securities Act, alleging that he sustained a loss on the debentures he purchased as a result of false
or misleading statements made in a registration statement filed with the Securities and Exchange
Commission. 223 F.3d at 1157-58. That suit, with Joseph as the named plaintiff, was filed on
August 10, 1990. Id. at 1157. The defendants argued that Joseph’s suit was barred by the
applicable statute of repose under the Securities Act, which required “a section 11 claim to be
filed within one year from the time the violations are or should have been discovered, but in no
event more than three years after the security was initially offered to the public.” Id. at 1166. As
in the case at bar, there was no dispute that the plaintiff’s claim was subject to a “statute of
limitations framed by a statute of repose.” Id. And, as in the case at bar, there was no dispute
that the repose period expired before the plaintiff filed his own securities fraud claim. Id.
5
Joseph, however, argued that earlier filings of class action complaints asserting § 11 claims had
tolled the repose period for his claim. Id. The Court of Appeals addressed the precise issue also
before this Court – that “[the plaintiff’s] action was timely filed only if the repose period was
tolled” – and concluded that the American Pipe doctrine applied to toll the statute of repose as of
the date a class action complaint asserting both § 11 and § 10(b) claims was filed on behalf of a
class including stock and debenture purchasers, that is, including Joseph as an absent class
member.1 Id. at 1167-68. The Tenth Circuit found that Lampf’s proscription of equitable tolling
for statutes of repose was not relevant because the tolling at issue was “the legal tolling that
occurs any time an action is commenced and class certification is pending,” which was
recognized by the Supreme Court in American Pipe in the context of a suspended limitations
period. Id. at 1166-67. It reasoned that tolling serves Rule 23's policy of judicial economy by
eliminating the need for potential class members to file individual claims as well as the purpose
of the opt-out provision of Rule 23(c)(2), noting that without tolling, the right to pursue
individual claims might be rendered meaningless. Id. at 1167. The Court of Appeals further
reasoned that tolling does not diminish or undermine the interests promoted by statutes of
limitation and repose. Id. It expanded on this point as follows:
Tolling the limitations period while class certification is pending
does not compromise the purposes of statutes of limitation and repose.
Statutes of limitation are intended to protect defendants from being
unfairly surprised by the appearance of stale claims, and to prevent
plaintiffs from sleeping on their rights. See Crown, Cork, 462 U.S. at 352.
1
Though Joseph’s lawsuit also pled a § 10(b) claim, which was added by an amended
complaint filed on July 5, 1994, the Tenth Circuit did not reach the issue of the timeliness of the
§ 10(b) claim, that is, the applicability of American Pipe tolling to the claim, because it found
that the district court had correctly dismissed the § 10(b) claim as deficient on other grounds.
Joseph, 223 F.3d at 1166 n.7.
6
“[T]hese ends are met when a class action is commenced.” Id. In this case,
because a class action complaint was filed, defendants were on notice of
the substantive claim as well as the number and generic identities of
potential plaintiffs. Defendants cannot assert Mr. Joseph's claim was stale
or that he slept on his rights.
Statutes of repose are intended to demarcate a period of time
within which a plaintiff must bring claims or else the defendant's liability
is extinguished. Here, the claim was brought within this period on behalf
of a class of which Mr. Joseph was a member. Indeed, in a sense,
application of the American Pipe tolling doctrine to cases such as this one
does not involve “tolling” at all. Rather, Mr. Joseph has effectively been a
party to an action against these defendants since a class action covering
him was requested but never denied.
Id. at 1167-68.
This Court notes that in a more recent decision issued by the Southern District of New
York, the Honorable Laura Taylor Swain applied this reasoning to conclude that the better view,
expressed by the majority of lower courts, holds that “American Pipe tolling ‘is a species of legal
tolling, in that it is derived from a statutory source, in this case Rule 23,’ and that consequently it
applies to statutes of repose.” In re Morgan Stanley Mortgage Pass-Through Certificates Litig.,
810 F. Supp. 2d 650, 667 (S.D.N.Y. 2011) (quoting Arivella v. Lucent Techs., Inc., 623 F. Supp.
2d. 164, 176 (D. Mass. 2009)). That case, like Joseph, also involved the tolling of the statute of
repose applicable to Securities Act § 11 claims. Id. at 666. Like the Tenth Circuit Court of
Appeals, Judge Swain took into account both the policies served by both American Pipe tolling
and Rule 23. Id. at 667. The court observed that the risk of duplicative actions in the securities
context is “acute.” Id. at 668. It provided the following illustration of that risk:
If American Pipe did not apply to Section 77m's statute of repose,
plaintiffs would have only three years in which to uncover the actionable
conduct, file suit, and secure class certification. Offending conduct often
comes to light years after the fact, class certification can be a lengthy
7
process, and there is always a risk that certification would be denied. Thus,
putative class members would have significant incentives to file protective
motions to secure their claims.
Id.
The competing approach to the scope of the American Pipe tolling doctrine is represented
by another decision issued by the Southern District of New York, in the case of Footbridge Ltd.
Trust v. Countrywide Fin. Corp., 770 F. Supp. 2d 618 (S.D.N.Y. 2011), which also dealt with the
three-year statute of repose for Securities Act § 11 claims. The Footbridge court relied heavily
on statutory text to conclude that American Pipe articulated a tolling rule based on equity, not
law. Id. at 624-26. The Footbridge court noted that the repose provision of the statute provided
that “in no event” may a § 11 action be brought more than three years after the public offering of
the security. Id. at 624. It further observed that neither the Securities Act nor Rule 23 contained
language creating a tolling rule. Id. at 626. It concluded that, lacking any statutory foundation,
American Pipe’s tolling doctrine must be considered “a judicially-created rule premised on
‘traditional equitable considerations of fairness, judicial economy and needless multiplicity of
lawsuits.’” Id. (quoting Albano v. Shea Homes Ltd. P’ship, 634 F.3d 524, 537 (9th Cir. 2011). As
such, the Footbridge court held that, under the well-established Lampf holding that statutes of
repose are not subject to equitable tolling, the plaintiffs’ securities claims were barred as
untimely. Id. at 624-27. Notably, the Footbridge court recognized that “many of the policy
considerations present in American Pipe would support tolling of a statute of repose,” but
nevertheless held that the repose period must be enforced according to the statutory language. Id.
at 627.
8
This Court has reviewed the many cases cited by the parties on the issue of whether the
statute of repose applicable to KBC’s § 10(b) claims may be tolled under the American Pipe rule.
Upon consideration of the competing views, the Court follows the Joseph opinion by the Tenth
Circuit. It is the only federal Court of Appeals to have analyzed and reached a decision on the
issue. This Court agrees with its holding and rationale. Accordingly, for the reasons expressed
by the Joseph decision, the Court holds that the filing of the first class action complaint, in
November 2003, tolled the statutory repose period applicable to KBC’s claims. There is no
dispute that, like the instant KBC action, the class action filed in November 2003 asserted claims
under § 10(b) of the Exchange Act alleging that Merck and the individual Defendants had made
misleading statements and omissions of material fact concerning the cardiovascular safety profile
of Vioxx. Nor is there any dispute that the class action filed in November 2003 was brought on
behalf of a class of investors in Merck securities, which included potential class member KBC.
No decision on certification of the class pursuant to Rule 23 has yet been made. Pursuant to the
American Pipe doctrine, the repose period applicable to KBC’s § 10(b) claim was tolled by the
timely filing of the initial securities fraud class action.
Merck’s motion to dismiss KBC’s § 10(b) claim as barred by the statute of repose will
therefore be denied.
B.
The Control Person Claim Under Exchange Act § 20(a)
Defendants move to dismiss KBC’s § 20(a) control person claim on the grounds that,
without a viable § 10(b) claim, the control person claims lacks the necessary predicate of an
independent violation of the Exchange Act. Exxon Mobil, 500 F.3d at 202 (affirming dismissal
of control person claim where plaintiffs’ predicate securities claims were dismissed as time9
barred). In light of the Court’s finding that KBC’s § 10(b) claim may proceed, Defendants’
argument is unavailing. The § 20(a) claim will not be dismissed.
III.
CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss the KBC Complaint will be
denied. An appropriate form of Order will be filed.
s/Stanley R. Chesler
STANLEY R. CHESLER
United States District Judge
Dated: December 20, 2012
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?